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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission File No. 0-19700
AMYLIN PHARMACEUTICALS, INC.
(Exact Name of registrant as specified in its charter)
-----------------------
DELAWARE 33-0266089
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9373 TOWNE CENTRE DRIVE, SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 552-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of
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registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 14, 1997 was $294,990,813.*
The number of shares outstanding of the Registrant's Common Stock was 32,041,492
as of March 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's annual report to security holders to be furnished to the Securities
and Exchange Commission (the "Commission") pursuant to Rule 14a-3(b) in
connection with Registrant's 1997 Annual Meeting of Stockholders to be held on
May 29, 1997 (the "1997 Annual Meeting") is attached hereto as Exhibit 13.1 and
is incorporated herein by reference into Part II of this Report.
Registrant's Definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A in connection with the 1997 Annual Meeting is incorporated
herein by reference into Part III of this Report.
Certain Exhibits filed with (I) the Registrant's Registration Statement on Form
S-1 (Registration No. 33-44195), as amended, (ii) certain Exhibits filed with
the Registrant's Annual Report on Form 10-K for the fiscal years ended December
31, 1992, 1993, 1994 and 1995 and (iii) the Registrant's Quarterly Report on
Form 10-Q for the quarters ended June 30, 1996 and September 30, 1996 are
incorporated herein by reference into Part IV of this Report.
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* Excludes the Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding
at March 14, 1997. Exclusion of such shares should not be construed to
indicate that any such person possesses the power, direct or indirect,
to direct or cause the direction of the management or policies of the
Registrant or that such person is controlled by or under common control
with the Registrant.
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PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the discussion
in this report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in this report. Factors that could cause or contribute to such
differences include, without limitation, those discussed in the description of
the Company's business below and the sections entitled "Risk Factors," as well
as those discussed in any documents incorporated herein by reference.
GENERAL
Amylin Pharmaceuticals, Inc. ("AMYLIN" or the "Company") is focused on
developing novel therapeutics for treating people with diabetes and other
metabolic disorders. The Company is conducting a series of Phase III clinical
trials of its lead drug candidate, pramlintide, which is being developed to
improve glucose control in people with Type I (juvenile-onset) and Type II
(maturity-onset) diabetes who use insulin, a patient population estimated by the
Company to comprise 7 million people in the major pharmaceutical markets. In
June 1995, AMYLIN entered into a worldwide collaboration with Johnson & Johnson
to develop and commercialize pramlintide. In August 1996, the Company achieved
the first milestone in the collaboration when, based upon an administrative
interim review of three-month glycated hemoglobin ("HbA1c") data from the first
two, one-year Phase III clinical trials, Johnson & Johnson decided to continue
the collaboration. As of December 31, 1996, Johnson & Johnson has made payments
to AMYLIN totaling $91.0 million. In addition, Johnson & Johnson has committed
to provide significant, additional financial support for the development and
commercialization of pramlintide, subject to the terms of its agreement with the
Company. Assuming successful Phase III clinical trials, the Company plans to
apply for marketing approval of pramlintide in North America and Europe by the
end of 1998. Any profits or losses from the collaboration will be shared equally
between AMYLIN and Johnson & Johnson. Since its inception, the Company has spent
almost $200 million building its integrated drug discovery and development
expertise, and, with its lead drug candidate now well advanced in clinical
development, AMYLIN is broadening its research to develop new drug targets for
treating metabolic disorders, including diabetes, obesity and dyslipidemia.
BACKGROUND
Diabetes is a major global health problem which is inadequately treated by
available drugs. The International Diabetes Federation estimates that over 100
million people worldwide are afflicted with this disease. Diabetes costs the
American economy over $100 billion annually, according to a study reported in
the Journal of Clinical Endocrinology and Metabolism, which went on to say that
". . . health care expenditures for people with diabetes constituted about one
in seven health
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care dollars spent in 1992." Moreover, the American Medical Association reports
that the incidence of diagnosed diabetes as a percentage of the American
population has tripled since 1958, and that the total number of diagnosed and
undiagnosed cases has grown to about 16 million.
Diabetes occurs when the pancreas no longer produces enough insulin, a
hormone that regulates the metabolism of blood glucose. In Type I
(juvenile-onset) diabetes, which afflicts about 10% of all people with diagnosed
diabetes in developed countries, the pancreatic beta cells that make insulin
have been destroyed. In the more prevalent form of diabetes, Type II
(maturity-onset), the insulin-producing cells are unable to produce enough
insulin to compensate for the patient's poor sensitivity to the hormone in
glucose-using tissues such as skeletal muscle (a condition called insulin
resistance). In both Type I and Type II diabetes, the insulin deficiency results
in an abnormally high blood-glucose concentration (a condition called
hyperglycemia) which is an important cause of the degenerative complications
associated with diabetes, including blindness, kidney failure and nerve damage.
In addition, many authorities believe hyperglycemia plays a role in the
development of heart disease.
Since its discovery in 1921, insulin replacement therapy has played a
central role in treating diabetes. For people with Type I diabetes, insulin
injections are essential, since these patients would otherwise die. For people
with Type II diabetes, oral medications that either stimulate greater insulin
production or enhance insulin sensitivity may improve metabolic control.
However, as many as 20% of people with newly diagnosed Type II diabetes do not
respond to oral therapy. Moreover, patients who do respond to oral therapy
become progressively resistant over time, with as many as 10% each year ceasing
to derive a therapeutic benefit. Thus, an estimated 40% of people diagnosed with
Type II diabetes are using insulin injections to manage their disease. The
Company estimates that in the major pharmaceutical markets as many as two
million people with Type I diabetes and five million people with Type II
diabetes use insulin to help control their blood-glucose concentrations.
Despite 75 years of efforts to improve insulin therapy, most people with
diabetes have great difficulty achieving optimal glucose control with insulin
alone. For superior glucose control, each insulin injection must be adjusted to
reflect the person's pre-meal blood-glucose concentration and the carbohydrate
content of the meal. These adjustments require multiple finger-pricks each day
for glucose monitoring. Aggressive efforts to bring blood-glucose concentration
down into the normal range using intensive insulin therapy increase the risk of
blood-glucose concentration falling too low (a condition called hypoglycemia),
which can cause unpleasant and dangerous effects including sweating,
disorientation, personality changes, coma, convulsions and even death. To avoid
hypoglycemia, many people with diabetes maintain high blood-glucose
concentrations but thereby increase their risk of degenerative complications
from the disease.
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In June 1993, the National Institutes of Health announced the results of the
Diabetes Control and Complications Trial ("DCCT"). This decade-long, prospective
study of over 1,400 people with Type I diabetes established the importance of
glucose control as a determinant of long-term risk of degenerative
complications. The quality of glucose control for each DCCT participant was
determined by measuring the proportion of blood-hemoglobin which had chemically
combined with blood-glucose to form glycated hemoglobin (HbA1c). This
measurement is a recognized indicator of average blood-glucose concentration
over the three- to four-month period prior to testing, and lower glycated
hemoglobin values are indicative of better glucose control. In this regard, the
data from the DCCT showed definitively that the risk of degenerative
complications is greatly reduced if blood-glucose concentrations in people with
Type I diabetes can be brought closer to the concentrations measured in
non-diabetic individuals. However, the intensive insulin therapy used to achieve
this benefit had several side effects and disadvantages, including (1) a
three-fold increase in severe hypoglycemia compared with the control group, (2)
an average weight gain of 10 to 15 pounds per patient, (3) a highly burdensome
treatment regimen requiring strict patient compliance, and (4) intensive and
costly support from diabetes care-givers. As a result of these side effects and
disadvantages, most people using insulin currently are unable to achieve normal
blood-glucose concentrations. In view of the health problems and economic costs
associated with this failure to achieve optimal glucose control, the Company
believes that significant value would result from a new medicine that could
safely improve glucose control without imposing unacceptable treatment and cost
burdens.
Although the DCCT study involved people with Type I diabetes only, the
Company believes that the conclusions of that study concerning the benefits of
glucose control are also applicable to people with Type II diabetes. Additional
clinical studies addressing the issue in people with Type II diabetes are
underway in the United Kingdom under the sponsorship of various nationally
funded academic research institutes and pharmaceutical companies and are
expected to be concluded in 1997.
Amylin: The Partner Hormone in Glucose Control
In 1987, researchers at the University of Oxford discovered that the
pancreatic beta-cells which make insulin also produce a second peptide, amylin.
In the nine years since amylin's discovery, extensive research in animals and
humans has generated data consistent with the idea that amylin is a partner
hormone to insulin:
- Rises in blood-glucose concentrations after eating stimulate increases in
blood concentrations of amylin, so that both amylin and insulin
concentrations normally increase after meals.
- Amylin exerts biological effects on various tissues relevant to glucose
metabolism, including the gastrointestinal tract, pancreas and skeletal
muscle.
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- In people with diabetes who need insulin therapy, both the endogenous
insulin and amylin responses are deficient.
Amylin has been shown to have at least two effects believed to be important
for normal glucose metabolism: it slows glucose inflow into the bloodstream from
the gastrointestinal tract, and it suppresses glucagon secretion which favors
lowered glucose production by the liver.
Effect on Glucose Inflow. After a typical meal, over 75 grams of glucose
pass from the stomach and gastrointestinal tract, through the bloodstream, and
into muscle and liver tissue for storage as glycogen. This amount of glucose is
large relative to the five to six grams of glucose typically present at normal
concentrations in the blood pool of an average adult. In healthy people, the
rate of glucose inflow from the gastrointestinal tract is closely matched with
the rate of outflow into the storage tissues, allowing the body to maintain
normal blood glucose concentrations. The endocrine regulator of glucose outflow
rate is insulin, which is secreted by pancreatic beta-cells in response to
rising blood glucose concentrations. The endocrine regulator of glucose inflow
rate has, until recently, been unknown.
Now, preclinical and clinical data support the idea that amylin is a key
regulator of glucose inflow rate. In animals and humans, rising amylin blood
concentrations slow down the transfer of nutrients from the stomach to the
intestines. This transfer is the rate-limiting step in the appearance of
nutrient-derived glucose in the bloodstream. Thus, the simultaneous secretion of
both insulin and amylin by the pancreatic beta-cells acts to regulate both
inflow and outflow, thereby keeping post-meal blood glucose concentrations
within a narrow and healthy range.
Effect on Glucagon Secretion. Between meals, the liver produces glucose
which is carried by the bloodstream to the brain and other tissues that do not
store glucose. The endocrine regulator of liver glucose production is glucagon,
a peptide hormone secreted by pancreatic alpha-cells in response to falling
blood glucose concentrations. At mealtime, glucagon secretion must be suppressed
to avoid hyperglycemia induced by excess liver glucose production, and a known
regulator of glucagon suppression is insulin.
Now, preclinical and clinical data support the idea that amylin is also an
endocrine regulator of glucagon secretion. In animals and humans, increasing
amylin blood concentrations slows pancreatic alpha-cell secretion of glucagon,
an effect which amplifies the same regulatory effect of insulin. Thus, the
simultaneous secretion of both insulin and amylin by the pancreatic beta-cells
acts to suppress glucagon which in turn curtails liver glucose production,
thereby helping to keep post-meal blood glucose concentrations within a narrow
and healthy range.
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Studies have shown that people with Type I diabetes have difficulty avoiding
hyperglycemia at mealtime with insulin alone, in part because they have
abnormally rapid glucose inflow from the gastrointestinal tract into the
bloodstream and abnormally high blood concentrations of glucagon associated with
excessive liver glucose production. These findings are consistent with the
predicted effects of their amylin deficiency, and they support the clinical
hypothesis that amylin replacement therapy could aid in achieving better glucose
control.
PRAMLINTIDE: THE DRUG CANDIDATE
Since 1992, the Company has been conducting clinical studies to determine if
replacing the desired actions of amylin - using pramlintide, a chemical analog
of human amylin - can safely improve glucose control in people with diabetes.
Pramlintide is currently in Phase III clinical trials in North America and
Europe
The Company's pramlintide development program includes 20 completed Phase I
and Phase II clinical trials involving more than 1,000 insulin-using people with
diabetes. Over 750 people with diabetes have completed two-or four-week dosing
periods in double-blind, placebo-controlled Phase II studies. In addition, the
Phase II program included several mechanism-of-action studies. Important
findings from these clinical investigations include the following:
- Pramlintide produced statistically significant and clinically relevant
reductions in blood-glucose concentrations in seven-out-of-seven Phase II
clinical trials assessing glucose control as measured:
-- After meals in people with Type I and Type II diabetes who use insulin;
-- Over a 24-hour period in people with Type I diabetes; and
-- Over a month, by fructosamine, a surrogate marker which reflects
average glucose concentrations over the two-to-three weeks prior to
testing, in people with Type I and Type II diabetes who use insulin.
- Glucose lowering was achieved in people with Type I and Type II diabetes
who use insulin without an increase in the incidence of hypoglycemia
compared with the placebo group.
- Pramlintide was well tolerated at the anticipated therapeutic doses.
- There were no safety concerns and no loss of pramlintide's glucose
lowering activity when pramlintide was syringe-mixed with regular
(short-acting) and/or NPH (intermediate-acting)
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insulin. In addition, preliminary studies suggest that syringe-mixing
pramlintide and NPH insulin may lead to improved glucose control, compared
to separate injections.
- No clinically important safety concerns have arisen to date in Phase II
and Phase III trials involving over 2,000 people.
Key clinical results supporting these findings and the Company's development
plans for Phase III trials are discussed below.
Key Clinical Results
In a 14-day, double-blind, placebo-controlled Phase II clinical study
completed in 1994, subjects with Type I diabetes had a statistically significant
reduction in blood-glucose concentrations after a test meal compared to placebo
when they self injected pramlintide three times per day in addition to their
usual insulin therapy. Results from this study were presented at the June 1994
annual meeting of the American Diabetes Association and were published in April
1996 in Diabetologia.
In January 1995, AMYLIN disclosed the results of a placebo-controlled,
double-blind, clinical pharmacology study in which an intravenous infusion of
pramlintide significantly reduced post-meal blood-glucose concentrations in
subjects with Type II diabetes who use insulin. This finding was similar to
previous observations in comparable studies in people with Type I diabetes.
Results from this study were presented at the June 1995 annual meeting of the
American Diabetes Association and the September 1995 annual meeting of the
European Association for the Study of Diabetes.
In February 1995, the Company reported the results of another 14-day,
double-blind, placebo-controlled Phase II study in subjects with Type I
diabetes, which showed that 30-microgram doses of pramlintide self-administered
four times per day resulted in a statistically significant reduction in
blood-glucose concentrations following a test meal and also significantly
reduced the average blood-glucose concentrations over a 24-hour observation
period (35 mg/dl, p = 0.003) during which patients ingested their usual meals,
compared to placebo. Results from this study were presented at the September
1995 annual meeting of the European Association for the Study of Diabetes.
In August 1995, the Company reported the results of a 28-day, double-blind,
placebo-controlled Phase II trial in subjects with Type I diabetes. This study
showed that self-administered, 30-microgram doses of pramlintide four times per
day (one before each main meal and a late-night snack) significantly lowered the
excessive rise in post-meal blood-glucose
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concentration, compared to the placebo control group. Using this dosing regimen,
the study also confirmed that pramlintide significantly lowered 24-hour average
blood-glucose concentrations (31 mg/dl, p = 0.009) and fructosamine (33
micromoles/liter, p = 0.003), compared to placebo. As in previous studies, the
30-microgram dose of pramlintide was well tolerated. The only adverse effects
significantly different from those reported by the placebo group were mild
gastrointestinal symptoms in a small number of patients, and those were
substantially reduced after the first two weeks of treatment. Results from this
study were presented at the June 1996 annual meeting of the American Diabetes
Association.
In August 1996, the Company reported the results of a 28-day, double-blind,
placebo-controlled Phase II trial in subjects with Type II diabetes who use
insulin. In all dose groups, self-administered pramlintide significantly lowered
fructosamine as follows: 30 micrograms four times a day (17.5 micromoles/liter,
p = 0.029), 60 micrograms four times a day (22.6 micromoles/liter, p = 0.001),
and 60 micrograms three times a day (24.1 micromoles/liter, p = 0.003). These
results are similar to the positive findings previously reported in patients
with Type I diabetes. The reduction in fructosamine in the 60 microgram dose
groups represents a 50 - 60% reduction in the excess of fructosamine above the
upper limits of the normal range. Therefore, this study demonstrated that
three-times-a-day dosing of pramlintide can achieve similar clinical benefits as
four-times-a-day dosing in people with Type II diabetes who use insulin. The
study also corroborated the excellent short-term safety profile that has been
observed to date in other clinical trials of pramlintide. The gastrointestinal
symptoms that occurred in a small percentage of people with the initiation of
therapy were generally mild in nature and decreased during the first two weeks
of therapy.
In January 1997, the Company reported the results of two Phase II clinical
trials in subjects with Type I diabetes who use insulin. The results of the
trials support the ability to mix pramlintide with any of the four most common
forms of short and intermediate- acting insulins produced by Eli Lilly & Co. and
Novo Nordisk A/S. Based on the study results, pramlintide was syringe-mixed with
regular (short-acting) and/or NPH (intermediate acting) insulin. In addition,
these preliminary studies suggest that syringe-mixing pramlintide and NPH
insulin may lead to improved glucose control. One study evaluated 30 patients
using Eli Lilly insulins; the other study evaluated 28 patients using Novo
Nordisk insulins. All patients who injected a syringe mixture of pramlintide,
NPH insulin, and regular insulin before breakfast experienced a reduction in
average blood glucose concentrations over a ten-hour period, compared to
separate injections of each given before breakfast. No clinically relevant
differences were noted between Novo Nordisk and Eli Lilly insulins.
The Company has reviewed its clinical data and planned clinical trial
protocols with its collaborators at Johnson & Johnson, outside clinical
consultants, various regulatory authorities,
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and European regulatory consultants. As a result of these reviews, the Company
initiated a series of Phase III trials as described below.
Phase III Clinical Trials
In July 1995, AMYLIN began its PARADIGM (Pramlintide for Amylin Replacement:
Adjunct for Diabetes in Glycemic Management) trials, a Phase III program
involving a series of six pivotal studies designed to assess the long-term
safety and efficacy of pramlintide. The PARADIGM studies will involve
approximately 2,600 people at more than 200 centers in North America and Europe
and are planned to be completed in 1998.
The primary endpoint of the Phase III studies is a reduction in HbA1c, a
measurement that is well accepted by regulatory authorities and the medical
community as the key indicator of long-term average blood-glucose concentrations
and a predictor of long-term degenerative complications. HbA1c is also the
primary endpoint for marketing approval of other diabetes drugs which are
designed to lower blood-glucose. Also, changes in fructosamine have been shown
to mirror subsequent changes in HbA1c when the improvement in glucose control is
maintained over time. Consequently, if the ability of pramlintide to lower
24-hour of average blood-glucose and fructosamine seen during Phase II studies
translates to long-term efficacy as evidenced by a safe, clinically relevant,
and statistically significant reduction in HbA1c in Phase III trials, the
Company believes pramlintide should be approvable as a drug to improve glucose
control in people with diabetes who use insulin therapy.
In July 1995, the Company initiated a Phase III efficacy study in people
with Type II diabetes who use insulin, involving one-year dosing, to test
whether 30-, 75- and 150-microgram doses of pramlintide self-administered three
times daily can safely improve glucose control.
In August 1995, the Company initiated a separate Phase III study in people
with Type I diabetes involving one-year dosing. Dosing initially employed a
30-microgram, four-times-per-day dosing regimen. After three months of dosing,
subjects receiving pramlintide who did not achieve a reduction in HbA1c of 1% or
more were re-randomized into one of two treatment arms receiving either
30-microgram or 60-microgram doses four times per day.
Enrollment in both Phase III studies was completed in June 1996. The
different dose-frequency regimens in studies of Type I and Type II diabetes were
designed to facilitate integration with different insulin regimens.
In August 1996, AMYLIN and Johnson & Johnson completed an administrative
interim review of data from these two, one-year Phase III trials. The review
included an analysis of HbA1c reductions after three months of dosing in
patients receiving pramlintide or placebo in the various
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arms and the safety data set which had accrued to date. The administrative
interim review, which was planned and discussed with the FDA in advance of the
initiation of the studies, did not allow any protocol changes and will not
result in any statistical penalties at the end of the studies. Based on the
administrative interim review, Johnson & Johnson decided to continue its
collaboration with the Company. In compliance with FDA guidelines, the data that
were the subject of the administrative interim review may not be disclosed.
There can be no assurance that such data will ultimately support the marketing
approval of pramlintide as a drug for the treatment of diabetes.
In addition to the ongoing one-year Phase III studies, AMYLIN also initiated
four additional Phase III studies during the fourth quarter of 1996, two each in
people with Type I and Type II diabetes who use insulin. The studies in people
with Type I diabetes are employing dosing regimens involving two-, three-, and
four-times-a-day administration, while the studies in people with Type II
diabetes are employing dosing regimens involving two-and three-times-a-day
administration. The Company is also conducting open label safety studies, label
claims studies, mechanism-of-action studies and drug interaction studies.
The design, planning and execution of clinical trials for drug candidates
aimed at chronic therapy of important diseases require expertise in many areas.
Consequently, the Company has recruited management and technical personnel
experienced in the fields of medical affairs, product development, clinical
development, marketing, quality assurance and regulatory affairs. The Company
also relies upon additional guidance from its Clinical Advisory Board, which is
comprised of leading American and European experts in the treatment of diabetes,
and its collaborators at Johnson & Johnson. An outside Data Monitoring Board is
reviewing safety data in ongoing double-blind Phase III trials.
OTHER RESEARCH AND DEVELOPMENT ACTIVITIES
Additional Pramlintide Development Activities
A continuing priority of the Company is to expand the potential use of
pramlintide by improving the convenience of drug administration. AMYLIN plans to
launch pramlintide in pre-filled cartridges for use in specially designed pen
injectors. As part of its Phase III trials, AMYLIN is conducting studies to
confirm that the most popular formulations of insulin can be mixed with
pramlintide in the same syringe just prior to injection. The Company is also
researching the possibility of dual cartridge injector pens (for injecting
insulin and pramlintide simultaneously) and non-needle routes of administration,
including buccal (in lozenge form), pulmonary (for inhalation), transdermal (by
patch), nasal (for inhalation) and jet injector (for injection without needles).
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Company scientists and physicians will also be researching additional
clinical indications for pramlintide. For instance, preliminary Phase II results
suggest that some people with Type II diabetes, who are unresponsive to oral
hypoglycemic agents but who are not yet using insulin, might benefit from
pramlintide's actions. The Company plans to conduct further Phase II studies in
this patient population in 1997. Also, amylin's reported actions on bone
metabolism and on inducing satiety could have therapeutic benefit for patients
with diabetes and/or other metabolic diseases. In addition, the Company is
conducting research to identify orally-active chemical analogs of amylin.
Non-Amylin Metabolic Targets
In order to develop and commercialize pramlintide, AMYLIN has created an
integrated research and development team for discovering and developing
medicines focused on the control of glucose and lipid metabolism. AMYLIN is
leveraging these capabilities and is broadening its research base beyond the
study of amylin to include research of new drug targets for treating metabolic
disorders, including diabetes, obesity, and dyslipidemia (a condition
characterized by unhealthy levels of cholesterol and triglycerides). The
Company's experience and expertise gained in exploring the biology and chemistry
of amylin and several amylin-related compounds in clinical testing is directly
applicable in these efforts.
In addition to its internal discovery efforts, the Company is also in
discussions with other third parties to collaborate on new technologies and/or
in-license other metabolic compounds. To this end, in October 1996, the Company
acquired exclusive rights to certain patents and patent applications relating to
exendin, a newly discovered compound derived from the venom of the Gila monster
lizard, and glucagon-like peptide (GLP-1). The Company plans to evaluate both of
these compounds as potential drugs for treating diabetes. In particular, these
compounds have been shown in preclinical studies to have effects known to be
important for improving glucose control, including stimulation of secretion of
insulin and modulation of gastric emptying to slow the entry into the
bloodstream of glucose from ingested carbohydrates. Presumably as a result of
these actions, exendin and GLP-1 have exhibited glucose-lowering effects in an
animal model of diabetes. In addition, GLP-1 has been shown to suppress glucagon
secretion in animal studies. Because increases in blood glucose following meals
are a major cause of excessive blood glucose concentrations in people with
diabetes, the actions of exendin and GLP-1 observed in animals to suppress
meal-induced increases of blood glucose, coupled with their effects on insulin,
provide a further rationale for evaluating their use as medicines for treating
certain people with either Type I or II diabetes. AMYLIN's research team will
assess exendin, GLP-1 and their analogs in the treatment of diabetes, and
appropriately qualified product candidates will be evaluated further in clinical
trials. Assuming satisfactory progress in preclinical studies, the Company is
aiming to file an Investigational New Drug application ("IND") for exendin,
GLP-1 or an analog during 1998.
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STRATEGIC ALLIANCES
AMYLIN's commercial strategy is to develop products both independently and
in collaboration with established pharmaceutical and biotechnology companies.
Where appropriate, the Company seeks to complement its internal efforts with
collaborative arrangements. These collaborative partners may provide financial
resources, research and manufacturing capabilities, and marketing infrastructure
to aid in the commercialization of AMYLIN's potential drug discoveries. The
Company evaluates, on an ongoing basis, potential collaborative relationships
with established pharmaceutical and biotechnology companies.
JOHNSON & JOHNSON
In June 1995, AMYLIN and Johnson & Johnson entered into a worldwide
Collaboration Agreement (the "Collaboration Agreement") to develop and
commercialize pramlintide. As of December 31, 1996, Johnson & Johnson has made
payments to AMYLIN totaling approximately $91 million. These payments primarily
include payment of one half of the pramlintide development costs, the purchase
of $30 million of AMYLIN Common Stock, milestone and option fee payments and a
license fee.
Under the collaboration agreement with Johnson & Johnson, AMYLIN is the lead
party in developing and registering pramlintide and Johnson & Johnson is the
lead party in commercializing and marketing pramlintide. Both parties share
equally in the development and commercialization costs incurred for pramlintide
as well as sharing equally in any profits or losses recognized after commercial
launch. In addition, Johnson & Johnson has committed to provide AMYLIN with
significant, additional financial support in the form of funding for certain
development and commercialization costs, milestone payments and equity
investments, subject to the terms of its agreement with the Company. The
Collaboration Agreement is part of an overall strategy of Johnson & Johnson to
establish a comprehensive disease management approach to diabetes. In
conjunction with the Collaboration Agreement, the Company also entered into a
Stock Purchase Agreement (the "Stock Purchase Agreement") and a Loan and
Security Agreement (the "Loan Agreement") with Johnson & Johnson.
In August, 1996, the Company achieved the first milestone in the pramlintide
collaboration when, based upon an administrative review of three-month data from
the first two, one-year Phase III clinical trials, Johnson & Johnson decided to
continue the collaboration. As a result, Johnson & Johnson made additional
payments associated with the milestone to AMYLIN totaling $22.0 million, in
addition to providing significant ongoing development support. The additional
payments associated with the milestone included $7.0 million in milestone and
option fee payments paid in the third quarter of 1996 and the purchase of $15.0
million of AMYLIN Common Stock in the fourth quarter of 1996. In
<PAGE> 14
compliance with Food and Drug Administration guidelines, the data that was the
subject of the administrative interim review may not be disclosed.
In March 1997, Johnson & Johnson exercised an option to broaden the scope
of their existing collaboration on pramlintide and paid the Company $6 million
to obtain additional rights for all amylin agonists for treatment or prevention
of fuel metabolism disorders, including diabetes. AMYLIN will lead the research
and development while Johnson & Johnson will lead commercialization of any
future product candidates.
In addition to the above mentioned milestone-related payments and
investment, Johnson & Johnson's financial commitment to AMYLIN now includes the
funding of 50% of development costs and 100% of pre-launch marketing costs
(AMYLIN's one-half share to be repaid over time from future profits), as well as
milestone payments, license fees, equity investments, and a development loan
facility for use in certain circumstances. The Company will apply all of the
license fees, any cash milestone payments, 50% of the proceeds from Johnson &
Johnson's equity investments and proceeds from draw downs under the development
loan facility towards its share of pramlintide development expenses.
In accordance with the terms of the Stock Purchase Agreement, Johnson &
Johnson purchased an aggregate of 3,455,407 shares of the Company's Common Stock
during 1995 and 1996 providing the Company with net proceeds of approximately
$30.0 million. Johnson and Johnson's Common Stock ownership represents
approximately 10.8% of the Company's Common Shares outstanding at December 31,
1996. Pursuant to the Stock Purchase Agreement, the Company also has the right
to sell additional shares of its Common Stock to Johnson & Johnson resulting in
net proceeds of up to $15.0 million dependent on the achievement of an
additional milestone. As part of the Stock Purchase Agreement, the Company
agreed to use at least fifty percent of the proceeds from the sale of common
stock to Johnson & Johnson to fund AMYLIN's share of development expenses under
the Collaboration Agreement.
In accordance with the terms of the Loan Agreement, Johnson & Johnson has
agreed to provide to the Company a development loan facility (the "Development
Loan Facility") for use in certain circumstances to cover the Company's share of
development expenses related to the Collaboration Agreement. The aggregate
amount of the Development Loan Facility was $53.7 million as of December 31,
1996 and is subject to adjustment for certain events, e.g. increased by 50% of
any increases in the pramlintide development budget as of December 31, 1996 and
decreased by 50% of the Company's net proceeds received from future equity and
debt offerings to investors other than Johnson & Johnson or other corporate
partners. The Company is required to issue a warrant to Johnson & Johnson to
purchase 50,000 shares of the Company's common stock at an exercise price of
$12.00 per share for every $1 million of proceeds borrowed by the Company under
the Development Loan Facility. Under the terms of the Loan Agreement, the
Company is eligible in certain circumstances to make quarterly draw downs on the
then available Development Loan Facility based
<PAGE> 15
on pramlintide development expenses during specified periods. The projected
aggregate amount available to be borrowed by the Company under the Development
Loan Facility during 1997 is $38.9 million, which is subject to adjustment based
on changes to the pramlintide development budget and on certain corporate
financing activities.
The Company is dependent on the future payments from Johnson & Johnson to
continue the development and commercialization of pramlintide. Johnson & Johnson
may terminate the Collaboration Agreement subject to a notice period of six
months. Johnson & Johnson's financial and other obligations under the
Collaboration Agreement would continue during any such termination notice
period. In addition, Johnson & Johnson has the right to terminate the
Collaboration Agreement at any time based on material safety or tolerability
issues. Without Johnson & Johnson's continued collaborative support, the Company
might not be able to continue the pramlintide development program, and the
Company's financial condition would be materially adversely affected.
PATENTS, PROPRIETARY RIGHTS, AND LICENSES
The Company believes that patents and other proprietary rights are important
to its business. The Company's policy is to file patent applications to protect
technology, inventions and improvements that are important to the development of
its business. AMYLIN also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. The Company plans to enforce its issued patents and
its rights to proprietary information and technology. The Company reviews
third-party patents and patent applications in its fields of endeavor, both to
shape its own patent strategy and to identify useful licensing opportunities.
At December 31, 1996, the Company held rights to 23 issued U.S. patents. Of
these issued patents, 18 are owned by AMYLIN and five are licensed exclusively
to AMYLIN. In addition, AMYLIN owns or has exclusive rights to 27 patent
applications pending with the U.S. PTO. The Company has 11 pending and five
issued U.S. patents relevant to the development and commercialization of
pramlintide. AMYLIN also has filed foreign counterparts of certain of these
issued patents and applications in many countries. Generally, it is the
Company's policy to file foreign counterparts in countries with significant
pharmaceutical markets. All commercial rights to these patents and patent
applications are held by the Company or, in some cases, jointly with Johnson &
Johnson. There can be no assurance that patents will issue from any of the
still-pending applications.
<PAGE> 16
MANUFACTURING
The Company has internally developed and also has contracted for the
development of processes for manufacturing pramlintide bulk drug and dosage
form. Progress has been made in improving the purity of active drug substance,
in scaling up drug synthesis and dosage form manufacturing processes, and in
developing new approaches for drug synthesis. The Company plans to launch
pramlintide based upon solid phase synthesis of the bulk substance.
The Company currently has no facilities to manufacture clinical trial or
commercial supplies of pramlintide and currently relies on third parties to do
so. The Company has selected manufacturers which it believes comply with GMP and
other regulatory standards. Under the terms of the agreement with Johnson &
Johnson, AMYLIN is responsible for arranging for the manufacture of pramlintide
during the development phase, while Johnson & Johnson is responsible for
manufacturing during the commercialization phase. The Company currently uses
three external suppliers for synthetic chemical manufacture of pramlintide bulk
drug and two suppliers and Johnson & Johnson for fill-finish activities. The
Company has established a quality control and quality assurance program,
including a set of standard operating procedures and specifications, designed to
ensure that the Company's products are manufactured in accordance with GMP and
other applicable domestic and foreign regulations. However, the Company is
dependent upon third party manufacturers to comply reliably with such procedures
and regulations. There can be no assurance that these manufacturers will meet
the Company's requirements for quality, quantity or timeliness.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of
pramlintide and in the Company's ongoing research and development activities.
All of the Company's therapeutic products, including pramlintide, will require
regulatory approval by governmental agencies prior to commercialization. In
particular, human therapeutic products are subject to rigorous preclinical
testing and clinical trials and other pre-market approval requirements by the
FDA and regulatory authorities in foreign countries. Various federal, and in
some cases state, statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of such
products. The lengthy process of seeking these approvals and the subsequent
compliance with applicable federal and state statutes and regulations require
the expenditure of substantial resources. Any failure by the Company or its
collaborators or licensees to obtain, or any delay in obtaining, regulatory
approvals could adversely affect the marketing of any products developed by the
Company and its ability to receive product revenue, royalty revenue or profit
sharing payments.
<PAGE> 17
The activities required before a pharmaceutical agent may be marketed in the
United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies must be submitted to the FDA as part of an IND application,
which must be reviewed by the FDA before proposed clinical trials can begin.
Typically, clinical trials involve a three-phase process. In Phase I, clinical
trials are conducted with a small number of subjects to determine the early
safety and tolerability profile and the pattern of drug distribution and
metabolism. In Phase II, clinical trials are conducted with groups of patients
afflicted with a specified disease in order to determine preliminary efficacy,
dosing regimes and expanded evidence of safety. In Phase III, large-scale,
multicenter, adequate and well-controlled, comparative clinical trials are
conducted with patients afflicted with a target disease in order to provide
enough data for the statistical proof of efficacy and safety required by the FDA
and others. In the case of pramlintide, the results of the preclinical testing
and clinical trials are then submitted to the FDA for a pharmaceutical product
in the form of a New Drug Application ("NDA") for approval to commence
commercial sales. In responding to an NDA, the FDA may grant marketing approval,
request additional information, or deny the application if it determines that
the application does not satisfy its regulatory approval criteria. There can be
no assurance that approvals will be granted on a timely basis, or at all.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
with GMP guidelines. In complying with GMP, manufacturers must continue to
expend time, money and effort in the area of production and quality control and
quality assurance to ensure full technical compliance. Manufacturing facilities
are subject to periodic inspections by the FDA to ensure compliance. See "--
Manufacturing."
The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
research. The extent of government regulation which might result from any
legislation or administrative action cannot be accurately predicted.
Clinical testing, manufacture and sale of the Company's products outside of
the United States will be subject to regulatory approval by other jurisdictions
which may be more or less rigorous than in the United States.
<PAGE> 18
COMPETITION
Although competitive activity in the diabetes market is intense, the Company
believes that pramlintide, if approved, will have advantages over alternative
approaches to improving glucose control for many people with diabetes.
Pramlintide is aimed at restoring the actions of a human hormone that is missing
or deficient in people with diabetes who use insulin, and hormone replacement
therapy is a well established treatment concept. Subcutaneous injections of
pramlintide are relatively straightforward for patients who are already
self-injecting insulin. Moreover, assuming clinical utility is established,
alternative delivery routes and mechanisms may be feasible based on the current
dosing requirements and chemical characteristics of pramlintide. Based upon
published reports of alternative approaches to improving glucose control, the
Company believes that pramlintide could provide an attractive combination of
safety and efficacy and could become an important part of the drug armamentarium
directed at diabetes. Since diabetes is a heterogeneous disease with many
degenerative complications, it is likely that multiple pharmaceutical strategies
will be useful in arresting its relentless progression.
Nevertheless, pramlintide may compete with several established therapies for
market share. In addition, many companies are pursuing the development of novel
pharmaceuticals which target the same diseases to which pramlintide is targeted,
and several product candidates are in Phase III clinical trials or in
registration. These companies may develop and introduce products competitive
with or superior to pramlintide. Such competitive or potentially competitive
products may include troglitazone, and if indications for pramlintide's use are
expanded to people with diabetes who do not use insulin, may also include
metformin, acarbose, bromocriptine and other oral hypoglycemic agents such as
sulfonylureas.
The Company's competition will be determined in part by the indications for
which the Company's products are developed and ultimately approved by regulatory
authorities. An important factor in competition may be the timing of market
introduction of the Company's or competitors' products. Accordingly, the
relative speed with which AMYLIN and Johnson & Johnson or future corporate
partners can develop products, complete the clinical trials and approval
processes and supply commercial quantities of the products to the market are
expected to be important competitive factors. The Company expects that
competition among products approved for sale will be based, among other things,
on product efficacy, safety, convenience, reliability, availability, price and
patent position.
EMPLOYEES
As of December 31, 1996, AMYLIN had 214 full-time equivalent employees, of
whom 40 hold Ph.D. or Sc.D. degrees and nine hold M.D. degrees (five of whom
also hold Ph.D.s). A significant number of the Company's management and
professional employees have had prior experience
<PAGE> 19
with pharmaceutical, biotechnology or medical product companies. AMYLIN believes
that it has been highly successful in attracting skilled and experienced
scientific personnel. None of the Company's employees is covered by collective
bargaining agreements and management considers relations with its employees to
be good.
CLINICAL, SCIENTIFIC AND BUSINESS ADVISORS
AMYLIN works with a network of scientific and business experts who serve as
advisors to the Company. Each advisor has entered into a consulting agreement
with the Company. All of the advisors are employed by employers other than the
Company and have commitments to or consulting or advisory agreements with other
entities that may limit their availability to the Company. The advisors have
agreed, however, not to provide any services to any other entities that might
conflict with the services that they provide the Company.
CLINICAL ADVISORY BOARD
<TABLE>
<S> <C>
Charles M. Clark, Jr., Professor of Medicine and Pharmacology,
M.D. Indiana University School of Medicine;
Co-Director of Regenstrief Institute;
Past President of American Diabetes Association
Daniel W. Foster, M.D. Donald W. Seldin Distinguished Chair in Internal Medicine,
Professor and Chairman, Department of Internal Medicine,
University of Texas, Southwestern Medical Center
Harry Keen, M.D., Emeritus Professor of Human Metabolism and Diabetes,
F.R.C.P. Guys and St. Thomas Hospitals, London;
Honorary President of International Diabetes Foundation
Pierre Lefebvre, M.D., Head of Diabetes, Nutrition and Metabolic Disorders Division,
Ph.D. University of Liege Hospital, Belgium;
Past President of European Association for the Study of Diabetes
Gerard Slama Chef de Service, Service de Diabetologie,
Hopital Hotel-Dieu de Paris
Fred W. Whitehouse, M.D. Division Head, Endocrinology and Metabolism,
Henry Ford Hospital;
Past President of American Diabetes Association
</TABLE>
<PAGE> 20
SCIENTIFIC ADVISORY BOARD
<TABLE>
<S> <C>
Timothy J. Rink, M.D., Chairman, Scientific Advisory Board; Chairman and Chief Executive
Sc.D. Officer, Aurora Biosciences Corporation
Sydney Brenner, C.H., Director of Molecular Genetics Unit, Medical Research Council,
M.D., D. Phil, F.R.C.P. University of Cambridge; Fellow, Royal Society; Foreign Associate,
National Academy of Sciences
C. Nicholas Hales, M.D. Professor of Clinical Biochemistry, University of Cambridge
Ph.D., F.R.C.P.
Michael R. Hanley, Professor of Biological Chemistry, University of California, Davis
Ph.D.
Walter M. Lovenberg, President, Lovenberg Associates, Inc., Past Executive Vice President
Ph.D. for R&D Strategy, Marion Merrell Dow, Inc.
Iain C. Macintyre, M.D., Associate Director, The William Harvey Institute, St. Bartholomew's
Ph.D. Hospital Medical College
John Dennis McGarry, Professor of Internal Medicine and Biochemistry, University of
Ph.D. Texas, Southwestern Medical Center
Sir Philip Randle, M.D., Professor Emeritus of Clinical Biochemistry, University of Oxford;
Ph.D., F.R.C.P. Fellow, Royal Society
BUSINESS ADVISORS
Thomas D. Kiley, LLM Past Vice President and General Counsel, Genentech, Inc.
Donald H. Rumsfeld Retired Chairman and Chief Executive Officer, General Instrument
Corporation
Charles G. Smith, Ph.D. Past Vice President of Research and Development, E.R. Squibb &
Sons; Past Vice President of Research and Development, Revlon
Health Care Group
</TABLE>
<PAGE> 21
RISK FACTORS
In evaluating the Company and its business, prospective investors
should carefully consider the following risk factors in addition to the other
information contained herein.
Except for the historical information contained herein, the discussion
in this report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in this report. Factors that could cause or contribute to such
differences include, without limitation, those discussed in the description of
the Company's business above and in "Risk Factors" below, as well as those
discussed in any documents incorporated herein by reference.
Technological Uncertainty; Reliance on Single Drug Candidate in Clinical
Development. All of the Company's products are in research or development, and
no revenues have been generated from product sales. To date, the Company's
resources have been dedicated primarily to the research and development of
potential pharmaceutical products relating to the amylin hormone to treat
metabolic disorders. The physiology of fuel metabolism is highly complex, and
the causes of metabolic disorders, such as diabetes, are not fully known.
Although preclinical and Phase II clinical data support the Company's belief
that amylin plays an important role in the regulation of metabolism, there can
be no assurance that the Company's theories are correct or that its product
candidates will be effective in the treatment of metabolic disorders. While the
Company has conducted Phase II dose ranging and preliminary efficacy studies of
pramlintide up to one month in duration, results obtained in preclinical and
early clinical studies are not necessarily indicative of results that will be
obtained during Phase III clinical testing.
Pramlintide is the only product candidate that the Company currently has in
human clinical studies. The Company's research and development programs other
than pramlintide are at an early stage. Any additional product candidates will
require significant research, development, preclinical and clinical testing,
regulatory approval and commitments of resources prior to commercialization.
There can be no assurance that the Company's research will lead to the discovery
of any additional product candidates or that pramlintide or any such potential
products will be successfully developed, prove to be safe and efficacious in
clinical trials, meet applicable regulatory standards, be produced in commercial
quantities at acceptable costs or be marketed successfully. If pramlintide does
not successfully complete clinical testing and meet applicable regulatory
requirements or is not successfully marketed, the Company may not have the
financial resources to continue research and development of other product
candidates. See "Business -- Pramlintide: The Drug Candidate" and "-- Other
Research and Development Activities."
Reliance on Johnson & Johnson. The Company is dependent on future payments
from Johnson & Johnson to continue the development and commercialization of
pramlintide. The Company will
<PAGE> 22
apply all of the license fees and cash milestone payments and at least 50% of
the proceeds from Johnson & Johnson's equity investments towards the Company's
share of pramlintide development expenses. Under the collaboration agreement
between Johnson & Johnson and the Company, Johnson & Johnson has primary
responsibility for commercializing pramlintide. There can be no assurance that
Johnson & Johnson will be able to establish effective sales and distribution
capabilities or be successful in gaining market acceptance for pramlintide or
that Johnson & Johnson will devote sufficient resources to the commercialization
of pramlintide. If Johnson & Johnson desires to discontinue the collaboration,
it can terminate the collaboration agreement with the Company, subject to notice
of six months. Johnson & Johnson's financial and other obligations would
continue during the six-month period following the receipt of any such
termination notice. In addition, Johnson & Johnson has the right to terminate
the collaboration agreement at any time based on material safety or tolerability
issues. If Johnson & Johnson were to discontinue its financial support, the
Company might not be able to continue the pramlintide development program, and
the Company's financial condition would be materially adversely affected. If
adequate funds were not available from other sources, the Company would be
required to implement a restructuring plan and to delay, scale-back or eliminate
one or more of its research or development programs. See "Business - Strategic
Alliances-- Johnson & Johnson Collaboration."
Uncertainty Associated with Clinical Trials; Government Regulation. Prior to
marketing, any drug developed by the Company must undergo rigorous preclinical
and clinical testing and an extensive regulatory approval process mandated by
the United States Food and Drug Administration ("FDA") and equivalent foreign
authorities. Subject to compliance with applicable regulations, the Company
plans to undertake extensive clinical testing to demonstrate optimal dose,
safety and efficacy for its product candidates. The Company has initiated
adequate and well controlled Phase III efficacy studies on the Company's first
product candidate, pramlintide. In the Phase III studies, the Company is testing
whether treatment with pramlintide along with insulin can lower glycated
hemoglobin (HbA1c), a widely accepted, chemically measured index of glucose
control that is indicative of the risk of degenerative complications. HbA1c
reflects average blood-glucose concentrations over the previous three-to
four-month period and is a primary endpoint in the Company's Phase III studies.
Although medical studies show a correlation between reductions in 24-hour
average glucose concentrations, reductions in fructosamine, and lowering HbA1c
there can be no assurance that Phase II clinical results with pramlintide
showing reductions in 24-hour average glucose and fructosamine concentrations
will translate into sustainable improvements in HbA1c levels in the Phase III
efficacy studies. Further testing of pramlintide and the Company's other product
candidates in research or development may reveal undesirable and unintended side
effects or other characteristics that may prevent or limit their commercial use.
The Company or applicable regulatory authorities may suspend clinical trials at
any time if the subjects or patients participating in such trials are being
exposed to unacceptable health risks. There can be no assurance that the Company
will not encounter problems in clinical trials which will cause the Company or
such regulatory authorities to delay or suspend clinical
<PAGE> 23
trials. In addition, there can be no assurance that any of the Company's
products will obtain regulatory approval for any indication. In August 1996,
AMYLIN and Johnson & Johnson conducted an administrative interim review of
three-month data from AMYLIN's first two, one-year Phase III clinical trials.
Based on the administrative interim review, Johnson & Johnson decided to
continue its collaboration with the Company. In compliance with FDA guidelines,
the data that was the subject of the administrative interim review may not be
disclosed. There can be no assurance that such data will ultimately support the
marketing approval of pramlintide as a drug for the treatment of diabetes.
Products, if any, resulting from AMYLIN's research and development programs are
not expected to be commercially available for a number of years.
The time required for completing such clinical testing and obtaining such
regulatory approvals is uncertain and approval itself may not be obtained. In
addition, delays or rejections may be encountered based upon FDA regulatory
review of each submitted New Drug Application ("NDA") and changes in FDA
policies during the period of product development. Similar delays may also be
encountered in other countries. There can be no assurance that, even after such
time and expenditures, regulatory approval will be obtained for any products
developed by the Company. Moreover, prior to receiving regulatory approval to
market its products, the Company may have to demonstrate that its products
represent improved forms of treatment over existing therapies. If regulatory
approval of a product is granted, such approval may be subject to limitations on
the indicated uses for which the product may be marketed. Further, even if such
regulatory approval is obtained, a marketed product, its manufacturers and its
manufacturing facilities are subject to continual review and periodic
inspections and later discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market. See "Business
- -- Pramlintide: The Drug Candidate" and "-- Government Regulation."
History of Operating Losses. The Company has experienced significant
operating losses since its inception in 1987. As of December 31, 1996, the
Company had an accumulated deficit of approximately $155.1 million. The Company
expects to incur significant additional operating losses over the next several
years. Substantially all of the Company's revenues to date have been derived
from development funding, license fees and milestone payments under
collaborative agreements and from interest income. To date, the Company has not
received any revenues from product sales. To achieve profitable operations, the
Company, alone or with others such as Johnson & Johnson, must successfully
develop, manufacture, obtain required regulatory approvals and market its
products.
Future Capital Needs; Uncertainty of Additional Funding. The Company's
future capital requirements will depend on many factors, including continuation
of the collaboration with Johnson & Johnson, scientific progress in its research
and development programs, the magnitude of these programs, progress with
preclinical and clinical trials, the time and costs involved in
<PAGE> 24
obtaining regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patents, competing technological and
market developments, changes in collaborative relationships, the ability of the
Company to establish research, development and commercialization arrangements
pertaining to its non-pramlintide related programs, and the costs of
manufacturing scale-up. AMYLIN anticipates that its existing available cash,
interest income from cash investments, and future payments by and loan
facilities from Johnson & Johnson will be adequate to satisfy the Company's
capital requirements through 1998. Although Johnson & Johnson's various payments
to AMYLIN should be sufficient to fund a substantial portion of the Company's
50% share of pramlintide development, the Company may elect to raise additional
funds to pay for its share of such development and for other corporate purposes.
There can be no assurance that additional financing will be available on
acceptable terms or at all.
Patents and Proprietary Rights. The Company's success will depend in part on
its ability to obtain patent protection for its products and technologies both
in the United States and other countries. The patent positions of biotechnology
and pharmaceutical companies can be highly uncertain and involve complex legal
and factual questions. As of December 31, 1996, the Company held rights to 23
issued U.S. patents. Of these issued patents, 18 are owned by AMYLIN and five
are licensed exclusively to AMYLIN. In addition, AMYLIN owns or has exclusive
rights to 27 patent applications pending with the U.S. Patent and Trademark
Office (the "U.S. PTO"). The Company intends to file additional applications as
appropriate for patents covering both its products and processes. Generally, it
is the Company's policy to file foreign counterparts in countries with
significant pharmaceutical markets. The Company has filed foreign counterparts
of certain of its issued and pending applications in many countries. There can
be no assurance that patents will issue from any of these applications or, if
patents do issue, that claims allowed on issued patents will be sufficient to
protect the Company's technology. In addition, there can be no assurance that
patents issued to the Company will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide proprietary
protection or commercial advantage to the Company.
Since patent applications in the United States are maintained in secrecy
until patents issue and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, the Company cannot be
certain that it was the first to make the inventions covered by each of its
pending patent applications or that it was the first to file patent applications
for such inventions. In the event that a third party has also filed a patent for
any of its inventions, the Company may have to participate in interference
proceedings declared by the U.S. PTO to determine priority of invention, which
could result in substantial cost to the Company, even if the eventual outcome is
favorable to the Company. There can be no assurance that the Company's patents,
if issued, would be held valid by a court of competent jurisdiction. There can
be no assurance that the Company will not be obliged to defend itself in court
against allegations of infringement of third-party patents. An adverse outcome
in such a suit could subject the Company
<PAGE> 25
to significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the Company to cease using such
technology.
The Company has received letters from the University of Minnesota (the
"University") asserting that pramlintide is covered by a patent (the
"University Patent") which was licensed to the Company pursuant to a License
Agreement dated November 11, 1991 among the Company, the University and Per
Westermark ("Westermark") (the "University License Agreement"). In its letters,
the University claims that it is entitled to 50% of any sublicense fees
received by the Company from sublicensing the University Patent to Johnson &
Johnson pursuant to the Company's Collaboration Agreement with Johnson &
Johnson, as well as future royalties as specified in the University License
Agreement. The Company has informed the University that no such sublicensing
moneys have been received by the Company from Johnson & Johnson, who is not a
sublicensee under the University Patent. On December 5, 1996, the Company filed
a complaint against the University and Westermark in the U.S. District Court
for the Southern District of California seeking a declaratory judgement that
pramlintide is not covered by the University Patent and that no moneys are owed
to the University or Westermark. Although discussions are underway with the
University, the Company expects that the lawsuit will become active in the near
future if agreement is not reached. The Company believes the University's
assertions are without merit and intends to defend vigorously against any
claims that may be brought by the University against the Company related to the
foregoing.
If patents are issued to other companies that contain competitive or
conflicting claims and such claims are ultimately determined to be valid, there
can be no assurance that the Company would be able to obtain licenses to these
patents at a reasonable cost or be able to develop or obtain alternative
technology.
In order to protect its proprietary technology and processes, AMYLIN also
relies in part on confidentiality agreements with its corporate partners,
employees, consultants, outside scientific collaborators and sponsored
researchers and other advisors. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach or that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors. See "Business --"Patents, Proprietary
Rights, and Licenses."
Competition; Technological Change. Other products are currently in
development or exist in the market that may compete directly with the products
that the Company is seeking to develop and market. Various products are
available to treat Type II diabetes, including sulfonylureas, metformin,
acarbose, troglitazone and other compounds. In addition, several companies are
researching various approaches to improve treatments for Type I and Type II
diabetes. There can be no assurance that the Company's products, even if
successfully tested and developed, will have sufficient advantages over existing
products to cause health care professionals to adopt them over such other
products or that the Company's products will offer an economically feasible
alternative to such existing products.
The Company is engaged in a rapidly developing field. A number of companies
are pursuing the development of novel pharmaceuticals which target the same
diseases that AMYLIN is targeting. These companies include biotechnology and
pharmaceutical companies. It is expected that the number of companies seeking to
develop products and therapies for the treatment of diabetes and other metabolic
disorders will increase. There can be no assurance that other
<PAGE> 26
products and therapies will not be developed that will either render the
Company's proposed products obsolete or that will have advantages that will
significantly outweigh the advantages of the products and therapies that the
Company is seeking to develop.
Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company. In addition, many of these
competitors have significantly greater experience than the Company in
undertaking preclinical testing and human clinical trials of new pharmaceutical
products and in obtaining regulatory approvals of human therapeutic products.
Accordingly, the Company's competitors may succeed in obtaining FDA approval for
products more rapidly than the Company. Furthermore, if the Company is permitted
to commence commercial sales of products, it may also be competing with respect
to manufacturing efficiency and marketing capabilities, areas in which it has
limited or no experience. See "Business -- Competition."
Reliance on Third-Party Manufacturers; Manufacture of Pramlintide in
Commercial Quantities. The manufacturing of sufficient quantities of new drugs
is a time consuming and complex process. The Company currently has no facilities
for the manufacture of clinical trial or commercial supplies of pramlintide. The
Company currently relies on third parties to manufacture pramlintide for
preclinical testing and clinical trials. Pramlintide has not yet been
manufactured on a commercial scale. Under the terms of the collaboration
agreement with Johnson & Johnson, the Company is responsible for arranging for
the manufacture of pramlintide during the development phase, while Johnson &
Johnson is responsible for manufacturing during the commercialization phase. All
manufacturing facilities must comply with applicable regulations of the FDA. No
assurance can be given that the Company, together with Johnson & Johnson, will
be able to make the transition to commercial production. The Company has
established a quality control and quality assurance program, including a set of
standard operating procedures and specifications, designed to ensure that the
Company's products are manufactured in accordance with current good
manufacturing practices ("GMP") and other applicable domestic and foreign
regulations. However, the Company is dependent upon contract manufacturers and
Johnson & Johnson to comply reliably with such procedures and regulations. There
can be no assurance that these manufacturers will meet the Company's
requirements for quality, quantity or timeliness. See "Business --
Manufacturing."
Attraction and Retention of Key Employees and Consultants. The Company is
highly dependent on the principal members of its scientific and management
staff, the loss of whose services might impede the achievement of research and
development objectives. Recruiting and retaining qualified scientific personnel
to perform research and development work in the future will also be critical to
the Company's success. Although the Company believes it will be successful in
attracting and retaining skilled and experienced scientific personnel, there can
be no assurance that the Company will be able to attract and retain such
personnel on acceptable terms given the
<PAGE> 27
competition between numerous pharmaceutical and biotechnology companies,
universities and other research institutions for experienced scientists and
management personnel. The Company does not maintain "key person" insurance on
any of its employees. In addition, the Company relies on consultants and
advisors, including its scientific and clinical advisors, to assist the Company
in formulating its research and development strategy. All of the Company's
consultants and advisors are employed by employers other than the Company and
have commitments to or consulting or advisory contracts with other entities that
may limit their availability to the Company.
Absence of Sales and Marketing Organization. The Company has limited
experience in market development and no experience in sales, marketing or
distribution. To market any of its products directly, the Company must obtain
access to marketing and sales forces with technical expertise and with
supporting distribution capability. To this end, the Company has entered into a
collaboration agreement with Johnson & Johnson which provides that Johnson &
Johnson will have primary responsibility for commercialization of pramlintide.
There can be no assurance that Johnson & Johnson or the Company will establish
adequate sales and distribution capabilities or be successful in gaining market
acceptance for products.
Uncertainty of Pharmaceutical Pricing and Reimbursement; Health Care Reform.
AMYLIN's ability to commercialize its products successfully will depend in part
on the extent to which reimbursement for the cost of such products and related
treatments will be available from government health administration authorities,
private health insurers and other organizations. The levels of revenues and
profitability of pharmaceutical companies may be affected by the continuing
efforts of governmental and third-party payors to contain or reduce the costs of
health care through various means. For example, in certain foreign markets
pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. In addition, both in the United States
and elsewhere, sales of prescription pharmaceuticals are dependent in part on
the availability of reimbursement from third-party payors, such as government
and private insurance plans. Third-party payors are increasingly challenging the
prices charged for medical products and services. If the Company and Johnson &
Johnson succeed in bringing pramlintide to the market, there can be no assurance
that it will be considered cost effective and that reimbursement will be
available or will be sufficient to allow the Company and Johnson & Johnson to
sell pramlintide on a competitive basis. This could have a material adverse
effect on the Company's business.
Product Liability and Insurance. The Company's business exposes it to
potential product liability risks which are inherent in the testing,
manufacturing and marketing of human therapeutic products. Although the Company
currently has product liability insurance, there can be no assurance that it
will be able to maintain such insurance on acceptable terms or that insurance
will provide adequate coverage against potential liabilities.
<PAGE> 28
Hazardous Materials. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be eliminated. In the event of such an accident, others
may seek to hold the Company liable for any damages that result and any such
liability could exceed the resources of the Company.
Volatility of Stock Price. The market prices for securities of
biopharmaceutical and biotechnology companies, including AMYLIN, have
historically been highly volatile, and the market from time to time has
experienced significant price and volume fluctuations that are unrelated to the
operating performance of such companies. Factors such as fluctuation in the
Company's operating results, announcements of technological innovations or new
commercial therapeutic products by the Company or its competitors, clinical
trial results, governmental policy or regulation, developments in patent or
other proprietary rights, developments in the Company's relationships with
Johnson & Johnson or future collaborative partners, public concern as to the
safety of drugs developed by the Company and general market conditions may have
a significant effect on the market price of the Common Stock.
ITEM 2. PROPERTIES
AMYLIN' administrative offices and research laboratories are
located in San Diego and Oxford, U.K. The Company occupies a 45,300 square foot
headquarters facility in San Diego under a lease which expires in 2004; the
Company has two options to renew the lease. Each option is for an additional
five-year period. The facility contains office space and a laboratory designed
specifically for metabolic research. The Company has also sub-leased an
additional 14,000 square feet of office and laboratory space in the same
vicinity as the Company's headquarters. The sub-lease expires in June 1998. In
addition, the Company leases a 35,500 square foot facility in San Diego where
its product development operations are located under a lease which expires in
June 2000. AMYLIN EUROPE LIMITED, a wholly owned subsidiary, occupies
approximately 4,400 square feet of office space in Oxford, U.K.
ITEM 3. LEGAL PROCEEDINGS
The Company has received letters from the University of Minnesota (the
"University") asserting that pramlintide is covered by a patent (the
"University Patent") which was licensed to the Company pursuant to a License
Agreement dated November 11, 1991 among the Company, the University and Per
Westermark ("Westermark") (the "University License Agreement"). In its letters,
the University claims that it is entitled to 50% of any sublicense fees
received by the Company from sublicensing the University Patent to Johnson &
Johnson pursuant to the Company's Collaboration Agreement with Johnson &
Johnson, as well as future royalties as specified in the University License
Agreement. The Company has informed the University that no such sublicensing
moneys have been received by the Company from Johnson & Johnson, who is not a
sublicensee under the University Patent. On December 5, 1996, the Company filed
a complaint against the University and Westermark in the U.S. District Court
for the Southern District of California seeking a declaratory judgement that
pramlintide is not covered by the University Patent and that no moneys are owed
to the University or Westermark. Although discussions are underway with the
University, the Company expects that the lawsuit will become active in the near
future if agreement is not reached. The Company believes the University's
assertions are without merit and intends to defend vigorously against any
claims that may be brought by the University against the Company related to the
foregoing.
<PAGE> 29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference
to page 32 of Registrant's annual report to security holders to be furnished to
the Commission pursuant to Rule 14a-3(b) in connection with the 1997 Annual
Meeting which is attached hereto as Exhibit 13.1 (the "Annual Report").
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to page 15 of
the Consolidated Financial Statements supplement to the Annual Report attached
hereto as Exhibit 13.1 (the "Annual Report").
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to pages 16
through 19 of the Consolidated Financial Statement supplement to the Annual
Report attached hereto as Exhibit 13.1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and the related
report of independent auditors are incorporated herein by reference to pages 20
through 31 of the Annual Report attached hereto as Exhibit 13.1:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Stockholders' Equity
<PAGE> 30
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
Registrant's Definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A in connection with the 1997 Annual Meeting (the "Proxy
Statement") under the headings "Nominees" and "Background of Executive Officers
not Described Above."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Security Ownership of Certain Beneficial Owners and
Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Certain Transactions."
<PAGE> 31
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Reference is made to the Index to Consolidated Financial
Statements under Item 8 in Part II hereof, where these
documents are listed.
(2) Financial Statement Schedules:
All schedules have been omitted because they are not
applicable or required, or the information required to be set
forth therein is included in the Consolidated Financial
Statements or notes thereto included in the Annual Report
attached hereto as Exhibit 13.1.
(3) Exhibits - See (c) below.
(b) There were no reports on Form 8-K filed by the Registrant during the
fourth quarter of the fiscal year ended December 31, 1996.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
(1) 3.1 Amended and Restated Certificate of
Incorporation of the Registrant.
(1) 3.2 Amended and Restated Bylaws of the
Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
(1) 10.1 Form of Indemnity Agreement entered into
between the Registrant and its directors and
officers.
(8) 10.2 Registrant's 1991 Stock Option Plan, as
amended (the "Option Plan").
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C>
(8) 10.3 Form of Incentive Stock Option Agreement
under the Option Plan with related schedule.
(1) 10.4 Form of Supplemental Stock Option Agreement
under the Option Plan.
(1) 10.5 Form of Supplemental Stock Option Agreement
not granted under the Option Plan with
related schedule.
(1) 10.6 Registrant's Employee Stock Purchase Plan and
related offering document.
(1) 10.7 Stock Purchase Agreement, dated as of October
28, 1991, between the Registrant and the
parties named therein, as amended.
(1)(2) 10.8 License Agreement, dated as of November 22,
1991, among the Registrant, the Regents of
the University of Minnesota, and Per
Westermark.
(1) 10.9 Lease, dated as of January 2, 1989, between
the Registrant and Nippon Landic (USA), Inc.,
the assignee of NEXUS/GADCO-UTC, as amended.
(3) 10.10 Lease Agreement, dated as of January 22,
1993, between the Registrant and Loma
Palisades, Ltd., a California Limited
Partnership, and related Sublease Agreements,
each dated January 21, 1993 between the
Registrant and Lam Research Corporation.
(3) 10.11 Master Equipment Lease Agreement Number
10453, Equipment Financing Agreement Number
10753, Negative Covenant Pledge Agreements
and Collateral Security Agreement, each dated
as of March 19, 1993, between the Registrant
and Lease Management Services, Inc.
(8) 10.12 Registrant's Non-Employee Directors Stock
Option Plan (the "Directors' Plan").
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C>
(4) 10.13 Form of Nonstatutory Stock Option Agreement
under the Directors' Plan
(5) 10.14 Sublease Agreement, dated September 1, 1994,
between the Registrant and ORINCON
Corporation.
(5) 10.15 Loan Agreement, dated July 5, 1994, and
related Note and Credit Terms and Conditions
Agreement between the Registrant and Imperial
Bank.
(5) 10.16 Phantom Stock Unit Agreement, dated January
4, 1995, between the Registrant and Farview
Management Co., L.P.
(6)(7) 10.17 Collaboration Agreement, dated June 20, 1995
between the Registrant and LifeScan, Inc.
(6)(7) 10.18 Stock Purchase Agreement, dated June 20, 1995
between the Registrant and Johnson & Johnson
Development Corporation.
(6)(7) 10.19 Loan and Security Agreement, dated June 20,
1995 between the Registrant and Johnson &
Johnson.
(6)(7) 10.20 Agreement to Discontinue Collaboration, dated
June 20, 1995 between the Registrant and
Glaxo Wellcome, Inc.
(8) 10.21 Consulting Agreement, dated June 15, 1995,
between the Registrant and Joseph C. Cook,
Jr., as amended on March 25, 1996, and
related Nonstatutory Stock Option grant dated
June 15, 1995.
(8) 10.22 Addendums No. 10453 and 10753 to Master Lease
Agreement dated January 19, 1996 between the
Registrant and Lease Management Services with
Related Negative Covenant Pledge Agreement
and Collateral Security Agreement.
(9) 10.23 Employment agreement dated July 11, 1996,
between the registrant and Richard M. Haugen.
</TABLE>
<PAGE> 34
<TABLE>
<S> <C> <C>
(10)(11) 10.24 Patent and Technology License Agreement,
Consulting Agreement and Nonstatutory Stock
Option Agreement dated October 1, 1996,
between the Registrant and Dr. John Eng.
(10)(11) 10.25 Collaborative Research and Assignment
Agreement dated October 15, 1996, among the
Registrant, London Health Sciences Centre and
Dr. John Dupre.
10.26 Employment agreement dated August 1, 1996
between the Registrant and Howard E. Greene,
Jr.
10.27 Amendment dated November 5, 1996 to the Lease
Agreement, dated January 22, 1993, between
the Registrant and Loma Palisades, Ltd., a
California Limited Partnership.
10.28 Amendment dated January 15, 1997 to the
Consulting Agreement, dated June 15, 1995,
between the Registrant and Joseph C. Cook,
Jr.
10.29 Addendum to the Master Financing Agreement
No, 10753 dated January 19, 1996 between the
Registrant and Lease Management Services with
amendments to the Related Negative Covenant
Pledge Agreement and Collateral Security
Agreement, each dated as of January 30, 1997.
10.30 Sublease Agreement, dated January 31, 1997,
between the Registrant and Gensia, Inc.
10.31 Fourth Amendment dated February 26, 1997 to
the Lease Agreement, dated January 2, 1989,
between the Registrant and Nippon Landic
(U.S.A.), Inc., as amended.
13.1 Registrant's Annual Report to Stockholders
for the fiscal year ended December 31, 1996.
(1) 22.1 Subsidiaries of the Registrant.
</TABLE>
<PAGE> 35
<TABLE>
<S> <C> <C>
23.1 Consent of Ernst & Young LLP, Independent
Auditors.
24.1 Power of Attorney. Reference is made to page
38.
(d) Executive Compensation Plans and Arrangements
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION
<S> <C> <C>
(1) 10.1 Form of Indemnity Agreement entered into
between the Registrant and its directors and
officers.
(8) 10.2 Registrant's 1991 Stock Option Plan, as
amended (the "Option Plan").
(8) 10.3 Form of Incentive Stock Option Agreement
under the Option Plan with related schedule.
(1) 10.4 Form of Supplemental Stock Option Agreement
under the Option Plan.
(1) 10.5 Form of Supplemental Stock Option Agreement
not granted under the Option Plan with
related schedule.
(1) 10.6 Registrant's Employee Stock Purchase Plan and
related offering document.
(8) 10.12 Registrant's Non-Employee Directors Stock
Option Plan (the "Directors' Plan").
(4) 10.13 Form of Nonstatutory Stock Option Agreement
under the Directors' Plan.
(5) 10.16 Phantom Stock Unit Agreement, dated January
4, 1995, between the Registrant and Farview
Management Co., L.P.
(8) 10.21 Consulting Agreement, dated June 15, 1995,
between the Registrant and Joseph C. Cook,
Jr., as amended on March
</TABLE>
<PAGE> 36
<TABLE>
<S> <C> <C>
25, 1996, and related Nonstatutory Stock
Option grant dated June 15, 1995.
(9) 10.23 Employment agreement dated July 11, 1996,
between the Registrant and Richard M. Haugen.
10.26 Employment agreement dated August 1, 1996
between the Registrant and Howard E. Greene,
Jr.
10.28 Amendment dated January 15, 1997 to the
Consulting Agreement, dated June 15, 1995,
between the Registrant and Joseph C. Cook,
Jr.
</TABLE>
- ------------------
(1) Filed as an exhibit to the Registrant's Registration Statement on
Form S-1 (No. 33-44195) or amendments thereto and incorporated
herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933 and Rule 406
Thereunder Respecting Confidential Treatment dated January 17,
1992.
(3) Filed as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
(6) Filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995.
(7) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule
24b-2 Thereunder Respecting Confidential Treatment dated March 7,
1997.
(8) Filed as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
<PAGE> 37
(9) Filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.
(10) Filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
(11) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule
24b-2 Thereunder Respecting Confidential Treatment dated December
20, 1996.
<PAGE> 38
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMYLIN PHARMACEUTICALS, INC.
By: /s/ Richard M. Haugen
-------------------------------------
Richard M. Haugen
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: March 24, 1997
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard M. Haugen, and Marjorie T. Sennett, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or any of them or their or his substitute or
substituted, may lawfully do or cause to be done by virtue hereof.
<PAGE> 39
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Howard E. Greene, Jr. Chairman of the Board and Director March 24, 1997
-----------------------------------
(Howard E. Greene, Jr.)
/s/ Richard M. Haugen President, Chief Executive Officer and March 24, 1997
----------------------------------- Director (Principal Executive Officer)
(Richard M. Haugen)
/s/ Marjorie T. Sennett Vice President, Chief Financial Officer March 24, 1997
----------------------------------- and Assistant Secretary (Principal
(Marjorie T. Sennett) Financial Officer)
/s/ Karl H. Olsen Treasurer and Controller (Principal March 24, 1997
----------------------------------- Accounting Officer)
(Karl H. Olsen)
/s/ James C. Blair Director March 24, 1997
-----------------------------------
(James C. Blair)
/s/ Joseph. C. Cook, Jr. Director March 24, 1997
-----------------------------------
(Joseph C. Cook, Jr.)
/s/ James C. Gaither Director March 24, 1997
-----------------------------------
(James C. Gaither)
/s/ Ginger L. Howard Director March 24, 1997
-----------------------------------
(Ginger L. Howard)
/s/ Vaughn M. Kailian Director March 24, 1997
-----------------------------------
(Vaughn M. Kailian)
/s/ Timothy J. Wollaeger
-----------------------------------
(Timothy J. Wollaeger) Director March 24, 1997
</TABLE>
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Registrant. (1)
3.2 Amended and Restated Bylaws of the Registrant. (1)
4.1 Reference is made to Exhibits 3.1 and 3.2. (1)
10.1 Form of Indemnity Agreement entered into between the Registrant (1)
and its directors and officers.
10.2 Registrant's 1991 Stock Option Plan, as amended (the "Option Plan"). (8)
10.3 Form of Incentive Stock Option Agreement under the Option Plan (8)
with related schedule.
10.4 Form of Supplemental Stock Option Agreement under the Option Plan. (1)
10.5 Form of Supplemental Stock Option Agreement not granted under the (1)
Option Plan with related schedule.
10.6 Registrant's Employee Stock Purchase Plan and related offering (1)
document.
10.7 Stock Purchase Agreement, dated as of October 28, 1991, between (1)
the Registrant and the parties named therein, as amended.
10.8 License Agreement, dated as of November 22, 1991, among the (1)(2)
Registrant, the Regents of the University of Minnesota, and Per
Westermark.
10.9 Lease, dated as of January 2, 1989, between the Registrant and Nippon (1)
Landic (USA), Inc., the assignee of NEXUS/GADCO-UTC, as amended.
10.10 Lease Agreement, dated as of January 22, 1993, between the Registrant (3)
and Loma Palisades, Ltd. a California Limited Partnership, and related
Sublease Agreements, each dated January 21, 1993 between the Registrant
and Lam Research Corporation.
10.11 Master Equipment Lease Agreement Number 10453, Equipment Financing (3)
</TABLE>
<PAGE> 41
<TABLE>
<S> <C> <C>
Agreement Number 10753, Negative Covenant Pledge Agreements and
Collateral Security Agreement, each dated as of March 19, 1993, between
the Registrant and Lease Management Services, Inc.
10.12 Registrant's Non-Employee Directors' Stock Option (the "Directors' Plan"). (8)
10.13 Form of Nonstatutory Stock Option Agreement under the Directors' Plan. (4)
10.14 Sublease Agreement, dated September 1, 1994, between the Registrant (5)
and ORINCON Corporation.
10.15 Loan Agreement, dated July 5, 1994, and related Note and Credit Terms (5)
and Conditions Agreement between the Registrant and Imperial Bank.
10.16 Phantom Stock Unit Agreement, dated January 4, 1995, (5)
between the Registrant and Farview Management Co., L.P.
10.17 Collaboration Agreement, dated June 20, 1995 between (6)(7)
the Registrant and LifeScan, Inc.
10.18 Stock Purchase Agreement, dated June 20, 1995 between (6)(7)
the Registrant and Johnson & Johnson Development Corporation.
10.19 Loan and Security Agreement, dated June 20, 1995 between (6)(7)
the Registrant and Johnson & Johnson.
10.20 Agreement to Discontinue Collaboration, dated June 20, 1995 (6)(7)
between the Registrant and Glaxo Wellcome, Inc.
10.21 Consulting Agreement, dated June 15, 1995, between the Registrant (8)
and Joseph C. Cook, Jr., as amended on March 25, 1996, and
related Nonstatutory Stock Option grant dated June 15, 1995.
10.22 Addendums No. 10453 and 10753 to Master Lease Agreement dated (8)
January 19, 1996 between the Registrant and Lease Management
Services with Related Negative Covenant Pledge Agreement and
Collateral Security Agreement.
10.23 Employment agreement dated July 11, 1996, between the Registrant (9)
and Richard M. Haugen.
10.24 Patent and Technology License Agreement, Consulting Agreement and (10)(11)
Nonstatutory Stock Option Agreement dated October 1, 1996,
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <S>
between the Registrant and Dr. John Eng.
10.25 Collaborative Research and Assignment Agreement dated October 15, (10)(11)
1996, among the Registrant, London Health Sciences Centre and Dr.
John Dupre.
10.26 Employment agreement dated August 1, 1996 between the Registrant
and Howard E. Greene, Jr.
10.27 Amendment dated November 5, 1996 to the Lease Agreement, dated
January 22, 1993, between the Registrant and Loma Palisades, Ltd.,
a California Limited Partnership.
10.28 Amendment dated January 15, 1997 to the Consulting Agreement,
dated June 15, 1995, between the Registrant and Joseph C. Cook,
Jr.
10.29 Addendum to the Master Financing Agreement No, 10753 dated January
19, 1996 between the Registrant and Lease Management Services with
amendments to the Related Negative Covenant Pledge Agreement and
Collateral Security Agreement, each dated as of January 30, 1997.
10.30 Sublease Agreement, dated January 31, 1997, between the Registrant
and Gensia, Inc.
10.31 Fourth Amendment dated February 26, 1997 to the Lease Agreement,
dated January 2, 1989, between the Registrant and Nippon Landic
(U.S.A.), Inc., as amended.
13.1 Registrant's Annual Report to Stockholders for the fiscal year
ended December 31, 1996.
22.1 Subsidiaries of the Registrant. (1)
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. Reference is
made to page 38.
</TABLE>
<PAGE> 43
- ------------------
(1) Filed as an exhibit to the Registrant's Registration Statement on
Form S-1 (No. 33-44195) or amendments thereto and incorporated
herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933 and Rule 406
Thereunder Respecting Confidential Treatment dated January 17,
1992.
(3) Filed as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
(6) Filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995.
(7) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule
24b-2 Thereunder Respecting Confidential Treatment dated March 7,
1997.
(8) Filed as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
(9) Filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.
(10) Filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
(11) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule
24b-2 Thereunder Respecting Confidential Treatment dated December
20, 1996.
<PAGE> 1
Exhibit 10.26
August 1, 1996
Howard E. Greene, Jr.
P.O. Box
Rancho Santa Fe, CA 92067
Re: Employment Agreement
Dear Ted:
This letter agreement ("Agreement") is written to confirm the conditions
of your new employment arrangement with Amylin Pharmaceuticals, Inc.
1. Term of Employment. This Agreement shall commence as of
September 1, 1996, and shall remain in effect until terminated by
either you or Amylin. Either you or Amylin may terminate this
Agreement, at any time, with or without cause.
2. Duties. You will hold the position of Chairman of the Board
of Amylin. You will faithfully and diligently perform the duties
customarily performed by persons in this position, together with such
other reasonable and appropriate duties as Amylin may designate from
time to time. These duties will include:
- assisting in maintaining Amylin's entrepreneurial spirit, while
helping it continue to grow and to become the world's leading
metabolic research and development organization;
- assisting in establishing a long term technical vision, and in
maximizing the value of Amylin's technical assets and
opportunities;
- serving as a member of the Amylin/Johnson & Johnson Steering
Committee;
- advising Amylin on financing matters, including interfacing with
Wall Street and the investment banking community, and assisting in
defining Amylin's ongoing communication strategy with the
investment community.
3. Part Time Employment. Your employment with Amylin will be part
time, requiring approximately ten (10) working days per month.
4. Compensation. As compensation for the performance of your
duties under this Agreement, you will be paid a salary of $157,500 per
year, less applicable withholding. You will be paid on the same
paydays as other Amylin employees.
<PAGE> 2
5. Stock Options. You currently have three stock option
agreements with Amylin that have unvested options. They are grant
numbers 000211, 000383, and 001466, dated March 15, 1993, April 11,
1994 and February 8, 1996. Those stock option agreements will be
amended, as part of this Agreement, such that you will vest at one
half the rate now set out in those agreements for the duration of this
Agreement. You will be solely responsible for any and all tax and
other consequences associated with those options and the foregoing
amendments.
6. Proprietary Information Agreement. You have previously
executed a Proprietary Information and Inventions Agreement. This
agreement shall remain in full force and effect during the terms of
this Agreement, and certain terms of the Proprietary Information
Agreement shall remain in effect after the expiration of this
Agreement, as set forth in the Proprietary Information and Inventions
Agreement.
7. Employee Benefits. You will be allowed to participate in the
employee benefits plans offered by Amylin to its part time employees,
provided you pay the applicable contributions for a part time employee
in order to participate in such plans. In addition, you will be
allowed to continue your current medical and dental benefits by paying
the appropriate contribution, currently identical to the amount you
paid while you were a full-time employee. All other benefits available
to full-time employees will cease as of July 12, 1996.
8. Annual Review of Duties and Compensation. The Amylin
Compensation Committee will review your duties and compensation on an
annual basis, and will propose changes in your duties and compensation,
as may be determined to be appropriate.
Please indicate your acceptance of this Agreement by dating and signing below
and returning an executed copy of this Agreement to me.
Sincerely,
/s/ Bradford J. Duft
Bradford J. Duft
Vice President and General Counsel
I accept employment with Amylin pursuant to the terms set forth in this
Agreement.
Dated: October 2, 1996 /s/ Howard E. Greene, Jr.
Howard E. Greene, Jr.
-2-
<PAGE> 1
Exhibit 10.27
SECOND AMENDMENT TO COMMERCIAL REAL PROPERTY LEASE AGREEMENT
EFFECTIVE DATE: November 5, 1996
This SECOND AMENDMENT TO COMMERCIAL REAL PROPERTY LEASE AGREEMENT (the "Second
Amendment") amends that certain COMMERCIAL REAL PROPERTY LEASE AGREEMENT dated
JANUARY 22, 1993 and the AMENDMENT TO COMMERCIAL REAL PROPERTY LEASE AGREEMENT
dated NOVEMBER 15, 1993 (collectively referred to as the "Lease") by and
between AMYLIN PHARMACEUTICALS, INC., a Delaware corporation ("Tenant"), and
LOMA PALISADES, LTD., a California limited partnership ("Landlord"), relating
to the leasing of 9250 Trade Place, San Diego, California 92126 (the
"Premises").
Tenant desires and Landlord agrees to extend the Lease for the Premises at 9250
Trade Place and to expand the Premises to include 9230 Trade Place, Suites
300-500. Therefore, by this Second Amendment commencing November 1, 1996, the
Lease shall be amended as follows:
(a) the "Expiration Date" as defined by the Lease shall be June 14, 2000.
(b) "Premises" as defined by the Lease shall be 9250 Trade Place and 9230 Trade
Place, Suite 300-500, San Diego, California 92126.
(c) "Premises Area" as defined by the Lease shall be 35,627 Rentable Square
Feet.
(d) "Premises Percent of Project" as defined by the Lease shall be 26.37.
(e) "Base Monthly Rent" as defined by the Lease shall be $10,406.00
(f) Subsection (j) of the Term Schedule of the Lease shall be replaced with the
following:
"(j) RENT ADJUSTMENT: Step Increase (to be applied as provided in
Section 5.02, below), as follows:
<TABLE>
<CAPTION>
Date of Rent Increase New Base Monthly Rent
--------------------- ---------------------
<S> <C>
February 15, 1997 $16,707.00
February 15, 1998 $17,543.00
February 15, 1999 $18,420.00
February 15, 2000 $19,341.00"
</TABLE>
(g) "Brokers" as defined by the Lease as it relates to the Second Amendment
only are John Burnham & Company and Ocean West, Inc.
-2-
<PAGE> 2
(h) "Expenses" as defined by the Lease shall be fixed at $.13 per square foot
per month for the period from November 15, 1996 - November 14, 1997 and shall
not increase more than 10 percent (10%) per year thereafter.
(i) Provided Tenant is not in default under the Lease, Tenant shall have 2
options to extend the Lease for an additional 2 years each, on the same terms,
covenants and conditions prescribed in the Lease except as provided otherwise in
this paragraph. The Base Monthly Rent for the first year of the first option
period shall be $18,282.00. Thereafter, the Base Monthly Rent for each
succeeding year in the first or second option period shall increase 5 percent
(5%) per year. Tenant shall exercise the first option by delivering written
notice to Landlord on or before 5:00 PM, March 14, 2000, after which date the
options shall forever lapse and terminate. Tenant shall exercise the second
option by delivering written notice to Landlord on or before 5:00 PM, March 14,
2002, after which date the option shall forever lapse and terminate.
Notwithstanding anything to the contrary set forth above, Tenant shall not be
entitled to exercise either option or to continue in possession of the Premises
pursuant to the exercise of such option at a time when Tenant is in default
under the Lease. Further, notwithstanding anything to the contrary set forth
above, the time limits within which Tenant has to exercise such options shall
not be extended as a result of Tenant then being in default under the Lease.
(j) The rental abatement provision in sub-paragraph (a) of the ADDENDUM TO
COMMERCIAL REAL PROPERTY LEASE AGREEMENT shall be modified to delete months 37,
38, 49 and 50.
(k) Landlord will stripe six parking spaces "Visitor". Three such spaces shall
be in front of the Premises at 9250 Trade Place and three such spaces shall be
in front of the Premises at 9230 Trade Place.
(l) Tenant shall be allowed building standard signage in accordance with the
rules and regulations of the Project as well as in accordance with any
applicable governmental codes regulating such signs. Tenant shall pay any and
all costs associated with the manufacturing and installation of any sign.
Should Landlord erect a monument sign, Landlord shall allow Tenant appropriate
identification on the monument sign with Tenant responsible for all costs
associated with placing such identification thereon.
(m) Landlord shall provide Tenant with a Tenant Improvement Allowance in the
amount of $50,000.00. The Tenant Improvement Allowance shall be made available
to Tenant upon full execution of this document and will be payable by Landlord
in the form of joint checks payable to both Tenant and Contractor only after
receipt by Landlord of payment vouchers approved by Tenant.
(n) Landlord and Tenant hereby acknowledge that Tenant, after the Effective
Date, will be making certain alterations to the Premises in the nature of
Tenant Improvements. Any and all such Tenant Improvements so contemplated and
so made by Tenant shall be subject to all of the terms, covenants and
conditions of the Lease, including those concerning Tenant alterations to the
Premises and Tenant Improvements, which include, without limitation, Section 17
("Alterations"), Section 26 ("Surrender") and Exhibit F ("Alterations
Requirements"), as well as those concerning indemnification of Landlord, which
include,
-3-
<PAGE> 3
without limitation, Section 18.02 ("Tenant's Indemnity"). Further, in
connection with any such Tenant Improvements, Tenant hereby agrees to be
responsible for any and all costs, charges and expenses relating thereto or
arising therefrom. Without limitation, such costs, charges and expenses may
include increased taxes or assessments against the Premises or the property
owned by Landlord of which the Premises forms a part, increased utility charges
upon the Premises or the property of which the Premises forms a part, utility
installations or other infrastructure costs necessitated by such Tenant
Improvements or required by governmental authorities in connection therewith
and increased maintenance expenses for the Premises or the property owned by
Landlord of which the Premises forms a part and increased insurance premiums.
However, provided that Tenant obtains property insurance coverage for the
replacement cost of its Tenant Improvements, Tenant will not be required to
reimburse Landlord for any increase in Landlord's insurance premiums for
increases in property coverage related to the Tenant Improvements. The
foregoing named sections of the Lease and the listed costs, charges and
expenses are intended to be illustrative and not limiting as to the matters
addressed hereby.
ALL OTHER TERMS AND CONDITIONS OF THE LEASE SHALL REMAIN IN FULL FORCE AND
EFFECT.
IN WITNESS WHEREOF, this amendment is executed to be effective as of the
Effective Date set forth above.
LANDLORD: LOMA PALISADES LTD.
a California limited partnership
BY: OCEAN WEST, INC.,
a California corporation
Agent
By:/s/ Harold S. Elkan
Harold S. Elkan, President
TENANT: AMYLIN PHARMACEUTICALS, INC.
a Delaware corporation
BY: /s/ Ricahard Haugen
Richard Haugen, President
-4-
<PAGE> 1
Exhibit 10.28
January 16, 1997
Mr. Joseph C. Cook, Jr.
Life Sciences Advisors
7225 Woodland Drive
Suite 230
Indianapolis, Indiana 46278
Re: Amendment to Consulting Agreement dated June 15, 1995, as amended
Dear Joe:
As of January 15, 1997, all of the stock options originally granted to you
pursuant to your consulting agreement with Amylin Pharmaceuticals, Inc. (the
"Company") dated June 15, 1995 (the "Consulting Agreement") have vested. By
action by written consent of the Company's Compensation Committee, on January
16, 1997 it was determined that the Company desires to continue to retain you
consulting services.
In consideration for your agreement to continue to provide such consulting
services under the terms of the Consulting Agreement, the Company has
determined to (1) grant to you an additional option to purchase up to fifteen
thousand (15,000) shares of its Common Stock with terms substantially similar
to the Nonstatutory Stock Option dated June 15, 1995 granted to you in
connection with your Consulting Agreement, except that the vesting rate of such
stock options would be 250 shares per day of consulting from January 16, 1997
forward, and (2) increase your monetary compensation for such consulting
services from $1,500 to $2,000 per eight hour day of consulting services.
In order to implement this extension and modification, it is necessary to
amend your Consulting Agreement, as previously amended by letter agreement
between you and the Company dated March 25, 1996, and to issue to you an
additional Nonstaturoty Stock Option Agreement in the form attached hereto (the
"Option Agreement").
It is therefore agreed that your Consulting Agreement is hereby amended to
provide for (1) the grant of the Option Agreement providing for an additional
stock option for 15,000 shares of the Company's Common Stock and that the
vesting of such stock option shares shall occur at the rate of 250 shares per
day of consulting after January 16, 1997, and (2) an increase in the daily rate
of compensation for consulting services from $1,500 to $2,000 per eight hour
day of consulting services.
The terms of you Nonstatutory Option Agreement originally dated June 15, 1995
are not modified by this agreement. Further, this agreement is not intended
to, and it is agreed that it does not, expressly or by its implication affect
any other provisions of the Consulting Agreement, which is intended to remain
in full force and effect.
If you are in agreement with this understanding , please sign the enclosed
duplicate original of this letter and return to me for our files.
<PAGE> 2
Sincerely yours,
/s/ Bradford J. Duft
Bradford J. Duft
Vice President and General Counsel
ACCEPTED AND AGREED TO:
/s/ Joseph C. Cook, Jr.
Joseph C. Cook, Jr.
<PAGE> 1
Exhibit 10.29
Addendum
To Equipment Financing Agreement 10753
Between
AMYLIN PHARMACEUTICALS, INC.
and
LEASE MANAGEMENT SERVICES, INC.
By execution hereof, AMYLIN PHARMACEUTICALS, INC., the Debtor, consents to the
attaching of this Addendum to Equipment Financing Agreement number 10753.
LEASE MANAGEMENT SERVICES, INC. agrees to provide a line of credit equal to
$2,356,808 plus additional amounts equal to or less than on-going paydown of
current lines. Aggregate fundings under this and Debtor's prior lines are
limited to $5,000,000 "net financing" at any given time. "Net Financing" is
defined as the present value, at prime, of all remaining rent and residual
obligations. This line of credit, the terms of which are more fully described
on that certain Financing Proposal dated November 14, 1996, which is
incorporated by reference herein, is to be used to finance various capital
equipment. Debtor may utilize the credit facility until its expiration which
is December 31, 1997.
The base payment factor will be 2.365% of equipment cost, payable monthly in
advance, for each schedule under Equipment Financing Agreement Number 10753.
The yield in each schedule will be adjusted relative to changes in comparable
term U.S. Treasury Maturities. The payment factor for each schedule will be
set at the time of documentation of the schedule and will be fixed for the term
of that schedule. The payment factors herein are based on an average of the 3-
and 5-year U.S. Treasury Maturities (5.89% and 6.05%, respectively) as quoted
in the Wall Street Journal for the week ending November 8, 1996.
In the event the average of the 3- and 5-year Treasuries increase or decrease,
the yield in this transaction will be increased or decreased by a like amount.
All other terms and conditions remain the same.
In WITNESS WHEREOF, Debtor and Secured Party executed this Addendum this 30th
day of January 1997.
Debtor: Secured Party:
By:/s/ Karl H. Olsen By: /s/ Barbara B. Kaiser
Title: Treasurer and Controller Title: EVP/General Manager
------------------------------- -------------------------------
-6-
<PAGE> 2
LEASE MANAGEMENT SERVICES, INC.
1ST AMENDMENT
TO NEGATIVE COVENANT PLEDGE AGREEMENT
DATED JANUARY 19, 1996
BY AND BETWEEN
AMYLIN PHARMACEUTICALS, INC., AS PLEDGOR
AND
LEASE MANAGEMENT SERVICES, INC., AS PLEDGEE
Pledgor and Pledgee hereby agree to amend the Negative Covenant Pledge
Agreement as follows:
FIRST: In Paragraph 2, line 3, delete "and all schedules thereunder" and
replace with "Schedules 1 through 10".
All other terms and conditions remain the same.
PLEDGOR: PLEDGEE:
AMYLIN PHARMACEUTICALS, INC. LEASE MANAGEMENT SERVICES, INC.
By:/s/ Karl H. Olsen By:/s/ Barbara B. Kaiser
------------------------------- -------------------------------
Title: Treasurer and Controller Title: EVP/General Manager
------------------------------- -----------------------------
Date: January 30, 1997 Date: January 30, 1997
------------------------------- ------------------------------
-7-
<PAGE> 3
LEASE MANAGEMENT SERVICES, INC.
1ST AMENDMENT
TO COLLATERAL SECURITY AGREEMENT
DATED JANUARY 19, 1996
BY AND BETWEEN
AMYLIN PHARMACEUTICALS, INC., AS LESSEE/DEBTOR
AND
LEASE MANAGEMENT SERVICES, INC., AS LESSOR/SECURED PARTY
Lessee/Debtor and Lessor/Secured Party hereby agree to amend the Collateral
Security Agreement as follows:
FIRST: In Paragraph 3, line 2, after the number "27" insert "and Equipment
Financing Agreement Number 10753 Schedules 01 through 11 and all subsequent
Schedules,".
SECOND: In Paragraph 3, line 3, delete the number "56" and replace with the
number "68".
All other terms and conditions remain the same.
LESSEE/DEBTOR: LESSOR/SECURED PARTY:
AMYLIN PHARMACEUTICALS, INC. LEASE MANAGEMENT SERVICES, INC.
BY: /s/ Karl H. Olsen BY: /s/ Barbara B. Kaiser
------------------------------- -------------------------------
TITLE: Treasurer and Controller TITLE: EVP/GM
------------------------------- -----------------------------
DATE: January 30, 1997 DATE: January 30, 1997
------------------------------- ------------------------------
-8-
<PAGE> 1
Exhibit 10.30
SUBLEASE AGREEMENT
This SUBLEASE AGREEMENT ("Sublease") is made and entered into
as of January 31, 1997 by and between GENSIA, INC., a Delaware corporation
("Sublandlord") and AMYLIN PHARMACEUTICALS, INC., a Delaware corporation
("Subtenant").
WHEREAS, GENA PROPERTY COMPANY, a California general
partnership, as landlord ("Landlord"), and Sublandlord, as tenant, are parties
to a certain Lease Agreement dated as of December 21, 1993 ("Master Lease")
whereby Landlord leased to Tenant the buildings (collectively, the "Building")
located at 9360 and 9390 Towne Centre Drive, San Diego, CA 92121 ("Master
Premises"), as more particularly described in the Master Lease, upon the terms
and conditions contained therein. All capitalized terms used herein shall have
the same meaning ascribed to them in the Master Lease unless otherwise defined
herein. A copy of those portions of the Master Lease which are applicable to
this Sublease is attached hereto as Exhibit "A" and made a part hereof.
Hereinafter, the term "Master Lease" shall refer to only those portions of the
Master Lease which are intended to be applicable to this Sublease, as attached
hereto as Exhibit "A". Sublandlord is vested with the leasehold estate
described in the Master Lease.
WHEREAS, Sublandlord and Subtenant are desirous of entering
into a sublease of that portion of the Master Premises so indicated on the
demising plan annexed hereto as Exhibit "B" and made a part hereof ("Sublease
Premises") on the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
mutually covenant and agree as follows:
1. Demise. Sublandlord hereby subleases and demises to
Subtenant and Subtenant hereby hires and subleases from Sublandlord the
Sublease Premises consisting of: approximately 11,800 rentable square feet of
office space located on the first floor of 9360 Towne Centre Drive (the "9360
Premises"); and approximately 15,734 rentable square feet of office and
laboratory space located on the first and second floors of 9390 Towne Centre
Drive (the "9390 Premises"), upon and subject to the terms, covenants and
conditions hereinafter set forth. The parties stipulate that the square
footage of the Sublease Premise shall be as specified above.
-9-
<PAGE> 2
2. Lease Term.
(a) Lease Term. The term of this Sublease
("Term") shall commence on the earlier of (i) February 11, 1997, as to the 9360
Premises, and the 9390 Premises, or (ii) as to each of the 9360 Premises and
the 9390 Premises, the date upon which Subtenant, or any person occupying any
of said Premises with Subtenant's permission, commences business operations
from the such Premises (in each such case, the "Sublease Commencement Date")
and end, unless sooner terminated or extended as provided herein, as to the
entirety of the Sublease Premises, on June 30, 1998 ("Sublease Expiration
Date").
(b) Options to Extend. Notwithstanding the
provisions of Section 2(a) to the contrary and provided Subtenant is not in
default under this Sublease at the time of the exercise thereof or at the time
of its occupancy pursuant thereto, Subtenant shall have an aggregate of three
(3) options to extend this Sublease (each, an "Option to Extend") as to the
Sublease Premises. Subtenant shall have two (2) consecutive Options to Extend
with respect to the 9360 Premises for an additional six (6) month period each.
Subtenant shall have one (1) Option to Extend with respect to the 9390 Premises
for an additional three (3) month period. Each Option to Extend shall be
exercisable by Subtenant upon delivery of prior written notice (the "Exercise
Notice") thereof to Sublandlord. Each Exercise Notice shall be given not later
than ninety (90) days prior to the then-expiration of the Term applicable to
the relevant portion of the Sublease Premises. In the event Subtenant shall
exercise an Option to Extend pursuant to the provisions set forth herein, the
Term of this Sublease shall be extended by the period applicable to such Option
to Extend and the Sublease Expiration Date as to such portion of the Sublease
Premises shall be deemed to be the expiration date of such extended Term of
this Sublease. Such extended Term shall be on all the terms and conditions of
this Sublease, as applicable, including the rental rate applicable to the
portion of the Sublease Premises for which occupancy is so extended. As to the
9360 Premises, Subtenant shall have exercised the first Option to Extend as a
condition to its exercise of the second Option to Extend.
3. Use. The Sublease Premises shall be used and
occupied by Subtenant solely for office and laboratory uses in compliance with
the Master Lease and for no other purpose.
4. Subrental.
(a) Base Rental. Beginning with the Sublease
Commencement Date and thereafter during the Term of this Sublease and ending on
the Sublease Expiration Date, Subtenant shall pay to Sublandlord monthly
installments of base rent ("Base Rental") with respect to the Sublease
Premises, as follows:
(i) With respect to the 9360 Premises,
Base Rental of $17,700; and
(ii) With respect to the 9390 Premises,
Base Rental of $55,069.
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<PAGE> 3
The first monthly installment of Base Rental shall be paid by Subtenant upon
the execution of this Sublease. Base Rental and additional rent shall
hereinafter be collectively referred to as "Rent."
(b) Prorations. If the Sublease Commencement
Date is not the first (1st) day of a month, or if the Sublease Expiration Date
is not the last day of a month, a prorated installment of monthly Base Rental
based on a thirty (30) day month shall be paid for the fractional month during
which the Term commenced or terminated.
(c) Additional Rent. Beginning with the Sublease
Commencement Date and continuing to the Sublease Expiration Date, Subtenant
shall pay to Sublandlord as additional rent for this subletting the cost of all
additional expenses, costs and charges payable to Landlord or to third party
providers by Sublandlord which are not Normal Operating Expenses (as defined
below) for the Building and result from Subtenant's use of the Sublease
Premises. The term "Normal Operating Expenses" shall mean the full cost of all
operating expenses applicable to the Sublease Premises (including Building
maintenance, common area expenses, insurance premiums for casualty insurance
maintained by Sublandlord with respect to the Building (but excluding any
insurance coverages for Subtenant's personal property), security and janitorial
services provided by Sublandlord), real estate taxes, and utilities (natural
gas, water, and electricity) which are allocable to Subtenant's normal and
customary use of the Sublease Premises in accordance with this Sublease.
Normal Operating Expenses shall not include Subtenant's utility charges for
usage which is in excess of reasonably expected normal quantities for
Subtenant's use and occupancy of the Sublease Premises, as determined by
Sublandlord in its sole but reasonable discretion, and other excess or
non-standard costs, expenses or charges incurred with respect to the
Subtenant's use or occupancy of the Sublease Premises which are incurred or
requested by Subtenant. Subtenant shall not be responsible for payment of any
Impositions (as defined in Paragraph 9(a) of the Master Lease) which are part
of the Normal Operating Expenses or which are not otherwise made the
responsibility of Subtenant pursuant to this Sublease.
(d) Payment of Rent. Except as otherwise
specifically provided in this Sublease, Rent shall be payable in lawful money
without demand, and without offset, counterclaim, or setoff in monthly
installments, in advance, on the first day of each and every month during the
Term of this Sublease. All of said Rent is to be paid to Sublandlord at its
office at the address set forth in Section 13 herein, or at such other place or
to such agent and at such place as Sublandlord may designate by notice to
Subtenant. Any additional rent payable on account of items which are not
payable monthly by Sublandlord to Landlord under the Master Lease is to be paid
to Sublandlord as and when such items are payable by Sublandlord to third
parties or to Landlord under the Master Lease unless a different time for
payment is elsewhere stated herein. Upon written request therefor, Sublandlord
agrees to provide Subtenant with copies of any statements or invoices received
by Sublandlord from Landlord pursuant to the terms of the Master Lease.
(e) Late Charge. Subtenant shall pay to
Sublandlord an administrative charge at an annual interest rate equal to the
Prime Rate plus three percent (3%) ("Interest Rate") on all amounts of Rent
payable hereunder which are not paid within three (3) business days of the date
on which such payment is due, such charge to accrue from the date upon which
such amount was due until paid.
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<PAGE> 4
(f) Tenant Improvement Credit. Subtenant shall
receive a credit in the amount of $20,000 (the "T/I Credit") against Base
Rental due for the Sublease Premises towards Subtenant's installation of
certain tenant improvements requested by Subtenant to be made to the Sublease
Premises. The T/I Credit shall be credited monthly against Base Rental for the
Sublease Premises in the amount of $1,111 per month. To be eligible for the
T/I Credit, Subtenant shall have installed tenant improvements to the Sublease
Premises during the initial Term of the Sublease, having a cost equal to or
greater than the amount of the T/I Credit, as reasonably verified by
Sublandlord. Subtenant shall have no right to remove any such tenant
improvements upon the expiration of the Sublease and the grant of the T/I
Credit does not constitute Sublandlord's consent to tenant improvements
proposed to be installed in the Sublease Premises by Subtenant, such approval
to be governed by all other provisions of this Sublease applicable to
alterations in the Sublease Premises.
5. Security Deposit. Concurrently with the execution of
this Sublease, Subtenant shall deposit with Sublandlord the sum of Seventeen
Thousand Seven Hundred Dollars ($17,700) with respect to the 9360 Premises and
Fifty-Five Thousand Sixty-Nine Dollars ($55,069) as to the 9390 Premises
(collectively, the "Deposit"), which shall be held by Sublandlord as security
for the full and faithful performance by Subtenant of its covenants and
obligations under this Sublease. The Deposit is not an advance Rent deposit,
an advance payment of any other kind, or a measure of Sublandlord's damage in
case of Subtenant's default. If Subtenant defaults in the full and timely
performance of any or all of Subtenant's covenants and obligations set forth in
this Sublease, then Sublandlord may, from time to time, without waiving any
other remedy available to Sublandlord, use the Deposit, or any portion of it,
to the extent necessary to cure or remedy the default or to compensate
Sublandlord for all or a part of the damages sustained by Sublandlord resulting
from Subtenant's default. Subtenant shall immediately pay to Sublandlord
within five (5) days following demand, the amount so applied in order to
restore the Deposit to its original amount, and Subtenant's failure to
immediately do so shall constitute a default under this Sublease. If Subtenant
is not in default with respect to the covenants and obligations set forth in
this Sublease at the expiration or earlier termination of the Sublease,
Sublandlord shall return the Deposit to Subtenant after the expiration or
earlier termination of this Sublease in accordance with the provisions of
California Civil Code Section 1950.7. Sublandlord's obligations with respect
to the Deposit are those of a debtor and not a trustee. Sublandlord shall not
be required to maintain the Deposit separate and apart from Sublandlord's
general or other funds and Sublandlord may commingle the Deposit with any of
Sublandlord's general or other funds. Subtenant shall not at any time be
entitled to interest on the Deposit. The Deposit shall be allocated between
the 9360 Premises and the 9390 Premises in the event concurrent expiration of
the Term of this Sublease does not occur with respect to each such portion of
the Sublease Premises.
6. Signage. Subtenant shall have no right to maintain
Subtenant identification signs in any location in, on, or about the Premises
other than a listing in the lobby directory for the Building and an
identification sign located at Tenant's respective entries to the 9360 Premises
and the 9390 Premises, the size, appearance and location of such signs to be
subject to Sublandlord's prior approval. The cost of such signs, including the
installation, maintenance and removal thereof, shall be at Subtenant's sole
cost and expense. If Subtenant fails to maintain its Sublease Premises sign,
or if Subtenant fails to remove same upon the expiration or earlier termination
of this Sublease and repair any damage caused by such removal,
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<PAGE> 5
Sublandlord may do so at Subtenant's expense and Subtenant shall reimburse
Sublandlord for all actual costs incurred by Sublandlord to effect such
removal.
7. Parking. At no additional rent or charge, Subtenant
shall have the right, during the Term of this Sublease, to use on a
non-reserved basis up to forty-seven (47) parking spaces with respect to the
9360 Premises and sixty-three (63) parking spaces with respect to the 9390
Premises in the parking facilities of the Building. All such parking
privileges shall be subject to the terms and conditions set forth in the Master
Lease.
8. Incorporation of Terms of Master Lease.
(a) This Sublease is subject and subordinate to
the Master Lease. Subject to the modifications set forth in this Sublease, the
terms of the Master Lease are incorporated herein by reference, and shall, as
between Sublandlord and Subtenant (as if they were "Landlord" and "Tenant,"
respectively, under the Master Lease) constitute the terms of this Sublease
except to the extent that they are inapplicable to, inconsistent with, or
modified by, the terms of this Sublease. Notwithstanding the foregoing, to the
extent provisions of the Master Lease are unique and personal to Sublandlord's
interest in the Building pursuant to the Master Lease or are indicated on the
attached Exhibit "A" as intentionally omitted from the Master Lease, Subtenant
shall not be required to comply with such provisions. Provisions which are
personal and unique to Sublandlord under the Master Lease include, but are not
limited to, Paragraphs 17, 18 and 19 of the Master Lease. In the event of any
inconsistencies between the terms and provisions of the Master Lease and the
terms and provisions of this Sublease, the terms and provisions of this
Sublease shall govern. Subtenant acknowledges that it has reviewed the Master
Lease and is familiar with the terms and conditions thereof.
(b) For the purposes of incorporation herein, the
terms of the Master Lease are subject to the following additional
modifications:
(i) In all provisions of the Master
Lease (under the terms thereof and without regard to modifications
thereof for purposes of incorporation into this Sublease) requiring
the approval or consent of Landlord, Subtenant shall be required to
obtain the approval or consent of both Sublandlord and Landlord.
(ii) In all provisions of the Master
Lease requiring Tenant to submit, exhibit to, supply or provide
Landlord with evidence, certificates, or any other matter or thing,
including, without limitation, the provisions of Sections 10(c) and
10(f) thereof, Subtenant shall be required to submit, exhibit to,
supply or provide, as the case may be, the same to both Landlord and
Sublandlord. In any such instance, Sublandlord shall determine if
such evidence, certificate or other matter or thing shall be
satisfactory.
(iii) In the event of any taking by
eminent domain or casualty to the Sublease Premises such that
Subtenant is deprived of the use and occupancy of greater than fifty
percent (50%) of the Sublease Premises for a period in excess of sixty
(60) days, Subtenant and Sublandlord shall each have the right to
terminate this Sublease upon not less than thirty (30) days written
notice to the other. In the event of any such taking by eminent
domain or casualty such that Subtenant is deprived of fifty percent
(50%) or less of the use and occupancy of the Sublease
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<PAGE> 6
Premises, or in the event Subtenant elects to continue occupancy of
the remaining portion of the Sublease Premises after the occurrence of
a taking or casualty giving Subtenant a right to terminate this
Sublease, the Rent shall be proportionally reduced for the portion of
the Term during which Subtenant is prevented from using and occupying
the damaged or taken portion of the Sublease Premises. Sublandlord
shall have no obligation to restore or rebuild any portion of the
Sublease Premises after any destruction or taking by eminent domain,
and Subtenant shall have no rights to any portion of the award in any
eminent domain proceeding affecting the Sublease Premises.
(iv) Subtenant shall not be required
to comply with the following provisions of the Master Lease:
(A) Paragraph 3(c), without,
however, limiting in any way the provisions of Section 15 of this
Sublease.
(B) Paragraph 3(e).
(C) Paragraph 9(b) to the extent it
applies to Escrow Payments imposed on Sublandlord as a result of a Monetary
Event of Default by Sublandlord under the Master Lease which is not the result
of a default by Subtenant under this Sublease, however Subtenenat shall, in all
events, be responsible for Escrow Charges comprising real estate taxes on the
Sublease Premises imposed as a result of alterations to the Sublease Premises
made by, or for, Subtenant during the Term.
(D) Paragraph 10(i).
(E) Paragraph 12(a), to the extent
it requires Subtenant to repair or maintain Building Systems Equipment, it
being expressly acknowledged by Subtenant hereunder that it has no right to
repair or maintain any Building Systems Equipment.
(F) Paragraph 15(a), to the extent
it requires indemnity from Subtenant for the acts or omissions of any Person
other than Subtenant, its agents, employees, representatives, parents,
affiliates or subsidiaries, or any Person acting on behalf of, or with the
permission of, or at the sufferance of, Subtenant and only in connection with
events on, about or arising from the Sublease Premises.
(c) During the Term, Subtenant shall not be
required to maintain casualty insurance policies and coverages with respect to
the Sublease Premises and Subtenant shall be named as an additional insured
under such policies maintained by Sublandlord (to the extent of Subtenant's
interest in the Sublease Premises), evidence of such coverage to be in the form
of a certificate of insurance provided by Sublandlord to Subtenant; provided,
however, such policies and coverages maintained by Sublandlord with respect to
the Building and the Sublease Premises shall not include coverage for
Subtenant's personal property and Subtenant, at its sole cost and expense,
shall maintain such policies and coverages with respect to its personal
property as it may elect. During the Term, Subtenant shall maintain a policy
of comprehensive general liability insurance with respect to its occupancy of,
and activities on, the Sublease Premises and related common areas, which
coverage shall be subject to any required
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<PAGE> 7
waivers of subrogation as are described under Paragraph 16 of the Master Lease
and shall have a minimum policy limit of $4,000,000 and shall otherwise meet
the requirements of the Master Lease for such insurance coverage. All such
policies shall name Sublandlord, Landlord and any other party required to be so
named under the Master Lease as additional insureds thereunder and shall be
with carriers reasonably acceptable to Sublandlord and, in all events, in
accordance with the requirements of the Master Lease except as otherwise
provided hereinabove. In the event Subtenant elects to carry its own policies
of casualty insurance with respect to the Sublease Premises, all such policies
shall name Sublandlord as an additional insured thereunder.
(d) Sublandlord and Subtenant acknowledge that
this Sublease is of short duration in relation to the term of the Master Lease
and, as a result, the parties do not intend that Subtenant shall be required to
comply with any obligations or requirements under the Master Lease (except
those which are specifically referenced as an obligation of Subtenant under
this Sublease) which are of a character or nature as is reasonably determined
to be inconsistent with the scope and Term of occupancy of the Sublease
Premises by Subtenant under this Sublease. In the event of a dispute regarding
Subtenant's obligation to comply with any such obligations or requirements of
the Master Lease, the determination of the applicability of such obligations or
requirements shall be made by Sublandlord and Subtenant in good faith with
reference to current statutory and case law in California interpreting the
relative obligations of a landlord and tenant in circumstances similar to the
Sublease with respect to the nature of the obligation for which compliance is
sought. In the event Sublandlord and Subtenant are unable to reasonably agree
on the scope of responsibility of such obligation for which compliance is
sought under the Master Lease, each party shall refer the matter to its most
senior executive who shall jointly attempt to resolve such issue not later than
five (5) business days after such reference. In the event such reference is
unsuccessful, each party may exercise its rights and remedies under law with
respect to a final determination of such dispute.
9. Subtenant's Obligations. Subtenant covenants and
agrees that all obligations of Sublandlord under the Master Lease shall be done
or performed by Subtenant with respect to the Sublease Premises, except as
otherwise provided by this Sublease, and Subtenant's obligations shall run to
Sublandlord and Landlord as Sublandlord may determine to be appropriate or be
required by the respective interests of Sublandlord and Landlord. Subtenant
agrees to indemnify Sublandlord, and hold it harmless, from and against any and
all claims, damages, losses, expenses and liabilities (including reasonable
attorneys' fees) incurred as a result of the non-performance, non-observance or
non- payment of any of Sublandlord's obligations under the Master Lease which,
as a result of this Sublease, became an obligation of Subtenant. If Subtenant
makes any payment to Sublandlord pursuant to this indemnity, Subtenant shall be
subrogated to the rights of Sublandlord concerning said payment. Subtenant
shall not do, nor permit to be done, any act or thing which is, or with notice
or the passage of time would be, a default under this Sublease or the Master
Lease.
10. Sublandlord's Obligations. Sublandlord covenants and
agrees that all obligations of Sublandlord under the Master Lease, other than
those which are to be done or performed by Subtenant, with respect to the
Sublease Premises shall be done or performed by Sublandlord. Sublandlord
agrees that Subtenant shall be entitled to receive all services and repairs to
be provided by Landlord to Sublandlord under the Master Lease. Subtenant shall
look solely to Landlord for all such services and shall not, under any
circumstances, seek nor require Sublandlord to perform any of such services,
nor shall Subtenant make any claim upon
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<PAGE> 8
Sublandlord for any damages which may arise by reason of Landlord's default
under the Master Lease; provided, however, Sublandlord shall provide all
necessary assistance and cooperation to Subtenant (at no material cost or
liability to Sublandlord) to enforce Sublandlord's rights under the Master
Lease to compel performance by Landlord with respect to such services or
repairs to which Subtenant is entitled. Any condition resulting from a default
by Landlord shall not constitute as between Sublandlord and Subtenant an
eviction, actual or constructive, of Subtenant and no such default shall excuse
Subtenant from the performance or observance of any of its obligations to be
performed or observed under this Sublease, or entitle Subtenant to receive any
reduction in or abatement of the Rent provided for in this Sublease unless, and
to the extent, Sublandlord is excused from performance, or entitled to a
reduction or abatement of its rental obligations to Landlord under the Master
Lease also. In furtherance of the foregoing, Subtenant does hereby waive any
cause of action and any right to bring any action against Sublandlord by reason
of any act or omission of Landlord under the Master Lease, subject to the right
of assistance and cooperation from Sublandlord described above. Sublandlord
covenants and agrees with Subtenant that Sublandlord will pay all fixed rent
and additional rent payable by Sublandlord pursuant to the Master Lease to the
extent that failure to perform the same would adversely affect Subtenant's use
or occupancy of the Sublease Premises. Sublandlord shall extend all reasonable
cooperation to Subtenant (at no material cost or liability to Sublandlord) to
enable Subtenant to receive the benefits under this Sublease, as the same are
dependent upon performance under the Master Lease.
11. Default by Subtenant. In the event Subtenant shall
be in default of any covenant of, or shall fail to honor any obligation under,
this Sublease, Sublandlord shall have available to it against Subtenant all of
the remedies available (a) to Landlord under the Master Lease in the event of a
similar default on the part of Sublandlord thereunder or (b) at law.
12. Quiet Enjoyment. So long as Subtenant pays all of
the Rent due hereunder and performs all of Subtenant's other obligations
hereunder, Sublandlord shall do nothing to affect Subtenant's right to
peaceably and quietly have, hold and enjoy the Sublease Premises.
13. Notices. Anything contained in any provision of this
Sublease to the contrary notwithstanding, Subtenant agrees, with respect to the
Sublease Premises, to comply with and remedy any default in this Sublease or
the Master Lease which is Subtenant's obligation to cure, within the period
allowed to Sublandlord under the Master Lease, even if such time period is
shorter than the period otherwise allowed therein due to the fact that notice
of default from Sublandlord to Subtenant is given after the corresponding
notice of default from Landlord to Sublandlord. Sublandlord agrees to forward
to Subtenant, promptly upon receipt thereof by Sublandlord, a copy of each
notice of default received by Sublandlord in its capacity as Tenant under the
Master Lease. Subtenant agrees to forward to Sublandlord, promptly upon
receipt thereof, copies of any notices received by Subtenant from Landlord or
from any governmental authorities. All notices, demands and requests shall be
in writing and shall be sent either by hand delivery or by a nationally
recognized overnight courier service (e.g., Federal Express), in either case
return receipt requested, to the address of the appropriate party. Notices,
demands and requests so sent shall be deemed given when the same are received.
Notices to Sublandlord shall be sent to the attention of:
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<PAGE> 9
Gensia, Inc.
9360 Towne Centre Drive
San Diego, CA 92121
Attn: General Counsel
with a copy to:
Pillsbury Madison & Sutro, LLP
101 W. Broadway, Suite 1800
San Diego, California 92101
Attn: Eric A. Kremer, Esq.
Notices to Subtenant shall be sent to the attention
of:
Amylin Pharmaceuticals, Inc.
9360 Towne Centre Drive
San Diego, CA 92121
Attn: Bradford J. Duft
V.P. and General Counsel
With a copy to:
Cooley, Godward, Castro, Huddleson & Tatum
4365 Executive Drive, Suite 1200
San Diego, CA 92121
Attn: Thomas A. Coll, Esq.
14. Broker. Sublandlord and Subtenant represent and
warrant to each other that no brokers other than John Burnham & Company were
involved in connection with the negotiation or consummation of this Sublease.
Each party agrees to indemnify the other, and hold it harmless, from and
against any and all claims, damages, losses, expenses and liabilities
(including reasonable attorneys' fees) incurred by said party as a result of a
breach of this representation and warranty by the other party.
15. Condition of Premises.
(a) Commencement. Subtenant acknowledges (i)
that it is subleasing the Sublease Premises "as-is" in an unfurnished condition
(as confirmed to Subtenant's satisfaction not later than the Sublease
Commencement Date), (ii) that Sublandlord is not making any representation or
warranty concerning the condition of the Sublease Premises, and (iii) that
Sublandlord is not obligated to perform any work to prepare the Sublease
Premises for Subtenant's occupancy other than to deliver the Sublease Premises
in broom-clean condition and, as regards the 9360 Premises, complete the
installation of a new door in the eastern hallway and the repair of any
non-operating light fixtures. Such work on the 9360 Premises shall be
completed not later than sixty (60) days following the Sublease Commencement
Date as to the 9360 Premises. Subtenant shall also conduct a Phase I
Environmental Assessment (the "Base Line Study") with respect to the Sublease
Premises in accordance with ASTM Standard E 1257-
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<PAGE> 10
94 which, pursuant to such Standard, shall not include any surface or
subsurface testing on the Sublease Premises. The Base Line Study shall assess
the condition of the Sublease Premises as it exists prior to any occupancy
thereof by Subtenant and shall be completed and approved by Subtenant as soon
as possible. If the Base Line Study is not completed and approved by Subtenant
on or prior to the Sublease Commencement Date, such completion and approval
shall have occurred not later than thirty (30) days following the Sublease
Commencement Date. Subtenant's failure to approve the results of such Base
Line Study within five (5) days of its completion shall permit Subtenant to
terminate this Sublease, subject, however, to Sublandlord's right (without any
obligation of exercise) to cure such disapproved matter to Subtenant's
reasonable satisfaction within a reasonable period of time after Sublandlord's
receipt of notice of such disapproval. Subtenant shall deliver a copy of the
Base Line Study to Sublandlord upon its completion. Subtenant acknowledges
that it is not authorized to make or do any alterations or improvements in or
to the Sublease Premises without Sublandlord's prior written consent, which
consent may not be unreasonably withheld and which may impose additional
requirements applicable to the construction and completion of such alterations
or improvements in addition to requiring Subtenant's compliance with
requirements of the Master Lease. Sublandlord shall not be deemed to be
unreasonable in withholding its consent to any alteration or improvement which
does not conform with the use requirements under this Sublease or which is
materially different from alterations or improvements customarily seen in
first-class office and laboratory space, as applicable.
(b) Vacation. Subtenant further acknowledges
that it must deliver the Sublease Premises to Sublandlord on the Sublease
Expiration Date in the condition substantially the same as that on the Sublease
Commencement Date; provided, however, all tenant improvements constructed by
Subtenant and for which the T/I Credit was provided shall remain in the
Sublease Premises unless Sublandlord requires that Subtenant remove same.
Subtenant shall also conduct an exit environmental assessment (the "Subtenant
Exit Study") substantially the same in scope as the Base Line Study. The
Subtenant Exit Study shall be conducted not earlier than fifteen (15) days
prior to Subtenant's vacation of the Sublease Premises. In the event the
Subtenant Exit Study reveals contamination not described in the Base Line
Study, then, to the extent such contamination is the result of the act or
omission of Subtenant, its agents, employees, contractors, invitees or
licensees, Subtenant shall promptly remediate or remove such contamination in
its entirety. Subtenant shall maintain the results of the Base Line Study and
the Subtenant Exit Study in strict confidence and shall not, without
Sublandlord's prior written consent, which may be withheld in its sole
discretion, disclose the results thereof, or any portion thereof to any third
party, excepting Subtenant's directors, officers, employees, representatives
and consultants on a need-to-know basis, unless Subtenant is compelled under
applicable law to disclose all or any portion of said Studies. All such
Studies shall be delivered to Sublandlord.
(c) Inspection Rights. In addition to all other
rights under the provisions of the Master Lease incorporated into this
Sublease, Sublandlord expressly reserves the right to conduct the inspections
and testing in the Sublease Premises during the Term as described in Paragraph
10 of the Master Lease. During the Term of the Sublease, Subtenant shall
deliver to Sublandlord, upon Sublandlord's request therefor, copies of all
notices, filings and permits delivered to, or received from, regulatory and
governmental entities having jurisdiction over Subtenant's operations on the
Sublease Premises with respect to the use,
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<PAGE> 11
storage or disposal of Hazardous Substances and a current inventory of all
Hazardous Substances used and/or stored on the Sublease Premises.
16. Consent of Landlord. Section 21(b) of the Master
Lease requires Sublandlord to provide written notice to Landlord regarding this
Sublease. Sublandlord has provided such notice as of the date of this
Sublease. If Sublandlord receives any objection from Landlord to this Sublease
during the initial sixty (60) days of the Term, Sublandlord shall notify
Subtenant thereof and use reasonable best efforts to remove such objection. If
such objection cannot be removed within said 60-day period and the continuation
of this Sublease would place Sublandlord in material breach of the Master
Lease, as determined by Sublandlord in its sole discretion, this Sublease may
be terminated by either party hereto upon notice to the other, and upon such
termination neither party hereto shall have any further rights against or
obligations to the other party hereto, other than Subtenant's obligation to
leave the Sublease Premises in the same condition as that existing on the
Sublease Commencement Date.
17. Termination of the Lease. If for any reason the term
of the Master Lease shall terminate prior to the Sublease Expiration Date, this
Sublease shall automatically be terminated and Sublandlord shall not be liable
to Subtenant by reason thereof unless said termination shall have been caused
by the default of Sublandlord under the Master Lease, and said Sublandlord
default was not as a result of a Subtenant default hereunder, or such
termination is the result of any election or exercise of a right or option held
by Sublandlord under the Master Lease to effect such termination, or is the
result of Sublandlord's mutual agreement with Landlord to terminate the Master
Lease outside the parameters of the Master Lease.
18. Assignment and Subletting.
(a) Independent of and in addition to any
provisions of the Master Lease, including without limitation the obligation to
obtain Landlord's consent to any assignment, it is understood and agreed that
Subtenant shall have no right to sublet the Sublease Premises or any portion
thereof or any right or privilege appurtenant thereto; provided, however, that
Subtenant shall have the right to assign this Sublease or any interest therein,
and to suffer or permit any other person (other than agents, servants or
associates of the Subtenant) to occupy or use the Sublease Premises, only upon
the prior written consent of Sublandlord and Landlord, which consent shall not
be unreasonably withheld. Any assignment by Subtenant without Sublandlord's
prior written consent shall be void and shall, at the option of Sublandlord,
terminate this Sublease.
(b) Subtenant shall advise Sublandlord by notice
of (i) Subtenant's intent to assign this Sublease, (ii) the name of the
proposed assignee and evidence reasonably satisfactory to Sublandlord that such
proposed assignee is comparable in reputation, stature and financial condition
to tenants then leasing comparable space in comparable buildings, and (iii) the
terms of the proposed assignment. Sublandlord shall, within twenty (20) days
of receipt of such notice, and any additional information requested by Landlord
concerning the proposed assignee's financial responsibility, elect one of the
following:
(i) Consent to such proposed assignment;
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<PAGE> 12
(ii) Refuse such consent, which refusal
shall be on reasonable grounds; or
(iii) Elect to terminate the Sublease.
(c) In the event that Sublandlord shall consent
to an assignment under the provisions of this Section 18, Subtenant shall pay
Sublandlord's reasonable processing costs and reasonable attorneys' fees
incurred in giving such consent (not to exceed $2,500 in any one instance).
Notwithstanding any permitted assignment, Subtenant shall at all times remain
directly, primarily and fully responsible and liable for all payments owed by
Subtenant under the Sublease and for compliance with all obligations under the
terms, provisions and covenants of the Sublease. If for any proposed
assignment or sublease, Subtenant receives Rent or other consideration, either
initially or over the term of the assignment or sublease, in excess of the Rent
required by this Sublease, after a deduction for the following: (a) any
brokerage commission paid by Subtenant in connection therewith and (b) any
reasonable attorneys' fees in connection with preparing and negotiating an
assignment or sublease document ("Profit"), Subtenant shall pay to Sublandlord
as additional Rent, fifty percent (50%) of such Profit or other consideration
received by Subtenant within five (5) days of its receipt by Subtenant or, in
the event the assignee makes payment directly to Sublandlord, Sublandlord shall
refund fifty percent (50%) of the Profit to Subtenant after deducting (a) and
(b) above.
(d) Occupancy of all or part of the Sublease
Premises by parent, subsidiary, or affiliated companies or a joint venture
partnership of Subtenant shall not be deemed an assignment or subletting
provided that such parent, subsidiary or affiliated companies or a joint
venture partnership were not formed as a subterfuge to avoid the obligation of
this Section 18. If Subtenant is a corporation, unincorporated association,
trust or general or limited partnership, then the sale, assignment, transfer or
hypothecation of any shares, partnership interest, or other ownership interest
of such entity or the dissolution, merger, consolidation, or other
reorganization of such entity, or the sale, assignment, transfer or
hypothecation of the assets of such entity, shall not be deemed an assignment
or sublease subject to the provisions of this Section 18.
19. Limitation of Estate. Subtenant's estate shall in
all respects be limited to, and be construed in a fashion consistent with, the
estate granted to Sublandlord by Landlord. Subtenant shall stand in the place
of Sublandlord and shall defend, indemnify and hold Sublandlord harmless with
respect to all covenants, warranties, obligations, and payments made by
Sublandlord under or required of Sublandlord by the Master Lease with respect
to the Subleased Premises. In the event Sublandlord is prevented from
performing any of its obligations under this Sublease by a breach by Landlord
of a term of the Master Lease, then Sublandlord's sole obligation in regard to
its obligation under this Sublease shall be to use reasonable efforts in
diligently pursuing the correction or cure by Landlord of Landlord's breach.
20. Entire Agreement. It is understood and acknowledged
that there are no oral agreements between the parties hereto affecting this
Sublease and this Sublease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and understandings, if any,
between the parties hereto or displayed by Sublandlord to Subtenant with
respect to the subject matter thereof, and none thereof shall be used to
interpret or construe this Sublease. This Sublease, and the exhibits and
schedules attached hereto, contain all of the
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<PAGE> 13
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Sublease Premises and
shall be considered to be the only agreements between the parties hereto and
their representatives and agents. None of the terms, covenants, conditions or
provisions of this Sublease can be modified, deleted or added to except in
writing signed by the parties hereto. All negotiations and oral agreements
acceptable to both parties have been merged into and are
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<PAGE> 14
included herein. There are no other representations or warranties between the
parties, and all reliance with respect to representations is based totally upon
the representations and agreements contained in this Sublease.
IN WITNESS WHEREOF, the parties have entered into this Sublease as of
the date first written above.
SUBLANDLORD:
GENSIA, INC.,
a Delaware corporation
By: Gene Tutwieler
Its: Vice President of Research
SUBTENANT:
AMYLIN PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ Bradford J. Duft
Its: Vice President and General Counsel
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<PAGE> 15
EXHIBIT "A"
COPY OF MASTER LEASE
LEASE AGREEMENT
by and between
GENA PROPERTY COMPANY,
a California partnership
as LANDLORD
and
GENSIA, INC.,
a Delaware corporation,
as TENANT
Premises: San Diego, California
Dated as of: December 21, 1993
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<PAGE> 16
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Demise of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Title and Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4. Use of Leased Premises; Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6. Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7. Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. Net Lease; Non-Terminability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9. Payment of Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10. Compliance with Laws and Easement Agreements; Environmental Matters . . . . . . . . . . . . . 21
11. Liens; Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12. Maintenance and Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13. Alterations and Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14. Permitted Contests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
16. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
17. Casualty and Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18. Early Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19. Restoration; Reduction of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
20. Procedures Upon Purchase by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
21. Assignment and Subletting; Prohibition against Leasehold Financing . . . . . . . . . . . . . . 39
22. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
23. Remedies and Damages Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
25. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
26. Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
27. No Merger of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
28. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
29. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
30. Non-Recourse as to Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
31. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
32. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
33. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
34. Tax Treatment; Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
35. Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
36. Financing Major Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
37. Initial Lender Rights re: Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 62
38. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
EXHIBIT A LEGAL DESCRIPTION OF LAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
EXHIBIT B DESCRIPTION OF BUILDING SYSTEMS EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . 1
EXHIBIT C SCHEDULE OF PERMITTED ENCUMBRANCES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
EXHIBIT D BASIC RENT SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
EXHIBIT E TENANT'S FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
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<PAGE> 17
<TABLE>
<S> <C> <C>
EXHIBIT F SCHEDULE OF EXISTING LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
EXHIBIT G [Form of Letter of Credit] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
EXHIBIT H TENANT ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
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<PAGE> 18
LEASE AGREEMENT, made as of this 21st day of December, 1993, between
GENA PROPERTY COMPANY, a California partnership, ("Landlord") the partners of
which are GENA (CA) QRS 11-25, INC., a California corporation ("GENA:11") and
GENA (CA) QRS 12-1, INC., a California corporation ("GENA:12") with an address
c/o W. P. Carey & Co., Inc., 620 Fifth Avenue, New York, New York 10020, and
GENSIA, INC. ("Tenant"), a Delaware corporation with an address at 9360 Towne
Centre Drive, San Diego, California 92121.
In consideration of the rents and provisions herein stipulated to be
paid and performed, Landlord and Tenant hereby covenant and agree as follows:
1. Demise of Premises. Landlord hereby demises and lets
to Tenant, and Tenant hereby takes and leases from Landlord, for the term and
upon the provisions hereinafter specified, the following described property
(collectively, the "Leased Premises"): (a) the real property described in
Exhibit "A-1" hereto, together with the Appurtenances (collectively, the
"Land"); (b) the buildings, structures, driveways, walkways and other
improvements now or hereafter constructed on the Land (collectively, the
"Structures"); and (c) the Building Systems Equipment (as defined in Paragraph
2).
2. Certain Definitions.
"Additional Rent" shall mean Additional Rent as
defined in Paragraph 7.
"Adjoining Property" shall mean all appurtenant
sidewalks, driveways, curbs, gores and vault spaces which are located on land
adjoining the Land and which Tenant is entitled to use and responsible to
repair.
"Affiliate" with respect to Tenant shall mean any
other Person controlling, controlled by or under common control with Tenant and
"control" shall mean the power to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"Alterations" shall mean all changes, additions,
improvements or repairs to, all alterations, reconstructions, renewals,
replacements or removals of and all substitutions or replacements for any of
the Improvements, both interior and exterior, structural and non-structural,
and ordinary and extraordinary.
"Appurtenances" shall mean all tenements,
hereditaments, easements, rights-of-way, rights, privileges in and to the Land,
including (a) easements over other lands granted by any Easement Agreement and
(b) rights to use any streets, ways, alleys, vaults, gores or strips of land
adjoining the Land.
"Assignment by Landlord" shall mean any assignment of
rents and leases from Landlord to a Lender which (a) encumbers any of the
Leased Premises and (b) secures Landlord's obligation to repay a Loan, as the
same may be amended, supplemented or modified from time to time.
"Basic Rent" shall mean Basic Rent as defined in
Paragraph 6 and computed pursuant to Exhibit "D".
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<PAGE> 19
"Basic Rent Commencement Date" shall mean January 1,
1994.
"Basic Rent Payment Dates" shall mean the Basic Rent
Payment Dates as defined in Paragraph 6 below.
"Building Systems Equipment" shall mean the Building
Systems Equipment described on Exhibit "B" which is installed or located in or
on the Structures on the date hereof and paid for by Landlord. Building
Systems Equipment shall include (i) that portion of the Tenant Improvements
that is within the definition of Building Systems Equipment and (ii)
Alterations to the Building Systems Equipment whether paid for by Landlord or,
if required by the terms of this Lease, Tenant.
"Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions are authorized or
obligated to close in the State of California.
"Casualty" shall mean any loss of or damage to any,
property except Tenant's personal property and Tenant's, Equipment included
within the Leased Premises or to any property in which Landlord has an
ownership interest.
"Condemnation" shall mean a Taking and/or a
Requisition, as defined below in this Paragraph 2.
"Condemnation Notice" shall mean notice or knowledge
of the institution of or intention to institute any proceeding for
Condemnation.
"Consolidated Tangible Net Worth" shall mean
Consolidated Tangible Net Worth as defined in Exhibit "E".
"Construction Contracts" shall mean those certain
Construction Contracts described in the Construction Management Agreement and
any other contracts between Tenant, as construction manager for Landlord, and
Contractors, pursuant to which the Tenant Improvements will be constructed.
"Construction Management Agreement" shall mean that
certain Construction Management Agreement of even date between Landlord, as
owner, and Tenant, as manager for Landlord, in connection with the installation
and construction of the Tenant Improvements.
"Contractors" shall mean those contractors who are
parties to the Construction Contracts.
"Costs" of a Person or associated with a specified
transaction shall mean all reasonable costs and expenses incurred by such
Person or associated with such transaction, including without limitation,
attorneys' fees and expenses, court costs, brokerage fees, escrow fees, title
insurance premiums, mortgage commitment fees, mortgage points, recording fees
and transfer taxes, as the circumstances require.
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<PAGE> 20
"Covenant Breach" shall mean Covenant Breach as
defined in Paragraph 29(e).
"Covenant Event of Default" shall mean a Covenant
Breach for which a Letter of Credit is not issued in accordance with the
provisions of Paragraph 29(e).
"CPI" shall mean the CPI as defined in Exhibit "D".
"Debt Rent" shall mean Debt Rent as defined in
Paragraph 37(a)(ii).
"Default Rate" shall mean the Default Rate as defined
in Paragraph 7(a)(iv).
"Direct Costs" shall mean Direct Costs as defined in
Section 1.01 of the Construction Management Agreement.
"Early Termination Amount" shall mean [INTENTIONALLY
OMITTED].
"Early Termination Date" shall mean Early Termination
Date as defined in Paragraph 18.
"Early Termination Event" shall mean an Early
Termination Event as defined in Paragraph 18.
"Early Termination Notice" shall mean Early
Termination Notice as defined in Paragraph 18.
"Easement Agreements" shall mean any recorded
conditions, covenants, restrictions, easements, declarations, licenses and
other agreements affecting the Leased Premises. The initial Easement
Agreements are listed on the Schedule of Permitted Encumbrances attached hereto
as Exhibit "C". Tenant shall not negotiate or execute any Easement Agreement
without Landlord's prior written consent, which shall not be unreasonably
withheld or delayed. If Tenant or Landlord subsequently negotiates and the
other party approves Easement Agreements in addition to those listed on Exhibit
"C", such additional Easement Agreements shall be deemed to be included as
Easement Agreements to which this Lease applies. Neither Tenant nor Landlord
shall be bound by any Easement Agreements which are not listed on Exhibit "C"
unless Landlord and Tenant expressly agree in writing to be bound thereby. If
either Landlord or Tenant do not so agree to be bound by any Easement
Agreements not listed on Exhibit "C" (the "Excluded Easement Agreements"), the
Excluded Easement Agreements shall not be included as Easement Agreements or
Permitted Encumbrances. Easement Agreements other than Excluded Easement
Agreements are Permitted Encumbrances.
"Environmental Law" shall mean (i) whenever enacted
or promulgated, any applicable federal, state, foreign and local law, statute,
ordinance, rule, regulation, license, permit, authorization, approval, consent,
court order, judgment, decree, injunction, code, requirement or agreement with
any governmental entity, (x) relating to pollution (or the cleanup thereof), or
the protection of air, water vapor, surface water, groundwater, drinking water
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<PAGE> 21
supply, land (including land surface or subsurface), plant, aquatic and animal
life from injury caused by a Hazardous Substance or (y) concerning exposure to,
or the use, containment, storage, recycling, reclamation, reuse, treatment,
generation, discharge, transportation, processing, handling, labeling,
production, disposal or remediation of Hazardous Substances, Hazardous
Conditions or Hazardous Activities, in each case as amended and as now or
hereafter in effect, and (ii) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such as negligence,
nuisance, trespass and strict liability) that may impose liability or
obligations or injuries or damages due to or threatened as a result of the
presence of, exposure to, or ingestion of, any Hazardous Substance. The term
Environmental Law includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the federal Water Pollution Control Act,
the federal Clean Air Act, the federal Clean Water Act, the federal Resources
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic
Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act,
the federal Occupational Safety and Health Act of 1970, the federal National
Environmental Policy Act and the federal Hazardous Materials Transportation
Act, each as amended and as now or hereafter in effect and any similar state or
local Law.
"Environmental Violation" shall mean (a) any direct
or indirect discharge, disposal, spillage, emission, escape, pumping, pouring,
injection, leaching, release, seepage, filtration or transporting of any
Hazardous Substance at, upon, under, onto or within the Leased Premises, or
from the Leased Premises to the environment, in violation of any Environmental
Law or in excess of any reportable quantity established under any Environmental
Law or which could result in any liability to Landlord, Tenant or Lender, any
Federal, state or local government or any other Person for the costs of any
removal or remedial action or natural resources damage or for bodily injury or
property damage, (b) any deposit, storage, dumping, placement or use of any
Hazardous Substance at, upon, under or within the Leased Premises or which
extends to any Adjoining Property in violation of any Environmental Law or in
excess of any reportable quantity established under any Environmental Law or
which could result in any liability to any Federal, state or local government
or to any other Person for the costs of any removal or remedial action or
natural resources damage or for bodily injury or property damage, (c) the
abandonment or discarding of any barrels, containers or other receptacles
containing any Hazardous Substances in violation of any Environmental Laws, (d)
any activity, occurrence or condition which could result in any liability, cost
or expense to Landlord or Lender or any other owner or occupier of the Leased
Premises, or which could result in a creation of a lien on the Leased Premises,
under any Environmental Law, or (e) any violation of or noncompliance with any
Environmental Law.
"Equipment" shall mean Building Systems Equipment and
Tenant's Equipment.
"Equity Rent" shall mean Equity Rent as defined in
Paragraph 37(b).
"Event of Default" shall mean an Event of Default as
defined in Paragraph 22(a).
"Existing Leases" is defined in Paragraph 21.
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<PAGE> 22
"Fair Market Rent" shall mean Fair Market Rent as
determined in accordance with Section 3 of Exhibit "D".
"Federal Funds" shall mean federal or other
immediately available funds which at the time of payment are legal tender for
the payment of public and private debts in the United States of America.
"Final Release Conditions" shall mean Final Release
Conditions as defined in Paragraph 29.
"Financial Covenants" shall mean the financial
covenants of Tenant described on Exhibit "E".
"Funded Indebtedness" shall mean Funded Indebtedness
as defined in Exhibit "E".
"Funding Deadline" shall mean [INTENTIONALLY
OMITTED].
"GAAP" shall mean generally accepted accounting
principles as in effect from time to time and followed consistently throughout
the relevant period.
"Hazardous Activity" means any activity, process,
procedure or undertaking which directly or indirectly (i) procures, generates
or creates any Hazardous Substance; (ii) causes or results in (or threatens to
cause or result in) the release, seepage, spill, leak, flow, discharge or
emission of any Hazardous Substance into the environment (including the air,
ground water, watercourses or water systems), (iii) involves the containment or
storage of any Hazardous Substance; or (iv) would cause the Leased Premises or
any portion thereof to become a hazardous waste treatment, recycling,
reclamation, processing, storage or disposal facility within the meaning of any
Environmental Law; provided, however, that notwithstanding anything in this
sentence or this Lease to the contrary, Tenant shall not be deemed to be
engaged in a Hazardous Activity if the subject activity, process, procedure or
undertaking is done or performed in accordance with applicable Law and/or
governmental permit.
"Hazardous Condition" means any condition which would
support any claim or liability under any Environmental Law, including the
presence of underground storage tanks.
"Hazardous Substance" means (i) any substance,
material, product, petroleum, petroleum product, derivative, compound or
mixture, mineral (including asbestos), chemical, gas, medical waste, or other
pollutant, in each case whether naturally occurring, man-made or the by-product
of any process, that is toxic, harmful or hazardous or acutely hazardous to the
environment or public health or safety or (ii) any substance supporting a claim
under any Environmental Law, whether or not defined as hazardous as such under
any Environmental Law. Hazardous Substances include, without limitation, any
toxic or hazardous waste, pollutant, contaminant, industrial waste, petroleum
or petroleum-derived substances or waste, radon, radioactive materials,
asbestos, asbestos containing materials, urea formaldehyde foam insulation,
lead and polychlorinated biphenyls.
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<PAGE> 23
"Impositions" shall mean the Impositions as defined
in Paragraph 9(a).
"Improvements" shall mean the Structures as defined
in Paragraph 1, Building Systems Equipment (as defined above) and Tenant
Improvements (as defined below).
"Indemnitee" shall mean an Indemnitee as defined in
Paragraph 15.
"Indirect Costs" shall mean Indirect Costs as defined
in Section 1.01 of the Construction Management Agreement.
"Initial Lender" shall mean The Northwestern Mutual
Life Insurance Company and its successors and assigns with respect to the
Initial Loan.
"Initial Loan" shall mean the [INTENTIONALLY
OMITTED]loan from Initial Lender to Landlord.
"Initial Term" shall mean the Initial Term as defined
in Paragraph 5.
"Initial Term Commencement Date" shall mean Initial
Term Commencement Date as defined in Paragraph 5(a).
"Initial Term Expiration Date" shall mean Initial
Term Commencement Date as defined in Paragraph 5(a).
"Insurance Requirements" shall mean the requirements
of all insurance policies required to be maintained in accordance with this
Lease.
"Land" shall mean the Land as defined in Paragraph 1
and described in Exhibit "A-1".
"Landlord's Cash Contribution" shall mean
[INTENTIONALLY OMITTED].
"Landlord's Maximum Contribution" shall mean
[INTENTIONALLY OMITTED].
"Landlord's Share of Project Costs" shall mean
[INTENTIONALLY OMITTED].
"Law" shall mean any constitution, statute, rule of
law, code, ordinance, order, judgment, decree, injunction, rule, regulation,
policy, requirement or administrative or judicial determination, even if
unforeseen or extraordinary, of every duly constituted governmental authority,
court or agency, now or hereafter enacted or in effect.
"Lease" shall mean this Lease Agreement.
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<PAGE> 24
"Leased Premises" shall mean the Leased Premises as
defined in Paragraph 1.
"Legal Requirements" shall mean all present and
future Laws (including but not limited to Environmental Laws and Laws relating
to accessibility to, usability by, and discrimination against, disabled
individuals) and all covenants, restrictions and conditions now or hereafter of
record which may be applicable to Tenant or to any of the Leased Premises, or
to the use, manner of use, occupancy, possession, operation, maintenance,
alteration, repair or restoration of any of the Leased Premises, even if
compliance therewith necessitates structural changes or improvements or results
in interference with the use or enjoyment of any of the Leased Premises.
"Lender" shall mean (a) Initial Lender, its
successors and assigns, and (b) any person or entity (and their respective
successors and assigns) which may, after the date hereof, make a Loan to
Landlord or is the holder of any Note.
"Letter of Credit" shall mean an unconditional,
irrevocable letter of credit in the form attached hereto as Exhibit "G" in the
amount then required by Paragraph 29, with such modifications as may be
reasonably requested by the beneficiary thereof from time to time and issued by
a commercial bank with a B rating or better according to the Sheshunoff Bank
Quarterly or, if no longer available, a similar publication satisfactory to the
then beneficiary thereof. The Letter of Credit shall name Landlord or, at
Landlord's direction, Lender as beneficiary.
"Loan" shall mean the Initial Loan and any other loan
made by one or more Lenders to Landlord, which Initial Loan or other loan, as
the case may be, is secured by a Mortgage and an Assignment by Landlord and
evidenced by a Note.
"Major Alterations" shall mean Major Alterations as
defined in Paragraph 36(a).
"Monetary Event of Default" shall mean a failure by
Tenant to pay Rent or any other Monetary Obligation within the cure period, if
any, as provided in this Lease.
"Monetary Obligations" shall mean Rent and all other
sums payable by Tenant under this Lease.
"Mortgage" shall mean any mortgage or deed of trust
from Landlord to a Lender which (a) encumbers any of the Leased Premises and
(b) secures Landlord's obligation to repay a Loan, as the same may be amended,
supplemented or modified.
"Net Award" shall mean (a) the entire award payable
to Landlord or Lender by reason of a Condemnation whether pursuant to a
judgment or by agreement or otherwise, or (b) the entire proceeds of any
insurance required under clauses (i), (ii) (to the extent payable to Landlord
or Lender), (iv), (v) or (vi) of Paragraph 16(a) (to the extent payable to
Landlord, Tenant or Lender), as the case may be, less any expenses incurred by
Landlord, Tenant and Lender in collecting such award or proceeds.
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<PAGE> 25
"Note" shall mean any promissory note evidencing
Landlord's obligation to repay a Loan, as the same may be amended, supplemented
or modified.
"Notice Receipt Date" shall mean Notice Receipt Date
as defined in Paragraph 18(b).
"Occupancy Date" shall mean the date on which each of
the following events has occurred: (i) the Tenant Improvements have been
completed substantially in accordance with the Plans, as certified to Landlord
by the Architect (as defined in the Construction Management Agreement), and
(ii) all permanent permits and licenses required for the occupancy of the
Leased Premises have been obtained.
"Partial Casualty" shall mean any Casualty which does
not constitute an Early Termination Event.
"Partial Condemnation" shall mean any Condemnation
which does not constitute an Early Termination Event.
"Partial Release Conditions" shall mean Partial
Release Conditions as defined in Paragraph 29(b).
"Permitted Encroachments" shall mean the
encroachments listed on that certain ALTA/ACSM Land Title Survey of the Land
dated December 2, 1992 and revised November 21, 1993 which was prepared by Bock
& Clark's National Surveyors Network.
"Permitted Encumbrances" shall mean the existing
state of title to the Leased Premises including those covenants, restrictions,
reservations, liens, conditions and easements and other encumbrances, other
than any Mortgage or Assignment by Landlord, listed on Exhibit "C" hereto. It
is agreed that such listing shall not be deemed to revive any such encumbrances
that have expired or terminated or are otherwise invalid or unenforceable.
"Person" shall mean an individual, partnership,
association, corporation or other entity.
"Plans" shall mean the plans and specifications
prepared and to be prepared by McGraw Baldwin Architects or another architect
selected by Tenant for the installation and construction of the Tenant
Improvements. A list of the existing Plans is attached to the Construction
Management Agreement. Any amendments, modifications or additions to the Plans
shall be approved as provided in the Construction Management Agreement.
"Prepayment Premium" shall mean any payment (other
than a payment of principal and/or interest which Landlord is required to make
under a Note or a Mortgage) by reason of any prepayment by Landlord of any
principal due under a Note or Mortgage as the result of the occurrence of an
Early Termination Event or an Event of Default or the purchase of the Leased
Premises by Tenant upon the occurrence of an Environmental Violation pursuant
to Paragraph 10(h), and which may be (in lieu of such prepayment premium or
prepayment penalty) a "make whole" clause requiring a prepayment premium in an
amount sufficient to compensate the Lender for the loss of the benefit of the
Loan due to a prepayment.
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<PAGE> 26
"Present Value" of any amount shall mean
[INTENTIONALLY OMITTED].
"Primary Term Expiration Date" shall mean Primary
Term Expiration Date as defined in Paragraph 5(a).
"Prime Rate" shall mean the annual interest rate as
published, from time to time, in the Wall Street Journal as the "Prime Rate" in
its column entitled "Money Rates". The Prime Rate may not be the lowest rate
of interest charged by any "large U.S. money center commercial banks" and
Landlord makes no representations or warranties to that effect. In the event
the Wall Street Journal ceases publication or ceases to publish the "Prime
Rate" as described above, the Prime Rate shall be the average per annum
discount rate (the "Discount Rate") on ninety-one (91) day bills ("Treasury
Bills") issued from time to time by the United States Treasury at is most
recent auction, plus three hundred (300) basis points. If no such 91-day
Treasury Bills are then being issued, the Discount Rate shall be the discount
rate on Treasury Bills then being issued for the period of time closest to
ninety-one (91) days.
"Project Costs" shall mean [INTENTIONALLY OMITTED].
"Reciprocal Easement Agreement" means that certain
Reciprocal Easement Agreement executed between Landlord, as owner of the Land,
and Tenant, as owner of a parcel of land contiguous to the Land. The
Reciprocal Easement Agreement is an Easement Agreement.
"Remaining Obligations" shall mean Remaining
Obligations as defined in Paragraph 18(c).
"Remaining Sum" shall mean Remaining Sum as defined
in Paragraph 19(c).
"Renewal Term" shall mean Renewal Term as defined in
Paragraph 5.
"Rent" shall mean, collectively, Basic Rent and
Additional Rent.
"Rent Determination Date" shall mean the date when
the Fair Market Rent is determined in accordance with Section 3 of Exhibit "D".
"Requisition" shall mean any temporary requisition or
confiscation of the use or occupancy of any of the Leased Premises by any
governmental authority, civil or military, whether pursuant to an agreement
with such governmental authority in settlement of or under threat of any such
requisition or confiscation, or otherwise.
"Retention Date" shall mean the later of the date on
which the amount of the Remaining Sum is finally determined or the date on
which Landlord's right to the Remaining Sum is finally determined.
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<PAGE> 27
"Site Assessment" shall mean a Site Assessment as
defined in Paragraph 10(c).
"State" shall mean the State of California.
"Structures" shall mean the Structures as defined in
Paragraph 1.
"Surviving Obligations" shall mean any obligations of
Tenant under this Lease, actual or contingent, which arise on or prior to the
expiration or prior termination of this Lease or which survive such expiration
or termination by their own terms.
"Taking" shall mean (a) any taking or damaging of all
or a portion of any of the Leased Premises (i) in or by condemnation or other
eminent domain proceedings pursuant to any Law, general or special, or (ii) by
reason of any agreement with any condemnor in settlement of or under threat of
any such condemnation or other eminent domain proceeding, or (b) any inverse or
other de facto condemnation. The Taking shall be considered to have taken
place as of the later of the date actual physical possession is taken by the
condemnor, or the date on which the right to compensation and damages accrues
under the Law applicable to the Leased Premises.
"Tenant Improvements" shall mean all interior
improvements and equipment to be purchased, paid for, constructed and/or
installed in the Structures, all in accordance with the Plans and the terms of
the Construction Management Agreement. The Tenant Improvements, including the
Building Systems Equipment, shall not include Tenant's Equipment.
"Tenant's Equipment" shall mean all furniture,
fixtures and equipment which are owned and paid for by Tenant at any time
before or during the Term and transferred to and installed in the Structures
and any replacements thereof, except that Alterations to Building Systems
Equipment shall be Building Systems Equipment even if paid for by Tenant.
Tenant's Equipment shall not include the Tenant Improvements.
"Term" shall mean the Primary Term and the Initial
Term, plus any exercised Renewal Terms.
"Third Party Purchaser" shall mean Third Party
Purchaser as defined in Paragraph 21(j).
"Total Capitalization" shall mean Total
Capitalization as defined in Exhibit "E".
3. Title and Condition.
(a) The Leased Premises are demised and let subject to
(i) the Mortgage and Assignment by Landlord presently in effect, (ii) the
rights of any Persons in possession of the Leased Premises, (iii) the existing
state of title of any of the Leased Premises, including any Permitted
Encumbrances, (iv) any state of facts which an accurate survey or physical
inspection of the Leased Premises might show, (v) all Legal Requirements,
including any existing violation
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<PAGE> 28
of any thereof, and (vi) the condition of the Leased Premises as of the
commencement of the Term, without representation or warranty by Landlord.
(b) Tenant acknowledges that the Leased Premises are in
good condition and repair at the inception of this Lease. LANDLORD LEASES AND
WILL LEASE AND TENANT TAKES AND WILL TAKE THE LEASED PREMISES AS IS. TENANT
ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY
OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO
HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO
ANY OF THE LEASED PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i)
ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY
DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi)
COMPLIANCE WITH SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x)
MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY, (xiv)
OPERATION, (xv) THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, HAZARDOUS CONDITION
OR HAZARDOUS ACTIVITY OR (xvi) COMPLIANCE OF THE LEASED PREMISES WITH ANY LAW
OR LEGAL REQUIREMENT. ALL RISKS INCIDENT TO THE FOREGOING ARE TO BE BORNE BY
TENANT. TENANT ACKNOWLEDGES THAT THE LEASED PREMISES ARE OF ITS SELECTION AND
TO ITS SPECIFICATIONS AND THAT AS OF THE OCCUPANCY DATE THE LEASED PREMISES
WILL HAVE BEEN INSPECTED BY TENANT AND SATISFACTORY TO IT. IN THE EVENT OF ANY
DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF ANY NATURE, WHETHER
LATENT OR PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH
RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING
STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS PARAGRAPH 3(b) HAVE BEEN
NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED
PREMISES, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW
OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
(c) Tenant represents to Landlord that Tenant has
examined the title to the Leased Premises prior to the execution and delivery
of this Lease and has found the same to be satisfactory for the purposes
contemplated hereby. Tenant acknowledges that (i) fee simple title (both legal
and equitable) is in Landlord and that Tenant has only the leasehold right of
possession and use of the Leased Premises as provided herein, (ii) the
Structures conform to all material Legal Requirements and all Insurance
Requirements, (iii) all easements necessary or appropriate for the use or
operation of the Leased Premises have been obtained, (iv) except as shown on
the schedule of even date delivered to Landlord, all contractors and
subcontractors who have performed work on or supplied materials to the Leased
Premises have been fully paid, and all materials and supplies have been fully
paid for, (v) the Structures (except for the Tenant Improvements) have been
fully completed in all material respects in a workmanlike manner of first class
quality, (vi) all Equipment (except for the Tenant Improvements) necessary or
appropriate for the use or operation of the Leased Premises has been installed
and is presently fully operative in all material respects, and (vii) upon
completion of the Tenant Improvements
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the Tenant Improvements will be fully completed, installed and operative in all
respects and of a first class quality.
(d) Landlord hereby assigns to Tenant, without recourse
or warranty whatsoever, all warranties, guaranties, indemnities and similar
rights which Landlord may have against any manufacturer, seller, engineer,
contractor or builder in respect of any of the Leased Premises. Such
assignment shall remain in effect until an Event of Default occurs or until the
expiration or earlier termination of this Lease, whereupon such assignment
shall cease and all of said warranties, guaranties, indemnities and other
rights shall automatically revert to Landlord.
(e) Pursuant to the Construction Management Agreement,
Tenant will cause the Tenant Improvements to be constructed and installed with
funds more particularly described in the Construction Management Agreement.
The Tenant Improvements will be owned by Landlord and are included within the
Leased Premises. Tenant acknowledges that the Tenant Improvements have not yet
been completed and that, pursuant to the Construction Management Agreement,
Tenant has the responsibility for causing the Tenant Improvements to be
completed in accordance with the terms of the Construction Management
Agreement. Landlord will not make any representations or warranties with
respect to the Tenant Improvements. Tenant further acknowledges that, upon
occurrence of an Event of Default, Landlord may terminate the Construction
Management Agreement, in addition to all other remedies of Landlord under this
Lease, Landlord shall have the right but not the obligation to complete
construction of the Tenant Improvements in accordance with the Plans. If
Landlord so completes construction of the Tenant Improvements, Tenant will not
be excused from paying all Rent due pursuant to the terms of this Lease, and,
whether or not Landlord completes the Tenant Improvements, Landlord shall have
the right to exercise any or all of its remedies hereunder following an Event
of Default. All acknowledgments of Tenant regarding the Leased Premises
contained in Paragraph 3(b) shall be deemed to have been made again as of the
Occupancy Date.
4. Use of Leased Premises; Quiet Enjoyment.
(a) Tenant may occupy and use the Leased Premises for
office use and for research, development, testing, manufacturing, sale and use
of pharmaceutical, medical, chemical and related products and devices and uses
ancillary thereto, including without limitation the performance of clinical
experiment programs and the operation of a delicatessen or restaurant, as long
as such uses are permitted under and conducted in accordance with applicable
Law, and for no other purpose without having first received the prior written
approval of Landlord, which approval shall not be unreasonably withheld or
delayed. Tenant shall not use or occupy or permit any of the Leased Premises
to be used or occupied, nor do or permit anything to be done in or on any of
the Leased Premises, in a manner which would or might (i) violate any Law or
Legal Requirement, (ii) make void or voidable or cause any insurer to cancel
any insurance required by this Lease, or make it difficult or impossible to
obtain any such insurance at commercially reasonable rates, (iii) cause
structural injury to any of the Structures or (iv) constitute a public or
private nuisance or waste.
(b) Subject to the provisions hereof, so long as no Event
of Default has occurred and is continuing, Tenant shall quietly hold, occupy
and enjoy the Leased Premises throughout the Term, without any hindrance,
ejection or molestation by Landlord with respect to matters that arise after
the date hereof, provided that Landlord and Lender may enter upon
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<PAGE> 30
and examine any of the Leased Premises at such reasonable times as Landlord or
Lender may select for the purpose of inspecting the Leased Premises, verifying
compliance or non-compliance by Tenant with its obligations hereunder and the
existence or non-existence of an Event of Default or event which with the
passage of time and/or notice would constitute an Event of Default, showing the
Leased Premises to prospective Lenders and purchasers and taking such other
action with respect to the Leased Premises as is permitted by any provision
hereof. Tenant may reasonably limit the extent of any such inspection so as to
minimize disclosure by Tenant of confidential or proprietary products being
developed or manufactured by Tenant.
5. Term.
(a) Subject to all of the provisions of this Lease,
Tenant shall have and hold the Leased Premises for a primary term ("Primary
Term") commencing on the date hereof and ending on the last day of the calendar
month in which the Funding Deadline occurs (the "Primary Term Expiration Date")
and for an initial term (the "Initial Term") commencing on the first day of the
first month following the Primary Term Expiration Date (the "Initial Term
Commencement Date") and ending on the last day (the "Initial Term Expiration
Date") of the one hundred eightieth (180th) calendar month next following the
date on which the Initial Term commences. If all Rent and all other sums due
hereunder shall not have been fully paid by the end of the Term, Landlord may,
at its option, extend the Term on a month-to-month basis until all said sums
shall have been fully paid.
(b) Provided that if, on or prior to the Initial Term
Expiration Date or any other Renewal Date (as hereinafter defined) this Lease
shall not have been terminated pursuant to any provision hereof, then on the
Initial Term Expiration Date and on the tenth (10th), twentieth (20th) and
thirtieth (30th) anniversaries of the Initial Term Expiration Date (the Initial
Term Expiration Date and each such anniversary being a "Renewal Date"), the
Term shall be deemed to have been automatically extended for an additional
period of ten (10) years (each such ten (10) year period, a "Renewal Term"),
unless Tenant shall notify Landlord in writing at least one (1) year prior to
the next Renewal Date that Tenant is terminating this Lease as of the next
Renewal Date. If Tenant so notifies Landlord of Tenant's election to terminate
this Lease, Tenant shall deliver to Landlord such additional documents in
recordable form as are necessary to delete from the public records any
reference to the leasehold estate and other rights of Tenant hereunder. Any
such extension of the Term shall be subject to all of the provisions of this
Lease, as the same may be amended, supplemented or modified.
(c) If Tenant exercises its option not to extend or
further extend the Term, or if an Event of Default occurs, then Landlord shall
have the right during the remainder of the Term then in effect and, in any
event, Landlord shall have the right during the last year of the Term, to (i)
advertise the availability of the Leased Premises for sale or reletting and to
erect upon the Leased Premises signs indicating such availability and (ii) show
the Leased Premises to prospective purchasers or tenants or their agents at
such reasonable times as Landlord may select. Tenant may reasonably limit the
extent of any such inspection so as to minimize disclosure by Tenant of
confidential or proprietary products being developed or manufactured by Tenant.
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<PAGE> 31
6. Basic Rent. Tenant shall pay to Landlord, as annual
rent for the Leased Premises during the Term, the amounts determined in
accordance with Exhibit "D" hereto ("Basic Rent"). [PORTION OF PARAGRAPH
INTENTIONALLY OMITTED] Basic Rent shall be payable monthly in advance (each
such monthly day being a "Basic Rent Payment Date"). Each such rental payment
shall be made, at Landlord's sole discretion, (a) to Landlord at its address
set forth above and/or to such one or more other Persons, at such addresses and
in such proportions as Landlord may direct by fifteen (15) days' prior written
notice to Tenant (in which event Tenant shall give Landlord notice of each such
payment concurrent with the making thereof), and (b) in Federal Funds.
7. Additional Rent.
(a) Subject to any specific provisions of this Lease to
the contrary, Tenant shall pay and discharge, as additional rent (collectively,
"Additional Rent"):
(i) [INTENTIONALLY OMITTED]
(J) any other items specifically required to
be paid by Tenant under this Lease, which costs and expenses shall include,
without limitation, all Costs, judgments, settlement amounts, Impositions,
insurance premiums, appraisal fees, the cost of performing and reporting Site
Assessments to the extent provided in Paragraph 10(c), the cost of curing any
Environmental Violation, and the cost of complying with all Legal Requirements,
fines, penalties and interest.
(ii) after the date all or any portion of any
installment of Basic Rent is due and not paid, an amount equal to three percent
(3%) of the amount of such unpaid installment or portion thereof ("Late
Charge"), provided, however, that with respect to the first two late payments
of all or any portion of any installment of Basic Rent in any consecutive
twelve (12) month period the Late Charge shall not be due and payable unless
the Basic Rent has not been paid within three (3) Business Days following the
due date thereof;
(iii) a sum equal to any additional sums (including
any late charge, default penalties, interest and fees of Lender's counsel)
which are actually paid by Landlord to any Lender under any Note by reason of
Tenant's late payment or non-payment of Basic Rent or by reason of an Event of
Default or as a result of Tenant's failure to comply with Paragraph 28 hereof;
and
(iv) interest at the rate (the "Default Rate")
equal to the lower of (A) the maximum rate permitted by Law, or (B) three
percent (3%) over the Prime Rate per annum on the following sums until paid in
full: (1) all overdue installments of Basic Rent from the respective due dates
thereof, provided that the Default Rate shall not be due on any installment not
paid as a result of Initial Lender's failure to draw on the Letter of Credit
pursuant to Paragraph 37(b) hereof, (2) all overdue amounts of Additional Rent
relating to obligations which Landlord or Lender shall have paid on behalf of
Tenant, beginning five (5) Business Days after notice of payment thereof by
Landlord or Lender, and (3) all other overdue amounts of Additional Rent, from
the date when any such amount becomes overdue.
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<PAGE> 32
(b) Subject to any specific provisions of this Lease to
the contrary, Tenant shall pay and discharge (i) any Additional Rent referred
to in Paragraph 7(a)(i) when the same shall become due, provided that amounts
which are billed to Landlord, Lender or any third party, but not to Tenant,
shall be paid within ten (10) days after Landlord's or Lender's written demand
for payment thereof, and (ii) any other Additional Rent, within fifteen (15)
days following Landlord's demand for payment thereof. At the time Landlord
makes demand for payment, Landlord shall furnish to Tenant reasonably detailed
invoices or statements for all items of Additional Rent paid by Landlord or
Lender.
(c) Notwithstanding anything in this Paragraph 7 to the
contrary, Tenant shall not be responsible for paying any costs of Landlord
and/or any Lender incurred with respect to any sale, transfer, or financing of
the Leased Premises by Landlord unless Tenant purchases the Leased Premises
from Landlord pursuant to any provision of this Lease which requires Tenant to
pay such costs.
8. Net Lease; Non-Terminability.
(a) This is a net lease and all Monetary Obligations
shall be paid without notice or demand and without set-off, counterclaim,
recoupment, abatement, suspension, deferment, diminution, deduction, reduction
or defense (collectively, a "Set-Off").
(b) Except as otherwise expressly provided herein, this
Lease and the rights of Landlord and the obligations of Tenant hereunder shall
not be affected by any event or for any reason, including the following: (i)
any damage to or theft, loss or destruction of any of the Leased Premises, (ii)
any Condemnation, (iii) the prohibition, limitation or restriction of Tenant's
use of any of the Leased Premises, (iv) any eviction by paramount title or
otherwise, (v) Tenant's acquisition of ownership of any of the Leased Premises
other than pursuant to an express provision of this Lease, (vi) any default on
the part of Landlord hereunder or under any Note, Mortgage, Assignment by
Landlord or any other agreement, (vii) any latent or other defect in any of the
Leased Premises, (viii) the breach of any warranty of any seller or
manufacturer of any of the Equipment, (ix) any violation of Paragraph 4(b) or
any other provision of this Lease by Landlord, (x) the bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution or
winding-up of, or other proceeding affecting Landlord, (xi) the exercise of any
remedy, including foreclosure, under any Mortgage or Assignment by Landlord,
(xii) any action with respect to this Lease (including the disaffirmance
hereof) which may be taken by Landlord, any trustee, receiver or liquidator of
Landlord or any court under the Federal Bankruptcy Code or otherwise, (xiii)
any interference with Tenant's use of the Leased Premises, (xiv) market or
economic changes, (xv) failure to complete the Tenant Improvements, (xvi)
failure of Landlord to pay Landlord's Share of Project Costs, or (xvi) any
other cause, whether similar or dissimilar to the foregoing, any present or
future Law to the contrary notwithstanding.
(c) Except as may be specifically provided herein to the
contrary, the obligations of Tenant hereunder shall be separate and independent
covenants and agreements, all Monetary Obligations shall continue to be payable
in all events, and the obligations of Tenant hereunder shall continue
unaffected by any breach of any provision hereof by Landlord unless the
requirement to pay or perform the same shall have been terminated pursuant to
an express provision of this Lease. All Rent payable by Tenant hereunder shall
constitute "rent" for all purposes (including Section 502(b)(6) of the
Bankruptcy Code).
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(d) Except as otherwise expressly provided in this Lease,
Tenant shall have no right and hereby waives all rights which it may have under
any Law (i) to quit, terminate or surrender this Lease or any of the Leased
Premises, or (ii) to any Set-Off of any Monetary Obligations.
9. Payment of Impositions.
(a) Tenant shall, before interest or penalties are due
thereon, pay and discharge all taxes (including real and personal property,
franchise, sales and rent taxes), all charges for any easement or agreement
maintained for the benefit of any of the Leased Premises, all assessments and
levies, all permit, inspection and license fees, all rents and charges for
water, sewer, utility and communication services relating to the any of Leased
Premises, all ground rents and all other public charges whether of a like or
different nature, even if unforeseen or extraordinary, imposed upon or assessed
against (i) Tenant, (ii) any of the Leased Premises, (iii) Landlord as a result
of or arising in respect of the acquisition, ownership, occupancy, leasing,
use, possession or sale of any of the Leased Premises, any activity conducted
on any of the Leased Premises, or the Rent, or (iv) any Lender by reason of any
Note, Mortgage, Assignment by Landlord or other document evidencing or securing
a Loan and which (as to this clause (iv)) Landlord has agreed to pay
(collectively, the "Impositions"); provided, however, that nothing herein shall
obligate Tenant to pay (A) income, excess profits or other taxes of Landlord
(or Lender) which are determined on the basis of Landlord's (or Lender's) net
income or net worth (unless and only to the extent that such taxes are in lieu
of or a substitute for any other tax, assessment or other charge upon or with
respect to the Leased Premises which, if it were in effect, would be payable by
Tenant under the provisions hereof or by the terms of such tax, assessment or
other charge), (B) any estate, inheritance, succession, gift or similar tax
imposed on Landlord, (C) any capital gains tax imposed on Landlord in
connection with the sale of the Leased Premises to any Person, (D) installments
of principal and/or interest payable by Landlord on any Loan, (E) property
management fees payable by Landlord or (F) increases in real estate taxes which
result from a transfer of the Leased Premises during the first three (3) years
of the Initial Term or from a transfer of the Leased Premises at any time to
any affiliate of Landlord or of Corporate Property Associates 11 Incorporated
or Corporate Property Associates 12 Incorporated. If any Imposition may be
paid in installments without interest or penalty, Tenant shall have the option
to pay such Imposition in installments; in such event, Tenant shall be liable
only for those installments which accrue or become due and payable during the
Term. Tenant shall prepare and file all tax reports required by governmental
authorities which relate to the Impositions. Tenant shall deliver to Landlord
(1) copies of all settlements and notices pertaining to the Impositions which
may be issued by any governmental authority within ten (10) days after Tenant's
receipt thereof, (2) receipts for payment of all taxes required to be paid by
Tenant hereunder within thirty (30) days after the due date thereof and (3)
receipts for payment of all other Impositions within ten (10) days after
Landlord's request therefor.
(b) At any time following the occurrence of a Monetary
Event of Default or at any time following a draw on the Letter of Credit,
Landlord shall have the right to require Tenant to pay to Landlord an
additional monthly sum (each an "Escrow Payment") sufficient to pay the Escrow
Charges (as hereinafter defined) as they become due on an annual basis and in
the amounts actually payable. As used herein, "Escrow Charges" shall mean real
estate taxes on the Leased Premises or payments in lieu thereof and premiums on
any property and general
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liability insurance required by this Lease. Landlord shall determine the
amount of the Escrow Charges and of each Escrow Payment. If the Escrow
Payments are held by Lender, the Escrow Payments may be commingled with other
funds of Lender. If the Escrow Payments are held by Landlord, the Escrow
Payments shall not be commingled with other funds of Landlord, shall be
invested and interest thereon shall accrue to the benefit of Tenant. Landlord
shall apply the Escrow Payments to the payment of the Escrow Charges in such
order or priority as Landlord shall determine or as required by law. If at any
time the Escrow Payments theretofore paid to Landlord shall be insufficient for
the payment of the Escrow Charges, Tenant, within ten (10) days after
Landlord's demand therefor, shall pay the amount of the deficiency to Landlord.
10. Compliance with Laws and Easement Agreements;
Environmental Matters.
(a) Tenant shall, at its expense, comply with and conform
to, and cause any other Person occupying any part of the Leased Premises to
comply with and conform to, all Insurance Requirements and Legal Requirements
(including all applicable Environmental Laws). Tenant shall not at any time
(i) cause, permit or suffer to occur any Environmental Violation or (ii) permit
any sublessee, assignee or other Person occupying the Leased Premises under or
through Tenant to cause, permit or suffer to occur any Environmental Violation.
(b) Tenant, at its sole cost and expense, will at all
times promptly and faithfully abide by, discharge and perform all of the
covenants, conditions and agreements contained in any Easement Agreement on the
part of Landlord or the occupier to be kept and performed thereunder. Tenant
will not alter, modify, amend or terminate any Easement Agreement, give any
consent or approval thereunder, or enter into any new Easement Agreement
without, in each case, the prior written consent of Landlord.
(c) Upon prior written notice from Landlord, Tenant shall
permit such persons as Landlord may designate ("Site Reviewers") to visit the
Leased Premises during normal business hours and perform, as agents of Tenant,
environmental site investigations and assessments ("Site Assessments") on the
Leased Premises for the purpose of determining whether there exists on the
Leased Premises any Environmental Violation or any condition which could result
in any Environmental Violation. Such Site Assessments may include both above
and below the ground testing for Environmental Violations and such other tests
as may be necessary, in the opinion of the Site Reviewers, to conduct the Site
Assessments. Tenant shall supply to the Site Reviewers such historical and
operational information regarding the Leased Premises as may be reasonably
requested by the Site Reviewers to facilitate the Site Assessments, and shall
make available for meetings with the Site Reviewers appropriate personnel
having knowledge of such matters. The Cost of any Site Assessment conducted at
the request of Landlord, including any out-of-pocket costs incurred by Tenant,
shall be paid by Landlord unless the Site Reviewers confirm the existence of a
previously undisclosed Environmental Violation, in which case the Cost shall be
paid by Tenant. Landlord shall not have the right to conduct a Site Assessment
more than one time every three years during the Term except that such
limitation shall not apply to any Site Assessment conducted in connection with
a financing, refinancing or sale of the Leased Premises or if Landlord has
reasonable cause to believe that an Environmental Violation exists in violation
of Law or if Landlord is required to conduct a Site Assessment by any
governmental agency or in order to monitor an existing Environmental Violation.
Provided that no Monetary Event of Default shall have occurred and
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<PAGE> 35
be continuing, Tenant shall have the right to consent to the selection of the
Site Reviewers, which consent shall not be unreasonably withheld or delayed.
If a Monetary Event of Default exists, Tenant shall not have any right to
consent to the selection of the Site Reviewers so long as the Site Reviewers
shall be a nationally recognized firm of licensed engineers with an office in
San Diego County, experienced in handling environmental matters in such county
and who specialize in (i) conducting environmental site assessments to
determine whether specific properties are in compliance with Environmental Laws
and (ii) formulating, implementing and managing the remediation of the
discharge or release of Hazardous Substances.
(d) If an Environmental Violation occurs or is found to
exist and, in Landlord's reasonable judgment, the cost of remediation of the
same is likely to exceed $500,000, Tenant shall provide to Landlord, within ten
(10) days after Landlord's request therefor, reasonable financial assurances
that Tenant will effect such remediation in accordance with applicable
Environmental Laws. Such financial assurances shall not exceed the financial
assurances that would be required by an applicable governmental agency.
(e) Notwithstanding any other provision of this Lease, if
an Environmental Violation occurs or is found to exist and the Term would
otherwise terminate or expire, then, at the option of Landlord, the Term shall
be automatically extended beyond the date of termination or expiration and this
Lease shall remain in full force and effect beyond such date until the earlier
to occur of (i) the completion of all remedial action in accordance with
applicable Environmental Laws or (ii) the date specified in a written notice
from Landlord to Tenant terminating this Lease.
(f) Tenant shall notify Landlord immediately after
becoming aware of any Environmental Violation (or receipt of formal notice of
any alleged Environmental Violation) or noncompliance with any of the covenants
contained in this Paragraph 10 and shall forward to Landlord immediately upon
receipt thereof copies of all orders, reports, notices, permits, applications
or other communications relating to any such violation or noncompliance.
(g) All future leases, subleases or concession agreements
relating to the Leased Premises entered into by Tenant shall require the other
Person thereto to comply with all Environmental Laws with respect to its use
and occupancy of the Leased Premises.
(h) [INTENTIONALLY OMITTED]
(i) Tenant agrees that, no later than January 31, 1994,
Tenant (1) shall seal all cracks on the floor of the storage room (Room #2) of
the underground parking garage of the Structure known as 9360 Towne Centre
Drive with silicon caulking or similar material to prevent further seepage of
radon gas and (2) shall provide to Landlord and Initial Lender satisfactory
documentation of such remediation.
11. Liens; Recording.
(a) Tenant shall not, directly or indirectly, create or
permit to be created or to remain and shall promptly discharge or remove any
lien, levy or encumbrance on any of the Leased Premises or on any Rent or any
other sums payable by Tenant under this Lease, other than any Mortgage or
Assignment by Landlord, the Permitted Encumbrances and any mortgage,
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<PAGE> 36
lien, encumbrance or other charge created by or resulting solely from any act
or omission of Landlord. NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT BE
LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO
TENANT OR TO ANYONE HOLDING OR OCCUPYING ANY OF THE LEASED PREMISES THROUGH OR
UNDER TENANT, AND THAT NO MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR,
SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND
TO ANY OF THE LEASED PREMISES. LANDLORD MAY AT ANY TIME, AND AT LANDLORD'S
REQUEST TENANT SHALL PROMPTLY, POST ANY NOTICES ON THE LEASED PREMISES
REGARDING SUCH NON-LIABILITY OF LANDLORD.
(b) Landlord and Tenant shall execute, deliver and
record, file or register (collectively, "record") all such instruments as may
be required or permitted by any present or future Law in order to evidence the
respective interests of Landlord and Tenant in the Leased Premises, and Tenant
shall cause a memorandum of this Lease (or, if such a memorandum cannot be
recorded, this Lease), and any supplement hereto or thereto, to be recorded in
such manner and in such places as may be required or permitted by any present
or future Law in order to protect the validity and priority of this Lease.
12. Maintenance and Repair.
(a) Except for ordinary wear and tear, Tenant shall at
all times maintain the Leased Premises and the Adjoining Property in as good
repair and appearance as they are in on the Occupancy Date and fit to be used
for their intended use in accordance with the practices generally recognized as
then acceptable by other companies engaged in similar industries in San Diego,
California, and, in the case of the Building Systems Equipment, in as good
mechanical condition as it was on the later of the Occupancy Date or the date
of its installation, except for ordinary wear and tear. Tenant shall take such
actions as may be reasonably necessary or appropriate for the preservation and
safety of the Leased Premises. Tenant shall promptly make all Alterations of
every kind and nature, whether foreseen or unforeseen, which may be required to
comply with the foregoing requirements of this Paragraph 12(a). Landlord shall
not be required to make any Alteration, whether foreseen or unforeseen, or to
maintain any of the Leased Premises or Adjoining Property in any way, and
Tenant hereby expressly waives any right which may be provided for in any Law
now or hereafter in effect to make Alterations at the expense of Landlord or to
require Landlord to make Alterations. Any Alteration made by Tenant pursuant
to this Paragraph 12 shall be made in conformity with the provisions of
Paragraph 13.
(b) Except for Permitted Encroachments, if any
Improvement, now or hereafter constructed, shall (i) encroach upon any setback
or any property, street or right-of-way adjoining the Leased Premises, (ii)
violate the provisions of any restrictive covenant affecting the Leased
Premises, (iii) hinder or obstruct any easement or right-of-way to which any of
the Leased Premises is subject or (iv) impair the rights of others in, to or
under any of the foregoing, Tenant shall, promptly after receiving notice or
otherwise acquiring knowledge thereof, either (A) obtain from all necessary
parties waivers or settlements of all claims, liabilities and damages resulting
from each such encroachment, violation, hindrance, obstruction or impairment,
whether the same shall affect Landlord, Tenant or both, or (B) take such action
as shall be
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necessary to remove all such encroachments, hindrances or obstructions and to
end all such violations or impairments, including, if necessary, making
Alterations.
13. Alterations and Improvements.
(a) In addition to Alterations required by Paragraphs 12
and 17 Tenant shall have the right, without having to obtain the prior written
consent of Landlord and Lender, to (i) make any Alterations to the Structures
for a cost of not more than [INTENTIONALLY OMITTED] in any one instance, or
(ii) install Building Systems Equipment in the Structures or accessions to the
Building Systems Equipment the cost of which as to such Building Systems
Equipment or series of related Building Systems Equipment, does not exceed
[INTENTIONALLY OMITTED] . The consent of Landlord and Lender shall be required
(A) if a Monetary Event of Default exists, or (B) if the Alterations (or a
series of related Alterations) exceeds [INTENTIONALLY OMITTED] , or (C) if
Tenant desires to remove and not upgrade or replace during the Term any Tenant
Improvements which had an initial cost in the aggregate in excess of
[INTENTIONALLY OMITTED] , or (D) if Tenant desires to construct upon the Land
any additional Improvements, provided that, with respect to (C) and (D) above,
such consent shall not be unreasonably withheld or delayed. In any event, the
consent of Landlord and Lender will not be withheld on the basis of the type of
Alterations (i.e., laboratory or office space) to be constructed.
(b) If Tenant makes any Alterations pursuant to this
Paragraph 13 or Paragraph 36 or as required by Paragraph 12 or 17 (such
Alterations and actions being hereinafter collectively referred to as "Work"),
whether or not Landlord's consent is required, then (i) all such Work shall be
performed by Tenant in a good and workmanlike manner; (ii) all such Work shall
be expeditiously completed in compliance with all Legal Requirements; (iii) all
such Work shall comply with the Insurance Requirements; (iv) if any such Work
involves the replacement of Building Systems Equipment because of additions or
changes to the Structures (as opposed to repairs or replacements of Building
Systems Equipment as part of an on-going maintenance program), all replacements
of Building Systems Equipment shall have a value and useful life equal to the
greater of (A) the value and useful life on the date hereof of the Building
Systems Equipment being replaced, or (B) the value and useful life on the
Occupancy Date of the Building Systems Equipment being replaced, or (C) the
value and useful life of the Building Systems Equipment being replaced
immediately prior to the occurrence of the event which required its
replacement; (v) if any such Work involves the replacement of Building Systems
Equipment or parts thereto in connection with an on-going maintenance program,
reconditioned equipment and parts may be used and upon completion the Building
Systems Equipment need not have a value and useful life greater than the value
and useful life of the Building Systems Equipment or parts being replaced
immediately prior to the occurrence of the event which requires its
replacement; (vi) Tenant shall promptly discharge or remove all liens filed
against any of the Leased Premises arising out of such Work; (vii) Tenant shall
procure and pay for all permits and licenses required in connection with any
such Work; (viii) all such Work shall be subject to this Lease; and (ix) Tenant
shall comply, to the extent requested by Landlord or required by this Lease,
with the provisions of Paragraph 19(a), whether or not such Work involves
restoration of the Leased Premises.
(c) If, after the Occupancy Date, Tenant makes any
Alterations to existing Tenant's Equipment or installs any additional Tenant's
Equipment in the Structures, Tenant shall
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<PAGE> 38
retain title to such Alterations and additional Tenant's Equipment ("Tenant
Alterations") (except for replacements of, or repairs to, or substitutions for,
the Structures and Building Systems Equipment) and shall have the right to
remove the same upon the expiration or earlier termination of this Lease,
provided that (1) such removal will not cause material damage to the Leased
Premises, and (2) Tenant promptly repairs any damage caused by such removal.
Title to any Alterations which are not Tenant Alterations shall vest in
Landlord, and Tenant shall not be entitled to remove the same upon the
expiration or earlier termination of this Lease.
14. Permitted Contests.
(a) Notwithstanding any other provision of this Lease,
Tenant shall not be required to (a) pay any Imposition, (b) comply with any
Legal Requirement, (c) discharge or remove any lien referred to any Paragraph
of this Lease except Paragraph 21 or (d) take any action with respect to any
encroachment, violation, hindrance, obstruction or impairment referred to in
Paragraph 12(b) (such non-compliance with the terms hereof being hereinafter
referred to collectively as "Permitted Violations"), so long as at the time of
such contest no Monetary Event of Default or Covenant Event of Default exists
and so long as Tenant shall contest, in good faith, the existence, amount or
validity thereof, the amount of the damages caused thereby, or the extent of
its or Landlord's liability therefor by appropriate proceedings which shall
operate during the pendency thereof to prevent or stay (i) the collection of,
or other realization upon, the Permitted Violation so contested, (ii) the sale,
forfeiture or loss of any of the Leased Premises or any Rent to satisfy or to
pay any damages caused by any Permitted Violation, (iii) any interference with
the use or occupancy of any of the Leased Premises, (iv) any interference with
the payment of any Rent, (v) the cancellation or increase in the rate of any
insurance policy or a statement by the carrier that coverage will be denied or
(vi) the enforcement or execution of any injunction, order or Legal Requirement
with respect to the Permitted Violation.
(b) Tenant shall provide Landlord security which is
satisfactory, in Landlord's reasonable judgment, to assure that such Permitted
Violation is corrected, including all Costs, interest and penalties that may be
incurred or become due in connection therewith. If such security is in the
form of a cash deposit, interest thereon shall accrue for the benefit of
Tenant, and Landlord shall not commingle any such cash security provided by
Tenant with other funds of Landlord. While any proceedings which comply with
the requirements of this Paragraph 14 are pending and the required security is
held by Landlord, Landlord shall not have the right to correct any Permitted
Violation thereby being contested unless Landlord is required by law to correct
such Permitted Violation and Tenant's contest does not prevent or stay such
requirement as to Landlord. Each such contest shall be promptly and diligently
prosecuted by Tenant to a final conclusion, except that Tenant, so long as the
conditions of this Paragraph 14 are at all times complied with, shall have the
right to attempt to settle or compromise such contest through negotiations.
Tenant shall pay any and all losses, judgments, decrees and Costs in connection
with any such contest and shall, promptly after the final determination of such
contest, fully pay and discharge the amounts which shall be levied, assessed,
charged or imposed or be determined to be payable therein or in connection
therewith, together with all penalties, fines, interest and Costs thereof or in
connection therewith, and perform all acts the performance of which shall be
ordered or decreed as a result thereof.
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<PAGE> 39
(c) Notwithstanding the foregoing, no provision of this
Lease shall allow the Tenant to continue any contest or other activity which
shall subject Landlord to any risk of criminal liability.
15. Indemnification.
(a) Tenant shall pay, protect, indemnify, save and hold
harmless Landlord, Lender and all other Persons described in Paragraph 30 (each
an "Indemnitee") from and against any and all liabilities, losses, damages
(including punitive damages), penalties, Costs, causes of action, suits,
claims, demands or judgments of any nature whatsoever, howsoever caused (unless
and to the extent caused by such Indemnitee's gross negligence or willful
misconduct), without regard to the form of action and whether based on strict
liability, gross negligence, negligence or any other theory of recovery at law
or in equity, arising from (i) any matter pertaining to the acquisition (or the
negotiations leading thereto), ownership, use, non-use, occupancy, operation,
condition, design, construction, maintenance, repair or restoration of the
Leased Premises or Adjoining Property, (ii) any casualty in any manner arising
from the Leased Premises or Adjoining Property, whether or not Landlord has or
should have knowledge or notice of any defect or condition causing or
contributing to said casualty, (iii) any violation by Tenant of any provision
of this Lease, any contract or agreement to which Tenant is a party, any Legal
Requirement or any Permitted Encumbrance, (iv) any alleged, threatened or
actual Environmental Violation, including (A) liability for response costs and
for costs of removal and remedial action incurred by the United States
Government, any state or local governmental unit or any other Person, or
damages from injury to or destruction or loss of natural resources, including
the reasonable costs of assessing such injury, destruction or loss, incurred
pursuant to Section 107 of CERCLA, or any successor section or act or provision
of any similar state or local Law, (B) liability for costs and expenses of
abatement, correction or clean-up, fines, damages, response costs or penalties
which arise from the provisions of any of the other Environmental Laws and (C)
liability for personal injury or property damage arising under any statutory or
common-law tort theory, including damages assessed for the maintenance of a
public or private nuisance or for carrying on of a dangerous activity or (v)
any claim against an Indemnitee under that certain Indemnity Agreement of even
date executed by Landlord and other Persons in favor of Initial Lender.
(b) In case any action or proceeding is brought against
any Indemnitee by reason of any such claim, such Indemnitee shall promptly
notify Tenant in writing of any such action or proceeding. If an Indemnitee
fails to give Tenant prompt notice of any such claim and Tenant is prejudiced
as a result of Indemnitee's delay, Tenant shall not be obligated to indemnify
Indemnitee to the extent Tenant is thereby prejudiced. Upon receipt of notice
from any Indemnitee, Tenant shall, subject to the preceding sentence, resist or
defend such action or proceeding by retaining counsel reasonably satisfactory
to such Indemnitee, and such Indemnitee will cooperate and assist in the
defense of such action or proceeding if reasonably requested so to do by
Tenant. Any Indemnitee may retain separate counsel to represent Indemnitee,
but only at such Indemnitee's sole cost and expense.
(c) The obligations of Tenant under this Paragraph 15
shall survive any termination or expiration of this Lease.
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<PAGE> 40
16. Insurance.
(a) Tenant shall maintain the following insurance on or
in connection with the Leased Premises:
(i) Insurance against physical loss or damage to
the Improvements as provided under a standard "All Risk" property policy
including but not limited to flood (if the Leased Premises are in a flood zone)
and earthquake coverage. The amount of coverage shall not be less than the
actual replacement cost of the Improvements, except for the Flood and
Earthquake insurance which shall be provided with limits of $5,000,000 and
$10,000,000 respectively. Such policies shall contain deductibles of not more
than $100,000, except for Flood and Earthquake Insurance which shall have the
customary deductibles reasonably available for such properties.
(ii) Commercial General Liability Insurance
against claims for personal and bodily injury, death or property damage
occurring on, in or as a result of the use of the Leased Premises, in an amount
not less than $10,000,000 per occurrence/annual aggregate, including but not
limited to Garagekeepers Liability, Host Liquor Liability, and all other
coverage extensions that are usual and customary for properties of this size
and type.
(iii) Worker's Compensation Insurance covering all
of the Tenant's employees for claims for death, disease or bodily injury that
may be asserted against Tenant. In lieu of such Worker's Compensation
Insurance, a program of self-insurance complying with the rules, regulations
and requirements of the appropriate agency of the State.
(iv) Comprehensive Boiler and Machinery Insurance
including but not limited to Service Interruption, Expediting Expenses, Ammonia
Contamination in an amount not less than $5,000,000 for damage to property
resulting from such covered perils as found in a standard Comprehensive Boiler
and Machinery Policy. Such policies may contain a deductible not in excess of
$100,000.
(v) Business Income/Interruption Insurance to
include Loss of Rents on an Actual Loss Sustained basis with a period of
indemnity not less than one year from the time of loss. Such insurance shall
name Landlord and Lender as "loss payee" solely with respect to Rent payable to
or for the benefit of Landlord under this Lease.
(vi) During construction of the Tenant
Improvements and during any period in which substantial Alterations at the
Leased Premises are being undertaken, (A) Builder's Risk Insurance covering the
total completed value including any "soft costs" with respect to the
Improvements being altered or repaired (on a completed value, non-reporting
basis), replacement cost of work performed and equipment, supplies and
materials furnished in connection with such construction or repair of
Improvements and (B) General Liability, Worker's Compensation and Automobile
Liability Insurance with respect to the Improvements being constructed, altered
or repaired.
(vii) Such other insurance (or other terms with
respect to any insurance required pursuant to this Paragraph 16, including
without limitation amounts of coverage, deductibles, form of mortgagee clause)
on or in connection with any of the Leased Premises as
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<PAGE> 41
Landlord or Lender may reasonably require, which at the time is usual and
commonly obtained in connection with properties located in the greater San
Diego area and similar in type of building size and use to the Leased Premises.
(b) The insurance required by Paragraph 16(a) shall be
written by companies which have a Best's rating of A:X or above and are
approved to write insurance policies by the State Insurance Department of
California. The insurance policies (i) shall be in amounts sufficient at all
times to satisfy any coinsurance requirements thereof and (ii) shall (except
for the worker's compensation insurance referred to in Paragraph 16(a)(iii)
hereof) name Landlord, Tenant and Lender as insured parties, as their
respective interests may appear. If said insurance or any part thereof shall
expire, be withdrawn, become void for any reason whatsoever, Tenant shall
immediately obtain new or additional insurance to comply with the requirements
of this Lease.
(c) All proceeds of any insurance required under clauses
(i), (ii) (except proceeds payable to a Person other than Tenant, Landlord or
Lender), (iv) and (v) of Paragraph 16(a) shall be payable to Landlord and
Tenant as their respective interests may appear or, if required by the
Mortgage, to Lender and with respect to proceeds of insurance described in
Paragraph (a)(v) paid to Landlord. Tenant shall receive a credit against
installments of Equity Rent to the extent such proceeds are received by
Landlord and Debt Rent received by Lender on behalf of Landlord. Each
insurance policy referred to in clauses (i), (iv), (v) and (vi) of Paragraph
16(a) shall contain standard non- contributory mortgagee clauses in favor of
and acceptable to Lender. Each policy required by any provision of Paragraph
16(a), except clause (iii) thereof, shall provide that it may not be canceled
except after thirty (30) days' prior notice to Landlord and Lender. Each such
policy shall also provide that any loss otherwise payable thereunder shall be
payable notwithstanding (i) any act or omission of the Landlord or Tenant which
might, absent such provision, result in a forfeiture of all or a part of such
insurance payment, (ii) the occupation or use of any of the Leased Premises for
purposes more hazardous than those permitted by the provisions of such policy,
(iii) any foreclosure or other action or proceeding taken by Lender pursuant to
any provision of the Mortgage, Note, Assignment by Landlord or other document
evidencing or securing the Loan upon the happening of an event of default
therein or (iv) any change in title to or ownership of any of the Leased
Premises.
(d) Tenant shall pay as they become due all premiums for
the insurance required by Paragraph 16(a), shall renew or replace each policy
and deliver to Landlord and Lender evidence of the payment of the full premium
therefor or installment then due at least thirty (30) days prior to the
expiration date of such policy, and Tenant shall deliver evidence of insurance
acceptable to Landlord and Lender or, if requested by Landlord or Lender,
certified copies of all policies required within thirty (30) days prior to the
expiration date of such policy.
(e) Anything in this Paragraph 16 to the contrary
notwithstanding, any insurance which Tenant is required to obtain pursuant to
Paragraph 16(a) may be carried under a "blanket" or umbrella policy or policies
covering other properties or liabilities of Tenant. The amount of the total
insurance allocated to the Leased Premises, which amount shall be not less than
the amounts required pursuant to this Paragraph 16, shall be specified either
(i) in each such "blanket" or umbrella policy or (ii) in a written statement,
which Tenant shall deliver to Landlord, from the insurer thereunder.
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<PAGE> 42
(f) Tenant shall promptly comply with and conform to (i)
all provisions of each insurance policy required by this Paragraph 16 and (ii)
all requirements of the insurers thereunder applicable to any of the Leased
Premises or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration or repair of any of the Leased Premises, even if such
compliance necessitates Alterations or results in interference with the use or
enjoyment of any of the Leased Premises.
(g) Tenant shall not carry separate insurance concurrent
in form or contributing in the event of a Casualty with that required in this
Paragraph 16 unless (i) Landlord and Lender are included therein as named
insureds, with loss payable as provided herein, and (ii) such separate
insurance complies with the other provisions of this Paragraph 16. Tenant
shall immediately notify Landlord of such separate insurance. However, Tenant
is permitted to carry insurance limits in excess of the amounts required by
Paragraph 16 for Tenant's own protection and Tenant is not required to include
Landlord and Lender as named insureds as respects these excess insurances.
(h) All policies except for Worker's Compensation
Insurance shall contain effective waivers by the carrier against all claims for
insurance premiums against Landlord and shall contain full waivers of
subrogation against the Landlord. With regard to Worker's Compensation
Insurance, a waiver of subrogation will be provided to the extent reasonably
commercially available.
17. Casualty and Condemnation.
(a) Subject to Paragraph 17(b) and the immediately
following sentence, Landlord and/or Lender shall be entitled to adjust, collect
and compromise insurance claims which relate to any Casualty involving property
damage to the Leased Premises. Notwithstanding anything in this Lease to the
contrary, Tenant shall be entitled to adjust, collect and compromise all
insurance claims which relate to: (i) the Business Income/Interruption
Insurance provided for in Paragraph 16(a)(v), subject, however, to Landlord's
rights to Rent; (ii) Tenant's Equipment; and (iii) any other insurance claim
not involving property damage to the Leased Premises.
(b) If any Casualty in excess of Fifty Thousand Dollars
($50,000) occurs, Tenant shall give Landlord and Lender immediate notice
thereof. Except as specifically provided for in the following sentence,
Landlord and Lender are hereby authorized to adjust, collect and compromise, in
their discretion and upon notice to Tenant (except that no notice to Tenant
shall be required if a Monetary Event of Default has occurred and is
continuing), all claims relating to any Casualty and to execute and deliver on
behalf of Tenant all necessary proofs of loss, receipts, vouchers and releases
required by the insurers. Provided that no Monetary Event of Default has
occurred and is continuing, Tenant shall be entitled to adjust, collect and
compromise any Net Award that is less than Fifty Thousand Dollars ($50,000)
without any notice to or consent of Landlord or Lender and shall be entitled to
participate with Landlord and Lender in any adjustment, collection and
compromise of the Net Award payable in connection with a Casualty that is
reasonably estimated by Landlord and Lender to be more than Fifty Thousand
Dollars ($50,000). Tenant agrees to sign, upon the request of Landlord or
Lender, all such proofs of loss, receipts, vouchers and releases. If Landlord
or Lender so requests, Tenant shall adjust, collect and compromise any and all
such claims equal to or in
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<PAGE> 43
excess of Fifty Thousand Dollars ($50,000), and Landlord and Lender shall have
the right to join with Tenant therein. Any adjustment, settlement or
compromise of any such claim equal to or in excess of Fifty Thousand Dollars
($50,000) shall be subject to the prior written approval of Landlord and
Lender, and Landlord and Lender shall have the right to prosecute or contest,
or to require Tenant to prosecute or contest, any such claim, adjustment,
settlement or compromise. Each insurer is hereby authorized and directed to
make payment under said policies in excess of Fifty Thousand Dollars ($50,000),
directly to Landlord or, if required by the Mortgage, to Lender instead of to
Landlord and Tenant jointly. Tenant hereby appoints each of Landlord and Lender
as Tenant's attorneys-in-fact to endorse any draft for payments to be made to
Landlord and/or Lender. Any payment of a Net Award of Fifty Thousand Dollars
($50,000) or less shall be paid directly to Tenant by the insurance company.
(c) Tenant, immediately upon receiving a Condemnation
Notice, shall notify Landlord and Lender thereof. If Landlord receives a
Condemnation Notice, Landlord shall give Tenant and Lender prompt notice
thereof. Except as specifically provided in the following sentence, Landlord
and Lender are authorized to collect, settle and compromise, in their
discretion (and, if no Monetary Event of Default exists, upon notice to
Tenant), the amount of any Net Award. Provided that no Monetary Event of
Default has occurred and is continuing, Tenant shall be entitled to participate
with Landlord and Lender in any Condemnation proceeding or negotiations under
threat thereof and to contest the Condemnation or the amount of the Net Award
therefor. No agreement with any condemnor in settlement or under threat of any
Condemnation shall be made by Tenant without the written consent of Landlord
and Lender. Subject to the provisions of this Paragraph 17(c), Tenant hereby
irrevocably assigns to Landlord any award or payment to which Tenant is or may
be entitled by reason of any Condemnation, whether the same shall be paid or
payable for Tenant's leasehold interest hereunder or otherwise. Nothing in
this Lease shall, however, impair Tenant's right to any award or payment on
account of Tenant's Equipment, moving expenses or loss of business, if
available, to the extent that and so long as (i) Tenant shall have the right to
make, and does make, a separate claim therefor against the condemnor and (ii)
such claim does not in any way reduce either the amount of the award otherwise
payable to Landlord for the Condemnation of Landlord's fee interest in the
Leased Premises or the amount of the award (if any) otherwise payable for the
Condemnation of Tenant's leasehold interest hereunder.
(d) If any Partial Casualty (whether or not insured
against) or Partial Condemnation shall occur, this Lease shall continue,
notwithstanding such event, and there shall be no abatement or reduction of any
Monetary Obligations, except as provided in Paragraph 17(e) and 19(c).
Promptly after such Partial Casualty or Partial Condemnation, Tenant, as
required in Paragraph 12(a), shall commence and diligently continue to restore
the Leased Premises as nearly as possible to their value, condition and
character immediately prior to such event. Any Net Award of such Partial
Casualty or Partial Condemnation payable to Landlord or Lender shall be made
available to Tenant for restoration as promptly as practicable in accordance
with and subject to the provisions of Paragraph 19(a). If any Casualty or
Condemnation which constitutes an Early Termination Event shall occur, Tenant
shall comply with the terms and conditions of Paragraph 18.
(e) In the event of a Requisition of any of the Leased
Premises the Net Award payable by reason of such Requisition shall, at the
election of Landlord, either be (i) retained by Landlord and credited against
installments of Basic Rent for the period of such
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Requisition as the same shall become due and payable or (ii) paid to Tenant on
a monthly basis in an amount equal to the installment of Basic Rent then due
and payable until such Net Award has been applied in full or until the Term has
expired, whichever first occurs. Any portion of such Net Award which is
allocable to any period after the expiration of the Term shall be retained by
Landlord.
18. Early Termination Events.
(a) If (i) the Leased Premises shall be taken in its
entirety by a Taking or (ii) all or a substantial portion of the Leased
Premises shall be damaged or destroyed by a Casualty or any substantial portion
of the Leased Premises shall be taken by a Taking and, in the case of (i)
above, Tenant certifies and covenants to Landlord that it will abandon its
operations at the Leased Premises for three (3) years following the date of the
Taking or Casualty (except that no such certification and covenant shall be
required if Tenant notifies Landlord that it is electing to make an offer to
terminate this Lease for an Early Termination Amount equal to [INTENTIONALLY
OMITTED]), as the case may be (each of the events described in the above
clauses (i) and (ii) shall hereinafter be referred to as an "Early Termination
Event"), then (x) in the case of (i) above, Tenant shall be obligated, within
thirty (30) days after Tenant receives a Condemnation Notice and (y) in the
case of (ii) above, Tenant shall have the option, within thirty (30) days after
Tenant receives a Condemnation Notice or thirty (30) days after the Casualty,
as the case may be, to give to Landlord written notice of the Tenant's offer to
terminate this Lease (an "Early Termination Notice") in the form described in
Paragraph 18(b). Notwithstanding anything in this Lease to the contrary, the
provisions of this Paragraph 18(a) shall not be applicable if the Net Award
received by Landlord is equal to or greater than [INTENTIONALLY OMITTED], it
being agreed that Tenant shall have the right to provide funds in such amount
as may be necessary to make the actual amount of the Net Award received by
Landlord as a result of the Casualty or Taking equal to [INTENTIONALLY
OMITTED].
(b) An Early Termination Notice shall contain (i) notice
of Tenant's intention to terminate this Lease on the first Basic Rent Payment
Date (the "Early Termination Date") which occurs at least sixty (60) days after
the date of receipt ("Notice Receipt Date") by Landlord of the Early
Termination Notice, (ii) a binding and irrevocable offer of Tenant to pay the
Early Termination Amount and (iii) if the Early Termination Event is an event
described in Paragraph 18(a)(ii), the certification and covenants described in
the foregoing Paragraph 18(a) and a certified resolution of the Board of
Directors of Tenant authorizing the same (unless Tenant elects to pay an Early
Termination Amount equal to [INTENTIONALLY OMITTED].
(c) If Landlord shall reject such offer to terminate this
Lease by written notice to Tenant (a "Rejection"), which Rejection shall
contain the written consent of Lender, not later than forty-five (45) days
following the Notice Receipt Date, then this Lease shall terminate as of the
Early Termination Date; provided, however, that, if Tenant has not satisfied
all Monetary Obligations and all other obligations and liabilities under this
Lease which have arisen on or prior to the Early Termination Date
(collectively, "Remaining Obligations") on the Early Termination Date, then
Landlord may, at its option, extend the date on which this Lease may terminate
to a date which is no later than the first Basic Rent Payment Date after the
Early Termination Date on which Tenant has satisfied all Remaining Obligations.
Upon such termination (i) all obligations of Tenant hereunder shall terminate
except for any Surviving Obligations, (ii) Tenant shall immediately vacate and
shall have no further right, title or interest
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<PAGE> 45
in or to any of the Leased Premises and (iii) the Net Award shall be retained
by Landlord. Notwithstanding anything to the contrary hereinabove contained,
if Tenant shall have received a Rejection and, on the date when this Lease
would otherwise terminate as provided above, Landlord shall not have received
the full amount of the Net Award payable by reason of the applicable Early
Termination Event due to any action by Tenant, then the date on which this
Lease is to terminate automatically shall be extended to the first Basic Rent
Payment Date after the receipt by Landlord of the full amount of the Net Award;
provided, however, that, if Tenant has not satisfied all Remaining Obligations
on such date, then Landlord may, at its option, extend the date on which this
Lease may terminate to a date which is no later than the first Basic Rent
Payment Date after such date on which Tenant has satisfied all such Remaining
Obligations.
(d) Unless Tenant shall have received a Rejection not
later than the forty-fifth (45th) day following the Notice Receipt Date,
Landlord shall be conclusively presumed to have accepted such offer. If such
offer is accepted by Landlord then, on the Early Termination Date, Tenant shall
pay to Landlord the Early Termination Amount and all Remaining Obligations and,
if requested by Tenant, Landlord and Lender shall (i) convey to Tenant the
Leased Premises or the remaining portion thereof, if any, and (ii) pay to or
assign to Tenant their entire interest in and to the Net Award, all in
accordance with Paragraph 20.
19. Restoration; Reduction of Rent.
(a) The Net Award shall be made available by Landlord for
the restoration of the Leased Premises, and, if the Net Award is less than
[INTENTIONALLY OMITTED] and at the date of payment no Monetary Event of Default
exists, the Net Award shall be paid directly to Tenant in which event Tenant
shall comply with the provisions of Paragraph 13(b) and Paragraph 19(a)(iii) in
connection with such restoration. If the Net Award is [INTENTIONALLY OMITTED]
or more, Landlord (or Lender if required by any Mortgage) shall hold such Net
Award in a fund (the "Restoration Fund") and disburse amounts from the
Restoration Fund only in accordance with the following conditions:
(i) prior to commencement of restoration, the
architects, contracts, contractors, plans and specifications for the
restoration shall have been reasonably approved by Landlord and Lender if the
cost of restoration exceeds [INTENTIONALLY OMITTED] as soon as reasonably
practical;
(ii) at the time of any disbursement, no Event of
Default shall exist and no mechanics' or materialmen's liens shall have been
filed against any of the Leased Premises and remain undischarged;
(iii) disbursements shall be made from time to time
in an amount not exceeding the cost of the work completed since the last
disbursement, upon receipt of (A) satisfactory evidence, including architects'
certificates, of the stage of completion, the estimated total cost of
completion and performance of the work to date in a good and workmanlike manner
in accordance with the contracts, plans and specifications, (B) waivers of
mechanics liens, (C) contractors' and subcontractors' sworn statements as to
completed work and the cost thereof for which payment is requested, (D) other
evidence of cost and payment so that Landlord can verify that the amounts
disbursed from time to time are represented by work that is
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<PAGE> 46
completed, in place and free and clear of mechanics' and materialmen's lien
claims and (E) an endorsement to Landlord's and Lender's title insurance
policies insuring against any liens arising from the restoration;
(iv) each request for disbursement shall be
accompanied by a certificate of Tenant, signed by the president or a vice
president of Tenant, describing the work for which payment is requested,
stating the cost incurred in connection therewith, stating that Tenant has not
previously received payment for such work and, upon completion of the work,
also stating that the work has been fully completed and complies with the
applicable requirements of this Lease;
(v) the Restoration Fund shall be held in a
separate account and invested in any of the following investments and for such
maturities as Landlord and Tenant shall agree: obligations of the United
States, its agencies, or United States Government sponsored enterprises or
obligations, the principal of and interest on which are guaranteed by the
United States or its agencies or obligations of a state, a territory, or a
possession of the United States, or any political subdivision of any of the
foregoing or of the District of Columbia, which investment shall be graded in
the highest three (3) major grades as determined by at least one (1) national
rating service, or banker's acceptances, commercial accounts, certificates of
deposit, or depository receipts issued by a bank, trust company, savings and
loan association, savings bank, credit union or other financial institution
whose deposits are, as appropriate, insured by the Federal Deposit Insurance
Corporation or the National Credit Union Administration or any successor
entity, which investment shall be rated at the time of purchase within the two
(2) highest classifications established by at least one (1) national rating
service, and which matures within one hundred eighty (180) days; and
(vi) such other reasonable conditions as Landlord
or Lender may impose.
(b) Prior to commencement of restoration and at any time
during restoration, if the estimated cost of completing the restoration work
free and clear of all liens, as determined by Landlord, exceeds the amount of
the Net Award available for such restoration, the Tenant shall provide to
Landlord and Lender assurances reasonably satisfactory to Landlord and Lender
of the availability of funds necessary to complete such restoration work. Any
sums deposited by Tenant in the Restoration Fund which remain in the
Restoration Fund upon completion of restoration shall be refunded to Tenant.
For purposes of determining the source of funds with respect to the disposition
of funds remaining after the completion of restoration, the Net Award shall be
deemed to be disbursed prior to any amount added by Tenant.
(c) If any sum remains in the Restoration Fund after
completion of the restoration and any refund to Tenant pursuant to Paragraph
19(b), such sum (the "Remaining Sum") shall be retained by Landlord or, if
required by a Note or Mortgage, paid by Landlord to a Lender. If the Remaining
Sum is (i) retained by Landlord, that portion of each installment of Basic Rent
payable on or after the Retention Date shall be reduced by the amount, if any,
of the Remaining Sum not required to be paid to Lender, or (ii) paid to Lender,
then each installment of Basic Rent thereafter payable shall be reduced in the
same amount as payments are reduced under any Note if the Loan corresponding to
such Note is reamortized to reflect such payment, in each case until such
Remaining Sum has been applied in full or until the Term has expired,
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whichever occurs first. Upon the expiration of the Term, any portion of the
Remaining Sum which has not been so applied shall be retained by Landlord.
20. Procedures Upon Purchase by Tenant. [INTENTIONALLY
OMITTED].
21. Assignment and Subletting; Prohibition against
Leasehold Financing.
(a) Tenant shall have the right, upon thirty (30) days
prior written notice to Landlord, with no consent of Landlord whatsoever being
required or necessary ("Preapproved Assignment") to assign this Lease in any of
the circumstances set forth in subparagraphs (i) and (ii) below;
(i) to any Person ("Preapproved Assignee")
(whether by operation of law or in connection with the transfer or sale of all
or substantially all of Tenant's business or the merger or consolidation of
Tenant or similar transaction) which, immediately following such assignment has
a publicly traded unsecured senior debt rating of "Baa2" or better from Moody's
Investors Services, Inc. or a rating of "BBB" or better from Standard & Poor's
Corporation, and in the event all of such rating agencies cease to furnish such
ratings, then a comparable rating by any rating agency reasonably acceptable to
Landlord and Lender; or
(ii) to an Affiliate of Tenant.
(b) Tenant shall have the right, upon thirty (30) days
prior written notice to Landlord and Lender, to sublet (i) up to but not in
excess of twenty-five percent (25%) of the leasable space in the Structures to
any Person, or (ii) in excess of twenty-five percent (25%) of the leasable
space within the Structures to any Person who has, immediately following such
sublease, the debt rating described in Paragraph (a)(i) above, or (iii) to an
Affiliate of Tenant, in any such case with no consent of Landlord whatsoever
being required or necessary with respect thereto ("Preapproved Sublet").
(c) Except as provided in Paragraphs 21(a) and (b) above,
Tenant shall not have the right to assign this Lease or its interest herein or
to sublease more than twenty-five percent (25%) of the leasable space in the
Structures to any Person, without having first obtained the prior written
consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed, subject, however, to subparagraphs (i) and (ii) below.
(i) If the proposed assignment will be to a
Person which is not an Affiliate of Tenant's or to a Preapproved Assignee,
Landlord shall have the right to consider the following criteria as they relate
to the proposed assignee:
(A) its credit history;
(B) its capital structure, net worth and
unsecured senior debt rating;
(C) its management and real estate management
record;
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(D) its operating history;
(E) its intended use of the Leased Premises;
and
(F) other factors associated with the
proposed assignee's business as it relates to the use of the Leased Premises,
including potential environmental concerns and liabilities.
(ii) In exercising its right of approval under
this Paragraph 21(c) with respect to a sublease which is not a Preapproved
Sublet, Landlord shall limit its consideration to whether or not the proposed
sublessee, by virtue of its business, is significantly more likely to expose
the Leased Premises to a higher risk of Environmental Violation than Tenant in
Tenant's use of the Leased Premises prior to the date of such subletting.
(d) Any Preapproved Assignee or other assignee under any
assignment to which Landlord has consented shall expressly assume all the
obligations of Tenant hereunder pursuant to a written instrument delivered to
Tenant at the time of such assignment. In addition, within ten (10) days after
execution of any assignment, Tenant shall deliver to Landlord and Lender a
conformed copy thereof.
(e) No sublease or assignment entered into in accordance
with the provisions of this Paragraph 21 shall affect or reduce any obligations
of Tenant or rights of Landlord hereunder, and all obligations of Tenant
hereunder shall continue in full effect as the obligations of a principal and
not a guarantor or surety, as though no subletting or assignment had been made.
(f) With respect to any Preapproved Assignment or
Preapproved Sublet, Tenant shall provide to Landlord information reasonably
required by Landlord to establish that any proposed Preapproved Assignment or
Preapproved Sublet satisfies the criteria set forth above, it being agreed that
Tenant shall not be obligated to disclose to Landlord any confidential or
proprietary information.
(g) As of the date hereof, portions of the Structures are
subject to certain leases ("Existing Leases") described in Exhibit "F". Tenant
covenants and agrees that it has provided to Landlord true and correct copies
of the Existing Leases, that it will not extend the term of any Existing Lease
(except pursuant to any option contained therein that is exercised by the
tenant thereunder) but will enter into a new lease with any Tenant that desires
to extend its Existing Lease, and that any such new lease will expressly
provide that it is subject and subordinate to the terms of this Lease and the
Mortgage. It is understood that the Leased Premises include the space leased
under the Existing Leases.
(h) As security for performance of its obligations under
this Lease, Tenant hereby grants, conveys and assigns to Landlord all right,
title and interest of Tenant in and to all Existing Leases and any subleases
hereinafter entered into for any or all of the Leased Premises (the Existing
Leases and future subleases, collectively, the "Subleases"), any and all
extensions, modifications and renewals thereof and all rents, issues and
profits therefrom. Landlord hereby grants to Tenant a license to collect and
enjoy all rents and other sums of money payable under any Sublease of any of
the Leased Premises; provided, however, that following the occurrence
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of any Event of Default Landlord shall have the absolute right at any time upon
notice to Tenant and any subtenants to revoke said license and to collect such
rents and sums of money and to retain the same. If Landlord collects such
rents and sums of money, Tenant shall receive a credit against installments of
Basic Rent or against damages (as the case may be) equal to any basic rent
collected by Landlord under the Subleases, less reasonable Costs incurred by
Landlord in connection with collecting from defaulting tenants or subtenants
which are not paid or reimbursed by such tenants. Tenant shall not consent to,
cause or allow any extension of the terms of any of the Subleases (except to
the extent that such Subleases already contain options to extend) or any
reduction in the rentals payable thereunder, without the prior written approval
of Landlord, which consent shall not be unreasonably withheld. In addition,
Tenant shall not accept any rents more than thirty (30) days in advance of the
accrual thereof (other than security deposits and first month's rent), permit
anything to be done, the doing of which, or omit or refrain from doing
anything, the omission of which, will or could be a breach of or default in the
terms of any of the Subleases.
(i) Tenant shall not have the power to mortgage, pledge
or otherwise encumber its interest under this Lease or any Sublease, and any
such mortgage, pledge or encumbrance made in violation of this Paragraph 21
shall be void.
(j) Subject to Tenant's rights under Paragraph 9(a) and
Paragraph 35, Landlord may sell or transfer the Leased Premises at any time
without Tenant's consent to any third party (each a "Third Party Purchaser").
In the event of any such transfer, Tenant shall attorn to any Third Party
Purchaser as Landlord so long as such Third Party Purchaser assumes in writing
the obligations of Landlord hereunder and Third Party Purchaser and Landlord
notify Tenant in writing of such transfer. At the request of Landlord, Tenant
will execute such documents confirming the agreement referred to above and such
other agreements as Landlord may reasonably request, provided that such
agreements do not increase the liabilities and obligations of Tenant hereunder.
22. Events of Default.
(a) The occurrence of any one or more of the following
(after expiration of any applicable cure period as provided in Paragraph 22(c))
shall, at the sole option of Landlord, constitute an "Event of Default" under
this Lease:
(i) Subject to the provisions of Paragraph 29(a),
a failure by Tenant to make any payment of any Monetary Obligation, regardless
of the reason for such failure;
(ii) Subject to the provisions of Paragraph 14, a
failure by Tenant duly to perform and observe, or a violation or breach of, any
other provision hereof in any material respect not otherwise specifically
mentioned in this Paragraph 22(a); provided, however, that any failure to
provide the insurance required by Paragraph 16 (except earthquake and flood
insurance if such coverages are not available in the Southern California area)
or any uncured Environmental Violation with respect to the Leased Premises
shall be deemed to be material;
(iii) any representation or warranty made by Tenant
herein or in any certificate, demand or request made pursuant hereto proves to
be incorrect, now or hereafter, in any material respect;
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(iv) a default beyond any applicable cure period
by Tenant in any payment of principal or interest on any obligations for
borrowed money having an original principal balance of $10,000,000 or more in
the aggregate, or in the performance of any other provision contained in any
instrument under which any such obligation is created or secured (including the
breach of any covenant thereunder), if an effect of such default is to cause,
or permit any Person to cause, such obligation to become due prior to its
stated maturity;
(v) a default by Tenant beyond any applicable
cure period in the payment of rent or any other monetary obligation under any
other leases in the United States with rental obligations over the terms
thereof of $5,000,000 or more in the aggregate;
(vi) a final, non-appealable judgment or judgments
for the payment of money in excess of $15,000,000 in the aggregate shall be
rendered against Tenant and the same shall remain undischarged for a period of
sixty (60) consecutive days;
(vii) a Covenant Event of Default shall exist;
(viii) Tenant shall (A) voluntarily be adjudicated a
bankrupt or insolvent, (B) seek or consent to the appointment of a receiver or
trustee for itself or for the Leased Premises, (C) file a petition seeking
relief under the bankruptcy or other similar laws of the United States, any
state or any jurisdiction, (D) make a general assignment for the benefit of
creditors, or (E) be unable to pay its debts as they mature;
(ix) a court shall enter an order, judgment or
decree appointing, without the consent of Tenant, a receiver or trustee for it
or for any of the Leased Premises or approving a petition filed against Tenant
which seeks relief under the bankruptcy or other similar laws of the United
States, any state or any jurisdiction, and such order, judgment or decree shall
remain undischarged or unstayed ninety (90) days after it is entered;
(x) either of the primary Structures shall have
been vacated for one hundred twenty (120) days or abandoned or Tenant shall
fail to occupy the Leased Premises for normal business operations within sixty
(60) days after the Occupancy Date;
(xi) Tenant shall be liquidated or dissolved or
shall begin proceedings towards its liquidation or dissolution except in
connection with a Preapproved Assignment pursuant to the terms of Paragraph
21(a) of this Lease;
(xii) the estate or interest of Tenant in any of
the Leased Premises shall be levied upon or attached in any proceeding and such
estate or interest is about to be sold or transferred or such process shall not
be vacated or discharged within ninety (90) days after it is made;
(xiii) a failure by Tenant to perform or observe, or
a violation or breach of, the Acknowledgment, Subordination, Non-Disturbance
and Attornment Agreement of even date (the "Subordination Agreement") among
Landlord, Initial Lender and Tenant or any other document between Tenant and
Lender, if such failure, violation or breach gives rise to a default beyond any
applicable cure period with respect to any Loan;
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(xiv) Tenant shall sell or transfer all or substantially all
of its assets, except to a Preapproved Assignee to whom this Lease has been
assigned pursuant to the terms of Paragraph 21(a)(i) or except in a cash
transaction which results in the retention by Tenant of all of the proceeds of
such sale (net of normal and customary closing costs);
(xv) an Event of Default (as defined in the Construction
Management Agreement) shall exist under the Construction Management Agreement
beyond any applicable cure period;
(xvi) Tenant shall fail to restore any amounts drawn under
the Letter of Credit within one hundred twenty (120) days following the date of
such draw or shall fail to deliver to Landlord any Letter of Credit required
under Paragraph 29 within the applicable time period specified therein; or
(xvii) The Initial Lender shall draw all of the Letter of
Credit following the occurrence of any of the events set forth in Paragraph
37(a)(i), (ii), (iii), (iv) or (v).
(b) No notice or cure period shall be required in any one
or more of the following events:
(A) the occurrence of an Event of Default under
clause (i) (except as otherwise set forth below), (iii), (iv), (v), (vi),
(vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi) or (xvii) of
Paragraph 22(a); or
(B) the default consists of a failure to provide any
insurance required by Paragraph 16 except for the failure to provide earthquake
or flood insurance if the same is not available or an assignment or sublease
entered into in violation of Paragraph 21; or
(C) the default is such that any delay in the
exercise of a remedy by Landlord would reasonably be expected to cause
irreparable harm to Landlord.
(c) If the default consists of the failure to pay any
Monetary Obligation under clause (i) of Paragraph 22(a), the applicable cure
period shall be five (5) Business Days from the date on which notice is given,
but Landlord shall not be obligated to give notice of, or allow any cure period
for, any such default more than twice during the Term. Subject to the
limitation set forth in the following sentence, if the default consists of a
default under clause (ii) of Paragraph 22(a), other than the events specified
in clauses (B) and (C) of Paragraph 22(b), the applicable cure period shall be
thirty (30) days from the date on which notice is given or, if the default
cannot be cured within such thirty (30) day period and delay in the exercise of
a remedy would not (in Landlord's reasonable judgment) cause any material
adverse harm to Landlord or any of the Leased Premises, the cure period shall
be extended for the period required to cure the default (but such cure period,
including any extension, shall not in the aggregate exceed sixty (60) days,
provided that Tenant shall commence to cure the default within the said
thirty-day period and shall actively, diligently and in good faith proceed with
and continue the curing of such default. Notwithstanding anything in this
Paragraph 22 to the contrary, in the event of an Environmental Violation such
cure period shall not be limited to said sixty (60) day period), provided that
Tenant shall commence to cure the default within the said thirty-day period,
shall
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actively, diligently and in good faith proceed with and continue the curing of
the Environmental Violation until it shall be fully cured and, for so long as
the Initial Loan is outstanding, shall have deposited an amount sufficient in
Initial Lender's reasonable judgment to cure such Event of Default in an escrow
account satisfactory to Initial Lender. Funds so deposited with Initial Lender
shall be disbursed to cure such Event of Default as provided in the
Subordination Agreement. Notwithstanding the foregoing, so long as the Initial
Loan is in effect Landlord shall not be obligated to give Tenant notice and an
opportunity to cure any default under Paragraph 22(a)(ii) more than two times.
23. Remedies and Damages Upon Default.
(a) If an Event of Default shall have occurred and is
continuing, Landlord shall have the right, at its sole option, then or at any
time thereafter, to exercise its remedies and to collect damages from Tenant in
accordance with this Paragraph 23, without demand upon or notice to Tenant
except as otherwise provided in Paragraph 22(c) and this Paragraph 23. Upon
the occurrence of an Event of Default, Landlord's remedies include the right to
elect to terminate the Lease or keep the Lease in effect and collect the
damages specified below.
(b) If Landlord elects to terminate the Lease, Landlord
shall give Tenant notice of Landlord's intention to terminate this Lease on a
date specified in such notice. Upon such date, this Lease, the estate hereby
granted and all rights of Tenant hereunder shall expire and terminate. Upon
such termination, Tenant shall immediately surrender and deliver possession of
the Leased Premises to Landlord in accordance with Paragraph 26. If Tenant
does not so surrender and deliver possession of the Leased Premises, Landlord
may re-enter and repossess the Leased Premises, as provided in Paragraph 23(f)
below.
(c) In addition to its other rights under this Lease,
Landlord has the remedy described in California Civil Code Section 1951.4 which
provides substantially as follows: Landlord may continue the Lease in effect
after Tenant's breach and abandonment and recover the Rent as it becomes due,
provided Tenant has the right to sublet or assign, subject to the limitations
specified in Paragraph 21. In accordance with California Civil Code Section
1951.4 (or any successor statute), Tenant acknowledges that in the event Tenant
breaches this Lease and abandoned the Leased Premises, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant's right to
possession, and Landlord may enforce all its rights and remedies under this
Lease, including the right to recover the rent as it becomes due under this
Lease. Acts of maintenance or preservation or efforts to relet the Leased
Premises or the appointment of a receiver upon initiative of Landlord to
protect Landlord's interest under this Lease shall not constitute a termination
of Tenant's right to possession.
(d) If Landlord elects, pursuant to Paragraph 23(b), to
terminate this Lease upon a default by Tenant, Landlord may collect from Tenant
damages computed in accordance with the following provisions in addition to
Landlord's other remedies under this Lease:
(i) the worth at the time of award of any unpaid
Rent which has been earned at the time of such termination; plus
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(ii) the worth at the time of award of the amount
by which any unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount
by which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided, plus
(iv) any other Cost necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom including, without limitation,
brokerage commissions, the cost of repairing and reletting the Leased Premises
and reasonable attorneys' fees; plus
(v) at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by applicable state law. Damages shall be due and payable from the date of
termination.
For the purposes of clauses (i) and (ii) of this Paragraph,
the "worth at the time of award" shall be computed by adding interest at the
Default Rate (as specified in Paragraph 7(a)(iv)) to the past due Rent. For the
purposes of clause (iii) of this Paragraph 23(d), the "worth at the time of
award" shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%).
(e) If, in the Event of a Default by Tenant, Landlord
elects to keep the Lease in effect, Landlord may, to the extent permitted by
applicable Law, declare by notice to Tenant the entire Basic Rent (in the
amount of Basic Rent then in effect) for the remainder of the then current Term
to be immediately due and payable. Tenant shall immediately pay to Landlord
all such Basic Rent discounted to its Present Value, all accrued Rent then due
and unpaid, all other Monetary Obligations which are then due and unpaid and
all Monetary Obligations which arise or become due by reason of such Event of
Default (including any Costs of Landlord). Upon receipt by Landlord of all
such accelerated Basic Rent and Monetary Obligations, this Lease shall remain
in full force and effect and Tenant shall have the right to possession of the
Leased Premises from the date of such receipt by Landlord to the end of the
Term, and subject to all the provisions of this Lease, including the obligation
to pay all increases in Basic Rent and all Monetary Obligations that
subsequently become due, except that no Basic Rent which has been prepaid under
this Lease shall be due thereafter during the Term.
(f) Upon the occurrence of an Event of Default, Landlord
shall also have the right, with or without terminating this Lease, to enter the
Leased Premises in accordance with applicable Law and remove all persons and
personal property from the Leased Premises, such property being removed and
stored in a public warehouse or elsewhere at Tenant's sole cost and expense. No
removal by Landlord of any persons or property in the Leased Premises shall
constitute an election to terminate this Lease. Such an election to terminate
may only be made by Landlord in writing, or decreed by a court of competent
jurisdiction. Landlord's right of entry shall include the right to remodel the
Leased Premises and re-let the Leased Premises. All Costs incurred in such
entry and re-letting shall be paid by Tenant. Rents collected by Landlord from
any other tenant which occupies the Leased Premises shall be offset against the
amounts owed
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to Landlord by Tenant. Tenant shall be responsible for any amounts not
recovered by Landlord from any other tenant. Any payments made by Tenant shall
be credited to the amounts owed by Tenant in the sole order and discretion of
Landlord, irrespective of any designation or request by Tenant. No entry by
Landlord shall prevent Landlord from later terminating the Lease by written
notice.
(g) Landlord shall be entitled to draw on the Letter of
Credit and apply the proceeds therefrom to any amounts due under Paragraph
23(d) hereof if this Lease shall be terminated, or, if this Lease shall remain
in full force and effect, in the following order: (i) to past due Basic Rent,
(ii) to cure any other Monetary Event of Default and (iii) to installments of
Basic Rent in inverse order of maturity, commencing with the last installment
of the Term.
(h) Notwithstanding anything to the contrary herein
contained, in lieu of or in addition to any of the foregoing remedies and
damages, Landlord may exercise any remedies and collect any damages available
to it at law or in equity. If Landlord is unable to obtain full satisfaction
pursuant to the exercise of any remedy, it may pursue any other remedy which it
has hereunder or at law or in equity.
(i) Landlord shall not be required to mitigate any of its
damages hereunder unless required to by applicable Law. If any Law shall
validly limit the amount of any damages provided for herein to an amount which
is less than the amount agreed to herein, Landlord shall be entitled to the
maximum amount available under such Law.
(j) No termination of this Lease, repossession or
reletting of the Leased Premises, exercise of any remedy or collection of any
damages pursuant to this Paragraph 23 shall relieve Tenant of any Surviving
Obligations.
(k) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD
HEREUNDER, TENANT WAIVES ANY RIGHT TO A TRIAL BY JURY.
(l) Upon the occurrence of any Event of Default, Landlord
shall have the right (but no obligation) to perform any act required of Tenant
hereunder and, if performance of such act requires that Landlord enter the
Leased Premises, Landlord may enter the Leased Premises for such purpose.
(m) No failure of Landlord (i) to insist at any time upon
the strict performance of any provision of this Lease or (ii) to exercise any
option, right, power or remedy contained in this Lease shall be construed as a
waiver, modification or relinquishment thereof. A receipt by Landlord of any
sum in satisfaction of any Monetary Obligation with knowledge of the breach of
any provision hereof shall not be deemed a waiver of such breach, and no waiver
by Landlord of any provision hereof shall be deemed to have been made unless
expressed in a writing signed by Landlord.
(n) Tenant hereby waives and surrenders, for itself and
all those claiming under it, including creditors of all kinds, (i) any right
and privilege which it or any of them may have under any present or future Law
to redeem any of the Leased Premises or to have a continuance of this Lease
after termination of this Lease or of Tenant's right of occupancy or
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possession pursuant to any court order or any provision hereof, and (ii) the
benefits of any present or future Law which exempts property from liability for
debt or for distress for rent.
(o) Except as otherwise provided herein, all remedies are
cumulative and concurrent and no remedy is exclusive of any other remedy. Each
remedy may be exercised at any time an Event of Default has occurred and is
continuing and may be exercised from time to time. No remedy shall be
exhausted by any exercise thereof.
24. Notices. All notices, demands, requests, consents,
approvals, offers, statements and other instruments or communications required
or permitted to be given pursuant to the provisions of this Lease shall be in
writing and shall be deemed to have been given for all purposes when delivered
in person or by Federal Express or other reliable 24-hour delivery service or
five (5) Business Days after being deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the other party at its address stated above. A copy of any notice
given by Tenant to Landlord shall simultaneously be given by Tenant to Reed
Smith Shaw & McClay, 2500 One Liberty Place, Philadelphia, PA 19103,
Attention: Chairman, Real Estate Department. For the purposes of this
Paragraph, any party may substitute another address stated above (or
substituted by a previous notice) for its address by giving fifteen (15) days'
notice of the new address to the other party, in the manner provided above.
25. Estoppel Certificates. Landlord or Tenant, as the
case may be, shall, at any time upon not less than ten (10) days' prior written
request by the other party, deliver to the other party a statement ("Tenant
Estoppel Certificate") in writing, executed by the president or a vice
president of Landlord or Tenant, as the case may be, certifying that:
(a) Except as otherwise specified, this Lease is
unmodified and in full force and effect;
(b) The Basic Rent, Additional Rent and all other
Monetary Obligations have been paid to the dates stated in such certificate;
(c) The certifying party has not filed a voluntary or
involuntary bankruptcy petition;
(d) To the knowledge of the signer, based on reasonable
inquiry and except as may otherwise be specified, no default by either Landlord
or Tenant exists under this Lease;
(e) Landlord or Tenant, as the case may be, has performed
all of its obligations under the Lease with respect to the construction of the
Tenant Improvements;
(f) The current amount of the Letter of Credit is as
stated in such certificate; and
(g) The correctness of the other matters specified in the
form of Tenant Estoppel Certificate attached hereto as Exhibit "H".
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26. Surrender. Upon the expiration or earlier
termination of this Lease, Tenant shall peaceably leave and surrender the
Leased Premises to Landlord in the same condition in which the Leased Premises
was at the Occupancy Date, except as repaired, rebuilt, restored, altered,
replaced or added to as permitted or required by any provision of this Lease,
and except for ordinary wear and tear. Upon such surrender, Tenant shall (a)
remove from the Leased Premises all property which is owned by Tenant or third
parties other than Landlord and (b) repair any damage caused by such removal.
Property of Tenant or such third party not so removed shall become the property
of Landlord, and Landlord may thereafter cause such property to be removed from
the Leased Premises. The cost of removing and disposing of such property and
repairing any damage to any of the Leased Premises caused by such removal shall
be paid by Tenant to Landlord upon demand. Landlord shall not in any manner or
to any extent be obligated to reimburse Tenant for any such property which
becomes the property of Landlord pursuant to this Paragraph 26.
27. No Merger of Title. There shall be no merger of the
leasehold estate created by this Lease with the fee estate in any of the Leased
Premises by reason of the fact that the same Person may acquire or hold or own,
directly or indirectly, (a) the leasehold estate created hereby or any part
thereof or interest therein and (b) the fee estate in any of the Leased
Premises or any part thereof or interest therein, unless and until all Persons
having any interest in the interests described in clauses (a) and (b) above
which are sought to be merged shall join in a written instrument effecting such
merger and shall duly record the same.
28. Books and Records. Tenant shall furnish Landlord
with the following:
(i) As soon as available and in any event within
sixty (60) days after the end of each quarterly accounting period in each
fiscal year of Tenant (with the exception of the last quarter), Tenant shall
furnish copies of a consolidated balance sheet of Tenant and its consolidated
affiliates as of the last day of such quarterly accounting period, and copies
of the related consolidated statements of income and of changes in
shareholders' equity and in financial position of Tenant and its consolidated
affiliates for such quarterly accounting period and for the elapsed portion of
the current fiscal year ended with the last day of such quarterly accounting
period. All such statements shall be prepared in accordance with GAAP (except
that interim quarterly financials are not required to include notes) and, if
Tenant ceases to be a publicly traded company, certified as complete and
correct in all material respects by the chief financial officer of Tenant
(subject to year-end audit adjustments).
(ii) As soon as available and in any event within
one hundred twenty (120) days after the end of each fiscal year of Tenant,
Tenant shall furnish copies of a consolidated balance sheet of Tenant and its
consolidated Affiliates as of the end of such fiscal year, and copies of the
related consolidated statements of income and of changes in shareholders'
equity and in financial position of Tenant and its consolidated affiliates for
such fiscal year. All such statements shall be in reasonable detail and with
appropriate notes, if any, and be prepared in accordance with GAAP and state in
comparative form the corresponding figures as of the end of and for the
previous fiscal year, and shall be accompanied by an opinion or report thereon,
in scope and substance satisfactory to Landlord, by Tenant's nationally
recognized independent certified public accountants.
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(iii) Tenant shall furnish copies of all regular
and periodic reports or filings, including without limitation Form 10-K and
Form 10-Q, which Tenant or any Affiliate shall make or be required to file with
the Securities and Exchange Commission or any other federal or state regulatory
agency or with any municipal or other local body, and such other public,
non-proprietary information relating to the business, affairs and financial
condition of Tenant as Landlord may from time to time reasonably request.
(iv) As soon as available and in any event within
one hundred twenty (120) days after the end of each fiscal year of Tenant,
Tenant shall provide to Landlord and Lender unaudited financial statements on
the Leased Premises which shall include reasonably detailed information about
the cost of operating, maintaining and repairing the Leased Premises. Such
information shall include, without limitation, information about the cost of
utilities, taxes, tenant improvement costs, landscaping, janitorial services
and other similar services and shall be certified as complete and correct by
the chief financial officer of Tenant and that such statements have been
prepared in accordance with GAAP.
(v) Upon reasonable advance notice to Tenant,
Landlord and Lender shall have the right to periodically visit the Leased
Premises to meet with officers of Tenant for the purpose of discussing the
operating history of the Leased Premises and the general condition of Tenant's
business. At no time shall Tenant be obligated to disclose to Landlord, Lender
or any third party any confidential or proprietary information about Tenant or
Tenant's business. The scope and nature of the information to be so provided
by Tenant to Landlord and/or Lender shall be limited to that which would be
customarily provided to investment analysts employed by investment banking
firms.
29. Security Deposit.
(a) Concurrently with the execution of this Lease, Tenant
shall deliver to Landlord a Letter of Credit in the amount of [INTENTIONALLY
OMITTED] . The Letter of Credit shall (subject to a reduction in the amount of
the Letter of Credit as set forth in Paragraph 29(b)) remain in full force and
effect until satisfaction of the Final Release Conditions (as hereinafter
defined), or with respect to any Letter of Credit issued pursuant to the terms
of Paragraph 29(e) or Paragraph 29(f), until satisfaction of the provisions for
release set forth therein. The Letter of Credit shall be security for the
payment by Tenant of the Rent and all other charges or payments to be paid
hereunder and the performance of the covenants and obligations contained
herein, and the Letter of Credit shall be renewed at least thirty (30) days
prior to any expiration thereof. In addition to its other rights and remedies
under the Letter of Credit, Landlord shall have the right to draw on the Letter
of Credit to pay any installment of Basic Rent not paid within three (3)
Business Days after the due date thereof, and, with respect to the first three
(3) (but in no event more than three (3)) such draws so long as the Letter of
Credit remains in effect and Tenant replenishes any amount drawn under the
Letter of Credit within one hundred twenty (120) days (but in any event at
least thirty (30) days prior to the expiration thereof) after such draw no
Event of Default shall exist by reason of any such draw.
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[THE REMAINDER OF THIS PARAGRAPH INTENTIONALLY OMITTED]. 30.
Non-Recourse as to Landlord.
(a) Anything contained herein to the contrary
notwithstanding, any claim based on or in respect of any liability of Landlord
under this Lease shall be enforced only against the Leased Premises and not
against any other assets, properties or funds of (a) Landlord or any party
thereof, (b) any director, officer, general partner, shareholder, limited
partner, employee or agent of Landlord or any general partner of Landlord,
GENA:11 or GENA:12 or any of its general partners (or any legal representative,
heir, estate, successor or assign of any thereof), (c) any predecessor or
successor partnership or corporation (or other entity) of Landlord or any of
its general partners, shareholders, officers, directors, employees or agents,
either directly or through Landlord or its general partners, shareholders,
officers, directors, employees or agents or any predecessor or successor
partnership or corporation (or other entity), or (d) any other Person
(including Carey Property Advisors, Carey Fiduciary Advisors, Inc., W. P. Carey
& Co. Inc., and any Person affiliated with any of the foregoing, or any
director, officer, employee or agent of any thereof); provided, however, that
Landlord shall at all times maintain an "Equity Interest" (as defined below) in
the Leased Premises of at least the lesser of (1) twenty percent (20%) of the
Fair Market Value of the Leased Premises or (2) Landlord's Cash Contribution
("Landlord's Minimum Equity"). If Landlord fails to maintain Landlord's
Minimum Equity, the provisions of this Paragraph 30 limiting Tenant's right to
recover damages from the Leased Premises as provided above shall cease to be of
any force or effect and Tenant shall have the right to recover damages from any
and all assets of Landlord. The term "Equity Interest" shall mean the
difference between the Fair Market Value of the Leased Premises and the then
outstanding principal amount of all Mortgages placed on the Leased Premises by
Landlord. For purposes of this definition of Equity Interest, during the first
five (5) years of the Term the Fair Market Value of the Leased Premises shall
be equal to the Project Cost. In the event that the Leased Premises become
part of a pool of properties securing the debt (the "Blanket Indebtedness") of
one Person, Landlord's Equity Interest shall be equal to the difference between
twenty percent (20%) of the Fair Market Value of the Leased Premises and the
portion of the Blanket Indebtedness reasonably allocated to the Leased Premises
by the Lender holding the Blanket Indebtedness.
(b) Nothing in this Paragraph 30 shall be construed as
waiving or limiting any equitable remedies which Tenant may have against
Landlord and/or any of the foregoing Persons by reason of any breach of this
Lease by Landlord and/or such Persons.
31. Financing.
(a) If Landlord desires to obtain or refinance any Loan,
Tenant shall negotiate in good faith with Landlord concerning any request made
by any Lender or proposed Lender for changes to or modifications of this Lease;
provided no such changes or modifications shall increase Tenant's obligations
under this Lease. In particular, Tenant shall agree, upon request of Landlord,
to supply any such Lender with such notices and information as Tenant is
required to give to Landlord hereunder and to acknowledge that the rights of
Landlord hereunder have been assigned by Landlord to such Lender and to consent
to such financing if such consent is requested by such Lender. Tenant shall
provide any other consent or statement and shall execute any and all other
documents that such Lender reasonably requires in connection with such
financing, including any environmental indemnity agreement and
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<PAGE> 59
subordination, non-disturbance and attornment agreement, so long as the same do
not adversely affect any right, benefit or privilege of Tenant under this Lease
or materially increase Tenant's obligations under this Lease; provided,
however, that in no event shall Tenant be obligated to provide any Lender with
any confidential or proprietary information about Tenant or its business. Such
subordination, non-disturbance and attornment agreement shall be in form and
substance reasonably satisfactory to Tenant and may require Tenant to confirm
that (a) Lender and its assigns will not be liable for any misrepresentation,
act or omission of Landlord and (b) Lender and its assigns will not be subject
to any counterclaim, demand or offset which Tenant may have against Landlord.
(b) During the Term the Leased Premises shall not be
encumbered by any Mortgage the original principal balance of which exceeds
[INTENTIONALLY OMITTED] unless the Leased Premises are part of a pool of
properties securing debt of one Person, in which event such limit shall not
apply. If the Leased Premises are part of such a pool of properties, the deed
of trust or mortgage which encumbers the Leased Premises shall specify a
release price for the Leased Premises not in excess of the Project Cost.
32. Subordination. Subject to the provisions of
Paragraph 31(a), this Lease and Tenant's interest hereunder shall be
subordinate to any Mortgage or other security instrument hereafter placed upon
the Leased Premises by Landlord, and to any and all advances made or to be made
thereunder, to the interest thereon, and all renewals, replacements and
extensions thereof, provided that the holder of any such Mortgage or other
security instrument enters into a subordination, non-disturbance and attornment
agreement with and reasonably satisfactory to Tenant which recognizes this
Lease and all Tenant's rights hereunder unless and until (i) an Event of
Default exists or (ii) Landlord shall have the right to terminate this Lease
pursuant to any applicable provision hereof.
33. Financial Covenants. [INTENTIONALLY OMITTED].
34. Tax Treatment; Reporting. Landlord and Tenant each
acknowledge that each shall treat this transaction as a true lease for state
law purposes and shall report this transaction as a true lease for Federal
income tax purposes. For Federal income tax purposes each shall report this
Lease with Landlord as the owner of the Leased Premises, including the Building
Systems Equipment, and Tenant as the lessee of the Leased Premises and Building
Systems Equipment, including: (1) treating Landlord as the owner of the
property eligible to claim depreciation deductions under Section 167 or 168 of
the Internal Revenue Code of 1986 (the "Code") with respect to the Leased
Premises and the Building Systems Equipment, (2) Tenant reporting its Rent
payments as rent expense under Section 162 of the Code, and (3) Landlord
reporting the Rent payments as rental income.
35. Right of First Refusal. [INTENTIONALLY OMITTED].
36. Financing Major Alterations. [INTENTIONALLY
OMITTED].
37. Initial Lender Rights re: Letter of Credit.
[INTENTIONALLY OMITTED].
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<PAGE> 60
38. Miscellaneous.
(a) The paragraph headings in this Lease are used only
for convenience of reference and are not part of this Lease or to be used in
determining the intent of the parties or otherwise interpreting this Lease.
(b) As used in this Lease, the singular shall include the
plural and any gender shall include all genders as the context requires and the
following words and phrases shall have the following meanings: (i) "including"
shall mean "including without limitation"; (ii) "provisions" shall mean
"provisions, terms, agreements, covenants and/or conditions"; (iii) "lien"
shall mean "lien, charge, encumbrance, title retention agreement, pledge,
security interest, mortgage and/or deed of trust"; (iv) "obligation" shall mean
"obligation, duty, agreement, liability, covenant and/or condition"; (v) "any
of the Leased Premises" shall mean "the Leased Premises or any part thereof or
interest therein"; (vi) "any of the Land" shall mean "the Land or any part
thereof or interest therein"; (vii) "any of the Improvements" shall mean "the
Improvements or any part thereof or interest therein"; (viii) "any of the
Equipment" shall mean "the Equipment or any part thereof or interest therein";
and (ix) "any of the Adjoining Property" shall mean "the Adjoining Property or
any part thereof or interest therein".
(c) Any act which Landlord is permitted to perform under
this Lease may be performed at any time and from time to time by Landlord or
any person or entity designated by Landlord. Each appointment of Landlord as
attorney-in-fact for Tenant hereunder is irrevocable and coupled with an
interest. Except as otherwise specifically provided herein, Landlord shall
have the right, at its sole option, to withhold or delay its consent whenever
such consent is required under this Lease for any reason or no reason. Time is
of the essence with respect to the performance by Tenant of its obligations
under this Lease.
(d) Landlord shall in no event be construed for any
purpose to be a partner, joint venturer or associate of Tenant or of any
subtenant, operator, concessionaire or licensee of Tenant with respect to any
of the Leased Premises or otherwise in the conduct of their respective
businesses.
(e) This Lease and any documents which may be executed by
Tenant on or about the effective date hereof at Landlord's request constitute
the entire agreement between the parties and supersede all prior understandings
and agreements, whether written or oral, between the parties hereto relating to
the Leased Premises and the transactions provided for herein. Landlord and
Tenant are business entities having substantial experience with the subject
matter of this Lease and have each fully participated in the neotiation and
drafting of this Lease. Accordingly, this Lease shall be construed without
regard to the rule that ambiguities in a document are to be construed against
the drafter.
(f) This Lease may be modified, amended, discharged or
waived only by an agreement in writing signed by the party against whom
enforcement of any such modification, amendment, discharge or waiver is sought.
(g) The covenants of this Lease shall run with the land
and bind Tenant, its successors and assigns and all present and subsequent
encumbrancers and subtenants of any of
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the Leased Premises, and shall inure to the benefit of Landlord, its successors
and assigns. If there is more than one Tenant, the obligations of each shall
be joint and several.
(h) If any one or more of the provisions contained in
this Lease shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not
affect any other provision of this Lease, but this Lease shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
(i) This Lease shall be governed by and construed and
enforced in accordance with the Laws of the State.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease
to be duly executed under seal as of the day and year first above written.
LANDLORD:
GENA PROPERTY COMPANY, a
California partnership
ATTEST: By: GENA (CA) QRS 11-25, INC.,
a general partner
By:__________________________ By:__________________________
Title: Assistant Secretary Title: Executive Vice President
[Corporate Seal]
ATTEST: By: GENA (CA) QRS 12-1, INC.,
a general partner
By:__________________________ By:__________________________
Title: Assistant Secretary Title: Executive Vice President
[Corporate Seal]
TENANT:
ATTEST: GENSIA, INC.,
a Delaware corporation
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<PAGE> 62
By:__________________________ By:__________________________
Title: Vice President Title: President
[Corporate Seal]
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<PAGE> 63
EXHIBIT A
LEGAL DESCRIPTION OF LAND
The Land is located in the City of San Diego, County of San Diego,
State of California and is more particularly described as follows:
PARCEL A:
LOTS 1 AND 3 OF NEXUS TECHNOLOGY CENTRE UNIT NO. 1, IN THE CITY OF SAN DIEGO,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 11876,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, AUGUST 7, 1987.
PARCEL B:
NON-EXCLUSIVE EASEMENTS FOR VEHICULAR AND PEDESTRIAN INGRESS AND EGRESS ON AND
OVER DESIGNATED PEDESTRIAN AND VEHICULAR TRAFFIC CIRCULATION PATTERNS NOW
EXISTING OR CREATED, INCLUDING WITHOUT LIMITATIONS, ALL DRIVEWAYS, ROAD,
STREETS, WALKWAYS, SIDEWALKS AND SURFACE PARKING AREAS; FOR PARKING ON AND
ACROSS ALL SURFACE PARKING AREAS DESIGNATED FOR PARKING BY STRIPPING OR OTHER
MEANS; FOR PRIVATE AND COMMON UTILITIES AND INCIDENTAL THERETO; AND TEMPORARY
EASEMENTS FOR CONSTRUCTION PURPOSES, AS SET FORTH, DESCRIBED, CREATED AND
CONVEYED IN THAT CERTAIN DOCUMENT ENTITLED "RECIPROCAL EASEMENT AGREEMENT" BY
AND BETWEEN GENSIA, INC., A DELAWARE CORPORATION AND GENA PROPERTY COMPANY, A
CALIFORNIA GENERAL PARTNERSHIP, RECORDED ON DECEMBER __, 1993 AS INSTRUMENT NO.
_______________, IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY,
CALIFORNIA.
A-1
<PAGE> 64
EXHIBIT B
DESCRIPTION OF BUILDING SYSTEMS EQUIPMENT
"Building Systems Equipment" shall mean all plumbing, heating,
ventilation and air conditioning equipment, electrical systems, mechanical
equipment, lighting systems, emergency life support equipment, fire safety
equipment, sprinkler systems and other equipment which is customarily part of a
"shell building" for each Building. Building Systems Equipment shall include
any Alterations to the Building Systems Equipment, whether paid for by Landlord
or by Tenant, as may be required by the terms of this Lease.
B-1
<PAGE> 65
EXHIBIT C
SCHEDULE OF PERMITTED ENCUMBRANCES
C-1
<PAGE> 66
EXHIBIT D
BASIC RENT SCHEDULE
[INTENTIONALLY OMITTED]
D-1
<PAGE> 67
EXHIBIT E
TENANT'S FINANCIAL COVENANTS
[INTENTIONALLY OMITTED]
E-1
<PAGE> 68
EXHIBIT F
SCHEDULE OF EXISTING LEASES
[INTENTIONALLY OMITTED]
F-1
<PAGE> 69
EXHIBIT G
[Form of Letter of Credit]
[INTENTIONALLY OMITTED]
G-1
<PAGE> 70
EXHIBIT H
TENANT ESTOPPEL CERTIFICATE
(Lender)
The undersigned, _______________________ ("Tenant"), hereby certifies
to ______________________, a ________________ ("Lender") and/or ______________
_______________("Purchaser"), as follows:
1. Attached hereto is a true, correct and complete copy of that
certain lease dated ____________________ 19__, between ___________________, a
______________________________ ("Landlord"), and Tenant (the "Lease"), the
demised premises of which ("Premises") are located at
_________________________________________________________________ in the City of
________________, County of __________________, State of ___________________,
which Premises are more particularly described in the Lease. The Lease (as
attached) represents the entire agreement between the parties as to the
Premises, is now in full force and effect, and has not been amended, modified
or supplemented, except as set forth in Paragraph 5 below.
2. The term of the Lease commenced on ____________, 19__. Rent
commenced to accrue on _________________, 19__.
3. The undersigned is in occupancy of the Premises.
4. The initial term of the Lease shall expire on _______________,
19__, with ____ renewal option(s) of a period of ______ years each.
5. The Lease has not been amended, modified, supplemented,
extended, renewed or assigned, except: _______________________________________
_______________________________________________________________________________
_________________________________________________________.
6. All conditions of the Lease to be performed by Landlord
thereunder and necessary to the enforceability of the Lease have been
satisfied, except: ____________________________________________________________
_______________________________________________________________________________
______________________________________________________________.
7. The amount of the installment of Basic Rent being paid
currently is $____________.
8. The current amount of the Letter of Credit outstanding under
Paragraph 29 of this Lease is $____________.
9. Tenant is paying the full Basic Rent under the Lease, which
Rent has been paid in full through ____________. No Basic Rent under the Lease
has been paid for more than thirty (30) days in advance of its due date.
G-2
<PAGE> 71
10. To the best of the knowledge of the undersigned, based on
reasonable injury, Tenant has no defense as to its obligations under the Lease
and claims no set-off or counterclaim against Landlord.
11. To the best knowledge of the undersigned, there are no
defaults on the part of Landlord or Tenant under the Lease, and there are no
events currently existing (or with the passage of time, giving of notice or
both, which would exist) which give Tenant the right to cancel or terminate the
Lease.
12. Tenant has no right to any concession (rental or otherwise) or
similar compensation in connection with renting the space it occupies, except
as provided in the Lease.
13. There are no actions, whether voluntary or otherwise, pending
against the undersigned or any guarantor of the undersigned's obligations under
the Lease pursuant to the bankruptcy or insolvency laws of the United States or
any state thereof.
14. It is Tenant's understanding that the present Landlord of the
Premises is__________________________ _______________________________.
15. Tenant's address for notices under the terms of the Lease is:
______________________________________________________________________________.
16. Tenant hereby acknowledges that Lender intends to make a loan
to Landlord for _____________________________________, that Landlord intends to
assign the Lease to Lender in connection with such financing, and that Lender
is relying upon the representations herein made in funding such loan. Upon
such assignment and upon written request from Lender, Tenant agrees to send all
rents, payments and other amounts due under the Lease and assigned to Lender
pursuant to said financing to such address as may be indicated in writing by
Lender to Tenant. Tenant agrees that no modification, adjustment, revision,
cancellation or renewal of the Lease or amendments thereto shall be effective
unless the written consent of Lender is obtained. Tenant has not received any
notice of any other sale, pledge, transfer or assignment of the Lease or of the
rentals thereunder by Landlord.
17. Tenant shall deliver to Lender a copy of all notices of
default or termination served on or received from Landlord.
18. Lender is hereby given the right to cure Landlord's defaults
under the Lease within thirty (30) days after receipt of written notice by the
undersigned of Landlord's failure so to do; provided, however, that said thirty
(30) day period shall be extended (a) so long as within said thirty (30) day
period Lender has commenced to cure and is proceeding with due diligence to
cure said defaults, or (b) so long as Lender is proceeding with a foreclosure
action against Landlord and will commence to cure and will proceed with due
diligence to cure said defaults upon the resolution of said foreclosure action.
19. Tenant acknowledges that Lender shall assume no liability or
obligations under the Lease, or any renewal thereof, either by virtue of the
assignment thereof or any receipt or collection of rents under the Lease,
except in the event that Lender acquires title to the Leased Premises.
G-3
<PAGE> 72
20. All provisions of the Lease and the amendments thereto (if
any) referred to above are hereby ratified.
DATED: ___________, 19__ "Tenant":
GENSIA, INC.,
a Delaware corporation
By:
---------------------------
Its:
--------------------------
By:
---------------------------
Its:
--------------------------
G-4
<PAGE> 73
EXHIBIT "B"
DEMISING PLAN
Exhibit B to the sublease agreement depicts the layout of the floor plans.
G-5
<PAGE> 1
Exhibit 10.31
FOURTH AMENDMENT TO LEASE
This FOURTH AMENDMENT TO LEASE is entered into as of the 26th day of
February, 1997 by and between NIPPON LANDIC (U.S.A), INC., a Delaware
Corporation ("Landlord") and AMYLIN PHARMACEUTICALS, INC.(formerly known as
AMYLIN, INC.), a Delaware Corporation ("Tenant").
RECITALS
A. Nexus/Gadco - UTC, a California joint venture, as landlord,
and Amylin, Inc., as tenant, entered into that certain Lease dated as of
January 2, 1989, as amended by that certain Amendment to Lease dated as of
February 23, 1989, that certain Second Amendment to Lease dated as of July 29,
1991, and that certain Third Amendment to Lease dated August 22, 1991
(collectively, the "Lease"), of the certain premises located in the building
commonly known as 9373 Towne Centre Drive, San Diego, California, as more
particularly described therein.
B. "Landlord" is the successor in interest to the landlord under
the "Lease".
C. Landlord and Tenant now desire for their mutual benefit to
amend certain terms and provisions of the Lease, including increasing the size
of the demised Premises.
NOW, THEREFORE, for $10.00 and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Demised Premises. As of April 1, 1997, the Demised Premises
will be increased to include approximately 9,325 square feet of Rentable Area
on the east side of the first floor of the Building located at 9363 Towne
Centre Drive and approximately 7,896 square feet of Rentable Area on the second
floor of the Building located at 9373 Towne Centre Drive (collectively, the
"Additional Premises"), as more particularly shown on Exhibit A-1 attached
hereto and incorporated herein by reference. Said Exhibit A-1 replaces in
their entirety Exhibits A-1 and A-2 previously included in the Lease.
2. Take Down Premises. Tenant agrees to lease from
Landlord and Landlord agrees to lease to Tenant approximately 41,794 square
feet of Rentable Area located in that certain Building located at 9393 Towne
Centre Drive as more particularly shown on Exhibit A-2 attached hereto and
incorporated herein by reference (the "Take Down Premises"), effective as of
the date Landlord tenders possession of the Take Down Premises to Tenant in
broom clean condition and free of all tenants and occupants (the "Take Down
Commencement Date"). Each party agrees to execute and deliver to the other
written acknowledgement of the actual Take Down Commencement Date when such
date is established (the "Acknowledgement of Term Commencement Date/Take Down
Premises"). Such acknowledgement shall be in form substantially similar to the
form attached to the Lease as Exhibit F.
3. Basic Lease Provisions.
G-6
<PAGE> 2
(a) Effective April 1, 1997, the following sections of Article 2 of
the Lease shall be amended to read as follows:
Section 2.1.2: "Designation of Tenant's Premises (Demised Premises):
a portion of the ground floor and second floor of 9373 Towne Centre Drive, and
a portion of the ground floor of 9363 Towne Centre Drive."
Section 2.1.3(a): "Initial Rentable Area: Approximately 45,283
square feet."
Section 2.1.3(b): "Initial Usable Area: Approximately 40,671 square
feet."
Section 2.1.4: "Initial Basic Annual Rent: $984,004.80."
Section 2.1.5: "Initial Monthly Rental Installments: $82,000.40."
Section 2.1.6: "Tenant's Pro Rata Share: Approximately 32.26% of
the Project."
Section 2.1.7(a): "Term Commencement Date: April 1, 1997."
Section 2.1.7(b): "Term Expiration Date: August 31, 2004."
Section 2.1.10: "Address for Rent Payment and Notices to Landlord:
Nippon Landic (U.S.A.), Inc., c/o Nexus Properties, Inc., 4350 La Jolla Village
Drive, Suite 930, San Diego, CA 92122. Address for Notices to Tenant: Amylin
Pharmaceuticals, Inc., Attn: Richard Haugen I, Chief Executive Officer, 9373
Towne Centre Drive, Suite 250, San Diego, CA 92121."
(b) Effective as of the Take Down Commencement Date, the following
sections of Article 2 of the Lease shall be amended to read as follows:
Section 2.1.2: "Designation of Tenant's Premises (Demised
Premises): a portion of the ground floor and second floor of 9373 Towne Centre
Drive, a portion of the ground floor of 9363 Towne Centre Drive and the entire
Building located at 9393 Towne Centre Drive."
Section 2.1.3(a): "Initial Rentable area: Approximately 87,077
square feet."
Section 2.1.3(b): "Initial Usable area: Approximately 78,195
square feet."
Section 2.1.4: "Initial Basic Annual Rent: $1,873,547.88."
Section 2.1.5: "Initial Monthly Rental Installments: $156,128.99."
Section 2.1.6: "Tenant's Pro Rata Share: Approximately 62% of
the Project."
Section 2.1.7(a): "Term Commencement Date: With respect to the
Additional Premises, the Term Commencement Date shall be April 1, 1997. With
respect to the Take Down Premises, the Take Down Commencement Date shall be that
date established in accordance with Section 2 of this Lease."
Section 2.1.7(b): "Term Expiration Date: August 31, 2004."
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<PAGE> 3
4. Term. Section 3.2 of the Lease is amended to read in full
as follows: "The Term Expiration Date for this Lease is set forth in Section
2.1.7(b) above."
5. Possession and Rent for 9393 Towne Centre Drive.
5.1 Landlord shall endeavor to tender possession of 9393 Towne
Centre Drive vacuumed and clean on an "as-is, where-is" basis to Tenant on
February 1, 1998. Tenant agrees that in the event Landlord fails to tender
possession of 9393 Towne Centre Drive on or before February 1, 1998 neither
this Amendment nor the Lease shall be void or voidable, and Landlord shall not
be liable to Tenant for any loss or damage resulting therefrom. In such event,
however, Tenant shall not be liable for any Basic Annual Rent, Operating
Expenses, or other charge for the Take Down Premises until that date on which
Landlord tenders possession to Tenant. Nor shall Tenant be liable for any
Basic Annual Rent for the first floor during the first 30 days after Landlord
tenders possession of such premises to Tenant (but shall be liable for
Operating Expenses for such period). Rent on the second floor of the building
will commence upon the Take Down Commencement Date.
6. Improvement Allowance. Landlord will provide to Tenant an
allowance for improvements equal to $5.00 per square foot of Rentable Area for
35,958 square feet of Rentable Area in 9373 Towne Centre Drive, plus
$1,000,000.00 for converting a portion of 9,325 square feet of Rentable Area of
office space located in 9363 Towne Centre Drive into a vivarium. Upon
tendering 9393 Towne Centre Drive, Landlord will provide to Tenant an allowance
for improvements equal to $5.00 per square foot of Rentable Area for 31,474
square feet of Rentable Area located in 9393 Towne Centre Drive and $30.00 per
square foot of Rentable Area for 10,320 square feet of Rentable Area located in
9393 Towne Centre Drive. If the $5.00 or the $30.00 per rentable square foot
allowances are not fully utilized in the spaces outlined above, Tenant may
apply any unused balance to construct improvements elsewhere within the Demised
Premises or the Take Down Premises as long as such improvements are real
property and not personal property and are completed during the term of the
lease.
Landlord will pay to Tenant such allowances upon presentation of
invoices for tenant improvement work performed in the Demised Premises and
Mechanics' Lien Releases.
The General Contractor selected by Tenant for improvement work and
plans for such work must be approved by Landlord in writing, which approval
shall not be unreasonably withheld, prior to commencement of any work. Upon
completion, Tenant shall provide Landlord with a copy of "as-built" drawings.
7. Rent Adjustment. The following language will be added to the
end of Section 5.5 of the Lease, which was created in Section 7 of the Second
Amendment: "As long as Tenant makes all of the monthly payments determined by
this rental adjustment, Tenant's obligation to make the rental adjustment
payments described in this Section will cease after August 1997."
8. CPI Adjustments. Section 6.1 of the Lease is amended to read
in full as follows: "The Basic Annual Rent for the Demised Premises (as
previously adjusted) will be increased by four percent (4.0%), compounded, on
each anniversary of the Term Commencement Date, which is anticipated to be
every April 1st. Notwithstanding the foregoing, no increase will be applied to
the Basic Annual Rent for the Take Down Premises on the first anniversary of
the Term Commencement Date for the Demised Premises, which is anticipated to be
April 1, 1998. The first increase of the Basic Annual Rent for the Take Down
Premises will occur on the second anniversary of the Term Commencement Date for
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Demised Premises. If the second anniversary of the Term Commencement Date
occurs on April 1, 1999 and if Landlord tendered possession of the Take Down
Premises to Tenant on or before February 1, 1998, the rent increase will be
equal to 4.6667% rather than 4%. But if the second anniversary of the
Commencement Date occurs on April 1, 1999 and Landlord tendered possession of
the Take Down Premisis to Tenant between February 2, 1998 and March 1, 1998
such increase will be 4.3333%, and 4.0% if Landlord tendered the building to
Tenant after March 1, 1998 but before April 1, 1998. The rent adjustment for
the Take Down Premises will be prorated for each additional month that Landlord
is delayed in delivering possession of such premises to Tenant. Subsequent
rental increases commencing on the third anniversary of the Commencement Date
and continuing thereafter throughout the Term shall be 4.0% per year.
9. Options to Renew. Section 39.1 of the Lease is amended to
read in full as follows: "Provided that Tenant is not in default of the lease,
which default is continuing after notice from Landlord and the expiration of
any grace period provided for in the Lease, Landlord shall provide Tenant with
two (2) five (5) year Options to Renew the Lease. The rental rate for the
renewal options shall be at 95% of the then prevailing Fair Market Value
("FMV") for comparable space in the University Towne Center and Torrey Pines
market. The FMV shall take into consideration (but not be limited to) the base
rental rate, rental increases, tenant improvement allowances, location in the
building and rental concessions, but shall specifically exclude the value of
any tenant improvements paid for by Tenant (net of the value of any tenant
improvements removed by Tenant). Tenant shall provide Landlord a minimum of
six months prior written notice of its intent to exercise the Option(s) to
Renew.
10. Roof and Interstitial Space Access. Landlord shall provide
Tenant with Roof and Interstitial Space Access during the lease term and all
subsequent renewal periods for the purposes of installing and maintaining its
HVAC equipment.
11. Right of First Refusal. Provided that the Tenant is not in
default at such time of any of the lease provisions, which default is
continuing after notice from Landlord and the expiration of any applicable
grace period provided for in the Lease, the Landlord shall provide Tenant with
a continuous Right of First Refusal on all space as it becomes available at
9373 and 9363 Towne Centre Drive. Tenant is aware that Orincon Industries,
Inc. ("Orincon") retains a Right of First Refusal on the areas of 9363 and a
portion of the second floor of 9373 that it currently occupies (the "Orincon
Space"). The Tenant's Right of First Refusal will be secondary to Orincon's
Right of First Refusal for this space. Notwithstanding the foregoing, Landlord
agrees that it shall not enter into negotiations with or enter into any
agreement concerning the Orincon Space with any party other than Tenant prior
to the expiration of the Orincon lease without the express written permission
of Tenant. The terms of Tenant's Right of First Refusal shall be at the terms
outlined in a bonafide Letter of Intent with an independent third party.
Tenant shall have fifteen (15) business days to respond to Landlord's notice of
said Right of First Refusal. The Right of First Refusal Agreement dated
January 2nd, 1989 and attached to the Lease is deleted in its entirety.
12. Parking. Landlord shall provide Tenant with a parking ratio
of four spaces per one thousand square feet (4:1,000) of leased area (less
parking spaces used by Tenant for equipment rooms or other purposes), at no
charge for the duration of the Tenant's lease and any option terms. In
addition, Landlord shall provide Tenant with five (5) additional reserved
visitor parking spaces for the duration of the Lease at no additional charge,
two (2) of which will be provided to Tenant concurrently with Tenant's
occupancy of 9393 Towne Centre Drive.
13. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one in the same
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instrument. Signature pages may be detached from the counterparts and attached
to single copy of this document to physically form one document.
14. Memorandum of Lease. Landlord and Tenant agree to execute and
deliver to the other party, at its request, a short from memorandum of Lease in
recordable form.
15. Effect. Except as specifically amended herein, the terms and
provisions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Lease Amendment as of
the date first above written.
LANDLORD: TENANT:
NIPPON LANDIC (U.S.A.), INC., AMYLIN PHARMACEUTICALS, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Mitsuhiko Hashimoto By:/s/ Bradford J. Duft
Its: General Manager/Vice President Its: Vice President and General
Counsel
Exhibit A to this agreement is a depiction of the floor plans.
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<PAGE> 1
To Our Shareholders
1996 was our best year yet! During 1996, we progressed on schedule toward market
launch of pramlintide, our diabetes drug candidate. We also initiated studies
designed to help physicians and patients optimize the use of pramlintide in
clinical practice following regulatory approval. For 1997, we are committed to a
challenging development agenda which advances us toward filing for regulatory
approval of pramlintide in North America and Europe by the end of 1998. In
addition, we plan to continue broadening our research pipeline.
Progress During 1996
The most important event of the year was our announcement in August that Johnson
& Johnson - following an interim analysis of our first two Phase III studies -
had decided to continue the pramlintide collaboration. Consequently, we have
initiated four additional pivotal studies, have expanded manufacturing
activities required to meet projected demand for the product, and have
intensified medical education efforts aimed at creating awareness of the role of
amylin in glucose metabolism and diabetes.
We achieved all of our 1996 pramlintide milestones:
- - Completed enrollment in the first two, one-year Phase III studies.
- - Analyzed the interim three-month results of these two ongoing Phase III
studies.
- - Presented clinical results at scientific meetings and published articles in
medical journals.
- - Started the final four Phase III studies necessary for product registration.
- - Manufactured key stability batches required for the New Drug Application.
We increased our cash reserves with the receipt of Johnson & Johnson's
development funding and milestone-related payments and by raising $34 million in
new equity. From June 1995 until the end of 1996, Johnson & Johnson's
contribution to our collaboration has totaled approximately $91 million.
New Clinical Data
In 1996, we also announced additional data regarding the role of amylin as a
partner hormone to insulin, and the clinical properties of pramlintide, a
better synthetic analog of amylin. Most importantly:
- - We confirmed in humans that amylin has at least two mechanisms which may
contribute to the control of blood-glucose concentrations. In addition to
slowing the inflow of glucose into the bloodstream by restraining gastric
emptying, amylin also suppresses elevated post-meal glucagon secretion. This
latter effect is potentially important, because excessive post-meal glucagon
secretion in patients with diabetes stimulates liver-glucose production, thereby
aggravating their chronic hyperglycemia.
- - We replicated yet again the glucose lowering effects of pramlintide, and
extended its record of safety and tolerability. In a Phase II study of 200
insulin-using patients with Type II diabetes, pramlintide lowered fructosamine,
a marker in blood which reflects glucose control over the two-to-three week
period prior to testing (see diagram this page). Including these results,
pramlintide has been successful in improving glucose control in nine-out-of-nine
Phase II trials. In clinical trials to date, pramlintide has been well tolerated
at anticipated therapeutic doses, and we have observed no increase in the
episodes of hypoglycemia in patients who have administered pramlintide
injections in addition to their insulin therapy.
- - We demonstrated that pramlintide may be syringe-mixed with any of the four
most common forms of human insulin. Phase II studies indicated that there was no
loss of pramlintide's glucose lowering activity when pramlintide was
syringe-mixed with regular (short-acting) and/or NPH (intermediate-acting)
insulins. In addition, these preliminary studies suggested that syringe-mixing
pramlintide and NPH insulin may lead to improved glucose control compared to
separate injections. We have submitted patent applications directed to this
newly discovered potential benefit of mixing pramlintide and NPH insulin. Being
able to syringe-mix pramlintide and insulin may lessen the need for people with
diabetes to administer separate injections of these two agents and reduce the
number of pramlintide doses for some patients.
We believe the scientific and clinical data reported in 1996 strengthen our
hypothesis that amylin replacement therapy may benefit many patients with
diabetes.
Expanded Research Pipeline
<PAGE> 2
Until recently our scientific and clinical efforts have been tightly focused on
amylin physiology and development. The complexity of pioneering a new field of
physiology and the challenges of commercializing an important new diabetes drug
demanded our full attention.
In 1996, our situation began to change: most of the amylin-related work
passed to our development, manufacturing, and marketing teams, with the result
that our research scientists could begin to take on new projects aimed at
diversifying our product pipeline. We began a series of new research initiatives
aimed at advancing additional metabolic compounds into clinical development.
Specifically, we:
- - Acquired a novel diabetes drug lead extracted from Gila monster venom. Called
exendin, this molecule displays a unique biological profile with multiple
effects that are potentially relevant for treating diabetes. The preclinical
work necessary to move it or an analog into human studies in 1998 is well
underway.
- - Acquired proprietary technology associated with GLP-1 secretion. Discovered a
few years earlier than amylin, glucagon-like peptide-1 (GLP-1) is a
gastrointestinal hormone with multiple effects on glucose metabolism. We have
now staked out an intellectual property position in this field and are
sponsoring clinical research aimed at further defining a possible role in
treating diabetes.
Goals for 1997
Our overriding goal for 1997 continues to be to stay on track for filing
pramlintide regulatory dossiers in North America and Europe by the end of 1998.
In 1997, we are aiming to meet the key milestones listed in the table below.
As described later in this report, the initiation of new research
programs is also a growing priority now that pramlintide has progressed into
full commercial development.
In closing, we thank our employees, our friends at Johnson & Johnson, our
many capable suppliers, and our loyal shareholders for making 1996 our best year
yet. Together we are working toward a goal that could improve the prognosis for
millions of patients with diabetes.
/S/ Richard M. Haugen /S/ Howard E. Greene
Richard m. Haugen Howard E. Greene
President and Chief Executive Officer Chairman of the Board
Diabetes
Diabetes is a major global health problem which is inadequately treated by
available drugs. The International Diabetes Federation estimates that over 100
million people worldwide are afflicted with this disease. Diabetes costs the
American economy over $100 billion each year. Diabetes occurs when the pancreas
no longer produces enough insulin, a hormone that regulates the metabolism of
blood glucose. In Type I (juvenile-onset) diabetes, which afflicts about 10% of
all people with diagnosed diabetes in developed countries, the pancreatic beta
cells that make insulin have been destroyed. In the more prevalent form of
diabetes, Type II (maturity-onset) diabetes, the insulin-producing cells are
unable to produce enough insulin to compensate for the patient's poor
sensitivity to insulin. In both Type I and Type II diabetes, the insulin
deficiency results in an abnormally high blood-glucose concentration
(hyperglycemia) which is an important cause of the degenerative complications
associated with diabetes, including blindness, kidney failure, and nerve damage
leading to amputations.
Despite 75 years of efforts to improve insulin therapy, most people with
diabetes have great difficulty achieving optimal glucose control with insulin
alone. In June 1993, the National Institutes of Health announced the results of
the Diabetes Control and Complications Trial (DCCT). This decade-long,
prospective study of over 1,400 people with Type I diabetes found that those
patients who used intensive insulin therapy to lower their blood-glucose
concentrations closer to the concentrations measured in non-diabetic individuals
reduced the risk of developing degenerative complications. New data analysis
from the DCCT (Diabetes, October 1996) noted that while lowering average blood
glucose into the normal range was the ideal, it was not necessary for patients
to achieve a specific glycemic threshold to experience a clinical benefit. That
is, any sustained lowering of glycated hemoglobin, a measure which reflects mean
blood-glucose concentrations, resulted in a decrease in the risk of diabetic
complications. However, in practice relatively few patients are able to maintain
the difficult therapeutic regimen and lifestyle accommodations necessary to
lower glycated hemoglobin via intensive insulin therapy. In addition, intensive
insulin therapy resulted in weight gain and a three-fold increase in the
incidence of serious hypoglycemia (dangerously low blood glucose) compared to
conventional insulin therapy. There is general agreement that there is a
significant need for new medicines for diabetes that can safely improve glucose
control without imposing unacceptable treatment and cost burdens.
<PAGE> 3
Amylin: The Partner Hormone in Glucose Control
In 1987, researchers at the University of Oxford discovered that the pancreatic
beta-cells which make insulin also produce a second hormone, amylin. Both amylin
and insulin concentrations normally increase after meals. In people with
diabetes who need insulin therapy, both the endogenous insulin and amylin
responses are deficient. Amylin has been shown to affect at least two processes
which are intimately involved in normal glucose metabolism: it modulates glucose
inflow into the bloodstream from the gastrointestinal tract, and it suppresses
secretion of glucagon, a hormone which stimulates glucose production by the
liver.
Pramlintide: The Drug Candidate
Since 1992, we have been conducting a series of clinical studies to determine if
replacing the desired actions of amylin -- using pramlintide, a better,
synthetic analog of human amylin -- can safely improve glucose control in people
with diabetes. Pramlintide is currently in Phase III clinical trials in North
America and Europe.
Our pramlintide development program includes 20 completed Phase I and
Phase II clinical studies involving more than 1,000 insulin-using people with
diabetes. Over 750 people with diabetes have completed two- or four-week dosing
periods in double-blind, placebo-controlled Phase II studies. In addition, the
Phase II program has included several mechanism-of-action studies. Specific
findings from these clinical investigations include the following:
o Pramlintide produced statistically significant and clinically relevant
reductions in blood-glucose concentrations in nine-out-of-nine Phase II clinical
trials assessing glucose control as measured: after meals in people with Type I
and Type II diabetes who use insulin; over a 24-hour period in people with Type
I diabetes; and over 28 days, by fructosamine, a surrogate marker which reflects
average blood-glucose concentrations over the two-to-three weeks prior to
testing, in people with Type I and Type II diabetes who use insulin.
o In contrast to intensive insulin therapy, glucose lowering was achieved in the
Phase II pramlintide studies without an increase in the incidence of
hypoglycemia compared to the placebo group.
o Pramlintide was well tolerated at the anticipated therapeutic doses.
o Syringe-mixing pramlintide and intermediate-acting insulin may lead to
improved glucose control compared to separate injections.
o No clinically important safety concerns have arisen to
date in Phase I, Phase II, and Phase III trials involving over 2,000 people.
Phase III Pivotal Clinical Trials
In June 1995, we began the PARADIGM trials, a Phase III program involving a
series of six pivotal studies designed to assess the long-term safety and
efficacy of pramlintide. The PARADIGM pivotal studies will involve approximately
2,600 people at more than 200 centers and are scheduled to be completed in 1998.
Using data from the PARADIGM studies, we plan to file for regulatory approval of
pramlintide in North America and Europe in late 1998.
The primary endpoint of the Phase III studies is reduction in glycated
hemoglobin (HbA1c), a measurement that is well accepted by regulatory
authorities and the medical community as the key indicator of long-term average
blood-glucose concentrations and a predictor of long-term degenerative
complications. HbA1c is the primary endpoint for marketing approval of other
diabetes drugs which are designed to lower blood glucose. Also, changes in
fructosamine have been shown to predict subsequent changes in HbA1c when the
improvement in glucose control is maintained over time. Consequently, if the
ability of pramlintide to lower 24-hour average blood glucose and fructosamine
seen during Phase II studies translates into long-term efficacy as evidenced by
a safe, clinically relevant, and statistically significant reduction in HbA1c in
Phase III trials, we believe pramlintide should be approvable as a drug to
improve glucose control in people with diabetes who use insulin therapy.
In mid-1995, we initiated a one-year Phase III efficacy study in people with
Type I diabetes and another in those with Type II diabetes who use insulin to
determine whether self-administered pramlintide can safely improve glucose
control. Enrollment in both of these studies was completed in June 1996. We plan
to disclose results from these first two Phase III studies in the third quarter
of 1997.
In December 1996, we initiated the final-four Phase III PARADIGM studies in
North America and Europe, two each in people with Type I and Type II diabetes
who use insulin. In addition to evaluating
<PAGE> 4
long-term safety and HbA1c reduction, these trials are also examining a variety
of dosing regimens to facilitate the integration of pramlintide into the
patients' current insulin therapy. We are also conducting open-label safety
studies, new-claims studies, mechanism-of-action studies, and drug-interaction
studies.
Optimizing Pramlintide's Role in Clinical Practice
All Phase III pivotal studies are designed for one purpose: to establish for
regulatory approval that a drug candidate is safe and effective for its intended
indication. In such studies, physicians and patients are blinded to the dosing,
and they are instructed to follow proscribed treatment regimens. For regulatory
purposes, efficacy of a glucose-lowering diabetes drug is largely determined by
a single measurement, namely the average reduction of glycated hemoglobin in the
study population.
Of course, in clinical practice, physicians and patients are not blinded to
dosing, and they adjust treatment regimens to optimize results for individual
needs. It is also understood that effects other than just lowering glycated
hemoglobin may be important for certain physicians and patients.
For these reasons, we are supplementing our pivotal trials with ancillary
clinical studies designed to assist physicians and patients in achieving optimal
benefits on an individual basis. In this regard, we are evaluating:
o Glucose-lowering effects for individual patients: Doctors do not treat "the
mean of 100 patients," they treat individual patients. The average
glucose-lowering effects of all diabetes drugs in test populations are comprised
of a wide range of individual patient responses. Thus, we are developing data to
show the distribution of pramlintide's glucose-lowering effects within our test
populations in order to demonstrate the magnitude of clinical benefit that can
be achieved by patients who may respond best to treatment with pramlintide.
o Dosing needs for individual patients: Diabetes is associated with
abnormalities of three pancreatic hormones, insulin, amylin, and glucagon.
Lifestyles, metabolic function, and hormone dysfunction vary widely among
patients with diabetes. Thus, we are developing data to help achieve optimal
amylin replacement therapy depending on the types of insulin used, the number of
daily doses, the size of each dose, and lifestyle patterns of individual
patients.
o Secondary clinical endpoints: Although improved glucose control (i.e., lower
glycated hemoglobin) is the first goal of diabetes therapy, there are other
treatment considerations which affect drug choices. For example, too much
insulin causes hypoglycemia and weight gain, and may even contribute to
cardiovascular problems. As a result, many patients who have achieved
satisfactory glucose control desire to reduce their insulin dose. Thus, we are
developing data about secondary endpoints, including reductions of insulin
usage, mitigation of hypoglycemic events, and maintenance of appropriate weight,
blood pressure, and lipid profiles.
Following regulatory approval of pramlintide, our marketing goal will be to meet
the needs of physicians and patients in clinical practice. To achieve this goal,
we have designed a development program whose three phases will comprise 40
studies involving almost 5,000 patients. Our pivotal studies include a multitude
of dose levels and frequencies; we continue to conduct additional studies of
various treatment options (e.g., syringe-mixing with insulin and use of pen
injectors); and we are sponsoring open-label safety studies.
So far in 1997, we have reported the preliminary results of syringe-mixing with
insulin, and we plan to report additional data from ancillary studies as they
become available.
Johnson & Johnson Collaboration
In June 1995, we entered into a worldwide collaboration with Johnson & Johnson
to develop and commercialize pramlintide. Under the collaboration agreement, we
are the lead party in developing and registering pramlintide, and Johnson &
Johnson is the lead party in commercializing and marketing pramlintide. We both
share equally in the development and commercialization costs incurred for
pramlintide as well as sharing equally in any profits or losses after commercial
launch. Through December 1996, Johnson & Johnson has made payments to us
totaling $91 million, including payment of one-half of pramlintide's development
costs, license fees, milestone and option-fee payments, pre-launch marketing
costs, and the purchase of $30 million of our common stock.
We believe that Johnson & Johnson brings unique characteristics to our
partnership, given its established relationship with people who use insulin and
its experience in marketing. Johnson & Johnson's pharmaceutical market access
and established consumer relationships should provide the necessary platform for
the future commercialization of pramlintide. In addition, Johnson & Johnson's
LifeScan subsidiary, a global leader in the sale of blood-glucose monitors and
test strips, has a strong
<PAGE> 5
franchise in the diabetes market that provides broad access to diabetes
specialists and millions of people with diabetes.
In August 1996, we achieved the first milestone in the collaboration when,
following an administrative interim review of data from the first two, one-year
Phase III clinical trials, Johnson & Johnson decided to continue the
collaboration. The review included an analysis of HbA1c reductions after three
months of dosing in patients receiving pramlintide or placebo in the various
arms of these two trials, and the safety data set which had accrued from these
two studies. As a result, Johnson & Johnson made $22 million in
milestone-related payments to the Company.
Johnson & Johnson's ongoing financial commitment includes the funding of 50% of
development costs and 100% of pre-launch marketing costs (our one-half share to
be repaid over time from future profits), as well as future potential milestone
payments, license fees, $15 million in further equity investments, and a
development loan for use in certain circumstances to cover our share of
development expenses.
Expanding Medical Education Efforts
We and Johnson & Johnson have conducted market research with physicians and
consumers in North America and Europe. We believe these studies have allowed us
to optimize plans for commercial launch of pramlintide. These plans, developed
jointly by us and Johnson & Johnson, are focused on building a solid foundation
of opinion-leader advocacy and clinical support for the fundamental role of
pramlintide in the regulation of blood-glucose levels. Our plans also identify
key education initiatives and communication strategies for ensuring patient and
physician knowledge.
Beyond Amylin: Expanding Our Product Portfolio
In September 1997, we will celebrate the tenth anniversary of our Company's
founding. Until recently, we have focused primarily on understanding the role of
amylin in metabolism and on showing how this knowledge can improve the treatment
of diabetes. We are proud to be one of a very small number of biotechnology
companies who, in their first decade, remained committed to their founding
visions and created a first-in-class drug candidate addressing a major medical
need in their own research labs.
Looking forward, we plan to continue investigating the full role and medical
importance of amylin. Although we have confirmed in humans two mechanisms which
likely account at least in part for amylin's effect in lowering blood-glucose
concentrations after eating, our preclinical studies in animal models point to
the possibility of other effects which may contribute to normal, healthy
metabolism. For example, we have evidence in animal models that amylin may play
a role in the homeostasis of bone metabolism, as well as the control of body
weight, both of which are problems in diabetes. The discovery of amylin has
opened a new window on endocrinology and metabolism - and we hope to discover
other important medical uses for this human hormone.
Meanwhile, in 1996 we began the process of diversifying our research base to
include other, non-amylin directed programs. We did so because:
o We have completed much of the basic preclinical research necessary to support
submissions to regulatory authorities for marketing of amylin replacement
therapy.
o Our expertise gained in exploring the biology and chemistry of amylin and
several related compounds is directly applicable to the research of new drug
targets for treating metabolic diseases, including diabetes, obesity, and
dyslipidemia.
o Looking forward to the time when we plan for pramlintide to be on the market,
we aim to have a diversified research and development pipeline that will
optimize the probability of successful follow-on products.
Our three new research programs include the discovery and validation of
biological molecules relevant to fat metabolism and obesity; exploration of the
possible role for GLP-1 in treating Type I diabetes; and preclinical work toward
beginning human studies of exendin as a drug candidate for treating Type I and
insulin-using Type II diabetes. During 1997, we plan to continue announcing
non-amylin research initiatives, and to report progress in each of these
programs as new data become available.
Our Diversification Strategy
We are evaluating potential drug leads and product candidates against two
criteria:
- - Do they build on the technical and business competencies created by
our pioneering research on amylin? In the last decade, we have established
metabolic models for characterizing the biological
<PAGE> 6
activities of molecules in cell preparations, isolated tissues, and whole
animals. We have accumulated substantial experience in the synthesis and testing
of peptides, in the discovery and design of analogs of these peptides, and in
the pharmacology of their interaction with several important families of
receptors. We are organized to ensure an efficient interface between our
preclinical research, product, and clinical development teams. We are
experienced in collaborating with academic and industrial organizations - both
big and small. And, we are willing to investigate ideas that may lie outside of
conventional dogma in metabolism.
- - Do they address large important, unmet medical needs in the field of metabolic
disorders? An array of metabolic disorders includes diabetes, obesity,
dyslipidemia, and other disorders - health problems which often cluster in the
same individuals for reasons that are not yet clear. Two factors are driving the
rationale for discovering new medicines to deal with these health problems:
First, increasing prosperity is resulting in longer life spans and more
sedentary, high-calorie lifestyles - trends which have caused an alarming
increase in the global incidence of metabolic disorders. Second, rapid advances
in genomics, molecular biology, and drug-discovery technologies are providing
realistic opportunities for new classes of medicines to deal with metabolic
problems. In elucidating the role of the human hormone amylin in carbohydrate
and lipid metabolism, we have built a corporate expertise in understanding
complex metabolic pathways and abnormalities.
Thus, during 1997 we will aggressively pursue opportunities to work on ideas
that may lead to the next generation of major metabolic drugs. Since a large
amount of research is underway around the world in this arena, we plan to
continue establishing collaborations that can ultimately feed our development
pipeline. As pramlintide moves through late-stage clinical development, our
credibility as pioneers in metabolic medicines is growing, and we will leverage
that reputation to expand our product pipeline.
Going forward, we will become more commercially oriented as we expand
manufacturing and marketing activities for pramlintide through our relationship
with Johnson & Johnson. But we will never, never forget the roots of our
success: we are a science-driven company focused on delivering innovative and
important new medicines for better healthcare.
This Annual Report contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those discussed herein,
due to the research, development, and market risks which could adversely affect
the Company's timeline for clinical trials, for regulatory approval, and if such
approval is received, time to market thereafter. Additional risks and
uncertainties are described in the Company's most recently filed SEC documents,
such as its Form 10-K for the year ended December 31, 1996.
Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues under collaborative agreements:
Related party $ 35,803,000 $ 17,045,000 - - -
Other - - $ 500,000 $ 667,000 $ 667,000
- --------------------------------------------------------------------------------------------------------------------------------
35,803,000 17,045,000 500,000 667,000 667,000
Expenses:
Research and development 64,998,000 39,337,000 30,255,000 18,988,000 15,368,000
General and administrative 10,420,000 8,318,000 6,383,000 4,387,000 2,834,000
- --------------------------------------------------------------------------------------------------------------------------------
75,418,000 47,655,000 36,638,000 23,375,000 18,202,000
Net Interest Income 1,828,000 1,341,000 1,637,000 2,195,000 2,612,000
- --------------------------------------------------------------------------------------------------------------------------------
Net loss $(37,787,000) $(29,269,000) $(34,501,000) $(20,513,000) $(14,923,000)
- --------------------------------------------------------------------------------------------------------------------------------
Net loss per share $ (1.31) $ (1.23) $ (1.71) $ (1.15) $ (0.87)
- --------------------------------------------------------------------------------------------------------------------------------
Shares used in calculating of
net loss per share 28,744,822 23,853,606 20,184,875 17,867,399 17,111,374
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheets Data:
Cash, cash equivalents and
short-term investments $ 62,123,000 $ 53,521,000 $ 29,149,000 $ 56,250,000 $ 54,331,000
Working capital 46,691,000 45,268,000 26,209,000 54,435,000 52,773,000
Total assets 73,533,000 61,949,000 37,306,000 62,029,000 57,823,000
Long term obligation under capital leases
and long term equipment notes payable 1,990,000 1,410,000 2,177,000 819,000 720,000
Long term note payable to related party 4,345,000 1,020,000 - - -
Accumulated deficit (155,105,000) (117,318,000) (88,049,000) (53,548,000) (33,035,000)
Total stockholders' equity 48,534,000 49,754,000 30,869,000 58,162,000 53,866,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Since its inception the Company has never declared a cash dividend.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Except for the historical information contained herein, the discussion in this
report contains forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from those discussed in
this report due to the research, development, and market risks which could
adversely affect the Company's timeline for clinical trials, for regulatory
approval, and if such approval is received, time to market thereafter.
Additional factors that could cause or contribute to such differences include,
without limitation, those discussed in the section entitled "Liquidity and
Capital Resources" herein as well as those discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 under the heading "Risk
Factors."
Since its inception in September 1987, Amylin Pharmaceuticals, Inc.
("Amylin Pharmaceuticals" or the "Company") has devoted substantially all of its
resources to its research and development programs. Substantially all of the
Company's revenues to date have been derived from fees and expense
reimbursements under collaborative agreements and from interest income. Amylin
Pharmaceuticals has not received any revenues from the sale of products. The
Company has been unprofitable since its inception and expects to incur
additional operating losses for the next several years. As of December 31, 1996,
the Company's accumulated deficit was approximately $155 million.
Results of Operations for the Years Ended December 31, 1996, 1995 and 1994
Revenue The Company's revenues were $35.8 million in 1996, $17.0 million in 1995
and $0.5 million in 1994. The revenues recognized in 1996 and 1995 are related
to the Company's Collaboration Agreement with LifeScan, Inc., a wholly owned
subsidiary of Johnson & Johnson, hereinafter referred to as Johnson & Johnson.
Revenues in 1996 were comprised of Johnson & Johnson's one-half share of
collaboration development expenses incurred by the Company during the year and
$7.0 million in milestone and option fee payments paid in the third quarter of
the year. Revenues in 1995 were comprised of Johnson & Johnson's one-half share
of collaboration development expenses incurred by
<PAGE> 7
the Company along with a license fee which was paid at the signing of the
agreements. Revenues recognized in 1994 consisted of a research fee associated
with the Company's research, development, and commercialization agreements which
existed with Glaxo-Wellcome at that time. (Please see the "Liquidity and Capital
Resources" section for further discussion of payments expected to be received by
the Company in the future.)
Operating Expenses The Company's total operating expenses increased to $75.4
million in 1996 from $47.7 million in 1995 and $36.6 million in 1994, primarily
due to increases in research and development activities during those periods.
Research and development expenses increased to $65.0 million in 1996 from
$39.3 million in 1995 and $30.3 million in 1994. The increase in these
expenditures was primarily due to the costs of expanding pramlintide clinical
development efforts. Several other factors also contributed to this increase,
including increased staffing and expanded product development efforts.
General and administrative expenses increased to $10.4 million in 1996
from $8.3 million in 1995 and $6.4 million in 1994. Several factors contributed
to this increase, including increased pre-launch marketing efforts, increased
staffing to support expanded development efforts, and increased facilities
expenditures.
Other Income and Expense Interest and other income is principally comprised of
interest income from investment of the Company's cash reserves. Interest and
other income increased to $2.3 million in 1996 from $1.6 million in 1995. The
increase was primarily due to an overall higher average cash balance available
for investment in 1996 as compared to 1995. Interest and other income declined
from $1.9 million in 1994 to $1.6 million in 1995. The decrease in interest and
other income in 1995 as compared to 1994 was principally due to an overall lower
average cash balance available for investment and lower interest rates.
Interest and other expense is principally comprised of interest expense
resulting from long-term debt obligations. Debt financing has been utilized by
the Company to acquire laboratory and other equipment and to fund tenant
improvements to the Company's facilities. In addition, in accordance with the
terms of the Company's Collaboration Agreement with Johnson & Johnson, Johnson &
Johnson has advanced the Company's share of pramlintide pre-launch marketing
expenses incurred since the date of the collaboration, to be repaid with
interest over time out of the Company's share of future pramlintide profits, if
any. Interest and other expense was $0.4 million in 1996 as compared to $0.3
million in 1995 and $0.3 million in 1994. The increase in interest and other
expense is reflective of an overall higher long-term debt balance for each of
the years presented.
Net Loss The net loss for the year ended December 31, 1996 was $37.8 million as
compared to a net loss of $29.3 million in 1995 and $34.5 million in 1994. The
increase in the net loss in 1996 as compared to 1995 was the result of expanded
clinical development and product development efforts in support of pramlintide.
The decrease in the net loss in 1995 as compared to 1994 was the result of
increased revenues received in 1995 as compared to 1994.
Amylin Pharmaceuticals expects to incur substantial operating losses over
the next several years due to continuing and increasing expenses associated with
its research and development programs, including preclinical and clinical
testing of multiple product candidates, and related general and administrative
support. Operating losses may fluctuate from quarter to quarter as a result of
differences in the timing of expenses incurred and revenues recognized.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations primarily through
private placements of preferred stock, sales of common stock, its collaboration
with Johnson & Johnson, and operating and capital lease obligations.
In June 1995, the Company entered into a worldwide Collaboration
Agreement with Johnson & Johnson for the development and commercialization of
pramlintide, a diabetes drug candidate currently in Phase III clinical trials.
In conjunction with the Collaboration Agreement, the Company also entered into a
Stock Purchase Agreement with Johnson & Johnson Development Corporation (a
wholly owned subsidiary of Johnson & Johnson referred to herein as Johnson &
Johnson) and a Loan Agreement with Johnson & Johnson.
<PAGE> 8
In August 1996, the Company achieved the first milestone in the
collaboration when, based upon an administrative review of three-month data from
the first two, one-year Phase III clinical trials, Johnson & Johnson decided to
continue the collaboration. As a result, Johnson & Johnson made additional
payments associated with the milestone to the Company totaling $22.0 million, in
addition to providing significant ongoing development support. The additional
payments associated with the milestone included $7.0 million in milestone and
option fee payments and the purchase of $15.0 million of the Company's common
stock. The milestone equity payment was completed on November 6, 1996 and
resulted in the sale of 1.5 million of the Company's common shares to Johnson &
Johnson. These shares were exempted from registration with the Securities and
Exchange Commission in accordance with Section 4(2) of the Securities Act of
1993, as amended. In compliance with Food and Drug Administration guidelines,
the data that were the subject of the administrative interim review may not be
disclosed until the completion of the studies. There can be no assurance that
such data will ultimately support the marketing approval of pramlintide as a
drug for the treatment of diabetes.
In March 1997, Johnson & Johnson exercised an option to broaden the scope
of their existing collaboration on pramlintide and paid the Company $6 million
to obtain additional rights for all amylin agonists for treatment or prevention
of fuel metabolism disorders, including diabetes. The Company will lead the
research and development while Johnson & Johnson will lead commercialization of
any future product candidates.
In addition to the above mentioned milestone-related payments and
investment, Johnson & Johnson's financial commitment to the Company now includes
the funding of 50% of development costs and 100% of pre-launch marketing costs
(Amylin Pharmaceutical's one-half share to be repaid over time from future
profits), as well as milestone payments, license fees, equity investments, and a
development loan facility for use in certain circumstances. The Company will
apply all of the license fees, any cash milestone payments, 50% of the proceeds
from Johnson & Johnson's equity investments, and proceeds from draw downs under
the development loan facility towards its share of pramlintide development
expenses.
Funding available to the Company from Johnson & Johnson as of December
31, 1996 under the development loan facility (the "Development Loan Facility")
was $53.7 million. The aggregate amount of the Development Loan Facility is
subject to adjustment for certain events, e.g., increased by 50% of any
increases in the pramlintide development budget as of December 31, 1996 and
decreased by 50% of the Company's net proceeds received from future debt or
equity offerings to investors other than Johnson & Johnson or other corporate
partners. The Company is required to issue a warrant to Johnson & Johnson to
purchase 50,000 shares of the Company's common stock at an exercise price of
$12.00 per share for every $1 million of proceeds borrowed by the Company under
the Development Loan Facility. Under the terms of the Loan Agreement, the
Company is eligible in certain circumstances to make quarterly draw downs on the
then available Development Loan Facility based on pramlintide development
expenses during specified periods. The projected aggregate amount available to
be borrowed by the Company under the Development Loan Facility during 1997 is
$38.9 million, which is subject to adjustment based on changes to the
pramlintide development budget and on certain corporate financing activities.
The Company is dependent on the future payments from Johnson & Johnson to
continue development and commercialization of pramlintide. Johnson & Johnson may
terminate the Collaboration Agreement subject to a notice period of six months.
Johnson & Johnson's financial and other obligations under the Collaboration
Agreement would continue during any such termination notice period. In addition,
Johnson & Johnson has the right to terminate the Collaboration Agreement at any
time based on material safety or tolerability issues. Without Johnson &
Johnson's continued collaborative support, the Company might not be able to
continue the pramlintide development program, and the Company's financial
condition would be materially adversely affected.
As of December 31, 1996, Johnson & Johnson entities have made various
financial payments to the Company totaling approximately $91 million. These
payments primarily include funding of one-half of the pramlintide development
costs, the purchase of $30 million of the Company's common stock, milestone and
option fee payments, and a license fee.
At December 31, 1996, the Company had $62.1 million in cash, cash
equivalents and short-term investments as compared to $53.5 million at December
31, 1995. The Company invests its cash in U.S. government and other highly rated
liquid debt instruments.
<PAGE> 9
In November 1996, the Company completed concurrent stock offerings which
raised net proceeds of approximately $33.8 million. A public offering of 2.0
million shares of its common stock provided net proceeds of approximately $18.8
million. Concurrent with the closing of this offering, in a separate
transaction, the Company sold 1.5 million shares of its common stock directly to
Johnson & Johnson providing net proceeds of approximately $15.0 million. Johnson
& Johnson's purchase of such shares was the result of the Company's achievement
of the first milestone in its collaboration with Johnson & Johnson in August
1996.
The Company intends to use its financial resources for the ongoing
development of pramlintide, including the Phase III efficacy studies, and for
expansion of its other research, drug discovery and development programs, and
other general corporate purposes. To the extent that clinical trials of the
Company's compounds progress as planned, research and development expenses will
include costs of supplying materials for and conducting pramlintide clinical
trials, and research activities to further explore amylin biology, and research
and development of other compounds targeted at metabolic diseases. The amounts
actually expended for each purpose may vary significantly depending upon
numerous factors, including the progress of the Company's research and
development programs, the results of preclinical and clinical studies, the
timing of regulatory submissions and approvals, if any, technological advances,
determinations as to commercial potential of the Company's compounds, and the
status of competitive products. Expenditures will also depend upon the continued
participation of Johnson & Johnson in the collaboration, the availability of
additional sources of funds, the establishment of collaborative arrangements
with other companies, and other factors.
The Company currently leases or sub-leases approximately 84,000 square
feet of space. The Company intends to sub-lease additional office and laboratory
space for its research and development staffs in the first quarter of 1997.
Should the Company lease this additional space, the terms of the lease will be
at competitive market rates. At this time, the Company expects to incur
approximately $5.3 million of capital expenditures in 1997. These expenditures
will primarily be directed toward the purchase of new equipment to support
research and development efforts and for tenant improvements for newly
sub-leased space. In addition, some capital expenditures will be directed toward
the purchase of equipment coming off of lease lines which will expire during the
year. The Company has entered into a loan agreement for the financing of the
majority of its equipment needs and intends to use this financing source during
1997. The Company anticipates that it will utilize approximately $3.4 million of
debt financing and $1.9 million of its own cash reserves for capital
expenditures in 1997. The terms of the Company's loan agreement call for amounts
drawn down under the loan to be repaid monthly over a four year period.
The Company does not expect to generate a positive internal cash flow for
several years due to substantial additional research and development costs,
including costs related to drug discovery, preclinical testing, clinical trials,
manufacturing costs, and general and administrative expenses necessary to
support such activities. In addition to the 1997 and 1998 funding of 50% of the
six pivotal studies and other ancillary studies in the pramlintide clinical
program, the Company plans to expand its research and development pipeline by
licensing new technologies and product candidates. The Company anticipates that
its existing cash including the proceeds of its stock offerings completed in
November, interest income from cash investments, and financial payments and loan
facilities from Johnson & Johnson, will be adequate to satisfy the Company's
capital requirements through 1998. As an alternative to the additional funding
available through the Johnson & Johnson Development Loan Facility (as described
above), the Company may also consider additional equity offerings. Assuming
continued participation by Johnson & Johnson, the Company believes it has
reasonable alternatives to meet the financial needs of its programs. However,
there can be no assurance that additional financial resources will be raised in
the necessary time frame or on terms favorable to the Company.
The Company cannot assure that any of its drug candidates will
successfully meet all of their development goals. Important technical milestones
remain to be achieved before Amylin Pharmaceuticals can commercialize any of its
products, and failure to achieve these milestones could seriously jeopardize the
Company's chances of success, and its financial condition would be adversely
affected. The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the magnitude of these programs, progress with preclinical and
clinical trials, the time and costs involved in preparing regulatory submissions
and seeking regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining, and enforcing patents, competing technological and
market developments,
<PAGE> 10
changes in the Johnson & Johnson collaboration, the ability of the Company to
establish collaborative arrangements for its other research and development
programs, and the cost of manufacturing scale-up.
Prior to marketing, any drug developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory approval
process mandated by the Food and Drug Administration (FDA) and equivalent
foreign authorities. Human clinical testing is now underway on the Company's
first product candidate, pramlintide. Subject to compliance with FDA
regulations, the Company plans to complete extensive clinical testing to
demonstrate optimal dose, safety, and efficacy for its product candidates in
humans. Although preliminary clinical data about pramlintide's possible clinical
value warrants continuing Phase III trials, there can be no assurance that these
larger and longer studies will confirm the results of the Phase I and Phase II
studies to date. Further testing of pramlintide and the Company's other product
candidates in research or development may reveal undesirable and unintended side
effects or other characteristics that may prevent or limit their commercial use.
The Company or the FDA may suspend clinical trials at any time if the subjects
or patients participating in such trials are being exposed to unacceptable
health risks. There can be no assurance that the Company will not encounter
problems in clinical trials which will cause the Company or the FDA to delay or
suspend clinical trials. In addition, there can be no assurance that any of the
Company's products will obtain FDA approval for any indication. Products, if
any, resulting from Amylin Pharmaceuticals' research and development programs
are not expected to be commercially available for a number of years.
In addition, the Company believes that patent and other proprietary
rights are important to its business, and in this regard intends to file
applications as appropriate for patents covering both its products and
processes. Litigation, which could result in substantial cost to the Company,
may also be necessary to enforce any patents issued to the Company or to
determine the scope and validity of third-party proprietary rights. The Company
has received letters from the University of Minnesota (the "University")
asserting that pramlintide is covered by a patent (the "University Patent")
which was licensed to the Company pursuant to a License Agreement dated November
11, 1991 among the Company, the University and Per Westermark ("Westermark")
(the "University License Agreement"). In its letters, the University claims that
it is entitled to 50% of any sublicense fees received by the Company from
sublicensing the University Patent to Johnson & Johnson pursuant to the
Company's Collaboration Agreement with Johnson & Johnson, as well as future
royalties as specified in the University License Agreement. The Company has
informed the University that no such sublicensing moneys have been received by
the Company from Johnson & Johnson, who is not a sublicensee under the
University Patent. On December 5, 1996, the Company filed a complaint against
the University and Westermark in the U.S. District Court for the Southern
District of California seeking a declaratory judgment that pramlintide is not
covered by the University Patent and that no moneys are owed to the University
or Westermark. Although discussions are underway with the University, the
Company expects that the lawsuit will become active in the near future if
agreement is not reached. The Company believes the University's assertions are
without merit and intends to defend vigorously against any claims that may be
brought by the University against the Company related to the foregoing. In
addition, should any of the Company's competitors have prepared and filed patent
applications in the United States which claim technology also invented by the
Company, Amylin Pharmaceuticals may have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office in order to
determine priority of invention and, thus, the right to a patent for the
technology, all of which could result in substantial cost to the Company to
determine its rights. It is uncertain whether any third-party patents will
require the Company to alter its products or processes, obtain licenses, or
cease certain activities. If any licenses are required, there can be no
assurances that the Company will be able to obtain any such license on
commercially favorable terms, if at all. Failure by the Company to obtain a
license to any technology that it may require to commercialize its products may
have a material adverse impact on the Company.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,654,000 $ 16,709,000
Short-term investments 19,469,000 36,812,000
Receivable from related party 2,089,000 223,000
Other current assets 1,142,000 1,272,000
- ------------------------------------------------------------------------------------------------------
Total current assets 65,354,000 55,016,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
December 31, 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment, at cost:
Equipment $ 11,480,000 $ 8,370,000
Leasehold improvements 3,349,000 3,181,000
- -----------------------------------------------------------------------------------------------------
14,829,000 11,551,000
Less accumulated depreciation and amortization (8,075,000) (5,798,000)
- -----------------------------------------------------------------------------------------------------
6,754,000 5,753,000
Patents and other assets, net 1,425,000 1,180,000
- -----------------------------------------------------------------------------------------------------
$ 73,533,000 $ 61,949,000
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,829,000 $ 1,477,000
Accrued liabilities 4,628,000 2,886,000
Deferred revenue from related party 7,954,000 4,618,000
Current portion of obligations under capital
leases and equipment notes payable 1,253,000 767,000
- -----------------------------------------------------------------------------------------------------
Total current liabilities 18,664,000 9,748,000
Obligations under capital leases and equipment notes payable 1,990,000 1,410,000
Note payable to related party 4,345,000 1,020,000
Other -- 17,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 7,500,000 shares authorized,
none issued and outstanding -- --
Common stock, $.001 par value, 50,000,000 shares authorized,
31,977,186 and 28,017,839 issued and outstanding at
December 31, 1996 and 1995, respectively 32,000 28,000
Additional paid-in capital 204,800,000 166,994,000
Accumulated deficit (155,105,000) (117,318,000)
Deferred compensation (1,177,000) --
Unrealized gains (losses) on short-term investments (16,000) 50,000
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity $ 48,534,000 $ 49,754,0000
- -----------------------------------------------------------------------------------------------------
73,533,000 $ 61,949,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE> 12
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues under collaborative agreements:
Related party $ 35,803,000 $ 17,045,000 $ --
Other -- -- 500,000
- ------------------------------------------------------------------------------------------------
35,803,000 17,045,000 500,000
Expenses:
Research and development 64,998,000 39,337,000 30,255,000
General and administrative 10,420,000 8,318,000 6,383,000
- ------------------------------------------------------------------------------------------------
75,418,000 47,655,000 36,638,000
- ------------------------------------------------------------------------------------------------
Loss from operations (39,615,000) (30,610,000) (36,138,000)
Interest and other income 2,274,000 1,640,000 1,899,000
Interest and other expense (446,000) (299,000) (262,000)
- ------------------------------------------------------------------------------------------------
Net loss $(37,787,000) $ (29,269,000) $ (34,501,000)
- ------------------------------------------------------------------------------------------------
Net loss per share $ (1.31) $ (1.23) $ (1.71)
- ------------------------------------------------------------------------------------------------
Shares used in computing net loss per share 28,744,822 23,853,606 20,184,875
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common stock paid-in Accumulated
For the three years ended December 31, 1996 Shares Amount capital deficit
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 19,675,715 $20,000 $113,066,000 $ (53,548,000)
Cumulative effect of adjustment for
unrealized gains on available-for-sale securities -- -- -- --
Issuance of common stock in private placement 1,044,858 1,000 6,734,000 --
Repurchase of common stock (2,078) -- -- --
Issuance of common stock upon exercise of options 109,833 -- 422,000 --
Repayment of notes receivable for issuance of common stock -- -- -- --
Amortization of deferred compensation -- -- -- --
Unrealized loss on available-for-sale securities -- -- -- --
Net loss -- -- -- (34,501,000)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 20,828,328 21,000 120,222,000 (88,049,000)
Issuance of common stock in private placement 1,086,957 1,000 7,477,000 --
Issuance of common stock in public offerings 6,010,769 6,000 38,969,000 --
Issuance of common stock upon exercise of options 91,785 -- 409,000 --
Repayment of notes receivable for issuance of common stock -- -- -- --
Deferred compensation related to stock options -- -- (83,000) --
Amortization of deferred compensation -- -- -- --
Unrealized gain on available-for-sale securities -- -- -- --
Net loss -- -- -- (29,269,000)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 28,017,839 28,000 166,994,000 (117,318,000)
Issuance of common stock in public offering 2,012,500 2,000 18,767,000 --
Issuance of common stock in private placement 1,500,000 1,000 14,999,000 --
Issuance of common stock upon exercise of options 446,847 1,000 1,967,000 --
Deferred compensation related to stock options -- -- 2,073,000 --
Amortization of deferred compensation -- -- -- --
Unrealized loss on available-for-sale securities -- -- -- --
Net loss -- -- -- (37,787,000)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 31,977,186 $32,000 $204,800,000 $(155,105,000)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Notes receivable gains (losses) on Total
Deferred from short-term stockholders'
For the three years ended December 31, 1996 Compensation stockholders investments equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $(1,284,000) $(92,000) $ -- $ 58,162,000
Cumulative effect of adjustment for
unrealized gains on available-for-sale securities -- -- 5,000 5,000
Issuance of common stock in private placement -- -- -- 6,735,000
Repurchase of common stock -- -- -- --
Issuance of common stock upon exercise of options -- -- -- 422,000
Repayment of notes receivable for issuance of common stock -- 71,000 -- 71,000
Amortization of deferred compensation 668,000 -- -- 668,000
Unrealized loss on available-for-sale securities -- -- (692,000) (692,000)
Net loss -- -- -- (34,501,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 (616,000) (21,000) (687,000) 30,870,000
Issuance of common stock in private placement -- -- -- 7,478,000
Issuance of common stock in public offerings -- -- -- 38,975,000
Issuance of common stock upon exercise of options -- -- -- 409,000
Repayment of notes receivable for issuance of common stock -- 21,000 -- 21,000
Deferred compensation related to stock options 83,000 -- -- --
Amortization of deferred compensation 533,000 -- -- 533,000
Unrealized gain on available-for-sale securities -- -- 737,000 737,000
Net loss -- -- -- (29,269,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 -- -- 50,000 49,754,000
Issuance of common stock in public offering -- -- -- 18,769,000
Issuance of common stock in private placement -- -- -- 15,000,000
Issuance of common stock upon exercise of options -- -- -- 1,968,000
Deferred compensation related to stock options (2,073,000) -- -- --
Amortization of deferred compensation 896,000 -- -- 896,000
Unrealized loss on available-for-sale securities -- -- (66,000) (66,000)
Net loss -- -- -- (37,787,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $(1,177,000) $ -- $ (16,000) $ 48,534,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net loss $(37,787,000) $(29,269,000) $(34,501,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,345,000 2,069,000 1,625,000
Deferred revenue from related party 3,336,000 4,618,000 (500,000)
Deferred rent and other expense (25,000) (25,000) (32,000)
Amortization of deferred compensation 896,000 533,000 668,000
Changes in operating assets and liabilities:
Receivable from related party (1,866,000) (223,000) --
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other current assets 130,000 6,000 (113,000)
Accounts payable 3,352,000 302,000 710,000
Accrued liabilities 1,750,000 765,000 758,000
- --------------------------------------------------------------------------------------------------------------------------------
Net cash flows used in operating activities (27,869,000) (21,224,000) (31,385,000)
Investing Activities:
Purchases of short-term investments (38,972,000) (38,208,000) (8,516,000)
Maturities of short-term investments 29,642,000 11,326,000 24,962,000
Sales of short-term investments 26,607,000 12,595,000 7,271,000
Purchase of equipment and leasehold improvements (3,278,000) (1,999,000) (2,578,000)
Increase in patents and other assets (313,000) (124,000) (150,000)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) investing activities 13,686,000 (16,410,000) 20,989,000
Financing Activities:
Issuance of notes payable 5,379,000 1,020,000 1,250,000
Principal payments on capital leases and equipment notes payable (988,000) (921,000) (780,000)
Issuance of common stock, net 35,737,000 46,883,000 7,228,000
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows provided by financing activities 40,128,000 46,982,000 7,698,000
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 25,945,000 9,348,000 (2,698,000)
Cash and cash equivalents at beginning of year 16,709,000 7,361,000 10,059,000
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 42,654,000 $ 16,709,000 $ 7,361,000
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 281,000 $ 290,000 $ 262,000
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Schedule of Noncash Investing and Financing Activities:
Capital lease obligations entered into for equipment $ -- $ -- $ 1,163,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
Notes to Consolidated Financial Statements
1. The Company and Summary of Significant Accounting Policies:
The Company Amylin Pharmaceuticals ("Amylin" or the "Company") was incorporated
in Delaware on September 29, 1987. The Company is focused on developing novel
therapeutics for treating people with metabolic disorders. The Company is
conducting a series of Phase III clinical trials of its lead
<PAGE> 14
drug candidate, Pramlintide, which is being developed to improve glucose control
in people with Type I (juvenile-onset) and Type II (maturity-onset) diabetes who
use insulin.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Amylin Europe Limited.
All significant intercompany transactions and balances have been eliminated in
consolidation.
Research Revenues Under Collaborative Agreements and Research and Development
Costs: Research revenues under collaborative agreements are recorded when earned
as research activities are performed. Payments in excess of amounts earned are
deferred. Research and development costs are expensed as incurred.
Cash, Cash Equivalents and Short-term Investments: Cash, cash equivalents and
short-term investments consist principally of U.S. government securities and
other highly liquid debt instruments. The Company considers instruments with
remaining maturities of less than 90 days when purchased to be cash equivalents.
Concentration of Credit Risk: The Company invests its excess cash in U.S.
government securities and debt instruments of financial institutions and
corporations with strong credit ratings. The Company has established guidelines
relative to diversification and maturities to maintain safety and liquidity.
These guidelines are periodically reviewed.
Investments: The Company has classified its debt securities as
available-for-sale, and accordingly, carries its short-term investments at fair
value, and unrealized holding gains or losses on those securities are carried as
a separate component of stockholders' equity. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income. Realized gains and losses and declines in value judged to be
other-than-temporary (of which there have been none to date) on
available-for-sale securities are included in interest income. The cost of
securities sold is based on the specific identification method.
Asset Impairments: Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. SFAS No. 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption of SFAS 121 did not
have a material impact on the Company's financial position or results of
operations.
Depreciation and Amortization: Depreciation of equipment is computed using the
straight-line method over two to five years. Leasehold improvements are
amortized over the shorter of the estimated useful lives of the assets or the
remaining term of the lease. Amortization of equipment under capital leases is
reported with depreciation of property and equipment. Patents consist of patent
filing costs which are amortized over the shorter of the legal life or the
estimated useful life of the patents when issued.
Net Loss Per Share: Net loss per share is computed using the weighted average
number of shares outstanding during the periods presented in the accompanying
statements of operations.
Options: The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related Interpretations
("APB 25") in accounting for its employee stock options. Under APB 25, when the
exercise price of the Company's employee stock options is not less than the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the
<PAGE> 15
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. Investments
The following is a summary of investments as of December 31, 1996 and 1995,
including $31,543,000 and $12,114,000 classified as cash equivalents in the
accompanying balance sheets as of December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Available-for-Sale Securities
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996
U.S. Treasury securities and obligations of
U.S. government agencies $21,955,000 $ -- $(13,000) $21,942,000
Corporate debt securities 29,073,000 -- (3,000) 29,070,000
- -------------------------------------------------------------------------------------------------------------------
Total $51,028,000 $ -- $(16,000) $51,012,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale Securities
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995
U.S. Treasury securities and obligations
of U.S. government agencies $43,750,000 $78,000 $(28,000) $43,800,000
Corporate debt securities 5,126,000 -- -- 5,126,000
- -------------------------------------------------------------------------------------------------------------------
Total $48,876,000 $78,000 $(28,000) $48,926,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The gross realized gains on sales of available-for-sale securities
totaled $29,000 and $3,000 and the gross realized losses totaled $5,000 and
$122,000 for the years ended December 31, 1996 and 1995, respectively.
The amortized cost and estimated fair value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Cost Fair Value
- ---------------------------------------------------------
<S> <C> <C>
Available for sale:
Due in one year or less $51,028,000 $51,012,000
- ---------------------------------------------------------
</TABLE>
3. Commitments
Leases: The Company leases its facilities and certain machinery and equipment
under operating and capital leases. The minimum annual rent on the Company's
facilities is subject to increases based on changes in the Consumer Price Index
(subject to certain minimum and maximum bi-annual increases), stated rental
adjustment terms of certain leases, taxes, insurance and operating costs.
Certain leases contain provisions which call for a security deposit or letter of
credit to be provided should the Company's cash balances fall below certain
minimum levels. The Company's equipment leases contain provisions which provide
the Company with the right to buy the equipment at the end of the lease term.
Certain equipment leases require the Company to provide the lessor with a
<PAGE> 16
guaranteed residual at the end of the lease term at which time title to the
equipment passes to the Company.
Minimum future obligations for capital and operating leases for years ending
after December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Operating Capital
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
1997 $1,241,000 $ 588,000
1998 338,000 230,000
1999 277,000 --
2000 130,000 --
---------- ----------
Total minimum lease payments $1,986,000 818,000
==========
Less amount representing interest (59,000)
----------
Present value of future minimum capital lease payments 759,000
Less amount due in one year (531,000)
----------
Long-term portion of obligations under capital lease $ 228,000
- --------------------------------------------------------------------------------------------------
</TABLE>
Rent expense for 1996, 1995 and 1994 was $2,315,000, $2,283,000, and $2,172,000,
respectively.
Cost and accumulated depreciation of equipment under capital leases were as
follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
- ------------------------------------------------------------
<S> <C> <C>
December 31, 1996 $4,278,000 $3,813,000
December 31, 1995 $4,282,000 $3,307,000
- ------------------------------------------------------------
</TABLE>
Debt: As of December 31, 1996, the Company had an outstanding loan of $651,000
for financing of equipment and tenant improvements. The loan must be repaid over
a forty-eight month period which commenced February 1, 1995. Monthly payments
include principal and interest of prime plus 1.75% (10.00% at December 31, 1996)
of the outstanding principal balance. Principal payments due in 1997 through
1999 are $313,000, $313,000 and $25,000, respectively. The loan agreement
contains provisions for the complete repayment of any outstanding principal
balance should the Company's cash balances fall below certain minimum levels.
In 1996, the Company entered into a master line of credit agreement (as
amended) to provide up to $5,000,000 of net financing for standard equipment
through December 31, 1997. As of December 31, 1996, the Company had an
outstanding loan balance of $1,833,000 and approximately $2.9 million was
available to the Company at that date. Borrowings under each loan schedule are
payable over a forty-eight month period to include principal and interest based
on the average of three and five-year U.S. Treasury maturities (approximately
10.30% at December 31, 1996). Principal payments due in 1997 through 2000 are
$409,000, $456,000, $508,000, and $460,000, respectively. The credit agreement
will provide the lender with security interest in all equipment financed under
the line and will require payment of a security deposit should the Company's
cash balances fall below certain minimum levels.
The Company had a revolving line of credit which provided up to
$1,500,000 of financing for normal business operations and working capital
needs. The revolving line of credit expired on March 31, 1996. The Company did
not renew the line of credit.
<PAGE> 17
4. Stockholders' Equity
Stock Purchase Plan: In November 1991, the Company adopted the Employee Stock
Purchase Plan (the Purchase Plan), under which 500,000 shares of common stock
may be issued to eligible employees, including officers. The price of common
stock under the Purchase Plan is equal to the lessor of 85% of the market price
on the effective date of an employee's participation in the plan or 85% of the
fair market value of the common stock at the purchase date. At December 31,
1996, 243,056 shares of common stock had been issued under the plan.
Stock Options: Under the Company's 1991 Stock Option Plan (the "Plan"),
7,000,000 shares of common stock are reserved for issuance upon exercise
of options granted to employees and consultants of the Company. The Plan
provides for the grant of incentive and nonstatutory stock options. The
exercise price of incentive stock options must equal at least the fair market
value on the date of grant, and the exercise price of nonstatutory stock
options may be no less than 85% of the fair market value on the date of grant.
Additionally, the Company is authorized to issue supplemental stock options for
up to 70,000 options outside of the Plan. The maximum term of all options
granted is ten years.
Under the Company's Non-Employee Directors' Stock Option Plan (the "Directors
Plan") 350,000 shares of common stock are reserved for issuance upon exercise of
nonqualified stock options granted to Non-Employee Directors of the Company.
The following table summarizes option activity:
<TABLE>
<CAPTION>
Weighted
Shares Average
Under Exercise
Option Price
- --------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1993 1,971,982 $ 8.20
Granted 2,445,526 $ 9.08
Exercised (54,025) $ 2.09
Cancelled (839,847) $11.67
- --------------------------------------------------------------
Outstanding at December 31, 1994 3,523,636 $ 8.08
Granted 3,152,238 $ 5.14
Exercised (21,331) $ 3.29
Cancelled (2,346,310) $ 8.48
- --------------------------------------------------------------
Outstanding at December 31, 1995 4,308,233 $ 5.74
Granted at market 1,709,796 $10.94
Granted below market 218,000 $ 7.75
Exercised (404,671) $ 4.46
Cancelled (331,576) $ 9.43
- --------------------------------------------------------------
Outstanding at December 31, 1996 5,499,782 $ 7.31
- --------------------------------------------------------------
</TABLE>
At December 31, 1996, 1,389,737 shares remained available for grant or sale.
Following is a further breakdown of the options outstanding as of December 31,
1996:
<PAGE> 18
<TABLE>
<CAPTION>
Weighted average Weighted average
Range of Options remaining Weighted average Options exercise price of
exercise prices outstanding life in years exercise price exercisable options exercisable
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.00 302,016 4.88 $ 2.00 302,016 $ 2.00
$4.50 - $6.75 2,286,281 7.21 4.78 1,602,420 4.73
$6.875 - $10.00 1,436,755 8.97 7.86 311,442 7.70
$10.625 - $13.50 1,474,730 8.98 11.78 400,681 11.14
- ----------------------------------------------------------------------------------------------------------
5,499,782 8.02 $ 7.31 2,616,559 $ 5.75
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In August 1994, the Board of Directors approved a plan whereby each
employee option holder, excluding officers and directors of the Company, could
have exchanged all of his or her current vested and unvested options on a
one-for-one basis for new options priced at the market value as of August 26,
1995. Options for an aggregate of 730,920 shares at an average price of $11.73
were exchanged for replacement options with an exercise price of $8.50. These
replacement options vest based on the original grant date but required that the
employee continue their employment with the Company for a minimum of one year
from the date of repricing in order to earn any vesting privileges. The
replacement options are included as both grants and cancellations in the above
summary of stock option activity.
In March 1995, the Board of Directors approved a plan for which employee
option holders, excluding the Chief Executive Officer and non-employee directors
of the Company, could have exchanged all of his or her current vested and
unvested options on a one-for one basis for new options priced at the market
value as of April 3, 1995. An aggregate of 2,184,792 options at an average price
of $8.56 were exchanged for options with an exercise price of $4.50. These
replacement options vest based on the original grant date but required that the
employee continue their employment with the Company for a minimum of one year
from the date of repricing in order to earn any vesting privileges. The
replacement options are included in grants and cancellations in the above
summary of stock option activity.
Adjusted pro forma information regarding net income or loss and net
income or loss per share is required by SFAS 123, and has been determined as if
the Company had accounted for its employee stock options and stock purchase plan
under the fair value method of SFAS 123. The fair value for these options was
estimated at the date of grant using the "Black-Scholes" method for option
pricing with the following weighted average assumptions for both 1995 and 1996:
risk-free interest rates of 6.39%; dividend yield of 0%; volatility factors of
the expected market price of the Company's common stock of 65%; and a
weighted-average expected life of the option of five years. For purposes of
adjusted pro forma disclosures, the estimated fair value of the option is
amortized to expense over the option's vesting period. The Company's adjusted
pro forma information is as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Adjusted pro forma net loss $(41,969,000) $(31,576,000)
Adjusted pro forma net loss per share $ (1.46) $ (1.32)
- ----------------------------------------------------------------------------
</TABLE>
The weighted-average fair value of options granted during 1996 and 1995 was
$6.67 and $3.17, respectively.
The pro forma effect on net loss for 1996 and 1995 is not likely to be
representative of the effects on reported net income or loss in future years
because these amounts reflect only two years or one year of vesting,
respectively.
5. Collaborative Agreements
Johnson & Johnson: In June 1995, the Company entered into a worldwide
Collaboration Agreement (the "Collaboration Agreement") with LifeScan, Inc. for
the development and commercialization of pramlintide, a diabetes drug candidate
currently in Phase III clinical trials. In conjunction with the Collaboration
Agreement, the Company also entered into a Stock Purchase Agreement with Johnson
& Johnson Development Corporation ("JJDC") and a Loan Agreement with Johnson &
Johnson.
<PAGE> 19
LifeScan, Inc. and JJDC, each of which are wholly-owned subsidiaries of
Johnson & Johnson, are referred to herein as Johnson & Johnson.
As of December 31, 1996, Johnson & Johnson entities have made various
financial payments to the Company totaling approximately $91.0 million. These
payments primarily include funding of one-half of the pramlintide development
costs, the purchase of $30 million of the Company's common stock, a milestone
and option fee payment and a license fee.
In August 1996, the Company achieved the first milestone in the
collaboration when, based upon an administrative review of three-month data from
the first two, one-year Phase III clinical trials, Johnson & Johnson decided to
continue the collaboration. As a result, Johnson & Johnson made additional
payments associated with the milestone to the Company totaling $22.0 million, in
addition to providing significant ongoing development support. The additional
payments associated with the milestone included $7.0 million in milestone and
option fee payments recognized as revenue in the third quarter of 1996 and the
purchase of $15.0 million of the Company's common stock.
In addition to the above mentioned milestone related payments and
investment, Johnson & Johnson's financial commitment to the Company now includes
the funding of 50% of development costs and 100% of pre-launch marketing costs
(the Company's one-half share to be repaid over time from future profits), as
well as milestone payments, license fees, equity investments and a development
loan facility for use in certain circumstances. The Company will apply all of
the license fees, cash milestone payments, 50% of the proceeds from Johnson &
Johnson's equity investments and proceeds from draw downs under the development
loan facility towards its share of pramlintide development expenses.
Pursuant to the Collaboration Agreement, both parties will share equally
in the development and commercialization costs incurred for pramlintide as well
as share equally in any profits or losses recognized after commercial launch. In
this regard, Johnson & Johnson will pay the Company on a quarterly basis in
advance for one half of the Company's development expenses related to
pramlintide. Johnson & Johnson will fund 100% of the pramlintide pre-launch
marketing expenses, and the Company will repay over time its one-half share out
of future profits. As of December 31, 1996, the Company owed Johnson & Johnson
approximately $4.3 million, bearing interest at the Prime Rate (8.25% at
December 31, 1996), for its share of pre-launch marketing expenses. Johnson &
Johnson also will reimburse the Company for one-half of all pramlintide related
external patent costs incurred. Payments from Johnson & Johnson to the Company
for development expenses will be recognized as revenue in the period in which
they are earned.
Johnson & Johnson paid the Company a license fee which was recognized as
revenue upon the signing of the Collaboration Agreement in 1995. Approximately
$27.4 million and $12.0 million of development payments made to the Company were
recognized as revenues under collaborative agreements during 1996 and 1995,
respectively. The 1996 revenue under collaborative agreements also include $1.4
million which was earned by the Company during the year but which is outstanding
as a short-term receivable due from Johnson & Johnson as of December 31, 1996.
Also included in receivables from related party at December 31, 1996 is $0.7
million of pre-marketing expenses due to the Company from Johnson & Johnson.
Additionally, the Company's December 31, 1996 balance sheet includes
approximately $8.0 million in short-term deferred revenues reflecting amounts
advanced from Johnson & Johnson for projected development expenses for the first
quarter of 1997.
In accordance with the terms of the Stock Purchase Agreement, Johnson &
Johnson purchased 724,638 shares of the Company's common stock upon the signing
of the Collaboration Agreement providing the Company with net proceeds of
approximately $5.0 million. In accordance with the terms of the Stock Purchase
Agreement, the Company exercised its right to sell additional shares of its
common stock to Johnson & Johnson in 1995 and 1996 resulting in net proceeds of
$10.0 million and $15.0 million, respectively. The total number of shares sold
to Johnson & Johnson during 1995 and 1996 was 3,455,407. Johnson & Johnson's
common stock ownership represents approximately 10.8% of the Company's common
shares outstanding at December 31, 1996, and therefore, Johnson & Johnson is
considered a related party. The Company also has the right to sell additional
shares of its common stock to Johnson & Johnson resulting in net proceeds of up
to $15.0 million dependent on the achievement of a certain additional milestone.
In addition, the parties have entered into a Loan Agreement under which
Johnson & Johnson has agreed to provide to the Company a development loan
facility (the "Development Loan Facility") for use in certain circumstances to
cover the Company's share of development expenses related to the Collaboration
Agreement. The aggregate amount of the Development loan Facility was $53.7
million as of December 31, 1996 and is subject to adjustment for certain events,
e.g. increased by 50% of any
<PAGE> 20
increases in the pramlintide development budget as of December 31, 1996 and
decreased by 50% of the Company's net proceeds received from future equity and
debt offerings after December 31, 1995 to investors other than Johnson & Johnson
or other corporate partners. The Company is required to issue a warrant to
Johnson & Johnson to purchase 50,000 shares of the Company's common stock at an
exercise price of $12.00 per share for every $1 million of proceeds borrowed by
the Company under the Development Loan Facility. Under the terms of the Loan
Agreement, the Company is eligible in certain circumstances to make quarterly
draw downs on the then available Development Loan Facility based on pramlintide
development expenses during specified periods. The projected aggregate amount
available to be borrowed by the Company under the Development Loan Facility
during 1997 is $38.9 million, which is subject to adjustment based on changes to
the pramlintide development budget and on certain corporate financing
activities.
Johnson & Johnson may terminate the Collaboration Agreement subject to a
notice period of six months. Johnson & Johnson's financial and other obligations
under the Collaboration Agreement would continue during any such termination
notice period. In addition, Johnson & Johnson has the right to terminate the
Collaboration Agreement at any time based on material safety or tolerability
issues.
Contingencies: The Company has received letters from the University of
Minnesota (the "University") asserting that pramlintide is covered by a patent
(the "University Patent") which was licensed to the Company pursuant to a
License Agreement dated November 11, 1991 among the Company, the University and
Per Westermark ("Westermark") (the "University License Agreement"). In its
letters, the University claims that it is entitled to 50% of any sublicense fees
received by the Company from sublicensing the University Patent to Johnson &
Johnson pursuant to the Company's Collaboration Agreement with Johnson &
Johnson, as well as future royalties as specified in the University License
Agreement. The Company has informed the University that no such sublicensing
moneys have been received by the Company from Johnson & Johnson, who is not a
sublicensee under the University Patent. On December 5, 1996, the Company filed
a complaint against the University and Westermark in the U.S. District Court for
the Southern District of California seeking a declaratory judgment that
pramlintide is not covered by the University Patent and that no moneys are owed
to the University or Westermark. Although discussions are underway with the
University, the Company expects that the lawsuit will become active in the near
future if agreement is not reached. The Company believes the University's
assertions are without merit and intends to defend vigorously against any claims
that may be brought by the University against the Company related to the
foregoing.
6. Income Taxes
Significant components of the Company's deferred tax assets as of December 31,
1996 and 1995 are shown below. A valuation allowance of $67,590,000, of which
$17,377,000 is related to 1996, has been recognized as of December 31, 1996 to
offset the deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Capitalized research expenses $ 6,760,000 $ 6,117,000
Net operating loss carryforwards 48,560,000 34,920,000
Research and development credits 7,355,000 7,217,000
Other 4,915,000 1,959,000
- --------------------------------------------------------------------------------
Total deferred tax assets 67,590,000 50,213,000
Valuation allowance for deferred tax assets (67,590,000) (50,213,000)
- --------------------------------------------------------------------------------
Net deferred tax assets $ -- $ --
- --------------------------------------------------------------------------------
</TABLE>
Approximately $196,000, of the valuation allowance for deferred tax assets
relates to stock option deductions which when recognized will be allocated
directly to additional paid-in capital.
At December 31, 1996, the Company has federal, California and foreign tax
net operating loss carryforwards of approximately $136,629,000, $12,629,000 and
$1,395,000, respectively. The difference between the federal and California tax
loss carryforwards is attributable to the capitalization of research and
development expenses for California tax purposes and the fifty percent
limitation on California loss carryforwards. The federal tax loss carryforwards
will begin expiring in 2002 unless previously utilized, and the california tax
loss carryforwards began expiring in 1996. The
<PAGE> 21
Company also has federal and California research and development tax credit
carryforwards of $6,116,000 and $1,688,000, respectively, which will begin
expiring in 2002 unless previously utilized.
Under the Tax Reform Act of 1986, the use of the Company's net operating loss
and credit carryforwards may be limited if a cumulative change in ownership of
more than 50% occurs within a three year period. Management believes such change
in ownership has not occurred.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Amylin Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Amylin
Pharmaceuticals, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial states are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amylin
Pharmaceuticals, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
San Diego, California
January 24, 1997
<PAGE> 22
STOCK PRICES
Common Stock Performance
The Company's common stock began trading on the Nasdaq National Market System
under the symbol "AMLN" on January 17, 1992. The following table presents
quarterly information on the price range of the common stock. This information
indicates the high and low last sales price reported by the Nasdaq National
Market System. These prices do not include retail markups, markdowns, or
commissions.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
High Low High Low High Low High Low High Low
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Qtr* $13-1/2 $ 9-1/4 6-1/4 4-1/4 14-3/4 10-1/4 14-3/4 7-1/2 23 13-1/4
2nd Qtr 12-1/4 9 8 3-5/8 12-1/4 5-3/4 10-3/4 8 13-1/2 6-1/2
3rd Qtr 13-5/8 8-1/8 9 6-3/4 8-5/8 5-3/4 12-1/4 8-1/2 10 5-3/4
4th Qtr 13-1/2 10-3/4 9-1/2 6-1/8 8-1/2 4-13/16 13-3/4 10-1/2 12-3/4 7-5/8
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
As of March 31, 1997 there were approximately 930 stockholders of record of the
Company's Common stock. The Company has not declared any dividends and does not
expect to pay any dividends in the foreseeable future.
Annual Meeting: The annual meeting of stockholders will be held at 3:30 p.m.,
Thursday, May 29, 1997 at the Hyatt Regency La Jolla, located at 3777 La Jolla
Village Drive, San Diego, California.
<PAGE> 24
Addendum
Descriptions of Graphic and Image Materials in Exhibit 13.1
Cover
Graphic 1: The photograph in the top right corner of the page is of Orville G.
Kolterman, M.D., Senior Vice President of Medical Affairs, meeting with an
unidentified patient.
Graphic 2: The photograph in the bottom right corner of the page depicts
approximately twenty unlabeled vials and cartridges of the experimental diabetes
drug, pramlintide.
Graphic 3: The graph on the left side of the cover depicts the number of
patients involved in the pramlintide clinical development program. Labeled
across the X-axis of the graph are the years 1992 through 1998. The Y-axis of
the graph is labeled 0 through 5 and entitled "Thousands of Patients." One arrow
is drawn pointing to the right indicating that 74 patients were in Phase I
clinical trials from 1992 to 1993. A second arrow is drawn pointing to the right
indicating that a total of 1,521 patients are expected to participate in Phase
II clinical trials between 1993 and 1998. A third arrow is drawn pointing to the
right indicating that a total of 3,190 patients are expected to participate in
Phase III clinical trials between 1995 and 1998. A line is drawn connecting the
starting point of each of the arrows depicting an increase in the number of
patients involved in the pramlintide clinical studies.
Page 1
Graphic 4: The photograph on the right side of the page depicts the following
individuals: seated to the left is Daniel M. Bradbury, Vice President of
Marketing; standing in the middle is Mary W. Treuhaft, Ph.D., Vice President of
Regulatory Affairs and Quality Assurance; and seated to the right is Marjorie T.
Sennett, Vice President and Chief Financial Officer.
Page 2
Graphic 5: The illustration is a vertical bar chart comparing fructosamine
levels in the blood of insulin-using patients with Type II diabetes after four
weeks of treatment with pramlintide. The X-axis is labeled from left to right
with the dose of pramlintide: placebo (PBO), 30 micrograms QID, 60 micrograms
TID, and 60 micrograms QID. The Y-axis is labeled with fructosamine
concentrations from 280-350 micromoles per liter. Four vertical bar graphs are
depicted within the illustrations which compare fructosamine levels before and
after pramlintide dosing for 28 days.
Pages 1-3 Timeline description
Graphic: The timeline located at the bottom of page lists accomplishments
achieved by the Company from February 1996 to December 1996 and
lists goals for 1997.
<PAGE> 25
Page 3
Graphic 6: The photograph on the right side of the page is of Richard M. Haugen,
President and CEO (seated to the left), and Howard E. Greene, Jr., Chairman of
the Board (standing to the right).
Page 4
Graphic 6: The illustration in the top left corner of the page depicts the
percentage of diagnosed and undiagnosed cases of diabetes according to various
age groups. The source of the graph is the National Diabetes Data Group, 1987.
The bottom of the graph is labeled "Age Groups". The X-axis of the graph is
labeled from left to right with the following age groups, 20-44, 45-54, 55-64,
and 65-74. The Y-axis of the graph is labeled from bottom to top 0%, 10% and 20%
indicating the percentage of the American population who are afflicted with
diabetes. Four vertical bar graphs are depicted within the illustration.
Graphic 7: The photograph in the top right corner of the page depicts the hands
of an unidentified person withdrawing insulin from a vial with a syringe.
Page 5
Graphic 8: The illustration on the right side of the page has three circular
renderings placed vertically. The top circular rendering entitled "Retinopathy"
depicts a cross section of the eye. The middle circular rendering entitled
"Neuropathy" depicts a cross section of a kidney. The bottom circular rendering
entitled "Nephropathy" depicts a foot.
Page 6
Graphic 9: The photograph on the left side of the page is of the following four
individuals. Seated to the far left is Angelina Sampo, QC Analyst II, Quality
Control. Seated to her right is Wade DeMond, Senior Staff Scientist,
Pharmaceutical Chemistry. Standing to the right is Keith Herman, Senior Research
Associate, Pharmaceutical Chemistry. Standing to the far right is Pamela
Baltusis, Research Associate, Pharmaceutical Chemistry.
Graphic 10: The illustration is a flow diagram of which depicts the movement of
glucose within the human body as mediated by the actions of insulin and amylin.
Meal-derived glucose is depicted via arrows as moving from the box indicating
the "Gastrointestinal Tract" to the box indicating "Bloodstream" and thereafter
into the box indicating "Tissues (Muscle, Fat, Liver)". Glucose from the box
indicating "Liver" is also depicted via an arrow as entering the box indicating
"Bloodstream."
Two actions of amylin are depicted by two arrows and labeled "Amylin acts to
decrease glucose inflow and decrease glucagon." Two other actions of insulin are
depicted via two
<PAGE> 26
additional arrows and labeled "Insulin acts to increase glucose outflow and
decrease glucagon." A single arrow indicates the action of glucagon on the box
indicating "Liver" and is labeled "Glucagon acts to increase liver glucose
production."
Page 7
Graphic 11: The photograph in the bottom right corner of the page depicts
approximately twenty unlabeled vials and cartridges of the experimental diabetes
drug, pramlintide.
Graphic 12: The illustration in the top right corner depicts a theoretical
three-dimensional model of the amylin molecule.
Page 9
Graphic 13: The photograph on the right side of the page is of Orville G.
Kolterman, M.D., Senior Vice President of Medical Affairs, meeting with an
unidentified patient.
Page 10
Graphic 14: The photograph on the left side of the page is of the following
individuals: seated to the far left is John McGuire, Ph.D., Johnson & Johnson
Vice President of Science and Technology/Business Development; standing to his
right is Albert A. Lauritano, Vice President of Business Development; seated to
his right is Bradford J. Duft, Esq., Vice President and General Counsel; and
sitting on the table to his right is Gareth W. Beynon, M.B.A., M.D., Ph.D., Vice
President, Amylin Europe Ltd.
Page 11
Graphic 15: The photograph on the right side of the page is of printed medical
education materials produced by Amylin Pharmaceuticals.
Page 12
Graphic 16: The photograph in the top right corner is of Lynn Jodka, Research
Associate, Physiology (seated in the foreground), and Sunil Bhavsar, Staff
Scientist, Physiology (standing in the background).
Graphic 17: The illustration in the bottom left corner is a venn diagram
depicting the relationship between diabetes, dyslipidemia and obesity. The
largest rectangle is in the background entitled "Obesity". A smaller rectangle,
entitled "Dyslipidemia", partially overlaps the obesity rectangle. The third
smallest rectangle entitled "Diabetes" partially overlaps the other two
rectangles in the foreground.
<PAGE> 27
Page 13
Graphic 18: The photograph on the right side of the page is of a Gila monster
lizard.
Page 32
Graphic 19: The illustration is a price/volume graph of the average weekly share
price and weekly trading volume of Amylin Pharmaceuticals' stock during 1995 and
1996. The X-axis is labeled with the date of the last trading day of each month.
The Y-axis is labeled 0 to 6.0 and entitled "Weekly Volumes (shares) in
millions." The Y-axis is also labeled $3 to $15 and entitled "Stock Price in
U.S. Dollars."
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Amylin Pharmaceuticals, Inc. of our report dated January 24, 1997, included
in the 1996 Annual Report to Stockholders of Amylin Pharmaceuticals, Inc.
We also consent to the incorporation by reference in the Registration
Statements (Forms S-8 Nos. 33-32896, 33-32894, and 33-45092) pertaining to the
1991 Stock Option Plan, Non-Employee Directors' Stock Option Plan, and the 1991
Employee Stock Purchase Plan, of our report dated January 24, 1997, with
respect to the consolidated financial statements of Amylin Pharmaceuticals,
Inc. incorporated by reference in the Annual Report (Form 10-K) for the year
ended December 31, 1996.
ERNST & YOUNG LLP
San Diego, California
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF THE ANNUAL REPORT ON FORM 10-K. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<CIK> 0000881464
<NAME> AMYLIN PHARMACEUTICALS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 42,654,000
<SECURITIES> 19,469,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,354,000
<PP&E> 14,829,000
<DEPRECIATION> 8,075,000
<TOTAL-ASSETS> 73,533,000
<CURRENT-LIABILITIES> 18,664,000
<BONDS> 0
0
0
<COMMON> 32,000
<OTHER-SE> 48,502,000
<TOTAL-LIABILITY-AND-EQUITY> 73,533,000
<SALES> 0
<TOTAL-REVENUES> 38,077,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 75,418,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446,000
<INCOME-PRETAX> (37,787,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,787,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,787,000)
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> (1.31)
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