<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number: 0-10736
MGI PHARMA, INC.
----------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1364647
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
Suite 300E, Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343 (612) 935-7335
- --------------------------------------- -------------------------------
(Address of principal executive offices (Registrant's telephone number,
and zip code) including area code)
Indicate by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 14,800,815 shares
- -------------------------------------- -------------------------------------
(Class) (Outstanding at August 10, 1999)
<PAGE>
MGI PHARMA, INC.
FORM 10-Q INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1999
and December 31, 1998 3
Statements of Operations - Three Months and
Six Months Ended June 30, 1999 and 1998 5
Statements of Cash Flows - Six Months
Ended June 30, 1999 and 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
MGI PHARMA, INC.
BALANCE SHEETS
(unaudited)
June 30, December 31,
1999 1998
------------ ------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 5,803,273 $ 6,513,204
Short-term investments 12,146,328 10,568,061
Receivables, less allowances of
$120,963 and $97,960 2,582,355 1,410,539
Inventories 1,044,632 1,285,368
Prepaid expenses 353,602 329,953
------------ ------------
Total current assets 21,930,190 20,107,125
Equipment and furniture, at cost
less accumulated depreciation of
$1,180,674 and $1,062,405 499,926 540,084
Other assets 407,479 474,859
------------ ------------
Total assets $ 22,837,595 $ 21,122,068
============ ============
(Continued)
3
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BALANCE SHEETS
(Unaudited)
Page 2
June 30, December 31,
1999 1998
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 630,383 $ 794,266
Accrued expenses 2,620,818 2,712,884
Deferred revenue -- 495,000
Other current liabilities 6,459 9,250
------------ ------------
Total current liabilities 3,257,660 4,011,400
------------ ------------
Stockholders' equity:
Common stock, $.01 par value,
30,000,000 authorized shares,
14,725,448 and 14,542,472
Issued shares 147,254 145,425
Additional paid-in capital 91,966,874 90,850,590
Notes receivable from officers -- (56,999)
Accumulated deficit (72,534,193) (73,828,348)
------------ ------------
Total stockholders' equity 19,579,935 17,110,668
------------ ------------
Total liabilities and
stockholders' equity $ 22,837,595 $ 21,122,068
============ ============
- -------------------------------------
See accompanying notes to financial statements.
4
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MGI PHARMA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 4,754,179 $ 3,260,293 $ 9,257,122 $ 5,889,245
Promotion 250,000 125,000 375,000 500,000
Licensing 1,037,067 693,610 1,908,783 1,314,770
Interest and other 210,766 200,498 405,289 387,143
------------ ------------ ------------ ------------
6,252,012 4,279,401 11,946,194 8,091,158
------------ ------------ ------------ ------------
Costs and Expenses:
Cost of sales 254,681 293,364 562,559 500,505
Selling, general and administrative 3,569,703 2,649,550 6,743,199 5,063,805
Research and development 1,746,720 1,357,362 3,207,625 2,594,770
------------ ------------ ------------ ------------
5,571,104 4,300,276 10,513,383 8,159,080
------------ ------------ ------------ ------------
Income (loss) before taxes 680,908 (20,875) 1,432,811 (67,922)
------------ ------------ ------------ ------------
Provision for income taxes 69,718 50,000 138,656 100,000
------------ ------------ ------------ ------------
Net income (loss) $ 611,190 $ (70,875) 1,294,155 (167,922)
============ ============ ============ ============
Net income (loss) per common share:
Basic $ 0.04 $ (0.00) $ 0.09 $ (0.01)
Assuming dilution $ 0.04 $ (0.00) $ 0.08 $ (0.01)
Weighted average number of
common shares outstanding:
Basic 14,647,411 14,325,735 14,611,370 14,268,708
Assuming dilution 15,549,121 14,325,735 15,512,507 14,268,708
</TABLE>
- ------------------------------------------------------------------------------
See accompanying notes to financial statements.
5
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MGI PHARMA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
--------------------------
1999 1998
----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ 1,294,155 ($ 167,922)
Adjustments for non-cash items:
Depreciation 118,269 124,372
Benefit plan contribution 83,871 65,937
Stock option acceleration 162,953 --
Other 52,924 --
Change in operating assets and liabilities:
Receivables (1,171,816) (622,792)
Inventories 240,736 210,279
Prepaid expenses (23,649) 36,326
Accounts payable and accrued expenses (258,271) (568,262)
Deferred revenue (495,000) (450,000)
Other current liabilities (2,791) 2,747
----------- -----------
Net cash provided by(used in) operating
activities 1,381 (1,369,315)
----------- -----------
INVESTING ACTIVITIES:
Purchase of investments (9,818,845) (9,300,497)
Maturity of investments 8,240,578 6,794,234
Purchase of equipment and furniture (78,111) (151,841)
Payments on notes receivable 56,999 45,576
Other 14,456 (40,481)
----------- -----------
Net cash used in investing activities (1,584,923) (2,653,009)
----------- -----------
FINANCING ACTIVITIES:
Issuance of shares under stock
plans 873,611 973,032
----------- -----------
Net cash provided by financing
activities 873,611 973,032
----------- -----------
Decrease in cash and cash equivalents (709,931) (3,049,292)
Cash and cash equivalents at
beginning of period 6,513,204 7,057,091
----------- -----------
Cash and cash equivalents at
end of period $ 5,803,273 $ 4,007,799
=========== ===========
- ----------------------------------
See accompanying notes to financial statements.
6
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MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
MGI PHARMA, INC. (MGI or the company) is a pharmaceutical company that acquires,
develops and markets differentiated specialty pharmaceutical products. MGI's
current product portfolio is comprised of products that address special needs in
the fields of oncology and rheumatology, however, the company plans to expand
its scope as its business grows. The company promotes products directly to
physicians throughout the United States using its own specialty sales force. As
is common in the pharmaceutical industry, domestic sales are made to
pharmaceutical wholesalers for further distribution through pharmacies to the
ultimate consumers of the company's products. U.S. sales of Salagen(R) Tablets
(pilocarpine hydrochloride) account for the majority of company sales. The
company intends to commercialize all of its products outside the United States
through various alliances, as it has for Salagen Tablets. The company has
agreements with several international pharmaceutical companies to commercialize
Salagen Tablets outside the U.S., including the major markets of Europe, Japan
and Canada. Current product development efforts include clinical and preclinical
studies for MGI 114, the lead compound in a family of promising anti-cancer
analogs, and continued clinical support of Salagen Tablets. Exclusive rights in
Japan to MGI 114 and the other acylfulvene analogs were granted to Dainippon
Pharmaceutical Co., Ltd. under a cooperative development and commercialization
agreement in 1995.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal, recurring adjustments)
considered necessary for fair presentation have been included. Interim results
may not be indicative of annual results. Certain prior year amounts have been
reclassified to conform with current year presentation. For further information,
refer to the financial statements and footnotes included in the company's report
on Form 10-K for the year ended December 31, 1998.
7
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(2) Income (Loss) Per Common Share
Income (loss) per share for the three month and six month periods ended June 30,
1999 and 1998 are summarized in the following table:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 1998
--------------------------------------- ---------------------------------------
Net Per Net Per
Income Share Income Share
(Loss) Shares Amount (Loss) Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic $611,190 14,647,411 $0.04 ($70,875) 14,325,735 ($0.00)
Effect of
dilutive stock options -- 901,710 $0.00 -- -- --
--------------------------------------- ---------------------------------------
Assuming dilution $611,190 15,549,121 $0.04 ($70,875) 14,325,735 ($0.00)
Six Months Ended June 30, 1999 1998
--------------------------------------- ---------------------------------------
Net Per Net Per
Income Share Income Share
(Loss) Shares Amount (Loss) Shares Amount
------ ------ ------ ------ ------ ------
Basic $1,294,155 14,611,370 $0.09 ($167,922) 14,268,708 ($0.01)
Effect of
dilutive stock options -- 901,137 ($0.01) -- -- --
--------------------------------------- ---------------------------------------
Assuming dilution $1,294,155 15,512,507 $0.08 ($167,922) 14,268,708 ($0.01)
</TABLE>
For loss periods, basic and diluted share amounts are identical, as the effect
of potential common shares is antidilutive.
(3) Short-Term Investments
Because the company has the intent and ability to hold its investments to
maturity, they are considered held-to-maturity investments. As such, they are
stated at amortized cost, which approximates estimated fair value.
Held-to-maturity investments at June 30, 1999 and December 31, 1998 are
summarized in the following table:
1999 1998
--------------- ---------------
Corporate notes $6,608,340 $4,133,423
Commercial paper 3,495,539 6,434,638
Certificates of deposit 2,042,449 --
--------------- ---------------
$12,146,328 $10,568,061
=============== ===============
8
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(4) Inventories
Inventories at June 30, 1999 and December 31, 1998 are summarized as
follows:
1999 1998
--------------- ---------------
Raw materials and supplies $92,984 $83,016
Work in process 76,029 531,952
Finished products 875,619 670,400
--------------- ---------------
$1,044,632 $1,285,368
=============== ===============
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis.
(5) Accrued Expenses
Accrued expenses at June 30, 1999, and December 31, 1998, are summarized in the
following table:
1999 1998
------------- -------------
Product development commitments $809,969 $446,429
Product return accrual 512,293 467,547
Bonuses 343,034 536,683
Retirement and separation agreement 270,000 --
Retirement plan contribution 104,046 204,619
Third party manufacturing -- 422,334
Other accrued expenses 581,476 635,272
------------- -------------
$2,620,818 $2,712,884
============= =============
(6) Promotion Revenue
In March 1999, the company and Schein Pharmaceutical, Inc. concluded their
agreement for the promotion of INFeD(R) (iron dextran injection). The company
recognized a final quarterly promotion fee of $125,000 in the first quarter of
1999.
In April 1999, the company entered into promotion agreements with Connetics
Corporation for the promotion of Ridaura(R) (auranofin) and Luxiq(TM)
(betamethasone valerate) Foam, 0.12%. Under the terms of the agreements, the
company will promote Ridaura and Luxiq to the rheumatology market in the United
States. For Ridaura, the company will receive $250,000 per quarter for making a
specified number of sales calls, plus a split of gross margin produced from
annual sales greater than $7.5 million. For Luxiq, the company will receive a
split of product contribution from sales of Luxiq in the rheumatology market.
Minimum terms for the Ridaura and Luxiq agreements are 18 months and 30 months
respectively.
9
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(7) Stock Incentive Plans
Under stock incentive plans, designated persons (including officers, directors
and employees) are granted rights to acquire company common stock. These rights
include stock options and other equity rights. At June 30, 1999, 3,315,131
shares of common stock remain reserved for issuance, of which 907,023 remain
available for grant. Options to purchase 2,408,108 shares of common stock were
outstanding, of which 1,344,310 were exercisable.
Options outstanding had a weighted average exercise price of $7.41 per share.
(8) Stockholders' Equity
Changes in selected stockholders' equity accounts for the six months ended June
30, 1999, were as follows:
<TABLE>
<CAPTION>
Common Stock Additional Note receivable
------------------------- paid-in from
Shares Par value capital officer
------------ ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 14,542,472 $145,425 $90,850,590 ($56,999)
Exercise of stock options 165,222 1,652 785,058 --
Employee retirement savings
plan contribution 7,602 76 81,473 --
Employee stock purchase plan 10,152 101 86,800 --
Note payment -- -- -- 56,999
Stock option acceleration -- -- 162,953 --
------------ ----------- -------------- ---------------
Balance at June 30, 1999 14,725,448 $147,254 $91,966,874 $0
============ =========== ============== ===============
</TABLE>
(9) Commitments
On April 19, 1999, the company entered into a lease agreement for new office
space, located near its current offices. The company expects to move to the new
location in the third quarter of 1999. The lease has a six-year term, with an
option to extend the lease for an additional four years. Under the terms of the
lease, the company is required to pay rent, real estate taxes, and operating
costs. Future minimum lease payments for this lease agreement are as follows:
Remainder of 1999 $178,000
2000 363,000
2001 441,000
2002 448,000
2003 455,000
Thereafter 720,000
-------------
$2,605,000
=============
10
<PAGE>
(10) Subsequent Event
In July 1999, the company entered into an agreement with Pharmacia & Upjohn for
the co-promotion of Azulfidine EN-tabs(R) (sulfasalazine delayed release
tablets, USP). Under the terms of the agreement, MGI will promote Azulfidine
EN-tabs to the rheumatology market in the United States, following the
anticipated September 1999 co-promotion marketing launch. MGI will earn
promotion revenue based on its ability to increase sales of Azulfidine EN-
tabs(R). The Azulfidine EN-tabs co-promotion agreement has an initial term of
three and one-half years from the co-promotion marketing launch.
11
<PAGE>
Item 2.
- -------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
MGI PHARMA, INC. (MGI or the company) is a pharmaceutical company that acquires,
develops and markets differentiated, specialty pharmaceutical products. MGI's
current product portfolio is comprised of products that address special needs in
the fields of cancer and rheumatology, however, the company plans to expand its
scope as its business grows.
The company promotes products directly to physicians in the United States using
its own specialty sales force. These products include company-owned Salagen(R)
Tablets (pilocarpine hydrochloride) and Didronel(R) I.V. Infusion (etidronate
disodium), and two copromoted products, Ridaura(R) (auranofin) and Luxiq(TM)
(betamethasone valerate) Foam, 0.12%. The company is scheduled to begin
promoting a third co-promotion product, Azulfidine EN-tabs(R) (sulfasalazine
delayed release tablets, USP), in September 1999. Salagen Tablets are approved
in the United States for two indications: symptoms of radiation-induced dry
mouth in head and neck cancer patients, and the symptoms of dry mouth associated
with Sjogren's syndrome, an autoimmune disease that damages the salivary glands.
Sales of Salagen Tablets in the United States account for more than 90 percent
of company product sales. Didronel I.V. Infusion is used to treat hypercalcemia
(elevated blood calcium) in cancer patients. Copromoted products continue to be
owned and distributed by the copromotion partners, so MGI recognizes promotion
fee revenue, rather than product sales revenue for these products. Outside the
United States, MGI commercializes its products through various alliances, and
has agreements with several international pharmaceutical companies to
commercialize Salagen Tablets in Europe, Japan and Canada.
The company's current product development efforts include clinical and
preclinical studies for MGI 114, the lead compound in a family of novel
anti-cancer analogs known as acylfulvenes. Exclusive rights in Japan to MGI 114
and the other acylfulvene analogs were granted to Dainippon under a development
and commercialization agreement in 1995. The company also provides ongoing
clinical support of Salagen Tablets.
Results of Operations
Revenues
- --------
Sales
Sales revenues increased 46 percent from $3,260,293 in the 1998 second quarter
to $4,754,179 in the 1999 second quarter, and increased 57 percent from
$5,889,245 in the 1998 first half to $9,257,122 in the 1999 first half. The
increases reflect increasing sales of Salagen Tablets from broader demand for
the product, following FDA approval of Salagen
12
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Tablets as a treatment of Sjogren's syndrome symptoms in February 1998. The
company began promotion for this second approved use of Salagen Tablets in April
1998.
Sales of Salagen Tablets in the United States provided 97 percent of
company-wide product sales in both the 1999 second quarter, and in the 1999
first half. As is common in the pharmaceutical industry, the company's domestic
sales are made to pharmaceutical wholesalers for further distribution through
pharmacies to the ultimate consumers of the company's products. U.S. sales of
Salagen Tablets increased 6 percent from the first quarter of 1999 to the second
quarter of 1999, following an 18 percent increase for the previous
quarter-to-quarter comparison. The company believes that the current growth rate
for Salagen Tablets, as measured by third party market survey data, is between
this 6 percent to 18 percent range of quarterly sales growth. In the future,
periodic adjustments in wholesaler buying patterns may continue to cause the
company's sales revenues to fluctuate from quarter to quarter relative to
underlying product demand.
Additionally, sales of Salagen Tablets may be negatively affected by the
approval of alternative treatments for conditions currently treated by Salagen
Tablets. A potential competitor, Ethyol(R) (amifostine), was approved in June
1999 by the FDA for treatment of radiation-induced dry mouth in post-operative
head and neck cancer patients. Salagen Tablets are approved for the treatment of
dry mouth symptoms resulting from radiation used to treat, head and neck cancer
patients and for dry mouth symptoms associated with Sjogren's syndrome. Due to
the more restricted patient population for Ethyol, as well as other factors such
as price and invasive administration, the company currently believes that Ethyol
is not expected to have a major impact on sales of Salagen Tablets. Other
potential competitive compounds are in various stages of development, including
a compound to treat the symptoms of Sjogren's syndrome, which was submitted to
the FDA for approval in the second half of 1998. At this time, the company is
unable to estimate what effect, if any, these development compounds will have on
the future demand for Salagen Tablets.
Promotion
Promotion revenue increased 100 percent from $125,000 in the 1998 second quarter
to $250,000 in the 1999 second quarter, but decreased 25 percent from $500,000
in the 1998 first half to $375,000 in the 1999 first half. These changes reflect
differing product relationships between 1998 and 1999. In 1998, the company was
promoting INFeD under an agreement with Schein Pharmaceutical. In 1999, the
company concluded its promotional activities with Schein, and entered into
promotion agreements with Connetics Corporation for the promotion of Ridaura(R)
and Luxiq(TM).
Under the Schein agreement, the company earned a minimum promotion fee of
$125,000 per quarter, plus an additional fee of $250,000 in the first quarter of
1998 from an amendment to the contract. The company concluded its promotional
activity with Schein at the end of the first quarter of 1999. Under the
Connectics agreement, the company is recognizing a minimum of $250,000 per
quarter. After September 1999,
13
<PAGE>
the company will begin recognizing promotion revenue from the co-promotion of
Azulfidine EN-tabs.
Licensing
Licensing revenue increased 50 percent from $693,610 in the 1998 second quarter
to $1,037,067 in the 1999 second quarter, and increased 45 percent from
$1,314,770 in the 1998 first half to $1,908,783 in the 1999 first half. The
increases are due to increased revenue from international Salagen Tablets
relationships, an increase in royalties on technology from the company's former
agricultural business, and a scheduled increase in quarterly licensing payments
from Dainippon for continuing acylfulvene rights in Japan. However, the
increases from international partners for Salagen Tablets were not reflective of
underlying product demand and may not be recurring. The company is committed to
improving the promotion of Salagen Tablets in Europe. Until this is achieved,
only modest year-to-year increases in Salagen Tablets related licensing income
are expected. In addition, future licensing revenues will likely fluctuate
between years and from one quarter to another depending on the achievement of
milestones by the company or its partners, the level of recurring royalty
generating activities, and the timing of initiating additional licensing
relationships.
Interest and other
Interest and other income increased 5 percent from $200,498 in the 1998 second
quarter to $210,766 in the 1999 second quarter, and increased 5 percent from
$387,143 in the 1998 first half to $405,289 in the 1999 first half. An increase
in the average amount of funds available for investment caused the increases in
interest income in 1999. This increase was reduced by a decrease in the
investment yield in 1999.
Costs and Expenses
- ------------------
Cost of Sales
Cost of sales decreased 13 percent from $293,364 in the 1998 second quarter to
$254,681 in the 1999 second quarter, but increased 12 percent from $500,505 in
the 1998 first half to $562,559 in the 1999 first half. Both changes reflect
increased unit sales. However, in the quarter-to-quarter comparison, a shift in
the product mix toward higher cost international sales in the 1998 quarter
resulted in higher cost of sales in that period compared to 1999, despite
increased unit volume in 1999. Management believes that cost of sales as a
percent of product sales should continue near its recent annual range of 5 to 9
percent for its current products. Quarterly changes in product mix may cause
this measure to fluctuate.
Selling, general and administrative
Selling, general and administrative expenses increased 35 percent from
$2,649,550 in the 1998 second quarter to $3,569,703 in the 1999 second quarter,
and increased 33 percent from $5,063,805 in the 1998 first half
14
<PAGE>
to $6,743,199 in the 1999 first half. The increases result from increased
selling and promotion costs to support Salagen Tablets as a treatment for
symptoms of dry mouth from Sjogren's syndrome, and $525,000 in expenses
associated with non-recurring retirement and separation agreements. Selling,
general and administrative expenses in 1999 are expected to be greater than 1998
primarily due to planned expansion of promotional efforts of Salagen Tablets for
the treatment of Sjogren's syndrome symptoms.
Research and development
Research and development expense increased 29 percent from $1,357,362 in the
1998 second quarter to $1,746,720 in the 1999 second quarter, and increased 24
percent from $2,594,770 in the 1998 first half to $3,207,625 in the 1999 first
half. The increases reflect increasing costs for the development of MGI 114.
During 1998, development of MGI 114 transitioned from Phase I to Phase II
clinical studies. Enrollment in three MGI sponsored Phase II studies began in
1998, and has increased throughout 1999. These studies will evaluate the
efficacy of MGI 114 for the treatment of patients with prostate, pancreatic or
ovarian tumors. In addition, MGI continued to provide clinical supplies of MGI
114 to the National Cancer Institute for NCI's clinical studies of MGI 114.
Research and development spending is expected to increase for the remainder of
1999 as the development effort for MGI 114 continues to expand.
Net income (loss)
Net income of $611,190 in the second quarter of 1999 compares to a net loss of
$70,875 in the second quarter of 1998. Net income of $1,294,155 in the first
half of 1999 compares to a net loss of $167,922 in the first half of 1998. The
net income for 1999 was due to increases in total revenues of 46 percent and 48
percent for the quarter and first half, respectively, compared to 1998. Costs
and expenses increased 30 percent and 29 percent for the quarter and first half,
respectively, compared to 1998.
Liquidity and Capital Resources
At June 30, 1999, the company had cash and investments of $17,949,601 and
working capital of $18,672,530 compared with $17,081,265 and $16,095,725,
respectively, at December 31, 1998. For the quarter ended June 30, 1999, the
company received $873,611 in cash from issuance of shares under stock award
plans, and received $1,381 of cash from its operating activities.
Cash in excess of current operating needs is invested in money market
instruments in accordance with the company's investment policy. This policy
emphasizes principal preservation, so it requires strong issuer credit ratings
and limits the amount of credit exposure from any one issuer or industry.
Substantial amounts of capital are required for pharmaceutical development and
commercialization efforts. For continued development
15
<PAGE>
and commercialization of MGI 114, Salagen Tablets and products acquired through
the company's product acquisition strategy, the company plans to utilize cash
provided from growth in product sales, collaborative arrangements and existing
liquid assets. The company may also seek other sources of funding, including
additional equity or debt issuances, or may manage the pace of developing its
product candidates. The company anticipates that current cash and investments
are sufficient to fund existing operations for at least two years.
Year 2000
Worldwide, many currently installed computer systems and software are coded to
accept only two-digit entries in the date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. Unless it is resolved, this problem could result in system
failures or miscalculations causing disruptions of business operations
(including, among other things, a temporary inability to process transactions,
send invoices or engage in other similar business activities). As a result, many
companies' computer systems and software need to be upgraded or replaced in
order to comply with Year 2000 requirements. The extent of potential global
impact of the Year 2000 problem is uncertain. However, if not corrected in a
timely manner, it could affect national economies generally, and MGI
specifically.
The company has formed a project team (consisting of representatives from its
various departments) to address internal and external Year 2000 issues. The
company's internal computer systems are being reviewed to assess and remediate
Year 2000 problems. The company's assessment of internal systems includes its
information technology (IT), as well as non-IT systems (those systems containing
embedded technology in the form of microprocessors or other similar circuitry).
The company's Year 2000 compliance program includes the following phases:
identifying systems that need to be modified or replaced; carrying out
remediation work to modify existing systems or convert to new systems; and
conducting validation testing of systems and applications to ensure compliance.
The company is currently in the second and third phases of this program. Those
systems that have been replaced or modified are being tested. Other systems are
scheduled for replacement or upgrade.
The amount of further remediation work required to address Year 2000 problems is
not expected to be extensive. The company has replaced most of its financial and
operational systems in the last several years, and management believes that the
new equipment and software substantially address Year 2000 issues. However, the
company must further modify some of its existing hardware and software in order
for its computer systems to function properly in the Year 2000 and thereafter.
The company estimates that it will complete its Year 2000 compliance program for
all its significant internal systems no later than October 1, 1999.
In addition, the company is requesting assurances from its major suppliers that
they are addressing the Year 2000 issue and that products purchased by the
company from such suppliers will function properly in the Year 2000. Also,
contacts are being made with the company's major
16
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customers. These actions are intended to help mitigate the possible external
impact of the Year 2000 problem. However, it is impossible to fully assess the
potential consequences in the event service interruptions from suppliers occur
or in the event that there are infrastructure disruptions in areas such as
utilities, communications, transportation, banking and government.
The total estimated cost for resolving the company's Year 2000 issues is
approximately $740,000, of which approximately $609,000 has been spent through
June 30, 1999. This total cost estimate includes the cost of replacing
non-compliant systems in cases where the company has accelerated plans to
replace such systems. Estimates of Year 2000 costs are based on numerous
assumptions, and there can be no assurance that the estimates are correct or
that actual costs will not be materially greater than anticipated.
Based on its assessments to date, the company believes it will not experience
material disruption as a result of Year 2000 problems in internal processes,
information processing or interface with major customers, or with processing
orders and billing. However, if certain critical third-party providers, such as
those providing product distribution, banking, contract manufacturing,
electricity, water or telephone service, experience difficulties resulting in
disruption of service to the company, a shutdown of the company's operations at
its Minnesota headquarters could occur for the duration of the disruption. The
company has not yet developed a contingency plan to provide for continuity of
operation in the event of various problem scenarios, but it will assess the need
to develop such a plan based on the outcome of its validation phase of its Year
2000 compliance program and the results of surveying its major suppliers and
customers. Assuming no major disruption in service from utility companies or
other critical third-party providers, the company believes that it will be able
to manage its total Year 2000 transition without any further material effect on
the company's results of operations or financial condition.
Cautionary Statement
This Form 10-Q contains forward-looking statements within the meaning of federal
securities laws. These statements include statements regarding intent, belief,
or current expectations of the Company and its management. These forward-looking
statements are not guarantees of future performance and involve a number of
risks and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in these statements. Factors that might
cause such differences include, but are not limited to, dependence on sales of
Salagen Tablets, the ability to develop MGI 114 into an approved and
successfully marketed chemotherapy agent, dependence on a license acquisition
strategy, uncertainty of strategic alliances, and other risks and uncertainties
detailed from time to time in the Company's filings with the Securities and
Exchange Commission, including Exhibit 99 to this Form 10-Q.
17
<PAGE>
Item 3.
- -------
Quantitative and Qualitative Disclosures About Market Risk
The company does not have operations subject to risks of material foreign
currency fluctuations, nor does it use derivative financial instruments in its
operations or investment portfolio. The company places its investments in
instruments that meet high credit quality standards, as specified in the
company's investment policy guidelines. The company does not expect any material
loss with respect to its investment portfolio or exposure to market risks
associated with interest rates.
18
<PAGE>
MGI PHARMA, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The company held its Annual Meeting of Shareholders on May 11, 1999, and
sufficient favorable votes were cast to approve all management proposals as
follows:
Election of management's entire slate of eight directors by the
following vote tallies:
For Withhold
--- --------
Charles N. Blitzer 12,967,841 126,550
Andrew J. Ferrara 12,967,452 126,939
Joseph S. Frelinghuysen 12,951,314 143,077
Michael E. Hanson 12,997,525 96,866
Hugh E. Miller 12,983,950 110,441
Timothy G. Rothwell 12,650,066 444,325
Lee J. Schroeder 12,984,598 109,793
Arthur Weaver 12,993,588 100,588
Approval of the MGI PHARMA, INC. 1999 Nonemployee Director Stock Option
Plan by a vote of 11,726,866 for, 1,261,087 against, 106,436
abstaining, and 0 broker nonvotes.
Ratification of the independent auditors by a vote of 13,010,111 for,
58,401 against, 25,878 abstaining, and 0 broker nonvotes.
19
<PAGE>
Item 5. Other Information
- --------------------------
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the company is hereby filing cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in forward looking statements of the
company made by, or on behalf of the company. See Exhibit 99 to this report.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) LISTING OF EXHIBITS:
10.1 Separation Agreement, dated 4/2/99
10.2 Facility Lease, dated 4/19/99, between the company and West
Bloomington Center LLC
10.3 Retirement, Separation and Release Agreement, dated 6/26/99
10.4* Azulfidine EN-Tabs Co-exclusive Marketing Agreement, dated
6/29/99, between the company and Pharmacia & Upjohn Company
27 Financial Data Schedule
99 Cautionary Statements
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three months ended
June 30, 1999.
* Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, confidential portions of Exhibit 10.4 have been deleted and
filed separately with the Securities and Exchange Commission pursuant
to a request for confidential treatment
20
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MGI PHARMA, INC.
Date: August 13, 1999 By: /s/ William C. Brown
---------------------------------
William C. Brown, Vice President,
Finance (principal financial and
accounting officer)
21
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MGI PHARMA, INC.
Quarterly Report on Form 10-Q
for the
Quarter Ended June 30, 1999
EXHIBIT INDEX
-------------
Exhibit
Number Description
------ -----------
10.1 Separation Agreement, dated 4/2/99
10.2 Facility Lease, dated 4/19/99, between the company and West
Bloomington Center LLC
10.3 Retirement, Separation and Release Agreement, dated 6/26/99
10.4* Azulfidine EN-tabs Co-exclusive Marketing
Agreement, dated 6/29/99, between the
company and Pharmacia & Upjohn Company
27 Financial Data Schedule
99 Cautionary Statements
* Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, confidential portions of Exhibit 10.4 have been deleted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
Exhibit 10.1
SEPARATION AGREEMENT
Lori-jean Gille ("Employee") and MGI Pharma, Inc. ("Employer"), desiring to
facilitate a mutually agreeable separation and smooth transition of duties,
hereby agree as follows:
1. Employee hereby resigns from all employment with Employer effective
September 30, 1999. Employee further resigns her role as Senior Vice President
and General Counsel effective March 31, 1999.
2. Between March 31, 1999 and September 30, 1999 Employee shall be employed
as an attorney. In this capacity, she shall be responsible to answer questions
and provide advice, in a reasonably prompt fashion and shall provide transition
assistance as the need arises. She shall not have the responsibility of keeping
regular office hours.
3. Employee shall continue to receive her full present salary and benefits
through April 30, 1999. Between May 1, 1999 and September 30, 1999 she shall
receive her salary for this period in the total sum of Seventy Five Hundred
dollars ($7,500.00) per month and regular fringe benefits associated with a
non-executive employee.
4. Employee shall execute a release, in a form mutually agreeable to the
parties, simultaneously with her endorsement of this Agreement and again on or
promptly after October 1, 1999.
5. Promptly following the expiration of 15 days after Employee signs and
delivers to Employer the first of the releases mentioned in paragraph 4 above,
if Employee has not exercised her right to rescind that release, Employer shall
pay to Employee the gross lump sum of Thirty Five Thousand Three Hundred Twelve
Dollars and Fifty Cents ($35,312.50) by means of a payroll check subject to all
necessary federal and state payroll tax withholding as required by law. At the
same time, and on the same condition of nonrescission, Employer shall pay to
Employee's attorneys the sum of Twenty Four Thousand Six Hundred Eighty Seven
Dollars and Fifty Cents ($24,687.50). If Employee does timely exercise her right
of rescission, this Agreement shall be null and void.
6. Promptly following the expiration of 15 days after Employee signs and
delivers to Employer the second of the releases mentioned in paragraph 4 above,
if Employee has not exercised her right to rescind that release, Employer shall
pay to Employee the gross lump sum of Fifty Thousand Dollars ($50,000.00) by
means of a payroll check subject to all necessary federal and state payroll tax
withholding as required by law. If Employee does timely exercise her right to
rescind this second release, she shall extinguish her right to receive this
$50,000 payment or any further consideration from Employer, but
<PAGE>
her first release and all other terms of this Agreement shall remain in full
force and effect.
7. Upon Employee's execution of the first release mentioned in paragraph 4
and the expiration of 15 days thereafter without her having exercised her right
to rescind that release, Employer shall cause all stock options granted to
Employee by Employer through January 31, 1998 to be vested immediately. These
options shall in all other respects including but not limited to Employee's
rights to exercise them be governed by the plans and granting documents to which
they are subject.
8. Upon consideration of Employee's execution of the two releases mentioned
in paragraph 4 above, Employer also releases Employee of all claims or causes of
action which it has or may have against Employee, arising in law or equity.
9. Employee agrees, as an essential and material element of this Separation
Agreement, that she will maintain all of the terms of this Agreement in
strictest confidence and that she will not disclose the facts or terms of this
Settlement Agreement or those claims to any person, except her family, lawyers,
her tax advisers or as ordered by a Court or otherwise required by law. Employer
also will respect the confidentiality of this Agreement but may disclose the
terms of this Agreement as required by law or by an order, rule or request by
any regulatory agency.
10. Employer and Employee each agree not to make negative or disparaging
comments about the other. Employer shall provide Employee with the attached
letter of reference.
11. This Separation Agreement and the releases constitute the entire
agreement of the parties. No other agreement not expressed within this
Separation Agreement shall have any force or effect, and no modification,
amendment or change of any kind to this Agreement shall be effective unless it
is in writing and signed by each of the parties to this Agreement.
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<PAGE>
12. Employee represents and agrees that she has carefully read and fully
understands all of the provisions of this Separation Agreement and the
contemplated releases, that she has had a full opportunity to have all of the
terms of their terms explained to her by her counsel (she herself being an
attorney familiar with the subject matter of this Agreement) and that she fully
understands that by signing this Agreement and the releases, she is giving up
all rights to pursue any further claims against Employer and others mentioned in
the Release for any reason arising in or having roots in any thing that happened
up to the time of her signature thereon.
Date: April 2, 1999 /s/ Lori-jean Gille
-------------------------------------
Lori-jean Gille
MGI Pharma, Inc.
Date: April 3, 1999 By: /s/ Charles Blitzer
---------------------------------
Charles Blitzer
Its Chief Executive Officer
3
<PAGE>
EXHIBIT 10.2
LEASE
THIS INDENTURE of lease, entered into this 19th day of April, 1999, by and
between West Bloomington Center LLC, a Minnesota limited liability company
("Landlord") and MGI PHARMA, INC., a Minnesota corporation ("Tenant").
DEFINITIONS
"Property" - That certain real property located in the City of Bloomington,
County of Hennepin State of Minnesota, and legally described on Exhibit A
attached hereto and made a part hereof, including all buildings and site
improvements located thereon.
"Building" - That certain office/warehouse building containing approximately
80,714 square feet located upon the Property and commonly described as West
Bloomington Business Center, 6300 Old Shakopee Road, Bloomington, Minnesota.
"Demised Premises" - That certain portion of the Building designated as Bays 4
through 7, consisting of approximately 27,383 square feet (27,383 square feet
office and 0 square feet of warehouse space), as measured from the outside
surface of exterior walls of the Demised Premises to the center of the demising
wall, as shown on the floor plan attached hereto as Exhibit B and made a part
hereof. The Demised Premises include the non-exclusive right of access to common
areas, as hereinafter defined, and all licenses and easements appurtenant to the
Demised Premises.
Upon completion of construction of the Building and the Demised Premises,
Landlord agrees to provide to Tenant a certification by Landlord's architect of
the measurements of the Building and the Demised Premises, as constructed.
Tenant may have an independent architect remeasure the Building and Demised
Premises in accordance with the standard set forth above and provide a copy of
such calculations to Landlord within ninety (90) days of receipt of Landlord's
architect's certification. In the event of any changes in the square footages,
appropriate adjustments shall be made to Base Rent as set forth in Article 1 and
Tenant's percentage of Operating Expenses and Real Estate Taxes as set forth in
Article 2.
"Commencement Date" - Thirty (30) days following the Delivery Date which is
anticipated to be July 9, 1999.
"Common Areas" - The term "common area" means the entire areas available for the
non-exclusive use by Tenant and other tenants in the Building, including, but
not limited to, corridors, lavatories, driveways, truck docks, parking lots and
landscaped areas. Subject to reasonable rules and regulations promulgated by
Landlord, the common areas are hereby made available to Tenant and its
employees, agents, customers, and invitees for reasonable use in common with
other tenants, their employees, agents, customers and invitees.
1
<PAGE>
1. TERM. For and in consideration of the rents, additional rents, terms,
provisions and covenants herein contained, Landlord hereby lets, leases and
demises to Tenant the Demised Premises for a term commencing on the Commencement
Date and expiring at the end of the calendar month in which the sixth (6th)
anniversary of the Commencement Date occurs, provided that if the Delivery Date
is delayed due to the Landlord's acts or omissions beyond September 1, 1999, the
expiration date shall be July 31, 2005 (the "Expiration Date"), unless sooner
terminated as hereinafter provided. See article 46 of Rider-Option to Extend. In
the event the Delivery Date has not occurred by December 31, 1999, except in the
event of a delay caused by Tenant of which Tenant has written notice from
Landlord, Tenant shall have the right to terminate this Lease at any time prior
to the delivery of possession of the Demised Premises by Landlord to Tenant but
no later than January 31, 2000 by written notice to Landlord. The foregoing
right to terminate shall not be extended by reasons described in paragraph 39
hereof.
2. BASE RENT. Tenant shall to pay to Landlord base rent for the Demised Premises
("Base Rent"), exclusive of any other charge provided for in this Lease to be
paid by Tenant, as set forth below. Base Rent shall be payable in equal monthly
installments, in advance, commencing on the first full month of the term of this
Lease, and continuing on the first day of each subsequent month during the term
hereof. In the event the term hereof commences on a day other than the first day
of a month, Base Rent payable during such first month shall be adjusted on a pro
rata basis and shall be paid on the date of execution of this Lease. Base Rent
shall be paid without setoff, deduction, demand or counterclaim of any nature
whatsoever except as specifically provided in this Lease, in advance on the
first day of each and every calendar month during the term and any extensions
hereof.
Dates Monthly Base Rent Annual Base Rent
First 36 calendar months $26,242 $314,904.00
Balance of Term $27,383 $328,596.00
to
to
All Rent and other sums payable hereunder by Tenant which are not paid within
five (5) days of the due date shall bear interest from the date due to the date
paid at a rate of two percent (2%) per annum in excess of the "Prime Rate"
published in the Wall Street Journal, as the same changes from time to time (the
"Default Rate").
3. ADDITIONAL RENT. In addition to Base Rent and all other amounts to be paid by
Tenant hereunder, Tenant shall pay to Landlord throughout the term of this Lease
the following (collectively, "Additional Rent"):
a. A sum equal to Thirty-Three and 93/100 percent (33.93%) of the Real Estate
Taxes payable during the term of this Lease. The term "Real Estate Taxes" shall
mean all real estate taxes, all assessments and any taxes in lieu thereof which
may be levied upon or assessed against the Property or any part thereof and are
due and payable during the term of this Lease.
2
<PAGE>
Only annual installments of special assessments spread over the longest term
permitted by the taxing authority will be included in Real Estate Taxes. All
special assessments arising out of the initial development of the Building and
Property will be excluded from Real Estate Taxes, except that the annual
installments of a sanitary sewer and water lateral assessment for connection
charges in the petition for inclusion in assessment district dated October 12,
1998 not in excess of $43,000, payable over a twenty (20) year term, may be
included.
In the event the taxing authorities include in such Real Estate Taxes the value
of any improvements made by Tenant excluding the Work described on Exhibit F, or
of machinery, equipment, fixtures, inventory or other personal property or
assets of Tenant, then Tenant shall pay all the taxes attributable to such items
in addition to its proportionate share of said Real Estate Taxes. A photostatic
copy of the tax statement submitted by Landlord to Tenant, if requested by
Tenant, shall be sufficient evidence of the amount of taxes and assessments due
and payable against the Property or any part thereof.
b. A sum equal to Thirty-Three and 93/100 percent (33.93%) of the annual
aggregate Operating Expenses incurred by Landlord in the operation, maintenance
and repair of the Property. The term "Operating Expenses" shall include but not
be limited to maintenance, repair, replacement and care of all common area
lighting, common area plumbing and roofs, parking and landscaped areas, signs,
snow removal, non-structural repair and maintenance of the exterior of the
Building, insurance premiums, management fee not in excess of four percent (4%)
of the sum of Base Rent plus Additional Rent minus the management fee, wages and
fringe benefits of personnel employed for such work, costs of equipment
purchased and used for such purposes, and the cost or portion thereof properly
allocable to the Property (amortized over the useful life of the improvement as
determined by applicable Internal Revenue Service regulations on a straight line
basis together with the interest at the rate of ten percent (10%) per annum on
the unamortized balance) of any capital improvements made to the Building by
Landlord after the year in which the term of this Lease commences which are made
for the purpose of reducing Operating Expenses or made to the Property by
Landlord after the date of this Lease that are required under any governmental
law or regulation that was not applicable to the Building as of the Commencement
Date.
Notwithstanding the foregoing, "Operating Expenses" shall exclude the following:
(i) payments of principal and interest on any mortgage or other encumbrance on
the Property; (ii) amounts reimbursable from insurance proceeds, under warranty
or by Tenant, any other tenant in the Building or any other third party other
than pursuant to an "Operating Cost" expense provision similar to this Section;
(iii) interest, late charges or penalties incurred as a result of Landlord's
failure to pay bills in a timely manner (unless such failure is directly related
to the failure of Tenant to pay its pro rata share of any such bill in a timely
manner); (iv) leasing or brokerage fees; (v) depreciation; (vi) costs incurred
in connection with the transfer or disposition of all or a portion of Landlord's
interest in the Property; (vii) costs of providing to other tenants services
which are not available to Tenant; and (viii) attorneys' fees and other legal
costs incurred as a result of defaults by, or litigation or other disputes with,
other tenants of the Property and (ix) other exclusions set forth on Exhibit E
hereto.
3
<PAGE>
c. The payment of the sums set forth in this Article 3 shall be in addition to
the Base Rent payable pursuant to Article 2 of this Lease. Monthly installments
of estimated Real Estate Taxes and Operating Expenses shall be paid with the
Base Rent. All other sums due hereunder shall be due and payable within thirty
(30) days after delivery of written certification by Landlord setting forth the
computation of the amount due from Tenant. In the event the lease term shall
begin or expire at any time during any calendar year, the Tenant shall be
responsible for its pro rata share (based upon the ratio of the number of days
of the term of the Lease during said calendar year to the number of days in the
calendar year) of Additional Rent under subdivisions a. and b.
during the Lease term.
d. Prior to commencement of this Lease and prior to the commencement of each
calendar year during the term of this Lease or any renewal or extension thereof,
Landlord shall estimate for each calendar year (i) the total amount of Real
Estate Taxes; (ii) the total amount of Operating Expenses; (iii) Tenant's share
of Real Estate Taxes for such calendar year; (iv) Tenant's share of Operating
Expenses for such calendar year; and (v) the computation of the annual and
monthly rental payable during such calendar year as a result of the Base Rent
plus Tenant's estimated share of Real Estate Taxes and Operating Expenses.
e. The amount of Tenant's share of Real Estate Taxes and Operating Expenses for
each calendar year, as so estimated, shall be payable as Additional Rent, in
equal monthly installments, in advance, on the first day of each month during
such calendar year. In the event that such estimate is delivered to Tenant
before the first day of January of such calendar year, the estimated amount
shall be payable as Additional Rent in equal monthly installments, in advance on
the first day of each month during such calendar year. In the event that such
estimate is delivered to Tenant after the first day of January of such calendar
year, the estimated amount shall be payable as Additional Rent in equal monthly
installments, in advance, on the first day of each month over the balance of
such calendar year, with the number of installments being equal to the number of
full calendar months remaining in such calendar year. In no event shall Landlord
deliver its estimate later than March 15 of each calendar year.
In the event Landlord receives a refund of Real Estate Taxes for years to which
Tenant has contributed, Tenant's share of such refund, net of reasonable fees
and expenses related to such refund provided that outright fees or contingent
fees will not exceed one-third of the refund, shall be promptly paid to Tenant,
both during the term of this Lease or after its expiration.
Upon completion of each calendar year during the term of this Lease or any
renewal or extension thereof, Landlord shall determine the actual amount of the
Real Estate Taxes and Operating Expenses payable in such calendar year and
Tenant's share thereof and deliver a written statement of the amounts thereof to
Tenant. If Tenant has underpaid its share of Real Estate Taxes or Operating
Expenses for such calendar year, Tenant shall pay the balance of its share
thereof within thirty (30) days after the receipt of such statement. If Tenant
has overpaid its share of Real Estate Taxes or Operating Expenses for such
calendar year, Landlord shall either (i) refund such excess, or (ii) credit such
excess against the most current monthly installment or installments due Landlord
for Base Rent or its estimate of Tenant's share of Real Estate Taxes and
Operating Expenses for the next following calendar year. A pro rata adjustment
shall be
4
<PAGE>
made for any fractional calendar year occurring during the term of this Lease or
any renewal or extension thereof based upon the ratio of the number of days of
the term of the Lease during said calendar year to the number of days in the
calendar year and all additional sums payable by Tenant or credits due Tenant as
a result of the provisions of this Article 3 shall be adjusted accordingly.
4. COVENANT TO PAY RENT. The covenants of Tenant to pay the Base Rent and the
Additional Rent are each independent of any other covenant, condition, provision
or agreement contained in this Lease. All rents are payable to Landlord at:
Paramount Real Estate Corporation
8140 26th Ave S Suite 105
Bloomington, MN 55425-1304
(or such other address indicated in writing by Landlord).
5. UTILITIES. Landlord shall provide mains and conduits to supply water, gas,
electricity and sanitary sewage to the Property. Tenant shall pay, when due, all
charges for garbage, disposal, refuse removal, electricity, gas, fuel oil, L.P.
gas, telephone and any other utility services or energy source furnished to the
Demised Premises during the term of this Lease, and any renewal or extension
thereof, all of which services shall be separately metered and billed by the
utility company to Tenant. Water and sewer charges will be included in Operating
Expenses. If Landlord elects to furnish any of the foregoing utility services or
other services furnished or caused to be furnished to Tenant, then the rate
charged by Landlord shall not exceed the rate Tenant would be required to pay to
a utility company or service company furnishing any of the foregoing utilities
or services. All amounts payable by Tenant to Landlord hereunder shall be deemed
Additional Rent in accordance with Article 3.
6. CARE AND REPAIR OF DEMISED PREMISES. Tenant shall, at all times throughout
the term of this Lease, including renewals and extensions, and at its sole
expense, keep and maintain the Demised Premises in a clean, safe, sanitary and
first class condition and in compliance with all applicable laws, codes,
ordinances, rules and regulations. Tenant's obligations hereunder shall include
but not be limited to the maintenance, repair and replacement, if necessary, of
heating and air conditioning fixtures, equipment, and systems (the "HVAC
Equipment"), all lighting and plumbing fixtures and equipment, fixtures, motors
and machinery, all interior walls, partitions, doors and windows, including the
regular painting thereof, all exterior entrances to the Demised Premises,
windows, doors and loading docks and dock equipment and the replacement of all
broken glass. When used in this provision, the term "repairs" shall include
replacements or renewals when necessary, and all such repairs made by the Tenant
shall be equal in quality and class to the original work. Landlord shall obtain,
following a competitive bidding process in which at least three (3) bids are
obtained, and maintain at all times during the term of this Lease a maintenance
contract with a responsible, licensed HVAC contractor, on terms reasonably
acceptable to Landlord and sufficient to maintain all equipment warranties, for
the regular maintenance of all HVAC Equipment for the entire Building, and shall
be responsible for the performance of all maintenance to be performed
5
<PAGE>
thereunder. Landlord shall keep accurate and complete records of the performance
of all scheduled maintenance under such contract and shall provide copies
thereof to Tenant from time to time upon request by Tenant. The cost of such
maintenance contract shall be included in Operating Expenses. Except for repair
and maintenance covered by the maintenance contract obtained by Landlord, all
other repair, maintenance or replacement of the HVAC equipment shall be Tenant's
responsibility. The Tenant shall keep and maintain all portions of the Demised
Premises and the sidewalk and areas adjoining the same in a clean and orderly
condition, free of accumulation of dirt and rubbish.
If Tenant fails, refuses or neglects to maintain or repair the Demised Premises
as required in this Lease, after twenty (20) days notice shall have been given
Tenant in accordance with Article 33 of this Lease, Landlord may make such
repairs without liability to Tenant for any loss or damage that may accrue to
Tenant's merchandise, fixtures or other property or to Tenant's business by
reason thereof, and upon completion thereof, Tenant shall pay to Landlord all
costs plus 15% for overhead incurred by Landlord in making such repairs upon
presentation to Tenant of bill therefor; provided, however, that no notice shall
be required in the event of any hazardous or emergency condition.
Landlord shall repair, at its expense (subject to inclusion in "Operating
Expenses" pursuant to Section 3), the roof, the Common Areas, the portions of
the Building HVAC, plumbing and electrical systems to the extent not serving one
tenant space; and the structural portions of the Building, provided, however,
where structural repairs are required to be made by reason of the acts of
Tenant, the costs thereof shall be borne by Tenant and payable by Tenant to
Landlord upon demand. Landlord shall be responsible for compliance with
applicable laws, including without limitation, the ADA, regulations and
ordinances applicable to the Common Areas and other portions of the Property
Landlord is required to repair and maintain.
Except as otherwise provided herein, the Landlord shall be responsible for all
outside maintenance of the Demised Premises, including grounds and parking
areas. All such maintenance which is the responsibility of the Landlord shall be
provided as reasonably necessary to the comfortable use and occupancy of Demised
Premises during business hours, except Saturdays, Sundays, Memorial Day, the 4th
of July, Labor Day, Thanksgiving Day and Christmas Day upon the condition that
the Landlord shall not be liable for damages for failure to do so due to causes
beyond its control.
7. SIGNS. Any sign, lettering, picture, notice or advertisement installed on or
in any part of the Property and visible from the exterior of the Building, or
visible from the exterior of the Demised Premises, shall be subject to
Landlord's prior approval and shall be installed at Tenant's expense. In the
event of a violation of the foregoing by Tenant, Landlord may remove the same
without any liability and may charge the expense incurred by such removal to
Tenant. Landlord's standard sign criteria is described on Exhibit G hereto.
Landlord hereby agrees that if a monument sign is approved for the Building and
Landlord elects to place tenant names on the monument sign, Tenant's name and
logo will appear on the sign immediately below the project name and address and
no other tenant's name and logo will be more prominent than Tenant's name and
logo. Further, with the prior consent of Landlord, which consent will not be
6
<PAGE>
unreasonably withheld, conditioned, denied or delayed, Tenant will have a right
to place its name and logo on the front door and other doors to the Demised
Premises and its name on the Building all in accordance with the sign criteria
set forth on Exhibit G.
8. ALTERATIONS, INSTALLATION, FIXTURES. Except as hereinafter provided, Tenant
shall not make any alteration, additions, or improvements in or to the Demised
Premises or add, disturb or in any way change any plumbing or wiring therein
without the prior written consent of the Landlord which consent will not be
unreasonably withheld, conditioned, denied or delayed. In the event alterations
are required by any governmental agency by reason of the use and occupancy of
the Demised Premises by Tenant, Tenant shall make such alterations at its own
cost and expense after first obtaining Landlord's approval of plans and
specifications therefor and providing Landlord with reasonable evidence of
Tenant's ability to pay for such alterations. In the event Tenant's proposed
alterations or fixtures are unique and not customary for office space, Landlord
will have the right to require that such alterations or fixtures be removed at
the end of the lease term, provided that Landlord indicates at the time it
approves the alteration or fixture that it must be removed at the end of the
lease term. Alterations or additions by Tenant must be made in compliance with
all laws, ordinances and governmental regulations affecting the Property and
Tenant shall warrant to Landlord that all such alterations, additions, or
improvements shall be in strict compliance with all relevant laws, ordinances,
governmental regulations, permits and insurance requirements. Construction of
such alterations or additions shall commence only upon Tenant obtaining and
exhibiting to Landlord the requisite approvals, licenses and permits and
indemnification against liens. All alterations, installations, physical
additions or improvements to the Demised Premises made by Tenant shall at once
become the property of Landlord and shall be surrendered to Landlord upon the
termination of this Lease; provided, however, this clause shall not apply to
fixtures, movable equipment or furniture owned by Tenant, which may be removed
by Tenant at the end of the term of this Lease pursuant to Article 25. Tenant
shall be responsible for all costs related to improvements or modifications to
the Demised Premises required or necessary to comply with The Americans With
Disabilities Act of 1990 (ADA), or similar statutes or law.
9. POSSESSION. Except as hereinafter provided, Landlord shall deliver possession
of the Demised Premises to Tenant in the condition required by this Lease on or
before the Delivery Date, but delivery of possession prior to or later than such
Delivery Date shall not affect the expiration date of this Lease. For each day
that the Delivery Date is delayed beyond August 9, 1999 to and including August
31, 1999 for reasons other than a Tenant Delay or force majeure delay with
proper notice, Tenant shall be provided two (2) days of gross free rent
following the Commencement Date. For each day of further delay beyond September
1, 1999 for reasons other than a Tenant Delay or force majeure delay with proper
notice, Tenant shall be provided three (3) days of gross free rent following the
Commencement Date. Any occupancy by Tenant prior to the Commencement Date shall
in all respects be the same as that of a Tenant under this Lease except that no
Base Rent or Additional Rent shall be payable. Landlord shall have no
responsibility or liability for loss or damage to fixtures, facilities or
equipment installed or left in the Demised Premises.
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10. SECURITY AND DAMAGE DEPOSIT. No security or damage deposit is required for
this Lease.
11. USE. The Demised Premises shall be used and occupied by Tenant for any
office, warehouse or storage use permitted by applicable zoning ordinances so
long as such use is in compliance with all applicable laws, ordinances and
governmental regulations affecting the Building and Demised Premises. The
Demised Premises shall not be used in such manner that, in accordance with any
requirement of law or of any public authority, Landlord shall be obligated, as a
result of the purpose or manner of said use, to make any addition or alteration
to or in the Building. The Demised Premises shall not be used in any manner
which will increase the rates required to be paid for public liability or for
fire and extended coverage insurance covering the Demised Premises. Tenant shall
occupy the Demised Premises, conduct its business and control its agents,
employees, invitees and visitors in such a way as is lawful and reputable, and
will not permit or create any nuisance, noise, odor, or otherwise interfere
with, annoy or disturb any other tenant in the Building in its normal business
operations or Landlord in its management of the Building. Landlord will not
lease space adjacent to the Demised Premises to any tenant whose use could
reasonably be expected to result in odors, noise, fumes or any other
unreasonable interference with Tenant's use of the Demised Premises or whose use
of parking, combined with other tenants, could reasonably be expected to be more
than 5 spaces per 1,000 rentable square feet. Tenant's use of the Demised
Premises shall conform to all the Landlord's rules and regulations relating to
the use of the Demised Premises. Outside storage on the Demised Premises of any
type of equipment, property or materials owned or used by Tenant or its
customers or suppliers shall not be permitted, without Landlord's prior written
consent. Landlord acknowledges and agrees that Tenant's employees may park their
vehicles overnight or longer at the Property in connection with business related
travel in the area designated on Exhibit B for such purpose. Landlord agrees to
install, at Landlord's expense, six (6) "Visitor Only" signs on six (6) parking
stalls near the front door of the Demised Premises as depicted on Exhibit B.
12. ACCESS TO DEMISED PREMISES. The Tenant agrees to permit the Landlord and the
authorized representatives of the Landlord to enter the Demised Premises at all
times during usual business hours upon at least 24 hours advance notice to
Tenant except in emergencies for the purpose of inspecting the same and making
any necessary repairs to the Demised Premises and performing any work therein
that may be necessary to comply with any laws, ordinances, rules, regulations or
requirements of any public authority or of the Board of Fire Underwriters or any
similar body or that the Landlord may deem necessary to prevent waste or
deterioration in connection with the Demised Premises. Nothing herein shall
imply any duty upon the part of the Landlord to do any such work which, under
any provision of this Lease, the Tenant may be required to perform and the
performance thereof by the Landlord shall not constitute a waiver of the
Tenant's default in failing to perform the same. Provided Landlord uses best
efforts not to interfere with Tenant's use of the Demised Premises, the Landlord
shall not in any event be liable for inconvenience, annoyance, disturbance, loss
of business, or other damage of the Tenant by reason of making repairs or the
performance of any work in the Demised Premises, and the obligations of the
Tenant under this Lease shall not thereby be affected in any manner whatsoever.
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Landlord reserves the right to enter upon the Demised Premises at any time in
the event of an emergency and upon advance notice at reasonable hours to exhibit
the Demised Premises to prospective purchasers or others; and to exhibit the
Demised Premises to prospective Tenants during the last 240 days of the term of
this Lease, all without hindrance or molestation by Tenant.
13. EMINENT DOMAIN. In the event of any eminent domain or condemnation
proceeding or private sale in lieu thereof in respect to the Building during the
term hereof, the following provisions shall apply:
a. If the whole of the Building shall be acquired or condemned by eminent domain
for any public or quasi-public use or purpose, then the term of this Lease shall
cease and terminate as of the date possession shall be taken in such proceeding
and all rentals shall be paid up to that date.
b. If any part constituting less than the whole of the Building shall be
acquired or condemned as aforesaid, and in the event that such partial taking or
condemnation shall materially affect the Demised Premises or the parking areas
or loading areas so as to render the Demised Premises unsuitable for the
business of the Tenant, then either Landlord or Tenant shall have the option to
terminate this Lease as of the date possession shall be taken by the condemning
authority and rent shall be paid to the date of such termination, provided that
Tenant's option to terminate must be exercised within sixty (60) days after
Tenant receives notice from Landlord of the taking. In the event of a taking of
parking or loading areas that will materially affect Tenant's use of the Demised
Premises, in the reasonable opinion of Tenant, Tenant will not have a right to
terminate if Landlord is able to provide comparable replacement parking or
loading areas within sixty (60) days of the date possession shall be taken by
the condemning authority.
In the event of a partial taking or condemnation of the Building which shall not
materially affect the Demised Premises or the parking areas or loading areas so
as to render the Demised Premises unsuitable for the business of the Tenant,
this Lease shall continue in full force and effect but with a proportionate
reduction of the Base Rent and Additional Rent based on the portion of the
Demised Premises taken. Landlord shall, to the extent reasonable and practicable
restore the Building, parking areas and the Demised Premises to substantially
the same condition as they were prior to such condemnation. Landlord shall
commence restoration and shall restore the Building and the Demised Premises
with reasonable promptness, subject to delays beyond Landlord's control and
delays in the receipt of condemnation or sale proceeds by Landlord. Upon
completion of such restoration, the rent shall be re-adjusted based upon the
portion, if any, of the Demised Premises restored.
c. In the event of any condemnation or taking as aforesaid, whether whole or
partial, the Tenant shall not be entitled to any part of the award paid for such
condemnation and Landlord is to receive the full amount of such award, the
Tenant hereby expressly waiving any right to claim to any part thereof.
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d. Although all damages in the event of any condemnation shall belong to the
Landlord whether such damages are awarded as compensation for diminution in
value of the leasehold or to the fee of the Demised Premises, Tenant shall have
the right to claim and recover from the condemning authority, but not from
Landlord, such compensation as may be separately awarded or recoverable by
Tenant in Tenant's own right on account of any and all damage to Tenant's
business by reason of the condemnation and for or on account of any cost or loss
to which Tenant might be put in removing Tenant's merchandise, furniture,
fixtures, leasehold improvements and equipment. However, Tenant shall have no
claim against Landlord and shall make no claim with the condemning authority for
the loss of its leasehold estate, any unexpired term or loss of any possible
renewal or extension of said lease or loss of any possible value of said Lease.
14. DAMAGE OR DESTRUCTION. In the event of any damage or destruction to the
Demised Premises or the Building by fire or other cause during the term hereof,
the following provisions shall apply:
a. If the Building is damaged by fire or any other cause to such extent that the
cost of restoration, as reasonably estimated by Landlord, will equal or exceed
thirty percent (30%) of the replacement value of the Building (exclusive of
foundations) just prior to the occurrence of the damage, then Landlord may, no
later than the sixtieth (60th) day following the damage, give Tenant written
notice of Landlord's election to terminate this Lease.
b. If there is damage to the Demised Premises and if the Demised Premises are
not suitable as a result of said damage for the purposes for which they are
demised hereunder, in the reasonable opinion of Tenant and cannot reasonably be
expected to be restored by Landlord within one hundred eighty (180) days of the
date of the damage, in the reasonable opinion of Tenant based on information
provided by Landlord regarding reconstruction plans, then Tenant may, no later
than the sixtieth (60th) day following the damage, give Landlord a written
notice of election to terminate this Lease. Further, if Tenant does not
initially terminate, but then the restoration is not actually completed in the
one hundred eighty (180) day period, Tenant may terminate this Lease if the
restoration is not completed within thirty (30) days after the end of the one
hundred eighty (180) day period by written notice to Landlord within thirty (30)
days thereafter.
c. If the cost of restoration as estimated by Landlord shall amount to less than
thirty percent (30%) of said replacement value of the Building, or if, despite
the cost, neither Landlord nor Tenant elects to terminate this Lease, Landlord
shall restore the Building and the Demised Premises with reasonable promptness,
subject to delays beyond Landlord's control and delays in the receipt of
insurance proceeds by Landlord; and Landlord shall not be responsible for
restoring or repairing leasehold improvements of the Tenant.
d. In the event either of the elections to terminate is properly exercised, this
Lease shall be deemed to terminate on the date of the receipt of the notice of
election and all rents shall be paid up to the date of the damage unless Tenant
has continued to use the undamaged portion of the Demised Premises, in which
event Tenant shall pay prorata rent for such portion through the date
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of termination. Tenant shall have no claim against Landlord for the value of any
unexpired term of this Lease.
e. In any case where damage to the Building shall materially affect the Demised
Premises so as to render them unsuitable in whole or in part for the purposes
for which they are demised hereunder, then, a portion of the rent based upon the
extent to which the Demised Premises are rendered unsuitable shall be abated
until repaired or restored.
15. CASUALTY INSURANCE.
a. Landlord shall at all times during the term of this Lease, at its expense
(except that such expense shall be included in the calculation of Additional
Rent under Section 3 hereof), maintain a policy or policies of insurance issued
by an insurance company licensed to do business in the State of Minnesota
insuring the Building using the standard Minnesota Special Cause of Loss Form or
equivalent for the full replacement value, provided that Landlord shall not be
obligated to insure any furniture, equipment, machinery, goods or supplies which
Tenant may bring upon the Demised Premises or any tenant improvements which
Tenant or Landlord may construct or install on the Demised Premises, prior to or
after the date of this Lease. Landlord may at its option also elect to carry
rent loss insurance or other types of insurance commonly carried by owners of
similar properties in the Minneapolis-St. Paul Metropolitan Area, and the
Tenant's pro rata share of the cost thereof shall constitute Additional Rent.
b. Tenant shall not carry any stock of goods or do anything in or about the
Demised Premises which will in any way impair or invalidate the obligation of
the insurer under any policy of insurance required by this Lease.
c. Notwithstanding any other provision of this Lease to the contrary, Landlord
hereby waives and releases all claims, liability and causes of action against
Tenant and its agents, servants and employees for loss or damage to, or
destruction of, the Property, Building or Demised Premises or any portion
thereof, including the buildings and other improvements situated thereon,
resulting from fire, explosion and other perils, to the extent such loss or
damage arises out of a risk covered by all-risk casualty insurance, whether
caused by the negligence of any of said persons or otherwise. Likewise, Tenant
hereby waives and releases all claims, liabilities and causes of action against
Landlord and its agents, servants and employees for loss or damage to, or
destruction of, any of the improvements, fixtures, equipment, supplies,
merchandise and other property, whether that of Tenant or of others in, upon or
about the Demised Premises resulting from fire, explosion or the other perils to
the extent such loss or damage arises out of a risk covered by all-risk casualty
insurance, whether caused by the negligence of any of said persons or otherwise.
d. In the event that the use of the Demised Premises by Tenant increases the
premium rate for insurance carried by Landlord on the improvements of which the
Demised Premises are a part, Tenant shall pay Landlord, upon demand, the amount
of such premium increase. If Tenant installs any electrical equipment that
overloads the power lines to the Building or its wiring, Tenant shall, at its
own expense, make whatever changes are necessary to comply with the
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requirements of the insurance underwriter, insurance rating bureau and
governmental authorities having jurisdiction.
e. Tenant shall during the term of this Lease, obtain and maintain in full force
and effect at its sole cost and expense a policy or policies of insurance
insuring all of its personal property located within the Demised Premises from
time to time, as well as all tenant improvements made thereto, against loss or
damage by fire, explosion or other such hazards and contingencies for the full
replacement value thereof. Such policy or policies shall provide that thirty
(30) days written notice must be given to Landlord prior to cancellation or
modification thereof. Tenant shall furnish evidence satisfactory to Landlord at
the time this Lease is executed and thereafter from time to time upon request by
Landlord that such coverage is in full force and effect.
16. PUBLIC LIABILITY INSURANCE. Tenant shall during the term hereof, keep in
full force and effect at its expense a policy or policies of public liability
insurance with respect to the Demised Premises and the business of Tenant in
amounts not less than $1,000,000 per occurrence, $2,000,000 aggregate using
current ISO General Liability forms or equivalent naming the Landlord as an
additional insured. Such policy or policies shall provide that thirty (30) days
written notice must be given to Landlord prior to cancellation or modification
thereof. Tenant shall furnish evidence satisfactory to Landlord at the time this
Lease is executed and thereafter upon request by Landlord that such coverage is
in full force and effect.
17. DEFAULT OF TENANT.
a. In the event of any failure of Tenant to pay any Base Rent, Additional Rent
or other amounts due hereunder within ten (10) days after the same shall be due,
or any failure to perform any other of the terms, conditions or covenants of
this Lease to be observed or performed by Tenant with all reasonable diligence,
but in any event for more than thirty (30) days after written notice of such
failure shall have been given to Tenant provided that, if such default cannot
with due diligence by wholly cured within such thirty (30) days, Tenant shall
have such longer period, up to ninety (90) days, as may be reasonably necessary
to cure the default, so long as Tenant proceeds promptly to commence the cure of
same within such thirty (30) day period and diligently prosecutes the cure to
completion, or if Tenant or an agent of Tenant shall intentionally falsify any
report required to be furnished to Landlord pursuant to the terms of this Lease,
or if Tenant or any guarantor of this Lease shall become bankrupt or insolvent,
or file any debtor proceedings, or any person shall file against Tenant or any
guarantor of this Lease in any court pursuant to any statute either of the
United States or of any state a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant's or any such guarantor's property, or if Tenant or any such
guarantor makes an assignment for the benefit of creditors, or petitions for or
enters into any similar arrangement, and such bankruptcy, insolvency,
receivership or other proceeding is not dismissed in ninety (90) days or if any
guarantor of this Lease shall be in default in the performance of any covenant,
duty or obligation under any guaranty or other agreement entered into with or in
favor of Landlord and such default shall remain uncured for a period of thirty
(30) days or more after notice of such default, or if Tenant shall abandon the
Demised Premises (provided Tenant may vacate the Demised Premises provided it
continues to perform its obligations hereunder) or suffer this Lease to be taken
under any writ of execution (any one or more of the foregoing shall constitute
an
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"Event of Default"), then in any such event Tenant shall be in default
hereunder, and Landlord, in addition to any other rights and remedies it may
have, shall have the immediate right of re-entry and may remove all persons and
property from the Demised Premises and such property may be removed and stored
in a public warehouse or elsewhere at the sole cost of, and for the account of
Tenant, all in accordance with applicable legal process and without being guilty
of trespass, or becoming liable for any loss or damage which may be occasioned
thereby.
b. Upon the occurrence of an Event of Default, Landlord shall have the right (in
addition to any other rights or remedies) to either terminate this Lease or,
from time to time, without terminating this Lease, to terminate Tenant's right
of possession of the Demised Premises. If Landlord terminates Tenant's right of
possession only, Landlord shall use commercially reasonable efforts to make such
alterations and repairs as may be necessary in order to relet the Demised
Premises, and relet the Demised Premises or any part thereof upon such term or
terms (which may be for a term extending beyond the term of this lease) and at
such rental or rentals and upon such other terms and conditions as are
commercially reasonable. Landlord's obligations under the preceeding sentence
are subject to the following conditions: i) Landlord has absolutely no
obligation to prefer the Demised Premises over other then available space within
the Building, ii) Landlord is under absolutely no obligation to accept any
substitute lease for less then the current fair market value of the Demised
Premises, iii) Landlord has absolutely no obligation to expend additional funds
for tenant improvements for the substitute tenant and (iv) Landlord is under
absolutely no obligation to accept a substitute tenant who does not meet
Landlord's reasonable creditworthiness standards. Upon any such reletting all
rentals received by the Landlord from such reletting shall be applied first to
the payment of any indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any reasonable costs and expenses of such
reletting, including brokerage fees and attorney's fees and costs of such
alterations and repairs; third, to the payment of the rent due and unpaid
payment of future rent as the same may become due and payable hereunder. If such
rentals received from any such reletting during any month are less than that to
be paid during that month by Tenant hereunder, Tenant, upon demand, shall pay
any such deficiency to Landlord. No such re-entry or taking possession of the
Demised Premises by Landlord shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention is given to
Tenant. Notwithstanding any such reletting without termination, Landlord may at
any time after such re-entry and reletting elect to terminate this Lease, and in
addition to any other remedies it may have, it may recover from any Tenant all
damages it may incur by reason of such breach, including the cost of recovering
the Demised Premises, reasonable attorney's fees, and including the worth at the
time of such termination of the excess, if any, of the amount of rent and
charges equivalent to rent reserved in this Lease for the remainder of the
stated term over the then reasonable rental value of the Demised Premises for
the remainder of the stated term, which shall be discounted to present value at
a rate of ten percent (10%) all of which amounts shall be immediately due and
payable from Tenant to Landlord.
c. Landlord may, at its option, in addition to any other rights or remedies
available to it in this Lease or otherwise by law, statute or equity, spend such
money as is necessary to cure any Event of Default of Tenant herein and the
amount so spent, and costs incurred, including
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reasonable attorney's fees in curing such default, shall be paid by Tenant, as
additional rent, upon demand.
d. In the event suit shall be brought for recovery of possession of the Demised
Premises, for the recovery of rent or any other amount due under the provisions
of this Lease, or in connection with any Event of Default, and an Event of
Default shall be established, Tenant shall pay to Landlord all reasonable
expenses incurred in connection therewith, including attorney's fees, together
with interest on all such expenses at the Default Rate from the date of such
breach.
e. Tenant hereby expressly waives any and all rights of redemption granted by or
under any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Landlord obtaining possession of
the Demised Premises, by reason of any Event of Default hereunder, or otherwise.
Tenant also waives any demand for possession of the Demised Premises, and any
demand for payment of rent and any notice of intent to re-enter the Demised
Premises, or of intent to terminate this Lease, other than the notices above
provided in this Article, or as prescribed by any applicable statutes or laws.
f. No remedy herein or elsewhere in this Lease or otherwise by law, statute or
equity, conferred upon or reserved to Landlord shall be exclusive of any other
remedy, but shall be cumulative, and may be exercised from time to time and as
often as the occasion may arise.
18. HOLD HARMLESS. Except to the extent any liability for damage or loss is
caused by the negligence of Landlord, its agents or employees and subject to
provisions of Section 15c hereof, Tenant shall hold harmless Landlord, its
shareholders, directors, officers, agents and employees, from any liability for
damages to any person or property in or upon the Demised Premises and the
Demised Premises, including the person and the property of Tenant and its
employees and all persons in the Building at its or their invitation or
sufferance, and from all damages resulting from Tenant's failure to perform the
covenants or other provisions of this Lease. Subject to the provisions of
Section 15c and Section 19 hereof, Landlord shall hold harmless Tenant, its
shareholders, directors, officers, agents and employees, from any liability for
damages to person or property arising out of the negligence or willful
misconduct of Landlord. All property kept, maintained or stored on the Demised
Premises shall be so kept, maintained or stored at the sole risk of Tenant.
Tenant agrees to pay all sums of money in respect of any labor, service,
materials, supplies or equipment furnished or alleged to have been furnished to
Tenant in or about the Demised Premises, and not furnished on order of Landlord,
which may be secured by any mechanic's materialmen's or other lien provided that
Tenant may contest such lien, upon providing Landlord adequate security against
such lien. If any such lien is reduced to final judgment and if such judgment or
process thereon is not stayed, or if stayed and said stay expires, then Tenant
shall immediately pay and discharge said judgment. Landlord shall have the right
to post and maintain on the Demised Premises, notices of non-responsibility
under the laws of the State of Minnesota.
19. NON-LIABILITY. Landlord shall not be liable for damage to any property of
Tenant or of others located on the Demised Premises, nor for the loss of or
damage to any property of Tenant or of others by theft or otherwise. Without
limiting the foregoing, Landlord shall not be
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liable for any injury or damage to property resulting from fire, explosion, any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain or snow or leaks from any part of
the Demised Premises or from the pipes, appliances, or plumbing works or from
the roof, street or subsurface or from any other place or by dampness or by any
such damage caused by other Tenants or persons in the Demised Premises,
occupants of adjacent property, of the buildings, or the public or caused by
operations in construction of any private, public or quasi-public work. All
property of Tenant kept or stored on the Demised Premises shall be so kept or
stored at the risk of Tenant only and Tenant shall hold Landlord harmless from
any claims arising out of damage to or loss of the same, including subrogation
claims by Tenant's insurance carrier.
20. SUBORDINATION. Provided Tenant's right to possession and its other rights
under this Lease are not disturbed so long as no Event of Default is continuing
hereunder, this Lease shall be subordinated to any mortgages that may now exist
or that may hereafter be placed upon the Demised Premises and to any and all
advances made thereunder, and to all interest and other charges relating to the
indebtedness evidenced by such mortgages, and to all renewals, replacements and
extensions thereof. In the event of execution by Landlord after the date of this
Lease of any such mortgage, renewal, replacement or extension, Tenant agrees to
execute a subordination agreement and/or any other documents relating to this
Section 20 with the holder thereof, which agreement shall provide, among other
things, that:
a. Such holder shall not disturb the possession and other rights of Tenant under
this Lease so long as no Event of Default is continuing.
b. In the event of acquisition of title to the Demised Premises by such holder,
such holder shall accept the Tenant as Tenant of the Demised Premises under the
terms and conditions of this Lease, and
c. The Tenant shall recognize such holder as Landlord hereunder.
d. Tenant shall, upon receipt of a request from Landlord therefor, execute and
deliver to Landlord or to any proposed holder of a mortgage or trust deed or to
any proposed purchaser of the Demised Premises, a certificate in recordable
form, certifying that this Lease is in full force and effect, and that there are
no offsets against rent nor defenses to Tenant's performance under this Lease,
or setting forth any such offsets or defenses claimed by Tenant as the case may
be. Tenant shall execute and deliver any such subordination agreement or other
such documents within twenty (20) days of written request therefor. The failure
of Tenant to do so within such time frame shall constitute an immediate default
hereunder without the need for Landlord to provide any notice and/or opportunity
to cure as set forth in Section 17.a. hereof.
Tenant agrees to negotiate in good faith with Landlord and its lender to agree
on a subordination agreement with terms reasonably acceptable to all parties.
21. ASSIGNMENT OR SUBLETTING. Tenant agrees to use and occupy the Demised
Premises throughout the entire term hereof for the purpose or purposes herein
specified and for
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no other purposes, in the manner and to substantially the extent now intended,
and not to transfer or assign this Lease or sublet said Demised Premises, or any
part thereof, whether by voluntary act, operation of law, or otherwise, without
obtaining the prior written consent of Landlord in each instance which consent
will not be unreasonably withheld, conditioned, denied or delayed. Tenant
acknowledges that it shall be reasonable for Landlord to condition its consent
on Tenant curing any then existing defaults under this Lease. Tenant shall seek
such consent of Landlord by a written request therefor, setting forth such
information as Landlord may reasonably deem necessary. In the event Tenant
proposes to sublease all of the Demised Premises for the entire remaining term
of the Lease or assign the Lease for the entire remaining term of the Lease,
Landlord will have the option to terminate this Lease and enter into a direct
lease with Tenant's proposed sublessee or assignee. In the event of such
termination, Tenant shall have no further liability under this Lease. Consent by
Landlord to any assignment of this Lease or to any subletting of the Demised
Premises shall not be a waiver of Landlord's rights under this Article as to any
subsequent assignment or subletting. Landlord's rights to assign this Lease are
and shall remain unqualified provided assignee assumes Landlord's obligations
hereunder excluding assignment to a lender for security purposes. No such
assignment or subleasing shall relieve the Tenant from any of Tenant's
obligations in this Lease contained, nor shall any assignment or sublease or
other transfer of this Lease be effective unless the assignee, subtenant or
transferee shall at the time of such assignment, sublease or transfer, assume in
writing for the benefit of Landlord, its successors and assigns, all of the
terms, covenants and conditions of this Lease thereafter to be performed by
Tenant and shall agree in writing to be bound thereby. Should Tenant sublease
all or a portion of the Demised Premises for the balance of the lease term in
accordance with the terms of this Lease, and if Landlord, at its option,
releases Tenant from any further liability for the portion of the Demised
Premises so subleased, the increase, after recovery in full by Tenant of all
reasonable costs associated with such sublease, in rental received by Tenant
over the per square foot rental rate which is being paid by Tenant shall be
forwarded to and retained by Landlord, which increase shall be in addition to
the Base Rent and Additional Rent due Landlord under this Lease. Should Tenant
sublease under any other circumstances in accordance with the terms of this
Lease, one-half of any increase, after recovery in full by Tenant of all costs
associated with such sublease, in rental received by Tenant over the per square
foot rental rate which is being paid by Tenant shall be forwarded to and
retained by Landlord, which increase shall be in addition to the Base Rent and
Additional Rent due Landlord under this Lease.
22. ATTORNMENT. In the event of a sale or assignment of Landlord's interest in
the Demised Premises or in the Building in which the Demised Premises are
located, or this Lease, or if the Demised Premises come into custody or
possession of a mortgagee or any other party whether because of a mortgage
foreclosure, or otherwise, Tenant shall attorn to such assignee or other party
and recognize such party as Landlord hereunder; provided, however, Tenant's
peaceable possession will not be disturbed s o long as Tenant faithfully
performs its obligations under this Lease. Tenant shall execute, on demand, any
attornment agreement required by any such party to be executed, containing such
provisions as such party may require.
23. NOVATION IN THE EVENT OF SALE.
a. In the event of the sale of the Building, Landlord shall be and hereby is
relieved of all of the covenants and obligations created hereby accruing from
and after the date of sale, and such
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sale shall result automatically in the purchaser assuming and agreeing to carry
out all the covenants and obligations of Landlord herein.
b. The Tenant agrees at any time and from time to time upon not less than ten
(10) business days prior written request by the Landlord to execute, acknowledge
and deliver to the Landlord a statement in writing certifying that this Lease is
unmodified and in full force and effect (as modified and stating the
modifications, if any) and the dates to which the base rent and other charges
have been paid in advance, if any, it being intended that any such statement
delivered pursuant to this paragraph may be relied upon by any prospective
purchaser of the fee or mortgagee or assignee of any mortgage upon the fee of
the Demised Premises.
24. SUCCESSORS AND ASSIGNS. The terms, covenants and conditions hereof shall be
binding upon and inure to the successors and permitted assigns of the parties
hereto.
25. REMOVAL OF FIXTURES. At the time Tenant vacates the Demised Premises, Tenant
shall remove at the sole cost and expense of Tenant the following fixtures and
attached equipment: 1) cleaning service equipment in bathroom; 2) all equipment
connected to electrical outlets or mounted on walls or ceilings but not
integrated or wired into the Demised Premises; 3) the security system; 4) logos,
signage and lettering mounted for display purposes; 5) sound masking and; 6)
demountable wall units and tracking, and Tenant will promptly restore said
Demised Premises to the condition that existed immediately prior to said
fixtures and attached equipment having been installed, all at the sole cost and
expense of Tenant. Except as may be required to be removed by Landlord pursuant
to Article 29, all other fixtures will remain and be surrendered with the
Demised Premises.
26. QUIET ENJOYMENT. Landlord warrants that it has full right to execute and to
perform this Lease and to grant the estate demised, and that Tenant, upon
payment of the rents and other amounts due and the performance of all the terms,
conditions, covenants and agreements on 21 Tenant's part to be observed and
performed under this Lease, may peaceably and quietly enjoy the Demised Premises
for the business uses permitted hereunder, subject, nevertheless, to the terms
and conditions of this Lease.
27. RECORDING. Tenant shall not record this Lease or any memorandum hereof
without the written consent of Landlord. However, upon the request of either
party hereto, the other party shall join in the execution of a Memorandum lease
for the purposes of recordation. Said Memorandum lease shall describe the
parties, the Demised Premises and the term of the Lease and shall incorporate
this Lease by reference, but shall not set forth the amount of the Base Rent,
Additional Rent or other amounts due hereunder. This Article 27 shall not be
construed to limit Landlord's right to file this Lease under Article 22 of this
Lease.
28. OVERDUE PAYMENTS. In the event Tenant shall fail to pay amounts due
hereunder within ten (10) days of Landlord's written notice more than two (2)
times in any twelve (12) month period, thereafter, if amounts due hereunder are
not paid within five (5) days of the due date thereof a service charge for such
late payment in the amount of ten percent (10%) of the amount due shall be
imposed.
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29. SURRENDER. On the Expiration Date or upon the termination hereof on a day
other than the Expiration Date, Tenant shall peaceably surrender the Demised
Premises broom-clean in good order, condition and repair, reasonable wear and
tear and loss by fire or other casualty only excepted. On or before the
Expiration Date or upon termination of this Lease on a day other than the
Expiration Date, Tenant shall, at its expense, remove all trade fixtures,
personal property, equipment and signs, from the Demised Premises and any
property not removed shall be deemed to have been abandoned. Any damage caused
in the removal of such items shall be repaired by Tenant and at its expense. All
alterations, additions, improvements and fixtures (other than (i) trade
fixtures, (ii) any alterations or fixtures that are unique and not customary for
office space that will be removed by Tenant at Landlord's request, and (iii)
fixtures that are described in Article 25 that will be removed) which shall have
been made or installed by Landlord or Tenant upon the Demised Premises and all
floor covering so installed shall remain upon and be surrendered with the
Demised Premises as a part thereof, without disturbance, molestation or injury,
and without charge, at the expiration of termination of this Lease. If the
Demised Premises are not surrendered on the Expiration Date or the date of
termination, Tenant shall indemnify Landlord against loss or liability arising
out of or relating to any claims resulting from such failure, including without
limitation, any claims made by any succeeding Tenant founded on such delay.
Tenant shall promptly surrender all keys for the Demised Premises to Landlord at
the place then fixed for payment of rent and shall inform Landlord of
combinations of any locks and safes on the Demised Premises.
30. HOLDING OVER. In the event of a holding over by Tenant after expiration or
termination of this Lease without the consent in writing of Landlord, Tenant
shall be deemed a Tenant at sufferance and shall pay rent for such occupancy at
the rate of 150% off the last-current aggregate Base Rent and Additional Rent,
prorated for the entire holdover period, plus all attorney's fees and expenses
incurred by Landlord in enforcing its rights hereunder, plus any other damages
occasioned by such holding over.
31. INTENTIONALLY OMITTED.
32. CONSENTS BY LANDLORD. Whenever provision is made under this Lease for either
party securing the consent or approval by the other party, such consent or
approval shall only be valid if it is made in writing and shall not be
unreasonably withheld, conditioned, denied or delayed.
33. NOTICES. Any notice required or permitted under this Lease shall be deemed
sufficiently given or secured if sent by registered or certified return receipt
mail, recognized overnight mail delivery or personal delivery to Tenant at Suite
300 E, Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343 prior to
Commencement Date and to the Demised Premises after the Commencement Date and to
Landlord at the address then fixed for the payment of rent as provided in
Article 4 of this Lease, and either party may by like written notice at any time
designate a different address to which notices shall subsequently be sent.
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34. RULES AND REGULATIONS. Tenant shall observe and comply with the rules and
regulations set forth on Exhibit D and any additional reasonable rules and
regulations adopted by Landlord for safety, care, cleanliness or efficient
operation of the Property.
35. INTENT OF PARTIES. Except as otherwise provided herein, the Tenant covenants
and agrees that if it shall at any time fail to pay any cost or expense required
to be paid by Tenant hereunder, or fail to take out, pay for, maintain or
deliver any of the insurance policies above required, or fail to make any other
payment or perform any other act on its part to be made or performed as in this
Lease provided, then, after notice required under Section 17, the Landlord may,
but shall not be obligated so to do, and without additional notice to or demand
upon the Tenant and without waiving or releasing the Tenant from any obligations
of the Tenant in this Lease contained, pay any such cost or expense, effect any
such insurance coverage and pay premiums therefor, and may make any other
payment or perform any other act on the part of the Tenant to be made and
performed as in this Lease provided, in such manner and to such extent as the
Landlord may deem desirable, and in exercising any such right, to also pay all
necessary and incidental costs and expenses, employ counsel and incur and pay
reasonable attorneys' fees. All sums so paid by Landlord and all necessary and
incidental costs and expenses in connection with the performance of any such act
by the Landlord, together with interest thereon at the Default Rate from the
date of making of such expenditure, by Landlord, shall be deemed additional rent
hereunder, and shall be payable to Landlord on demand. Tenant covenants to pay
any such sum or sums with interest as aforesaid and the Landlord shall have the
same rights and remedies in the event of the nonpayment thereof by Tenant as in
the case of default by Tenant in the payment of the Base Rent payable under this
Lease.
36. LANDLORD DEFAULT.
a. Any of the following occurrence, conditions or acts by Landlord shall
constitute a "Landlord Default": (a) Landlord's failure to make any payments of
money due Tenant hereunder within ten (10) days after the receipt of written
notice from Tenant that same is overdue; or (b) Landlord's failure to perform
any non-monetary obligation of Landlord hereunder within thirty (30) days after
receipt of written notice from Tenant to Landlord specifying such default and
demanding that the same be cured; provided that, if such default cannot with due
diligence be wholly cured within such thirty (30) days, Landlord shall have such
longer period, up to ninety (90) days, as may be reasonably necessary to cure
the default, so long as Landlord proceeds promptly to commence the cure of same
within such thirty (30) day period and diligently prosecutes the cure to
complete.
b. Upon the occurrence of a Landlord Default, at Tenant's option, in addition to
any other remedies which it may have, and without its actions being deemed a
cure of Landlord's default, Tenant may (i) pay or perform such obligations and
offset Tenant's reasonable and actual cost of performance, plus interest at the
Default Rate, against the Base Rent unless, by written notice to Tenant,
Landlord contests whether a Landlord Default has occurred and is continuing, in
which case such right of offset shall only be effective if a final,
non-appealable judgment against Landlord shall have been entered by a court of
competent jurisdiction or (ii) sue for damages.
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37. GENERAL
a. The Lease does not create the relationship of principal agent or of
partnership or of joint venture or of any association between Landlord and
Tenant, the sole relationship between the parties hereto being that of Landlord
and Tenant.
b. No waiver of any default of Tenant hereunder shall be implied from any
omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect any default
other than the default specified in the express waiver and that only for the
time and to the extent therein stated. One or more waivers by Landlord shall not
then be construed as a waiver of a subsequent breach of the same covenant, term
or condition. The consent to or approval by Landlord of any act by Tenant
requiring Landlord's consent or approval shall not waive or render unnecessary
Landlord's consent to or approval of any subsequent similar act by Tenant shall
be construed to be both a covenant and a condition. All preliminary negotiations
are merged into and incorporated in this Lease. The laws of the State of
Minnesota shall govern the validity, performance and enforcement of this Lease.
c. This Lease and the exhibits, if any, attached hereto and forming a part
hereof, constitute the entire agreement between Landlord and Tenant affecting
the Demised Premises and there are no other agreements, subsequent alteration,
amendment, change or addition to this Lease shall be binding upon Landlord or
Tenant unless reduced to writing and executed in the same form and manner in
which this Lease is executed.
d. If any agreement, covenant or condition of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such
agreement, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each agreement, covenant or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
38. HAZARDOUS MATERIAL.
a. The Demised Premises hereby leased shall be used by and/or at the sufferance
of Tenant only for the purpose set forth in Article 11 above and for no other
purposes. Tenant shall not use or permit the use of the Demised Premises in any
manner that will tend to create waste or a nuisance, or will tend to
unreasonably disturb other tenants in the Building or the Demised Premises.
Tenant, its employees and all person visiting or doing business with Tenant in
the Demised Premises shall be bound by and shall observe the reasonable rules
and regulations set forth on Exhibit D. Landlord shall have the right to add
additional and reasonable rules and regulations after the date of this Lease so
long as such rules and regulations are reasonable, do not in any material way
restrict, inhibit or limit the rights of Tenant hereunder and so long as
Landlord enforces such additional rules and regulations that are applicable to
all tenants of the Buildings and are enforced and applied in a nondiscriminatory
manner as to Tenant.
b. Except for compliance required of the Landlord under Section 6, Tenant
covenants through the Lease Term, at Tenant's sole cost and expense, promptly to
comply with all laws and ordinances and the orders, rules and regulations and
requirements of all federal, state and
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municipal governments and appropriate departments, commission, boards, and
officers thereof, and the orders, rules and regulations of the Board of Fire
Underwriters where the Demised Premises are situated, or any other body now or
hereafter as well as extraordinary, which may be applicable to the Demised
Premises, or the use or manner of use of the Demised Premises. Tenant will
likewise observe and comply with the requirements of all policies of public
liability, fire and all other policies of insurance at any time in force with
respect to the building and improvements on the Demised Premises and the
equipment thereof.
c. In the event any Hazardous Material (hereinafter defined) is brought or
caused to be brought into or onto the Demised Premises, the Building or the
Demised Premises by Tenant, its agents, employees, contractors or invitees,
Tenant shall handle any such material in compliance with all applicable federal,
state and/or local regulations. For purposes of this Article, "Hazardous
Material" means and includes any hazardous, toxic or dangerous waste, substance
or material defined as such in (or for purposes of) the Comprehensive
Environmental Response, Compensation, and Liability Act, any so-called
"Superfund" or "Superlien" law, or any federal, state or local statute, law,
ordinance, code, rule, regulation, order decree regulating, relating to, or
imposing liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or materials, as now or at any time hereafter in
effect (collectively, "Environmental Laws"). Tenant shall submit to Landlord on
an annual basis copies of its approved hazardous materials communication plan,
OSHA monitoring plan, and permits required by the Resource Recovery and
Conservation Act of 1976, if Tenant is required to prepare, file or obtain any
such plans or permits. Tenant will indemnify and hold harmless Landlord from any
losses, liabilities, damages, costs or expenses (including reasonable attorneys'
fees) which Landlord may suffer or incur as a result of Tenant's breach of this
Section 37 or its introduction into or onto the Demised Premises, Building or
Demised Premises of any Hazardous Material. This Article shall survive the
expiration or sooner termination of this Lease.
d. Landlord represents and warrants to Tenant that, to the best of its knowledge
and except as otherwise disclosed in any environmental assessment or report
delivered by Landlord to Tenant, there are no Hazardous Materials located on, in
or under the Property, Building or the Demised Premises or otherwise on or about
the Property except for materials used in the ordinary course of business by
tenant in the Building or used by Landlord in connection with the maintenance of
the Building in accordance with all applicable laws, ordinances and regulations.
Landlord agrees to indemnify and hold Tenant harmless from and against any and
all claims or damages resulting from any violation or falsity of the
representation set forth above or as a result of any leak, spill, discharge,
emission or other release of Hazardous Materials on or about the Property caused
by Landlord, its agents or employees from and after the date hereof. In the
event Hazardous Materials are discovered about or under the Property that do not
pose a threat to the health or safety of occupants of the Building and do not
interfere with Tenant's use or enjoyment of the Demised Premises, then
Landlord's obligations with respect thereto shall be limited to proper reporting
and remediation as required by applicable laws and environmental authorities.
39. FORCE MAJEURE. Either party's failure to perform the terms and conditions of
this Lease, in whole or in part, other than any term requiring the payment of
money, shall not be deemed a breach or a default hereunder or give rise to any
liability of such party to the other if
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such failure is attributable to any unforeseeable event beyond such party's
reasonable control and not caused by the negligent acts or omissions or the
willful misconduct of such party, including, without limitation, flood, drought,
earthquake, storm, pestilence, lightning, and other natural catastrophes and
acts of God; epidemic, war riot, civic disturbance or disobedience, and act of
the public enemy; fire, accident, wreck, washout, and explosion; strike,
lockout, labor dispute, and failure, threat of failure, or sabotage of such
party's facilities; delay in transportation or car shortages, or inability to
obtain necessary labor, materials, components, equipment, services, energy, or
utilities through such party's usual and regular sources at usual and regular
prices; and any law, regulation, order or injunction of a court or governmental
authority, whether valid or invalid and including, without limitation,
embargoes, priorities, requisitions, and allocations or restrictions of
facilities, equipment or operations. In the event of the occurrence of such a
force majeure event, the party unable to perform promptly shall notify the other
party. Failure to give notice within ten (10) business days of the beginning of
a force majeure event will be deemed a waiver of the otherwise excused delay.
40. INTENTIONALLY DELETED
41. TENANT IMPROVEMENTS. All improvements to the Demised Premises proposed to be
constructed by either Landlord or Tenant prior to the Commencement Date shall be
constructed in accordance with the terms and provisions set forth on the plans
and specifications attached hereto and incorporated herein as Exhibit C and the
provisions of Exhibit F.
42. NUMBERS AND CAPTIONS. The numbers and captions are inserted only as a matter
of convenience and for reference, and in no way define, limit or describe the
scope of this Lease nor the intent or any provision thereof.
43. ATTACHMENTS. See also rider attached hereto and made a part hereof
containing articles 46 through 51 inclusive as well as Exhibits A through G,
inclusive, which Exhibits are attached hereto and made a part hereof.
Exhibit Description
- ------- -----------
Exhibit A Legal Description
Exhibit B Demised Premises (also Expansion Space)
Exhibit C Improvements
Exhibit D Building Rules and Regulations
Exhibit E Operating Expense Exclusions
Exhibit F Work Letter Agreement
Exhibit G Sign Criteria
44. SUBMISSION. Submission of this instrument to Tenant or proposed Tenant or
its agents or attorneys for examination, review, consideration or signature does
not constitute or imply an offer to lease, reservation of space, or option to
lease, and this instrument shall have no binding legal effect until execution
hereof by both Landlord/Owner and Tenant or its agents.
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45. REAL ESTATE BROKERS. It is agreed and understood that Paramount Real Estate
Corporation is representing West Bloomington Business Center LLC, Landlord, and
Woodbridge Partners, Inc. is representing MGI Pharma, Inc., Tenant. Tenant
indemnifies Landlord for any claim made by or commission payable to any other
broker or agent in connection with Tenant's leasing the Demised Premises.
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IN WITNESS WHEREOF, the Landlord and the Tenant have caused these presents to be
executed in form and manner sufficient to bind them at law, as of the day and
year first above written.
TENANT: LANDLORD:
MGI PHARMA, INC
(A Minnesota Corp) West Bloomington Business Center LLC
By /s/ Charles N. Blitzer By: /s/ Michael J. Seeland
--------------------------------- ---------------------------------
Charles N. Blitzer Michael J. Seeland
Its: President Its: President
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 19th day of April,
1999 by Charles N. Blitzer, the President of MGI Pharma, Inc., a corporation
organized under the laws of the State of Minnesota, on behalf of the
corporation.
/s/ Karen S. Farago
---------------------------------
Notary Public
[Notary Stamp]
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 21st day of April,
1999 by Michael J. Seeland, the President of West Bloomington Business Center
LLC, a limited liability company organized under the laws of the State of
Minnesota, on behalf of the limited liability company.
/s/ Roberta A. Loher
---------------------------------
Notary Public
[Notary Stamp]
24
<PAGE>
RIDER TO LEASE
Rider to Lease dated April 19, 1999 by and between West Bloomington Business
Center ("WBBC") as landlord and MGI Pharma, Inc. ("MGI") as Tenant.
Article 46: OPTION TO EXTEND LEASE
A. Provided no Event of Default is continuing hereunder, Tenant
shall have the option to extend the Term of this Lease
(hereinafter, the "Option") as set forth in this Lease for one
consecutive period of Four years upon the same terms and
conditions as set forth in this Lease, except that Base Rent
shall be determined as set forth below.
B. No later than fifteen (15) months prior to the end of the initial
term, Landlord shall advise Tenant of the estimated Base Rent for
the Option Period based on the then current CPI-U. Tenant shall
exercise the Option by giving written notice to Landlord by the
later of (i) one hundred eighty (180) days of receipt of
Landlord's notice or (ii) two hundred seventy (270) days prior to
the end of the initial term. Landlord will provide Tenant with
the exact Base Rent for the Option Period in July 2005. In the
event Tenant fails to pay amounts due hereunder more than ten
(10) days after the due date more than two (2) times in the one
hundred eighty (180) days prior to the end of the initial term,
Landlord will have the option of declaring that Tenant has
forfeited the Option. Upon exercise of the Option by Tenant,
Landlord shall provide Tenant a refurbishment allowance of $3.00
per square foot for the then size of the Demised Premises to be
disbursed in accordance with customary construction disbursement
procedures.
C. Base Rent during each Lease Year of the Option period shall be an
amount equal to the product obtained by multiplying three hundred
twenty-eight thousand five-hundred ninety six Dollars
($328,596.00) by a fraction, the numerator of which is the
"Consumer Price Index-Seasonally Adjusted U.S. City Average For
All Items For All Urban Consumers (1982-84=100)" published
monthly in the "Monthly Labor Review" of the Bureau of Labor
Statistics of the United States Department of Labor ("CPI-U"),
for June, 2005 and the denominator of which is the CPI-U for June
2002, provided that in no event shall the annual Base Rent
payable during Option Period be less than three hundred twenty
eight thousand five-hundred ninety six Dollars ($328,596.00).
D. If the CPI-U is discontinued, the "Consumer Price
Index-Seasonably Adjusted U.S. City Average For All Urban Wage
Earners and Clerical Workers (1982-84=100)" published monthly in
the "Monthly Labor Review" by the Bureau of Labor Statistics of
the United States Department of Labor ("CPI-W"), shall be used
for making the computation in paragraph C above. If the CPI-W is
discontinued, comparable statistics on the purchasing power of
the consumer dollar published by the Bureau of Labor Statistics
of the United States Department
<PAGE>
of Labor shall be used for making the computation in said
Paragraph C. If the Bureau of Labor Statistics shall no longer
maintain statistics on the purchasing power of the consumer
dollar, comparable statistics published by a responsible
financial periodical or recognized authority reasonably selected
by Landlord shall be used for making the computation in said
Paragraph C. If the base year used in computing the CPI-U is
changed, the figures used in making the adjustments in Paragraph
C shall be changed accordingly, so that all increases in the
CPI-U are taken into account notwithstanding any such change in
the base year for calculation of the CPI-U.
Article 47: EARLY OCCUPANCY
Landlord will permit tenant to take occupancy of all or part of
the Demised Premises on the Delivery Date, which is anticipated
to be July 1, 1999 (the "Delivery Date") for the purpose of
fitting out the space. In such event, it is agreed that such
occupancy by Tenant shall be upon all of the terms and conditions
hereof except for Base Rent and Additional Rent. Prior to such
date, Tenant shall have access to the Demised Premises for
installation of wiring or cabling or other matters that need to
be done in coordination with the Work, provided that Tenant and
its contractors and vendors will not unreasonably interfere with
Landlord's work.
Article 48: OPTION TO LEASE ADDITIONAL CONTIGUOUS SPACE
A. Provided no Event of Default is continuing, Tenant shall have the
option to lease contiguous space in the Building consisting of
one or more of bays One through Three (in full bay increments) as
shown in Exhibit B (the "Expansion Space"), as such space becomes
available during the lease term or Option Period for a term
coterminous with this Lease, at the same rental rates and other
terms and conditions set forth in this Lease.
B. Upon notification in writing by Landlord that any of the
Expansion Space is available, Tenant shall have twenty (20)
business days in which to elect in writing to lease one or more
of the bays as determined by Tenant, in which event rent payments
for such space shall commence on the earlier of (i) the date
Tenant begins operating its business in the Expansion Space or
(ii) sixty (60) days after possession of such space has been
delivered to Tenant. Tenant agrees to use reasonable diligence to
complete its preparation of the Expansion Space and begin
operating, but in no event will rent commence earlier than thirty
(30) days after possession of the space is delivered to Tenant.
If the date possession of the Expansion Space will be made
available to Tenant will occur in the last twelve (12) months of
the initial lease term, Tenant must exercise its Option to Extend
pursuant to Article 46 as a condition to electing to expand
pursuant to this Article 48.
<PAGE>
C. In the event Tenant declines or fails to elect so to lease such
space, then the option hereby granted shall be deemed waived as
to such space until such space becomes available again, provided
that after Landlord has notified Tenant of the availability of
any portion of the Expansion Space once after the fifth (5th)
anniversary of the Commencement Date and Tenant has declined or
failed to lease such space, then the option contained in this
Article 48 as to such space shall automatically terminate and
thereafter be null and void. Landlord agrees that lease
agreements with the first tenant(s) occupying the Expansion Space
will expire within a period commencing July 1, 2004 and ending
October 31, 2005, and no options to renew or other rights will be
granted to other tenants that are not subordinate to the rights
of Tenant beyond such dates so that the Expansion Space will be
available to Tenant during such time period. Upon the execution
of leases for the Expansion Space, Landlord will notify Tenant of
the expiration dates of such leases.
D. So long as Tenant commits to lease the Expansion Space for a
period of 42 months or longer, Landlord shall provide a ceiling,
demising walls, separated utilities, lights, and HVAC system
equal to those in the Demised Premises, except that lighting
shall be 2x4, 3 lamp parabolic light fixtures, one per 70
rentable square feet of ceiling area. In the event Tenant commits
to lease the Expansion Space for less than 42 months, Landlord
shall obtain two (2) bids for the work described in the foregoing
sentence. Landlord shall pay the portion of the cost thereof
equal to the ratio of (i) the number of months that Tenant has
committed to lease the Expansion Space to (ii) 42 months. Tenant
shall pay the balance of such cost. Landlord shall provide the
bid information as part of its notification described in
paragraph B above. In the event Tenant later extends the term of
its lease of the Expansion Space to longer than 42 months,
Landlord will reimburse Tenant for its share of the cost of such
work. In addition, Landlord shall provide a tenant improvement
allowance of $3.00 per sq. ft. for each year or partial year
(prorated as to partial years) of the lease term up to $13.50 to
be disbursed in accordance with customary construction
disbursement procedures.
E. In the event of any assignment or subleasing of all of the
Demised Premises for all of the balance of the Lease term that is
not in connection with a corporate merger, asset sale or other
corporate transaction, the rights granted to Tenant under this
Article 48 shall automatically terminate and be null and void.
Article 49: NOTICE OF AVAILIBILITY OF OTHER NON-CONTIGUOUS SPACE:
A. Upon written notice from Tenant that it desires to lease
additional space if it becomes available, Landlord agrees to
notify Tenant of any such vacancies. Any notice shall contain the
square footage available, the Base Rental Rate that Landlord is
proposing based on the fair market rent for the Building. Upon
receipt of notification from Landlord, Tenant shall have twenty
(20) business days to elect to lease said space. If Tenant
notifies Landlord that it will lease any such space then the
lease term will be coterminous with Tenant's lease term unless
<PAGE>
otherwise agreed to by the Landlord and Tenant. If Tenant has
less than eighteen months remaining on its lease term or any
extensions thereof Landlord is not obligated to lease any
additional noncontiguous space to Tenant unless tenant agrees to
a term of at least eighteen months.
B. If the Landlord delivers the additional space in the condition
described in the first sentence of Article 48D, the rental on the
additional space shall commence in accordance with Article 48B.
If the additional space is delivered in any other condition,
Landlord and Tenant will negotiate in good faith on a reasonable
rental commencement date.
C. In the event of any assignment or subleasing of all of the
Demised Premises for all of the balance of the Lease term that is
not in connection with a corporate merger, asset sale or other
corporate transaction, the rights granted to Tenant under this
Article 49 shall automatically terminate and be null and void.
Article 50: ROOF RIGHTS
Tenant shall have the right to install an antenna or install a
satellite dish on the roof in an area designated by the Landlord
at Tenant's expense. Tenant agrees to hire a contractor
reasonably acceptable to Landlord to make any roof penetrations
to install any antenna or satellite dish. Tenant shall not be
charged rent for any area of the roof used for an antenna or
satellite dish installation. Tenant agrees to remove any antennas
or Satellite dishes at the end of the lease term or any
extensions thereof and to repair the roof, all at Tenant's
expense.
Article 51: BROKERAGE FEE
In connection with the leasing space in the Building currently
described as West Bloomington Business Center, Woodbridge
Partners, Inc. ("Broker") has introduced MGI PHARMA, INC.
("Tenant") as a prospective tenant of the Building and will be
entitled to the payment of a Commission ("Commission") which
shall be earned and absolute upon the consummation of a Lease
("Lease") between West Bloomington Business Center, LLC, and the
Landlord of the Buildings(s) ("Landlord") and Tenant according to
the terms as set forth herein.
The Commission payable by Landlord to Broker shall be for the
space initially leased by Tenant (the "Initial Space"), as well
as any expansion space anywhere in West Bloomington Business
Center ("Expansion Space").
The Commission for the initial lease shall be $64,487.00 and
shall be payable as follows:
One half within 45 days of the signing of the lease by both
parties and the balance within 30 days of the lease commencement
date.
<PAGE>
The Commission payable for an option to extend, whether in
accordance with Article 46 or otherwise, shall be $2.20 per
square foot and shall be payable upon the first day of the option
period.
The Commission payable for an expansion into the Expansion Space,
whether in accordance with Article 48 or otherwise, shall be $.55
per square foot per year (prorated for partial years) up to a
maximum of $2.75 per square foot.
The Commission for expansion into the Expansion Space shall be
payable on the effective date of the expansion.
If Tenant leases any other additional space in the property
pursuant to Article 49 or otherwise and Tenant's broker of record
is instrumental in causing Tenant to lease such space, then
Landlord shall pay Tenant's broker of record a commission
consistent with fees being offered to outside brokers that bring
tenants to the Property, not to exceed $.55 per square foot per
year (prorated for partial years).
Landlord acknowledges that Woodbridge Partners, Inc. represents
Tenant and that Landlord does not rely on Woodbridge Partners,
Inc. for advice or representation.
- --------------------------
The following exhibits are not filed herewith. They will be provided to the
Commission upon request.
Exhibit Description
- ------- -----------
Exhibit A Legal Description
Exhibit B Demised Premises (also Expansion Space)
Exhibit C Improvements
Exhibit D Building Rules and Regulations
Exhibit E Operating Expense Exclusions
Exhibit F Work Letter Agreement
Exhibit G Sign Criteria
<PAGE>
Exhibit 10.3
RETIREMENT, SEPARATION AND RELEASE AGREEMENT
This Retirement, Separation and Release Agreement (the "Agreement") is entered
into by and between MGI PHARMA, INC. (the "Company") and James V. Adam (the
"Employee").
A. The Company and the Employee have agreed that the Employee shall retire,
and resign as an officer of the Company and from any other position which he may
hold by virtue of or in connection with his employment by the Company.
B. The purpose of this Retirement, Separation and Release Agreement is to
set forth the terms and conditions under which the Company and the Employee will
terminate their employment relationship.
Accordingly, in consideration of the mutual covenants and promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Employee and the Company agree as
follows:
1. Resignation. Employee hereby resigns as an employee and officer of the
Company, and from any other position which he may hold by virtue of or in
connection with his employment by the Company, effective as of August 31, 1999.
2. Termination Benefits.
(a) Subject to the terms and conditions of this Agreement, including
the release set forth in Section 9(a) and the noncompete agreement set
forth in Section 6, the Company will pay to Employee twenty-four (24)
installments at Employee's current semi-monthly rate of base pay ($8,125),
with the first such payment being made on the Company's regular payroll on
September 15, 1999 and subsequent payments on each such payroll date
thereafter. Employee acknowledges that no payments are due under Section
2(a) if Employee rescinds this Agreement as provided in Section 10(b). If
Employee dies prior to having received all such payments, any remaining
payments will be made to Employee's estate.
(b) Subject to the terms and conditions of this Agreement, including
the releases set forth in Sections 9(a) and (b), and the noncompete
agreement set forth in Section 6, the Company will pay to Employee $37,500
on September 30, 1999, and $37,500 on January 31, 2000. Employee
acknowledges that no payments are due under Section 2(b) if Employee
rescinds this Agreement as provided in Section 10(b) , or rescinds the
Release referred to in Section 9(b) as provided in Section 10(c).
(c) Subject to the terms and conditions of this Agreement, including
the release set forth in Section 9(a), the Company will pay outplacement
fees and expenses, for a maximum of twelve (12) months following the date
of this
<PAGE>
Agreement, to an outplacement services firm selected by the Company. During
the period the Company is making such payments, it will be entitled to
receive reports from said firm about Employee's efforts to obtain new
employment. If Employee rescinds this Agreement pursuant to Section 10(b),
the Company will not be obligated to make any payments specified in this
paragraph.
(d) If Employee timely elects continued coverage under the Company's
group medical plan, group dental plan and group life insurance plan
pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended,
in accordance with ordinary plan practices, Employee may continue his COBRA
coverage until his eligibility therefor ends at the full premium cost
thereof.
3. Accrued Vacation. As of the effective date of the resignation provided
in Section 1, the Company shall pay Employee for unused vacation accrued prior
thereto.
4. Other Benefits. Employee is a participant in various employee benefit
plans sponsored by the Company. Other than as set forth herein, the payment of
benefits, including the amounts and the timing thereof, will be governed by the
terms of the employee benefit plans, and nothing in this Agreement shall limit
any rights Employee may otherwise have as a former employee under the employee
benefit plans as provided therein.
(a) Stock Option and Limited Stock Appreciation Rights Agreements. As a
participant in various Company stock option plans, and provided that
the Compensation Committee of the Board of Directors approves a
recommendation to affirmatively determine that the Employee's
termination of employment with the Company constitutes a "retirement"
within the meaning of applicable sections of stock option agreements,
Employee shall have the right to exercise options according to the
rights specified in applicable stock option and limited stock
appreciation rights agreements that contain these extended rights to
exercise options after "retirement".
(b) Split Dollar Life Insurance. As a participant in life insurance
policies under the Company's Split Dollar Life Insurance programs,
Employee will continue to be listed as the owner of applicable
policies. The Company will make no further premium payments or
contributions to these policies. The Employee agrees to maintain the
existing secured interest of the Company in these policies such that
the Company will be repaid all premium payments made by the Company at
such time that the policies pay out either the cash value or the death
benefit.
5. Return of Information and Assets. Employee will return to the Company
all originals and all copies of the Company's records, correspondence and
documents, and all other property and assets of the Company, created or obtained
by Employee as a result of or in the course of or in connection with his
employment with the Company which are in his possession or control, whether
confidential or not.
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<PAGE>
6. Competitive Activities. Employee agrees that from the effective date of
this Agreement and continuing through the one-year period he is to receive
severance payments pursuant to Section 2(a), he will not alone or in any
capacity with any firm,
(a) disrupt, damage, impair or interfere with the business of the
Company whether by way of interfering with or disrupting the Company's
present or future relationship with any employee, customer or vendor; or
(b) without the prior written consent of the Company, employ or
attempt to employ any of the Company's then employees on behalf of any
other entity.
For purposes of Sections 6(a) through (b), inclusive, the term "Company"
shall include the Company, any direct or indirect subsidiary of the Company, and
any other affiliated corporation or entity of any of the foregoing.
In the event of a breach of this Section 6 by Employee, the obligation of
the Company to make the payments provided for in Section 2(a) and (b) shall
immediately cease and Employee shall forfeit all rights to receive such
payments. Before ceasing these payments, the Company shall provide Employee with
fifteen (15) days notice of the breach to permit Employee the opportunity to
explain his actions and cure any breach.
The provisions of this Section 6 are for purposes of this Agreement and are
not limited by the provisions of the preexisting Termination Agreement Section
4(d).
7. Confidential Information. Employee shall not directly or indirectly
disclose or use at any time before or after the effective date of this Agreement
any technology, trade secrets, know-how or other information, knowledge or data
owned, possessed or utilized by the Company or to which Employee had access in
connection with his employment and which the Company deems confidential or
proprietary or which Employee has reason to believe is confidential or
proprietary unless Employee shall first have obtained the written consent of the
Company. The foregoing obligation of confidentiality shall not apply to any
information, knowledge or data the entirety of which is now published or
subsequently becomes generally publicly known, other than as a direct or
indirect result of the breach of this Agreement by Employee or a breach of a
confidentiality obligation owed to the Company by another.
8. No Other Benefits. Employee agrees and understands that he is entitled
to no other benefits than those enumerated in this Agreement. The Employee also
understands that payments made pursuant to this Agreement may be subject to
withholding of applicable income and other employment-related taxes and consents
to the Company's right to withhold from such payments.
9. Settlement and Release.
(a) Employee hereby fully and completely releases and waives and
forever discharges the Company from any and all claims, complaints, causes
of action or
3
<PAGE>
demands of whatever kind, known or unknown, suspected or unsuspected, which
exist or may exist as of the effective date of this Agreement arising out
of any actions, conduct, decisions, behavior, or events occurring prior to
the execution of this Agreement, including without limitation any and all
claims, complaints, causes of action or demands relating in any way to the
terms, conditions and circumstances of Employee's employment, the
resignation by Employee as an officer of the Company and other capacities
in which he served at the request of the Company, or Employee's ownership
of shares of common stock of the Company or options or other rights to
purchase shares of such common stock, whether based on state or federal
statutory or common law claims for employment discrimination (including
age, sex and disability discrimination), wrongful discharge, breach of
contract, negligence or other breach of duty, fraud, negligent or
intentional misrepresentation, negligent or intentional infliction of
emotional distress, defamation, promissory estoppel, breach of express or
implied promise, breach of public policy, failure to pay wages or other
benefits, or any other theory, whether legal or equitable. Employee makes
this release on behalf of himself, his estate and his heirs, personal
representatives, administrators, executors, successors and assigns, and his
release of the Company extends to its successors, subsidiaries, assigns,
insurers and affiliates and all past and present directors, officers,
employees and agents of such persons and companies.
(b) Employee hereby agrees to sign and deliver to Company at the end
of the work day on the effective date of resignation specified in Section 1
a Release in the same language as that used in Section 9 (a) above. The
"effective date" of this Agreement shall be the first working day following
the expiration of the twenty-one (21) day rescission period associated with
the first release set forth in Section 9(a), provided Employee does not
exercise his right of rescission.
10. Miscellaneous.
(a) Employee hereby acknowledges having the opportunity to take
twenty-one (21) days to consider the terms of this Agreement before
signing, that he fully understands and accepts the terms of this Agreement,
that his signature is freely, voluntarily and knowingly given, and that he
has been provided a full opportunity to review and reflect on the terms of
the Agreement and to obtain the advice of legal counsel of choice, which
advice the Company has encouraged him to obtain.
(b) After executing this Agreement, Employee understands that he may
rescind this Agreement by delivering written notice of such rescission
within twenty-one (21) days of the date appearing next to his signature. To
be effective, such rescission notice must be delivered to the Company,
Suite 300E, Opus Center, 9900 Bren Road East, Minnetonka, Minnesota
55343-9667, Attention: Vice President, Human Resources. Employee
understands that this Agreement will not become effective until the end of
such twenty-one (21)-day period and
4
<PAGE>
only if Employee does not rescind this Agreement.
(c) After executing the Release set pursuant to Section 9 (b),
Employee understands that he may rescind this Release by delivering written
notice of such rescission within fifteen (15) days of the date appearing
next to his signature. To be effective, such rescission notice must be
delivered to the Company, Suite 300E, Opus Center, 9900 Bren Road East,
Minnetonka, Minnesota 55343-9667, Attention: Vice President, Human
Resources. Employee understands that this Release will not become effective
until the end of such fifteen (15)-day period and only if Employee does not
rescind this Agreement.
(d) This Agreement is confidential. Neither the Company nor Employee
will reveal the terms of the Agreement except as may be necessary to effect
its terms or as required by law, court order or valid legal proceedings.
Employee may also disclose the terms to his immediate family, legal
counsel, investment advisor or banks, and accountant or tax advisor. The
Company may also disclose the terms to its officers and directors, outside
auditors, tax advisors and legal counsel. Both parties shall also be
permitted to disclose the non-competition provisions of this Agreement.
(e) This Agreement constitutes the entire agreement between the
parties; provided, it does not disturb the Termination Agreement regarding
a "Change of Control". No modification, amendment or change of any kind to
this Agreement shall be effective unless it is in writing and signed by
both parties.
(f) The laws of the State of Minnesota will govern the validity,
construction and performance of this Agreement, without regard to the
conflict of law provisions of any other jurisdictions. Any legal proceeding
related to this Agreement will be brought in an appropriate Minnesota
court, and both parties hereby consent to the exclusive jurisdiction of
that court for this purpose.
(g) Whenever possible, each provision of this Agreement will be
interpreted so that it is valid under the applicable law. If any provision
of this Agreement is to any extent invalid under the applicable law, that
provision will still be effective to the extent it remains valid. The
remainder of this Agreement will also continue to be valid, and the entire
Agreement will continue to be valid in other jurisdictions.
(h) Nothing in this Agreement is intended to be, and nothing will be
deemed to be, an admission of liability by the Company or Employee that
either of them has violated any state or federal statute, local ordinance
or principle of common law, or that either party has engaged in any
wrongdoing.
(i) The parties hereto agree that the rights granted by this Agreement
are both unique and special and the parties contemplate that enforcement of
this
5
<PAGE>
Agreement may be had by recourse to the equitable remedies available in
courts of appropriate jurisdiction in addition to any other remedies which
may be or become available at law.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates
set forth below to be effective as of the date set forth in the first paragraph
on the first page of this Agreement.
Dated: June 23, 1999 MGI PHARMA, INC.
By: /s/ Charles Blitzer
-------------------------------------
Its: President and Chief Executive Officer
Dated: June 23, 1999 /s/ James V. Adam
------------------------------------------
James V. Adam
6
<PAGE>
EXHIBIT 10.4
CO-EXCLUSIVE MARKETING AGREEMENT
THIS AGREEMENT is made as of the 29th day of June, 1999 (the "Effective
Date"), by and between PHARMACIA & UPJOHN COMPANY, a corporation organized and
existing under the laws of the state of Delaware, with offices at 95 Corporate
Drive, Bridgewater, New Jersey 08807-1265 ("P&U"), and MGI PHARMA INC., a
corporation organized and existing under the laws of Minnesota, with offices at
Suite 300 E, Opus Center, 9900 Bren Road East, Minnetonka, MN 55343-9667
("MGI").
WHEREAS, P&U has proprietary rights to the pharmaceutical product,
AZULFIDINE EN-T (R), which it markets for use in treating rheumatoid arthritis
among other inflammatory disorders;
WHEREAS, MGI has experience and expertise in the marketing and promotion of
pharmaceutical preparations in various fields, including the field of
rheumatology; and
WHEREAS, P&U and MGI wish to enter into an agreement relating to the
marketing and promotion of AZULFIDINE EN-T (R) in the Territory (defined below).
NOW, THEREFORE, the parties hereby agree as follows:
Section 1. Definitions
1.1 "Affiliate" shall mean in the case of a corporation, any entity in
which P&U or MGI, as the case may be, has ownership, directly or indirectly, of
at least fifty percent (50%) of the stock entitled to vote for the election of
Directors and, in the case of a non-stock company, any entity in which P&U or
MGI, as the case may be, has the legal power to direct or cause the direction of
the general management and policies of such entity.
1.2 "Best Efforts" shall mean those efforts that would be made by a
reasonably prudent business person acting in good faith in the exercise of
reasonable commercial judgment.
1.3 "Contract Year" shall mean each 12 calendar month period commencing on
the first day of the calendar month in which MGI begins Detailing the Product.
1.4 "Dedicated Sales Force" shall mean such employees of MGI as have been
assigned to the promotion and Detailing of the Product. The number of MGI
employees that constitute the Dedicated Sales Force, including their
distribution throughout the Territory, as of the Effective Date is further
described in Exhibit A attached hereto. MGI retains the right to change the
number and distribution of its Dedicated Sales Force needed, due to business
conditions and/or position vacancies, and it will inform P&U of any material
changes in the composition thereof.
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Marketing Agreement
P&U/MGI Page -2-
1.5 "Details" or "Detailing" shall mean with respect to the Product the
activity undertaken by a sales representative during a sales call on physicians
and using, as necessary or desirable, labeling or promotional materials, in an
effort to increase physician prescribing preferences for the Product for its
FDA-approved uses.
1.6 "FDA" shall mean the U.S. Food and Drug Administration.
1.7 "Incremental Revenue" shall mean (1) the amount of Net Sales for any
period which exceed the prorated Sales Base for such period, less (2) a
distribution expense deduction of 1.5% of the amount determined in (1) above.
1.8 "Marketing and Promotional Plan" shall mean the plan and budget for the
activities of the parties relating to the Product as approved by the Operations
Committee, including without limitation the budget for Non-Detailing Costs for
advertising, dissemination of literature and brochures, exhibition materials,
promotional aids and mailing, samples and participation in major national and
regional symposia.
1.9 "Marketing Fee" shall mean the quarterly fee calculation to MGI by P&U
hereunder which is described in Section 6.1.
1.10 "Marketing Team" shall mean the Product Managers from P&U and MGI
responsible for the management of day-to-day administrative and operational
activities relating to the marketing of the Product.
1.11 "Net Sales" shall mean with respect to any Product: the gross invoiced
sales of such Product by P&U to unrelated third persons, less the following
deductions to the extent included in the gross invoiced sales for such Product
or otherwise directly paid or incurred by P&U or its sublicensees with respect
to the sale of such Product, all determined in accordance with U.S. Generally
Acceptable Accounting Principles:
(i) discounts, credits, rebates, allowances, adjustments, rejections,
recalls for which the customer has been credited the original sales price
and returns;
(ii) trade, quantity, or cash discounts or rebates customary to the
industry and actually allowed, given or accrued (including, but not limited
to, cash, governmental and managed care rebates, and hospital or other
buying group chargebacks);
(iii) sales, excise, turnover, inventory, value-added, and similar
taxes assessed on the sale of such Product, to the extent included in the
invoiced sales;
(iv) the portion of any management fees paid during the relevant time
period to group purchasing organizations that relate specifically to the
sale of such Product to such organizations.
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Marketing Agreement
P&U/MGI Page -3-
1.12 "Non-Detailing Costs" shall mean all amounts approved by the Marketing
Team (as evidenced by inclusion in the Annual Marketing and Promotion Plan) and
spent by either party in promotion and marketing the Product to the prescribing
community (and, if applicable, to the patients), which are not directly related
to the maintenance and functioning of MGI's Dedicated Sales Force. Non-Detailing
Costs include but are not limited to samples, field aids, advertising,
organization of conventions and symposia, Promotional Materials, organization of
training courses, training materials, scientific publications, and all other
expenses not directly related to the support, maintenance and function of the
Dedicated Sales Force or employees or agents of P&U. Except as expressly
provided herein, Non-Detailing Costs shall not include travel and lodging
expenses for employees of MGI or P&U, nor any part of either party's respective
internal operating expenses for any reason or purpose.
1.13 "Operations Committee" shall mean those persons from P&U and MGI that
shall have responsibility for providing the leadership required to ensure
optimal commercial success of the Product.
1.14 "Product" shall mean AZULFIDINE EN-T(R) (sulfasalazine formulated in a
delayed release tablet for oral administration) in all approved indications,
including any improvements thereto.
1.15 "Product Manager" shall mean the individual at P&U and MGI responsible
for the day-to-day activities related to the marketing and promotion of the
Product.
1.16 "Promotional Materials" shall mean all sales and promotional materials
related to the Product created by or for P&U prior to or after the Effective
Date.
1.17 "Proprietary Information" means any information of value of either
party, not generally known to the public, including (but not limited to):
(a) Information related to the Product; the development status of the
Product; Product indications and modes of administration; technical
information, such as clinical, biological, manufacturing,
pharmaceutical and characterizing data; and know-how;
(b) business information, such as reports; records; customer lists;
supplier lists; marketing and sales plans; financial information;
costs; and pricing information; and
(c) pharmacoeconomic analyses, if any, conducted by P&U with respect to
the Product.
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Marketing Agreement
P&U/MGI Page -4-
1.18 "Sales Base" shall mean P&U's Net Sales of Product in the Territory in
the last 12 full calendar months preceding the date on which MGI begins
Detailing the Product. When prorating the Sales Base in the calculation of
Incremental Revenue for periods of less than one year, the Sales Base shall be
evenly distributed by month.
1.19 "Territory" shall mean the United States, including the District of
Columbia.
1.20 "Trademarks" shall mean all trademarks, trade names, brand names,
logos and designs whether or not registered, used during the term of this
Agreement by either party in connection with the promotion, marketing and sale
of the Product.
Section 2. Relationship
2.1 P&U and MGI wish to cooperate in the promotion and marketing of the
Product in order to maximize the sales of the Product in the Territory to the
mutual profit and advantage of both Parties.
2.2 During the term of this Agreement, P&U will not grant, whether by
agreement or otherwise, any third party any rights to promote or market the
Product in the Territory that conflict with the rights granted to MGI hereunder.
Section 3. Structure
3.1 The cooperation between the parties as set forth in this Agreement will
not constitute nor be construed as constituting a partnership or a relationship
of agent and principal. Neither party shall, under any circumstances act as or
represent itself to be a partner, agent or a representative of the other.
Neither party shall have any responsibility for the firing, compensation, or
employee benefits of the other party's employees. No employee or representative
of either party shall have any authority to bind or obligate the other party to
this Agreement for any sum or in any manner whatsoever, or to create or impose a
contractual or other liability on the other party without said party's
authorized written approval. For all purposes, and notwithstanding any other
provision of this Agreement to the contrary the legal relationship of the
parties under this Agreement shall be that of independent contractors.
3.2 For the purpose of coordinating promotional and marketing activities
and expenditures of each party with respect to the Product in the Territory, the
parties will set up an Operations Committee and a Marketing Team in which both
parties are equally represented.
3.3 Operations Committee: The Operations Committee shall be co-chaired by a
senior manager from P&U and MGI. The initial membership of the Operations
Committee shall be as set forth in Exhibit B and as shall be amended from time
to time. Replacements on the Operations Committee shall be any person having a
functionally equivalent position to that of the person replaced. The Operations
Committee is responsible for providing the
<PAGE>
Marketing Agreement
P&U/MGI Page -5-
leadership required to ensure the optimal commercial success of the Product. It
shall evaluate and determine the level of human, financial and functional
resource support required and shall approve, and serve as the decision body on
all matters pertaining to implementation of activities outlined in, the
Marketing and Promotional Plan. The Operations Committee shall also oversee the
activities of the Marketing Team and resolve any disputes arising from the
Marketing Team. During the first Contract Year of this Agreement, the Operations
Committee shall meet regularly as needed, but not less than once every four (4)
months. Thereafter, meetings will be held as necessary, but at least twice per
Contract Year. The location of said meetings shall alternate between the home
offices of each party or an acceptable off-site location as agreed to between
each party. In the event the members are unable to reach a unanimous decision on
a matter, P&U shall have the deciding vote.
3.4 Marketing Team: The Marketing Team shall be comprised of Product
Managers (or their representatives) from P&U and MGI and shall be responsible
for management of the day to day administrative and operational activities and
shall coordinate activities of each party's members of its respective marketing
team, including approving the use by MGI of the Promotional Materials (and the
use of the Trademarks included therein). Further, the Marketing Team shall
prepare the annual Marketing and Promotional Plan, including a budget for
Non-Detailing Costs, which shall be reviewed and approved by the Operations
Committee, and the Marketing Team shall periodically review and determine
whether modifications are necessary to a Marketing and Promotional Plan for a
particular year in order to adjust to market circumstances (which modifications
must be approved by the Operations Committee). The Marketing and Promotional
Plan for Contract Year 1 will be developed by the Marketing Team within 45 days
after the Effective Date and will be attached hereto as Exhibit C. The Marketing
and Promotional Plan for subsequent Contract Years will be developed in a timely
manner by the Marketing Team and attached hereto as Exhibit C. The Marketing
Team shall meet regularly as needed. Any disagreement within the Marketing Team
shall be referred to the Operations Committee for resolution.
Section 4. Strategy/Role of Parties/Commitments
4.1 Strategy
The parties agree that the most efficient strategy to achieve the
objectives of this Agreement is through the promotion (both Detailing and
the activities related to the Non-Detailing Costs) of the Product by the
Dedicated Sales Forces and the parties, using a centrally coordinated
marketing approach.
4.2 P&U's Role
4.2.1 P&U as owner of the Product will retain full and sole control and
ownership over the Product including all improvements to the Product whether
patentable or not, any and all existing and future intellectual property rights,
including Trademarks and regulatory approvals connected with the Product.
<PAGE>
Marketing Agreement
P&U/MGI Page -6-
4.2.2 P&U shall manage all regulatory filings, labeling requirements,
regulatory reporting duties, price approvals for reimbursement purposes, and
post-marketing regulatory obligations.
4.2.3 P&U shall retain exclusive authority and responsibility for the
handling of adverse reaction reports. In the case of serious adverse reaction
reports, MGI shall use Best Efforts to notify P&U immediately by telephone or
telefax of any adverse reaction data it may have received. The parties will meet
to determine the most appropriate way to handle any such reports.
4.2.4 P&U shall retain exclusive authority and responsibility for handling
any disputes and law suits with any regulatory agency, as well as with patients
and customers, regarding advertising, promotion and other activity hereunder,
except that P&U may not obligate MGI (whether monetarily or otherwise) as part
of the settlement of any such dispute or law suit without MGI's prior written
consent.
4.2.5 P&U will manufacture the Product for sale in the Territory.
4.2.6 P&U retains the right to market and sell the Product in the
Territory, provided that P&U reports its marketing and sales activities to the
Marketing Team in order for such activities to be coordinated with the Marketing
and Promotional Plan.
4.2.7 P&U will have the sole right and responsibility for establishing and
modifying the terms and conditions with respect to the sale of the Product,
including the price at which the Product will be sold and any discounts or
rebates granted.
4.2.8 P&U will have sole responsibility for dealing with the FDA and all
regulatory agencies concerning the Product unless otherwise required by law or
regulation.
4.2.9 P&U will be solely responsible for billing of customers and for all
relations with customers.
4.2.10 P&U shall handle all requests or inquiries related to the return of
Product. MGI's Dedicated Sales Force shall not accept returns of Product from
the field and shall refer such requests or inquiries to P&U's Customer Service
representatives for handling in accordance with P&U's returned goods policy.
4.2.11 P&U alone shall have the authority to recall any quantity of the
Product and shall manage any recall.
4.2.12 P&U shall timely supply MGI with mutually agreed upon sales data for
the Product at no charge.
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Marketing Agreement
P&U/MGI Page -7-
4.3 MGI's Role
4.3.1 MGI shall use its Best Efforts, consistent with accepted business
practices and legal requirements, to train, deploy, motivate through appropriate
incentive compensation and use its Dedicated Sales Force to promote and Detail
the Product in the Territory in accordance with the Marketing and Promotional
Plan and other promotional programs and budgets approved by the Operations
Committee and otherwise in such a manner and as expeditiously as MGI itself
would have adopted in launching, promotion and Detailing any other major
pharmaceutical product within its product portfolio.
4.3.2 MGI will cooperate with P&U in dealing with any customer complaints
concerning the Product and will take such action to resolve such complaints
concerning the Product as may be reasonably requested by P&U, consistent with
the rights granted to MGI hereunder. MGI will inform P&U in writing regarding
any information concerning the safety or efficacy of the Product as required by
Section 4.2.3.
4.4 Obligations of the Parties
4.4.1 Governmental Contact Reporting MGI shall immediately notify P&U upon
being contacted by the FDA or any state drug regulatory agency for any
regulatory purpose pertaining to the Agreement or to the Product. MGI shall not
respond to such contact before consulting with P&U unless it is impracticable to
give advance notice in which event MGI will notify P&U of such contact as soon
as reasonably practical.
4.4.2 Promotional Materials and Samples. P&U shall provide MGI with all
available Promotional Materials created by or for P&U in quantities sufficient
to allow MGI's representatives to Detail the Product in accordance with the
Marketing and Promotional Plan. Such Promotional Materials and any other items,
such as samples, to be provided by P&U to MGI pursuant to the Marketing and
Promotional Plan shall be provided at P&U's cost, and included in P&U's
Non-Detailing Costs. MGI shall only use Promotional Materials provided by P&U
and shall not in any manner alter such materials provided by P&U except that MGI
may attach to Promotional Materials created by P&U labels created by MGI and
approved by the Marketing Team.
4.4.3 Sales Training P&U shall provide MGI all training, including, without
limitation all training materials, transfer of expertise, advice and assistance
in order for MGI and its Dedicated Sales Force to receive adequate training as
needed to Detail and promote the Product as provided for in this Agreement. MGI
shall ensure that its Dedicated Sales Force is available for such training. MGI
may create or have created training materials for the Products using the
training materials and information provided by P&U.
<PAGE>
Marketing Agreement
P&U/MGI Page -8-
4.4.4 Orders P&U shall manage and fill all orders for the Product, and MGI
shall not take any order for the Product. MGI shall promptly refer any orders
for the Product from third parties to P&U so that such orders can be processed
by P&U on a timely basis.
4.4.5 Invoices All invoices to customers in the Territory shall be sent by
P&U directly to the customer. It is expressly understood that full power and
authority for all collections rests with P&U, which shall exercise complete
control over the approval of all customers credits, orders, and contracts.
4.4.6 Information Requests All significant questions and inquiries
regarding the Product received by MGI which cannot be answered by MGI by
referring to the Product package inserts or labeling shall be forwarded by MGI
to P&U as soon as practical after receipt, but in any event no longer than five
(5) business days after receipt by MGI.
4.4.7 Government Contact. P&U shall provide MGI with prompt written notice
of any inquiries from or positions taken by the FDA or any other government
agency which may significantly affect the marketing of the Product.
4.4.8 Generic Competition and Reduced Sales. In the event that (a) any
generic version of the Product competing with the Product marketed in the
Territory reduces sales of the Product in the Territory by *** percent (***%) or
to the Sales Base Level (where both such reductions will be measured on a
quarter by quarter basis), or (b) if the Marketing Fee for the fourth quarter of
a Contract Year is negative and MGI is required to pay to P&U any amounts for
such quarter pursuant to the terms of Section 6.1, the parties will meet within
twenty (20) days after such determination in order to discuss and agree upon any
necessary modifications to the Marketing and Promotional Plan and the parties'
rights and obligations hereunder (including, without limitation, the formula
used to calculate MGI's Marketing Fee hereunder), in order to adjust to such
unexpected decrease in Incremental Revenue. If the parties cannot reach
agreement on such modifications within ten (10) days after their meeting, then
MGI shall have the right to terminate this Agreement as provided in Section
14.5. In addition, if at any time either party can demonstrate its inability to
promote the Product on a profitable basis to the reasonable satisfaction of the
other party, such party shall have the right to terminate this Agreement as
provided in Section 14.5.
4.4.9 No Hire. During the term of this Agreement and for six (6) months
thereafter, neither party nor its Affiliates shall hire any employees of the
other party without prior written consent, which consent such party may grant in
its sole discretion.
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
<PAGE>
Marketing Agreement
P&U/MGI Page -9-
4.4.10 Warranty. Each party warrants to the other that it has the corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder, and such execution, delivery and performance hereunder
does not and will not violate any other agreements of such party. P&U warrants
to MGI that it has the right to grant to MGI the rights and license granted
under this Agreement.
Section 5. Sales Target
5.1 Sales Targets. In each Contract Year, MGI shall meet the following
sales targets (the "Sales Targets"): in the first Contract Year, the Sale Base
plus *** percent (***%) of such Sales Base, and in each subsequent Contract
Year, the preceding year's Sales Target, plus *** percent (***%) of such
preceding year's Sales Target. If at the end of any Contract Year, MGI has
failed to meet such Sales Target, the parties shall meet and attempt to arrive
at mutually acceptable compromise within the spirit and intent of this
Agreement, failing which, P&U may terminate this Agreement as provided in
Section 14.4.
Section 6. Compensation
P&U shall compensate MGI for its services rendered during the term of this
Agreement as follows:
6.1 Marketing Fee. P&U shall calculate and pay MGI a Marketing Fee equal to
(a) fifty percent (50%) of Incremental Revenue, minus (b) fifty percent (50%) of
the aggregate total of Non-Detailing Costs incurred by P&U and MGI, plus (c) one
hundred percent (100%) of the Non-Detailing Costs incurred by MGI, with all such
Non-Detailing Costs approved by the Marketing Team as provided in Section 3.4.
The Marketing Fee shall be calculated on a Contract Year-to-date basis as of the
end of the 3rd, 6th, 9th and 12th months (i.e., each quarter) of each Contract
Year. Thus, amounts paid to MGI for previous quarters of a particular Contract
Year shall be deducted in determining the amount due for the current quarter. In
the event the amount due MGI for the 1st, 2nd or 3rd quarter of a Contract Year
is negative, no cash settlement will be made to either party. If the amount due
MGI for the 4th quarter is negative, MGI shall pay to P&U the lesser of: (a) the
amount due for the quarter, or (b) the amount necessary such that MGI has paid
(i.e., expended directly and/or to paid to P&U pursuant to this item (b)) a
total of fifty percent (50%) of the aggregate total Non-Detailing Costs incurred
by MGI and P&U in such Contract Year. Calculation and payment of each quarterly
Marketing Fee will be made within 45 days after the end of the applicable
quarter, and P&U shall provide a written report detailing the basis for the
amount of such payment (even if no payment is due in such quarter), unless MGI
has not provided P&U an accounting of its Non-Detailing Costs for the applicable
quarter within 25 days after the end of such quarter, in which case P&U shall
have 20 days from receipt of the required information from MGI in which to
calculate and make the appropriate payment and report to MGI. An example
calculation of the Marketing Fee for a particular Contract Year is contained in
Exhibit C attached hereto.
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
<PAGE>
Marketing Agreement
P&U/MGI Page -10-
6.2 Compensation and Expenses. The Marketing Fee shall be the sole and
exclusive compensation to MGI for any and all services performed pursuant to
this Agreement. MGI shall bear the entire cost and expense of conducting its
business including, but not limited to, salaries and commissions of its
personnel, offices and communications cost, travel and advertising expenses, and
similar expenses.
6.3 Sales in Territory. MGI will be compensated only for sales made by P&U
in the Territory. A sale shall be deemed made in the Territory when an order for
the Product is delivered within the Territory.
Section 7. Promotional Activities
7.1 Field Force Activities
7.1.1 MGI's sales force shall promote the Product by providing Details
according to the Marketing and Promotional Plan. The parties agree that MGI
shall carry out approximately *** Details on an annualized basis in each of the
first two Contract Years.
7.1.2 MGI will generate and maintain its own internal call reporting system
which shall be the basis for generating reports on Detailing activity to
designated physician targets.
7.1.3 MGI shall not sub-contract the performance of any of its Detailing
activities under this Agreement without the prior written consent of P&U.
Section 8 Reports
8.1 Quarterly Reports Within twenty (20) business days after the last day
of each quarter, MGI will provide P&U, in writing, with the following
information for that quarter: the report on Detailing activity described above
in Section 7.1.2 and a status report on the activities to be carried out by MGI
under the Marketing and Promotional Plan.
8.2 Audit For three (3) years after a report provided for in Section 8.1
above is delivered to P&U hereunder, MGI agrees to keep true and accurate
records of all data utilized for the purpose of making such report and such
records shall contain sufficient detail to permit a determination of the
accuracy of such report. For three (3) years after a report is delivered to MGI
hereunder, P&U agrees to keep true and accurate records of all data utilized for
the purpose of making such report, and such records shall contain sufficient
detail to permit a determination of the
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
<PAGE>
Marketing Agreement
P&U/MGI Page -11-
accuracy of such report. Each party shall have the right during the applicable
three (3) year period provided above, at its own expense and upon reasonable
notice, to conduct audits of all of the relevant books and records of the other
party which are directly related to the promotion and sale of the Product in
order to determine the accuracy of a report provided and payments made, as
applicable, by the other party pursuant to such report; provided, however, that
if any such audit determines that P&U has underpaid MGI by more than five
percent (5%) in a particular calendar quarter and such underpayment was not
subsequently corrected by P&U in an ensuing quarter, then P&U shall immediately
pay the amount of such underpayment to MGI and shall pay all reasonable costs of
MGI's audit.
8.3 Taxes Each party shall be responsible for its own tax compliance and
payments regarding its activities under this Agreement.
Section 9. Sampling Program
All samples shall be provided to MGI at P&U's cost. All activities in
connection with the distribution of samples shall be conducted in a manner which
conforms to MGI's internal policy regarding sampling and applicable laws and
regulations.
Section 10. Indemnification
10.1 P&U agrees to defend, indemnify and hold MGI and its officers,
directors, agents and employees free and harmless from any third party claim or
suit, judgment, liability or associated expenses (including reasonable outside
attorney's fees) incurred or arising in connection with (a) the manufacture,
advertising, promotion, sale, import or use of the Product and Trademarks,
including, without limitation, product liability, intellectual property
infringement, and personal injury (including death), and (b) any breach of any
warranty, representation or covenant of P&U under this Agreement.
10.2 MGI shall inform P&U promptly of any such claim which is brought
against it and shall, at P&U's request and expense, cooperate fully with P&U in
defending such claim. MGI at its expense shall have the right to advise and
consult in such suit or proceeding. P&U shall have full control over the suit or
proceedings, including the right to conclude any settlement on terms and
conditions as P&U deems fit, provided that P&U may not obligate MGI or any other
indemnitee (whether monetarily or otherwise) as part of any such settlement
without the prior written consent of MGI or the indemnitee, as applicable.
10.3 MGI agrees to indemnify and hold P&U, and its officers, directors,
agents and employees free and harmless from any third party claim or suit,
judgment, liability or associated expenses (including reasonable outside
attorney's fees) on account of personal injury (including death) or other loss
or damage to third parties resulting from MGI's negligence or willful misconduct
related to or arising from MGI's Detailing and promoting the Products as
provided in this Agreement, including, but not limited to, Detailing the Product
in a manner that is inconsistent
<PAGE>
Marketing Agreement
P&U/MGI Page -12-
(i) with the FDA approval pertaining to the Product or (ii) the Marketing and
Promotional Plan or decisions of the Marketing Team.
10.4 P&U shall inform MGI promptly of any such claim which is brought
against it and shall, at MGI's request and expense, cooperate fully with MGI in
defending such claim. P&U at its expense shall have the right to advise and
consult in such suit or proceeding MGI shall have full control over the suit or
proceedings, including the right to conclude any settlement on terms and
conditions as MGI deems fit, provided that MGI may not obligate P&U or any other
indemnitee (whether monetarily or otherwise) as part of any such settlement
without the prior written consent of P&U or the indemnitee, as applicable.
10.5 P&U agrees to maintain product liability insurance applicable to the
Product and MGI agrees to maintain commercially reasonable business liability
insurance covering its activities under this Agreement.
10.6 IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR
ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR
OTHERWISE, ARISING OUT OF THIS AGREEMENT. P&U ACKNOWLEDGES THAT MGI DISCLAIMS
ANY WARRANTY, REPRESENTATION OR GUARANTEE THAT MGI'S PROMOTION AND DETAILING OF
THE PRODUCT AS PERMITTED HEREUNDER WILL GENERATE ANY PARTICULAR LEVEL OF ACTUAL
PRESCRIPTIONS, OR ANY INCREASE IN SALES OF THE PRODUCT, AND MGI, ITS DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS AND AFFILIATES SHALL HAVE NO LIABILITY OF ANY KIND
OR NATURE (INCLUDING, WITHOUT LIMITATION, DIRECT, INDIRECT, SPECIAL,
CONSEQUENTIAL OR ANY OTHER TYPE OF DAMAGES), REGARDLESS OF THE FORM OF ACTION,
FOR ANY FAILURE TO ACHIEVE ANY PARTICULAR LEVEL OF SALES OR NUMBER OF DETAILS
FOR THE PRODUCT. THE PARTIES AGREE THAT P&U'S SOLE REMEDY, AND MGI'S SOLE
LIABILITY, FOR ANY FAILURE OF MGI TO MEET ANY SALES TARGETS IS SET FORTH IN
SECTION 5.1 HEREOF.
Section 11. Industrial Property Rights; Confidentiality
11.1 In order to facilitate this Agreement it will be necessary for the
parties to exchange certain Proprietary Information. Each party agrees to retain
the Proprietary Information of the other party in strict confidence and not to
disclose or transfer the Proprietary Information to any party or use the
Proprietary Information other than as authorized by the terms of this Agreement
or otherwise in writing by the discloser. The parties acknowledge that such
Proprietary Information can constitute "inside information" for securities
purposes and the responsibility to refrain from any unauthorized disclosure,
trading or other such use. Each party represents to the other that it maintains
policies and procedures designed to prevent unauthorized
<PAGE>
Marketing Agreement
P&U/MGI Page -13-
disclosure of its own Proprietary Information. All employees of a party
performing services under this Agreement shall be subject to agreements
prohibiting the disclosure of Proprietary Information except on the terms
permitted in this Agreement.
11.2 These obligations of confidentiality and non-use shall not apply to
Proprietary Information: (a) that was previously known to the recipient as
evidenced by recipient's written records, (b) that is lawfully obtained by
recipient from a source independent of the disclosing party, (c) that is now or
becomes public knowledge other than by breach of this Agreement, or (d) that is
legally required to be disclosed under federal or state law, provided that the
party required to make the disclosure takes reasonable steps, consistent with
protection it would seek for its own confidential information, to prevent the
Proprietary Information from becoming public.
11.3 These obligations of confidentiality and non-use shall survive the
expiration or termination of this Agreement.
Section 12. Tradedress and Packaging
The Product will bear a single Trademark and the tradedress of P&U. The
name of MGI will not appear on the Product, package label and insert. As
provided hereunder, both MGI's and P&U's names will appear on all promotional
materials (except where prohibited by law or regulation). Neither Party shall
use or distribute any promotional, educational and/or training materials other
than those authorized by the Operations Committee or Marketing Team.
Section 13. Competitive Products
During the twelve (12) months after the Effective Date of this Agreement,
with the exception of the product "Ridaura", MGI shall not market and/or promote
in the Territory any rheumatoid arthritis product competing with the Product,
unless approved by the Operations Committee.
Section 14. Term-Termination
14.1 This Agreement shall commence on the Effective Date and, unless sooner
terminated pursuant to provisions herein, shall continue in force for a period
of three and one-half Contract Years. Thereafter, the Agreement shall
automatically renew for further periods of one (1) year unless or until either
party shall have given the other written notice of termination of this Agreement
at least six (6) months prior to the expiration of the then current term.
14.2 The Agreement may be terminated by either party before the expiration
of the time period set forth in Section 14.1 in the event of a material breach
by the other Party of its obligations under this Agreement, if such breach is
not remedied within ninety (90) days from date
<PAGE>
Marketing Agreement
P&U/MGI Page -14-
on which the non-breaching party gives written notice to the breaching party
describing the alleged breach in sufficient detail.
14.3 Either party hereto shall have the right at any time by notice to the
other Party to terminate this Agreement in the event that such other party shall
be dissolved or liquidated, be declared insolvent or bankrupt.
14.4 Pursuant to Section 5.1, P&U shall have the right to terminate this
Agreement by giving six (6) months advance written notice, provided that such
notice must be received by MGI within thirty (30) days after P&U delivers the
reports required in Section 6.1 for the last quarter of the Contract Year in
which the applicable Sales Target was not met.
14.5 Each party shall have the right to terminate this Agreement by giving
one (1) month advance written notice as provided in Section 4.4.8.
14.6 Either party may terminate this Agreement as provided in Section 17.2.
14.7 The parties have considered the possibility of expenditures necessary
for the performance of the terms of this Agreement and the possible loss and
damage incident to them in the event of termination. Neither party shall be
liable to make any payment of damages or goodwill indemnity or compensation in
any other manner on account of termination of this Agreement pursuant to its
terms.
14.8 The following Sections of this Agreement shall survive any termination
hereof: 4.2, 4.3.2, 4.4.1, 4.4.4-4.4.7, 4.4.9, 4.4.10, 8, 10, 11 and 17.
Section 15. Trademarks and Tradenames
15.1 Trademarks and trade names used by P&U or by its Affiliates in
connection with the Product shall be used by MGI only with reference to such
Product and only in the manner approved by the Marketing Team, as provided
herein. MGI acknowledges that it has and will obtain no proprietary interest in
Trademarks and trade names and agrees not to use any of them as part of its
corporate or business name and to discontinue all use thereof immediately upon
termination of this Agreement.
15.2 MGI shall advise P&U promptly upon its becoming aware of any
infringement by a third party of Trademarks identifying the Product in the
Territory. If warranted in the opinion of P&U, P&U shall promptly take such
legal action as is required to restrain or otherwise prevent such infringement
MGI shall cooperate fully with and as requested by P&U, at P&U's expense, in
P&U's attempt to restrain such infringement. P&U shall have the sole right to
control the suit or proceeding, including the right to conclude a settlement on
terms and conditions it deems fit, provided that P&U may not obligate MGI
(whether monetarily or otherwise) as part of any such settlement without the
prior written consent of MGI.
<PAGE>
Marketing Agreement
P&U/MGI Page -15-
Section 16. ***
***
Section 17. Miscellaneous
17.1 Notice Any notice required or permitted hereunder shall be in writing
and shall be sufficiently given when personally delivered, sent by telefax,
delivered by overnight courier or mailed prepaid first class registered or
certified mail and addressed to the party for whom it is intended at its record
address, and such notice shall be effective upon receipt, if delivered
personally, sent by telefax or overnight courier, or shall be effective five (5)
days after it is deposited in the mail, if mailed. The record addresses and
facsimile number of the parties are set forth below:
If to P&U: Pharmacia & Upjohn Company
95 Corporate Drive
Bridgewater, NJ 08807-1265
Attn: General Counsel
Facsimile No.: 908 306 4489
If to MGI: MGI Pharma Inc.
Suite 300 E, Opus Center
9900 Bren Road East
Minnetonka, MN 55343-9667
Attn: CEO
Facsimile No.: 612 935 0468
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
<PAGE>
Marketing Agreement
P&U/MGI Page -16-
Any party, at any time, may change its previous record address or facsimile
number by giving written notice of the substitution to the other party as herein
provided.
17.2 Force Majeure The performance by both parties of any covenant or
obligation on its part to be performed under this Agreement, with the exception
of the obligation to make any payments already due and owing to the other party,
shall be excused by floods, riots, fire, war, acts, injunctions, or restraints
of government (whether or not now threatened), or any cause preventing such
performance whether similar or dissimilar to the foregoing beyond the reasonable
control of the party bound by such covenant or obligation ("force majeure"). In
addition, if a force majeure event or the effects thereof prevents or affects
P&U's supply of the Product to the market, for more than fifteen (15) days, MGI
shall be relieved of its Detailing and other promotional obligations hereunder
if and for so long as such force majeure event or the effect thereof continues.
Further, if such force majeure event or the effects thereof continues for a
period of ninety (90) or more consecutive days, the parties shall meet and
attempt to arrive at a mutually acceptable compromise within the spirit and
intent of this Agreement, failing which, either party may terminate this
Agreement on thirty (30) days' prior written notice to the other party.
17.3 Assignment This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and permitted assigns.
Neither party shall assign this Agreement or any of its rights, privileges or
obligations without the prior written consent of the other party, which consent
shall not be unreasonably withheld, provided that,(a) either party may assign
this agreement without the prior written consent of the other party to an
Affiliate, and (b) either party may assign this Agreement to a third party in
connection with the divestiture of all or substantially all of such party's
related business or product portfolio, as applicable, or in connection with a
sale of all or substantially all of the business of assets of such party,
whether through merger, sale of stock, sale of assets or other transaction;
provided that in the case of (b), the parties shall first meet to discuss the
potential impact of such transaction on this Agreement and the business
relationship contemplated hereby, and failing agreement, either party shall have
the right to terminate this Agreement, effective upon the later of sixty (60)
days written notice or the expiration of the second Contract Year. Any such
permitted successor or assignee shall in writing to the other party expressly
assume performance of the rights and/or obligations assigned.
17.4 Modification No modification or amendment hereof shall be valid or
binding upon the parties hereto unless made in writing and duly executed on
behalf of both of the parties.
17.5 Waivers Failure of a party to insist upon the strict performance of
any provision hereof or to exercise any right or remedy shall not be deemed a
waiver of any right or remedy with respect to any existing or subsequent breach
or default.
17.6 Governing Law This Agreement shall be construed and the legal
relations between the parties hereto determined in accordance with the laws of
the State of New
<PAGE>
Marketing Agreement
P&U/MGI Page -17-
York without regard to what laws might otherwise govern under applicable
principles of conflict or choice of law.
17.7 Arbitration Except for the right of either party to apply to a court
of competent jurisdiction for a temporary restraining order to preserve the
status quo or to prevent irreparable harm pending the selection and confirmation
of a panel of arbitrators in accordance herewith, any and all disputes arising
out of or in connection with the performance of this Agreement shall be finally
settled by arbitration in accordance with the rules of the American Arbitration
Association, except that each party will be entitled to select one (1)
arbitrator and the two (2) arbitrators so selected shall select a third
arbitrator and if they cannot agree, then the third arbitrator will be selected
by the American Arbitration Association. The arbitration shall be held in New
York, New York. The award rendered shall be final and binding upon the parties.
Judgment on any award may be entered in any court having jurisdiction over the
parties or their assets. The costs of the arbitrators shall be shared equally by
the parties, unless the arbitrators award costs to one or the other party.
17.8 Public Disclosure Subject to the requirements of law and/or the stock
exchange on which either party's stock is listed, neither party shall issue a
press release or in any other way announce to the public the existence and/or
contents of this Agreement and the negotiations preceding it without consent of
the other party.
17.9 Headings The clause headings are placed herein merely as a matter of
convenience and shall not affect the construction or interpretation of any of
its provisions.
17.10 Entire Agreement This Agreement constitutes the entire agreement
between the Parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized officers or representatives as of the day and
year first above written.
PHARMACIA & UPJOHN COMPANY MGI PHARMA INC.
By: /s/ Apet G. Iskenderian By: /s/ Charles N. Blitzer
-------------------------------- ------------------------------------
Name: Apet G. Iskenderian Charles N. Blitzer
------------------------------
Title: Group Vice President President & Chief Executive Officer
-----------------------------
<PAGE>
Marketing Agreement
P&U/MGI Page -18-
EXHIBIT A
DESCRIPTION OF MGI'S DEDICATED SALES FORCE
----------------------------------------------
Territory Area Name
----------------------------------------------
1-1110 ***
----------------------------------------------
1-1210 ***
----------------------------------------------
1-1310 ***
----------------------------------------------
1-1410 ***
----------------------------------------------
1-1810 ***
----------------------------------------------
1-1910 ***
----------------------------------------------
1-2110 ***
----------------------------------------------
1-2210 ***
----------------------------------------------
1-2310 ***
----------------------------------------------
1-2610 ***
----------------------------------------------
1-2710 ***
----------------------------------------------
1-2810 ***
----------------------------------------------
2-1710 ***
----------------------------------------------
2-2410 ***
----------------------------------------------
2-2510 ***
----------------------------------------------
2-3010 ***
----------------------------------------------
2-3110 ***
----------------------------------------------
2-3210 ***
----------------------------------------------
2-3310 ***
----------------------------------------------
2-3410 ***
----------------------------------------------
2-3510 ***
----------------------------------------------
2-3610 ***
----------------------------------------------
2-3710 ***
----------------------------------------------
2-3810 ***
----------------------------------------------
2-9110 ***
----------------------------------------------
* Part-time territory
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
<PAGE>
Marketing Agreement
P&U/MGI Page -19-
EXHIBIT B
MEMBERSHIP OF OPERATIONS COMMITTEE
For MGI:
1. Chief Operating Officer
2. Vice-President of Sales and Marketing
For P&U:
1. Group Vice-President, Diversified Products, Global Business Management
2. Vice-President, Diversified Products, Global Business Management
<PAGE>
Marketing Agreement
P&U/MGI Page -20-
EXHIBIT C
EXAMPLE CALCULATION OF MARKETING FEE
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
-- -- -- --
<S> <C> <C> <C> <C>
Contract Year-to-date
Sales base $4,750 $9,500 $14,250 $19,000
Actual sales $6,000 $11,500 $16,000 $19,000
---------------------------------------------------------------
$1,250 $2,000 $1,750 $0
Distribution fee $(19) $(30) $(26) $0
---------------------------------------------------------------
Incremental Revenue $1,231 $1,970 $1,724 $0
---------------------------------------------------------------
50% of Incremental Revenue $616 $985 $862 $0
Non-Detailing Costs:
P&U $175 $350 $525 $700
MGI $25 $50 $75 $100
---------------------------------------------------------------
$200 $400 $600 $800
---------------------------------------------------------------
50% of Non-Detailing Costs $100 $200 $300 $400
MGI Non-Detailing Reimbursement $25 $50 $75 $100
---------------------------------------------------------------
Contract Year-to-date Marketing Fee $541 $835 $637 $(300)
less prior payments $0 $541 $835 $0
---------------------------------------------------------------
Marketing Fee calculation for quarter $541 $294 $(198) $(300)
===============================================================
Quarterly Payments:
===============================================================
Marketing fee payment due MGI $541 $294 $0 $0
===============================================================
Marketing fee refund due P&U $0 $0 $0 $300
</TABLE>
Note: Given these assumptions and applying the terms of Section 6.1 of the
Agreement, the result of the Marketing Fee calculation for Q4 would be a payment
of $300 by MGI to P&U after the end of the Contract Year. MGI would have
received $835 in Marketing Fees from P&U pertaining to earlier quarters, so
MGI's net receipts in Marketing Fees for the Contract Year would be $535.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING BALANCE SHEET OF MGI PHARMA, INC. AS OF JUNE 30, 1999, AND THE
RELATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,803,273
<SECURITIES> 12,146,328
<RECEIVABLES> 2,582,355
<ALLOWANCES> 120,963
<INVENTORY> 1,044,632
<CURRENT-ASSETS> 21,930,190
<PP&E> 499,926
<DEPRECIATION> 1,180,674
<TOTAL-ASSETS> 22,837,595
<CURRENT-LIABILITIES> 3,257,660
<BONDS> 0
0
0
<COMMON> 19,579,935
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,837,595
<SALES> 9,257,122
<TOTAL-REVENUES> 11,946,194
<CGS> 562,559
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,207,625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,432,811
<INCOME-TAX> 138,656
<INCOME-CONTINUING> 1,294,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,294,155
<EPS-BASIC> .09
<EPS-DILUTED> .08
</TABLE>
<PAGE>
Exhibit 99
MGI PHARMA, INC.
Report on Form 10-Q
June 30, 1999
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information without fear of litigation so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the statement. The company desires to
take advantage of these "safe harbor" provisions and is filing this Exhibit 99
in order to do so. Accordingly, the company hereby identifies the following
important factors which could cause the company's actual results to differ
materially from any such results which may be projected, forecast, estimated or
budgeted by the company in forward-looking statements made by the company from
time to time in reports, proxy statements, registration statements and other
written communications, or in oral forward-looking statements made from time to
time by the company's officers and agents.
We have a history of losses and may not be profitable in the future.
For many years, our revenues have not been sufficient to offset all of our
expenses. Although we had net income of $1,294,155 for the first half of 1999,
and $414,287 for the year of 1998, we have had net losses in previous years. At
June 30, 1999, we had an accumulated deficit of approximately $72.5 million. Our
profitability in the future will depend on many factors, including:
o our ability to increase sales of Salagen Tablets,
o the level of investment required to conduct Phase II and III trials and
commercialize MGI 114, and
o the costs incurred and revenues generated in bringing any newly
acquired products to market.
The development of MGI 114 is expected to require a substantial increase in our
research and development expenditures. There is a risk that we will not be able
to achieve annual profitability in 1999 or sustain profitability thereafter.
<PAGE>
Substantially all of our product revenues come from Salagen Tablets.
We derive substantially all of our product revenues from the sale of Salagen
Tablets. In the first half of 1999, our U.S. sales of Salagen Tablets were $8.9
million, representing 97 percent of our total product sales and 75 percent of
our total revenue. In 1998, our annual U.S sales of Salagen Tablets were $12.3
million, representing 95 percent of our total product sales and 70 percent of
our total revenue. Any factor adversely affecting sales of Salagen Tablets could
have a material adverse effect on our business, financial condition and results
of operations. Such factors could be the expiration in March 2001 of orphan drug
protection for Salagen Tablets as a treatment for the symptoms of radiation
induced xerostomia in head and neck cancer patients, or approval of competing
products. A potential competitor, Ethyol(R) (amifostine), was approved in June
1999 by the FDA for treatment of radiation-induced dry mouth in post-operative
head and neck cancer patients. The approval of Salagen Tablets is for the
treatment of dry mouth symptoms in head and neck cancer patients who have
received radiation, and for the treatment of Sjogren's syndrome symptoms. Due to
the more restricted patient population, as well as other factors such as price
and invasive administration of drug, the company currently believes that Ethyol
is not expected to have a major impact on sales of Salagen Tablets. Other
potential competitive compounds are in various stages of development, including
a compound to treat the symptoms of Sjogren's syndrome, which was submitted to
the FDA for approval in the second half of 1998. At this time, the company is
unable to estimate what effect, if any, these development compounds will have on
the future demand for Salagen Tablets.
Our future success depends on our ability to identify and acquire new products.
Our future success depends on our ability to identify and acquire new products
targeted at niche markets that we can promote through our marketing and
distribution channels. Because we do not engage in basic research or drug
discovery, we must rely upon the willingness of others to sell or license
product opportunities to us. Other companies, including some with substantially
greater financial, marketing and sales resources, are competing with us to
acquire such products. We may not be able to acquire rights to additional
products on acceptable terms, if at all. If we fail to acquire additional
products or fail to promote or market commercially successful products, our
future business, financial condition and results of operations would be
materially and adversely affected. In addition, the marketing strategy,
distribution channels and bases of competition of newly acquired products may be
different than those of our current products. There is a risk that we will not
be able to compete favorably in those product categories.
<PAGE>
We depend on foreign partners to sell our products outside of the United States.
Our strategy for deriving revenues from sales of our products in foreign markets
is to enter into marketing alliances with multinational and foreign
pharmaceutical companies. We have entered into alliances with various companies
related to the marketing of Salagen Tablets in foreign markets. We have entered
into an agreement with Dainippon for the development and commercialization of
MGI 114 in Japan. We are seeking a development and commercialization partner for
MGI 114 in Europe. Revenues from strategic alliances typically include milestone
payments and payments based on product sales. Our continued relationships with
strategic partners are dependent in part on the successful achievement of
development milestones. If we or our partners do not achieve these milestones,
or we are unable to enter into agreements with our partners to modify their
terms, our business could be adversely affected.
Licensing revenue was $1.9 million or 16 percent of total revenues in the first
half of 1999, and $3.1 million or 18 percent of annual total revenues in 1998.
Future licensing revenues will likely fluctuate from quarter to quarter and year
to year depending on:
o the achievement of milestones by us or our partners,
o the amount of product sales and royalty generating activities, and
o the timing of initiating additional licensing relationships.
Additionally, some royalties are based on sales in foreign currencies. Thus the
U.S. dollar value of such royalties will fluctuate with currency exchange rates.
Although we believe that our partners in these alliances have an economic
motivation to perform their contractual responsibilities, we cannot fully
control the amount and timing of resources they devote to these activities. The
terms of these alliances generally provide that they may be terminated prior to
their expiration under circumstances that may be outside our control. The early
termination of one or more of these strategic alliances could materially and
adversely affect our business, financial condition and results of operations.
There is a risk that we will not be able to negotiate additional strategic
alliances on acceptable terms or that such alliances will not be successful.
We will need additional capital to grow our business.
We may need to raise additional funds for various reasons including the
following:
<PAGE>
o to acquire or license additional products,
o to develop products we have acquired,
o to support the marketing and sales of additional products,
o to obtain necessary working capital, and
o to fund operating losses.
We may seek additional funding through public and private financing, including
equity and debt financing. Adequate funds for these purposes may not be
available when needed or on terms acceptable to us. Insufficient funds may cause
us to delay, scale back, or abandon some or all of our product acquisition and
licensing programs and product development programs.
Substantially all of the worldwide supply of the active ingredient in Salagen
Tablets is produced by one company.
We rely on the Fine Chemicals Division of Merck KGaA as our sole and exclusive
supplier of pilocarpine hydrochloride, the active pharmaceutical ingredient in
Salagen Tablets. We believe that Merck KGaA produces substantially all of the
worldwide supply of pharmaceutical grade pilocarpine hydrochloride. To our
knowledge, there is no other producer of pilocarpine hydrochloride with a
significant portion of the worldwide supply. The Company believes the processing
facility and raw material requirements for the production of pilocarpine
hydrochloride would make it difficult for any new producers to enter this
market. Although the company might be able to procure adequate supplies of
pilocarpine hydrochloride from an alternate source, we have not qualified such a
source. A disruption in our supply of pilocarpine hydrochloride from Merck KGaA
could have a material adverse effect on our business, financial condition and
results of operations.
We have no manufacturing facility. We depend on third-party manufacturers to
produce Salagen Tablets.
We do not have manufacturing facilities and we rely on one third-party
manufacturer for the production of Salagen Tablets. We intend to continue to
rely on others to manufacture our products, including any products that we may
acquire, and we have no plans to establish manufacturing facilities. Manufacture
of our products is subject to "good manufacturing practices" regulations,
prescribed by the U.S. Food and Drug Administration or other standards
prescribed by the appropriate regulatory agency in the country of use. There is
a risk that our current manufacturer of Salagen Tablets will not comply with all
applicable regulatory standards, and that we might not be able to identify
another third-party manufacturer on terms acceptable to us, or any other terms.
<PAGE>
MGI 114 may not be safe or effective in humans.
Although we have commenced Phase II human clinical testing of MGI 114, further
research and development, including additional preclinical and extensive human
clinical testing, will be required prior to submission of a regulatory
application for commercial sale of MGI 114. There is a risk that this research
and development will not be successful and will not result in a product that
will qualify for approval by regulatory authorities for commercial sale.
Clinical testing of a pharmaceutical product is subject to approvals by various
governmental regulatory authorities. There is a risk that domestic and foreign
regulatory authorities may not allow us to conduct planned additional clinical
testing of MGI 114. There is also a risk that, if permitted, such additional
clinical testing will not prove that MGI 114 is safe and effective to the extent
necessary to permit us to obtain marketing approvals from regulatory
authorities. In addition, results obtained in preclinical studies or in Phase I
and Phase II human clinical trials are not necessarily indicative of results
that will be obtained in subsequent or more extensive preclinical or clinical
testing.
Clinical trials are complex and unpredictable and may produce unexpected
results.
Before obtaining regulatory approvals for the commercial sale of any product
under development, including MGI 114, we must demonstrate through preclinical
studies and clinical trials that the product is safe and effective for use in
each target indication. The results from preclinical animal studies and early
clinical trials may not be predictive of results that will be obtained in larger
scale testing. There is a risk that clinical trials will not demonstrate the
safety and efficacy of a product. The failure to adequately demonstrate the
safety and efficacy of a therapeutic product could substantially delay or
prevent regulatory approval of the product. There is a risk that unacceptable
toxicities or side effects will occur at any time in the course of human
clinical trials or commercial use of any product. The appearance of unacceptable
toxicities or side effects could interrupt, limit, delay or abort the
development of a product or, if previously approved and launched, necessitate
its withdrawal from the market. A number of companies in the biotechnology
industry have suffered significant setbacks in advanced clinical trials, even
after experiencing promising results in early animal and human testing. The rate
of completion of clinical trials is dependent upon, among other factors, the
rate of patient enrollment. Patient enrollment is a function of many factors,
including:
o the size of the patient population,
o the nature of the protocol or any competing protocol,
<PAGE>
o the company's ability to recruit and manage clinical centers and
associated trials,
o the proximity of patients to clinical sites, and
o the eligibility criteria for the study.
Factors, such as unacceptable toxicities and delays in planned patient
enrollment, may result in increased costs and delays or termination of clinical
trials prior to completion. Clinical trials generally must meet requirements for
institutional review board oversight and informed consent, as well as regulatory
agency prior review, oversight and good clinical practice requirements. Even
after being approved by the FDA or foreign regulatory authorities, products may
later exhibit adverse effects that prevent their widespread use or necessitate
their withdrawal from the market. There is always a risk that any product under
development may not be safe when administered to humans.
MGI has fewer resources than most of its competitors.
Competition in the pharmaceutical industry is intense. Most of our competitors
are large, multinational pharmaceutical companies that have considerably greater
financial, sales, marketing and technical resources than we do. Most of our
present and potential competitors also have dedicated research and development
capabilities that may allow them to develop new or improved products that
compete with our products. We are aware of other pharmaceutical companies which
are developing products which, if and when approved by the FDA, will compete
directly with Salagen Tablets in one or both indications. Our competitors could
also develop and introduce generic drugs comparable to Salagen Tablets, or drugs
or other therapies that address the underlying causes of the symptoms which
Salagen Tablets treat. If a product developed by a competitor is more effective
than our product, or priced less than our product, then our business, financial
condition and results of operations could be materially and adversely affected.
Our success depends on our ability to keep up with rapid technological changes
in the pharmaceutical industry.
The pharmaceutical industry has experienced rapid and significant technological
change. We expect that pharmaceutical technology will continue to develop
rapidly. Our future success will depend, in large part, on our ability to
develop and maintain a competitive position. Technological development by others
may result in our products becoming obsolete before they are marketed or before
we recover any of our development and commercialization expenses incurred with
respect to such products. In addition, alternative therapies or new medical
treatments could alter existing treatment regimens, and thereby reduce the need
for one or more of our
<PAGE>
products, which would materially and adversely affect our business, financial
condition and results of operations.
Intellectual property protection may be difficult to obtain or ineffective. We
may not be able to protect adequately our patents and proprietary rights.
Our ability to compete effectively with other companies will depend, in part, on
our ability to maintain the proprietary nature of our products. We were awarded
orphan drug status for Salagen Tablets as a treatment for the symptoms of
xerostomia induced by radiation therapy in head and neck cancer patients and for
the symptoms of dry mouth associated with Sjogren's syndrome. Orphan designation
provides market exclusivity for seven years after the product is registered. We
hold an exclusive license on patents covering acylfulvene proprietary rights
including (1) acylfulvene analogs, including MGI 114 and use of MGI 114, as an
anti-tumor agent; (2) the method of treating tumors using other analogs; and (3)
synthetic methods for preparing acylfulvenes. There is a risk that:
o others will independently develop proprietary technologies and
processes that are the same as or substantially equivalent to ours,
o we will not be able to obtain patents for future products,
o current or future, issued or licensed patents or know-how will not
afford us adequate protection against competitors with similar
technologies or processes, or
o others will infringe upon or design around our patents.
We could incur substantial costs in defending suits brought against us based on
our patents or in bringing suits to protect our patents or patents we license.
We also protect our proprietary technology and processes in part by
confidentiality agreements with our collaborative partners, employees and
consultants. There is a risk that:
o these confidentiality agreements will be breached,
o we will not have adequate remedies for any breach of these agreements,
o our trade secrets will otherwise become known, or
o our trade secrets will be independently discovered by competitors.
Our operating results may fluctuate significantly.
Our results of operations may fluctuate significantly from period to period due
to a variety of factors including:
o increasing demand for our current products,
<PAGE>
o the introduction of new products,
o the pattern of licensing and royalty revenues,
o expenditures incurred to acquire or license and promote additional
products,
o interruptions in or availability of supply by third-party
manufacturers,
o changes in sales and marketing expenditures, and
o the pace of our development programs.
Because our operating expenses are based on anticipated sales levels, variations
in the timing of revenue could cause significant fluctuations in operating
results from period to period and may result in unanticipated earnings
shortfalls or losses. Our revenue may display significant variations due to the
impact of new contract and licensing arrangements, the completion or termination
of those contracts and arrangements, and the timing and amounts of milestone
payments. There is always a risk that we will not be successful in maintaining
profitability and avoiding losses in any future period.
We may not receive regulatory approvals required to sell our products in the
United States and abroad.
Government regulation in the United States and abroad is a significant factor in
the development, production and marketing of our products. Prior to marketing,
each of our products must undergo an extensive regulatory approval process
conducted by the FDA in the United States and by comparable agencies in other
countries. The approval process can take many years and require the expenditure
of substantial resources. There is a risk that any product we develop will not
be approved by the FDA or any foreign regulatory authority in a timely manner,
if at all. Generally, only a very small percentage of newly discovered
pharmaceutical compounds that enter preclinical development are approved for
sale. Once a product is approved for sale, the company must submit any labeling,
advertising and promotional materials to the FDA for review. There is a risk
that the FDA will prohibit use of the marketing materials in the form we desire,
which could have a material adverse effect on our business, financial condition
and results of operations.
We depend on external laboratories and medical institutions to conduct our
preclinical and clinical testing. This research must comply with good clinical
and laboratory practices required by the FDA. The data obtained from preclinical
and clinical testing are subject to varying interpretations that could delay,
limit or prevent regulatory approval. We also may encounter delays or rejection
due to (1) changes in FDA personnel or policy during the period of development,
or (2) changes in the requirements for regulatory review of each submitted New
Drug Application. Even if the FDA approves the marketing application of a
product, such
<PAGE>
approval may entail commercially unacceptable limitations on the uses, or
"indications," for which a product may be marketed. Further studies may be
required to provide additional data on product safety or effectiveness. The FDA
also requires post-marketing adverse event surveillance programs to monitor a
product's side effects.
An FDA approved product and its manufacturer are subject to continual regulatory
review. The discovery of previously unknown problems with a product may result
in restrictions or sanctions on such product or manufacturer, including the
withdrawal of the product from the market. Most changes in the manufacturing
procedures we use for our approved products, including a change in manufacturer,
will require the prior approval of the FDA. This could have an adverse effect
upon our ability to continue the commercialization or sale of a product.
Our success depends in part on our ability to obtain adequate prices for our
products and the availability to the users of our products of reimbursement from
third party payors.
Our profitability will depend in part on (1) the price we are able to charge for
our products and (2) the availability of adequate reimbursement for our products
from third-party payors, such as government entities, private health insurers
and managed care organizations. Third-party payors are increasingly challenging
the pricing of medical products and services. There is much uncertainty as to
the pricing flexibility pharmaceutical companies will have with respect to newly
approved health care products. In the United States, we expect that there will
continue to be a number of federal and state proposals to implement government
control of pricing and profitability of prescription pharmaceuticals. Cost
controls, if mandated by a government agency, could decrease the price that we
receive for our current or future products. Cost controls could also prevent the
recovery of potentially substantial development costs and an appropriate profit
margin. This would have a material adverse effect on our business, financial
condition and results of operations.
There is also much uncertainty about the reimbursement status of health care
products. Federal and state regulations govern or influence the reimbursement
status of health care products in many situations. Although third-party
reimbursement is not currently an issue for us, there is a risk that
reimbursement will not be available in the future for our products, or that such
third-party reimbursement will not be adequate. If government entities and other
third-party payors do not provide adequate reimbursement levels for our
products, our business, financial condition and results of operations would be
materially, adversely affected. A number of legislative and regulatory proposals
aimed at changing the nation's health care system have been proposed in recent
years. Although we
<PAGE>
cannot predict whether any of these proposals will be adopted, or the effect
that any such proposal may have on our business, these proposals, if enacted,
could have a material adverse effect on our business, financial condition and
results of operations. In certain countries, the sales price of a product must
also be approved after marketing approval is granted. There is a risk that we
will not be able to obtain satisfactory prices in foreign markets even if we
obtain marketing approval from foreign regulatory authorities.
We face product liability risks and our existing insurance may not be adequate
to cover any claims.
We face exposure to product liability claims in the event that the use of our
product is alleged to have harmed someone. Although we have taken, and continue
to take, what we believe are appropriate precautions, there is a risk that we
will not be able to avoid significant product liability exposure. We currently
have product liability insurance in the amount of $15 million per occurrence and
in the aggregate for the year. There is a risk that our insurance will not be
sufficient to cover any potential claims. There is also a risk that adequate
insurance coverage will not be available in the future on commercially
reasonable terms, if at all. The successful assertion of an uninsured product
liability or other claim against us would have a material adverse affect our
business, financial condition and results of operations.
We could be required to issue a product recall.
Product recalls may be issued at our discretion, at the discretion of the FDA,
the U.S. Federal Trade Commission or other government agencies having regulatory
authority for product sales. Product recalls may occur due to disputed labeling
claims, manufacturing issues, quality defects or other reasons. Although none of
our products have been recalled, we cannot assure you that product recalls will
not occur in the future. We do not carry any insurance to cover the risk of a
product recall. Any product recall could materially adversely affect our
business, financial condition and results of operations.
Our stock price is volatile.
The market price of our common stock, like securities of other small companies,
has fluctuated significantly in recent years and is likely to fluctuate in the
future, regardless of our operating performance. The market price of our common
stock may be significantly affected by many factors, including:
o announcements regarding commercial products, patents or proprietary
rights,
o the progress of clinical trials or government regulation,
<PAGE>
o public concern as to the safety of drugs,
o the issuance of securities analysts' reports,
o fluctuations in our financial performance from period to period, and
o general market conditions.
We may experience problems related to year 2000 issues.
Many currently installed computer systems and software are coded to accept only
two-digit entries in the date code fields. These date code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations (including, among other things, a temporary
inability to process transactions, send invoices or engage in other similar
business activities). As a result, many companies' computer systems and software
will need to be upgraded or replaced in order to comply with Year 2000
requirements. The potential global impact of the Year 2000 problem is not known,
and, if not corrected in a timely manner, could affect us and the U.S. and world
economy generally.
The total estimated cost for resolving our Year 2000 issues is approximately
$740,000, of which approximately $609,000 has been spent through June 30, 1999.
The total cost estimate includes the cost of replacing non-compliant systems as
a remediation cost in cases where we have accelerated plans to replace such
systems. Estimates of Year 2000 costs are based on numerous assumptions. There
is a risk that the estimates may not be correct and that actual costs may be
materially greater than anticipated.
Based on our assessments to date, we believe we will not experience any material
disruption as a result of Year 2000 problems in internal processes, information
processing or interface with major customers, or with processing orders and
billing. However, if certain critical third-party providers, such as those
providing product distribution, banking, contract manufacturing, electricity,
water or telephone service, experience difficulties resulting in disruption of
service to us, a shutdown of our operations at our headquarters could occur for
the duration of the disruption
