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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark one)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the fiscal year ended December 31, 1997.
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934.
Commission File Number:
0-24814
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SUGEN, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3629196
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
351 Galveston Drive, Redwood City, California 94063
(address of principal executive offices)
(650) 306-7700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
Preferred Share Purchase Rights
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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 filing requirements
for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the of the Common Stock of the registrant held by
non-affiliates as of March 13, 1998 was $141,903,757. (1)
The number shares of Common Stock outstanding at March 13, 1998 was 15,384,879
shares.
DOCUMENTS INCORPORATED BY REFERENCE
(To The Extent Indicated Herein)
Portions of Registrant's Definitive Proxy Statement which will be filed with the
Commission pursuant to Regulation 14A in connection with the 1998 Annual Meeting
are incorporated herein by reference in Part III of this Report.
- ---------------------------
(1) Excludes 5,598,413 shares of the Registrant's Common Stock held by
executive officers, directors and stockholders whose ownership exceeds 5% of the
Common Stock outstanding at March 13, 1998.
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<PAGE>
PART I
Item 1. BUSINESS
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 which are subject to the "safe harbor"
created by those sections. These forward-looking statements include, but are not
limited to, statements concerning the Company's plans to: continue development
of its current product candidates; conduct clinical trials with respect to
SU101, SU5416 and other product candidates; utilize the Company's capital
resources and the time periods related thereto; seek regulatory approvals;
engage third-party manufacturers to supply its clinical trials and commercial
requirements; establish a marketing, sales and distribution capability; and
evaluate additional product candidates for subsequent clinical and commercial
development. These forward-looking statements may be found in the "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections of this Annual Report on Form 10-K. Forward-looking
statements not specifically set forth above may also be found in these and other
sections of the Annual Report on Form 10-K. Each statement is based on the
current expectations of the Company and is subject to the risks and
uncertainties inherent in the Company's business. In accordance with the Private
Securities Litigation Reform Act of 1995, the Company reminds investors that all
such "forward-looking statements" are necessarily only estimates of future
results and that the actual results achieved by the Company may differ
materially from these current expectations due to a number of factors, including
(i) the Company's technological success in developing lead compounds and
products; (ii) the availability and terms of financing of the Company's
operations; (iii) the actions of third parties, including collaborators and
competitors; (iv) the demonstration of the safety and efficacy of the Company's
products at each stage of clinical development; (v) the ability to obtain patent
and other proprietary rights protection for the Company's products; (vi) the
receipt of timely regulatory approval of the Company's products; (vii) the
ability to manufacture product candidates in commercial quantities at reasonable
costs and in a manner acceptable to various regulatory authorities; and (viii)
market acceptance of the Company's products. Factors creating uncertainty are
discussed in more detail in individual sections of this Annual Report on Form
10-K. In particular, see the "Liquidity and Capital Resources" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Overview
SUGEN is a biopharmaceutical company focused on the discovery and
development of small molecule drugs which target specific cellular signal
transduction pathways. These signalling pathways are regulated by cell-surface
receptors or intracellular signalling molecules known as tyrosine kinases
("TKs"), tyrosine phosphatases ("TPs") and serine-threonine kinases ("STKs"),
three of the largest known families of receptors in the body and key regulators
of critical cellular functions. Aberrant signalling of TKs, TPs and STKs has
been shown to result in a variety of chronic and acute pathological diseases,
including cancer and diabetes as well as in dermatologic, ophthalmic, neurologic
and immune disorders. The Company believes that compounds designed to target
certain kinases and phosphatases and inhibit enzyme activity or prevent the
binding of downstream signalling molecules make attractive therapeutic product
candidates. The Company's research and development efforts in signal
transduction are based upon the pioneering accomplishments of SUGEN's founding
scientists, Dr. Axel Ullrich of Max-Planck-Institut fur Biochemie ("MPI") and
Dr. Joseph Schlessinger of New York University Medical Center ("NYU").
SU101, the Company's most advanced product candidate, is a
platelet-derived growth factor receptor ("PDGF TK") signalling antagonist.
Imbalances in the PDGF TK signalling pathway have been shown by SUGEN and others
to be implicated in certain types of cancers. The Company has completed a Phase
II clinical trial for use of SU101 as a treatment for refractory malignant
glioma and has recently initiated a Phase III clinical trial in first relapse
glioma. A Phase II clinical trial of SU101 in combination with BCNU, the
chemotherapy drug that is part of the standard treatment regimen in newly
diagnosed brain cancer patients, was initiated in mid-1997, and the Company has
also recently initiated a Phase II clinical trial of SU101 in hormone refractory
prostate cancer. To date, over 158 patients have been treated with SU101 in nine
Company-sponsored clinical trials including patients with brain, ovarian,
prostate and non-small cell lung cancers.
The Company is also conducting its initial Phase I clinical trial for
its second cancer product candidate, SU5416, a Flk-1/KDR TK antagonist which
inhibits angiogenesis (the process by which blood vessels are formed) and plans
to initiate Phase II clinical trials in 1998. The pharmaceutical industry has
long sought tumor-specific inhibitors of angiogenesis with low toxicity profiles
because, theoretically, inhibiting angiogenesis may limit tumor growth, extend
the period of disease-free remission in patients who respond to front-line
therapy and reduce the potential for metastases. Potential oncology applications
for angiogenesis include treatments for most solid tumor types. SUGEN is also
pursuing six additional cancer-related drug development programs, including:
Pan-Her, GRB2, Raf, PDGF TK (orally available), second generation
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angiogenesis inhibitors and other proprietary programs, many of which lead
compounds are now undergoing in vivo pharmacology studies. The Company currently
plans to file two Investigational New Drug applications ("IND") in each of 1998
and 1999, but there can be no assurance that the Company will file such INDs at
such times or at all.
SUGEN is also applying its drug discovery and development platform to
areas outside oncology, including dermatology, ophthalmology, rheumatoid
arthritis, cardiovascular disease, diabetes, neurodegenerative diseases and
immunology. The Company is conducting a Phase I clinical trial for SU5271, an
epidermal growth factor receptor ("EGF TK") antagonist, for the treatment of
psoriasis.
SUGEN employs a target-driven approach to drug discovery and
development. The Company believes that the receptors and molecules that play a
causative role in disease states are attractive targets for drug design and
development. SUGEN's drug discovery platform consists of: (1) target
identification, using advanced genomics techniques and the Company's proprietary
bioinformatics program; (2) target validation in relevant in vivo disease
models; (3) whole cell or other assay design and target-driven screening of
compounds for leads; and (4) lead optimization using crystallography and
computational chemistry. The Company believes that its drug discovery and
development platform may reduce the cost, time and risk associated with bringing
potential products to market by rationally screening for potent and specific
drug leads in the early stages of discovery and optimizing pharmacologic
features in the later stages of drug development, thereby reducing the incidence
and severity of side effects.
SUGEN is concurrently pursuing two business strategies for
commercialization of its products and technologies. In the cancer field, SUGEN
intends to build a vertically integrated oncology business in North America,
with the objective of bringing to market a family of target-specific signal
transduction inhibitors proprietary to SUGEN. To market its products
effectively, the Company currently intends to build a focused U.S. salesforce to
target the major cancer treatment centers. The Company plans to seek additional
corporate partners to fund product development and commercialize its products in
Europe and Asia. This strategy is exemplified by the Company's collaboration
with ASTA Medica Aktiengesellschaft ("ASTA Medica") for the Pan-Her antagonist
program and the Raf antagonist program for the treatment of certain cancers.
ASTA Medica has been granted marketing rights to these programs in Europe and
South America. While the Company generally intends to retain rights to its
cancer programs in North America, SUGEN is funding a portion of its ongoing
cancer research through a collaboration with Zeneca Limited ("Zeneca") for the
development of five undisclosed cancer targets. Pursuant to its agreement with
Zeneca, the Company will have the opportunity to obtain profit participation
rights in the North American market by contributing to clinical development
costs as incurred and will receive milestone payments and royalties on worldwide
sales.
Outside of oncology, the Company's strategy is to seek corporate
collaborations or joint ventures to which SUGEN contributes validated targets,
screening technologies and drug leads while the partner provides the
disease-specific and drug development expertise as well as marketing experience,
in addition to providing funding to bring potential products to market. As part
of this strategy, the Company entered into a collaboration with Vision
Pharmaceuticals, L.P., an affiliate of Allergan, Inc., and Allergan, Inc.
(collectively, "Allergan") for angiogenesis inhibition in ophthalmic
applications.
Overview of Cellular Signal Transduction Pathways
The last decade of research has led to an increased understanding of
how cells communicate with each other to coordinate the growth and maintenance
of the multitude of tissues within the human body. A key element of this
communication network is the transmission of a signal from the exterior of a
cell to its nucleus, which results in the activation or suppression of specific
genes. This process is called signal transduction. An integral part of signal
transduction is the interaction of ligands, receptors and intracellular signal
transduction molecules ("downstream signalling molecules").
Ligands are chemical messengers, usually released by one cell to
communicate with a target cell by binding to specific receptors on the target
cell's surface. A receptor generally takes the form of a protein that straddles
a cell's membrane, with its "ligand binding domain" protruding out of the cell
and its "intracellular domain" anchored inside the cell. When a ligand binds to
its receptor, the newly formed receptor/ligand complex triggers the activation
of a cascade of downstream signalling molecules, thereby transmitting the
message from the exterior of the cell to its nucleus. When the message is
received in the nucleus, it dictates the activation or suppression of specific
genes, resulting in the production of proteins that carry out a specific
biological response. Depending on the specific ligand, receptor and downstream
signalling molecules, the resulting signalling cascade controls diverse and
distinct cellular processes. For example, metabolic changes can be effected by a
ligand such as insulin which, after binding to the insulin receptor, activates a
specific set of downstream signalling molecules within the cell, ultimately
leading to the regulation of glucose uptake and other insulin-associated
functions.
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Tyrosine Kinases, Tyrosine Phosphatases and Serine-Threonine Kinases in Signal
Transduction
Kinases and phosphatases are classes of signalling molecules that are
central to the healthy functioning of all tissues. The Company's research focus
in this area has been on TKs, TPs and selected STKs. At present, there are
approximately 100 known human TKs, including Her2, PDGF TK, insulin receptor
("insulin TK"), EGF TK, macrophage colony stimulating factor receptor and nerve
growth factor receptor, all of which have been cloned over the last seventeen
years. TPs were not discovered until 1988, and at present there are
approximately 50 known human TPs.
Generally, when a ligand binds to receptor TKs, the receptors must
dimerize (join in pairs at the cell surface) to become activated. This coupling
activates a specific enzyme activity which resides within the intracellular
domain of each TK. Upon activation, the TKs commence cross-phosphorylation, a
process whereby phosphates (highly charged particles) are enzymatically added to
specific sites on each of the TKs. These phosphates serve as attachment sites at
which specific downstream signalling molecules interact with the TKs. Many of
these downstream signalling molecules in turn become phosphorylated themselves,
enabling them to recruit their own substrates and thus pass on the signal.
Depending on the specific ligand and receptor, the resulting signalling cascade
leads to changes in gene expression or affects other cellular systems that
ultimately determine if the cell is to grow, mature, migrate, metabolize or
survive.
Complementing TKs are TPs, which were first characterized in detail by
Dr. Edmond H. Fisher, a 1992 Nobel Laureate, SUGEN collaborator and member of
SUGEN's Science Advisory Board. While the TKs phosphorylate target proteins to
exert their activity, the TPs remove phosphates ("dephosphorylate") from target
proteins, thereby regulating the activity of the TKs. Generally, when a receptor
TK is activated by its ligand, a given biologic response is triggered.
Conversely, when a TP is activated, there is usually down regulation of a given
biologic response. In this manner, TKs can be visualized as the "gas pedal" and
TPs as the "brake pedal" for numerous biological processes. Many cellular
responses are thus regulated by the balance between specific TKs and TPs.
The most abundant kinases in the cell are STKs, enzymes which
phosphorylate serine and threonine residues. STKs are involved in controlling
the cell cycle, the response of the cell to environmental stress, the
development of certain cells and tissues, and other processes such as
metabolism. Many STKs, for example, Raf kinases, act downstream in signal
transduction cascades initiated by TKs, while others integrate signals
originating from other classes of receptors, such as G protein-coupled
receptors.
Diseases and Disorders Related to TK, TP and STK Signalling Pathways
TKs, TPs, STKs and their signalling pathways play key roles in a
variety of normal cellular functions involving virtually every cell type in the
body. Examples include the growth of epithelial cells (skin and lining tissues
of internal organs), angiogenesis, hematopoiesis, proliferation of connective
tissue cells (fibroblasts), survival and differentiation of nerve cells,
regeneration of tissues during wound healing and regulation of the energy
metabolism of all cells. While normal cellular function involves a balance
between kinase and phosphatase activity, imbalances between these molecules have
been shown to result in a variety of chronic and acute pathological conditions,
including cancer and diabetes as well as in dermatologic, ophthalmic, neurologic
and immunologic disorders.
The close association of TKs, TPs and STKs with disease make them
attractive targets for drug discovery and therapeutic intervention. The
intracellular domains where enzymatic activity occurs can be targeted with great
selectivity by drugs that inhibit enzyme activity or that prevent the binding of
downstream signalling molecules to the phosphorylated receptor. Critical points
further downstream in the signalling cascade may also be viable targets since
selective intervention at these points can prevent the message from reaching its
final destination in the nucleus.
Product Development Programs
TKs, TPs, STKs and their biological signalling pathways are implicated
in a broad number of diseases. SUGEN focuses its product development efforts on
those areas which represent significant market opportunities and for which the
disease processes and signalling pathways are well understood. The Company has
several novel product candidates in various stages of development for disease
areas in which there is a critical need for major advances in efficacy and
safety over currently available therapies. These diseases include cancer as well
as diabetes, psoriasis and cardiovascular, immunologic and neurologic disorders.
The Company has completed a Phase II clinical trial for use of SU101 as a
treatment for refractory malignant glioma and has recently initiated a Phase III
clinical trial in first relapse glioma. A Phase II clinical trial of SU101 in
combination with BCNU, the chemotherapy drug that is part of the standard
treatment regimen in newly diagnosed brain cancer patients,
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was initiated in mid-1997, and the Company has also recently initiated a Phase
II clinical trial of SU101 in hormone refractory prostate cancer. The Company is
also conducting its initial Phase I clinical trial for its second cancer product
candidate, SU5416, a Flk-1/KDR TK antagonist which inhibits angiogenesis. The
Company currently plans to initiate a Phase II clinical trial of SU5416 in 1998,
although there can be no assurance as to the timing of the Phase II trial.
5
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<TABLE>
The following table outlines SUGEN's development and research programs
which are being pursued either independently by SUGEN or in collaboration with
the Company's partners:
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Program Indication(s) Status(1) Rights
- ---------------------------------------------------------------------------------------------------------------
Cancer
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SU101 First Relapse malignant glioma Phase III SUGEN
PDGF TK Antagonist - Monotherapy
Newly diagnosed malignant glioma Phase II SUGEN
- Combination therapy
Prostate cancer Phase II SUGEN
Ovarian and non-small cell lung Phase II SUGEN
cancers
- ---------------------------------------------------------------------------------------------------------------
SU5416 Angiogenesis inhibition Phase I SUGEN
Flk-1/KDR TK Antagonist -Most solid tumor types
- ---------------------------------------------------------------------------------------------------------------
Second Generation Most solid tumor types Lead compounds SUGEN
Angiogenesis Inhibitors
- ---------------------------------------------------------------------------------------------------------------
Raf Antagonist Pancreatic, bladder cancers Lead compounds ASTA Medica
Europe and South
America
SUGEN
United States and
rest of world
- ---------------------------------------------------------------------------------------------------------------
Orally available PDGF TK Malignant glioma, prostate, ovarian Lead compounds SUGEN
Antagonists and non-small cell lung cancers
- ---------------------------------------------------------------------------------------------------------------
Pan-Her Antagonist Breast, ovarian, gastric, lung, Preclinical ASTA Medica
(formerly Her2 head and neck, prostate cancers Europe and South
Antagonist) America
SUGEN
United States and
rest of world
- ---------------------------------------------------------------------------------------------------------------
GRB2 Antagonist Multiple TK-driven tumors Lead compounds SUGEN
- ---------------------------------------------------------------------------------------------------------------
Met TK Antagonist Stomach, colorectal and lung cancers Screening SUGEN
- ---------------------------------------------------------------------------------------------------------------
Five undisclosed cancer Certain major cancers Research and Zeneca
targets screening
- ---------------------------------------------------------------------------------------------------------------
Other proprietary programs Various cancers Research and SUGEN
screening
- ---------------------------------------------------------------------------------------------------------------
Other Programs
- ---------------------------------------------------------------------------------------------------------------
SU5271 Psoriasis Phase I SUGEN
EGF TK Antagonist
- ---------------------------------------------------------------------------------------------------------------
Insulin TP Antagonist Diabetes Type I/Type II Preclinical SUGEN
- ---------------------------------------------------------------------------------------------------------------
Immunology targets Immune suppression, acute Research and SUGEN
inflammation screening
- ---------------------------------------------------------------------------------------------------------------
Flk-1/KDR TK Antagonist Rheumatoid arthritis Preclinical SUGEN
(other targets)
- ---------------------------------------------------------------------------------------------------------------
Flk-1/KDR TK Antagonist Angiogenesis inhibition in Preclinical Allergan
(other targets) ophthalmology
- Diabetic retinopathy
- Macular degeneration
- ---------------------------------------------------------------------------------------------------------------
Neurology targets Neurodegenerative diseases Research and SUGEN
screening
- ---------------------------------------------------------------------------------------------------------------
PDGF TK Antagonist Cardiovascular diseases Lead compounds SUGEN
(and other targets)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
"Research" Cloning and characterization of novel TKs, TPs, STKs
and related downstream signalling molecules (Target
Identification) and validation of the role, if any,
of those molecules in a given disease (Target
Validation).
"Screening" Screening to identify lead compounds.
"Lead Compounds" Evaluating drug leads and/or natural product extracts
in relevant in vitro cellular models including
genetically engineered cell lines, as well as ex vivo
human tissues and in vivo animal models.
"Preclinical" Pharmacology and toxicology testing in preclinical
models, drug formulation and manufacturing scale-up
to gather necessary data to comply with applicable
regulatory protocols prior to submission of an IND
with the FDA.
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Cancer
Research over the past 20 years has reinforced the view that cancer is
a disease involving damage, loss or amplification of specific genes. Moreover,
of the numerous oncogenes identified to date, many appear to be abnormal
versions of TK and STK signalling pathway components, such as ligands, TKs or
STKs or downstream signalling molecules. These discoveries have led to the
realization that dysfunctional TK or STK signalling pathways play an integral
role in cancer. More recently, TPs have been implicated as potential tumor
suppressor genes due to their ability to counteract the activity of TKs.
As a result of the close linkage between TK, TP and STK aberrations and
cancer, SUGEN believes that certain cancers can be recategorized according to
specific TK, TP and STK signalling pathway defects rather than merely by
physical location in the body (e.g., breast, lung, brain). Several observations
support this approach. For example, TK overexpression is not a transient
phenomenon. Cancer cells that exhibit TK overexpression do so continuously. In
addition, in many cases a cancer cell exhibits heavy overexpression of only one
TK. For instance, when cancer cells metastasize from a Her2-dependent tumor and
establish themselves at a remote site in the body, the distal tumor has also
been observed to overexpress Her2. Furthermore, SUGEN has shown that certain
tumor cells that overexpress a TK are more sensitive to TK inhibitors than
normal cells. The Company believes that these observations are the basis for a
new approach to cancer therapy which might commence with a sample of biopsy
material being sent to a pathology lab for gene expression profiling in order to
determine the nature of the cellular abnormality, such as overexpression of a
TK. This diagnosis could then be used to select the appropriate target-specific
signal transduction inhibitor for treatment.
Many of the cancers that SUGEN's programs are addressing have patient
subsets with extremely poor prognoses and no alternative for effective
treatment. For example, in certain cancers of the brain, breast, ovary and
pancreas, patient subsets can be defined in advance for which the average
survival time is short. By focusing on these patients initially, the Company
believes that it may be able to demonstrate statistically significant efficacy
with relatively small patient numbers and possibly shortened clinical trial
duration if the compounds prove to be active. There can be no assurance,
however, that the Company will be able to rely on smaller-scale clinical trials
to expedite commercialization of its products.
SU101/PDGF TK Antagonist. SU101 is a small synthetic molecule which inhibits the
platelet-derived growth factor receptor signalling pathway. PDGF is a growth
factor ligand that stimulates the growth of a variety of cell types through
binding to the PDGF TK. The PDGF TK was first cloned by a group of collaborators
led by Dr. Ullrich in 1983. In December 1994, the Company filed its first IND
with the FDA for SU101, a PDGF TK signalling antagonist. To date, over 158
patients have been treated with SU101 in nine Company-sponsored clinical trials.
The Company has completed a Phase II clinical trial for use of SU101 as a
treatment for refractory malignant glioma and has recently initiated a Phase III
clinical trial in first relapse glioma. A Phase II clinical trial of SU101 in
combination with BCNU, the chemotherapy drug that is part of the standard
treatment regimen in newly diagnosed brain cancer patients, was initiated in
mid-1997, and the Company has also recently initiated a Phase II clinical trial
of SU101 in hormone refractory prostate cancer. Based on Phase I and II data,
the Company may conduct additional Phase II clinical trials in astrocytoma (a
type of primary brain cancer), ovarian and non-small cell lung cancers.
To expedite the commercialization of SU101, the Company is focusing its
initial development efforts on malignant glioma, a highly aggressive brain
tumor, and selected other solid tumor patient populations with very poor
prognoses. A subset of each of these cancers appears to be correlated with
aberrant PDGF TK signalling. Malignant glioma patients and refractory ovarian
patients have a mean survival time of approximately nine months and less than 12
months, respectively. Given the poor prognoses for these patients, the Company
believes that FDA approval could potentially be obtained based on smaller-scale
clinical trials than are typically required for approval of New Drug
Applications "NDAs". There can be no assurance, however, that the Company will
be able to rely on smaller-scale clinical trials to expedite the
commercialization of SU101 for these patient populations. SUGEN believes SU101
may also have applications in other cancers that involve aberrant PDGF TK
signalling, including prostate, ovarian and non-small cell lung cancers and
currently plans to proceed with multiple registrational studies in 1998 and
1999. However, no assurance can be given as to the ability of the Company to
proceed with such studies on a timely basis, or at all.
In December 1997 the Company was awarded two method of use patents in
the United States with respect to treating PDGF TK driven cancers with SU101. In
March 1997, the U.S. patent office issued to SUGEN a patent on the formulation
of SU101. The Company presently does not know if commercialization of SU101 will
infringe certain patents issued to a large pharmaceutical company but believes
that these patents may be subject to claims of invalidity as they relate to
SU101. See "Patents and Proprietary Technology."
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SU5416/Flk-1/KDR TK Antagonist. Formation of the body's network of blood
vessels, or angiogenesis, occurs throughout childhood. This process generally
stops once a person reaches adulthood. Exceptions exist during wound healing and
the menstrual cycle. Angiogenesis is re-triggered in adults, however, during
certain pathological conditions including tumor formation and metastasis, and in
certain ophthalmic disorders, including diabetic retinopathy and macular
degeneration. The pharmaceutical industry has long sought small molecule
inhibitors of angiogenesis with low toxicity profiles because, theoretically,
inhibiting angiogenesis may limit tumor growth, extend the period of
disease-free remission in patients who respond to front-line therapy and reduce
the potential for metastases. The potential markets for such a product include
all patients with solid tumors where angiogenesis inhibition may play a role as
an important adjunctive therapy, and in patients with metastatic disease.
SUGEN and its collaborators have identified the Flk-1/KDR TK as a
receptor for vascular endothelial growth factor ("VEGF") and as a major
regulator of angiogenesis. Blocking Flk-1/KDR TK activity blocks the ability of
most tumors to stimulate formation of blood vessels and thus deprives the tumor
of necessary nutrients. In preclinical studies conducted by researchers at SUGEN
and collaborating laboratories, small molecule inhibitors of the Flk-1/KDR
blocked VEGF-dependent angiogenesis, as well as vascular permeability.
Additionally, human endothelial cells were prevented from undergoing cell
division that is required for the formation of new blood vessels. In June 1997,
the Company filed an IND in cancer for SU5416, a drug developed from the
Company's Flk-1/KDR TK angiogenesis inhibitor program that addresses patients
with solid tumors and may also have application as an anti-metastasis agent.
Phase I clinical trials in patients with solid tumors were initiated in
September 1997 and Phase II clinical trials are currently planned to commence in
1998, pending Phase I results.
The Company has established an exclusive research and licensing
agreement with the Max-Planck-Institut fur Physiologische and Klinische
Forschung ("MPP") (MPI and MPP are collectively referred to herein as
"Max-Planck Society" or "MPS") to support the work of Dr. Werner Risau, a SUGEN
consultant and a director of MPP, and his laboratory. Dr. Risau is one of the
leading researchers in the field of angiogenesis. In collaboration with the
laboratories of Dr. Risau and Dr. Ullrich, SUGEN is conducting further studies
into the mechanisms of angiogenesis, including the identification of additional
TK and TP related signalling pathways involved in angiogenesis. See "Research
Collaborations."
Second Generation Angiogenesis Inhibitors. Through the Company's ongoing
research and drug discovery efforts in angiogenesis, SUGEN has identified
additional potential drug candidates which have demonstrated good potency on
Flk-1/KDR, and additional targets including PDGF-R and FGF-R which may play a
role in the angiogenic process and tumor metastasis. With the possibility of an
increased spectrum of activity from this expanded target profile, SUGEN
currently plans to advance the most promising of these drug candidates into
Phase I clinical trials in 1998 and may determine to seek to commercialize one
or more angiogenesis inhibitors based on future clinical results. No assurance,
however, can be given as to the ability of the Company to commence such clinical
trials on a timely basis, or at all.
GRB2 Antagonist. Growth factor receptor binding protein 2 ("GRB2"), a downstream
signalling adaptor molecule, was originally cloned by Dr. Schlessinger's
laboratory. GRB2 has been shown to be an essential element in the signal
transduction pathway of many TKs, particularly as a link between TKs and Ras.
(See "Raf Antagonist" below). SUGEN is investigating the role of GRB2 in linking
TK signalling to Ras activation in certain TK induced cancers, with the belief
that inhibition of GRB2 might be of therapeutic benefit for a broad range of
cancers typified by an activation of the TK-Ras pathway. In April 1997, the U.S.
patent office issued a patent on SUGEN's proprietary cancer target GRB2. Other
patent claims with respect to this target have also been filed.
SUGEN has developed proprietary assays for high-throughput screening
for GRB2 inhibitors and has now identified a novel class of signal transduction
inhibitors that act by blocking the function of the GRB2 adaptor protein. In
vitro studies indicate that SUGEN's GRB2 inhibitors act as cytostatic agents,
causing cancerous cells to cease multiplying or enter programmed cell death
(apoptosis). Preliminary in vivo studies indicate efficacy in tumor growth
inhibition with identified lead compounds.
Pan-Her Antagonist (formerly Her2 Antagonist). Her2 is a TK, first cloned by Dr.
Ullrich, which is believed to play an important role in certain aggressive
breast, ovarian, gastric and lung cancers. Dr. Ullrich and Dr. Dennis Slamon of
the University of California at Los Angeles Medical Center and member of SUGEN's
Science Advisory Board have established the clinical relevance of overexpression
of Her2 in human breast and ovarian cancers. In their study of approximately 200
patients, it was found that almost 30% of breast and ovarian cancer patients
overexpress Her2 and that high levels of Her2 in a patient's tumor correlated
with reduced survival time. Since that time, subsets of other types of human
tumors have been shown to express high levels of Her2, including gastric and
lung cancers. Animal data from several laboratories has demonstrated that the
suppression of Her2 activity has a significant inhibitory effect on tumor
growth, validating Her2 as a target for cancer
8
<PAGE>
therapy in the subset of patients that overexpress this TK.
Monoclonal antibodies targeting Her2, including one developed by Dr.
Ullrich, are currently in clinical trials by others for certain cancers. While
the Company believes that these trials may serve to validate the concept of
targeting aberrant TKs in cancer, SUGEN believes that a small molecule inhibitor
of Her2 which also blocks the closely related Her1 and Her4 receptors (thus, a
Pan-Her antagonist) has the potential to be a more attractive therapy. SUGEN has
identified a number of potentially highly potent and specific small molecule
inhibitors of Pan-Her. The Company is currently testing several of these
molecules in animal models. SUGEN is pursuing its Pan-Her antagonist program in
collaboration with ASTA Medica, and in January 1998 the two companies jointly
announced they would be the advancing the Pan-Her program into clinical
development with Phase I clinical trials currently scheduled to commence later
this year. However, no assurance can be given to the ability of the two
companies to enter such clinical trials on a timely basis, or at all.
Orally Available PDGF TK Antagonist. SUGEN is committed to developing an orally
active small molecule inhibitor of the PDGF TK signalling pathway. From a
commercialization standpoint, an orally active compound may be complementary to
SU101 in that it may be developed for use as a chronic therapy. The Company
currently has several small molecule inhibitors of the PDGF TK signalling
pathway which in vivo animal studies appear to be orally available and may have
the potential to treat numerous PDGF TK-driven proliferative disorders,
especially cancers. The PDGF TK also appears to be involved in both restenosis
of blood vessels after clearance by angioplasty, and more broadly in
atherosclerosis.
Raf Antagonist. Raf, an STK, is a downstream signalling molecule through which
numerous signalling pathways have been found to converge. Raf is known to
interact with the oncogene Ras, and is required in order for Ras to relay its
signals. The Ras oncogene has long been known to play an integral role in
certain cancers, and may be involved in over 20% of all tumors including
approximately 90% of pancreatic tumors. Moreover, Ras has drawn the attention of
the pharmaceutical industry for many years because of its frequent mutational
activation in tumor cells. However, since its biochemical activity and upstream
activators were not well defined, the search for Ras inhibitors has proved
difficult. In contrast, the Company believes that Raf is a more suitable target
for therapeutic intervention.
Dr. Ulf Rapp, Director of Molecular Biology at the University of
Wurzburg, Germany, a SUGEN consultant and the discoverer of Raf, has
demonstrated that inhibition of Raf blocks the tumor-forming potential of Ras.
SUGEN has developed proprietary Raf-based assays and is screening for small
molecule inhibitors of Raf. The Company believes that drugs that inhibit Raf
signalling may arrest tumors driven by excessive Ras activity. The Company is
pursuing its Raf Antagonist program in collaboration with ASTA Medica.
Met TK Antagonist. Overexpression of Met TK may be implicated in a significant
portion of tumors of the lung, stomach and colon. Moreover, Met TK may play a
role in the metastasis of solid tumors. SUGEN has recently completed target
validation studies on Met TK and has commenced screening against this target.
Psoriasis
Psoriasis is a chronic skin disorder that affects approximately four
million people in the United States, and annual treatment costs in this country
are estimated at over $1.5 billion. There are few currently available drugs for
this disease that offer satisfactory efficacy and safety. Hyperproliferation of
keratinocytes contributes to psoriasis, and research by SUGEN and others has
demonstrated that EGF TK signalling is required for the growth of keratinocytes.
SUGEN's research in psoriasis was conducted in part by Hebrew University of
Jerusalem.
SU5271/EGF TK Antagonist. SU5271, a selective inhibitor of EGF receptor
signalling, represents the first extension of SUGEN's drug discovery platform
into the field of dermatology. SUGEN has received an exclusive, worldwide
license from Zeneca for the dermatologic uses of SU5271 and has also filed
patent applications of its own with respect to this compound.
The Company is currently conducting Phase I clinical trials to evaluate
the safety of the topical use of SU5271 in psoriatic patients at Mount Sinai
Hospital in New York. SU5271 is a synthetic small molecule signal transduction
inhibitor that blocks keratinocyte growth.
Angiogenesis Inhibition in Ophthalmology
A number of ophthalmological disorders involve neovascularization of
different regions of the eye. Since Flk-1/KDR TK is known to be important in
other neovascularization processes (such as in tumors), it may also play a
crucial role in ocular neovascularization. Thus, Flk-1/KDR TK inhibitors might
be therapeutically
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beneficial for treating ophthalmic disorders. In October 1996, the Company
signed a collaboration agreement with Allergan to identify, develop and
commercialize novel angiogenesis inhibitors for the treatment of ophthalmic
diseases. Flk-1/KDR TK and other angiogenesis targets are currently under
evaluation.
Diabetes
Both Type I and Type II diabetes are characterized by pathologically
high levels of blood glucose due to inefficient cellular uptake and metabolism
of glucose. Type I diabetes is characterized by insufficient levels of insulin
and is thought to be caused by the autoimmune destruction of the pancreatic
cells that make insulin. In contrast, Type II diabetics often produce elevated
levels of insulin, although this insulin does not seem to have sufficient
effect. All Type I and some Type II diabetics are treated with insulin. The
long-term side effects of diabetes and of insulin therapy can be severe.
Dr. Ullrich was the first to clone the TK receptor to which insulin
binds. In a normal state, the body secretes insulin which in turn binds to the
insulin TK. These events activate the insulin TK signalling pathway, resulting
in cellular uptake of glucose and glucose metabolism. In Type I and Type II
diabetes, the TK signalling mechanism is impaired. Certain TPs appear to be
involved in down regulating (dephosphorylating) the insulin TK signalling
pathway. SUGEN believes that a small molecule which specifically inhibits these
TPs may increase insulin TK signalling, thereby increasing glucose uptake and
metabolism.
SUGEN's animal studies with its lead phosphatase inhibitor compounds
have demonstrated the ability of its initial lead compounds to lower blood
glucose levels with efficacy comparable to currently available drugs. These
compounds will serve as the starting point for medicinal chemistry and drug
development with the aim of producing an optimized drug candidate to go forward
into clinical development. Based on the mechanism of action of these compounds
and their oral availability, the Company believes that it now has the
opportunity to develop drug candidates for the treatment of both Type II
(non-insulin dependent) and Type I (insulin dependent) diabetes.
Neurology
TKs, TPs and their signalling pathways are known to play key roles in
the maintenance of the central and peripheral nervous systems. Several known
neurotrophic factors bind to TKs, and thereby regulate differentiation and
survival of neurons. SUGEN has identified novel TKs and TPs whose expression is
restricted to the nervous system and which may serve as therapeutic targets for
intervention in neurological diseases. SUGEN has also identified lead compounds
that act as selective TP inhibitors and are able to stimulate neuron
differentiation in in vitro models.
Immunology
The role of TKs in the generation and maintenance of the human immune
system has been established by a number of researchers in different laboratories
around the world. SUGEN has developed a number of immunology related assays
which it is screening against its library of compounds and extracts. For
example, ZAP-70, an intracellular TK, appears to be a primary regulator of the
generation and function of the T-lymphocyte cell population of the immune
system. This TK and other signal transduction molecules in the immune system
represent potential drug discovery targets for identifying novel
immunosuppressive and immuno-modulating drugs. The primary clinical indications
that the Company is focusing on in immunology are immune suppression and acute
inflamation.
SUGEN's Drug Discovery Technology
SUGEN's goal is to discover and develop drugs that target specific TKs,
TPs, STKs or related downstream signalling molecules. SUGEN's drug discovery
effort is focused primarily on the discovery of small molecule drugs derived
from synthetic compound libraries and collections of natural product extracts,
including microbes, fungi and plants. As compared to biologic pharmaceuticals
such as proteins, peptides and carbohydrates, small molecules often offer
advantages as potential drugs. Small molecules can more easily penetrate cell
membranes and the blood brain barrier, can often be delivered orally, and can be
less immunogenic. These molecules also tend to involve substantially lower
process development and manufacturing costs. Using inhibition of TK
phosphorylation in a whole cell environment as an initial screening criterion,
SUGEN has been able to identify lead compounds in a number of its programs that
penetrate the cell easily, show minimal cytotoxicity and demonstrate potent and
selective activity on given targets.
SUGEN's process of drug discovery includes the following steps,
regardless of disease area: (1) target identification, using advanced genomics
techniques and the Company's proprietary bioinformatics program; (2) target
validation in relevant in vivo disease models; (3) whole cell or other assay
design and target-driven
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screening of compounds for leads; and (4) lead optimization using
crystallography and computational chemistry. The Company's in-house research
teams also work closely with NYU, MPI and MPP in target identification and
target validation. In this case, the remaining steps of this process are
conducted primarily by SUGEN or by its corporate partners.
Target Identification
SUGEN's genomics efforts are focused exclusively on certain families of
signal transduction genes, which make up approximately two percent of the entire
human genome. These families include the TKs, TPs, STKs, adaptor molecules and
certain other important molecules involved in cellular signalling. Within this
specific area of focus, SUGEN identifies and defines the function of novel genes
and their protein products, and in turn assesses their utility as targets for
therapeutic intervention against diseases of interest to the Company.
SUGEN believes that substantially the entire human genome will be
sequenced within a few years, and most of that sequence data will be available
on public databases or elsewhere. SUGEN's target identification effort,
therefore, is focused on determining the function of novel genes. In this
regard, SUGEN has made a strategic commitment to its bioinformatics platform,
representing a bridge between abundant gene sequence data and disease-relevant
discoveries.
SUGEN's bioinformatics program starts with a physical repository of the
approximately 200 known signal transduction genes in addition to other genes
discovered by SUGEN but not published to date. SUGEN also has a proprietary
panel of oligonucleotide primers capable of recognizing genes that are minimally
related to genes already in the SUGEN library. All of this information is
supported by an in-house massively parallel computer processing platform capable
of approximately 68,000 million instructions per second (mips) throughput. Using
sophisticated pattern recognition algorithms, SUGEN is able to rapidly mine the
public databases looking for new sequence material of interest, for the complete
sequences of gene fragments identified from cells of interest, for additional
members of newly discovered families of signal transduction genes, or for human
homologs of genes from lower organisms where genetic studies provide information
pertinent to the function of the new human gene.
SUGEN has developed a proprietary DNA array based hybridization
technology called transcript imaging, for which the Company has filed for patent
protection. This technology enables SUGEN researchers to rapidly obtain a
comprehensive analysis of the expression level for all TKs and TPs in a small
sample of cell or tissue. SUGEN's transcript imaging allows the Company to
identify signalling pathways that play key roles in specific cell types and,
more importantly, to compare diseased cells to healthy cells in order to
determine where aberrant signalling may play a causative role in a disease. For
example, if a particular signal transduction gene is heavily overexpressed in a
significant proportion of samples of a specific tumor type, that gene becomes a
potential candidate for target validation. If the gene can subsequently be
validated as playing a causative role in these tumors, it may be adopted as a
target for drug discovery. SUGEN believes that this technology also has the
potential to become an important diagnostic tool, an opportunity which SUGEN may
seek to pursue in partnership with an established diagnostics company or
otherwise.
Using both in-house bioinformatics and molecular biology capabilities,
SUGEN and its collaborators have discovered more than 15 TKs, 15 TPs and 135
STKs for which the Company has filed or intends to file patent applications.
Target Validation
A primary challenge in SUGEN's target-driven drug discovery is to
progress as efficiently as possible from identifying a potential new target to
verifying that a drug which specifically acts on that target could have a
significant therapeutic benefit in the treatment of a given disease. Within this
process, "target validation" is a crucial step before committing resources to
assay development and screening for target-specific drug leads. The first step
in validating a novel target usually involves developing a battery of
proprietary reagents, including truncated or point-mutated genes, anti-sense
constructs and antibodies. In the case of novel receptors, where the natural
ligands and signalling substrates initially may be unknown, the Company employs
a variety of advanced methods for identifying and cloning these molecules. Using
these reagents, the Company then engineers cell lines in which it has clearly
characterized the expression levels and activity of the target gene. These cell
lines can then be used to establish in vitro and in vivo whether down-regulating
the target will block the disease cascade. If so, the target is considered
validated.
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Assay Design/Screening
From its inception, SUGEN has committed significant resources to
building a strong assay development capability. The Company regards this
capability as an important component of its proprietary position in the
discovery and development of target-specific signal transduction inhibitor
drugs. Assay quality is the most important determinant of any screening
program's productivity. This becomes even more important in target-driven drug
discovery. SUGEN primarily employs engineered whole cell assays rather than
biochemical assays. A majority of SUGEN's assays are designed for
high-throughput robotics screening, and its core assay technologies are broadly
applicable to TKs, TPs and STKs and related signalling molecule targets.
SUGEN's drug discovery process employs a battery of proprietary assays
and models engineered specifically to ensure that the target is present and
functional in a consistent fashion at each step of the screening cascade.
SUGEN's assays are designed to answer the following four questions:
Screen 1 Can a compound block the signalling of the target in question,
within the context of a living cell?
Screen 2 Is the compound sufficiently selective in blocking the desired
target's signalling (i.e., can it block the target without blocking
closely related targets)?
Screen 3 Does the compound exert the desired biological effect on a living
cell (e.g., block cell growth)?
Screen 4 Does the compound exert the desired biological effect within the
context of an in vivo disease model?
By employing this proprietary screening cascade, SUGEN hopes to
identify lead compounds which are active in a whole cell environment, are
sufficiently potent and specific to a given target, and are active in an in vivo
disease model which is driven by the given target.
Once targets are validated by SUGEN and the assays have been developed
and validated, diverse libraries of synthetic small molecules and natural
product extracts are screened in order to identify potential drug leads. SUGEN
currently has a number of targets moving through its screening assays, and as
new targets are validated SUGEN continues to add to its panels of assays. Each
additional assay enhances the Company's ability to determine the specificity of
lead compounds. Along with assay design and screening, SUGEN has devoted
significant resources to acquiring libraries of structurally diverse compounds
from a variety of sources around the world.
Chemical Compound Libraries. SUGEN has entered into a number of
agreements designed to obtain chemical compounds for screening. These agreements
cover a broad range of chemical entities from sources across the world. The
Company currently has over 25,000 chemical compounds available in-house for
screening and has access to a portion of Zeneca's and ASTA Medica's libraries
for collaboration targets.
Natural Product Sources. SUGEN has gained access to commercial and
non-commercial sources of natural products, including microbial, plant and
fungal extracts. These sources represent an international collection network
that provides substantial diversity of material, including extracts from Japan,
China, Europe and North America. The Company is currently negotiating to gain
access to additional sources of extracts from different parts of the world. The
Company currently has over 16,000 natural product extracts available in-house
for screening.
Lead Optimization
The objective of SUGEN's lead optimization program is to increase the
potency, specificity and pharmacologic properties of lead compounds by designing
and synthesizing analogs. Lead optimization uses an iterative process employing
panels of assays to test for TK activity, TK specificity, and in vivo
pharmacologic endpoints of lead molecules in order to derive compounds with
clinical utility. All results are entered into a database that allows for
determination of structure and activity relationships leading to synthetic
chemistry efforts that follow important parameters for drug development. This
growing database represents a proprietary source of information on relationships
between small molecules, their specific targets, and the pharmacologic
properties of the compounds which the Company believes will accelerate the
optimization of lead compounds in several SUGEN programs.
SUGEN has recently added crystallographic analysis and computational
chemistry to its drug discovery process. Work conducted in Dr. Schlessinger's
laboratory at NYU, as well as with other collaborators, allows SUGEN scientists
to elucidate how the Company's product candidates bind to the catalytic core of
TKs and provides a basis for further directed synthetic chemistry efforts in
lead optimization, potential development of
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second generation compounds and the development of novel inhibitors against new
targets. In this regard, in a collaboration with ArQule, Inc. ("ArQule"), SUGEN
used combinatorial chemistry technology closely coordinated with crystallography
data to rapidly synthesize large numbers of analog compounds around SUGEN's lead
compounds. The crystallographic analysis provides a rationale to identify novel
chemical templates that may provide a cache of novel compounds with broad
application to the inhibition of TKs and STKs.
The Company believes that its ability to improve potency and
specificity in the early stages of drug discovery process and pharmacologic
features in the later stages of lead optimization may reduce the incidence and
severity of side effects and thus may reduce the cost, time and risk associated
with bringing potential products to market.
Preclinical Development
Wherever possible, SUGEN's in vitro and animal models utilize tumor
cell lines, reagents and techniques developed during target validation;
therefore, the appropriateness of the model system is already known prior to
drug testing. In addition, many other tools used during target validation are
used again at this stage of testing. Typically, additional cell lines and animal
models will need to be developed in order to enable the accurate assessment of a
compound's target-specific activity in an in vivo environment.
Corporate and Clinical Development Collaborations
The Company's approach to corporate partnering is different in cancer
than it is in other disease areas. In the cancer field, SUGEN intends to build a
vertically integrated oncology business in North America, with the objective of
bringing to market a family of target-specific signal transduction inhibitors
proprietary to SUGEN. To market its products effectively, the Company currently
intends to build a focused U.S. sales force to target the major cancer treatment
centers. The Company plans to seek additional corporate partners to fund product
development and commercialize its products in Europe and Asia. While the Company
generally intends to retain rights to its cancer programs in North America,
SUGEN is funding a portion of its ongoing cancer research through a
collaboration with Zeneca for the development of five undisclosed cancer
targets. Pursuant to its agreement with Zeneca, the Company will have the
opportunity to obtain profit participation rights in the North American market
by contributing to clinical development costs as incurred and will receive
milestone payments and royalties on worldwide sales. Outside of oncology, the
Company's strategy is to seek corporate collaborations or joint ventures to
which SUGEN contributes validated targets, screening technologies and drug leads
while the partner provides the disease-specific and drug development expertise
as well as marketing experience, in addition to providing funding to bring
potential products to market. As part of this strategy, the Company entered into
a collaboration with Allergan for angiogenesis inhibition in ophthalmic
applications resulting from the Company's Flk-1/KDR TK antagonist program.
Zeneca Limited
In January 1995, the Company established a research collaboration with
Zeneca. In this collaboration, Zeneca and the Company seek to discover and
develop novel small molecule signal transduction inhibitors that address certain
substantial oncology markets. The collaboration covers five undisclosed cancer
programs, but excludes all programs upon which the Company is currently building
its own cancer business. The two companies have agreed upon specific programs to
be included initially in the collaboration, with Zeneca supporting SUGEN's work
on these programs for an initial term of five years. SUGEN performs target
identification, target validation, assay development and screening for initial
leads, while Zeneca scientists concentrate on lead identification and
optimization and preclinical and clinical development activities. Zeneca will
market collaboration products worldwide. SUGEN has also granted Zeneca a right
of first negotiation to expand this collaboration in order to encompass
additional SUGEN cancer research projects, but has specifically excluded the
cancer related projects that SUGEN already has in development.
Under the terms of the agreement, Zeneca purchased 789,141 shares of
Common Stock at a price of $15.84 per share. This $12.5 million equity
investment, combined with Zeneca's $7.5 million participation in SUGEN's October
1994 initial public offering, increased Zeneca's ownership in the Company to
approximately 20%. Zeneca has committed not to increase its holdings above this
level without the approval of SUGEN's Board of Directors. Zeneca participated in
the Company's September 1995, October 1996 and November 1997 financings,
purchasing an additional 281,875, 509,000 and 456,000 shares, respectively, of
Common Stock in order to maintain its ownership position. To date, Zeneca has
invested approximately $36.8 million in the Company's Common Stock.
In addition to its equity purchases and annual research funding, Zeneca
paid a $5.0 million technology set-up fee to SUGEN, and will make milestone
payments (which may be offset against royalties over time) tied
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to the progress of compounds in the collaboration, and royalties on worldwide
sales of any collaboration products. SUGEN will also have the right to
contribute to clinical development costs on each program, thereby earning
participation in the North American profits from successful products coming out
of such programs over and above its royalty entitlement. Apart from this option,
Zeneca will be responsible for all development expenses. If a third party
acquires 35% or more of SUGEN's voting stock, Zeneca may terminate the
collaboration agreement but retain exclusive royalty-bearing license rights to
any collaboration products for which IND filing preparations are complete and a
separate license agreement has been executed. There can be no assurance that
this collaboration will result in any milestones being achieved or any products
being successfully developed.
The agreement provides for SUGEN to be granted access to Zeneca's large
proprietary collection of characterized chemical structures for screening
against SUGEN's signal transduction targets, both within and outside this
collaboration, subject to certain restrictions and a right of first licensing
negotiation on Zeneca's part. Zeneca has granted to SUGEN the right of first
negotiation to license from Zeneca oncology products (other than those
specifically excluded under the agreement) which Zeneca decides to license to a
third party.
In January 1996, SUGEN licensed a small molecule inhibitor of the EGF
TK from Zeneca. The compound, SU5271, was licensed from Zeneca as an extension
of the original collaboration agreement SUGEN signed with Zeneca. Under the
terms of this license agreement, Zeneca granted to SUGEN an exclusive, worldwide
license, with right to sublicense the compound, in exchange for milestone and
royalty payments. The agreement provides that SUGEN shall have overall control
and responsibility for the preclinical and clinical development, regulatory
strategy, process development and commercialization of SU5271.
National Cancer Institute
In April 1996, the Company entered into a Collaborative Research and
Development Agreement ("CRADA") with the National Cancer Institute (the "NCI")
for the application of SUGEN's proprietary transcript imaging technology in
order to identify the differences in expression patterns of signal transduction
genes that characterize each of the sixty tumor cell lines which constitute the
NCI's screening panel. Following this transcript imaging analysis of the panel,
the results will be correlated to the data generated over several decades at the
NCI from the screening each year of many thousands of compounds and natural
extracts against the panel. Interesting lead compounds from the NCI's open
repository collection will be tested in SUGEN's target-specific signal
transduction assays, and lead compounds from SUGEN will also be tested against
the NCI panel. SUGEN will have the option to license discoveries made through
this process for adoption into SUGEN's drug discovery programs.
ASTA Medica Aktiengesellschaft
In December 1995, SUGEN and ASTA Medica entered into a collaboration to
research, develop, manufacture, market and distribute potential oncology
products based upon the Company's Pan-Her antagonist and Raf antagonist
programs. Under the terms of the collaboration, ASTA Medica will undertake the
medicinal chemistry and pharmaceutical development work on SUGEN's drug
candidates, and will perform preclinical and clinical development in Europe in
accordance with FDA standards. ASTA Medica paid SUGEN a $4.0 million technology
set-up fee and is providing additional consideration in the form of services
provided by ASTA Medica pursuant to the collaboration but on non-collaboration
programs. Additionally, ASTA Medica purchased $9.0 million of Common Stock at a
price of $20.88 per share. In January 1998, SUGEN and ASTA Medica proceeded into
clinical development with their Pan-Her cancer program, marking the first
milestone in SUGEN's collaborations with ASTA Medica. ASTA Medica exercised its
option to satisfy its milestone obligation by the purchase of $500,000 of SUGEN
common stock at a price of approximately $26.79 per share of which the premium
above fair market value was recorded as revenue. In due course, SUGEN may
receive additional milestone payments in the two programs if they are
successful. The agreement provides for ASTA Medica to receive exclusive
marketing rights to collaboration products in Greater Europe (including
countries and territories located in the former Soviet Union) and South America,
subject to an obligation to pay royalties on net sales in such territories to
SUGEN. ASTA Medica also has the right of first offer to manufacture product to
be sold in SUGEN territories. SUGEN retains marketing rights in the rest of the
world, subject to a royalty payable to ASTA Medica in most circumstances.
ASTA Medica is an international pharmaceutical company headquartered in
Germany. The Company's research and development is focused on cancer,
respiratory diseases/allergies and disorders of the central nervous
system/epilepsy. The company is owned by Degussa, a German company active in the
fields of chemicals, health and nutrition, as well as banking and precious
metals.
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Allergan
In October 1996, SUGEN entered into a collaboration with Allergan to
identify, develop and commercialize novel angiogenesis inhibitors for the
treatment of ophthalmic diseases. The collaboration aims to establish a
comprehensive effort to identify and validate signal transduction targets for
choroidal and retinal neovascularization. Allergan is the exclusive corporate
partner for SUGEN in ocular diseases of neovascularization and has exclusive
rights to all ophthalmic uses of collaboration products and collaboration
know-how worldwide. In return, Allergan paid SUGEN a $2.0 million initial fee
for past research services and is funding collaboration research and drug
discovery at SUGEN for at least three years. Allergan initially purchased $4.0
million of Common Stock at $20.88 per share and purchased an additional 250,000
shares of Common Stock at $12.00 per share in SUGEN's October 1996 follow-on
offering. SUGEN will also receive payments upon achievement of certain
milestones and royalties with respect to worldwide sales of collaboration
products. In addition, SUGEN will have the right to contribute to clinical
development costs on each program, thereby earning participation in the North
American and European profits from successful products coming out of such
programs over and above its royalty entitlement. Apart from this option,
Allergan will be responsible for all development expenses.
Research Collaborations
SUGEN's scientific founders are Dr. Joseph Schlessinger, Chairman of
the Department of Pharmacology at NYU, and Dr. Axel Ullrich, Director of the
Department of Molecular Biology at MPI in Martinsried, Germany. In the fall of
1991, the Company entered into research collaboration agreements with both
institutions. More recently the Company has established additional research
collaborations relating to TPs, TKs and STKs identification and screening areas.
New York University Medical Center
In September 1991, SUGEN entered into a research and license agreement
with NYU granting the Company an exclusive worldwide license to the commercial
uses of TK, TP and STK technology being developed at NYU under the leadership of
Dr. Schlessinger. The research program being conducted at NYU centers on an
investigation of the mechanisms underlying the action of TKs, TPs and STKs and
their physiological role, as well as identifying, isolating and cloning new TKs,
TPs and STKs and the components of the signal transduction pathways emanating
from these proteins. The research program is scheduled to expire in 2001.
SUGEN's license to technology developed before or during the research program
will survive indefinitely unless NYU terminates the agreement upon insolvency of
the Company or due to a material breach by the Company. Upon such termination of
the agreement, NYU will continue to own the rights to the technology it has
developed under the agreement. The Company is obligated to pay royalties to NYU
on sales of any SUGEN products for which an IND is filed within four years of
the end of the NYU research period except for certain in-licensed products. As
part of this arrangement, NYU purchased 200,000 shares of SUGEN Common Stock at
the Company's formation.
Max-Planck Society
SUGEN has formed research collaborations with two institutes of the MPS
in Germany. These collaborations include licenses from Garching Innovation GmbH
("Garching"), the licensing arm of MPS.
Max-Planck-Institut fur Biochemie. The Company entered into a research
and license agreement with MPI and Garching which expired in August 1997 but is
expected to be extended in modified form. This agreement grants SUGEN an
exclusive worldwide license to the commercial uses of TK and TP technology being
developed at MPI under the leadership of Dr. Ullrich. The scope of the research
program includes identification, isolation and cloning of novel receptor TKs and
TPs, characterization of signal transduction pathway components and
investigation of the normal biological role of these proteins as well as their
role in disease. SUGEN's license to technology developed before or during the
research program will survive indefinitely unless MPI terminates the agreement
upon insolvency of the Company or due to a material breach by the Company. Upon
such termination of the agreement, MPI will continue to own the rights to the
technology it has developed under the agreement. The Company is obligated to pay
royalties on sales of any products using this technology. As part of this
arrangement, MPS currently owns 200,000 shares of SUGEN Common Stock purchased
at the Company's formation.
Max-Planck-Institut fur Physiologische und Klinische Forschung. In
October 1993, SUGEN entered into an agreement with MPP and Garching to support
the work of Dr. Werner Risau, a leading researcher in the area of angiogenesis.
This agreement grants SUGEN the exclusive worldwide right to commercialize Dr.
Risau's research on the inhibition of angiogenesis, vasculogenesis, vascular
permeability, chemotaxis and
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neurite outgrowth. This research collaboration will terminate in October 1999.
SUGEN's license to technology developed before or during the research program
will survive indefinitely unless MPP terminates the agreement upon insolvency of
the Company or due to a material breach by the Company. Upon termination of the
agreement, MPP will own the rights to the technology it has developed under the
agreement. The Company is obligated to pay royalties on sales of any products
embodying this technology.
ArQule
In September 1996, SUGEN entered into a collaboration agreement with
ArQule to develop a proprietary collection of compounds designed to target
binding sites common to many signal transduction molecules found in
cell-signalling pathways. SUGEN provided lead chemical structures and new
chemical structure scaffolds which enabled ArQule to use its Directed Array
combinatorial synthesis technologies to build a novel collection of compounds
with potentially broad applications for the pharmaceutical industry. The
research program expired in September 1997. SUGEN retains exclusive rights to
this collection with respect to TK and STK targets, subject to certain payments
and royalties to ArQule. ArQule retains responsibility for commercializing the
collection for targets in other areas, subject to royalty-sharing arrangements
with SUGEN.
Other Sources of Materials for Screening
The Company has entered into a number of agreements designed to obtain
novel biochemical and biological compounds and extracts for screening in its
proprietary assay systems. These agreements cover a broad range of chemical
entities from sources across the world. SUGEN also has an agreement with
Panlabs, Inc. of Bothell, Washington for the supply of microbial and fungal
extracts and the isolation and identification of active components from these
extracts. The original agreement was entered into in March 1993 and is renewable
for successive one year periods. The agreement most recently was amended in
early 1997, under which Panlabs will supply the Company with a significant
number of extracts from which the Company can select a portion to be designated
as "selected organisms." SUGEN will own all rights to the selected organisms and
the active compounds produced by them, including any derivatives. Panlabs is
supplying other companies with similar extracts under similar conditions. In
June 1995, SUGEN and Toyama Prefectural University of Tokyo initiated a
collaboration to discover new drugs for the treatment of cancer and other
diseases by inhibiting TKs and TPs and related molecules. A research team headed
by Professor Toshikazu Oki in the University's Biotechnology Research Center is
providing to SUGEN compounds from Toyama's microbial strain libraries for
testing of potential biological activity. In July 1996, SUGEN and the Institutes
of Botany and Microbiology of the Chinese Academy of Sciences initiated
exclusive collaborations to discover novel signal transduction inhibitor
candidates and pharmacophores. The Institute of Botany and the Institute of
Microbiology have provided to SUGEN extracts from the Institutes' plant and
microbial collections for testing of potential biological activity against
SUGEN's signal transduction targets. Other SUGEN compound sources include
natural product libraries from around the globe, including microbial, fungal and
plant extracts, as well as additional sources of small organic compounds.
Patents and Proprietary Technology
The Company's success will depend in part on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others, both in the United States and in other countries.
Patent matters in biotechnology, and in particular with respect to receptors as
screening tools and/or the DNA encoding them, are highly uncertain and involve
complex legal and factual questions. Accordingly, the availability of and
breadth of claims allowed in biotechnology and pharmaceutical patents cannot be
predicted. As of December 31, 1997, SUGEN held exclusive rights to at least 16
issued U.S. patents, had exclusive rights to at least 15 U.S. patent
applications for which notices of allowance had been received, and had filed
and/or held exclusive licenses to approximately 120 United States patent
applications, as well as related foreign patent applications. In December 1997,
the Company received two U.S. patents relating to methods of using SU101. The
Company also has received a patent relating to formulations comprising SU101.
There can be no assurance that the Company will develop products or processes
that are patentable, that patents will issue from any of the pending
applications, or that claims allowed will be sufficient to protect the Company's
technology. There can be no assurance that the Company's patents, if issued,
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to the
Company. Competitors have been issued patents, may have filed applications or
may obtain additional patents and proprietary rights relating to products or
processes competitive with those of the Company or which could block the
Company's efforts to obtain patents.
A number of pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents in the field of TKs, TPs and STKs and related downstream
signalling molecules. The commercial success of the Company will depend in part
on SUGEN not infringing patents issued to competitors and not breaching the
technology licenses upon which any Company
16
<PAGE>
products are based. The Company in the past has been, and from time to time in
the future may be, notified of claims that the Company may be infringing patents
or other intellectual property rights owned by third parties. Certain patent
applications or patents of the Company's competitors may conflict with the
Company's patents and patent applications, and SUGEN is aware that other
companies have filed patent applications and have been granted patents in the
United States and other countries claiming subject matter potentially useful or
necessary to the Company. Such conflicts could result in a significant reduction
in the scope of the coverage of the Company's issued or licensed patents. In
addition, if patents are issued to other companies which contain competitive or
conflicting claims and such claims are ultimately determined to be valid, the
Company may be required to obtain licenses to these patents or to develop or
obtain alternative technology. If any licenses are required, there can be no
assurance that the Company will be able to obtain any such license on
commercially favorable terms, if at all, and if these licenses are not obtained,
the Company might be prevented from pursuing the development of certain of its
potential products. The Company's breach of an existing license or failure to
obtain a license to any technology that it may require to commercialize its
products may have a material adverse impact on the Company. Litigation, which
could result in substantial costs to the Company, may also be necessary to
enforce any patents issued or licensed to the Company or to determine the scope
and validity of third-party proprietary rights. There can be no assurance that
the Company's issued or licensed patents would be held valid by a court of
competent jurisdiction. Even if the outcome of such litigation is favorable, the
cost of such litigation and the diversion of the Company's management resources
during such litigation could have a material adverse effect on the Company. An
adverse outcome could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require
the Company to cease using such technology, any of which could have a material
adverse effect on the Company. If competitors of the Company prepare and file
patent applications in the United States that claim technology also claimed by
the Company, the Company may have to participate in interference proceedings
declared by the Patent and Trademark Office to determine priority of invention,
which could result in substantial cost to the Company, even if the eventual
outcome is favorable to the Company. Indeed, the Company has several such
interferences pending. When patents issue in certain areas such as Japan and the
European community, third parties can oppose such issuance. Should the relevant
patent office institute a proceeding termed an opposition, the Company may
decide to defend its patent. There can be no assurance that the Company will be
successful or that the patent office will not revoke the patent or alter the
scope of protection previously granted.
SU101, a compound generally known by the name leflunomide, is a member
of the isoxazole family of compounds. Leflunomide was discovered more than 17
years ago. A large pharmaceutical company holds a number of United States and
foreign patents and has filed applications in the United States and abroad
covering compositions of matter and pharmaceutical uses of leflunomide and
structurally related compounds. As noted above, SUGEN has received two U.S.
patents containing claims relating to the use of SU101 in treating certain PDGF
TK related cancers and tumors. While the Company believes at this time that it
will receive method of use patent protection outside the United States on SU101,
there can be no assurance that any such patent protection will be issued. SUGEN
believes its research and development and its clinical trials with SU101 in the
United States are protected from claims of infringement of the United States
patents because such activities are being conducted solely for uses reasonably
related to development and submission of information to the FDA for regulatory
approval. Similar protection may not be available outside the United States.
Although the Company cannot predict whether or when SU101 will be approved by
the FDA for marketing in the United States, it believes that certain of the
pharmaceutical company's patents in the United States may have expired when
marketing does begin and that the remaining U.S. patents are either invalid or
will not be infringed by the manufacture and sale of SU101 in the United States.
However, the Company has learned that additional patents have issued in the
United States to the pharmaceutical company covering the use of leflunomide and
structurally related compounds for the treatment of named cancers. The Company
presently does not know if commercialization of SU101 will infringe these
additional patents but believes that the additional patents may be subject to
claims of invalidity as they relate to SU101. If the additional patents were
determined to be valid with respect to SU101, the Company may be required to
obtain a license from the pharmaceutical company in order to manufacture and
sell SU101 in the United States. There can be no assurance that SU101 will not
infringe the recently issued patents, that the term of the pharmaceutical
company's other existing patents will not be extended, that the claims of the
pharmaceutical company's pending patent applications will not be modified prior
to issuance so as to enhance their validity or scope, or that a court will agree
with the Company's beliefs regarding invalidity and non-infringement of the
patents. To date, the pharmaceutical company has not threatened or commenced
legal proceedings against the Company concerning possible patent infringement.
There can be no assurance that the pharmaceutical company in the future will not
assert claims against SUGEN or that the Company could reach agreement with the
pharmaceutical company for a license for SU101 upon favorable terms or at all,
if required. The inability of the Company to resolve this matter on favorable
terms or at all could have a material adverse effect on the Company. In any
event, the assertion of any such claims, even if resolved favorably to the
Company, could result in substantial costs to the Company.
17
<PAGE>
The Company plans to commercialize SU101 in the major markets outside
the United States either through affiliates or through licensees, and
anticipates receiving similar patent protection in Europe and Japan to its
Unites States position. The scope, term and validity of the pharmaceutical
company's patent protection outside the United States is different than the
situation in the United States, and the Company's ability to manufacture and
sell SU101 outside the United States may be adversely impacted by this patent
protection.
SUGEN also relies on trade secrets to protect technology, especially
where patent protection is not believed to be appropriate or obtainable. SUGEN
attempts to protect its proprietary technology and processes in part by
confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors. To the extent that the Company or its consultants or
research collaborators use intellectual property owned by others in their work
for the Company, disputes may also arise as to the rights in related or
resulting know-how and inventions.
Competition
SUGEN is engaged in a rapidly changing field. Other products and
therapies that will compete directly with the products that the Company is
seeking to develop and market currently exist or are being developed.
Competition from fully integrated pharmaceutical companies and more established
biotechnology companies is intense and is expected to increase. Most of these
companies have significantly greater financial resources and expertise in
research and development, manufacturing, conducting preclinical studies and
clinical trials, obtaining regulatory approvals and marketing than the Company.
Many of these competitors have significant products that have been approved or
are in development and operate large, well-funded research and development
programs. For example, monoclonal antibodies targeting Her2, including one
developed by Dr. Ullrich, are currently in clinical trials by others for certain
cancers. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical and
established biotechnology companies. Academic institutions, governmental
agencies and other public and private research organizations also conduct
research, seek patent protection and establish collaborative arrangements for
products and clinical development and marketing. These companies and
institutions compete with the Company in recruiting and retaining highly
qualified scientific and management personnel. Competition may also arise from
companies pursuing differing technological approaches to cancers and other
disease indications targeted by the Company's product candidates. In addition to
the above factors, SUGEN will face competition based on product efficacy and
safety, the timing and scope of regulatory approvals, availability of supply,
marketing and sales capability, reimbursement coverage, price and patent
position. There is intense competition for access to and use of libraries of
compounds to use for screening and any inability of the Company to maintain
access to sufficiently broad libraries of compounds for screening potential
targets would have a material adverse effect on the Company. There is no
assurance that the Company's competitors will not develop more effective or more
affordable products, compete more effectively for corporate partnerships or
achieve earlier patent protection or product commercialization than the Company.
Government Regulation
The Company's ongoing research and development activities and the
manufacturing and marketing of the Company's potential products are subject to
extensive regulation by numerous governmental authorities in the United States
and other countries. Failure to comply with applicable FDA or other applicable
regulatory requirements may result in criminal prosecution, civil penalties,
recall or seizure of products, total or partial suspension of production or
injunction, as well as other regulatory action against the Company or its
potential products.
Prior to marketing in the United States, any drug developed by the
Company must undergo rigorous preclinical studies and clinical trials and an
extensive regulatory clearance process implemented by the FDA under the federal
Food, Drug and Cosmetic Act. Satisfaction of such regulatory requirements, which
includes satisfying the FDA that the product is both safe and effective,
typically takes several years or more depending upon the type, complexity and
novelty of the product and requires the expenditure of substantial resources.
The Company is focusing its initial development efforts related to SU101 for the
treatment of malignant glioma and selected other solid tumor patient populations
with very poor prognosis. Given the poor prognoses for these patients, the
Company believes that FDA approval could potentially be obtained based on
smaller-scale clinical trials than are typically required for approval of NDAs.
There can be no assurance, however, that the Company will be able to rely on
smaller-scale clinical trials to expedite the commercialization of SU101 for
these patient populations.
18
<PAGE>
Preclinical studies must be conducted in conformance with the FDA's GLP
regulations. Before commencing clinical trials, the Company must submit to and
receive approval from the FDA of an IND. There can be no assurance that
submission of an IND would result in FDA authorization to commence clinical
trials. Clinical trials must meet requirements for institutional review board
oversight, informed consent and good clinical practice requirements and is
subject to continuing FDA oversight. The Company does not have extensive
experience in conducting and managing the clinical testing necessary to obtain
regulatory approval. Clinical trials may require large numbers of test subjects.
Furthermore, the Company or the FDA may suspend clinical trials at any time if
they believe that the subjects participating in such trials are being exposed to
unacceptable health risks or if the FDA finds deficiencies in the IND or the
conduct of the trials.
Before receiving FDA clearance to market a product, the Company will
have to demonstrate that the product is safe and effective on the patient
population that will be treated. Data obtained from preclinical studies and
clinical trials are susceptible to varying interpretations which could delay,
limit or prevent regulatory clearances. In addition, delays or rejections may be
encountered based upon additional government regulation from future legislation
or administrative action or changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review. Similar delays also may
be encountered in foreign countries. There can be no assurance that even after
such time and expenditures regulatory clearance will be obtained for any
products developed by the Company. If regulatory clearance of a product is
granted, such clearance will be limited to those disease states and conditions
for which the product is useful, as demonstrated through clinical studies.
Marketing or promoting a drug for an unapproved indication is prohibited.
Furthermore, clearance may entail ongoing requirements for postmarketing
studies. Even if such regulatory clearance is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections by the FDA. Discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product or manufacturer, including costly recalls or even withdrawal of the
product from the market. There can be no assurance that any compound developed
by the Company alone or in conjunction with others will prove to be safe and
efficacious in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing clearance.
Manufacturers of drugs and biologics also are required to comply with
the applicable FDA good manufacturing practice ("GMP") regulations, which
include requirements relating to quality control and quality assurance as well
as the corresponding maintenance of records and documentation. Manufacturing
facilities are subject to inspection by the FDA, including unannounced
inspection, and must be licensed before they can be used in commercial
manufacturing of the Company's products. There can be no assurance that the
Company or its suppliers will be able to comply with the applicable GMP
regulations and other FDA regulatory requirements. Such failure could have a
material adverse effect on the Company.
The Company may elect to seek approval of SU101 under the
Clinton-Kessler Cancer Initiative. Significant uncertainty exists as to the
extent to which such initiative will result in accelerated review and approval.
Further, the FDA has not made available comprehensive guidelines with respect to
this initiative, retains considerable discretion to determine eligibility for
accelerated review and approval and is not bound by discussions that an
applicant may have had with FDA staff. Accordingly, the FDA could employ such
discretion to deny eligibility of SU101 as a candidate for accelerated review or
to require additional clinical trials or other information before approving
SU101. A determination that SU101 is not eligible for accelerated review or
delays and additional expenses associated with generating a response to any such
request for additional trials could have a material adverse effect on the
Company.
Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Community ("EC") certain
registration procedures are available to companies wishing to market a product
in more than one EC member state. If the regulatory authority is satisfied that
adequate evidence of safety, quality and efficacy has been presented, a
marketing authorization will be granted. This foreign regulatory approval
process includes all of the risks associated with FDA clearance set forth above.
Manufacturing
The Company has no manufacturing facilities and relies on other
manufacturers to produce its compounds for research and development, preclinical
studies and clinical trials. The products under development by the Company have
never been manufactured for large-scale clinical trials or commercial purposes,
and there can be no assurance that such products can be manufactured at a cost
or in quantities necessary for large-scale clinical trials or to make them
commercially viable. Any change in the Company's existing relationships with, or
interruption in supply from, its manufacturers of the compounds used in its
19
<PAGE>
clinical trials could affect adversely the Company's ability to complete its
ongoing clinical trials and to market its product candidates, if approved. Any
such change or interruption may have a material adverse effect on the Company.
In the event of a change in the supplier of a compound used in its clinical
trials, the Company would be required to collect data from its ongoing clinical
trials with respect to a compound and file such data with the FDA to establish
clinical comparability between the compound as produced by different suppliers.
There can be no assurance that the Company would be able to establish such
clinical comparability. A failure to establish clinical comparability could lead
to a requirement that the Company enlarge the size of an ongoing clinical trial,
which would delay the completion of such trial, increase its cost and
potentially delay the Company's pursuit of regulatory approval for a product
candidate. If the Company were unable to contract for a sufficient supply of its
compounds on acceptable terms, or if it should encounter delays or difficulties
in its relationships with manufacturers, the Company's preclinical studies and
clinical trial schedule would be delayed, resulting in delay in the submission
of products for regulatory approval or the market introduction and subsequent
sales of such products, which could have a material adverse effect on the
Company. Moreover, contract manufacturers that the Company may use must adhere
to current GMP regulations enforced by the FDA through its facilities inspection
program. If these facilities cannot pass a pre-approval plant inspection, the
FDA pre-market approval of the products will not be granted.
Employees
As of December 31, 1997, the Company had 189 full-time employees,
including a technical scientific staff of 138. The Company places an emphasis on
obtaining the highest available quality of staff. The Company has selected and
assembled a group of experienced scientists and managers with skills in a wide
variety of disciplines, including molecular biology, chemistry and
pharmaceutical development. To date, the Company believes it has been successful
in its efforts to recruit qualified employees, but there is no assurance that it
will continue to be as successful in the future. None of the Company's employees
are covered by collective bargaining arrangements, and management considers
relations with its employees to be good.
20
<PAGE>
Item 2. PROPERTIES
SUGEN currently leases approximately 60,000 square feet of laboratory
and office space in Redwood City, California. The Company leases this space
under operating leases which last through November and December 1998.
Approximately 48,000 square feet of the laboratory and office space currently
under lease have three- and five-year renewal options at the end of the leases.
In June 1997, the Company entered into a build-to-suit facility lease
agreement with respect to a new research and headquarters facilities of
approximately 106,000 square feet on a site in South San Francisco, California.
Construction of the new facility is targeted for completion during the fourth
quarter of 1998, which coincides with the expiration of the Company's current
facility leases. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company believes that the
build-to-suit facility, in addition to its options for additional space at the
South San Francisco site, will be sufficient to meet its needs for the next
several years. There can be no assurances, however, that such space will be
available on favorable terms, if at all.
Item 3. LEGAL PROCEEDINGS
SUGEN is not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since the Company's initial public offering of its common stock in
October 1994, the Company's Common Stock has traded on the Nasdaq Stock Market
under the symbol SUGN. The following table lists the high and low sales prices
for the Company's Common Stock for each quarter of fiscal year 1997 and 1996.
These prices do not include retail markups, markdowns or commissions.
-----------------------------------
High Low
- ------------------------------------------------------------------------
1997
Fourth Quarter $ 21.13 $ 12.63
Third Quarter 20.94 11.88
Second Quarter 13.25 10.00
First Quarter 15.25 9.88
- ------------------------------------------------------------------------
1996
Fourth Quarter 14.50 11.25
Third Quarter 12.75 9.38
Second Quarter 15.25 11.25
First Quarter $ 15.88 $ 11.75
- ------------------------------------------------------------------------
As of March 13, 1998 there were approximately 229 holders of record of
the Company's Common Stock. On March 13, 1998, the last sale price reported on
the Nasdaq National Market System for the Company's Common Stock was $14.50 per
share.
The Company has not paid any dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future.
22
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
Statement of Operations Data:
(in thousands, except per share data)
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Contract revenue (1) $ 6,031 $ 13,650 $ 13,843 $ 6,270 $ 5,470
Costs and expenses:
Research and development 34,585 29,792 23,226 17,079 10,251
General and administrative 6,227 5,529 5,086 3,106 2,169
-------- -------- -------- -------- --------
Total costs and expenses 40,812 35,321 28,312 20,185 12,420
-------- -------- -------- -------- --------
Operating loss (34,781) (21,671) (14,469) (13,915) (6,950)
Other income and expense:
Interest income 2,786 2,481 1,988 529 339
Interest expense (1,065) (691) (494) (278) (56)
Gain on sale of investment
in Selectide Corporation -- -- 1,006 -- --
-------- -------- -------- -------- --------
Other income, net 1,721 1,790 2,500 251 283
-------- -------- -------- -------- --------
Net loss $(33,060) $(19,881) $(11,969) $(13,664) $ (6,667)
======== ======== ======== ======== ========
Basic and diluted net loss per share (2) $ (2.47) $ (1.81) $ (1.32) $ (4.37) $ (4.84)
======== ======== ======== ======== ========
Shares used in computing basic and diluted
net loss per share (2) 13,387 10,966 9,085 3,129 1,378
======== ======== ======== ======== ========
Pro forma net loss per share (3) $ (2.27) $ (1.49)
======== ========
Shares used in computing pro forma net loss per share (3) 6,013 4,485
======== ========
</TABLE>
<TABLE>
Balance Sheet Data:
(in thousands)
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments $ 75,295 $ 56,334 $ 53,253 $ 22,414 $ 16,984
Total assets $ 84,825 $ 61,936 $ 59,243 $ 28,455 $ 20,812
Senior custom convertible notes $ 17,500 $ -- $ -- $ -- $ --
Capital lease obligations - non-current portion $ 3,152 $ 2,938 $ 3,651 $ 2,087 $ 441
Accumulated deficit $(90,988) $(57,997) $(37,964) $(26,270) $(12,451)
Stockholders' equity $ 49,013 $ 48,530 $ 43,441 $ 18,319 $ 13,230
<FN>
(1) Includes amounts from related party.
(2) Basic and diluted loss per share for 1994 and 1993 have been retroactively
restated to apply the requirements of Staff Accounting Bulletin No. 98
("SAB 98"), issued by the SEC in February 1998. Under SAB 98, certain
shares of common stock and options and warrants to purchase shares of
common stock at prices substantially below the per share price of shares
sold in the Company's initial public offering previously included in the
computation of shares outstanding pursuant to Staff Accounting Bulletin's
Nos. 55, 64 and 83 are now excluded from the computation.
(3) Pro forma net loss per share information gives effect to the conversion of
all preferred stock outstanding from the date of issuance.
</FN>
</TABLE>
23
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with "Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Annual Report on Form 10-K. Except for the
historical information contained herein, the discussion in this Annual Report on
Form 10-K contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. These forward-looking statements are based on the
current expectations of the Company, and the Company assumes no obligation to
update this information. The cautionary statements made in this Annual Report on
Form 10-K should be read as being applicable to all related forward-looking
statements wherever they appear in this Annual Report on Form 10-K. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include those
discussed under "Liquidity & Capital Resources" below as well as those discussed
elsewhere herein.
Overview
SUGEN was founded in July 1991 to discover and develop new classes of
small molecule drugs which target specific cellular signal transduction
pathways. These signalling pathways are involved in a variety of chronic and
acute pathological diseases, including cancer and diabetes as well as in
dermatologic, ophthalmic, neurologic and immune disorders. The Company's most
advanced product candidate is SU101, a PDGF TK signalling antagonist. The
Company has completed the data analysis on a Phase II clinical trial for use of
SU101 as a treatment for refractory malignant glioma and initiated a Phase III
clinical trial during the first quarter of 1998. A Phase II study of SU101 in
combination with BCNU, the chemotherapy drug that is part of the standard
treatment regimen in newly diagnosed brain cancer patients and a Phase II study
in hormone refractory prostate cancer was initiated during the second half of
1997. To date, approximately 158 patients, including patients with brain,
ovarian, prostate and non-small cell lung cancers, have been treated with SU101
in nine Company-sponsored clinical trials. The Company is also conducting its
initial Phase I clinical trial for its second cancer product candidate, SU5416,
a Flk-1/KDR TK antagonist which inhibits angiogenesis (the process by which
blood vessels are formed). In addition, the Company is conducting a Phase I
clinical trial for SU5271, an EGF antagonist, for the treatment of psoriasis.
Through December 31, 1997, substantially all of the Company's revenue has been
earned pursuant to collaborations with Zeneca Limited ("Zeneca"), ASTA Medica
Aktiengesellschaft ("ASTA Medica"), Vision Pharmaceuticals L.P., an affiliate of
Allergan, Inc., and Allergan, Inc. (collectively "Allergan") and Amgen Inc.
("Amgen"). The Company intends to pursue its drug discovery programs
independently and in collaboration with established pharmaceutical companies.
In September 1997, the Company completed a private placement of $17.5
million principal amount of 5% Senior Custom Convertible Notes due 2000. The net
proceeds to the Company were approximately $16.3 million.
In November 1997, the Company completed a follow-on offering of
2,000,000 shares of Common Stock at a price of $16.00 per share. The net
proceeds to the Company were approximately $29.7 million. Zeneca purchased
456,000 shares of Common Stock in the offering.
The Company has not been profitable since inception and expects to
incur substantial losses for the foreseeable future, primarily due to the
expansion of preclinical and clinical development activities as more of its
proprietary cancer-related programs progress toward and into the clinic. The
Company expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. As of December 31, 1997, the Company's
accumulated deficit was $91.0 million.
Results of Operations
The Company's revenues for the years ended December 31, 1997, 1996, and
1995 were $6.0 million, $13.7 million, and $13.8 million, respectively. Revenues
for the year ended December 31, 1997 included contract
24
<PAGE>
revenue from the Allergan and Zeneca collaborations and contract & services
revenue earned under the ASTA Medica collaboration for services provided by ASTA
Medica pursuant to the collaboration but on non-collaboration programs. In 1998,
the Company expects to fully utilize the remaining available credit for contract
services provided by ASTA Medica and thereafter will only recognize revenue
under the ASTA Medica collaboration upon the achievement of specified
milestones. The Company is actively pursuing additional collaborations, but no
assurance can be given as to the ability of the Company to enter such
collaborations on a timely basis, or at all.
Revenues for 1996 included an up-front fee and contract revenue from
the Allergan collaboration, contract revenue from the Zeneca collaboration, the
recognition of the balance of the $4.0 million technology set-up fee received in
connection with the ASTA Medica collaboration and the $4.3 million wind-down fee
associated with the Amgen termination. The Company recognizes revenues from
set-up and wind-down fees as the related activities are performed, which is
generally over a twelve-month period or less. The decrease in 1997 revenues from
1996 was due to the recognition of set-up and wind-down fees from the Allergan,
ASTA Medica and Amgen collaborations in 1996. No such fees were recognized in
1997.
Research and development expenses for the years ended December 31,
1997, 1996 and 1995 were $34.6 million, $29.8 million and $23.2 million,
respectively. The increase during 1997 was primarily due to higher personnel
related costs associated with the expansion of the Company's research and
development programs. In addition, the progression of clinical activities,
including expanded Phase I and Phase II studies of the Company's lead
anti-cancer compound, SU101, initiation of Phase I studies of the Company's
psoriasis program, SU5271, and Phase I studies of the Company's second cancer
product candidate, SU5416, contributed to higher expenses during 1997. Further,
the advancement of multiple programs through preclinical development, including
activities associated with the Company's June 1997 filing of an Investigational
New Drug ("IND") with the U.S. Food and Drug Administration ("FDA") for the
clinical testing of SU5416, led to higher expenses in 1997. The increase during
1996 was driven by expenses associated with additional personnel dedicated to
the Company's research and development programs. In addition, the progression of
clinical activities, including expanded Phase I studies of SU101, contributed to
the growth in 1996 expenses. The Company expects that its research and
development expenses will continue to grow in future years due to the hiring of
personnel, additional preclinical studies, the progression of SU101 and SU5416
clinical trials, the initiation of new clinical trials on additional drug
candidates and pursuant to requirements under the Company's anticipated future
collaborations.
General and administrative expenses for the years ended December 31,
1997, 1996 and 1995 were $6.2 million, $5.5 million, and $5.1 million,
respectively. The increase in 1997 was primarily due to higher headcount related
costs as well as additional expenses in the areas of investor relations and
business development. The increase in 1996 was primarily due to increased
administrative staffing, the related recruiting and relocation expenses and
costs associated with the resignation of an officer. The Company expects that
its general and administrative expenses will continue to increase in order to
support the Company's expanding research and development efforts.
Interest income for the years ended December 31, 1997, 1996, and 1995
was $2.8 million, $2.5 million, and $2.0 million, respectively. These increases
were due to higher investment balances arising primarily from issuances of the
Company's capital stock and convertible debt. Interest expense for the years
ended December 31, 1997, 1996 and 1995 was $1.1 million, $691,000, and $494,000,
respectively. These increases were primarily due to the Company's continued use
of capital lease financing for equipment and property improvements related to
the expansion of its facilities. The Company expects that interest expense will
continue to increase in future years due to the continued use of capital lease
financing for equipment and facility improvements and the added expense related
to the issuance of senior custom convertible notes in September 1997, provided
the debt is not converted. A $1.0 million gain on the sale of the Company's
investment in Selectide was included in other income during the year ended
December 31, 1995.
The Tax Reform Act of 1986 contains provisions that limit the
utilization of net operating loss and tax credit carryforwards if there has been
a "change in ownership" as described in Section 382 of the Internal Revenue
Code. Such a change in ownership may have arisen as a result of the Company's
initial public offering or subsequent sales of securities.
25
<PAGE>
Liquidity and Capital Resources
At December 31, 1997, the Company had cash, cash equivalents and
short-term investments of approximately $75.3 million compared with
approximately $56.3 million at December 31, 1996. The increase in cash and
investments during the year ended December 31, 1997 was primarily due to the
$31.2 million in net proceeds from the issuance of Common Stock, $16.3 million
in net proceeds received in connection with the issuance of senior custom
convertible notes in September 1997, partially offset by the net loss for the
year.
Through December 31, 1997, the Company's principal sources of financing
have been its initial and follow-on public offerings of Common Stock, placements
of the Company's Preferred and Common Stock and senior custom convertible notes,
and funds received under the Company's corporate collaborations. The Company's
current principal sources of liquidity are its research and development
collaborations with ASTA Medica, Zeneca and Allergan, its cash, cash equivalents
and short-term investments and capital lease financing. The Company has combined
capital lease lines of $6.4 million available for the purchase of equipment and
facility improvements at December 31, 1997, including the $5.0 million
additional lease line secured in November 1997.
The Company has entered into license and research agreements whereby
the Company funds research projects performed by others or in-licenses compounds
from third parties. Some of the agreements may require the Company to make
milestone and royalty payments. Under these programs, commitments for external
research funding are approximately $1.7 million, $1.6 million, $1.4 million and
$1.1 million in 1998, 1999, 2000 and 2001, respectively. Most of these
commitments are cancelable within a three-to-six month period and limit the
amounts payable by the Company for sponsored research under the programs after
notice of cancellation. The Company anticipates renewing certain contracts that
expired in 1997 which will increase future commitments beyond the levels
indicated above for 1998 through 2001.
From time to time, the Company evaluates potential investments in
complementary businesses, products or technologies. Currently, the Company is
considering modest investments in such complementary businesses during 1998. The
Company has no other present undertakings, commitments or agreements with
respect to investments in other businesses.
Net additions of equipment and leasehold improvements for the years
ended December 31, 1997, 1996, and 1995 were $3.2 million, $1.7 million and $2.6
million, respectively, which included $1.4 million, $1.3 million and $2.6
million, respectively, of equipment and leasehold improvements financed through
the Company's master lease agreements. In general, additions for 1997, 1996 and
1995 included facility expansion costs, the continued enhancement of the
Company's laboratory capabilities and the costs associated with the Company's
ongoing effort to maintain an up-to-date technology base. Additions in 1997 and
1996 also included the purchase of a mass spectrometer and a significant
investment in computer hardware and software to support the Company's genomics
and bioinformatics programs, respectively. Under these capital leases and
certain operating lease arrangements, including the build-to-suit lease
agreement, the Company has lease commitments of $20.0 million through 2002. The
Company intends to fund future capital expenditures principally through lease
financing or other debt arrangements, although there can be no assurance that
such financing will be available. The Company expects that its capital additions
for 1998 will be higher than that of the prior year primarily due to anticipated
facility improvements in connection with the build-to-suit facility lease
agreement which was entered into in June 1997. Construction of the new facility
is targeted for completion during the fourth quarter of 1998, which coincides
with the expiration of the Company's current facility leases. Although the
Company has not expended significant amounts to date, the Company expects to
invest in facility improvements and incur move related costs during 1998 as it
approaches building completion. Accordingly, it is expected that the Company's
capital lease obligations and related interest expense, as well as its
depreciation expense, will increase in future periods. See "Properties."
The Company estimates that its existing capital resources together with
facility and equipment financing, expected revenues from current collaborations
and net income from investment activities, will be
26
<PAGE>
sufficient to fund its planned operations into 2000. However, there can be no
assurance that the underlying assumed levels of revenue and expense will prove
accurate. Whether or not these assumptions prove to be accurate, the Company
will need to raise substantial additional capital to fund its operations. The
Company intends to seek such additional funding through collaborative
arrangements, public or private equity or debt financings and capital lease
transactions; however, there can be no assurance that additional financing will
be available on acceptable terms, or at all. If additional funds are raised by
issuing equity securities, further dilution to stockholders may result. In
addition, in the event that additional funds are obtained through arrangements
with collaborative partners, such arrangements may require the Company to
relinquish rights to certain of its technologies, product candidates or products
that the Company would otherwise seek to develop or commercialize itself. If
adequate funds are not available, the Company may be required to delay, reduce
the scope of or eliminate one or more of its research or development programs,
which could have a material adverse effect on the Company.
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. The
Company has reviewed its existing software programs for year 2000 compliance and
believes that all of its internal application systems are currently in
compliance. The Company plans to initiate formal communications with all of its
significant suppliers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 Issues. The
project is estimated to be completed early 1999, which is prior to any
anticipated impact on its operations. The Company does not expect the costs of
year 2000 compliance to have a material impact on the Company's financial
results. However, there can be no assurance that all third parties, including
clinical trial sites, with whom the Company works will achieve year 2000
compliance on a timely basis for systems related to their interactions with the
Company, or that failure to achieve year 2000 compliance by such entities will
not have a material adverse effect on the Company.
The Company is at an early stage of development and must be evaluated
in light of the uncertainties and complications present in a biotechnology
company. The Company has been in existence only since 1991 and to date three
drug candidates (SU101, SU5271 and SU5416) have entered clinical trials. To
achieve profitable operations on a continuing basis, the Company, alone or with
collaborative partners, must successfully develop, manufacture, introduce and
market its proposed products. Products, if any, resulting from the Company's
research and development programs are not expected to be commercially available
for a number of years, even if they are developed successfully and proven to be
safe and effective. The Company has experienced significant operating losses
since its inception. The Company expects to incur significant operating losses
at least for the next several years and expects cumulative losses to increase as
the Company's research and development efforts, including preclinical and
clinical testing, are expanded. Substantially all of the Company's revenues to
date have been received pursuant to the Company's collaborations. Should the
Company or its collaborators fail to perform in accordance with the terms of any
of their agreements, any consequent loss of revenue under the agreements could
have a material adverse effect on the Company's results of operations. Many of
the Company's currently proposed products are subject to development and
licensing arrangements with the Company's collaborators. Therefore, the Company
is dependent on the research and development efforts of these collaborators with
respect to some of its proposed products and is entitled only to a portion of
the revenues, if any, realized from the commercial sale of any of the potential
products covered by the collaborations in many jurisdictions. Before obtaining
regulatory clearance for the commercial sale of any of its products under
development, the Company must demonstrate through preclinical studies and
clinical trials that the potential product is safe and efficacious for use in
humans for each target indication. The failure to adequately demonstrate the
safety and efficacy of a product under clinical development could delay or
prevent regulatory clearance of the potential product and could have a material
adverse effect on the Company. The foregoing risks reflect the Company's early
stage of development and the nature of the Company's industry and potential
products. Also inherent at the Company's stage of development are a range of
additional risks, including uncertainties regarding protection of patents and
proprietary rights, government regulation, competition, employee issues,
manufacturing uncertainties, the Company's lack of sales and marketing
capabilities, uncertainty of market acceptance of the Company's products, and
uncertainties regarding pharmaceutical pricing and reimbursement.
27
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this report
beginning on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
28
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Glenn S. Utt, Jr. resigned from the Company's Board of Directors
effective January 5, 1998 for personal reasons. The Company is retaining Mr.
Utt's services as a consultant to the Chairman at least until December 31, 1998.
The information required by this item is incorporated by reference from
the information under the captions "ELECTION OF DIRECTORS" and "MANAGEMENT"
contained in the Company's definitive proxy statement to be filed no later than
April 30, 1998 in connection with the solicitation of proxies for the Company's
Annual Meeting of Stockholders to be held May 20, 1998 (the "Proxy Statement").
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the information under the caption "EXECUTIVE COMPENSATION" of the Proxy
Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the information under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" in the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the information under the caption "CERTAIN TRANSACTIONS" in the Proxy Statement.
29
<PAGE>
PART IV
<TABLE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<CAPTION>
(a)
1. Financial Statements Page
----
<S> <C>
The following financial statements of SUGEN, Inc. are included in a
separate section of this report:
Balance Sheets at December 31, 1997 and 1996 F-3
Statements of Operations for each of the three years in the period
ended December 31, 1997 F-4
Statement of Stockholders' Equity for each of the three years in the
period ended December 31, 1997 F-5
Statements of Cash Flows for the three years in the period
ended December 31, 1997 F-6
Notes to Financial Statements F-7
</TABLE>
2. Financial Statement Schedules
All schedules have been omitted as they are not required, not applicable,
or the required information is included in the financial statements or
notes thereto.
30
<PAGE>
3. Exhibits
Exhibit
Number Exhibit
------ -------
3.1 Restated Certificate of Incorporation, filed February 23,
1995. (2)
3(ii).2 Bylaws of the Registrant. (1)
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of the Registrant. (5)
4.1 Reference is made to Exhibits 3.1 through 3(ii).2.
4.2 Specimen Stock Certificate. (1)
4.3 Form of 5% Senior Custom Convertible Note due 2000. (15)
4.4 Form of Common Stock Purchase Warrant. (15)
10.1 Form of Investor Rights Agreement, dated December 23, 1992,
among the Registrant and certain investors. (1)
10.2 Registrant's 1992 Amended and Restated Stock Option Plan (the
"Option Plan"), as amended. (11)
10.3 Form of Incentive Stock Option under the Option Plan. (1)
10.4 Form of Nonstatutory Stock Option under the Option Plan. (1)
10.5 Warrant to Purchase 2,666 Shares of Series A Preferred Stock,
dated December 7, 1991, granted by the Registrant to Sanwa
Business Credit Corp. (1)
10.6 Warrant to Purchase 2,666 Shares of Series A Preferred Stock,
dated December 7, 1991, granted by the Registrant to Silicon
Valley Bancshares. (1)
10.7 Warrant to Purchase 5,333 Shares of Series A Preferred Stock,
dated December 7, 1991, granted by the Registrant to Western
Technology Investment. (1)
10.8 Warrant to Purchase 133,333 Shares of Common Stock, dated July
13, 1992, granted by the Registrant to Genentech, Inc. (1)
10.9 Warrant Agreement to Purchase 40,000 Shares of Series D
Preferred Stock, dated October 30, 1992, between the
Registrant and Comdisco, Inc. (1)
10.10 Warrant Agreement to Purchase Shares of Series G(F) Preferred
Stock, dated July 23, 1993, between the Registrant and
Comdisco, Inc. (1)
10.11 Warrant Agreement to Purchase Shares of Series G(F) Preferred
Stock, dated July 23, 1993, between the Registrant and
Comdisco, Inc. (1)
10.12 Stock Swap Agreement, dated July 27, 1992, as amended, between
the Registrant and Selectide Corporation. (1)
10.13++ Amended and Restated Research and License Agreement, dated
August 16, 1991, among the Registrant,
Max-Planck-Gesellschaft, Max-Planck-Institut and Garching
Innovation GmbH; and Extension, dated March 31, 1993. (1)
10.14++ Amended and Restated Research and License Agreement, dated
September 1, 1991, between the Registrant and New York
University. (1)
10.15++ Services and Supply Agreement, dated January 1, 1992, between
the Registrant and BioSignal, Ltd. (1)
10.15(i) Exhibit A to Services and Supply Agreement, dated January 1,
1992, between the Registrant and BioSignal, Ltd. (1)
10.16++ Collaboration and License Agreement, dated November 17, 1992,
between the Registrant and Selectide Corporation. (1)
10.17++ Collaboration Agreement, dated December 18, 1992, between the
Registrant and Amgen, Inc. (1)
10.17(i)++ Amendment Number One to Collaboration Agreement between the
Registrant and Amgen, Inc., dated June 15, 1995. (3)
10.18 Letter of Intent, dated May 27, 1993, among the Registrant,
the State Science & Technology Commission of the Peoples
Republic of China, and International Technology Investment
Managers (Asia), Inc. (1)
10.19++ Amended and Restated Research and License Agreement, between
the Registrant and Yissum Research Development Company of The
Hebrew University of Jerusalem, dated March 27, 1995. (2)
10.20++ Research and License Agreement, dated October 1, 1993, among
the Registrant, Max-Planck-Institut and Garching Innovation
GmbH. (1).
31
<PAGE>
Exhibit
Number Exhibit
------ -------
10.21++ Exclusive License Agreement, dated January 21, 1994, between
the Registrant and Washington Research Foundation. (1)
10.22 Purchase Agreement between the Registrant and Zeneca Limited,
dated October 4, 1994. (2)
10.23++ Amended and Restated Research and License Agreement between
the Registrant and Yissum Research Development Company of The
Hebrew University of Jerusalem (labeled "Psoriasis"). (8)
10.24++ Amended and Restated Research and License Agreement between
the Registrant and Yissum Research Development Company of The
Hebrew University of Jerusalem (labeled "Papilloma"). (8)
10.25++ Amended and Restated Research and License Agreement between
the Registrant and Yissum Research Development Company of The
Hebrew University of Jerusalem (labeled
"Sepsis/Inflammation"). (8)
10.26++ Amended and Restated Research and License Agreement between
the Registrant and Yissum Research Development Company of The
Hebrew University of Jerusalem (labeled "Restenosis"). (8)
10.27 Consulting Agreement, dated August 16, 1991, between the
Registrant and Dr. Joseph Schlessinger. (1)
10.28 Consulting Agreement, dated August 16, 1991, between the
Registrant and Dr. Axel Ullrich. (1)
10.29 Seaport Centre Standard Lease and Addendum I, dated November
12, 1991, between the Registrant and Seaport Center Venture
Phase I. (1)
10.29(i) First Amendment, dated July 8, 1993, to Seaport Centre
Standard Lease between the Registrant and Seaport Center
Venture Phase I. (1)
10.29(ii) Second Amendment, dated June 2, 1995, to Seaport Centre
Standard Lease between the Registrant and Seaport Centre
Venture Phase I. (3)
10.29(iii) Construction Addendum, dated June 2, 1995, to Second Amendment
to Seaport Centre Standard Lease between the Registrant and
Seaport Centre Venture Phase I. (3)
10.30 Registrant's 1994 Employee Stock Purchase Plan. (1)
*10.31 Registrant's 1994 Non-Employee Directors' Stock Option Plan,
as amended. (11)
10.32 Form of Indemnity Agreement to be entered into between the
Registrant and its officers and directors. (1)
10.33 Warrant Agreement to Purchase 7,200 Shares of Series G
Preferred Stock, dated May 5, 1994, between the Registrant and
Financing for Science International, Inc. (1)
10.34++ Research and License Agreement, dated August 1, 1994, between
the Company and the Hospital for Sick Children. (1)
10.34(i) Amendment to Research and License Agreement between the
Registrant and the Hospital for Sick Children, dated August 1,
1995. (4)
10.35 Research and Technology Agreement, dated March 3, 1993,
between the Registrant and PanLabs, Inc., as amended. (1)
10.36++ Collaboration Agreement, between the Registrant and Zeneca
Limited, dated March 22, 1995. (2)
10.37 Agreement for the Purchase of Common Stock of the Registrant
by Zeneca Limited, dated January 6, 1995. (2)
10.38 Loan Agreement and Promissory Note between the Registrant and
James L. Tyree, dated August 29, 1994. (3)
10.39 Deferred Compensation Agreement between the Registrant and
James L. Tyree, dated August 29, 1994. (3)
10.40++ Cooperative Research and Development Agreement between the
Registrant and the National Cancer Institute, dated August 14,
1995. (4)
*10.41 Registrant's 1995 Long-Term Objectives Stock Option Plan for
Senior Management, as amended. (12)
10.42 Form of Nonstatutory Stock Option under the Long-Term
Objectives Stock Option Plan for Senior Management. (6)
32
<PAGE>
Exhibit
Number Exhibit
------ -------
10.43 Rights Agreement, dated as of August 1, 1995 between the
Registrant and The First National Bank of Boston, as Rights
Agent. (5)
10.44 Form of Agreement for the Purchase of Common Stock of the
Registrant and list of participants thereto, dated September
21, 1995. (4)
10.45 Lease Financing Commitment Letter, dated September 12, 1995
between the Registrant and Financing for Science
International, Inc. (4)
10.46++ Collaboration Agreement, between the Registrant and ASTA
Medica Aktiengesellschaft, dated December 5, 1995. (7)
10.47 Agreement for the Purchase of Common Stock of the Registrant
by ASTA Medica Aktiengesellschaft, dated December 5, 1995. (7)
10.48++ Termination and Redemption Agreement between the Registrant
and Amgen Inc., dated January 9, 1996. (8)
10.49++ Warrant to purchase 200,000 shares of Common Stock of the
Registrant, dated January 19, 1996, issued by the Registrant
to Amgen Inc. (8)
10.50++ License Agreement between the Registrant and Zeneca Limited,
dated January 19, 1996. (8)
10.51++ Cooperative Research and Development Agreement between the
Registrant and the National Cancer Institute, dated April 12,
1996. (9)
10.52++ Termination notice, dated May 24, 1996, between the Registrant
and Yissum Research Development Company of The Hebrew
University of Jerusalem (labeled "Sepsis/Inflammation"). (9)
10.53++ Termination notice, dated May 24, 1996. between the Registrant
and Yissum Research Development Company of The Hebrew
University of Jerusalem (labeled "Restenosis"). (9)
10.54++ Research and Development Agreement between the Registrant and
Arqule, Inc. (10)
10.55++ Extension of Research and License Agreement between the
Registrant and the Max Planck Institute. (10)
10.56 Promissory Note received by the Registrant from Stephen
Evans-Freke. (10)
10.57 Agreement for the purchase of Common Stock of the Registrant
by Vision Pharmaceuticals L.P. (10)
10.58++ Collaboration Agreement by and between the Registrant and
Vision Pharmaceuticals L.P. and Allergan, Inc. (10)
10.59++ Extension of Research Agreement between the Registrant and
Yissum Development Company of the Hebrew University. (10)
10.60 James L. Tyree Separation Agreement. (10)
10.61++ Master Lease Agreement, dated March 28, 1997, between the
Registrant and Transamerica Business Credit Corporation. (13)
10.62++ Lease Financing Commitment Letter, dated March 20, 1997,
between the Registrant and Transamerica Business Credit
Corporation. (13)
10.63++ Build-To-Suit Lease Agreement, dated June 11, 1997, between
the Registrant and Britannia Pointe Grand Limited Partnership.
(14)
10.64++ Form of Warrant for the Purchase of Common Stock, dated June
30, 1997, issued in the connection with Build-To-Suit Lease
Agreement, between the Registrant and Britannia Pointe Grand
Limited Partnership. (14)
10.65++ Second Amended and Restated Research and License Agreement,
dated June 30, 1997, between the Registrant and New York
University. (14)
10.66++ Termination notice, dated June 1, 1997, between the Registrant
and Yissum Research Development Company of The Hebrew
University of Jerusalem. (14)
10.67++ Form of Note Purchase Agreement, dated as of September 8,
1997, by and between the Registrant and the investors named
therein. (16)
10.68+ Amended and Restated Master Lease Agreement, dated November
12, 1997, and Lease Financing Commitment Letter, dated
November 5, 1997, between the Registrant and Transamerica
Business Credit Corporation.
*10.69 Restricted Stock Bonus Agreement between the Registrant and K.
Peter Hirth, Ph D., dated September 16, 1997.
33
<PAGE>
Exhibit
Number Exhibit
------ -------
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (incorporated in the signature page of the
Form 10-K).
27 Financial Data Schedule.
- ------------------
* Compensatory Plan.
+ Confidential Treatment has been requested with respect to
portions of this Exhibit.
++ Confidential treatment has previously been granted for
portions of this Exhibit.
(1) Incorporated by reference to identically numbered exhibits
filed in response to Item 16 "Exhibits" of the Company's
Registration Statement on Form S-1, as amended (File Number
33-77074), which became effective October 4, 1994.
(2) Incorporated by reference to identically numbered exhibits
filed in response to Item 14 "Exhibits" of the Company's
Annual Report on Form 10-K for the year ended December 31,
1994.
(3) Incorporated by reference to identically numbered exhibits
filed in response to Item 6 "Exhibits" of the Company's Form
10-Q for the quarter ended June 30, 1995.
(4) Incorporated by reference to identically numbered exhibits
filed in response to Item 6 "Exhibits" of the Company's Form
10-Q for the quarter ended September 30, 1995.
(5) Filed as an exhibit to the Form 8-K Current Report dated July
26, 1995 and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-99152), dated November 9, 1995, and
incorporated herein by reference.
(7) Incorporated by reference to identically numbered exhibits
filed in response to Item 14 "Exhibits" of the Company's
Annual Report on Form 10-K as amended, for the year ended
December 31, 1995.
(8) Incorporated by reference to identically numbered exhibits
filed in response to Item 6 "Exhibits" of the Company's Form
10-Q for the quarter ended March 31, 1996.
(9) Incorporated by reference to identically numbered exhibits
filed in response to Item 6 "Exhibits" of the Company's Form
10-Q for the quarter ended June 30, 1996.
(10) Incorporated by reference to identically numbered exhibits
filed in response to Item 6 "Exhibits" of the Company's Form
10-Q for the quarter ended September 30, 1996.
(11) Filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 333-09323), dated August 1, 1996, and
incorporated herein by reference.
(12) Filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 333-09321), dated August 1, 1996, and
incorporated herein by reference.
(13) Incorporated by reference to identically numbered exhibits
filed in response to Item 6 "Exhibits" of the Company's Form
10-Q for the quarter ended March 31, 1997.
(14) Incorporated by reference to identically numbered exhibits
filed in response to Item 6 "Exhibits" of the Company's Form
10-Q for the quarter ended June 30, 1997.
(15) Filed as an exhibit to the Form 8-K Current Report dated
September 12, 1997, and incorporated herein by reference.
(16) Filed as an exhibit to the Registrant's Registration Statement
on Form S-3, dated October 10, 1997, and incorporated herein
by reference.
34
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
(b) Reports on Form 8-K
SUGEN, Inc. filed a Current Report on Form 8-K dated October 27, 1997,
in connection with the proposed follow-on public offering of Common Stock by the
Company.
Additionally, the Company filed a Current Report on Form 8-K dated
November 19, 1997, in connection with the follow-on public offering of Common
Stock by the Company.
35
<PAGE>
Annual Report on Form 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
Financial Statements and Supplementary Data
Certain Exhibits
Year Ended December 31, 1997
SUGEN, Inc.
Redwood City, California
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SUGEN, Inc.
We have audited the accompanying balance sheets of SUGEN, Inc. as of
December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SUGEN, Inc. at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
February 5, 1998
F-2
<PAGE>
<TABLE>
SUGEN, Inc.
BALANCE SHEETS
(In thousands, except share and per share amounts)
<CAPTION>
December 31, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,816 $ 24,852
Short-term investments 51,479 31,482
Accounts receivable 237 264
Prepaid expenses and other current assets 754 468
--------- ---------
Total current assets 76,286 57,066
Property and equipment, net 4,601 4,095
Other assets 3,938 775
--------- ---------
$ 84,825 $ 61,936
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,991 $ 852
Accrued liabilities 10,267 7,406
Deferred revenue 625 375
Capital lease obligations - current portion 2,277 1,835
--------- ---------
Total current liabilities 15,160 10,468
Capital lease obligations - non-current portion 3,152 2,938
Senior custom convertible notes 17,500 --
--------- ---------
Total long-term liabilities 20,652 2,938
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000 shares
authorized, issuable in series; 300,000 shares designated
as Series A Junior Participating Preferred Stock; none
issued and outstanding -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; shares issued and outstanding:
15,307,146 and 12,993,450 in 1997 and 1996, respectively 153 130
Additional paid-in capital 141,426 107,990
Deferred compensation (695) (710)
Note receivable from stockholder (883) (883)
Accumulated deficit (90,988) (57,997)
--------- ---------
Total stockholders' equity 49,013 48,530
--------- ---------
$ 84,825 $ 61,936
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
SUGEN, Inc.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Contract revenue (includes amounts from related party) $ 6,031 $ 13,650 $ 13,843
Costs and expenses:
Research and development 34,585 29,792 23,226
General and administrative 6,227 5,529 5,086
------------ ------------ ------------
Total costs and expenses 40,812 35,321 28,312
------------ ------------ ------------
Operating loss (34,781) (21,671) (14,469)
Other income and expenses:
Interest income 2,786 2,481 1,988
Interest expense (1,065) (691) (494)
Gain on sale of investment in Selectide Corporation -- -- 1,006
------------ ------------ ------------
Other income, net 1,721 1,790 2,500
------------ ------------ ------------
Net loss $ (33,060) $ (19,881) $ (11,969)
============ ============ ============
Basic and diluted net loss per share $ (2.47) $ (1.81) $ (1.32)
============ ============ ============
Shares used in computing basic and diluted net loss per share 13,387,000 10,966,000 9,085,000
============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
SUGEN, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<CAPTION>
Convertible
Preferred Stock Common Stock
---------------- --------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 -- $-- 8,161,700 $ 82
Issuance of Common Stock upon exercise of stock options and in
connection with an employee stock purchase plan -- -- 141,824 1
Placement of Common Stock for cash, net of issuance costs of $450 -- -- 1,396,875 14
Issuance of Common Stock for cash to Zeneca Limited, net of
issuance costs of $150 -- -- 789,141 8
Issuance of Common Stock for cash to ASTA Medica
Aktiengesellschaft, net of issuance costs of $50 -- -- 431,137 4
Issuance of Common Stock for services -- -- 15,000 --
Repurchase of Common Stock for cash from Selectide Corporation -- -- (300,760) (3)
Amortization of deferred compensation -- -- -- --
Change in net unrealized losses on available-for-sale securities -- -- -- --
Net loss -- -- -- --
----------- ---- ----------- -----------
Balances at December 31, 1995 -- -- 10,634,917 106
Issuance of Common Stock upon exercise of stock options and in
connection with an employee stock purchase plan, net -- -- 194,195 2
Issuance of Common Stock for cash and note in connection with
the exercise of stock options -- -- 132,333 1
Issuance of Common Stock for cash to Allergan, net of issuance
costs of $32 -- -- 191,571 2
Issuance of Common Stock for cash in connection with the follow-on
public offering, net of offering costs of $2,133 -- -- 2,070,000 21
Issuance of Common Stock upon exercise of warrants, net 5,434 --
Repurchase of Common Stock for cash from Amgen Inc. -- -- (235,000) (2)
Issuance of warrants for cash to Amgen Inc. -- -- -- --
Deferred compensation related to grant of certain stock options -- -- -- --
Amortization of deferred compensation -- -- -- --
Change in net unrealized losses on available-for-sale securities -- -- -- --
Net loss -- -- -- --
----------- ---- ----------- -----------
Balances at December 31, 1996 -- -- 12,993,450 130
Issuance of Common Stock upon exercise of stock options and in
connection with an employee stock purchase plan, net -- -- 288,696 3
Deferred compensation related to stock grant to an officer 25,000 --
Issuance of Common Stock for cash in connection with the follow-on
public offering, net of offering costs of $2,340 -- -- 2,000,000 20
Fair value of warrants issued -- -- -- --
Amortization of deferred compensation -- -- -- --
Change in net unrealized gains on available-for-sale securities -- -- -- --
Net loss -- -- -- --
----------- ---- ----------- -----------
Balances at December 31, 1997 -- $-- 15,307,146 $ 153
=========== ==== =========== ===========
Note
Additional Receivable Total
Paid-In Deferred From Accumulated Stockholders'
Capital Compensation Stockholder Deficit Equity
------- ------------ ----------- ------- ------
Balances at December 31, 1994 $ 45,094 $ (587) $ -- $ (26,270) $ 18,319
Issuance of Common Stock upon exercise of stock options and in
connection with an employee stock purchase plan 302 -- -- -- 303
Placement of Common Stock for cash, net of issuance costs of $450 16,299 -- -- -- 16,313
Issuance of Common Stock for cash to Zeneca Limited, net of
issuance costs of $150 12,342 -- -- -- 12,350
Issuance of Common Stock for cash to ASTA Medica
Aktiengesellschaft, net of issuance costs of $50 8,946 -- -- -- 8,950
Issuance of Common Stock for services 139 -- -- -- 139
Repurchase of Common Stock for cash from Selectide Corporation (1,426) -- -- -- (1,429)
Amortization of deferred compensation -- 190 -- -- 190
Change in net unrealized losses on available-for-sale securities -- -- -- 275 275
Net loss -- -- -- (11,969) (11,969)
--------- --------- --------- --------- ---------
Balances at December 31, 1995 81,696 (397) -- (37,964) 43,441
Issuance of Common Stock upon exercise of stock options and in
connection with an employee stock purchase plan, net 717 -- -- -- 719
Issuance of Common Stock for cash and note in connection with
the exercise of stock options 883 -- (883) -- 1
Issuance of Common Stock for cash to Allergan, net of issuance
costs of $32 3,966 -- -- -- 3,968
Issuance of Common Stock for cash in connection with the follow-on
public offering, net of offering costs of $2,133 22,686 -- -- -- 22,707
Issuance of Common Stock upon exercise of warrants, net -- -- --
Repurchase of Common Stock for cash from Amgen Inc. (2,696) -- -- -- (2,698)
Issuance of warrants for cash to Amgen Inc. 200 -- -- -- 200
Deferred compensation related to grant of certain stock options 538 (538) -- -- --
Amortization of deferred compensation -- 225 -- -- 225
Change in net unrealized losses on available-for-sale securities -- -- -- (152) (152)
Net loss -- -- -- (19,881) (19,881)
--------- --------- --------- --------- ---------
Balances at December 31, 1996 107,990 (710) (883) (57,997) 48,530
Issuance of Common Stock upon exercise of stock options and in
connection with an employee stock purchase plan, net 1,543 -- -- -- 1,546
Deferred compensation related to stock grant to an officer 350 (350) --
Issuance of Common Stock for cash in connection with the follow-on
public offering, net of offering costs of $2,340 29,640 -- -- -- 29,660
Fair value of warrants issued 1,903 -- -- -- 1,903
Amortization of deferred compensation -- 365 -- -- 365
Change in net unrealized gains on available-for-sale securities -- -- -- 69 69
Net loss -- -- -- (33,060) (33,060)
--------- --------- --------- --------- ---------
Balances at December 31, 1997 $ 141,426 $ (695) $ (883) $ (90,988) $ 49,013
========= ========= ========= ========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
SUGEN, Inc.
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
<S> <C>
Years Ended December 31,
--------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(33,060) $(19,881) $(11,969)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,146 2,308 1,629
Deferred revenue 250 (6,183) 1,922
Issuance of Common Stock for services -- -- 139
Gain on sale of investment in Selectide Corporation -- -- (1,006)
Changes in operating assets and liabilities:
Accounts receivable 27 24 35
Prepaid expenses and other current assets (286) 278 (200)
Other assets (1,370) (332) (39)
Accounts payable 1,139 200 (420)
Accrued liabilities 2,861 3,819 1,996
-------- -------- --------
Net cash used in operating activities (27,293) (19,767) (7,913)
-------- -------- --------
Cash flows from investing activities
Purchases of short-term investments (54,884) (27,998) (57,118)
Maturities of short-term investments 31,515 36,973 15,308
Sales of short-term investments 3,441 4,418 6,873
Purchases of property and equipment, net (3,177) (1,665) (2,042)
Proceeds from sale of investment in Selectide Corporation -- -- 2,923
-------- -------- --------
Net cash provided by (used in) investing activities (23,105) 11,728 (34,056)
-------- -------- --------
Cash flows from financing activities
Proceeds from issuance of Common Stock, net 31,206 27,395 37,916
Proceeds from issuance of senior custom convertible notes 17,500 -- --
Repurchase of Common Stock -- (2,698) (1,429)
Proceeds from issuance of warrant -- 200 --
Proceeds from lease financing of property and equipment 2,750 1,247 2,109
Payments under capital lease obligations (2,094) (1,479) (1,000)
-------- -------- --------
Net cash provided by financing activities 49,362 24,665 37,596
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,036) 16,626 (4,373)
Cash and cash equivalents at beginning of year 24,852 8,226 12,599
-------- -------- --------
Cash and cash equivalents at end of year $ 23,816 $ 24,852 $ 8,226
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 847 $ 691 $ 494
======== ======== ========
Supplemental schedule of noncash investing and
financing activities:
Equipment acquired under capital leases $ -- $ -- $ 1,059
======== ======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
F-6
<PAGE>
SUGEN, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization
SUGEN, Inc. (the "Company"), a Delaware corporation founded in July
1991, is a biopharmaceutical company focusing on the discovery and development
of small molecule drugs which target specific cellular signal transduction
pathways. Dysfunctional signal transduction pathways have been shown to result
in a variety of chronic and acute pathological diseases, including cancer and
diabetes as well dermatologic, ophthalmic, neurologic and immune disorders. The
Company pursues its drug discovery programs independently and in collaboration
with other pharmaceutical companies.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with a maturity
from date of purchase of three months or less to be cash equivalents. All other
liquid investments are classified as short-term investments. The Company limits
its concentration of risk by diversifying its investments among a variety of
industries and issuers.
All debt securities are designated as available-for-sale and are
carried at fair value, with the unrealized gains and losses reported in
stockholders' equity. The amortized cost of debt securities 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 on available-for-sale
securities are also included in interest income. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities are included in interest income.
Revenue Recognition
Revenue from collaborative agreements is recorded when earned as
defined under the terms of the agreements. Non-refundable fees received upon
contract signing or terminations are recorded as deferred revenue and recognized
as income when the related start-up or wind-down activities are performed, which
is generally over a twelve month period or less. Non-refundable up-front fees
received as consideration for previous research and development work performed
are recognized in full upon contract execution. Milestones are recorded when
earned. In instances where milestone payments are received in the form of a
stock purchase at a premium above fair market value, equity is recorded at fair
market value and the premium recognized as revenue. Periodic research funding
payments are recognized as income when earned. Substantially all of the
Company's revenue is derived from its collaborations.
Research and Development Expense
Research and development expense consists of independent research and
development costs, the costs associated with work performed under collaborations
and the Company's sponsored funding of research projects performed by others.
Research and development costs include direct and research-related overhead
expenses and are expensed as incurred.
Depreciation and Amortization
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which are
generally three to five years. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the term of the lease. Amortization
of assets held under capital lease is included in depreciation expense.
F-7
<PAGE>
Stock Based Compensation
The Company generally grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
employs the intrinsic-value method to value stock option grants.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. The adoption by the Company of SFAS 128 on
December 31, 1997 had no impact on the net loss per share for the periods
reported. Per share amounts for all periods have been presented in accordance
with SFAS 128 requirements.
Net loss per share is computed using the weighted average number of
common shares outstanding. Stock options, convertible preferred stock, and
warrants are excluded from the computation as their effect is antidilutive.
If the Company had been in a net income position, diluted earnings per
share would have been presented separately and would have included the effect of
outstanding stock options and warrants, calculated using the treasury stock
method.
2. Investments
<TABLE>
The following is a summary of available-for-sale securities as of
December 31 (in thousands):
<CAPTION>
Available-for-Sale Securities
-------------------------------------------------------------------------------------
1997 1996
-------------------------------------- ----------------------------------------
Unrealized Estimated Unrealized Estimated
Gains/ Fair Gains/ Fair
Cost (Losses) Value Cost (Losses) Value
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government agencies $ 11,518 $ 17 $ 11,535 $ 13,348 $ (21) $ 13,327
U.S. corporate notes 36,393 16 36,409 19,422 (8) 19,414
U.S. corporate
commercial paper 16,001 2 16,003 9,506 (2) 9,504
Certificates of deposit 3,999 2 4,001 -- -- --
Repurchase agreements 900 -- 900 8,036 -- 8,036
Market rate auction
preferred funds and other 6,447 -- 6,447 6,054 (1) 6,053
-------- -------- -------- -------- -------- --------
$ 75,258 $ 37 $ 75,295 $ 56,366 $ (32) $ 56,334
======== ======== ======== ======== ======== ========
Amounts included in:
Cash equivalents $ 23,814 $ 2 $ 23,816 $ 24,853 $ (1) $ 24,852
Short-term investments 51,444 35 51,479 31,513 (31) 31,482
-------- -------- -------- -------- -------- --------
$ 75,258 $ 37 $ 75,295 $ 56,366 $ (32) $ 56,334
======== ======== ======== ======== ======== ========
</TABLE>
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
the estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange.
As of December 31, 1997, the average portfolio duration was approximately five
months and the longest contractual maturity did not exceed two years. Gross
realized gains and losses were immaterial during 1997 and 1996.
F-8
<PAGE>
3. Investment in Selectide Corporation
In 1992, the Company signed a three-year collaborative agreement with
Selectide Corporation ("Selectide"), a privately-held corporation. In connection
with this agreement, the Company issued 300,760 shares of stock for junior
preferred shares of Selectide valued at $1.9 million, which shares represented
approximately 5% of the voting shares of Selectide as of December 31, 1994.
In January 1995, the Company received approximately $2.9 million from
the sale of its 5% ownership in Selectide to Marion Merrell Dow, Inc., resulting
in a gain of approximately $1.0 million. The Company simultaneously repurchased
the 300,760 shares of SUGEN Common Stock formerly held by Selectide for
approximately $1.43 million, or $4.75 per share. The net proceeds to the Company
from these transactions was approximately $1.5 million.
4. Property and Equipment
Property and equipment consists of the following at December 31 (in thousands):
1997 1996
-------- --------
Leasehold improvements $ 4,084 $ 3,168
Office and computer equipment 3,251 2,320
Laboratory equipment 4,226 2,896
-------- --------
11,561 8,384
Accumulated depreciation and amortization (6,960) (4,289)
-------- --------
Net property and equipment $ 4,601 $ 4,095
======== ========
Property and equipment under capital leases amounted to $8.9 million
and $7.5 million as of December 31, 1997 and 1996, with related accumulated
amortization of $5.1 million and $3.9 million, respectively.
5. Accrued Liabilities
The components of accrued liabilities consist of the following at December (in
thousands):
1997 1996
------- -------
Accrued research and development services $ 5,351 $ 3,724
Accrued compensation 1,176 883
Accrued professional fees 859 524
Other 2,881 2,275
------- -------
$10,267 $ 7,406
======= =======
6. Research and Development Collaboration Agreements
Allergan, Inc.
In October 1996, the Company established a research and development
collaboration with Vision Pharmaceuticals L.P., an affiliate of Allergan, Inc.,
and Allergan, Inc. (collectively, "Allergan"), to identify, develop and
commercialize novel angiogenesis inhibitors for the treatment of ophthalmic
diseases. The collaboration will also establish a comprehensive effort to
identify and validate signal transduction targets for choroidal and retinal
neovascularization. Allergan will have exclusive rights to all ophthalmic uses
of collaboration products and know-how world-wide. In return, the Company
received a $2.0 million initial payment for past research services, is receiving
annual research funding and expects to receive additional fees upon the
achievement of specified milestones and royalties on any product sales. In
addition, the Company will have the right to contribute to clinical development
costs on each program, thereby earning participation in the North American and
European profits from successful products coming out of such programs over and
above its royalty entitlement. Allergan also purchased 191,571 shares of SUGEN
Common Stock at a price of $20.88 per share and participated in the Company's
October
F-9
<PAGE>
1996 financing (see Note 10), purchasing an additional 250,000 shares of Common
Stock, thereby increasing its cumulative equity investment in SUGEN to $7.0
million.
ASTA Medica Aktiengesellschaft
In December 1995, the Company established an oncology product
development collaboration with ASTA Medica Aktiengesellschaft ("ASTA Medica") to
develop, manufacture and bring to market SUGEN's oncology products based upon
the cell signal transduction targets known as Pan-Her and Raf. The Company
received a $4.0 million technology set-up fee, is receiving additional
consideration in the form of contract services for non-collaboration work and
will receive certain milestone payments tied to the success of the programs and
royalty payments on sales in certain territories. In January 1998, the first
milestone in connection with the Company's collaboration with ASTA Medica was
achieved in the Pan-Her cancer program. ASTA Medica exercised its option to
satisfy its $500,000 milestone obligation through the purchase of 18,665 shares
of SUGEN Common Stock at a price of $26.79 of which the premium above fair
market value was recorded as revenue. The agreement provides for ASTA Medica to
receive exclusive marketing rights to collaboration products in Greater Europe
(including the former Soviet Union) and South America, subject to royalties to
SUGEN. The Company retains market rights in the rest of the world, subject to
royalties payable to ASTA Medica in most circumstances. In addition, in 1995
ASTA Medica purchased 431,137 shares of SUGEN Common Stock for $9.0 million, or
$20.88 per share.
Zeneca Limited - Related Party
In January 1995, the Company established a collaboration with Zeneca
Limited ("Zeneca") to pursue the research, development and commercialization of
novel anti-cancer drugs targeting cell-surface receptors and intra-cellular
signal transduction pathways. In connection with this agreement, the Company
received an initial $5.0 million technology set-up fee, is receiving additional
cash payments for annual research funding and will receive certain milestone
payments (which may be offset against royalties over time) tied to the progress
of compounds in the collaboration and royalties on worldwide sales of any
collaboration products. The Company will also have the right to contribute to
clinical development costs on each program, thereby earning participation in the
North American profits from successful products coming out of such programs over
and above its royalty entitlement.
As a part of the collaboration agreement, Zeneca purchased 789,141
shares of the Company's Common Stock for $12.5 million, or $15.84 per share.
This $12.5 million equity investment, combined with Zeneca's $7.5 million
participation in SUGEN's October 1994 initial public offering, increased
Zeneca's equity investment in SUGEN to $20.0 million and brought Zeneca's
ownership in the Company to approximately 20%.
Zeneca participated in the Company's November 1997, October 1996 and
September 1995 financings (see Note 10), purchasing an additional 456,000,
509,000 and 281,875 shares of the Company's Common Stock, respectively. These
additional investments maintained Zeneca's ownership level in SUGEN at
approximately 20% and increased its cumulative equity investment in the Company
to $36.8 million. Zeneca has committed not to increase its holdings above this
level without the approval of SUGEN's Board of Directors.
Amgen, Inc.
In December 1992, the Company established a research and development
collaboration with Amgen Inc. ("Amgen") to discover and develop therapeutic and
diagnostic products in neurobiology and a subset of hematopoiesis. As part of
this collaboration, Amgen made a $4.0 million equity investment, which converted
into 387,878 shares of the Company's Common Stock at the time of the Company's
initial public offering. For the three year period ended December 31, 1995, the
Company received approximately $18.1 million of research funding from Amgen.
In January 1996, the Company and Amgen reached an agreement to conclude
their research collaboration one year earlier than originally planned due to
their changed research priorities. Under the terms of this wind-down agreement,
Amgen made a final cash payment to the Company of $2.5 million (of which $1.1
million was advanced in December 1995) and forgave certain advance payments
already made to the Company for future research work which was recorded as
wind-down revenue in 1996. Amgen also granted back to SUGEN exclusive worldwide
rights to 22 propriety signal transduction targets discovered in the course of
the collaboration, subject to royalty payments back to Amgen with respect to
potential future product sales. In addition, in January 1996, the Company
redeemed 235,000 shares of its Common Stock from Amgen at a price of $11.48 per
share, thereby reducing Amgen's current holdings of the Company's Common Stock
to 152,878 shares. Amgen also purchased in January 1996 for $200,000 a
seven-year warrant to purchase 200,000 shares of Common Stock at an exercise
price of $15.50 per share.
F-10
<PAGE>
7. Leases
In March 1997 and November 1997, the Company secured capital lease
lines for equipment and tenant improvements for $3.5 million and $5.0 million,
respectively. At December 31, 1997, the Company had a total of approximately
$6.4 million available under these lease lines.
The Company leases its current office and laboratory facilities under
operating leases through 1998. Rent expense for the current facility leases and
other operating leases amounted to $1.6 million, $1.6 million and $1.4 million
for 1997, 1996 and 1995, respectively. In June 1997, the Company entered into a
build-to-suit facility lease agreement which extends until 2015 with renewal
options of ten years. In connection with this agreement, the Company also issued
warrants to purchase shares of Common Stock. The related fair value of the
warrants was recorded as deferred expenses and will be amortized over the term
of the warrants. Minimum rental amounts stipulated in the lease are subject to
adjustment based upon the final square footage of the building and total cost at
completion. Construction of the new facility is targeted for completion during
the fourth quarter of 1998, which coincides with the expiration of the Company's
current facility leases.
Future minimum payments under capital and operating leases at December
31, 1997 are as follows (in thousands):
Capital Operating
Leases Leases
-------- --------
Year ended December 31:
1998 $ 2,857 $ 1,992
1999 1,936 2,388
2000 1,164 2,647
2001 436 3,231
2002 62 3,304
--------
Total minimum lease payments 6,482
Amount representing interest (1,053)
--------
Present value of minimum lease payments 5,429
Less current portion (2,277)
--------
Non-current portion $ 3,152
========
8. Senior Custom Convertible Notes
In September 1997, the Company completed the sale of $17.5 million
principal amount of 5% Senior Custom Convertible Notes due 2000 (the "Notes").
The Notes were sold at par, mature on September 12, 2000 and bear interest at a
rate of 5% per annum (payable in Common Stock or cash, at the Company's option).
The Notes are convertible together with accrued and unpaid interest and subject
to certain limitations, into shares of Common Stock at a conversion price equal
to the average of the two lowest trade prices of the Common Stock during the 20
trading days immediately preceding the date of conversion (the "Conversion
Price"). Since January 19, 1998, the Conversion Price may not exceed $14.87,
115% of the average closing bid price of the Common Stock for the 20 trading
days immediately preceding such date. In connection with the issuance of the
Notes, the Company issued warrants to purchase up to 332,500 shares of Common
Stock at an exercise price of $16.74 per share. Cash and non-cash issuance costs
(including the fair value of the warrants) totaled approximately $2.6 million
and are recorded as deferred expenses which are amortized to expense over the
term of the Notes. No purchaser of the Notes will be allowed to convert Notes
and/or warrants which would result in such person owning more than 4.9% of the
then outstanding Common Stock.
Upon the occurrence of certain events, at the election of the holders
of the Notes, the Company may be required to redeem in cash all or a portion of
the Notes at redemption prices which are at a premium to the face value of the
Notes. If the Notes are not converted into Common Stock upon maturity in
September 2000, the Notes will be exchanged for 13.75% five-year debentures.
Pursuant to the terms of the Notes, in addition to other covenants, the Company
has agreed to certain limitations on the incurrence of additional indebtedness.
F-11
<PAGE>
9. Commitments Under Research and Development Programs
The Company enters from time to time into license and research
agreements whereby the Company funds research projects performed by others or
in-licenses compounds from third parties. Some of the agreements may require the
Company to make milestone and royalty payments.
Under these programs, commitments for research funding are
approximately $1.7 million, $1.6 million, $1.4 million and $1.1 million in 1998,
1999, 2000, and 2001, respectively. The Company anticipates renewing certain
contracts that expired in 1997 which will increase future commitments. Most of
these commitments are cancelable within a three-to-six month period and limit
the amounts payable by the Company for sponsored research under the programs
after notice of cancellation. Related research and development expenses under
these programs were $3.1 million, $3.5 million and $4.2 million for 1997, 1996
and 1995, respectively.
10. Stockholders' Equity
Preferred Share Purchase Rights Plan
In July 1995, the Board of Directors approved a Preferred Share
Purchase Rights Plan ("Rights Plan"). The Rights Plan provides for the
distribution of a preferred stock purchase right as a dividend for each share of
the Company's Common Stock. This right entitles stockholders to purchase stock
in the Company or in an acquirer of the Company at a discounted price in the
event of certain hostile efforts to acquire control of the Company. The rights
may only be exercised, if at all, until the earlier of July 31, 2000, or the
occurrence of certain events, and may be redeemed by the Company. At December
31, 1997, the rights were not exercisable.
In connection with the Rights Plan, 300,000 shares of the authorized
Preferred Stock were designated as Series A Junior Participating Preferred Stock
("Junior Preferred Stock"), of which one share is equivalent to 100 shares of
Common Stock. Each share of Junior Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders and
shall rank, with respect to the payment of dividends and the distribution of
assets, junior to all series of any other class of the Company's Preferred
Stock. Subject to the rights of the holders of any shares of Preferred Stock
with respect to dividends, the holders of shares of Junior Preferred Stock, in
preference to the holders of Common Stock, shall be entitled to receive
quarterly dividends, when, as and if declared by the Board of Directors. As of
December 31, 1997, no dividends had been declared and no shares were
outstanding.
Common Stock
In November 1997, the Company completed a follow-on public offering of
2,000,000 shares of Common Stock at a price of $16.00 per share. The net
proceeds to the Company were approximately $29.7 million.
In October and November 1996, the Company completed a follow-on
public offering of 2,070,000 shares of Common Stock at a price of $12.00 per
share. The net proceeds to the Company were approximately $22.7 million.
In September 1995, the Company sold 1,396,875 shares of its Common
Stock at a price of $12.00 per share, resulting in net proceeds of approximately
$16.3 million.
The total number of shares of Common Stock outstanding was 15,307,146
as of December 31, 1997, of which 63,125 were subject to repurchase. At December
31, 1997, the Company has reserved 5,865,991 shares of Common Stock for issuance
upon exercise of warrants and options and conversion of debt and 85,543 common
shares for issuance under the Employee Stock Purchase Plan.
F-12
<PAGE>
Warrants
The following warrants to purchase shares of common stock were issued
in connection with the Senior Custom Convertible Notes and various license,
facility and equipment lease financing arrangements (also see Notes 6, 7 and 8):
Warrants Outstanding at December 31, 1997
----------------------------------------------------------------------
Price Per
Number of Shares Share Aggregate Price Expiration Date
---------------- --------- --------------- ---------------
332,500 $ 16.74 $5,566,050 September 2000
200,000 15.50 3,100,000 January 2003
70,000 15.44 1,080,800 June 2002
40,000 3.75 150,000 December 1999
36,847 10.31 379,985 July 2000
13,598 12.87 175,006 December 2001
7,200 11.25 81,000 December 1999
2,666 4.69 12,497 December 2001
Note Receivable from Stockholder
In August 1996, an officer of the Company exercised options to purchase
132,333 shares of common stock at prices ranging from $6.00 to $7.50 per share.
As consideration for the purchase, the officer issued a full recourse Promissory
Note (the "Note") to the Company. The Note bears interest of 6.84% per annum and
is due and payable on August 29, 2001. However, in the event that the officer's
continuous status as an employee, director or consultant with the Company is
terminated for any reason prior to the payment in full of the Note, the Note
shall be accelerated and all remaining unpaid principal and interest shall
become due and payable on the 90th day following such termination. In addition,
the officer has pledged the shares purchased with this Note as collateral.
11. Stock Option and Purchase Plans
Employee Stock Purchase Plan
In April 1994, the Company adopted an Employee Stock Purchase Plan
("ESPP") under which 200,000 shares of Common Stock were reserved for issuance.
All employees of the Company, except those having a 5% or greater ownership
stake in the Company, are eligible to participate in the ESPP provided that on
the first day of an offering period they have been employed by the Company for
at least 30 days and are customarily employed by the Company at least twenty
hours per week and at least five months per calendar year. Offerings will
generally be for six months, with the purchase price per share equal to the
lower of 85% of the market value on the date granted (the beginning of the
offering period) or on the date purchased. The next offering period ends on
March 31, 1998. As of December 31, 1997, 114,457 shares had been issued under
the ESPP.
1992 Stock Option Plan
The 1992 Stock Option Plan (the "Plan") provides for the grant of
options to purchase shares of Common Stock to employees, including officers,
directors, and consultants, upon terms determined by the Board of Directors. The
options granted under the Plan may be either incentive stock options or
nonstatutory stock options. As of December 31, 1997, an aggregate of 3,500,000
shares of Common Stock had been reserved for issuance under the Plan, of which
750,000 shares are subject to stockholders' approval.
Options granted under the Plan expire no later than ten years from the
date of grant. The option price shall be at least 100% of the fair market value
on the date of grant for incentive stock options. Nonstatutory options, may be
granted as low as 85% of the fair market value on the date of grant. The options
generally become exercisable over a period of four years from the date of grant.
Options may be granted with different vesting terms from time to time as
approved by the Board of Directors. The Plan has been amended to provide for
automatic vesting of options granted upon a change of control, as defined.
As of December 31, 1997, options to purchase 851,649 shares of Common
Stock were exercisable, of which 117,813 shares would be subject to repurchase
if all were exercised.
F-13
<PAGE>
Through December 31, 1994, the Company recorded deferred compensation
expense for the difference between the exercise price and the deemed fair value
for financial statement presentation purposes of the Company's Common Stock for
certain options granted in 1994 and 1993. This deferred compensation expense
aggregated $757,000 and is being amortized over the related vesting period.
1994 Non-Employee Directors' Stock Option Plan
In April 1994, the Board of Directors approved the 1994 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan") to provide for the
automatic grant of options to purchase shares of Common Stock to each person who
is elected as a director of the Company and who is not otherwise employed by the
Company (a "Non-Employee Director").
Options granted under this Plan to Non-Employee Directors upon their
initial election to the Board will vest and be exercisable in five equal annual
installments commencing on the date one year after the date of the grant.
Vesting is contingent upon the continuous service of the director. The director
may elect at any time while a Non-Employee Director of the Company to exercise
the option prior to vesting of the option. Any unvested shares so purchased
shall be subject to a repurchase right in favor of the Company. The Directors'
Plan has been amended to provide for automatic vesting of options granted upon a
change of control, as defined. Options granted annually to existing Non-Employee
Directors vest in full on the date ten days prior to the date of the first
annual meeting of stockholders of the Company subsequent to the date of the
grant. The exercise price of options granted under the Directors' Plan must
equal or exceed the fair market value of the Common Stock on the date of grant.
Under this plan, 380,000 shares of Common Stock have been reserved for issuance,
of which 150,000 shares are subject to stockholders' approval. As of December
31, 1997, options for 161,000 shares were outstanding, of which 157,000 and
53,000 shares were exercisable and subject to repurchase if exercised,
respectively.
Long-Term Objectives Stock Option Plan for Senior Management
In July 1995, the Board of Directors adopted the Long-Term Objectives
Stock Option Plan for Senior Management (the "Long-Term Plan"). The Long-Term
Plan provides for the grant of options to purchase shares of Common Stock to
certain senior employee officers, upon terms determined by the Board of
Directors. The options granted under this Plan may be either incentive stock
options or nonstatutory stock options. Options granted under this Plan expire no
later than ten years from the date of grant. The option price shall be at least
100% of the fair market value on the date of grant for incentive stock options.
Under this plan, 270,000 shares of Common Stock have been authorized for
issuance.
In August 1996, the Company amended the terms of the then outstanding
options on 180,000 shares of Common Stock to modify the vesting provisions. The
amendment resulted in $538,000 of deferred compensation which is being amortized
over the remaining vesting period of approximately five years. The options, as
amended in August 1996, vest over a period of approximately six years.
As of December 31, 1997, options for 180,000 shares were outstanding,
of which 144,000 shares and 101,250 shares were exercisable and subject to
repurchase if exercised, respectively.
Accounting for Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"),
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options generally equals the market price of the
underlying stock on the date of grant, generally no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of
5.9%, 5.9% and 5.7%; dividend yields of 0%; volatility factors of the expected
market price of the Company's Common Stock of .55, .57 and .57; and a
weighted-average expected life of the options of 3 years.
F-14
<PAGE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different that those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for earnings per share
information):
1997 1996 1995
--------- --------- ----------
Pro forma net loss $ (35,604) $ (21,813) $ (12,846)
========= ========= ==========
Pro forma net loss per share $ (2.66) $ (1.99) $ (1.41)
========= ========= ==========
The weighted average fair value of options granted during 1997, 1996
and 1995 was $5.66, $5.39 and $3.55, respectively. As FAS 123 is applicable only
to options granted subsequent to December 31, 1994, its pro forma effects are
not fully reflected until 1997.
<TABLE>
A summary of the Company's stock option activity under the Company's
option plans which include the 1992 Stock Option Plan, the 1994 Non-Employee
Directors' Plan and the Long-Term Objectives Stock Option Plan for Senior
Management is as follows:
<CAPTION>
Outstanding Stock Options
--------------------------
Shares Available Weighted
For Grant of Number of Average
Options Shares Price per Share
------- ------ ---------------
<S> <C> <C> <C>
Balance at December 31, 1994 271,427 783,922 3.08
Shares authorized 1,300,000 -- --
Options granted (1,131,137) 1,131,137 8.31
Options exercised - (112,261) 1.22
Options forfeited 16,370 (16,370) 5.11
------- ---------
Balance at December 31, 1995 456,660 1,786,428 6.49
Shares authorized 650,000
Options granted (652,066) 652,066 12.08
Options exercised - (305,072) 4.60
Options forfeited 235,559 (235,559) 7.85
------- ---------
Balance at December 31, 1996 690,153 1,897,863 8.54
Shares authorized 900,000 -- --
Options granted (a) (713,500) 713,500 13.15
Options exercised - (254,836) 5.13
Options forfeited 93,186 (93,186) 11.12
------- ---------
Balance at December 31, 1997 969,839 2,263,341 10.27
======= =========
</TABLE>
Note:
(a) Of the 713,500 options granted in 1997, options for 77,161 shares
are subject to stockholder approval.
F-15
<PAGE>
<TABLE>
The following table summarizes information concerning currently outstanding
options:
<CAPTION>
Exercisable
Outstanding Stock Options Stock Options
---------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Price Per
Exercise Prices of Shares Life Price of Shares Share
----------------- -------------- -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$0.38 - $2.44 163,493 5.6 $1.39 154,558 $1.34
5.00 - 5.75 48,862 7.1 5.40 38,096 5.45
6.00 - 8.13 498,821 7.2 7.12 419,662 7.21
9.67 - 11.88 718,905 8.5 11.24 340,220 11.38
12.00 - 14.88 819,878 9.5 13.27 199,843 13.21
15.00 - 19.00 13,382 9.7 18.58 270 15.00
-------------- ------------
$0.38 - $19.00 2,263,341 8.3 $10.27 1,152,649 $8.64
============== ============
</TABLE>
12. Income Taxes
As of December 31, 1997, the Company had federal and state net
operating loss carryforwards of approximately $88.3 million and $7.1 million,
respectively. The Company also had federal and California research and
development tax credit carryforwards of approximately $2.4 million and $1.7
million, respectively. The federal net operating loss and credit carryforwards
will expire at various dates beginning in the year 2006 through 2012, if not
utilized. The State of California net operating losses will expire at various
dates beginning in 1998 through 2002, if not utilized.
Utilization of the Company's net operating loss carryforwards and
credits may be subject to an annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limiation may result in the expiration of net operating losses and
credits before utilization.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets for financial reporting purposes and the
amount used for income tax purposes. Significant components of the Company's
deferred tax assets for federal and state income taxes are as follows as of
December 31 (in thousands):
1997 1996
-------- --------
Net operating loss carryforwards $ 30,400 $ 19,300
Research credits carryforwards 3,700 2,100
Capitalized R&D 1,700 1,100
Deferred revenue 100 200
Other - net 1,900 800
-------- --------
Total deferred tax assets 37,800 23,500
Valuation allowance for deferred tax assets (37,800) (23,500)
-------- --------
Net deferred tax assets $ 0 $ 0
======== ========
Due to the Company's history of losses, the deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
$8.0 million and $5.1 million for the fiscal years ended December 31, 1996 and
1995, respectively.
Deferred tax assets as of December 31, 1997 include approximately
$900,000 relating to the exercise of stock options, which will be credited to
equity when realized.
13. Related Party Transactions
In 1992, the Company entered into a collaboration and licensing
agreement with Selectide. The Chairman of the Board of Directors and Chief
Executive Officer of the Company was also the chairman of the Board of Directors
of Selectide (see Note 3).
F-16
<PAGE>
In 1996, the Company made a $100,000 investment in a China joint
venture. The Chairman of the Board of Directors and Chief Executive Officer of
the Company is also the Chairman and a director of the China joint venture.
In 1995, the Company entered into a collaboration agreement with Zeneca
(see Note 6). As of December 31, 1997, Zeneca owned approximately 20% of the
Company's outstanding Common Stock.
In January 1996, the Company entered into a license agreement with
Zeneca for the dermatological use of a synthetic small molecule inhibitor. In
connection with the Company's filing of an Investigational New Drug ("IND")
application with the Food and Drug Administration ("FDA") for the clinical
testing of this compound, SU5271, the Company paid Zeneca $200,000.
In connection with the resignation of an officer in June 1996, the
Company recorded approximately $500,000 in connection with the forgiveness of
loans and salary continuation.
In August 1996, an officer and director of the Company exercised
options to purchase 132,333 shares of Common Stock (See Note 10). As
consideration for the purchase of these shares and related tax liability upon
the exercise of the options, the officer issued a full recourse promissory note
in the amount of $1.1 million to the Company, of which approximately $883,000 is
included in stockholder's equity. In addition, the Company provided secured
loans to certain key employees and officers to assist in the down payments for
the purchase of their personal residences, all of which are forgivable after
specified years of employment. Included in Other Assets are approximately
$271,000 of loans receivable from certain key employees and officers at December
31, 1997. Further, in September 1997, the Company granted 25,000 shares of
Common Stock to an officer subject to forfeiture and recorded deferred
compensation expense in the amount of $350,000, which is being amortized over
the vesting period of the shares.
F-17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Redwood
City, State of California, on March 26, 1998.
SUGEN, INC.
By: /s/ Stephen Evans-Freke
---------------------------
Stephen Evans-Freke
Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen Evans-Freke and Susan M. Kanaya,
and each of them, 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 all that said
attorneys-in-fact and agents, or his substitutes or substitute, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen Evans-Freke Chief Executive Officer and March 26, 1998
- -------------------------------- Chairman of the Board
(Stephen Evans-Freke) (Principal Executive and Financial
Officer)
/s/ Susan M. Kanaya Treasurer March 26, 1998
- -------------------------------- (Principal Accounting Officer)
(Susan M. Kanaya)
<PAGE>
/s/ Axel Ullrich Director March 26, 1998
- --------------------------------
(Axel Ullrich)
/s/ Richard D. Spizzirri Director and Secretary March 26, 1998
- --------------------------------
(Richard D. Spizzirri)
/s/ Jeremy L. Curnock Cook Director March 26, 1998
- --------------------------------
(Jeremy L. Curnock Cook)
/s/ Charles M. Hartman Director March 26, 1998
- --------------------------------
(Charles M. Hartman)
/s/ Heinrich Kuhn Director March 26, 1998
- --------------------------------
(Heinrich Kuhn)
/s/ Donald E. Nickelson Director March 26, 1998
- --------------------------------
(Donald E. Nickelson)
/s/ Bruce R. Ross Director March 26, 1998
- --------------------------------
(Bruce R. Ross)
/s/ Michael A. Wall Director March 26, 1998
- --------------------------------
(Michael A. Wall)
</TABLE>
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SS.SS. 200.80(B)(4),
200.83 AND 240.24B-2
Customer Number 1036
AMENDED AND RESTATED
MASTER LEASE AGREEMENT
Lessor: TRANSAMERICA BUSINESS CREDIT CORPORATION
Riverway II
West Office Tower
9399 West Higgins Road
Rosemont, Illinois 60018
Lessee: SUGEN, INC.
515 Galveston Drive
Redwood City, California 94063-4720
The lessor pursuant to this Master Lease Agreement ("Agreement") dated as of
March 28, 1997, as amended on November 12, 1997, is Transamerica Business Credit
Corporation ("Lessor"). All equipment, software ("Software"), items designated
as tenant improvements on the applicable schedule ("Tenant Improvements")
together with all present and future additions, parts, accessories, attachments,
substitutions, repairs, improvements and replacements thereof or thereto, which
are the subject of a Lease (as defined in the next sentence) shall be referred
to as "Equipment". Simultaneous with the execution and delivery of this
Agreement, the parties are entering into one or more Lease Schedules (each, a
"Schedule") which refer to and incorporate by reference this Agreement, each of
which constitutes a lease (each, a "Lease") for the Equipment specified therein.
Additional details pertaining to each Lease are specified in the applicable
Schedule. Each Schedule that the parties hereafter enter into shall constitute a
Lease. Lessor has no obligation to enter into any additional leases with, or
extend any future financing to, Lessee other than stated in Paragraph 1 below.
1. LEASE. Subject to and upon all of the terms and conditions of this
Agreement and each Schedule, Lessor hereby agrees to lease to Lessee and Lessee
hereby agrees to lease from Lessor the Equipment for the Term (as defined in
Paragraph 2 below) thereof. The timing and financial scope of Lessor's
obligation to enter into Leases hereunder are limited as set forth in the
Commitment Letters executed by Lessor and Lessee, dated as of March 20, 1997 and
November 5, 1997 and attached hereto as Exhibits A and B and any Commitment
Letters hereafter executed by Lessor and Lessee and attached hereto as Exhibits
(the "Commitment Letters").
1
<PAGE>
2. TERM. Each Lease shall be effective and the term of each Lease
("Term") shall commence on the commencement date specified in the applicable
Schedule which date shall not be prior to delivery, acceptance and funding and,
unless sooner terminated (as hereinafter provided), shall expire at the end of
the term specified in such Schedule; provided, however, that obligations due to
be performed by Lessee during the Term shall continue until they have been
performed in full. Schedules will only be executed after the delivery of the
Equipment to Lessee or upon completion of deliveries of items of such Equipment
with aggregate cost of not less than $[...***...].
3. RENT. Lessee shall pay as rent to Lessor, for use of the Equipment
during the Term or Renewal Term (as defined in Paragraph 8), rental payments
equal to the sum of all rental payments including, without limitation, security
deposits, advance rents and interim rents payable in the amounts and on the
dates specified in the applicable Schedule ("Rent"). If any Rent or other amount
payable by Lessee is not paid within ten days after the day on which it becomes
payable, Lessee will pay on demand, as a late charge, an amount equal to
[...***...] or other amount but only to the extent permitted by applicable law.
All payments provided for herein shall be payable to Lessor at its address
specified above, or at any other place designated by Lessor. Lessee's commitment
fees paid pursuant to the Commitment Letters shall be applied towards the second
month's rent (after deductions for expenses under paragraph 23) under the
initial Schedules and each monthly rental payment thereafter until fully
applied.
4. LEASE NOT CANCELABLE; LESSEE'S OBLIGATIONS ABSOLUTE. No Lease may be
canceled or terminated except as expressly provided herein. So long as Lessor
has not wrongfully interfered with Lessee's quiet enjoyment of the Equipment,
Lessee's obligation to pay all Rent due or to become due hereunder shall be
absolute and unconditional and shall not be subject to any delay, reduction,
set-off, defense, counterclaim or recoupment for any reason whatsoever,
including any failure of the Equipment or any representations by the
manufacturer or the vendor thereof. If the Equipment is unsatisfactory for any
reason, Lessee shall make any claim solely against the manufacturer or the
vendor thereof and shall, nevertheless, pay Lessor all Rent payable hereunder.
5. SELECTION AND USE OF EQUIPMENT. Lessee agrees that it shall be
responsible for the selection, use of, and results obtained from, the Equipment
and any other associated equipment or services.
6. WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN
OR CONDITION OF THE EQUIPMENT OR ITS MERCHANTABILITY, SUITABILITY, QUALITY OR
FITNESS FOR A PARTICULAR PURPOSE, AND HEREBY DISCLAIMS ANY SUCH WARRANTY. LESSEE
SPECIFICALLY WAIVES ALL RIGHTS TO MAKE A CLAIM AGAINST LESSOR FOR BREACH OF ANY
WARRANTY WHATSOEVER. ONCE ACCEPTED BY LESSEE, LESSEE LEASES THE EQUIPMENT "AS
IS." IN NO EVENT SHALL LESSOR HAVE ANY LIABILITY FOR, NOR SHALL LESSEE HAVE ANY
REMEDY AGAINST LESSOR FOR, ANY LIABILITY, CLAIM, LOSS, DAMAGE OR EXPENSE CAUSED
DIRECTLY OR INDIRECTLY BY THE EQUIPMENT OR ANY DEFICIENCY OR DEFECT THEREOF OR
THE OPERATION, MAINTENANCE OR REPAIR THEREOF OR ANY CONSEQUENTIAL DAMAGES AS
THAT TERM IS USED IN SECTION 2-719(3) OF THE MODEL UNIFORM COMMERCIAL CODE, AS
AMENDED FROM TIME TO TIME ("UCC"). Lessor grants to Lessee, for the sole purpose
of prosecuting a claim or receiving benefits under the warranty, the benefits of
any and all warranties made available by the manufacturer or the vendor of the
Equipment to the extent assignable.
- ----------------------------------
* Confidential Treatment Requested
2
<PAGE>
7. DELIVERY. Lessor hereby appoints Lessee as Lessor's agent for the
sole and limited purpose of accepting delivery of the Equipment from each vendor
thereof. Lessee shall pay any and all delivery and installation charges. Lessor
shall not be liable to Lessee for any delay in, or failure of, delivery of the
Equipment.
8. RENEWAL. So long as no Event of Default or event which, with the
giving of notice, the passage of time, or both, would constitute an Event of
Default, shall have occurred and be continuing, or the Lessee shall not have
exercised its purchase option under Paragraph 9 hereof, Lessee may elect to
renew upon 60 days prior written notice to Lessor each Lease on the terms and
conditions of this Agreement or as set forth in the applicable Schedule (the
"Renewal Term"); provided, however, that if Lessee elects to renew, obligations
due to be performed by the Lessee during the Renewal Term shall continue until
they have been performed in full. The monthly rental payments for the Renewal
Term shall be as set forth in the applicable Schedule.
9. PURCHASE OPTION. So long as no Event of Default or event which, with
the giving of notice, the passage of time, or both, would constitute an Event of
Default, shall have occurred and be continuing, Lessee may purchase all, but not
less than all, the Equipment covered by the applicable Lease on the date
specified therefor in the applicable Schedule ("Purchase Date"). The purchase
price for such Equipment shall be set forth in the applicable Schedule. So long
as no Event of Default or event which, with the giving of notice, the passage of
time, or both, would constitute an Event of Default, shall have occurred and be
continuing, Lessee may purchase all, but not less than all, the Equipment
covered by the applicable Schedule by the last date of the Renewal Term (the
"Alternative Purchase Date") at a purchase price equal to [...***...]. On the
Purchase Date or the Alternative Purchase Date, as the case may be, for any
Equipment, Lessee shall pay to Lessor the purchase price, together with all
sales and other taxes applicable to the transfer of the Equipment and any other
amount payable and arising hereunder, in immediately available funds, whereupon
Lessor shall transfer to Lessee, without recourse or warranty of any kind,
express or implied, all of Lessor's right, title and interest in and to such
Equipment on an "As Is, Where Is" basis and file UCC-3 termination statements
upon reasonable request by Lessee.
10. OWNERSHIP; INSPECTION; MARKING; FINANCING STATEMENTS. Lessee shall
affix to the Equipment, other than the Tenant Improvements, any labels supplied
by Lessor indicating ownership of such Equipment. The Equipment is and shall be
the sole property of Lessor. Lessee shall have no right, title or interest
therein, except as lessee under a Lease. Other than Tenant Improvements, the
Equipment is and shall at all times be and remain personal property and shall
not become a fixture. Lessee shall obtain and record such instruments and take
such steps as may be necessary to prevent any person from acquiring any rights
in the Equipment, other than in the Tenant Improvements, by reason of the
Equipment being claimed or deemed to be real property. Lessee shall make the
Equipment and its maintenance records available for inspection by Lessor at
reasonable times and upon reasonable notice. Lessee shall execute and deliver to
Lessor for filing any UCC financing statements or similar documents Lessor may
reasonably request.
11. EQUIPMENT USE. Lessee agrees that the Equipment will be operated by
competent, qualified personnel in connection with Lessee's business for the
purpose for which the Equipment was designed and in accordance with applicable
operating instructions, laws and government regulations, and that Lessee shall
use all reasonable precautions to prevent loss or damage to the Equipment from
fire and other hazards. Lessee shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals and consents required by federal,
state or local laws or by any governmental body, agency or authority in
connection with the delivery, installation, use and operation
- ----------------------------------
* Confidential Treatment Requested
3
<PAGE>
of the Equipment.
12. MAINTENANCE. Lessee, at its sole cost and expense, shall keep the
Equipment in a suitable environment as specified by the manufacturer's
guidelines or the equivalent and meet all recertification requirements, and
shall maintain the Equipment in its original condition and working order,
ordinary wear and tear excepted. At the reasonable request of Lessor, Lessee
shall furnish all proof of maintenance.
13. ALTERATION; MODIFICATIONS; PARTS. Lessee may alter or modify the
Equipment only with the prior written consent of Lessor. Any alteration shall be
removed and the Equipment restored to its normal, unaltered condition at
Lessee's expense (without damaging the Equipment's originally intended function
or its value) prior to its return to Lessor. Any part installed in connection
with warranty or maintenance service or which cannot be removed in accordance
with the preceding sentence shall be the property of Lessor.
14. RETURN OF EQUIPMENT. Except for Equipment that has suffered a
Casualty Loss (as defined in Paragraph 15 below) and is not required to be
repaired pursuant to Paragraph 15 below or Equipment purchased by Lessee
pursuant to Paragraph 9 above, upon expiration of the Renewal Term of a Lease,
or upon demand by Lessor pursuant to Paragraph 22 below, Lessee shall contact
Lessor for shipping instructions and, at Lessee's own risk, immediately return
the Equipment, freight prepaid, to a location in the continental United States
specified by Lessor. At the time of such return to Lessor, the Equipment shall
(i) be in the operating order, repair and condition as required by or specified
in the original specifications and warranties of each manufacturer and vendor
thereof, ordinary wear and tear excepted, and meet all recertification
requirements and (ii) be capable of being promptly assembled and operated by a
third party purchaser or third party lessee without further repair, replacement,
alterations or improvements, and in accordance and compliance with any and all
statutes, laws, ordinances, rules and regulations of any governmental authority
or any political subdivision thereof applicable to the use and operation of the
Equipment. Except as otherwise provided under Paragraph 9 hereof, at least
thirty days before the expiration of the Renewal Term, Lessee shall give Lessor
notice of its intent to return the Equipment at the end of such Renewal Term.
During the thirty-day period prior to the end of the Renewal Term, Lessor and
its prospective purchasers or lessees shall have, upon not less than two
business days' prior notice to Lessee and during normal business hours, or at
any time and without prior notice upon the occurrence and continuance of an
Event of Default, the right of access to the premises on which the Equipment is
located to inspect the Equipment, and Lessee shall cooperate in all other
respects with Lessor's remarketing of the Equipment. The provisions of this
Paragraph 14 are of the essence of the Lease, and upon application to any court
of equity having jurisdiction in the premises, Lessor shall be entitled to a
decree against Lessee requiring specific performance of the covenants of Lessee
set forth in this Paragraph 14. If Lessee fails to return the Equipment when
required, the terms and conditions of the Lease shall continue to be applicable
and Lessee shall continue to pay Rent until the Equipment is received by Lessor.
15. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessee will maintain, at its
own expense, liability and property damage insurance relating to the Equipment,
insuring against such risks as are customarily insured against on the type of
equipment leased hereunder by businesses in which Lessee is engaged in such
amounts, in such form, and with insurers satisfactory to Lessor; provided,
however, that the amount of insurance against damage or loss shall not be less
than the greater of (a) the [...***...] of the Equipment and (b) the [...***...]
of the Equipment specified in the applicable Schedule [...***...]. Each
liability insurance policy shall provide coverage (including, without
limitation, personal injury coverage) of not less than $[...***...] for each
occurrence, and shall name Lessor as an
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additional insured; and each property damage policy shall name Lessor as sole
loss payee and all policies shall contain a clause requiring the insurer to give
Lessor at least thirty days prior written notice of any alteration in the terms
or cancellation of the policy. Lessee shall furnish an insurance certificate or
other evidence satisfactory to Lessor that the required insurance coverage is in
effect; provided, however, Lessor shall have no duty to ascertain the existence
of or to examine the insurance certificates or policies to advise Lessee if the
insurance coverage does not comply with the requirements of this Paragraph. If
Lessee fails to insure the Equipment as required, Lessor shall have the right
but not the obligation to obtain such insurance, and the cost of the insurance
shall be for the account of Lessee due as part of the next due Rent. Lessee
consents to Lessor's release, upon its failure to obtain appropriate insurance
coverage, of any and all information necessary to obtain insurance with respect
to the Equipment or Lessor's interest therein.
Until the Equipment is returned to and received by Lessor as provided
in Paragraph 14 above, Lessee shall bear the entire risk of theft or destruction
of, or damage to, the Equipment including, without limitation, any condemnation,
seizure or requisition of title or use ("Casualty Loss"). No Casualty Loss shall
relieve Lessee from its obligations to pay Rent except as provided in clause (b)
below. When any Casualty Loss occurs, Lessee shall immediately notify Lessor
and, at the option of Lessor, shall promptly (a) place such Equipment in good
repair and working order; or (b) pay Lessor an amount equal to the [...***...]
of such Equipment and all other amounts (excluding Rent) payable by Lessee
hereunder, together with a late charge on such amounts at a rate per annum equal
to the [...***...] hereunder (as reasonably determined by Lessor) from the date
of the Casualty Loss through the date of payment of such amounts, whereupon
Lessor shall transfer to Lessee, without recourse or warranty (express or
implied), all of Lessor's interest, if any, in and to such Equipment on an "AS
IS, WHERE IS" basis. The proceeds of any insurance payable with respect to the
Equipment shall be applied, at the option of Lessee if no Event of Default has
occurred and is continuing (and otherwise at the option of Lessor), either
towards (i) repair of the Equipment or (ii) payment of any of Lessee's
obligations hereunder. Lessee hereby appoints Lessor as Lessee's
attorney-in-fact to make claim for, receive payment of, and execute and endorse
all documents, checks or drafts issued with respect to any Casualty Loss under
any insurance policy relating to the Equipment.
16. TAXES. Lessee shall pay when due, and indemnify and hold Lessor
harmless from, all sales, use, excise and other taxes, charges, and fees
(including, without limitation, income, franchise, business and occupation,
gross receipts, licensing, registration, titling, personal property, stamp and
interest equalization taxes, levies, imposts, duties, charges or withholdings of
any nature), and if resulting from an act or omission of Lessee, any fines,
penalties or interest thereon, imposed or levied by any governmental body,
agency or tax authority upon or in connection with the Equipment, its purchase,
ownership, delivery, leasing, possession, use or relocation of the Equipment or
otherwise in connection with the transactions contemplated by each Lease or the
Rent thereunder, excluding taxes on or measured by the net income of Lessor.
Upon request, Lessee will provide proof of payment. Unless Lessor elects
otherwise, Lessor will pay all property taxes on the Equipment for which Lessee
shall reimburse Lessor promptly upon request and proof of payment. Lessee shall
timely prepare and file all reports and returns which are required to be made
with respect to any obligation of Lessee under this Paragraph 16. Lessee shall,
to the extent permitted by law, cause all billings of such fees, taxes, levies,
imposts, duties, withholdings and governmental charges to be made to Lessor in
care of Lessee. Upon request, Lessee will provide Lessor with copies of all such
billings. Lessee shall have the option to contest taxes diligently and in good
faith as long as Lessee maintains adequate reserves for such taxes measured in
accordance with General Accepted Accounting Principles.
17. LESSOR'S PAYMENT. If Lessee fails to perform its obligations under
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Paragraph 15 or 16 above, or Paragraph 23 below, Lessor shall have the right to
substitute performance, in which case, Lessee shall immediately reimburse Lessor
therefor.
18. GENERAL INDEMNITY. Each Lease is a net lease. Therefore, Lessee
shall indemnify Lessor and its successors and assigns against, and hold Lessor
and its successors and assigns harmless from, any and all claims, actions,
damages, obligations, liabilities and all costs and expenses, including, without
limitation, reasonable legal fees, incurred by Lessor or its successors and
assigns arising out of each Lease including, without limitation, the purchase,
ownership, delivery, lease, possession, maintenance, condition, use or return of
the Equipment, or arising by operation of law, except that Lessee shall not be
liable for any claims, actions, damages, obligations and costs and expenses
determined by a non-appealable, final order of a court of competent jurisdiction
have occurred as a result of the gross negligence or willful misconduct of
Lessor or its successors and assigns. Lessee agrees that upon written notice by
Lessor of the assertion of any claim, action, damage, obligation, liability or
lien, Lessee shall assume full responsibility for the defense thereof, provided
that Lessor's failure to give such notice shall not limit or otherwise affect
its rights hereunder except to the extent Lessee incurs a loss as a direct
result of such failure. Any payment pursuant to this Paragraph (except for any
payment of Rent) shall be of such amount as shall be necessary so that, after
payment of any taxes required to be paid thereon by Lessor, including taxes on
or measured by the net income of Lessor, the balance will equal the amount due
hereunder. The provisions of this Paragraph with regard to matters arising
during a Lease shall survive the expiration or termination of such Lease.
19. ASSIGNMENT BY LESSEE. Lessee shall not, without the prior written
consent of Lessor, (a) assign, transfer, pledge or otherwise dispose of any
Lease or Equipment, or any interest therein; (b) sublease or lend any Equipment
or permit it to be used by anyone other than Lessee and its employees agents,
representatives, contractors and other authorized persons, provided that Lessee
shall indemnify and hold Lessor and its successors and assigns harmless from any
liability arising under, or in connection with such persons' use or operation of
the Equipment; or (c) move any Equipment from the location specified for it in
the applicable Schedule, except that Lessee may move Equipment to another
location within the United States provided that Lessee has delivered to Lessor
(A) prior written notice thereof and (B) duly executed financing statements and
other agreements and instruments (all in form and substance satisfactory to
Lessor) necessary or, in the opinion of the Lessor, desirable to protect
Lessor's interest in such Equipment. Notwithstanding anything to the contrary in
the immediately preceding sentence, Lessee may keep any Equipment consisting of
motor vehicles or rolling stock at any location in the United States.
20. ASSIGNMENT BY LESSOR. Lessor may assign its interest or grant a
security interest in any Lease and the Equipment individually or together, in
whole or in part. If Lessee is given written notice of any such assignment, it
shall immediately make all payments of Rent and other amounts hereunder directly
to such assignee. Each such assignee shall have all of the rights of Lessor
under each Lease assigned to it. Lessee shall not assert against any such
assignee any set-off, defense or counterclaim that Lessee may have against
Lessor or any other person. Notwithstanding any assignment by Lessor, Lessor
shall not be relieved of its obligations under any Lease, but in no event shall
Lessor be liable for any act or omission of its assignee.
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21. DEFAULT; NO WAIVER. Lessee or any guarantor of any or all of the
obligations of Lessee hereunder (together with Lessee, the "Lease Parties")
shall be in default under each Lease upon the occurrence of any of the following
events (each, an "Event of Default"): (a) Lessee fails to pay within ten days of
when due any amount required to be paid by Lessee under or in connection with
any Lease; (b) any of the Lease Parties fails to perform in any material respect
any other provision under or in connection with a Lease or violates in any
material respect any of the covenants or agreements of such Lease Parties under
or in connection with a Lease; (c) any representation made or financial
information delivered or furnished by any of the Lease Parties under or in
connection with a Lease shall prove to have been inaccurate in any material
respect when made; (d) any of the Lease Parties makes an assignment for the
benefit of creditors, whether voluntary or involuntary, or consents to the
appointment of a trustee or receiver, or if either shall be appointed for any of
the Lease Parties or for a substantial part of its property without its consent
and, in the case of any such involuntary proceeding, such proceeding remains
undismissed or unstayed for forty-five days following the commencement thereof;
(e) any petition or proceeding is filed by or against any of the Lease Parties
under any Federal or State bankruptcy or insolvency code or similar law and, in
the case of any such involuntary petition or proceeding, such petition or
proceeding remains undismissed or unstayed for forty-five days following the
filing or commencement thereof, or any of the Lease Parties takes any action
authorizing any such petition or proceeding; (f) any of the Lease Parties fails
to pay when due any indebtedness for borrowed money or under conditional sales
or installment sales contracts or similar agreements, leases or obligations
evidenced by bonds, debentures, notes or other similar agreements or instruments
to any creditor (including Lessor under any other agreement) after any and all
applicable cure periods therefor shall have elapsed if the amount involved
exceeds $[...***...] in the aggregate; (g) any judgment shall be rendered
against any of the Lease Parties which shall remain unpaid or unstayed for a
period of sixty days; (h) any of the Lease Parties shall dissolve, liquidate,
wind up or cease its business, sell or otherwise dispose of all or substantially
all of its assets; (i) any of the Lease Parties shall amend or modify its name,
unless such Lease Party delivers to Lessor thirty days prior to any such
proposed amendment or modification written notice of such amendment or
modification and within ten days before such amendment or modification delivers
executed financing statements (in form and substance satisfactory to the Lessor)
provided that Lessee shall have 10 business days after notice to cure any
default under this paragraph (i); (j) any of the Lease Parties shall merge or
consolidate with any other entity or make any material change in its capital
structure, in each case without Lessor's prior written consent, which shall not
be unreasonably withheld; (k) any of the Lease Parties shall suffer any loss or
suspension of any material license, permit or other right or asset which loss
has a material adverse effect on Lessee's ability to perform hereunder, or fail
generally to pay its debts as they mature, or call a meeting for purposes of
compromising its debts; or (l) any of the Lease Parties shall deny or disaffirm
its obligations hereunder or under any of the documents delivered in connection
herewith.
22. REMEDIES. Upon the occurrence and continuation of an Event of
Default for ten days after notice for a payment Event of Default and for thirty
days after notice for all other Events of Default, Lessor shall have the right,
in its sole discretion, to exercise any one or more of the following remedies:
(a) terminate each Lease; (b) declare any and all Rent and other amounts then
due and any and all Rent and other amounts to become due under each Lease
(collectively, the "Lease Obligations") immediately due and payable; (c) take
possession of any or all items of Equipment, wherever located, without demand,
notice, court order or other process of law, and without liability for entry to
Lessee's premises, for damage to Lessee's property or otherwise; (d) demand that
Lessee immediately return any or all Equipment to Lessor in accordance with
Paragraph 14 above, and, for each day that Lessee shall fail to return any item
of Equipment, Lessor may demand an amount equal to the Rent payable for such
Equipment in accordance with Paragraph 14 above; (e) lease, sell or otherwise
dispose of the Equipment in a commercially reasonable manner, with or without
notice and on public or private bid; (f) recover the
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following amounts from the Lessee (as damages, including reimbursement of costs
and expenses, liquidated for all purposes and not as a penalty): (i) all costs
and expenses of Lessor reimbursable to it hereunder, including, without
limitation, expenses of disposition of the Equipment, reasonable legal fees and
all other amounts specified in Paragraph 23 below; (ii) an amount equal to the
sum of (A) any accrued and unpaid Rent through the later of (1) the date of the
applicable default or (2) the date that Lessor has obtained possession of the
Equipment or such other date as Lessee has made an effective tender of
possession of the Equipment to Lessor (the "Default Date") and (B) if Lessor
resells or re-lets the Equipment, Rent at the periodic rate provided for in each
Lease for the additional period that it takes Lessor to resell or re-let all of
the Equipment; (iii) the present value of all future Rent reserved in the Leases
and contracted to be paid over the unexpired Term of the Leases discounted at
[...***...] simple interest per annum; (iv) the present value of the
reversionary value of the Equipment as of the expiration of the Term of the
applicable Lease as set forth on the applicable Schedule discounted at
[...***...] simple interest; and (v) any indebtedness for Lessee's indemnity
under Paragraph 18 above, plus a late charge at the rate specified in Paragraph
3 above, less the amount received by Lessor, if any, upon sale or re-let of the
Equipment; and (g) exercise any other right or remedy to recover damages or
enforce the terms of the Leases. Upon the occurrence and continuance of an Event
of Default or an event which with the giving of notice or the passage of time,
or both, would result in an Event of Default, Lessor shall have the right,
whether or not Lessor has made any demand or the obligations of Lessee hereunder
have matured, to appropriate and apply to the payment of the obligations of
Lessee hereunder all security deposits and other deposits (general or special,
time or demand, provisional or final) now or hereafter held by and other
indebtedness or property now or hereafter owing by Lessor to Lessee. Lessor may
pursue any other rights or remedies available at law or in equity, including,
without limitation, rights or remedies seeking damages, specific performance and
injunctive relief. Any failure of Lessor to require strict performance by
Lessee, or any waiver by Lessor of any provision hereunder or under any
Schedule, shall not be construed as a consent or waiver of any other breach of
the same or of any other provision. Any amendment or waiver of any provision
hereof or under any Schedule or consent to any departure by Lessee herefrom or
therefrom shall be in writing and signed by Lessor.
No right or remedy is exclusive of any other provided herein or
permitted by law or equity. All such rights and remedies shall be cumulative and
may be enforced concurrently or individually from time to time.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all its
reasonable expenses which shall not exceed the amounts set forth in each
Commitment Letter without the written consent of Lessee (including reasonable
legal fees and expenses) incurred in connection with the preparation, execution
and delivery of this Agreement and any other agreement and transaction
contemplated hereby and all costs and expenses in protecting and enforcing
Lessor's rights and interests in each Lease and the Equipment, including,
without limitation, legal, collection and remarketing fees and expenses incurred
by Lessor in enforcing the terms, conditions or provisions of each Lease or,
upon the occurrence and continuation of an Event of Default.
24. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee
hereby waives any and all rights and remedies conferred upon a lessee by
Sections 2A-508 through 2A-522 of the UCC; provided, however, that Lessee shall
have the right to recover damages from Lessor for any breach by Lessor of its
obligations under this Agreement. To the extent permitted by applicable law,
Lessee also hereby waives any rights now or hereafter conferred by statute or
otherwise which may require Lessor to sell, lease or otherwise use any Equipment
in mitigation of Lessor's damages as set forth in Paragraph 22 above or which
may otherwise limit or modify any of Lessor's rights or remedies
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under Paragraph 22, except that Lessee shall have the right to require Lessor to
convey to Lessee, without representation, warranty or recourse, all of Lessor's
rights, title and interest in and to the Equipment upon Lessor's receipt,
following an event of default and the exercise of the Lessor's remedies, of the
amounts specified in Paragraph 22(f). Any action by Lessee against Lessor for
any default by Lessor under any Lease shall be commenced within one year after
any such cause of action accrues.
25. NOTICES; ADMINISTRATION. Except as otherwise provided herein, all
notices, approvals, consents, correspondence or other communications required or
desired to be given hereunder shall be given in writing and shall be delivered
by overnight courier, hand delivery or certified or registered mail, postage
prepaid, if to Lessor, then to Technology Finance Division, 76 Batterson Park
Road, Farmington, Connecticut 06032, Attention: Assistant Vice President, Lease
Administration, with a copy to Lessor at Riverway II, West Office Tower, 9399
West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department, if to
Lessee, then to Sugen, Inc., 351 Galveston Drive, Redwood City, California
94063-4720, Attention: Vice President Finance or such other address as shall be
designated by Lessee or Lessor to the other party. All such notices and
correspondence shall be effective when received.
26. REPRESENTATIONS. Lessee represents and warrants to Lessor that (a)
Lessee is duly organized, validly existing and in good standing under the laws
of the State of its incorporation; (b) the execution, delivery and performance
by Lessee of this Agreement are within Lessee's powers, have been duly
authorized by all necessary action, and do not and will not contravene (i)
Lessee's organizational documents or (ii) any law or contractual restriction
binding on or affecting Lessee; (c) no authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by Lessee of
this Agreement; (d) each Lease constitutes the legal, valid and binding
obligations of Lessee enforceable against Lessee in accordance with its terms
except as may be limited by bankruptcy, reorganization, receivership, insolvency
or other laws affecting the enforcement of creditor's rights generally; (e) to
the knowledge of Lessee the cost of each item of Equipment does not exceed the
fair and usual price for such type of equipment purchased in like quantity and
reflects all discounts, rebates, and allowances for the Equipment (including,
without limitation, discounts for advertising, prompt payment, testing or other
services) given to the Lessee by the manufacturer, supplier or any other person;
and (f) all information supplied by Lessee to Lessor in connection herewith is
correct and does not omit any material statement necessary to insure that the
information supplied is not misleading.
27. FURTHER ASSURANCES. Lessee, upon the request of Lessor, will
execute, acknowledge, record or file, as the case may be, such further documents
and do such further acts as may be reasonably necessary, desirable or proper to
carry out more effectively the purposes of this Agreement. Lessee hereby
appoints Lessor as its limited attorney-in-fact to execute on behalf of Lessee
and authorizes Lessor to file without Lessee's signature any UCC financing
statements and amendments Lessor deems advisable.
28. FINANCIAL STATEMENTS. Lessee shall deliver to Lessor: (a) as soon
as available, but not later than 120 days after the end of each fiscal year of
Lessee and its consolidated subsidiaries, the consolidated balance sheet, income
statement and statements of cash flows and shareholders equity for Lessee and
its consolidated subsidiaries (the "Financial Statements") for such year,
reported on by independent certified public accountants without an adverse
qualification; and (b) as soon as available, but not later than 60 days after
the end of each of the first three fiscal quarters in any fiscal year of Lessee
and its consolidated subsidiaries, the Financial Statements for such fiscal
quarter, as filed with the SEC. Lessee shall also deliver to Lessor as soon as
available copies of all press releases
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and other similar communications issued by Lessee and upon request of Lessor.
29. CONSENT TO JURISDICTION. Lessee irrevocably submits to the
jurisdiction of any Illinois state or federal court sitting in Illinois for any
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, and Lessee irrevocably agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
Illinois state or federal court.
30. WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
31. FINANCE LEASE. Lessee and Lessor agree that each Lease is a
"Finance Lease" as defined by Section 2A-103(g) of the UCC. Lessee acknowledges
that Lessee has reviewed and approved each written Supply Contract (as defined
by UCC 2A-103(y)) covering Equipment purchased from each "Supplier" (as defined
by UCC 2A-103(x)) thereof.
32. NO AGENCY. Lessee acknowledges and agrees that neither the
manufacturer or supplier, nor any salesman, representative or other agent of the
manufacturer or supplier, is an agent of Lessor. No salesman, representative or
agent of the manufacturer or supplier is authorized to waive or alter any term
or condition of this Agreement or any Schedule and no representation as to the
Equipment or any other matter by the manufacturer or supplier shall in any way
affect Lessee's duty to pay Rent and perform its other obligations as set forth
in this Agreement or any Schedule.
33. SPECIAL TAX INDEMNIFICATION. Lessee acknowledges that Lessor, in
determining the Rent due hereunder, has assumed that certain tax benefits as are
provided to an owner of property under the Internal Revenue Code of 1986, as
amended (the "Code"), and under applicable state tax law, including, without
limitation, depreciation deductions under Section 168(b) of the Code, and
deductions under Section 163 of the Code in an amount at least equal to the
amount of interest paid or accrued by Lessor with respect to any indebtedness
incurred by Lessor in financing its purchase of the Equipment, are available to
Lessor as a result of the lease of the Equipment. In the event Lessor is unable
to obtain such tax benefits as a result of an act or omission of Lessee of which
Lessee has prior written notice and opportunity of comply, is required to
include in income any amount other than the Rent or is required to recognize
income in respect of the Rent earlier than anticipated pursuant to this
Agreement, Lessee shall pay Lessor additional rent ("Additional Rent") in a lump
sum in an amount needed to provide Lessor with the same after-tax yield and
after-tax cash flow as would have been realized by Lessor had Lessor (i) been
able to obtain such tax benefits, and (ii) not been required to recognize income
in respect of the Rent earlier than anticipated pursuant to this Agreement. The
Additional Rent shall be computed by Lessor, which computation shall be binding
on Lessee absent good faith contest by Lessee. The Additional Rent shall be due
immediately upon written notice by Lessor to Lessee of Lessor's inability to
obtain tax benefits, the inclusion of any amount in income other than the Rent
or the recognition of income in respect of the Rent earlier than anticipated
pursuant to this Agreement. The provisions of this Paragraph 33 shall survive
the termination of this Agreement.
34. GOVERNING LAW; SEVERABILITY. EACH LEASE SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. IF ANY PROVISION SHALL BE HELD TO BE INVALID OR
UNENFORCEABLE, THE VALIDITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS SHALL
NOT IN ANY WAY BE AFFECTED OR IMPAIRED.
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LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND THE SCHEDULES
HERETO, UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS.
FURTHER, LESSEE AND LESSOR AGREE THAT THIS AGREEMENT AND THE SCHEDULES DELIVERED
AND SIGNED BY LESSEE AND LESSOR IN CONNECTION HEREWITH FROM TIME TO TIME AND THE
COMMITMENT LETTERS, ARE THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT
BETWEEN THE PARTIES, SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR
WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE
SUBJECT MATTER HEREOF.
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IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed by their duly authorized officers as of this 30th
day of November, 1997.
SUGEN, INC.
By: /s/ Stephen Evans-Freke
------------------------------
Name: Stephen Evans-Freke
Title: Chairman and Chief Executive
Officer
Federal Identification Number
13-3629196
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Gary P. Moro
------------------------------
Name: Gary P. Moro
Title: Vice President
Form 1-11-11-97
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EXHIBIT A
March 20, 1997
Ms. Christine Gray-Smith
Vice President Finance
Sugen, Inc.
515 Galveston Drive
Redwood City, California 94063-4720
Dear Christine:
Transamerica Business Credit Corporation - Technology Finance Division
("Lessor") is pleased to offer to lease the Equipment described below to Sugen,
Inc. ("Lessee"). This Commitment supersedes all prior correspondence, proposals,
and oral or other communications relating to leasing arrangements between Lessee
and Lessor. The outline of this offer is as follows:
Lessee: Sugen, Inc.
Lessor: Transamerica Business Credit Corporation -
Technology Finance Division and/or its
affiliates, successors and assigns.
Guarantors: None.
Equipment: A. Laboratory, Computer and Office
Equipment and software as will be
further described in the lease
documentation. All equipment subject
to approval of Lessor prior to
funding which approval will not be
unreasonable withheld.
B. Tenant Improvements as will be
further described in the lease
documentation.
C. The Equipment and Tenant Improvements
shall include sale leaseback items
purchased after December 1, 1996.
Equipment Cost: Not to exceed $3,500,000 (Tenant
Improvements limited to $[...***...] and
Software limited to $[...***...]).
Equipment Location: Redwood City, California or other locations
acceptable to Lessor, which acceptance shall
not be unreasonably withheld.
Anticipated Delivery: December 1, 1996 through June 30, 1998.
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Termination of Commitment: This commitment will terminate if the first
delivery of Equipment is not completed and
funded on or before May 31, 1997. The final
delivery of Equipment shall not be later
than June 30, 1998.
Lease Term
Commencement: Upon delivery acceptance and funding of the
Equipment or upon each completion of
deliveries of items of Equipment with
aggregate cost of not less than
$[...***...], but in no event, shall any
Equipment be delivered later than June 30,
1998.
Term:
(Equipment and Software) From each Lease Term Commencement until 49
months from the first day of the month next
following or on the same date as the Lease
Term Commencement if that date is the first
date of the month.
Term:
(Tenant Improvements) From each Lease Term Commencement until 37
months from the first day of the month next
following or on the same date as the Lease
Term Commencement if that date is the first
date of the month.
Lease Repayment Terms:
(Equipment and Software) Monthly Rent for months 1 through 48 equal
to [...***...] of Equipment Cost payable
monthly in advance, plus applicable sales
and other taxes. Monthly Rent for month 49
equal to [...***...] of Equipment Cost. The
first and 48th month's rent shall be payable
in advance. Lessee may elect Automatic
Renewal provision of the lease in lieu of
making the 49th monthly rent payment as
described above upon giving 60 days prior
written notice to Lessor. As of the date of
each Lease Term Commencement, the Monthly
Rent Payments shall be fixed for the term.
Lease Repayment Terms:
(Tenant Improvements) Monthly Rent for months 1 through 36 equal
to [...***...] of Tenant Improvements Cost
and Equipment Cost payable monthly in
advance, plus applicable sales and other
taxes. Monthly Rent for month 37 equal to
[...***...] of Equipment Cost. The first and
36th month's rent shall be payable in
advance. Lessee may elect Automatic Renewal
provision of the lease in lieu of making the
37th month's rent payment as described above
upon giving 60 days prior written notice to
Lessor. As of the date of each Lease Term
Commencement, the Monthly Rent Payments
shall be fixed for the term.
The Lessor reserves the right to increase
the Monthly Rent Payments as of the date of
each Lease Term Commencement commensurate to
the [...***...] of the interest rates of
[...***...] (in the case of Equipment) and
[...***...] (in the case of Tenant
Improvements Cost) from the week ending
March 5, 1997 ([...***...] and [...***...],
respectively) to the week preceding the date
of each Lease Term Commencement, as
published in
- ----------------------------------
* Confidential Treatment Requested
2
<PAGE>
the Wall Street Journal.
Interim Rent Payments: In the event that the Lease Term
Commencement is not on the first day of the
month, Interim Rent Payments shall accrue
from each Lease Term Commencement until the
next following first day of a month and
shall be payable at the end of that month.
Interim Rent Payments shall be calculated at
the daily equivalent of the currently
adjusted Monthly Payment. Lessee will not be
charged Interim Rent on any Schedule that
has a Commencement Date that starts on or
after the last 3 business days of a month.
Purchase Option:
(Equipment and Software) Lessee shall have the option to purchase all
(but not less than all) the Equipment or any
schedule at the expiration of the term of
the Lease for $[...***...], plus applicable
sales and other taxes.
Automatic Renewal:
(Equipment and Software) In the event Lessee does not elect to make
the 49th monthly rent as described in the
Lease Repayment Terms above, the lease shall
automatically renew for a term of twelve
months. The Monthly Rental will equal
[...***...] of the origiNal Equipment Cost
payable monthly in advance plus [...***...]
equal to [...***...] of the Equipment Cost
after which time the Lessee may purchase the
Equipment for $[...***...] plus sales and
other applicable taxes due at the end of the
Renewal Term.
Purchase Option or
Automatic Renewal:
(Tenant Improvements) Lessee shall have the option to purchase all
(but not less than all) of the Tenant
Improvements at the end of the lease term
for $[...***...] plus applicable sales and
other taxes. If the Lessee renews its
existing Real Estate Lease for a period that
exceeds the Tenant Improvements Lease Term,
then Lessee may automatically renew the
lease in lieu of making the 37th monthly
rent payment as described in the Lease
Repayment Terms above, the lease shall
automatically renew for a term of twelve
months with Monthly Rental equal to
[...***...] of the original Tenant
Improvement costs payable monthly in
advance, after which time the Lessee may
purchase all but not less than all of the
Tenant Improvements for $[...***...] plus
sales and other applicable taxes due at the
end of the Renewal Term.
Documentation: The documentation relating to this
transaction shall implement the transaction
contemplated by this commitment letter to
the satisfaction of Lessor and its counsel,
shall be fully acceptable to Lessor and
Lessee and their counsel, and shall contain
conditions precedent, representations,
warranties and covenants by Lessee and shall
provide for events of defaults and remedies,
all as reasonably required by Lessor for
transactions of this type. The documentation
shall include, but not be limited to, the
terms and conditions described in this
commitment letter.
- ----------------------------------
* Confidential Treatment Requested
3
<PAGE>
Insurance: Prior to any delivery of Equipment, the
Lessee shall furnish a certificate of
insurance acceptable to the Lessor in
amount, type, and term covering the
Equipment including primary, all risk,
physical damage, property damage and bodily
injury with appropriate loss payee and
additional insured endorsements in favor of
the Lessor.
Taxes: Sales or use taxes would be added to the
Equipment Cost or collected on the gross
rentals, as appropriate.
Representations and
Additional Covenants: There shall be no actual or threatened
conflict with, or violation of, any
regulatory statute, standard or rule
relating to the Lessee its present or future
operations, or the Collateral.
All information supplied by the Lessee shall
be materially correct and shall not omit any
statement necessary to make the information
supplied not be misleading. There shall be
no material breach of the representations
and warranties of the Lessee in the Lease.
The representations shall include that the
Equipment Cost of each item of the Equipment
does not exceed the fair and usual price for
such type of Equipment purchase in like
quantity purchased of such item and reflects
all discounts, rebates and allowances for
the Equipment given to Lessee by the
manufacturer, supplier or any other person
including, without limitation, discounts for
advertising, prompt payment, testing or
other services.
Conditions Precedent to
Each Lease Term
Commencement: 1. No material adverse change in the financial
condition, operation prospects of the Lessee
prior to funding. The Lessor reserves its
right to rescind any unused portion of its
commitment in the event of a material
adverse change in the financial or business
standing of the Lessee.
2. Completion of the documentation and final
terms of the proposed financing satisfactory
to Lessor and Lessor's counsel, and Lessee
and Lessee's counsel.
3. Results of all due diligence, including
lien, judgment and tax searches and other
matters Lessor may request shall be
satisfactory to Lessor and Lessor's counsel.
4. Receipt by Lessor of duly executed Lease
documentation in form and substance
satisfactory to Lessor and its counsel.
5. Lessor shall receive title and a valid and
perfected first priority lien and security
interest in the Equipment and all other
Equipment acquired through the use of this
Commitment and Lessor shall have received
satisfactory evidence that there are no
liens on any Equipment except as expressly
permitted herein.
Tenant Improvements
Termination Provision: If the Lessee elects to vacate its present
operating facility (which is defined as any
facility in which Lessor's Tenant
Improvements
4
<PAGE>
reside),then the Lessor will release its
ownership position in all of its Tenant
Improvements. In return the Lessee will
provide compensation to the Lessor for the
release of Tenant Improvements in the form
of an increase to the monthly rental factor
on the remaining rental of Tenant
Improvements which can not be removed and
used by [...***...] (or from [...***...] of
Tenant Improvements Cost monthly). The
release will be subject to the Lessee being
in substantial compliance with all other
terms and conditions of the lease.
Fees and Expenses: The Lessee shall be responsible for the
Lessor's reasonable expenses not to exceed
$[...***...] without Lessee's written
consent (including legal expenses) in
connection with the transaction.
Law: This letter and the proposed Lease are
intended to be governed by and construed in
accordance with Illinois law without regard
to its conflict of law provisions.
Indemnity: Lessee agrees to indemnify and to hold
harmless Lessor, and its officers, directors
and employees against all claims, damages,
liabilities and expenses which may be
incurred by or asserted against any such
person in connection without arising out of
this letter and the transactions
contemplated hereby, other than claims,
damages, liability, and expense resulting
from such person's gross negligence or
willful misconduct.
Confidentiality: This letter is delivered to you with the
understanding that neither it nor its
substance shall be disclosed publicly or
privately to any third person except those
who are in a confidential relationship to
you (such as your legal counsel and
accountants), or where the same is required
by law and then only on the basis that it
not be further disclosed, which conditions
the Lessee and its agents agree to be bound
by upon acceptance of this letter.
Without limiting the generality of the
foregoing, none of such persons shall use or
refer to Lessor or to any affiliate name in
any disclosures made in connection with any
of the transactions without Lessor's prior
written consent.
Conditions of Acceptance: This Commitment Letter is intended to be a
summary of the most important elements of
the agreement to enter into a leasing
transaction with Lessee, and it is subject
to all requirements and conditions contained
in Lease documentation proposed by Lessor or
its counsel in the course of closing the
lease described herein. Not every provision
that imposes duties, obligations, burdens,
or limitations on Lessee is contained
herein, but shall be contained in the final
Lease documentation satisfactory to Lessor
and its counsel.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY SUIT, ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATED TO THIS LETTER OR THE TRANSACTION DESCRIBED IN THIS LETTER.
- ----------------------------------
* Confidential Treatment Requested
5
<PAGE>
Commitment Fee: A Commitment Fee equal to [...***...] of the
total Equipment Cost and Tenant Improvements
$([...***...]) shall be due the Lessor upon
acceptance of this Commitment. The
$[...***...] application Fee previously paid
by Lessee to Lessor shall be applied to the
Commitment Fee. The Commitment Fee shall
then be applied to the cost and expenses
incurred by Lessor (not to exceed
$[...***...]) in connection with the
transaction, and the remainder shall be
applied to the second month's rent due under
the Lease or subsequent months until fully
utilized. Upon request by Lessee the
Commitment Fee shall be refunded to Lessee
if the Lease Agreement is not executed by
March 31, 1997.
Commitment Expiration: This Commitment shall expire on March 25,
1997, unless prior thereto either extended
in writing by the Lessor or accepted as
provided below by the Lessee.
Should you have any questions, please call me. If you wish to accept this
Commitment, please so indicate by signing and returning the enclosed duplicate
copy of this letter to me by March 25, 1997.
Yours truly,
TRANSAMERICA BUSINESS CREDIT
CORPORATION-TECHNOLOGY
FINANCE DIVISION
By /s/ Gerald A. Michaud
-------------------------
Gerald A. Michaud
Senior Vice President -
Marketing
Accepted this 25th day of March, 1997
SUGEN, INC.
By: /s/ Christine Gray-Smith
---------------------------
Typed or Printed Name
Title: Vice President, Finance
---------------------------
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* Confidential Treatment Requested
s
<PAGE>
EXHIBIT B
November 5, 1997
Revised
Ms. Christine Gray-Smith
Vice President, Finance
Sugen, Inc.
515 Galveston Drive
Redwood City, CA 94063-4720
Dear Chris:
Transamerica Business Credit Corporation - Technology Finance Division
("Lessor") is pleased to offer this commitment (this "Commitment") to lease the
equipment described below to Sugen, Inc. ("Lessee"). Except with respect to the
transactions consummated (or to be consummated) under a commitment letter dated
as of March 20, 1997 and the Master Lease Agreement dated as of March 28, 1997,
this Commitment supersedes all prior correspondence, commitments, and oral or
other communications relating to leasing arrangements between Lessor and Lessee.
The outline of this offer is as follows:
Lessee: Sugen, Inc.
Lessor: Transamerica Business Credit Corporation -
Technology Finance Division
Equipment: A. Laboratory, computer and office
equipment and software, including
without limitation, all additions,
improvements, replacements, repairs,
appurtenances, substitutions and
attachments thereto and all proceeds
thereof. All Equipment subject to
approval of Lessor prior to funding
which approval will not be
unreasonable withheld.
B. Tenant Improvements as will be
further described in the lease
documentation.
Equipment Cost: Not to exceed $5,000,000 (Tenant
Improvements limited to $[...***...] and and
Software limited to $[...***...]).
Equipment Location: California (or other location acceptable to
Lessor).
Anticipated Delivery: September 1, 1997 to December 31, 1998
Lease Term
Commencement: Upon delivery, acceptance and funding of the
Equipment or upon each completion of
deliveries of items of Equipment with
aggregate cost of not less than
$[...***...], but no later than December 31,
1998.
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* Confidential Treatment Requested
<PAGE>
Term: From each Lease Term Commencement until 49
months from the first day of the month next
following or coincident with that Lease Term
Commencement.
Monthly Rent
(Equipment and Software
Only): Monthly Rent for the first 48 rental
payments will be equal to [...***...] of
Equipment Cost (Equipment and Software)
payable monthly in advance and one final
rental payment equal to [...***...] of
Equipment Cost (Equipment and Software) will
be payable in advance at month 49. The first
and 48th months' rent will be due on or
before each Lease Term Commencement. The
Lessee may at its option elect to accept the
automatic renewal described in this
Commitment in lieu of making the 49th rental
payment as described above.
Monthly Rent
(Tenant Improvements
Only): Monthly Rent for the first 48 rental
payments will be equal to [...***...] of
Equipment Cost (Tenant Improvements) payable
monthly in advance and one final payment
equal to [...***...] of Equipment Cost
(Tenant Improvements) will be payable in
advance at month 49. The first and 48th
months' rent will be due on or before each
Lease Term Commencement. The Lessee may at
its option elect to accept the automatic
renewal described in this Commitment in lieu
of making the 49th rental payment as
described above.
Adjustment to
Rental Payments: The Lessor reserves the right to increase
the Monthly Rent Payments as of the date of
each Lease Term Commencement proportionally
to the change in the [...***...] of the
interest rates of [...***...] to the week
preceding the date of each Lease Term
Commencement, as published in the Wall
Street Journal. As of the date of each Lease
Term Commencement, the Monthly Rent Payments
will be fixed for the term. A schedule of
the actual Monthly Rent Payments will be
provided by the Lessor following each Lease
Term Commencement.
Interim Rent: Interim Rent will accrue from each Lease
Term Commencement until the next following
first day of a month (unless the Lease Term
Commencement is on or within three business
days prior to the first day of a month).
Interim Rent will be at the daily equivalent
of the currently adjusted Monthly Rent
Payment.
Net Lease: The lease will be a net lease under which
the Lessee will be responsible for
maintenance, insurance, taxes, and all other
costs and expenses.
Taxes: Sales or use taxes shall be added to the
gross rentals, as appropriate.
Insurance: Prior to any delivery of Equipment, the
Lessee will furnish confirmation of
insurance acceptable to the Lessor covering
the Equipment including
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* Confidential Treatment Requested
2
<PAGE>
primary, all risk, physical damage, property
damage and bodily injury with appropriate
loss payee endorsement in favor of the
Lessor.
Conditions Precedent to
Each Lease Term
Commencement: 1. No material adverse change in the
financial condition, operation or prospects
of the Lessee prior to funding. The Lessor
reserves the right to rescind any unused
portion of this Commitment in the event of a
material adverse change in the financial
condition, operation or prospects of the
Lessee.
2. Completion of the documentation and final
terms of the proposed financing satisfactory
to Lessor and Lessor's counsel.
3. Results of all due diligence, including
lien, judgment and tax searches and other
matters Lessor may reasonably request shall
be satisfactory to Lessor and Lessor's
counsel.
4. Receipt by Lessor of duly executed Lease
documentation in form and substance
satisfactory to Lessor and its counsel.
5. Lessor shall receive title and a valid
and perfected first priority lien and
security interest in all Equipment acquired
through the use of this Commitment and
Lessor shall have received satisfactory
evidence that there are no liens on any
Equipment except as expressly permitted
herein.
Purchase Option
(Equipment and Software
Only): The Lessee will have the option to purchase
all (but not less than all) the Equipment at
the expiration of the term of the Leases for
$[...***...] plus applicable sales and other
taxes. In the event the Lessee does not
elect to make the 49th payment as described
in the Monthly Rent (Equipment and Software)
paragraph of this Commitment, each Lease
will automatically renew for a term of one
year with monthly rentals equal to
[...***...] of Equipment Cost (Equipment and
Software) payable monthly in advance plus
one additional payment equal to [...***...]
of the Equipment Cost (Equipment and
Software).
Purchase Option
(Tenant Improvements
Only): The Lessee will have the option to purchase
all (but not less than all) of the Tenant
Improvements at the expiration of the term,
or, if applicable, the renewal term, of the
Leases for $[...***...] plus applicable
sales and other taxes. If the term of the
Lessee's existing real estate lease exceeds
the the term of Leases for Tenant
Improvements by at least one year, then the
Lessee may elect not to make the 49th
payment as described in the Monthly Rent
(Tenant Improvements) paragraph of this
Commitment, in which case each Lease for
Tenant Improvements will automatically renew
for a period of 12 months with monthly
rentals equal to [...***...] of Equipment
Cost (Tenant Improvements).
Additional Covenants: There will be no actual or threatened
conflict with, or violation of, any
- ----------------------------------
* Confidential Treatment Requested
3
<PAGE>
regulatory statute, standard or rule
relating to the Lessee, its present or
future operations, or the Equipment.
Lessee will continue to provide copies of
its quarterly filings to the Securities
Exchange Commission. All information
supplied by the Lessee will be materially
correct and will not omit any statement
necessary to make the information supplied
not be misleading. There will be no material
breach of the representations and warranties
of the Lessee in the lease. The
representations will include that the
Equipment Cost of each item of the Equipment
does not exceed the fair and usual price for
like quantity purchased of such item and
reflects all discounts, rebates and
allowances for the Equipment given to Lessee
or any affiliate of Lessee by the
manufacturer, supplier or anyone else
including, without limitation, discounts for
advertising, prompt payment, testing or
other services.
Fees and Expenses: The Lessee will be responsible for the
Lessor's reasonable expenses in connection
with the transaction. Lessor's expenses will
be capped at $[...***...].
Law: This letter and the proposed Lease are
intended to be governed by and construed in
accordance with Illinois law without regard
to its conflict of law provisions.
Indemnity: Lessee agrees to indemnify and to hold
harmless Lessor, and its officers, directors
and employees against all claims, damages,
liabilities and expenses which may be
incurred by or asserted against any such
person in connection with or arising out of
this letter and the transactions
contemplated hereby, other than claims,
damages, liability, and expense resulting
from such person's gross negligence or
willful misconduct.
Conditions of
Acceptance: This Commitment Letter is intended to be a
summary of the most important elements of
the agreement to enter into a leasing
transaction with Lessee, and it is subject
to all requirements and conditions contained
in Lease documentation proposed by Lessor or
its counsel in the course of closing the
Lease described herein. Not every provision
that imposes duties, obligations, burdens,
or limitations on Lessee is contained
herein, but shall be contained in the final
Lease documentation satisfactory to Lessor
and its counsel.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY SUIT, ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATED TO THIS LETTER OR THE TRANSACTION DESCRIBED IN THIS LETTER.
Application Fee: The $[...***...] Application Fee previously
paid by the Lessee shall be first applied to
the costs and expenses of the Lessor in
connection with
- ----------------------------------
* Confidential Treatment Requested
4
<PAGE>
the transaction (not to exceed
$[...***...]), and any remainder shall be
applied to the second month's rent due under
the Lease or subsequent months until fully
utilized.
Commitment
Expiration: This Commitment shall expire on November 10,
1997, unless prior thereto either extended
in writing by the Lessor or accepted as
provided below by the Lessee.
Should you have any questions, please call me. If you wish to accept this
Commitment, please so indicate by signing and returning the enclosed duplicate
copy of this letter to me by November 10, 1997.
Yours truly,
TRANSAMERICA BUSINESS CREDIT
CORPORATION-TECHNOLOGY
FINANCE DIVISION
By /s/ Gerald A. Michaud
-------------------------
Gerald A. Michaud
Senior Vice President -
Marketing
Accepted this 5th day of March, 1997
SUGEN, INC.
By: /s/ Christine Gray-Smith
---------------------------
- ----------------------------------
* Confidential Treatment Requested
5
RESTRICTED STOCK BONUS AGREEMENT
WITH K. PETER HIRTH, PH.D.
THIS AGREEMENT is made as of the 16th day of September, 1997, by and
between SUGEN, INC., a Delaware corporation (the "Company"), and K. Peter Hirth,
Ph.D. ("Recipient").
WITNESSETH:
WHEREAS, Recipient has provided valuable services to the Company;
WHEREAS, the Company desires to issue, and Recipient desires to receive,
shares of the Company's common stock ("Common Stock") in consideration for past
services rendered to the Company or for its benefit; and
WHEREAS, the issuance of Common stock hereunder is in connection with and
in furtherance of the Company's compensatory benefit program for participation
of the Company's employees, directors, officers, consultants and advisors.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. The Company hereby awards to Recipient twenty-five thousand (25,000)
shares of Common Stock (the "Shares"), subject to the following terms and
conditions.
2. Provided that Recipient has continuously rendered services to the
Company or any affiliate of the Company from and after the date of this
Agreement through March 31, 1999, the Shares shall vest in their entirety on
March 31, 1999 (the "Vesting Date"). However, to the extent the Vesting Date
occurs on a date on which the trading of the Shares either (i) would result in
liability to Recipient under Rule 10b-5 as promulgated under the Securities
Exchange Act of 1934, as amended, or (ii) would be prohibited under the
Company's trading window policy designed to prevent violations of Rule 10b-5,
then the Vesting Date shall be delayed until the first date on which Recipient
could trade the Shares without either incurring liability under Rule 10b-5 or
violating the Company's insider trading window policy.
3. If at any time prior to the Vesting Date, Recipient ceases to render
services to the Company or any affiliate of the Company (the "Separation"), the
Shares shall immediately cease vesting, Recipient shall have no further right in
the Shares and the Shares shall automatically be reacquired by the Company at
the Current Market Price (as hereinafter defined). The Current Market Price of
the Company's Common Stock shall be the closing price (or bid price if there is
no such closing price) of the Company's Common Stock quoted in the
Over-The-Counter Market Summary or the closing price quoted on the Nasdaq
National Market or on the primary national securities exchange on which the
Common Stock is then listed, whichever is applicable, as published in the
Western Edition of The Wall Street Journal (or, if not so reported, as otherwise
reported by the Nasdaq National Market) on the date of Recipient's Separation;
provided, however, that if there is no public market for the Company's Common
<PAGE>
Stock, the Current Market Price shall be the fair market value of the Company's
Common Stock as determined by the Company's Board of Directors in good faith.
4. Recipient may satisfy any federal, state or local tax withholding
obligation relating to the acquisition of the Shares by any of the following
means or by a combination of such means: (1) tendering a cash payment, (2)
authorizing the Company to withhold shares from the Shares otherwise issuable to
Recipient as a result of the acquisition of the Shares, or (3) delivering to the
Company owned and unencumbered shares of the Common Stock of the Company.
5. Recipient acknowledges that the Shares to be issued pursuant to this
Agreement have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and that the Shares are deemed to constitute "restricted
securities" under Rule 144 promulgated under the Securities Act. In this
connection, Recipient warrants and represents to the Company that Recipient is
holding the Shares for Recipient's own account and that Recipient has no present
intention of distributing or selling said stock except as permitted under the
Securities Act. Recipient further warrants and represents that Recipient has
either (i) a preexisting personal or business relationship with the Company or
any of its officers, directors or controlling persons, or (ii) the capacity to
protect his or her own interests in connection with the receipt of the Shares by
virtue of the business or financial expertise of any professional advisors to
Recipient who are unaffiliated with, and who are not compensated by, the Company
or any of its affiliates, directly or indirectly. Recipient further acknowledges
that the exemption from registration under Rule 144 will not be available for at
least two (2) years from the date of acquisition of the Shares, unless at least
one (1) year from the date of acquisition (i) a public trading market then
exists for the Common Stock of the Company, (ii) adequate information concerning
the Company is then available to the public and (iii) other terms and conditions
of Rule 144 are complied with; and that any disposition of the Shares may be
made only in limited amounts in accordance with such terms and conditions.
6. Until the Vesting Date, the Shares shall be issued in book form only and
share certificates shall not be issued. Notwithstanding the foregoing, in the
event that certificates representing the Shares are issued, all such
certificates shall have endorsed thereon the following legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND
SUBJECT TO FORFEITURE IN ACCORDANCE WITH THE RESTRICTED STOCK BONUS
AGREEMENT BETWEEN THE ISSUER AND THE REGISTERED HOLDER, OR THE PREDECESSOR
IN INTEREST, A COPY OF WHICH IS ON FILE AT THE ISSUER'S PRINCIPAL OFFICE.
ANY TRANSFER OR ATTEMPTED TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF THE
ISSUER."
(b) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THEY MAY NOT BE SOLD OR
<PAGE>
OFFERED FOR SALE OR OTHERWISE DISTRIBUTED UNLESS THE SECURITIES ARE
REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM IS
AVAILABLE."
7. Recipient agrees that it shall in no event make any disposition of all
or any portion of the Shares unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with said registration statement; or
(ii) (a) Recipient shall have notified the Company of the proposed
disposition and shall have furnished the Company with a derailed statement of
the circumstances surrounding the proposed disposition, (b) Recipient shall have
furnished the Company with an opinion of its own counsel to the effect that such
disposition will not require registration of the Shares under the Securities
Act, and (c) such opinion of its counsel shall have been concurred in by counsel
for the Company, such concurrence not to be unreasonably withheld, and the
Company shall have advised Recipient of such concurrence.
8. The Company shall not be required (i) to transfer on its books any
Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement or the terms of the Securities Act, or
(ii) to treat as owner of such Shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such Shares shall have been
so transferred.
9. Subject to the provisions of this Agreement, Recipient shall, during the
term of this Agreement, exercise all rights and privileges of a stockholder of
the Company with respect to the Shares. Recipient shall be deemed to be the
holder of the Shares for purposes of receiving any dividends which may be paid
with respect to such Shares and for purposes of exercising any voting rights
relating to such Shares, even if some or all of such Shares have not yet vested
and been released from the Company's reacquisition right.
10. If any change is made in the Shares subject to this Agreement (through
merger, consolidation, reorganization, recapitalization, stock dividend,
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or
otherwise), this Agreement will be appropriately adjusted in the class(es) of
securities, maximum number of Shares and price per Share subject to this
Agreement.
11. In the event of: (1) a merger or consolidation in which the Company is
not the surviving corporation; (2) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; (3) any
other capital reorganization in which more than fifty percent (50%) of the
shares of the Company entitled to vote are exchanged; (4) a transaction or group
of related transactions involving the sale of all or substantially all of the
Company's assets; (5) the acquisition by any person, entity or group (excluding
any employee benefit plan, or related trust,
<PAGE>
sponsored or maintained by the Company or any subsidiary of the Company) of the
beneficial ownership, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power in the
election of members of the board of directors of the Company; or (6) a change in
the composition of the Company's Board of Directors such that, during any period
of two consecutive years, individuals who, at the beginning of such period,
constitute the Board of Directors, together with individuals who are Approved
New Directors (as defined below), cease for any reason to have authority to cast
at least a majority of the votes which all directors on the Board are entitled
to vote; then, to the extent not prohibited by law, the time during the Vesting
Date shall be accelerated prior to such event. For purposes of this Agreement,
an "Approved New Director" shall be a Board member whose election, or the
nomination for election by the Company's stockholders, was approved by a vote of
a majority of the votes entitled to be cast by the directors then still in
office who were directors at the beginning of the period.
12. The acquisition and vesting of the Shares may have adverse tax
consequences to the Recipient which may avoided or mitigated by filing an
election under Section 83(b) of the Internal Revenue Code, as amended (the
"Code"). Such election must be filed within thirty (30) days after the date of
this Agreement. RECIPIENT ACKNOWLEDGES THAT IT IS HIS OWN RESPONSIBILITY, AND
NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(B), EVEN IF
RECIPIENT REQUESTS THE COMPANY TO MAKE THE FILING ON HIS OR HER BEHALF.
13. Rights and obligations under this Agreement shall not be impaired by
any amendment of this Agreement unless (i) the Company requests the consent of
Recipient and (ii) Recipient consents in writing.
14. The parties hereto agree to execute such further instruments and to
take such further action as may reasonably be necessary to carry out the intent
of this Agreement.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to the other party hereto at its address hereinafter
shown below its signature or at such other address as such party may designate
by ten (10) days' advance written notice to the other party hereto.
16. This Agreement shall be governed by the laws of the State of California
without regard to such State's principles of conflict of laws.
17. This Agreement shall inure to the benefit of the successors and assigns
of the Company and, subject to the restrictions on transfer herein set forth,
shall be binding upon Recipient, his or her heirs, executors, administrators,
successors and assigns.
18. This Agreement does not constitute an employment contract nor shall be
deemed to create in any way whatsoever any obligation on Recipient's part to
continue in the employ of the Company or any affiliate of the Company, or to
limit the ability of the Company or any
<PAGE>
affiliate of the Company to terminate Recipient's employment with the Company
or affiliate of the Company at any time, for any reason or for no reason.
19. This Agreement constitutes the entire, final and exclusive statement of
the agreement between the parties hereto with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
RECIPIENT: SUGEN, INC.:
/s/ K. Peter Hirth Ph.D By /s/ Stephen Evans-Freke
- --------------------------- ---------------------------
K. Peter Hirth Ph.D Stephen Evans-Freke
Chief Executive Officer and
Address: ------------------ Chairman of the Board of
Directors
- ---------------------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-30385), dated June 30, 1997, pertaining to the SUGEN, Inc. 1992
Stock Option Plan, and in the Registration Statement (Form S-3 No. 333-37687),
dated October 10, 1997 pertaining to the registration statement of 1,780,000
shares of common stock, of our report dated February 5, 1998 with respect to the
financial statements of SUGEN, Inc. included in this Annual Report (Form 10-K)
for the year ended December 31, 1997.
ERNST & YOUNG LLP
Palo Alto, California
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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0
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