<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------------
Commission file number 0-23012
NEXSTAR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
--------------
DELAWARE 84-1173453
-------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
2860 Wilderness Place
Boulder, Colorado 80301
(Address of principal executive offices)
Registrant's telephone number: (303) 444-5893
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of the registrant's Common Stock, par value $.01 per
share, outstanding as of October 31, 1996 was 26,369,431.
<PAGE> 2
NEXSTAR PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- September 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -- Three and Nine
Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -- Nine Months
Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 20,803,000 $ 20,893,000
Marketable securities 22,455,000 5,841,000
Accounts receivable 27,783,000 18,315,000
License fee receivable 6,300,000 --
Inventories 14,401,000 9,469,000
Prepaid expenses and other 2,257,000 1,948,000
------------- -------------
Total current assets 93,999,000 56,466,000
Equipment and leasehold improvements at cost - net of
accumulated depreciation and amortization 43,088,000 43,001,000
Investments in life science enterprises 3,950,000 3,950,000
Patent and trademark costs, net of accumulated amortization 4,399,000 3,732,000
Purchased technology, net of accumulated amortization 2,261,000 3,015,000
Other noncurrent assets 1,684,000 2,285,000
------------- -------------
Total assets $ 149,381,000 $ 112,449,000
============= =============
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings $ 10,251,000 $ 3,500,000
Accounts payable 6,682,000 6,789,000
Accrued compensation and employee benefits 3,389,000 2,805,000
Other accrued expenses 4,152,000 3,890,000
Long-term obligations due within one year 7,249,000 4,313,000
------------- -------------
Total current liabilities 31,723,000 21,297,000
Long-term obligations due after one year 14,952,000 9,848,000
Commitments and contingencies
Stockholders' equity:
Common stock 264,000 244,000
Additional paid-in capital 213,171,000 184,290,000
Deferred compensation (147,000) (235,000)
Accumulated deficit (110,582,000) (102,995,000)
------------- -------------
Total stockholders' equity 102,706,000 81,304,000
------------- -------------
Total liabilities and stockholders' equity $ 149,381,000 $ 112,449,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Product revenues $ 20,963,000 $ 14,986,000 $ 58,888,000 $ 41,149,000
License fee 7,000,000 -- 7,000,000 --
Collaborative agreements and contracts 375,000 885,000 1,311,000 2,354,000
Interest income 502,000 431,000 1,348,000 1,433,000
------------ ------------ ------------ ------------
Total revenues 28,840,000 16,302,000 68,547,000 44,936,000
------------ ------------ ------------ ------------
Expenses:
Cost of goods sold 4,821,000 3,387,000 13,075,000 8,853,000
Research and development 9,845,000 8,540,000 30,514,000 25,762,000
Selling, general and administrative 10,200,000 7,285,000 30,595,000 21,883,000
Purchased research and development -- 11,824,000 -- 11,824,000
Interest expense 517,000 293,000 1,073,000 907,000
------------ ------------ ------------ ------------
Total expenses 25,383,000 31,329,000 75,257,000 69,229,000
------------ ------------ ------------ ------------
Income (loss) before provision for income taxes 3,457,000 (15,027,000) (6,710,000) (24,293,000)
Provision for income taxes 711,000 69,000 877,000 180,000
------------ ------------ ------------ ------------
Net income (loss) $ 2,746,000 $(15,096,000) $ (7,587,000) $(24,473,000)
============ ============ ============ ============
Net income (loss) per share $ 0.10 $ (0.64) $ (0.29) $ (1.06)
============ ============ ============ ============
Shares used in computing
net income (loss) per share 28,130,000 23,407,000 25,913,000 23,139,000
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Operating activities
Net loss $ (7,587,000) $(24,473,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 8,740,000 7,049,000
Compensation expense related to grant
of options and sales of stock, including
amortization of deferred compensation 88,000 88,000
License fee receivable (6,300,000) --
Purchased research and development -- 11,824,000
Other 56,000 (193,000)
Changes in operating assets and liabilities:
Accounts receivable (9,457,000) (3,064,000)
Inventories (4,932,000) (4,858,000)
Prepaid expenses and other (309,000) 471,000
Other noncurrent assets (187,000) --
Short-term borrowings 6,751,000 550,000
Accounts payable 681,000 400,000
Accrued compensation and employee benefits 580,000 637,000
Other accrued expenses 195,000 (1,098,000)
------------ ------------
Net cash used in operating activities (11,681,000) (12,667,000)
Investing activities
Maturities (purchases) of marketable securities, net (16,614,000) 25,358,000
Additions to equipment and leasehold improvements (8,458,000) (7,663,000)
Deletions to deposits -- 5,631,000
Deletions to investments in life science enterprises, net -- 321,000
Additions to patent costs (982,000) (617,000)
Deletions to other noncurrent assets 700,000 242,000
------------ ------------
Net cash provided by (used in) investing activities (25,354,000) 23,272,000
Financing activities
Proceeds from sale-leaseback transactions 2,028,000 1,753,000
Payments on capital lease obligations (3,194,000) (2,565,000)
Proceeds from issuance of long-term debt 10,000,000 --
Repayments on long-term debt (794,000) --
Proceeds from sale of common stock, net of offering costs 28,905,000 1,065,000
------------ ------------
Net cash provided by financing activities 36,945,000 253,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (90,000) 10,858,000
Cash and cash equivalents at beginning of period 20,893,000 7,605,000
------------ ------------
Cash and cash equivalents at end of period $ 20,803,000 $ 18,463,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine-month periods
ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 1995.
NOTE 2: Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Finished Goods $ 3,277,000 $2,804,000
Work in Process 8,619,000 4,846,000
Raw Materials 2,505,000 1,819,000
----------- ----------
$14,401,000 $9,469,000
=========== ==========
</TABLE>
NOTE 3: Patent Matters
On May 17, 1993, the Company filed a complaint in the United States
District Court for the District of Delaware against The Liposome
Company ("TLC") asking the court to declare U.S. Patent No. 4,880,635
(the "TLC '635 Patent") owned by TLC invalid, unenforceable and not
infringed following allegations by TLC that the freeze drying of
AmBisome infringes the TLC '635 Patent. The United States District
Court for the District of Delaware stayed the lawsuit pending the
outcome of a reexamination of the TLC '635 Patent instituted by TLC in
the U.S. Patent and Trademark Office ("USPTO"). On July 2, 1996,
certain amended claims were allowed by the USPTO. The stay was lifted
on July 11, 1996 and an amended complaint was filed by the Company on
July 29, 1996. On August 16, 1996, TLC answered the amended complaint
and filed a counterclaim against the Company for damages and an
injunction based on infringement of the reexamined patent. Trial is
currently scheduled for October 1997.
Upon review of the claims included in the reexamination certificate
relating to the TLC '635 Patent, the Company has concluded that no
valid claim should be found to be infringed by the Company. In
addition, the Company believes that TLC's efforts in crafting claims to
avoid prior liposome work reported by others has presented the Company
with additional avenues of defense in any litigation. For example,
because of the amendments made to the TLC '635 Patent during
reexamination, the Company would also have a defense based upon the
doctrine of "intervening rights." This doctrine would provide a clear
defense to any damage claim for any Company activity prior to the
actual issuance of the reexamined patent on July 2, 1996 and would
empower the court to permit the Company to continue its activities to
the extent and under such terms as the court deems equitable for the
protection of investments made by the Company prior to issuance of the
reexamination certificate.
In addition, the Company has opposed the grant to TLC of the European
and Japanese patents that are counterparts of the TLC '635 patent. The
European opposition is scheduled to be heard in the European Patent
Office ("EPO") in February 1997. At the opposition hearing, the EPO
will rule on the validity of all of the European Union counterparts to
the TLC '635 Patent. TLC initiated legal actions against the Company
on
6
<PAGE> 7
October 18, 1996 in the Chancery Division of the Patents Court in the
United Kingdom, on November 4, 1996 in the Regional Court of The Hague,
The Netherlands and on October 18, 1996 in the Regional Court --
Dusseldorf in Germany for alleged infringement of the respective
national counterparts to the TLC '635 Patent. In connection with each
suit, TLC is seeking an injunction and damages. The Company anticipates
that TLC may bring additional actions against the Company in connection
with its other European counterparts to the TLC '635 Patent and, even if
the EPO determines that the European counterparts to the TLC '635 Patent
are invalid, TLC may pursue its European patent suits pending an appeal
of the EPO's decision.
If the U.S. or a European court were to determine that the TLC '635
Patent or one of its European counterparts, as applicable, is both
valid and infringed as a result of the freeze drying of AmBisome, the
Company could be enjoined from using its method of manufacturing and/or
could be required to pay damages in connection with sales in the
applicable country or countries. In such event, the Company could
experience interruption in its ability to produce AmBisome and/or incur
significant royalty obligations. In addition, the expense of
litigation is expected to be significant regardless of the outcome.
Although the Company has been successful in its recent litigation with
TLC regarding a different freeze-drying patent, past success is not a
predictor of success in the future and, in general, adverse results in
litigation could have a material adverse effect on the Company.
Certain statements set forth above with respect to the litigation and
potential litigation with TLC constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results of the litigation
to be materially different from the results expressed or implied by
such forward-looking statements. Such factors include, among other
things: (i) adverse facts adduced in discovery or at trial; (ii)
contrary conclusions of law by the court; (iii) the court refusing to
exercise its equitable powers in a manner favorable to the Company; and
(iv) other uncertainties of litigation.
NOTE 4: Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("Statement No. 121"), which requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment
are present. Implementation of Statement No. 121 was immaterial to the
financial statements of the Company.
NOTE 5: Common Stock
On February 13, 1996, the Company completed a private sale of 1,425,000
shares of its common stock to a group of private investors (the
"Private Investors"). The net proceeds to the Company from the sale
were approximately $24.9 million. In connection with the transaction,
the Company filed a "shelf" registration statement on Form S-3
registering for resale the shares acquired by the Private Investors.
Pursuant to its agreement with the Private Investors, the Company is
required to keep the "resale" registration statement effective for up
to three years. In addition to the Private Investors, a holder of
297,619 shares of the Company's common stock and two holders of
warrants to acquire 250,481 shares of the Company's common stock
exercised registration rights granted to them by the Company and had
their shares of common stock, or the shares of common stock which
relate to their warrants, included in the registration statement.
During May 1996, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of 2.5 million
shares of the Company's common stock. In June 1996, the Company
withdrew its plans to issue such shares because of a decline in the
Company's stock price and general instability in the stock market for
biotech and biopharmaceutical companies.
In June 1996, one of the Company's warrant holders exercised a warrant
for 232,941 shares of the Company's common stock for $1,125,000 ($4.83
per share).
7
<PAGE> 8
NOTE 6: Commitments and Contingencies
In September 1996, NeXstar Pharmaceuticals and Sumitomo Pharmaceuticals
("Sumitomo") entered into an agreement (the "Sumitomo License")
pursuant to which Sumitomo will develop and market AmBisome in Japan.
Under the terms of the Sumitomo Agreement, Sumitomo paid the Company an
initial $7 million licensing fee (less withholding taxes of $700,000)
in October 1996. Sumitomo also is required to make additional payments
to the Company if certain clinical and commercial milestones are met
and to pay the Company royalties on all Japanese sales.
In September 1996, the Company amended and restated an unsecured line
of credit (the "Line of Credit") to increase the amount which the
Company is permitted to borrow up to $7 million. As of September 30,
1996, the Company had borrowings of $7 million under the Line of Credit
which expires on November 30, 1996. The Company currently is
negotiating a new line of credit to replace the Line of Credit.
In June 1996, the Company entered into a term loan agreement for $10
million (the "Loan Agreement"). The Loan Agreement is being repaid in
48 monthly installments with the first repayment having been made in
July 1996. As of September 30, 1996, the Company had borrowings of
$9.4 million under the Loan Agreement. The Loan Agreement requires the
Company to meet certain financial covenants, including maintaining net
cash, cash equivalents and/or investment grade securities equal to the
outstanding principal loan balance plus $10 million of which an amount
of cash, cash equivalents and/or investment grade securities equal to
the outstanding principal loan balance plus three months' interest
thereon must be maintained in an unrestricted account. The Company
currently is in compliance with such covenants.
In May 1996, the Company's Spanish subsidiary entered into an agreement
in connection with which the subsidiary may borrow up to 500 million
Spanish Pesetas (approximately $3.9 million) with such borrowing being
secured by the subsidiary's accounts receivable in Spain. In
connection with the agreement, the Company is maintaining $2.0 million
as collateral in an unrestricted account. As of September 30, 1996,
the subsidiary had borrowings of $3.0 million under the agreement.
In June 1996, the Company's holdings in connection with Phytogen Life
Sciences, Inc. ("PLS") were restructured. Pursuant to the
restructuring, the Company gave up its right to convert a loan (the
"Loan") which it made to PLS into a 49.9% interest in PLS and converted
Can. $968,784 (approximately $707,000) of the Loan into 235,714
preference shares in PLS. In addition, PLS issued a warrant to the
Company to acquire up to 300,000 PLS common shares for $3 per share and
repaid the Company approximately $700,000 in connection with the Loan.
In August 1996, the Company entered into a sublease for approximately
32,000 square feet of office space in Boulder, Colorado near its
current executive offices. The space will be used for additional
executive office space and the lease expires in July 2003.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
NeXstar Pharmaceuticals is a leading biopharmaceutical company engaged
in the discovery, development, manufacture and marketing of proprietary
products to treat life-threatening and other serious diseases.
The Company currently markets AmBisome, a liposomal formulation of
amphotericin B, for the treatment of life-threatening fungal infections when
conventional treatment fails and DaunoXome, a liposomal formulation of the
anticancer agent daunorubicin, which is used as a first line cytotoxic therapy
for the treatment of advanced, HIV-associated Kaposi's sarcoma ("KS"). The
Company has relied on sales of AmBisome in Europe for a significant portion of
its product revenues and expects sales of AmBisome in Europe to account for a
majority of its revenues in 1996. AmBisome has been approved for sale by the
regulatory authorities in 24 countries for the treatment of life-threatening
fungal infections, including four countries in which it has been approved as a
primary therapy. Sales in Germany, the U.K., Italy and Spain together accounted
for 58% and 56% of AmBisome revenues for the three months and nine months ended
September 30, 1996, respectively. In November 1996, the Company filed a New Drug
Application with the U.S. Food and Drug Administration (the "FDA") for the use
of AmBisome as a primary treatment for confirmed and presumptive fungal
infections and visceral leishmaniasis and as treatment of fungal infections
refractory to amphotericin B treatment. In April 1996, the Company received
approval for DaunoXome as a first line treatment for KS from the FDA and
formally launched the drug in the U.S. on May 1, 1996. In addition, DaunoXome
has been approved for sale as a primary therapy for KS in Canada and 15 Western
European countries (including France where approval was received in August
1996). KS is a cancer which occurs in approximately 8-10% of AIDS patients and
which can be fatal if left untreated. Revenue growth will be substantially
dependent upon increased penetration of existing markets, establishing new
markets, development of new indications for AmBisome and DaunoXome and
introduction of new products.
In October 1996, the Company's IND filing was approved by the FDA for
MiKasome, the Company's liposomal formulation of amikacin, a potent
aminoglycoside antibiotic that is employed against bacterial infections. The
Company is currently initiating Phase I clinical trials for MiKasome in the U.S.
In addition, the Company is testing VincaXome, a tumor targeting liposomal
formulation containing the anticancer drug vincristine, and SELEX
process-derived compounds discovered by the Company. If the results from such
tests are positive, the Company anticipates filing an IND application for
VincaXome and/or at least one SELEX process-derived compound in the United
States in 1997 or early 1998.
In connection with most of its European sales, the Company prices its
products in the currencies of the country into which they are sold (the
"Payment Currencies"), and revenues in the past have been and in the future
could be adversely affected by currency fluctuations. A significant majority
of the Company's manufacturing costs are in U.S. dollars. Therefore, any fall
in the value of the Payment Currencies relative to the U.S. dollar is likely to
negatively impact gross margins for the Company's products since the Company's
manufacturing costs would stay approximately the same while its revenue in
terms of U.S. dollars would decline.
NeXstar Pharmaceuticals hedges certain of its foreign currency
exposures, with respect to its outstanding trade accounts receivable and
accounts payable, through the use of forward contracts. In the future, the
Company may begin currency hedging in connection with anticipated revenues and
expenses and may use options in addition to forward contracts. Such hedging
will be done solely for the purpose of protecting the Company from foreign
currency fluctuations. NeXstar Pharmaceuticals does not enter into speculative
foreign currency transactions and does not write speculative options. The
Company recognizes a gain or loss for each forward contract for the difference
between the contract rate and the market rate on each balance sheet date which
is recorded as a selling, general and administrative expense. Accordingly, no
deferred accounting is used in connection with the Company's hedging
activities. Notwithstanding its hedging activities (which have not always
included fully hedging against potential gains or losses), the Company has in
the past recognized significant foreign exchange gains and losses. There can be
no assurance that significant gains or losses will not be incurred in the
future.
Certain statements set forth above with respect to filing IND's for the
Company's products constitute "forward-looking statement" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements involve
known and unknown risks, uncertainties and other factors which may cause the
Company's filings to be significantly delayed or cancelled. Such factors
include, among other things: (i) delays in obtaining clinical or test results;
(ii) changes in policies of
9
<PAGE> 10
regulatory authorities; (iii) inconclusive, varying or negative data from
experiments or clinical studies; and (iv) changes in strategies or deployment
of resources by the Company.
RESULTS OF OPERATIONS
Three months and nine months ended September 30, 1996
Product revenues increased 40% and 43% to $21.0 million and $58.9
million for the three months and nine months ended September 30, 1996,
respectively, from $15.0 million and $41.1 million for the corresponding periods
in 1995, respectively, primarily due to increased unit sales of AmBisome in
existing markets. Sales of DaunoXome, which was initially approved in the U.S.
during the second quarter of 1996, totaled $1.1 million and $2.5 million for the
three months and nine months ended September 30, 1996, respectively.
During the three months ended September 30, 1996, the Company recorded
as revenue an initial $7 million licensing fee in connection with the Sumitomo
License. Payment of the $7 million licensing fee (less withholding taxes of
$700,000) was received in October 1996. See "Note 6: Commitments and
Contingencies" to the Notes to Condensed Consolidated Financial Statements.
Collaborative and contract agreement revenues decreased to $375,000 and
$1.3 million for the three months and nine months ended September 30, 1996,
respectively, compared to $885,000 and $2.4 million for the three months and
nine months ended September 30, 1995, respectively. Collaborative and contract
agreement revenue fluctuations are generally the result of changes in the
number of funded research projects as well as the timing and performance of
contract benchmarks. Certain of the Company's collaborative research
agreements with corporate partners, which provided revenues for the Company
during 1995, have expired or been terminated.
Interest income increased to $502,000 for the three months ended
September 30, 1996 compared to $431,000 for the three months ended September
30, 1995 and decreased to $1.3 million for the nine months ended September 30,
1996 compared to $1.4 million for the corresponding period in 1995. Interest
income generally fluctuates as a result of the average amount of cash available
for investment and prevailing interest rates.
Cost of goods sold was $4.8 million, or 23% of product revenue, and
$13.1 million, or 22% of product revenue, for the three months and nine months
ended September 30, 1996, respectively, compared to $3.4 million, or 23% of
product revenue, and $8.9 million, or 22% of product revenue, for the three
months and nine months ended September 30, 1995, respectively. The increase in
cost of goods sold was primarily due to increased sales of AmBisome and
DaunoXome. Cost of goods sold consists primarily of raw materials, allocations
of overhead, labor and equipment costs and charges associated with
lyophilization services provided by outside vendors.
Research and development expenses increased 15% and 18% to $9.8 million
and $30.5 million for the three months and nine months ended September 30,
1996, respectively, compared to $8.5 million and $25.8 million for the three
months and nine months ended September 30, 1995, respectively. The increase in
research and development expenses is primarily attributable to increased
product development and research activities (including an increase in personnel
as a result of the acquisition of Supragen, Inc. in September 1995). Included
in the research expenses are $297,000 and $873,000 for the three months and
nine months ended September 30, 1996, respectively, that were sponsored by
third parties. Research and development expenses consist primarily of salaries
and benefits for scientific, regulatory, quality control and pilot
manufacturing personnel, consultants, supplies, occupancy costs and
depreciation of laboratory equipment and facilities. The Company expects
research and development expenses, including those for clinical trials, to
continue to increase as personnel and research and development facilities are
expanded.
Selling, general and administrative expenses increased 40% and 40% to
$10.2 million and $30.6 million for the three months and nine months ended
September 30, 1996, respectively, compared to $7.3 million and $21.9 million
for the three months and nine months ended September 30, 1995, respectively.
The increase primarily relates to the expansion of the Company's marketing
efforts, in particular, in connection with the launch of DaunoXome and the
expansion of the Company's international operations and increased litigation
costs in connection with the TLC '635 Patent and its European and Japanese
counterparts. The Company recognized foreign exchange gains/(losses) of
($64,000) and ($291,000) for the three months and
10
<PAGE> 11
nine months ended September 30, 1996, respectively, compared to ($177,000) and
$411,000 for the corresponding periods in 1995.
Interest expense increased to $517,000 and $1.1 million for the three
months and nine months ended September 30, 1996, respectively, from $293,000
and $907,000 for the three months and nine months ended September 30, 1995,
respectively. The increase was primarily due to interest payable under the
term loan agreement for $10 million entered into by the Company in June 1996.
See "Note 6: Commitments and Contingencies" to the Notes to Condensed
Consolidated Financial Statements.
The Company reported net income of $2.7 million, or $0.10 per share,
and a net loss of $7.6 million, or $0.29 per share, for the three months and
nine months ended September 30, 1996, respectively, compared to net losses of
$15.1 million, or $0.64 per share, and $24.5 million, or $1.06 per share, for
the three months and nine months ended September 30, 1995, respectively. The
losses for the three and nine months ended September 30, 1995 relate in part to
an $11.8 million expense for purchased research and development in connection
with the Company's acquisition of Supragen, Inc.
Patent Matters
On May 17, 1993, the Company filed a complaint in the United States
District Court for the District of Delaware against The Liposome Company ("TLC")
asking the court to declare U.S. Patent No. 4,880,635 (the "TLC '635 Patent")
owned by TLC invalid, unenforceable and not infringed following allegations by
TLC that the freeze drying of AmBisome infringes the TLC '635 Patent. The
United States District Court for the District of Delaware stayed the lawsuit
pending the outcome of a reexamination of the TLC '635 Patent instituted by
TLC in the U.S. Patent and Trademark Office ("USPTO"). On July 2, 1996,
certain amended claims were allowed by the USPTO. The stay was lifted on July
11, 1996 and an amended complaint was filed by the Company on July 29, 1996.
On August 16, 1996, TLC answered the amended complaint and filed a counterclaim
against the Company for damages and an injunction based on infringement of the
reexamined patent. Trial is currently scheduled for October 1997.
Upon review of the claims included in the reexamination certificate
relating to the TLC '635 Patent, the Company has concluded that no valid claim
should be found to be infringed by the Company. In addition, the Company
believes that TLC's efforts in crafting claims to avoid prior liposome work
reported by others has presented the Company with additional avenues of defense
in any litigation. For example, because of the amendments made to the TLC '635
Patent during reexamination, the Company would also have a defense based upon
the doctrine of "intervening rights." This doctrine would provide a clear
defense to any damage claim for any Company activity prior to the actual
issuance of the reexamined patent on July 2, 1996 and would empower the court to
permit the Company to continue its activities to the extent and under such terms
as the court deems equitable for the protection of investments made by the
Company prior to issuance of the reexamination certificate.
In addition, the Company has opposed the grant to TLC of the European
and Japanese patents that are counterparts of the TLC '635 patent. The European
opposition is scheduled to be heard in the European Patent Office ("EPO") in
February 1997. At the opposition hearing, the EPO will rule on the validity of
all of the European Union counterparts to the TLC '635 Patent. TLC initiated
legal actions against the Company on October 18, 1996 in the Chancery Division
of the Patents Court in the United Kingdom, on November 4, 1996 in the Regional
Court of The Hague, The Netherlands and on October 18, 1996 in the Regional
Court -- Dusseldorf in Germany for alleged infringement of the respective
national counterparts to the TLC '635 Patent. In connection with each suit, TLC
is seeking an injunction and damages. The Company anticipates that TLC may
bring additional actions against the Company in connection with its other
European counterparts to the TLC '635 Patent and, even if the EPO determines
that the European counterparts to the TLC '635 Patent are invalid, TLC may
pursue its European patent suits pending an appeal of the EPO's decision.
If the U.S. or a European court were to determine that the TLC '635
Patent or one of its European counterparts, as applicable, is both valid and
infringed as a result of the freeze drying of AmBisome, the Company could be
enjoined from using its method of manufacturing and/or could be required to pay
damages in connection with sales in the applicable country or countries. In
such event, the Company could experience interruption in its ability to produce
AmBisome and/or incur significant royalty obligations. In addition, the
expense of litigation is expected to be significant regardless of the outcome.
Although the Company has been successful in its recent litigation with
TLC regarding a different freeze-drying patent, past success is not a predictor
of success in the future and, in general, adverse results in litigation could
have a material adverse effect on the Company.
11
<PAGE> 12
Certain statements set forth above with respect to the litigation and
potential litigation with TLC constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results of the litigation to be materially different
from the results expressed or implied by such forward-looking statements. Such
factors include, among other things: (i) adverse facts adduced in discovery or
at trial; (ii) contrary conclusions of law by the court; (iii) the court
refusing to exercise its equitable powers in a manner favorable to the Company;
and (iv) other uncertainties of litigation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities
position at September 30, 1996 was $43.3 million compared to $26.7 million on
December 31, 1995. The $16.5 million increase in cash and marketable securities
position was primarily the result of the following:
<TABLE>
<S> <C>
Net cash used in operating activities $(11,681,000)
Investment in equipment and leasehold improvements (8,458,000)
Proceeds from sale-leaseback transactions 2,028,000
Payments on capital lease obligations (3,194,000)
Proceeds from issuance of long-term debt 10,000,000
Repayment of long-term debt (794,000)
Proceeds from sale of common stock, net 28,905,000
Other (282,000)
-----------
$16,524,000
===========
</TABLE>
The Company invests its cash and cash equivalents and marketable
securities in interest-bearing investment grade securities.
The Company's accounts receivable balance at September 30, 1996 was
$27.8 million as compared to $18.3 million on December 31, 1995. The growth in
receivables was primarily due to increased sales of AmBisome and
proportionately increased sales of the Company's products in countries in which
payments tend to be slower than the average payment periods historically
experienced by the Company. The Company considers the credit risk of its
customers taken as a whole to be low. However, payment practices between
countries vary significantly and increased sales in countries in which payments
tend to be slower, often as a result of the slowness by governmental entities
in reimbursing the Company's customers, have in the past and in the future may
increase the average length that accounts receivable are outstanding and
increase the financial risk of certain of the Company's customers. During
September 1996, the Company was granted a security interest in accounts
receivable owed to one of the Company's distributors by hospitals in the
country in which such distributor operates. The Company continually seeks
improvements in its collection process to maximize its cash flow from product
sales in a timely manner.
As of September 30, 1996, the Company's inventory value was $14.4
million compared to $9.5 million as of December 31, 1995 which represents a 52%
increase for the period ended September 30, 1996. The increase resulted
primarily from an overall increase in inventory to meet product demand. If the
Company is successful in increasing its product revenues, the Company expects
to gain manufacturing efficiencies from increased production thereby decreasing
cost of goods sold per unit of product.
For the nine months ended September 30, 1996, the Company had proceeds
from sales and leaseback transactions of $2.0 million related to the purchase
of capital equipment. As of September 30, 1996, $3.0 million was available
under equipment lease agreements relating to the lease of manufacturing
equipment, general laboratory and scientific equipment, office equipment,
furniture and fixtures.
In September 1996, the Company amended and restated an unsecured line
of credit (the "Line of Credit") to increase the amount which the Company is
permitted to borrow up to $7 million. As of September 30, 1996, the Company
had borrowings of $7 million under the Line of Credit which expires on November
30, 1996. The Company currently is negotiating a new line of credit to replace
the Line of Credit.
12
<PAGE> 13
In June 1996, the Company entered into a term loan agreement for $10
million (the "Loan Agreement"). The Loan Agreement is being repaid in 48
monthly installments with the first repayment having been made in July 1996.
As of September 30, 1996, the Company had borrowings of $9.4 million under the
Loan Agreement. The Loan Agreement requires the Company to meet certain
financial covenants, including maintaining net cash, cash equivalents and/or
investment grade securities equal to the outstanding principal loan balance
plus $10 million of which an amount of cash, cash equivalents and/or investment
grade securities equal to the outstanding principal loan balance plus three
months' interest thereon must be maintained in an unrestricted account. The
Company currently is in compliance with such covenants.
In May 1996, the Company's Spanish subsidiary entered into an agreement
in connection with which the subsidiary may borrow up to 500 million Spanish
Pesetas (approximately $3.9 million) with such borrowing being secured by the
subsidiary's accounts receivable in Spain. In connection with the agreement,
the Company is maintaining $2.0 million as collateral in an unrestricted
account. As of September 30, 1996, the subsidiary had borrowings of $3.0
million under the agreement.
On February 13, 1996, the Company completed a private sale of 1,425,000
shares of its common stock to a group of private investors (the "Private
Investors"). The net proceeds to the Company from the sale were approximately
$24.9 million. In connection with the transaction, the Company filed a "shelf"
registration statement on Form S-3 registering for resale the shares acquired
by the Private Investors. Pursuant to its agreement with the Private
Investors, the Company is required to keep the "resale" registration statement
effective for up to three years. In addition to the Private Investors, a
holder of 297,619 shares of the Company's common stock and two holders of
warrants to acquire 250,481 shares of the Company's common stock exercised
registration rights granted to them by the Company and had their shares of
common stock, or the shares of common stock which relate to their warrants,
included in the registration statement.
During May 1996, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of 2.5 million shares of
the Company's common stock. In June 1996, the Company withdrew its plan to
issue such shares because of a decline in the Company's stock price and general
instability in the stock market for biotech and biopharmaceutical companies.
In June 1996, one of the Company's warrant holders exercised a warrant
for 232,941 shares of the Company's common stock for $1,125,000 ($4.83 per
share).
NeXstar Pharmaceuticals believes that anticipated revenues, together
with the Company's existing cash, should permit the Company to implement
currently planned research and development programs and marketing and
manufacturing activities and to otherwise finance its current operations.
However, the Company believes that it is prudent to augment existing cash
whenever market conditions are favorable and is currently exploring
alternatives for obtaining funds, including borrowings which are secured by the
Company's accounts receivable. There can be no assurance that increased costs
associated with developing and obtaining regulatory approval of any current or
future drugs or other currently unanticipated expenses will not require NeXstar
Pharmaceuticals to access the capital markets in the near future. Such capital
may be raised through additional public or private financing, as well as
collaborative relationships, borrowings and other available sources. In
addition, in the course of its business, the Company evaluates products and
technologies held by third parties which, if acquired, could result in the
development of product candidates by the Company or which complement
technologies currently being developed by the Company. The Company expects
from time to time to be involved in discussions with other entities concerning
the Company's potential acquisition of rights to additional pharmaceutical
products. In the event that the Company acquires such products or third-party
technologies, the Company may find it necessary or advisable to obtain
additional funding.
The Company's future capital requirements will be substantial and will
depend on, and could increase as a result of, many factors, including progress
of the Company's research, drug discovery and development programs, whether the
Company acquires interests in products currently held by third parties, the
results and costs of preclinical and clinical testing of the Company's
products, if developed, the time and costs involved in obtaining regulatory
approvals, the costs involved in filing, prosecuting and enforcing patent
claims, competing technological and market developments, payments received
under collaborative agreements, changes in collaborative research
relationships, the costs associated with potential commercialization of its
products, if any, including the development of additional manufacturing,
marketing and sales capabilities, the cost and availability of third-party
financing for capital expenditures and administrative and legal expenses. In
particular, the Company expects to have significant cash requirements in the
near future as a result of, but not limited to: (i)
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<PAGE> 14
increased clinical studies which are required in order to expand the
indications and markets for AmBisome and DaunoXome; (ii) the cost of
obtaining approval for pharmaceuticals which have been and are being
developed by the Company, including MiKasome (the Company's liposomal
formulation of amikacin, a potent aminoglycoside antibiotic); (iii) the cost of
obtaining and equipping new facilities; and (iv) increased costs in connection
with the Company's litigation involving the TLC '635 Patent and its European
and Japanese counterparts. There can be no assurance that additional or
sufficient financing will be available, or, if available, that it will be
available on acceptable terms. If additional funds are raised by issuing
equity securities of the Company, dilution to then existing stockholders may
result. If adequate funds are not available, the Company may be required to
significantly curtail one or more of its research and development programs or
commercialization efforts or obtain funds through arrangements with
collaborative partners or others on less favorable terms than might otherwise
be available.
RECENT EVENT
In November 1996, the Company entered into a lease for approximately
9,815 square feet of office space in Boulder, Colorado near its current
executive offices. The space is expected to be used for additional scientific
labs. The lease expires in November 2001, but the Company has an option to
renew the lease for an additional three years.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Management's Discussion and Analysis of Financial Condition and
Results Of Operations--Patent Matters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Sublease Agreement, dated July 31, 1996, between Sybase, Inc.
and the Registrant.
10.2 Lease Agreement, dated November 6, 1996, between Avalon
Investment Company and the Registrant.
11.1 Statement re computation of per share earnings.
27.1 Registrant's Financial Data Sheet.
(b) REPORTS ON FORM 8-K
1. On July 8, 1996, the Company filed a report on Form 8-K, which
reported that on June 24, 1996, the Company announced that it
was withdrawing its plan to issue an additional 2.5 million
shares of its common stock in a public offering.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NEXSTAR PHARMACEUTICALS, INC.
Dated: November 13, 1996 By: /s/PATRICK J. MAHAFFY
------------------------------------------
Patrick J. Mahaffy
President and Chief
Executive Officer
Dated: November 13, 1996 By: /s/MICHAEL E. HART
------------------------------------------
Michael E. Hart
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----------
<S> <C>
10.1 Sublease Agreement, dated July 31, 1996, between Sybase, Inc.
and the Registrant.
10.2 Lease Agreement, dated November 6, 1996, between Avalon
Investment Company and the Registrant.
11.1 Statement re computation of per share earnings.
27.1 Registrant's Financial Data Sheet.
</TABLE>
17
<PAGE> 1
EXHIBIT 10.1
SUBLEASE AGREEMENT
1. PARTIES
This Sublease Agreement ("Sublease") dated July 31, 1996, is made between
Sybase, Inc., a Delaware corporation ("Sublandlord"), and NeXstar
Pharmaceuticals, Inc. a Delaware corporation ("Subtenant"), and supercedes and
restates in its entirety the Sublease Agreement between the parties dated as of
June 8, 1996.
2. MASTER LEASE
Sublandlord is the Tenant under a written lease dated February 16, 1993, as
amended by the (I) Amendment dated February 16, 1993, and (ii) Addendum to
Office Lease dated February 22, 1993 (the "Master Lease") wherein TCW Realty
Holding Company leased to Sublandlord the real property located in the City and
County of Boulder, State of Colorado, described as an Office consisting of
approximately 32,293 square feet of rentable area (the "Premises"). The term
"Landlord" as used in this Sublease and the Master Lease, shall mean S&G
Partnership, a Colorado General Partnership, who assumed all of TCW Holding
Company's obligations as Landlord under the Master Lease as of April 5, 1995,
as evidenced by the estoppel certificate attached hereto as Exhibit B
("Estoppel Certificate"). The Master Lease is attached to this Sublease as
Exhibit A and is incorporated herein by this reference. Except as otherwise
defined herein, terms within initial capital letters shall have the same
meanings set forth in the Master Lease.
3. PREMISES
Sublandlord hereby subleases the Premises to Subtenant, and Subtenant hereby
takes and accepts the Premises, on and subject to the terms and conditions set
forth in this Sublease.
4. WARRANTY BY SUBLANDLORD
4.1 Sublandlord warrants and represents to Subtenant that the Master Lease
has not been amended or modified and that Sublandlord is not now and as of the
commencement of the Sublease Term (as defined below) will not be, in default or
breach of any of the provisions of the Master Lease, and that Sublandlord has
no knowledge of any claim by Landlord that Sublandlord is in default or breach
of any of the provisions of the Master Lease.
4.2 Sublandlord further warrants and represents that: (i) Exhibit A to
this Sublease is a true, correct and complete copy of the Master Lease; (ii)
Exhibit B to this Sublease is a true, correct and complete copy of the
Estoppel Certificate; (iii) there are no other or additional documents forming
a part of the Master Lease, or constituting an amendment thereto; and (iv) the
Master Lease is in full force and effect.
5. TERM
5.1 The term of this Sublease ("Sublease Term") shall commence on
September 15, 1996 ("Commencement Date") and, unless sooner terminated as
provided herein, shall end on July 5, 2003 (the "Termination Date"). If
Sublandlord is unable to deliver possession of the Premises by the Commencement
Date as a result of causes beyond its reasonable control, Sublandlord shall not
be liable for any damages caused for failing to deliver possession, and this
Sublease shall not be void or voidable. Subtenant shall not be liable for Rent
until Sublandlord delivers possession of the Premises to Subtenant, but the
Sublease Term shall not be extended by the delay. The Sublease Term shall be
deemed to commence as of the Commencement Date irrespective of the date
Subtenant actually takes possession of the Premises. In the event Subtenant
takes
1
<PAGE> 2
possession of the Premises prior to the Commencement Date (with Sublandlord's
and Landlord's consent), Subtenant shall observe and perform all covenants and
obligations imposed on it by this Sublease.
5.2 Subtenant agrees to accept the Premises in their existing "AS IS"
condition, broom-clean and in as good condition as when Sublandlord took
possession, including, without limitation, the repair of any damage to the
Premises caused by the removal of any of Sublandlord's personal property or
trade fixtures from the Premises, except for reasonable wear and tear and loss
by fire or other casualty not caused by Sublandlord or its agents. Sublandlord
shall have no obligation to alter, improve or otherwise modify the Premises.
5.3 Upon the expiration or termination of the Sublease Term, Subtenant
shall immediately surrender the Premises together with all leasehold
improvements thereon, to Sublandlord in good order, repair and condition,
reasonable wear and tear expected. Without limiting the foregoing, Subtenant
shall also comply with the terms of Section 34 of the Master Lease with respect
to surrender of possession, except that Subtenant will not be required to make
any repairs which Sublandlord is not required to make under the Master Lease by
Landlord. Subtenant shall pay Sublandlord on demand the cost of repairing any
damage to the Premises.
6. RENT
6.1 Subtenant shall pay to Sublandlord without deduction, setoff, notice
or demand at the address for notices to Sublandlord specified in Section 13 of
this Sublease, or at such other place as Sublandlord shall designate from time
to time by notice to Subtenant, the Base Rent, in advance on the first day of
each month of the Sublease Term. For purposes of this Sublease, annual "Base
Rent" shall be Three Hundred Sixty-Four Thousand Nine Hundred Ten and 90/100
($364,910.90) for the duration of the Sublease Term, and shall be paid to
Sublandlord in equal monthly installments of Thirty Thousand Four Hundred Nine
and 24/100 Dollars ($30,409.24). If the Sublease Term begins or ends on a day
other than the first or last day of a month, the Base Rent for such partial
month shall be prorated on a per diem basis.
6.2 Except for the amounts specified in Section 10.2(b), all charges,
costs and sums required to be paid by Subtenant to Sublandlord under this
Sublease in addition to monthly Base Rent shall be deemed "Additional Rent,"
and monthly Base Rent and Additional Rent shall hereinafter collectively be
referred to as "Rent." Subtenant's covenant to pay Rent shall be independent
of every other covenant in this Lease. Rent not paid within the three (3) day
grace period following each relevant due date shall bear (I) a late charge
equal to five percent (5%) of the outstanding amount, plus (ii) interest at a
per annum rate equal to the lesser of (a) two percent (2%) above the announced
"prime" interest rate published in the Wall Street Journal as of the date of
such default, or (b) the maximum rate of interest which may be collected under
any applicable usury law.
6.3 The Master Lease requires Sublandlord to pay to Landlord amounts
representing Tenant's Proportionate Share Operating Costs, which share is One
Hundred Percent (100%). During the Sublease Term, Subtenant shall pay to
Landlord (or its designated management agent), as agent for Sublandlord, the
amounts Sublandlord is required to pay Landlord under the Master Lease as
Tenant's Proportionate Share Operating Costs. Subtenant shall pay such amounts
at the same time and in the same manner as contemplated by the Master Lease.
During the Sublease Term, Subtenant shall, at the same time it makes payment to
Landlord pursuant to this Section 6.3, furnish Sublandlord with copies of all
checks and documentation supporting the payment or calculation of actual or
estimated Operating Costs.
6.4 If Subtenant without the consent of Sublandlord (and the consent of
Landlord, where required by the Master Lease) retains possession of the
Premises, or any part thereof, after the expiration or termination of the
Sublease Term, Subtenant shall pay to Sublandlord all rent
2
<PAGE> 3
payable by Sublandlord to Landlord under the Master Lease for each month or
partial month (without proration for any partial month) that Subtenant remains
in possession. In addition, Subtenant shall protect, defend, indemnify and
hold Sublandlord harmless from and against all damages, loss, cost, liability
or expense threatened or sustained by Sublandlord by reason of Subtenant's
continuance in possession.
7. SECURITY DEPOSIT
Subtenant shall deposit with Sublandlord upon execution of this Sublease the
sum of Twenty-One Thousand Five Hundred Twenty-Eight and No/100 Dollars
($21,528.00) (the "Security Deposit") as security for Subtenant's faithful
performance of Subtenant's obligations hereunder. If Subtenant fails to pay
Rent when due under this Sublease, or fails to perform any of its other
obligations hereunder, Sublandlord may use or apply all or any portion of the
Security Deposit for the performance of all of Subtenant's obligations under
this Sublease, including the payment of any unpaid Rent, and for the payment of
any other amount for which Sublandlord may become obligated by reason of
Subtenant's default or breach hereunder. If Sublandlord so uses any portion of
the Security Deposit, Subtenant shall, within ten (10) days after written
demand by Sublandlord, restore the Security Deposit to the full amount
deposited, and Subtenant's failure to do so shall constitute a default under
this Sublease. Sublandlord shall not be required to keep the Security Deposit
separate from its general accounts and shall have no obligation or liability
for payment of interest on the Security Deposit. In the event Sublandlord
assigns its interest in the Sublease, Sublandlord shall deliver to its assignee
so much of the Security Deposit as is then held by Sublandlord. Within thirty
(30) days after the Sublease Term has expired, or Subtenant has vacated the
Premises, whichever shall last occur, and provided Subtenant is not then in
default of any of its obligations hereunder, the Security Deposit, or so much
thereof as had not theretofore been applied by Sublandlord, or is to be applied
to repair any damage to the Premises, shall be returned to Subtenant or to the
last assignee, if any, of Subtenant's interest hereunder.
8. USE OF PREMISES
The Premises shall be used and occupied only for general office and light
industrial use, and for no other use or purpose.
9. ASSIGNMENT AND SUBLETTING
Subtenant shall not assign this Sublease or further sublet all or any part of
the Premises without the prior written consent of Sublandlord which consent
shall not be unreasonably withheld, and the consent of Landlord, if such is
required under the terms of the Master Lease. Any such assignment of
subleasing shall be subject to compliance with the terms and conditions of the
Master Lease, including, without limitation, exercise of Landlord's right, if
any, to terminate the Master Lease and recapture all or a portion of the
Premises.
10. APPLICABLE PROVISIONS OF MASTER LEASE
10.1 Subject to this Section 10.1 and Sections 10.2 and 10.3 below, all
terms and conditions of the Master Lease (except for Sections 1.3, 1.4, 1.5,
1.6, 1.7, 1.10, 1.11, 5.2, 6, 7(a), the last sentence of Section 7(c), 8, 17.1,
44, 45, Exhibit B, Exhibit C, and Exhibit E) are incorporated into and made a
part of this Sublease as if Sublandlord were the Landlord thereunder, Subtenant
were the Tenant thereunder, and this Sublease were the Master Lease. In case
of conflict between the incorporated provisions of the Master Lease and the
remaining provisions of this Sublease, the latter shall control. Subtenant
assumes and agrees to perform the Tenant's obligations under the Master Lease
during the Sublease Term, except that the obligation to pay rent to Landlord
under the Master Lease shall not be an obligation of Subtenant, and Subtenant
3
<PAGE> 4
shall instead pay the Rent to Sublandlord under this Sublease. Subtenant shall
not commit or suffer any act or omission that will violate any of the
provisions of the Master Lease. Sublandlord shall exercise due diligence in
attempting to cause Landlord to perform its obligations under the Master Lease
for the benefit of Subtenant. If the Master Lease terminates as a result of a
default or breach of Sublandlord or Subtenant under this Sublease and/or the
Master Lease, then the defaulting party shall be liable to the nondefaulting
party for the direct damage suffered as a result of such termination.
Notwithstanding the foregoing, if the Master Lease gives Sublandlord any right
to terminate the Master Lease, whether in the event of the partial or total
damage destruction or condemnation of the Premises or the Property or Project
or the Premises or otherwise, the exercise of such right by Sublandlord shall
not constitute a default or breach hereunder. Neither Sublandlord nor
Subtenant shall be liable to the other under this Section 10.1 for any
indirect, incidental, special or consequential damages, including business
interruption or lost profits.
10.2 Notwithstanding anything to the contrary herein, the incorporated
provisions of the Master Lease are amended or qualified as follows:
a. Sublandlord shall not be liable under any
circumstances for a loss of or injury to property, or interference with
Subtenant's business, however occurring, incidental to any failure to furnish
any utilities or services.
b. Except as expressly set forth in this Section
10.2(b), Sublandlord shall have no responsibility to perform or construct (or
to pay the cost of performing or constructing) any repair, maintenance or
improvement in or to the Property, the Project or the Premises. Sublandlord
shall contribute toward the cost of Subtenant's Alterations an amount equal to
two (2) months' Base Rent. Accordingly, Subtenant shall be excused from the
payment of monthly Base Rent for such two-month period commencing with the
date Subtenant takes possession of the Premises. Subtenant's Alterations, if
any, shall be subject to approval by Sublandlord in accordance with Section 7
of the Master Lease. Notwithstanding the foregoing, the parties agree that in
addition to all other remedies which Sublandlord may have in the event
Subtenant shall suffer an Event of Default, Sublandlord shall also be entitled
to recover from Subtenant the value of the free rent period extended to
Subtenant under this Section 10.2.
c. Except as provided in subsection (b) above, Rent
shall be abated under this Sublease only to the extent that Sublandlord
receives a corresponding rent abatement under the Master Lease.
d. Wherever the Master Lease grants to Sublandlord a
grace or cure period, the corresponding grace or cure period under this
Sublease shall be two (2) business days shorter in duration.
10.3 The parties acknowledge that Sublandlord's ability to satisfy certain
of its obligations to Subtenant under this Sublease is contingent upon the full
and timely performance of Landlord's obligations under the Master Lease. The
parties further acknowledge that, while Sublandlord will use reasonable efforts
to cause Landlord to perform its obligations under the Master Lease,
Sublandlord will not be liable to Subtenant for any breach of Sublandlord's
obligations under this Sublease, nor shall such breach diminish Sublandlord's
rights hereunder, where the same is caused by or attributable to the failure of
Landlord to perform its obligations under the Master Lease.
10.4 Subtenant shall procure and maintain policies of insurance covering
liability and covering all contents, Subtenant's trade fixtures, machinery,
equipment, furniture and furnishing in the Premises (and all original and later
installed tenant improvements), including the insurance coverage required of
Tenant under Section 9 of the Master Lease; provided, however, that
notwithstanding the provisions of the Master Lease, Subtenant shall maintain
Commercial General
4
<PAGE> 5
Liability Insurance (referenced in Section 9(a) of the Master Lease) in amounts
of not less than $1 million per occurrence and $5 million for all occurrences
each year. Subtenant shall provide Sublandlord with evidence of such insurance
as a condition to Subtenant's right to take possession of the Premises.
10.5 Landlord under the Master Lease shall be served any and all notices of
default by Sublandlord against Subtenant or by Subtenant against Sublandlord in
the manner provided for service of such notice under the Master Lease.
11. BROKER PARTICIPATION
Sublandlord warrants and represents that it has dealt with no real estate
broker in conjunction with this Sublease other than The Staubach Company.
Subtenant warrants and represents that it has dealt with no real estate broker
in conjunction with this Sublease other than Corporate Facility Consulting,
Inc. Sublandlord shall pay and be responsible for the commissions due to The
Staubach Company under the terms of a separate commission agreement between
Sybase and The Staubach Company. Sublandlord and Subtenant each warrants and
represents to the other that no other brokers are entitled to any commission on
account of this Sublease, and each agrees to hold the other harmless from and
against any and all costs (including reasonable attorneys' fees), expenses or
liability for any compensation, commission and charges claimed by any broker
other than those identified in this Section 11, through such party with respect
to this Sublease.
12. ATTORNEYS' FEES
If Sublandlord or Subtenant shall commence an action against the other arising
out of or in connection with this Sublease, the prevailing party shall be
entitled to recover its costs of suit and reasonable attorneys' fees.
13. NOTICES
All notices and demands which may or are to be required or permitted to be
given by either party on the other hereunder shall be in writing. All notices
and demands by Sublandlord to Subtenant shall be sent by (i) United States
Mail, certified or registered, postage prepaid with return receipt requested,
or (ii) by nationally recognized overnight courier service providing receipted
delivery, addressed in either case to Subtenant at the Premises, or to such
other place as Subtenant may from time to time designate by notice to
Sublandlord. All notices and demands by Subtenant to Sublandlord shall be sent
by (i) United States Mail, certified or registered, postage prepaid with return
receipt requested, or (ii) by nationally recognized overnight courier service
providing receipted delivery, addressed to Sublandlord at the address set forth
herein, and to such other person or place as Sublandlord may from time to time
designate by notice to Subtenant. Any notice sent by United States Mail shall
be deemed delivered on the date of delivery or rejection as shown on the return
receipt or, in the absence of such date, on the third day following the deposit
thereof with the United States Postage Service. Any notice sent by overnight
courier service shall be deemed delivered on the delivery date as shown in the
regularly maintained business records of such courier service.
To Sublandlord: Sybase, Inc.
5820 Shellmound Street
Emeryville, CA 94608
Attention: Director of Real Estate
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Copy to:
Sybase, Inc.
5820 Shellmound Street
Emeryville, CA 94608
Attention: Real Estate Legal Counsel
To Subtenant: NeXstar Pharmaceuticals, Inc.
2860 Wilderness Place
Boulder, CO 80301
Attn: Facility Manager
Copy to:
James L. Carpenter, Jr., Esq.
Hutchinson, Black & Cook LLC
1215 Spuce Street
P.O. Box 1170
Boulder, CO 80306
14. QUIET ENJOYMENT
Subject to the provisions of this Sublease, Sublandlord covenants that
Subtenant, upon performing its obligations under this Sublease, shall and may
peaceably and quietly have, hold and enjoy the Premises for the Sublease Term.
15. CONSENT BY LANDLORD
15.1 This Sublease is conditioned upon procuring the consent of Landlord to
this Sublease in accordance with the Master Lease (the "Consent"), which
Consent shall be evidenced by Landlord's signature and acknowledgment below.
Sublandlord and Subtenant shall cooperate with each other in seeking Landlord's
Consent.
15.2 If Landlord's Consent is withheld, this Sublease shall terminate upon
the delivery of written notice to Sublandlord and Subtenant that Landlord's
Consent will not be given. If this Sublease is so terminated: (i) all
consideration previously paid by Subtenant to Sublandlord on account of this
Sublease shall be returned to Subtenant, and (ii) the parties thereupon shall
be relieved of any further liability or obligation under this Sublease, except
for those liabilities or obligations which have accrued and remain unperformed
as of the date this Sublease is so terminated.
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17. ENTIRE AGREEMENT
This Sublease (including all Exhibits and Attachments hereto which are
incorporated and made a part hereof by this reference) represents the entire
agreement of the parties with respect to the subject matter hereof, supersedes
all prior and contemporaneous communications concerning such subject matter and
may not be amended or modified except in writing signed by both parties'
authorized officers.
Intending to be bound hereby the parties have, by their duly authorized
corporate officers, executed this Sublease on the dates set forth below.
Subtenant: Sublandlord:
NeXstar Pharmaceuticals, Inc. Sybase, Inc.
- ------------------------------ -------------------------------
By: /s/ MICHAEL E. HART By: /s/ ILLEGIBLE
--------------------------- ----------------------------
Title: V.P. CFO Title: V.P. Controller
------------------------ -------------------------
Date: 8/2/96 Date: 8/6/96
------------------------- --------------------------
Exhibit A - Master Lease
Exhibit B - Estoppel Certificate
The undersigned Landlord, in accordance with Section 13.1 of the Lease, hereby
consents to the terms of the Sublease Agreement; provided, that Sublandlord, in
addition to performing its other obligations under the Lease, pays Landlord its
share of the excess rent in accordance with Section 13.1 of the Lease.
Furthermore, Landlord's consent to this Sublease shall not be deemed or
construed to release Sublandlord from its obligations under the Lease.
Landlord:
By: /s/ ILLEGIBLE
---------------------------
Title: Vice President
------------------------
Date: 8/16/96
-------------------------
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<PAGE> 1
EXHIBIT 10.2
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter the "Lease") is dated November 6,
1996 and is by and between AVALON INVESTMENT COMPANY, a California partnership
(hereinafter the "LANDLORD") and NEXSTAR PHARMACEUTICALS, INC., a Delaware
corporation, (hereinafter the "TENANT").
R E C I T A L S
A. Landlord is the owner of certain real estate legally described
in Exhibit A located in Boulder, Colorado, and commonly known as 2830
Wilderness Place, Units A, B, C, D and E, (hereinafter the "REAL ESTATE"). The
Real Estate is improved with a(n) industrial building (hereinafter the
"IMPROVEMENTS") (the Real Estate and improvements are collectively referred to
as the "PROPERTY").
B. Tenant is desirous of leasing a certain portion of the
Property from Landlord pursuant to the terms and conditions contained herein.
C. Landlord is desirous of leasing a portion of the Property to
Tenant pursuant to the terms and conditions contained herein.
NOW, THEREFORE, for good and valuable consideration recited herein,
including payment of rent and the other covenants, conditions and agreements,
Landlord and Tenant agree as follows:
1. PREMISES.
1.1 DEMISE. Landlord hereby leases and demises to Tenant
the following described portion of the Property:
UNITS A, B, C, D, E, CONSISTING OF APPROXIMATELY 9815 SQUARE
FEET IN INTERIOR AREA (hereinafter the "PREMISES"). The Premises are more
specifically described in Exhibit B attached hereto.
1.2 LICENSES. Additionally, for the Term, Landlord grants
to Tenant a Parking License and Common Area License, both of which are
hereafter defined.
1.3 PARKING. Landlord further grants to Tenant, its
employees and invitees a non-exclusive license for the use of 25** parking
spaces upon the Property (hereinafter the "PARKING LICENSE"). The Parking
License shall be effective for the term of this Lease as defined below.
Landlord reserves the right to designate specific spaces for the Parking
License. ** INCLUDED IN THE 25 ARE THE EXCLUSIVE USE OF 12 SPACES IN THE
BUILDING'S FRONT LOT, AS CURRENTLY GRANTED TO DDX.
1.4 COMMON AREAS. The "COMMON AREAS" are all areas
outside of the Premises upon the Property designated by Landlord for common use
of Tenant, its employees, licensees, invitees, contractors and Landlord.
Landlord grants to Tenant, its employees, licensees, invitees and contractors a
non-exclusive license over such Common Areas of Property which are necessary to
the use and occupancy of Premises and Parking License (hereinafter the "COMMON
AREA LICENSE"). Said License shall be effective for the Term of this Lease.
Tenant shall not use Common Areas for any type of storage or parking of trucks,
trailers or other vehicles without the advance written consent of Landlord.
1.5 CONTROL OF COMMON AREAS. All parking and Common Areas
of Property shall at all times be subject to the management of Landlord. Same
shall not be deemed part of the Premises.
1.6 LIMITED USE OF PREMISES. The Premises shall be used
for: Research, development, laboratory, manufacturing, and related offices.
Tenant shall not, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, permit the Premises to be used for any
other purpose.
2. TERM/DEPOSIT.
2.1 TERM. THIS LEASE SHALL COMMENCE ON DECEMBER 1, 1996
AND TERMINATE ON NOVEMBER 30, 2001 (HEREINAFTER THE "TERM") unless sooner
terminated by reason of default or otherwise, as provided herein.
3. RENT/UTILITIES.
3.1 DEPOSIT SUM. The "Security Deposit" shall be in the
sum of $9,136.13, which shall be due upon execution of this Lease.
<PAGE> 2
3.2 BASIC RENT. Tenant shall pay as basic rent for the
Premises the amount of one hundred nine thousand six hundred thirty three
($109,633) annually (hereinafter the "BASIC RENT"). The Basic Rent shall be
payable in equal monthly installments of $9,136.13, in advance, without notice,
on the first (1st) day of the month for which due. The Basic Rent for a period
of less than one month shall be adjusted on a pro-rata basis. Basic Rent shall
be adjusted after the first twelve (12) months of the Term pursuant to
Escalation Rider attached hereto as Exhibit C. Any rent not paid on or before
the first (1st) of the month shall be subject to an additional late charge of
Two Percent (2.0%) of rental payment due.
3.3 UTILITIES. Except as provided herein, Tenant shall be
responsible for the payment of all utility charges upon the Premises and in
conjunction with the Tenant's business including, but not limited to, electric,
natural gas and telephone. Tenant shall contract directly with all utility
providers. All utility payments shall be directed to the respective utility
providers. Payments shall be made in a timely manner.
3.4 LANDLORD PROVIDED UTILITIES. Landlord shall provide
and pay for water and sewer services. Landlord shall also provide and pay for
electrical, lighting and HVAC services in the Common Areas of the Property (if
applicable). Water and sewer shall only be supplied to those points of supply
in existence at this time and only in quantities sufficient for normal use for
washing, drinking and utility uses and not for industrial or manufacturing use.
Tenant shall have the right to upgrade utilities, water and sewer services to
accommodate its industrial uses, at Tenant's expense. Tenant shall pay the cost
of additional quantities it requires.
3.5 INTERRUPTION OF UTILITIES. Tenant agrees that
Landlord shall not be liable by abatement of Rent or otherwise, for failure to
furnish or delay in furnishing any utility service, or for any diminution or
surge thereof. Such failures, delays, diminutions or power surges shall never
be deemed to constitute an eviction or disturbance of the Tenant's use and
possession of the Premises or relieve Tenant from performing any of Tenant's
obligations hereunder, including the payment of Rent, unless such failure or
delay is the result of gross negligence or willful misconduct by Landlord or
its agents or contractors.
4. SECURITY DEPOSIT.
4.1 RECEIPT OF DEPOSIT. To secure the faithful
performance by Tenant of all of the covenants, conditions and agreements in
this Lease, set forth and contained on the part of the Tenant to be observed
and performed and agreements in this Lease which become applicable upon its
termination by re-entry or otherwise, Tenant has deposited with Landlord, and
Landlord acknowledges receipt of, the Security Deposit.
4.2 APPLICATION OF DEPOSIT. The parties agree: (a) that
Security Deposit, or any portion thereof, may be applied to the curing of any
default that may exist, and/or payment of subsequent damages and costs incurred
by Landlord, without prejudice to any other remedy or remedies which the
Landlord may have on account thereof, and upon such application Tenant shall pay
Landlord on demand the amount so applied which shall be added to the Security
Deposit, so the same will be restored to its original amount; (b) that should
the Premises be conveyed by Landlord, the Security Deposit or any portion
thereof may be turned over to Landlord's grantee, and if the same be turned over
and the grantee agrees in writing to be bound by the terms of this Lease as
Landlord, Tenant agrees to look to such grantee for such application or return;
(c) that Landlord shall not be obligated to hold Security Deposit as a separate
fund; (d) that should an Event of Default occur, Landlord may, as an additional
remedy, increase the Security Deposit at its reasonable discretion.
4.3 RETURN OF DEPOSIT. If Tenant shall perform all of its
respective covenants and agreements in this Lease, the Security Deposit or the
part of the portion thereof not previously applied pursuant to the provisions
of this Lease, together with a statement setting forth in reasonable detail any
deductions and attaching receipts or invoices therefor, shall be returned to
Tenant without interest, no later than sixty (60) days after the expiration of
the Term or any renewal or extension thereof, (or such earlier time if required
by applicable law) provided Tenant has vacated the Premises and surrendered
possession thereof to Landlord.
5. USE OF PREMISES.
5.1 SIGNS. Any and all signage of Tenant upon the
Premises shall be subject to the prior written approval of Landlord. All
signage shall be in conformance with local and state laws. All signage shall
conform to aesthetic and design criteria, themes and standards of the Property.
5.2 LEGAL COMPLIANCE. Tenant, its employees and invitees,
shall comply with and abide by all federal, state, county and municipal laws
and ordinances in connection with the occupancy of the Premises and the
Property. Improvements and uses of Premises shall comply with all applicable
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<PAGE> 3
laws, regulations and ordinances. No alcoholic beverages shall be sold by
Tenant, its employees, invitees, agents or contractors upon the Premises or
Property. No controlled substance shall be knowingly permitted upon the
Premises or Property, except as Tenant may legally possess in the conduct of
its business. No use (other than those uses permitted in Section 1.6 hereof)
which shall increase the rate or cost of insurance upon Property shall be
permitted.
5.3 NUISANCE PROHIBITED. Tenant shall not act in any
manner, nor permit employees or invitees to act in any manner, which shall be a
nuisance to other tenants or invitees of the Property or adjacent property
owners or tenants, or which would unreasonably interfere with the other
tenant's quiet employment of their premises. Said prohibition includes, but is
not limited to, unreasonably loud noises, music, noxious or unpleasant odors,
and disruptive behavior or actions.
6. CONDITION, MAINTENANCE AND IMPROVEMENT OF PREMISES AND PROPERTY.
6.1 CONDITION OF PREMISES/WORK LETTER. Tenant is familiar
with the physical condition of the Premises and Property. Landlord makes no
representations or warranties as to the physical condition thereof or its
suitability for Tenant's intended purpose. The Premises are rented AS-IS, in
current condition, and all warranties are hereby expressly disclaimed.
6.2 TENANT IMPROVEMENTS. Unless otherwise provided in
Work Letter, Tenant shall be responsible for any and all improvements and
alterations within the Premises, including, but not limited to, electrical
wiring, HVAC, plumbing, framing, drywall, flooring, finish work, telephone
systems, wiring and fixtures (hereinafter the "TENANT WORK").
6.3 IMPROVEMENTS/PRIOR LANDLORD CONSENT. Tenant agrees to
submit to Landlord for Landlord's approval, which shall not be unreasonably
withheld, complete plans and specifications including engineering, mechanical
and electrical work covering any and all contemplated Tenant Work, and any
subsequent improvements or alterations of the Premises. The plans and
specifications shall be in such detail as Landlord may reasonably require, and
in compliance with all applicable statutes, ordinances, regulations and codes,
and shall be certified by a licensed architect. Within five (5) days
thereafter, Landlord shall notify Tenant of any failures of Tenant's plans to
meet with Landlord's reasonable approval. Tenant shall cause Tenant's plans to
be revised to the extent necessary to obtain Landlord's reasonable approval.
Tenant shall not commence any Tenant Work or any other improvements or
alterations of Premises until Landlord has approved its plans. Landlord has
reviewed and approved in concept Tenant's Conceptual Work Plan, which is
attached hereto as Exhibit D.
6.4 TENANT'S DUTY TO REPAIR. Tenant shall, at Tenant's
sole cost and expense, take good care of, and perform all routine maintenance
of the entire Premises, including, but not limited to, the plumbing, glass,
electric wiring, HVAC equipment, fixtures, appliances, and interior walls,
doorways, and appurtenances belonging thereto installed for the use or used in
connection with the Premises. Tenant shall, at Tenant's own expense, make as
and when needed all routine and ordinary repairs to the Premises and to all
such equipment, fixtures, appliances and appurtenances necessary to keep the
same in good order and condition. In addition, Tenant shall be responsible for
and bear the cost of all and repairs (both ordinary and extraordinary) to
alterations, additions, and improvements installed by Tenant. "Repairs" shall
include all replacements, renewals, alterations and betterments. All Repairs
shall be equal or better in quality and class to the original work.
6.5 LANDLORD'S DUTY TO REPAIR. Landlord shall assume all
responsibility and liability for maintaining the foundation, exterior walls
(excluding all windows, window frames and doors) and roof of the Improvements
in good repair. Landlord shall also be responsible for and bear the cost of any
extraordinary repairs, replacements, or renewals, and for maintenance and
repair of the parking lot and common areas. The cost of any maintenance,
Repairs or replacements necessitated by the act, neglect, misuse or abuse of
Tenant, its agents, employees, customers, licensees, invitees or contractors,
shall be paid by Tenant to Landlord promptly upon billing, unless the cost of
such maintenance, repairs or replacements is covered by Landlord's insurance
maintained pursuant to Section 7.6 hereof. Landlord shall use reasonable
efforts to cause any necessary repairs to be made promptly; provided, however,
that Landlord shall have no liability whatsoever for any delays in causing such
repairs to be made, including, without limitation, any liability for injury to
or loss of Tenant's business, nor shall any delays entitle Tenant to any
abatement of Rent or damages or be deemed an eviction of Tenant in whole or in
part, unless caused by the gross negligence or willful misconduct of Landlord,
or its agents or contractors.
6.6 TENANT WORK/COMPLIANCE WITH CODES. Tenant shall
promptly pay when due the entire cost of any Tenant Work and repairs in the
Premises undertaken by Tenant, so that the Premises shall at all times be free
of liens for labor and materials. Tenant shall procure all necessary permits
before undertaking such work. Tenant shall perform all of such work in a good
and workmanlike manner. Tenant shall employ materials of good quality and
perform such work only with qualified, professional contractors. Tenant shall
comply with all governmental laws, ordinances and regulations including, but not
limited to, building, health, fire and safety codes. Tenant hereby agrees to
hold
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Landlord and Landlord's agents harmless and indemnified from all injury, loss,
claims, or damage to any person or property (including the cost for defending
against the foregoing) occasioned by or growing out of such work.
6.7 WASTE PROHIBITED. Tenant shall not lay waste to the
Premises. Tenant shall not perform any action or practice which may injure the
Premises or Property.
6.8 RUBBISH REMOVAL. Tenant shall keep the Premises and
the Property surrounding Premises free and clear of all debris, garbage and
rubbish. Tenant shall be responsible for contracting for and paying for trash
and debris removal required by its business.
6.9 VIOLATIONS OF CODES PROHIBITED. In the event a
governmental entity notifies Landlord or Tenant as to any violation or alleged
violation of law, ordinance or regulation of any portion of the Premises other
than foundation, roof or exterior walls, parking lot or common areas, it shall
be Tenant's sole obligation to cause same to be remedied, corrected or
dismissed. Tenant shall hold Landlord harmless from costs or damages arising
from any failure on Tenant's part to correct or remedy same in a timely manner.
In the event same relates to the foundation, roof or exterior walls Landlord
shall have a reasonable period of time to remedy, correct or dismiss said
violation. Under no circumstances shall the existence of same be deemed to
constitute an eviction or disturbance of Tenant's use and possession of
Premises or relieve Tenant from performing any obligations hereunder including
the obligation to pay Rent.
6.10 SNOW/ICE REMOVAL. Landlord shall use reasonable
efforts to cause snow to be removed from the parking areas and sidewalks but
shall have no liability whatsoever for any failure to do so unless such failure
is due to Landlord's gross negligence or willful misconduct, or that of
Landlord's agents or contractors.
6.11 COMMON AREA MAINTENANCE. Landlord shall use
reasonable efforts to maintain and repair Common Areas of Property including
walks and parking lots. The cost of any maintenance, repairs, or replacements
necessitated by the act, neglect, misuse or abuse by Tenant, its employees,
licensees, invitees, or contractors shall be paid by Tenant to Landlord.
Landlord shall use reasonable efforts to cause any necessary repairs to be made
promptly; provided, however, that Landlord shall have no liability whatsoever
for any delays in causing such repairs to be made, including, without
limitation, any liability for injury to or loss of Tenant's business, nor shall
any delays entitle Tenant to any abatement of Rent or damages or be deemed an
eviction of Tenant in whole or in part, unless due to the gross negligence or
willful misconduct of Landlord or its agents or contractors.
7. DAMAGE TO PREMISES AND PROPERTY/INDEMNIFICATION/INSURANCE.
7.1 NEGLIGENT DAMAGES. Tenant shall be responsible for
and reimburse Landlord for, any and all damages to the Premises or Property and
persons and property therein, caused by the negligent, grossly negligent,
reckless or intentional acts of itself, its employees, agents, invitees,
licensees or contractors.
7.2 LIABILITY INDEMNIFICATION/INSURANCE. Tenant shall
save Landlord, Landlord's agents and their respective successors and assigns,
harmless and indemnified from all injury, loss, claims or damage to any person
or property while on the Premises or any other part of the Property, or arising
in any way out of Tenant's business, which is occasioned by an act or omission
of Tenant, its employees, agents, invitees, licensees or contractors. Tenant
shall maintain public liability insurance, insuring Landlord, Landlord's
agents, as their interest may appear, against all claims, demands or actions
for injury to or death in an amount of not less than $1 Million arising out of
any one occurrence, made by or on behalf of any person, firm or corporation,
arising from, related to, or connected with the conduct and operation of
Tenant's business, including but not limited to, events in the Premises, and
anywhere upon the Property. Tenant shall also obtain coverage in leased amounts
covering Tenant's contractual liability under the aforesaid hold harmless
clauses.
7.3 FIRE/CASUALLY INSURANCE. Tenant shall maintain plate
glass insurance covering all exterior plate glass in the Premises, fire,
extended coverage, vandalism, and malicious mischief insurance and such other
insurance as Tenant may deem prudent, and also as Landlord may from time to
time reasonably require, covering all of Tenant's stock in trade, fixtures,
furniture, furnishings, floor coverings and equipment in the Premises. At
Tenant's option, Tenant may self-insure for any or all of the foregoing.
7.4 INSURANCE REQUIREMENTS. All of said insurance shall be
in the form and from responsible and well-rated companies satisfactory to
Landlord, shall name Landlord as an additional insured thereunder, and shall
provide that it will not be subject to cancellation, termination or change
except after at least thirty (30) days prior written notice to Landlord. The
policies or duly-executed certificates for the same shall be provided to
Landlord upon request of Landlord.
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7.5 WAIVER OF LIABILITY. Landlord and Landlord's agents
and employees shall not be liable for, and Tenant waives all claims for, damage
to person or property sustained by Tenant, employees, agents or contractors or
any other person claiming through Tenant, resulting from any accident or
occurrence in or upon the Premises or the Property of which they shall be a
part, including but not limited to, claims for damage resulting from: (a) any
equipment or appurtenances becoming out of repair; (b) Landlord's failure to
keep the Property or the Premises in repair; (c) injury done or occasioned by
wind, water, or other natural element; (d) any defect in or failure of
plumbing, heating or air-conditioning equipment, electric wiring or installation
thereof, gas, water and steam pipes, stairs, porches, railings or walks
(including wood stoves); (e) broken glass; (f) the backing-up of any sewer pipe
or downspout; (g) the bursting, leaking or running of any tank, tub, sink,
sprinkler system, water closet, waste pipe, drain or any other pipe or tank in,
upon or about the Property or Premises; (h) the escape of steam or hot water;
(i) water, snow, or ice being upon or coming through the roof, skylight, doors,
stairs, walks, or any other place upon or near such Property or the Leased
Premises or otherwise; (j) the falling of any fixtures, plaster or stucco; (k)
fire or other casualty; (l) any act, omission or negligence of co-Tenants or of
other persons or occupants of said Property or of adjoining or contiguous
buildings or of adjacent or contiguous property; and (m) any Hazardous Materials
or conditions on the Premises, Property or adjacent property, unless any of the
foregoing shall result from the gross negligence or willful misconduct of
Landlord or its agents or contractors.
7.6 LANDLORD INSURANCE. Landlord covenants and agrees to
obtain and keep in full force and effect during the term of the Lease or any
extension thereof, casualty, fire and extended coverage insurance with respect
to the Property and Improvements, in an amount equal to the full replacement
cost thereof, with coinsurance clauses of no less than eighty percent (80%),
and with a deductible in the amount for each occurrence as Landlord, in its
sole discretion, may determine from time to time. Landlord shall be responsible
for paying such deductible, and the proceeds from such insurance shall be the
sole property of Landlord, subject to the terms of this Lease.
7.7 MUTUAL WAIVER OF SUBROGATION. All policies of
insurance obtained by Landlord or Tenant shall contain a waiver of rights of
subrogation as among Landlord, Tenant, and the holder of any mortgage or deed
of trust encumbering the Premises.
8. CONDEMNATION.
8.1 TAKING OF WHOLE. In the event that the entire
Premises shall be condemned or taken by the exercise of eminent domain, this
Lease shall terminate on the date of the taking of possession by the condemning
authority. All rents shall be prorated accordingly.
8.2 PARTIAL TAKING. In the event that less than the
entire Premises shall be condemned or taken by the exercise of eminent domain,
this Lease shall, at the option of either the Tenant or the Landlord, either:
(a) terminate on the date of the taking of possession by the condemning
authority; all rent being pro-rated accordingly, or (b) remain in full force
and effect provided that the Base Rent shall be reduced in proportion to the
square footage lost by virtue of said condemnation. In the event of the
exercise of option (b), if necessary, Landlord at its cost, shall make such
repairs and restorations so as to constitute the remaining Premises a complete
architectural unit.
8.3 CONDEMNATION AWARDS. All condemnation awards shall be
the sole property of Landlord. All awards shall be the sole property of
Landlord whether awards arise from actual taking, damage from the threat of
taking, diminution in the value of the Leased Premises, or other reasons.
9. DAMAGE/RESTORATION OF PREMISES.
9.1 IRREPARABLE DAMAGE. If Property or the Premises shall
be destroyed in whole or in part by fire, the elements or other casualty so as
to render the Premises or any substantial portion thereof unfit for occupancy
and if the parties agree they cannot be repaired within ninety (90) days from
the happening of said injury, then this Lease shall terminate on the date of
such injury.
9.2 REPAIRABLE DAMAGES/NO REPAIR. Landlord shall use best
efforts to repair any portion of the Premises destroyed by fire, the elements
or other casualty, using the proceeds of Landlord's insurance maintained
pursuant to Section 7.6 hereof. If the Premises shall be destroyed in whole or
in part by fire, the elements or other casualty, but despite reasonable best
efforts, Landlord fails to repair the Premises within ninety (90) days, this
Lease shall terminate on the expiration of said ninety (90) days without further
liability on the part of either parties hereto. In the event of such
termination, Tenant shall immediately surrender the possession of the Premises,
and all rights to the Landlord, and Landlord shall have the right immediately
to enter into and take possession of said Premises and shall not be liable for
any loss, damage or injury to the Property or persons of Tenant or occupancy
of, in or upon said Premises. Tenant shall not be liable for rent for said
period. Alternatively, at Landlord's
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option, Landlord may pay to Tenant all of the proceeds received from Landlord's
insurance maintained pursuant to Section 7.6 hereof, plus any applicable
deductible, and delegate responsibility for repairing the damage to Tenant.
Tenant shall then proceed diligently to repair such damage.
9.3 REPAIR OF DAMAGES. If Landlord repairs the Premises
within said ninety (90) days or if Landlord pays Tenant the insurance proceeds
and delegates responsibility for the repairs to Tenant, this Lease shall
continue in full force and effect. Tenant shall not be required to pay rent for
any portion of the one hundred and twenty (120) day period of repair during
which the Premises or any substantial portion thereof are unfit for occupancy.
Rent shall abate pro rata in accordance with the portion that is unfit for
occupancy.
9.4 TERMINATION BY TENANT. In the event the Premises are
destroyed in whole or in any substantial part by fire, the elements, or other
casualty Tenant may, at its option, terminate the Lease. This election must be
exercised by Tenant on or before ten (10) days of the occurrence of such damage
or destruction by providing written notice to Landlord. Such termination shall
not affect Tenant's continued duties and liability which may exist under the
Lease for such damages or other pre-existing liabilities.
10. TENANT'S ADDITIONAL COVENANTS.
10.1 LANDLORD ENTRY. Tenant shall permit Landlord,
Landlord's mortgagees and their agents to enter the Premises at reasonable
times for the purpose of inspecting same, of making repairs, additions or
alterations thereto or to the building in which the same are located and of
showing the Premises to prospective purchasers, lenders and tenants. At any
time less than ninety (90) days from the expiration of Term, Landlord may place
signs upon Premises advertising the availability of same. In the event Landlord
elects to offer Property for sale, Landlord may place reasonable "For Sale"
signs upon Premises. Landlord acknowledges that Tenant's business involves
proprietary information, materials and processes of a highly confidential
nature. Accordingly, any entry into the Premises by Landlord or anyone claiming
by, through, or under Landlord shall require at least twenty four (24) hours
advance notice to Tenant with the names and business affiliations of those
persons who desire to enter the Premises. All persons entering the Premises
shall be required to sign in and provide appropriate identification, and shall
be escorted by a representative of Tenant. Tenant shall have the right to deny
entry to any individual based upon Tenant's reasonable belief that permitting
entry by such individual could compromise Tenant's confidential information.
10.2 REMOVAL OF FIXTURES/REDELIVERY. Tenant shall remove,
at the termination of this Lease, provided Tenant is not in default, such of
Tenant's moveable trade fixtures, laboratory equipment, machinery, and other
personal property, as are not permanently affixed to the Premises. Tenant shall
peaceably yield up the Premises, and all alterations and additions thereto
(except as provided below) and all fixtures, furnishings, floor coverings and
equipment which are permanently affixed to the Premises which, for the purpose
of this Lease, shall be deemed to be permanently affixed to the Premises, which
shall thereupon become the property of the Landlord. The Premises shall be
returned in clean and good order, repair and condition, normal wear and tear
excepted. Any personal property of Tenant not removed within five (5) days
following such termination shall, at Landlord's option, become the property of
Landlord. Notwithstanding the foregoing Landlord and Tenant acknowledge that
Tenant intends to make substantial alterations, additions and improvements to
the Premises which are specific to Tenant's business, as outlined in Tenant's
Conceptual Work Plan attached hereto as Exhibit D, and Tenant shall have the
right (but not the obligation) at its sole expense, to remove any such
alterations, additions, and improvements installed by Tenant, repair any damage
caused by such removal, and restore the Premises to a level of finish and
condition that are substantially equivalent to or superior to that which existed
on the Commencement Date, ordinary wear and tear excepted. Landlord acknowledges
that Tenant will surrender the Premises with an industrial finish.
10.3 SUBORDINATION/ESTOPPEL LETTERS. The rights and
interest of Tenant under this Lease shall be subject and subordinate to any
mortgages or trust deeds now existing or hereafter placed upon the Property and
the Premises, and to any and all extensions, renewals, refinancing and
modifications thereof. Tenant shall execute and deliver whatever instruments
may be required for such purposes or for the purpose of informing potential or
existing lender or purchaser of Property as to status of its tenancy, provided
that the party to whom Tenant subordinates executes a non-disturbance covenant
in favor of Tenant. Any such instruments or estoppel letters shall contain all
information reasonably required by Landlord or other entity in conjunction with
such transaction. In the event Tenant falls to do so within fifteen (15) days
after demand in writing, Tenant does hereby make, constitute and irrevocably
appoint Landlord as its attorney-in-fact and in its name, place and stead to
execute same. Tenant agrees to attorn to a lender or other party coming into
title to Property upon written request of Landlord, provided that the party
coming into title executes a non-disturbance covenant in favor of Tenant and
agrees to be bound by the terms of this Lease as Landlord. Attornment Letter
shall provide that: (a) the Lease is in full force and effect, that there
exists no default (or if same exist, shall detail same);
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<PAGE> 7
(b) that Tenant shall look to lender or other new party as Landlord under this
Lease effective as of the date of attornment; and (c) the new Landlord shall
not be liable for any prior claims, offsets or defenses available against old
Landlord.
10.5 ASSIGNMENT AND SUBLETTING. Tenant shall not sublet
the Premises or any part thereof, nor assign this Lease or any interest
therein, without the prior written consent of Landlord, which shall not be
unreasonably withheld. As a condition of assignment or sublease, Landlord may
require the continued liability of Tenant or a separate personal guaranty by
Tenant or its principal. In the event of any subletting or assignment by
Tenant, Tenant agrees to pay to Landlord as additional rent hereunder one-half
(1/2) of the first three dollars ($3.00) per square foot of space sublet or
assigned which exceeds the Base Rent per square foot due from Tenant to
Landlord hereunder for such space. Any premium rent received by Tenant in
excess of $3.00 per square foot shall be the sole property of Tenant.
10.6 STORAGE. Tenant shall store all personal property
entirely within the Premises. Tenant shall store all trash and refuse in
adequate containers within the Premises which Tenant shall maintain in a neat
and clean condition and so as not to be visible to members of the public in or
about the Property, and so as not to create any health or fire hazard, and to
attend to the periodic disposal thereof in the manner designated by Landlord.
10.7 HAZARDOUS MATERIAL PROHIBITED. Except as provided in
Section 14.25 hereof, Tenant shall not cause or permit any Hazardous Material
to be brought upon, kept or used in or about the Premises by Tenant, its
agents, employees, contractors or invitees. If Tenant breaches the obligations
stated in the preceding sentence, or if the presence of Hazardous Material on
the Premises caused or permitted by Tenant results in contamination of the
Premises, or if contamination of the Premises by Hazardous Material otherwise
occurs for which Tenant is responsible to Landlord for damage resulting
therefrom, then Tenant shall indemnify, defend and hold Landlord harmless from
any and all claims, judgments, damages, penalties, fines, costs, liabilities or
losses.
10.8 HAZARDOUS MATERIAL; DEFINITION. As used herein, the
term "HAZARDOUS MATERIAL" means any hazardous or toxic substance, material or
waste which is or becomes regulated by any local governmental authority, the
State or the United States Government. The term "HAZARDOUS MATERIAL" includes,
without limitation, any material or substance that is defined as a "hazardous
substance" under appropriate state law Provisions; petroleum; asbestos;
designated as a "hazardous substance" pursuant to Section 311 of the Federal
Water Pollution Control Act (33 U.S.C. Section 1321); defined as a "hazardous
waste" pursuant to Section 1004 of the, Federal Resource Conservation and
Recovery Act (42 U.S.C. Section 6903); defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601) or defined as a
"regulated substance" pursuant to Subchapter IX, Solid Waste Disposal Act
(Regulation of Underground Storage Tanks) (42 U.S.C. Section 6991).
10.9 HAZARDOUS CONDITIONS. If Landlord shall become aware
of any hazardous condition or the presence of any Hazardous Materials upon the
Property, other than as provided in Section 14.25 hereof, Landlord may
immediately terminate this Lease, and shall return any portion of unused rent
to Tenant on or before thirty (30) days thereafter. Landlord shall not be
responsible for any claims, damages or costs of Tenant incurred by such
circumstance.
11. ADDITIONAL COVENANTS OF LANDLORD.
11.1 QUIET ENJOYMENT. Landlord agrees that upon Tenant
paying the rent and performing Tenant's obligations under the Lease, Tenant
shall peacefully and quietly have, hold and enjoy the Premises throughout the
Term or until it is terminated pursuant to the terms contained herein.
12. DEFAULT.
12.1 EVENT OF DEFAULT. Any of the following occurrences or
acts shall constitute an "EVENT OF DEFAULT" under this Lease:
(1) If Tenant shall:
(a) Default in making payment when due of any
Basic Rent or any other amount payable by Tenant hereunder, if such default
continues more than ten (10) days after written notice thereof is given to
Tenant by Landlord; or
(b) Default in the observance or performance of
any other covenant, condition, rules, regulations or provision of this Lease to
be observed or performed by Tenant hereunder; and if such default shall
continue for thirty (30) days, after Landlord shall have given to Tenant notice
specifying such default and demanding that same be cured; or
-7-
<PAGE> 8
(2) If an unconsented-to Assignment or Sublease
occurs or is attempted; or
(3) If Tenant shall institute bankruptcy
proceedings or be declared bankrupt or insolvent pursuant to federal or state
law; or
(4) If any receiver be appointed for Tenant,
Tenant's business or property, or if any assignment shall be made of the
Tenant's property for the benefit of creditors.
13. REMEDIES UPON DEFAULT.
13.1 REMEDIES. This Lease and the Term hereby granted are
subject to limitation that whenever an Event of Default shall have occurred,
Landlord may, at its election:
(1) Proceed by appropriate judicial proceedings,
either at law or in equity, to enforce performance or observance by Tenant of
the applicable provisions of this Lease and/or to recover actual and
consequential damages for the breach thereof, plus all reasonable costs and
attorneys' fees; or
(2) Give Tenant ten (10) days written notice
requiring payment of the rent or thirty (30) days written notice requiring
compliance with other terms or provisions of this Lease or delivery of
possession of the Premises. In the event said default remains uncorrected after
ten (10) days or thirty (30) days written notice, as the case may be, Landlord
at its option may terminate this Lease whereupon Tenant's estate and all
rights of Tenant to the use of the Premises shall forthwith terminate but Tenant
shall remain liable as hereinafter provided; and thereupon Landlord shall have
the immediate right of re-entry and possession of the Premises and the right to
remove all persons and property therefrom, either with or without the assistance
of legal process and instituting of a forcible entry and detainer action, and
Landlord may thenceforth hold, possess and enjoy the Premises (including the
right to lease or sell the Premises or any portion thereof upon any terms
reasonably satisfactory to Landlord) free from any rights of Tenant and any
person claiming through Tenant and in addition shall have the right to recover
from Tenant:
(a) Any and all Basic Rent and all other
amounts payable by Tenant hereunder, which may then be due and unpaid, and
Basic Rent for the remainder of the Term, subject to Landlord's duty to
undertake reasonable measures to mitigate such damage; and
(b) Any and all other costs, fees and
expenses incurred or due under the provisions of this Lease (including, without
limitation, reasonable attorneys' fees and expenses), together with any
mortgage prepayment or late payment premium or penalty which Landlord shall
have sustained by reason of the breach of any provision of this Lease.
(3) Exercise any and all rights provided under
applicable law to enforce "LANDLORD'S LIEN" upon Tenant's property; provided,
however, that Landlord shall not have any lien against furniture, fixtures,
equipment or other personal property of Tenant which Tenant leases or any
property of Tenant the granting of a lien against which would cause Tenant to
be in default under any contract or agreement entered into by Tenant; or
(4) Any and all other remedies afforded by law.
13.2 CUMULATIVE REMEDIES. No right or remedy herein
conferred upon or reserved to Landlord is intended to be exclusive of any other
right or remedy, and every right and remedy shall be cumulative and in addition
to any other legal or equitable right or remedy given hereunder.
13.3 INDUCEMENT RECAPTURE. Any agreement by Landlord for
free or abated rent, Tenant improvements or other charges applicable to the
Premises, or for the giving or paying by Landlord to Tenant of any cash or
other bonus, inducement or consideration for Tenant's entering into this Lease,
all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS"
shall be deemed conditioned upon Tenant's full and faithful performance of all
of the terms, covenants and conditions of this Lease. Upon the occurrence of a
Default of this Lease by Tenant, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Landlord under an Inducement Provision
shall be immediately due and payable by Tenant to Landlord, and recoverable by
Landlord as additional rent due under this Lease.
-8-
<PAGE> 9
14. ADDITIONAL PROVISIONS.
14.1 COSTS OF NEGOTIATION. Except as otherwise expressly
provided herein, each party will pay all of its expenses, including attorneys
and accountants' fees, in connection with the negotiation of this Lease, the
performance of its obligations hereunder, and the consummation of the
transactions contemplated by this Lease.
14.2 CONFIDENTIALITY. The parties agree that they each
shall keep confidential any and all information furnished by the other party
in connection with the transactions contemplated hereby, except to the extent
any such information may be generally available to the public, obtained from
independent sources or as required by law or judicial order or decree or by any
governmental agency or authority. The parties acknowledge that Tenant is
required to file this Lease with the U.S. Securities Exchange Commission.
14.3 CONTINUING ASSISTANCE. Subsequent to the execution of
this Lease, Tenant will provide to Landlord whatever assistance the Landlord
reasonably requests including execution of additional documents contemplated by
this Lease. Landlord will pay Tenant the reasonable out-of-pocket expenses
incurred in providing such assistance.
14.4 NOTICES. Any notice required or permitted to be given
under this Lease shall be in writing and shall be deemed to have been given or
delivered when delivered by hand or 3 days after being deposited in a United
States Post Office, registered or certified mail, postage prepaid, return
receipt required, and addressed as follows:
If to Tenant:
-------------
NeXstar Pharmaceuticals, Inc.
Attn: President
2860 Wilderness Place
Boulder, CO 80301
Tel: (303) 444-5893
Fax: (303) 444-0672
WITH A COPY TO:
Hutchinson Black and Cook, LLC
Attn: James L. Carpenter, Jr.
1215 Spruce Street
P.O. Box 1170
Boulder, CO 80306
Tel: (303) 442-6514
Fax: (303) 442-6593
If to Landlord:
AVALON INVESTMENT COMPANY
P.O. Box 358
Nederland, CO 80466
Tel: (303) 258-3604
WITH A COPY TO:
Avalon Investment Company
Attn: Jon Cookler
4525 Reseda Boulevard
Tarzana, California 91356
Tel: (818) 342-6848
Fax: (818) 342-9817
or to such other address as either party may from time to time specify in
writing to the other. All rental payments shall be directed to Landlord's
address as shown above.
14.6 HOLDOVER. In the event Tenant remains in possession
of the Premises after the expiration of the tenancy created hereunder, and
without the execution of a new lease, Tenant, at the option of Landlord, shall
be deemed to be occupying the Premises as a tenant from month-to-month, at one
and one-half (1 1/2) times the Basic Rent, subject to all the other conditions,
provisions and obligations of this Lease insofar as the same are applicable to a
month-to-month tenancy, unless good
-9-
<PAGE> 10
faith negotiations are proceeding between Landlord and Tenant, in which case
the Basic Rent shall remain the same as at the end of the Term.
14.7 CURE BY LANDLORD. Landlord may, but shall not be
obligated to, cure, at any time, without notice, any default by Tenant under
this Lease; and whenever Landlord so elects, all costs and expenses incurred by
Landlord including, without limitation, reasonable attorneys' fees together
with interest on the amount of costs and expenses so incurred at the maximum
legal rate then in effect in the State shall be paid by Tenant to Landlord on
demand.
14.8 HEIRS AND ASSIGNS. This Lease shall be binding upon,
and inure to the benefit of, the parties hereto and their respective
successors, heirs, administrators and assigns. However, notwithstanding the
foregoing, Tenant may not assign this Lease except as specifically provided
herein.
14.9 AMENDMENT. Unless otherwise provided in this Lease,
this Lease may be amended, modified or terminated only by a written instrument
executed by Landlord and Tenant.
14.10 GOVERNING LAW. This Lease shall be governed by and
construed in accordance with the laws of the State in which the Property is
located. The parties stipulate that proper forum and venue for the adjudication
of any issues relative to this Lease is State Court in the County in which the
Property is located.
14.11 SOLE AGREEMENT. This Lease and attached Exhibits
supersedes all prior agreements and understandings between the parties hereto
relating to the subject matter hereof. The parties do not intend to confer any
benefit on any person, firm, or corporation other than the parties to this
Lease, except as and to the extent otherwise expressly provided herein.
14.12 ATTORNEYS' FEES. In the event either party hereto
fails to perform any of its obligations under this Lease or in the event a
dispute arises concerning the meaning or interpretation of any provision of
this Lease, the defaulting party or the party not prevailing in such dispute,
as the case may be, shall pay any and all costs and expenses incurred by the
other party in enforcing or establishing its rights hereunder, including,
without limitation, court costs and reasonable attorneys' fees.
14.13 CAPTIONS. The section titles or captions in this Lease
are for convenience only and shall not be deemed to be part of this Lease.
14.14 INTERPRETATION. All pronouns and any variations of
pronouns shall be deemed to refer to the masculine, feminine, or neuter,
singular or plural, as the identity of the parties may require. Whenever the
terms referred to herein are singular, the same shall be deemed to mean the
plural, as the context indicates, and vice versa.
14.15 NO WAIVER. No right under this Lease may be waived
except by written instrument executed by the party who is waiving such right.
No waiver of any breach of any provision contained in this Lease shall be
deemed a waiver of any preceding or succeeding breach of that provision or of
any other provision contained in this Lease. No extension of time for
performance of any obligations or acts shall be deemed an extension of the time
for performance of any other obligations or acts.
14.16 SEVERABILITY. If any term, covenant, condition, or
provision of this Lease or the application thereof to any person or
circumstance shall, at any time or to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those to which it is held invalid or
unenforceable, shall not be affected thereby, and each provision of this Lease
shall be valid and shall be enforced to the fullest extent permitted by law.
14.17 NO RECORDATION. Neither this Lease nor a Memorandum
thereof shall be recorded with the Clerk and Recorder of the County in which
the Property is situated. However, notwithstanding the foregoing, nothing
contained herein shall prohibit Landlord from recording a Memorandum of Lease
with the State Department of Revenue or UCC-1 Financing Statement with the
State Secretary of State.
14.18 AUTHORITY. In the event the Tenant is not a natural
person, Tenant shall represent and warrant that: (a) Tenant is an entity in
good standing or licensed to do business in the State which the Property is
located, (b) parties executing this Lease on behalf of Tenant are duly
authorized to execute same.
14.19 EXHIBITS. This Lease shall consist of this writing and
the following exhibits:
Exhibit A: Description of Property
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<PAGE> 11
Exhibit B: Description of Premises
Exhibit C. Escalation Rider Nos. 1, 2 or 3
Exhibit D: Tenant Conceptual Work Plan
Exhibit E: List of Hazardous Materials
All of the foregoing exhibits and this Lease shall be deemed to comprise one
document. In the event of any conflict between the Lease and any exhibits, the
language in the exhibits shall control.
14.20 COUNTERPARTS. This Lease may be executed in
counterparts.
14.21 RIGHT OF OFFER. Landlord hereby grants Tenant Right
of Offer on remaining space in the 2830 Wilderness building. The rental rate
and expiration date to be the same as the then existing lease rate for units A,
B, C, D, and E.
14.22 RENEWAL OPTION. Landlord hereby grants Tenant one (1)
three (3) year option to renew at a rate not in excess of the then fair market
rates prevailing for comparable space, with a minimum of six (6) months and a
maximum of nine (9) months written notice.
14.23 SIGNAGE. Landlord hereby grants Tenant the right to
display its corporate name on the monument directory sign and building
according to local code and Landlord approval.
14.24 CONTINGENCY. The direct lease between Landlord and
Tenant will be contingent upon the full release of DDx and Eltron Research.
14.25 HAZARDOUS MATERIALS. Tenant and Landlord recognize
that limited quantities of classified "Hazardous Materials" including, but not
limited to those set forth in Exhibit E, will be required in order to conduct
research and to manufacture certain products by the company. Tenant represents
that all such material will be properly handled, stored, and disposed of
according to all Federal, State, and Local Laws and guidelines. Tenant further
represents that such "Hazardous Materials" will not affect operations in
adjacent tenant space. Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims, judgments, damages, penalties, fines, costs,
liabilities, or losses arising from such uses or actions.
AGREED TO BY AND BETWEEN THE PARTIES as of the day and date first
written above.
LANDLORD: TENANT:
AVALON INVESTMENT COMPANY, NEXSTAR PHARMACEUTICALS, INC.
a California General Partnership a Delaware corporation
By: /s/ [ILLEGIBLE] By: /s/ MICHAEL E. HART
----------------------------- -----------------------------
Its: General Partner Its: VP CFO
----------------------------
-11-
<PAGE> 12
EXHIBIT A
LEGAL DESCRIPTION OF REAL ESTATE
PARCEL A:
Lots 11 and 12, COLORADO AND SOUTHERN INDUSTRIAL PARK, County of Boulder, State
of Colorado
PARCEL B:
Lot 3, Block 1, COLORADO AND SOUTHERN INDUSTRIAL PARK FILING NO. 2, County of
Boulder, State of Colorado
<PAGE> 13
EXHIBIT B
DESCRIPTION OF PREMISES
<PAGE> 14
EXHIBIT C
ESCALATION RIDER NO. 3
The Basic Rent shall be adjusted as follows on the dates specified below:
On and After: Basic Rent
- ------------ ----------
December 1, 1997 $115,129.95 annually
($9,594.16 per month)
December 1, 1998 $120,822.65 annually
($10,068.55 per mouth)
December 1, 1999 $126,907.95 annually
($10,575.66 per month)
December 1, 2000 $133,287.70 annually
($11,107.31 per month)
<PAGE> 15
EXHIBIT D
TENANT'S CONCEPTUAL WORK PLAN
<PAGE> 16
[NEXSTAR LETTERHEAD]
CONCEPTUAL WORK PLAN
This is a Conceptual Work Plan for the construction of the 2830
Wilderness Place Units A, B, C, D and E, indicating additions,
modifications and improvements which Nexstar may make to the building.
This Work Plan is tentative and subject to change. Nexstar will submit
specific plans and specifications to Landlord prior to commencing work,
in accordance with Section 6-3 of the Lease.
Nexstar Pharmaceuticals Inc. will consult with an Architect, Civil,
Electrical, Mechanical and Structural Engineers to ensure we construct
a safe and efficient facility.
DEMOLITION
May perform interior demolition on approximately all 9,815 square feet
of the 2830 Wilderness Place facility units A, B, C, D and E. This
process of demolition may involve, removing some if not all interior
ceiling, walls, electrical outlets, lighting fixtures HVAC and plumbing
fixtures.
Along with the interior demolition, we may remove some if not all
mechanical roof top equipment to accommodate space for HVAC equipment
compatible to serve the interior demand of the new laboratory design.
(i.e., exhaust systems and heating and air conditioning ventilation
equipment.)
In the occurrence of utility supply shortage (i.e. waste line, water
supply line, gas and electric,) to the facility. Nexstar, along with
Architects, Engineers and Public Utilities may make the changes
necessary to accommodate all Nexstar's laboratory needs.
CONSTRUCTION
Will construct all necessary walls and partitions to fit the needs of
Nexstar's architectural laboratory design. This will include walls for
rest rooms, offices, conferences rooms, laboratories shipping/receiving
and a mechanical room.
<PAGE> 17
Will revise the lighting and electrical outlet plan in areas
acceptable to Nexstar and Electrical Engineers standards.
MECHANICAL
Will revise the interior domestic hot and cold supply water
distribution loop which will accommodate all sinks and faucets.
Will install HVAC equipment on roof as suggested by Nexstar's
Mechanical Engineers.
Will install mechanical equipment in mechanical room as suggested by
engineers.
Will modify gas supply lines to accommodate Mechanical equipment.
Will install a Fire sprinkler system in the facility according to the
Mechanical Engineers specifications.
LABORATORIES
Each laboratory unit will consist of fume hoods and plenty of
scientific bench top equipment.
SAFETY STORAGE
Will install a Factory Mutual/Underwriter Laboratories approved
walk-in storage rooms, located in the facility close to a dock door.
This storage area will be used to store flammable liquids and other
chemical products.
Nexstar
Pharmaceuticals Inc.
/s/ ADRIAN CHAVEZ
--------------------
Adrian Chavez
Facility Manager
<PAGE> 18
FLOOR PLAN
Example of Facility remodel, which will take place at the 2830
Wilderness Place Units A, B, C, D, and E.
**THIS FLOOR PLAN WILL CHANGE AS WE CONSULT WITH ARCHITECTS AND
ENGINEERS
1. West portion of the facility will contain mostly shipping and
receiving, large general duty laboratory, glassware kitchen/ buffer
preparation area and a fire rated safety storage area.
2. East area of the facility will contain mostly administrative along
with scientific offices and conference space.
3. The outer north portion of the facility will contain the common area,
men's and women's rest rooms and the mechanical equipment room.
4. Center and extreme south area will contain 4 large general duty
laboratory units.
<PAGE> 19
EXHIBIT E
HAZARDOUS MATERIALS LIST
<PAGE> 1
EXHIBIT 11.1
NEXSTAR PHARMACEUTICALS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
PRIMARY:
Net income (loss) $ 2,746,000 $(15,096,000) $(7,587,000) $(24,473,000)
============ ============ =========== ============
Applicable common shares:
Weighted average shares outstanding
during the period 26,361,000 23,407,000 25,913,000 23,139,000
Shares assumed issued for warrants 1,185,000 -- -- --
Shares assumed issued for stock options 1,900,000 -- -- --
Less: treasury stock assumed purchased (1,316,000) -- -- --
------------ ------------ ----------- ------------
Total 28,130,000 23,407,000 25,913,000 23,139,000
============ ============ =========== ============
Net income (loss) per common share $ 0.10 $ (0.64) $ (0.29) $ (1.06)
============ ============ =========== ============
FULLY DILUTED:
Net income $ 2,746,000 $(15,096,000) $(7,587,000) $(24,473,000)
============ ============ =========== ============
Applicable common shares:
Weighted average shares outstanding
during the period 26,361,000 23,407,000 25,913,000 23,139,000
Shares assumed issued for warrants 1,185,000 -- -- --
Shares assumed issued for stock options 1,900,000 -- -- --
Less: treasury stock assumed purchased (1,214,000) -- -- --
------------ ------------ ----------- ------------
Total 28,232,000 23,407,000 25,913,000 23,139,000
============ ============ =========== ============
Net income (loss) per common share $ 0.10 $ (0.64) $ (0.29) $ (1.06)
============ ============ =========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,803,000
<SECURITIES> 22,455,000
<RECEIVABLES> 34,583,000
<ALLOWANCES> 500,000
<INVENTORY> 14,401,000
<CURRENT-ASSETS> 93,999,000
<PP&E> 67,793,000
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0
0
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</TABLE>
