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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 0-27628
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SUPERGEN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1841574
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
TWO ANNABEL LANE, SUITE 220, SAN RAMON, CA 94583
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (925) 327-0200
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
COMMON STOCK PURCHASE WARRANTS
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing sale price of the Common Stock as reported on
the Nasdaq Stock Market on March 12, 1999) was approximately $167,930,081. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes. The number of outstanding shares of the Registrant's Common
Stock as of the close of business on March 12, 1999 was 21,091,303.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III incorporate information by reference
from the definitive proxy statement for the Registrant's Annual Meeting of
Stockholders to be held on May 5, 1999.
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PART I
ITEM I. BUSINESS.
THIS "ITEM 1--BUSINESS" AND OTHER PARTS OF THIS REPORT CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THESE
FORWARD-LOOKING STATEMENTS REPRESENT OUR EXPECTATIONS OR BELIEFS CONCERNING
FUTURE EVENTS AND INCLUDE STATEMENTS, AMONG OTHERS, REGARDING:
- THE TIMING AND PROGRESS OF THE DEVELOPMENT OF OUR PROPOSED PRODUCTS;
- FILING FOR AND RECEIVING REGULATORY APPROVALS;
- ACQUIRING ADDITIONAL PRODUCTS AND TECHNOLOGIES;
- SOURCING OF BULK GENERICS;
- MANUFACTURING OF FINISHED PRODUCTS;
- ANTICIPATING THE MARKET OPPORTUNITIES FOR OUR EXTRA AND PROPRIETARY
PRODUCTS;
- MARKETING CURRENT AND PROPOSED PRODUCTS TO HOSPITAL BUYING GROUPS AND
OTHERS;
- DEVELOPING DISTRIBUTOR RELATIONSHIPS;
- FORMING STRATEGIC MARKETING RELATIONSHIPS;
- INCURRING OPERATING LOSSES;
- REQUIRING ADDITIONAL CAPITAL; AND
- INCURRING CAPITAL EXPENDITURES.
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF:
- THE FAILURE TO RECEIVE APPROPRIATE REGULATORY APPROVALS OF MARKETING OR
MANUFACTURING ACTIVITIES ON A TIMELY BASIS OR AT ALL;
- INABILITY TO MANUFACTURE APPROVED PRODUCTS IN SUFFICIENT VOLUME OR AT ALL;
- LACK OF MARKET ACCEPTANCE OF AND DEMAND FOR OUR PRODUCTS;
- PRICE OR PRODUCT COMPETITION;
- LACK OF AVAILABLE SUPPLY OF BULK GENERICS;
- FAILURE TO SELL EXISTING INVENTORIES AT PRICES SUFFICIENT TO COVER RELATED
COSTS;
- FAILURE TO OBTAIN ADDITIONAL FINANCING; AND
- OTHER FACTORS SET FORTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--FACTORS AFFECTING FUTURE
OPERATING RESULTS" AND ELSEWHERE IN THIS REPORT.
OVERVIEW
SuperGen, Inc. ("We", the "Company" or "SuperGen") is an emerging
pharmaceutical company dedicated to the acquisition, rapid development and
commercialization of products for the treatment of life-threatening diseases,
particularly cancer. We seek to minimize the time, expense and technical risk
associated with drug commercialization by identifying, acquiring and developing
pharmaceutical compounds in the later stages of development, rather than
committing significant resources to the research phase of drug discovery. We are
focusing our existing and proposed commercialization efforts on two drugs,
Nipent-Registered Trademark- and RFS 2000.
We are currently marketing Nipent-Registered Trademark- in the United States
for the treatment of hairy cell leukemia. We are also conducting clinical trials
of Nipent-Registered Trademark- to seek FDA approval to expand its use for the
treatment of additional forms of leukemia and lymphoma. RFS 2000 is a drug
compound in the late stage of clinical development. Clinical studies indicate it
has the potential to treat a variety of solid tumors, such as pancreatic,
breast, lung, colorectal, ovarian and prostate cancers, and hematological
disorders.
We are also developing our product line of enhanced generic anticancer drugs
using our Extra proprietary drug delivery technology. This technology,
consisting of a delivery system incorporating the active drug cyclodextrin, has
the following properties:
- The form of a ready to inject, stable solution that increases the ease and
safety of administration.
- Increased shelf life, facilitating multiple doses from a single vial.
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- Less susceptibility to ulceration at the injection site due to shielding
properties of the Extra formulation. The drug is released only upon
circulation within the bloodstream.
Our Extra technology is protected by a combination of exclusive and
non-exclusive licenses and related patents. These patents were issued between
1991 and 1998. The licenses pertaining to the Extra platform generally are
effective for the terms of the related patents.
We also seek to expand our portfolio of anticancer drugs through the
acquisition of products and product candidates, or companies owning such
products or candidates, which complement our portfolio and provide us with
market opportunities.
We have non-oncology programs in the large market areas of anemias and other
blood cell disorders, obesity/diabetes and autoimmune diseases. We intend to
seek partnerships with larger drug companies for the development and marketing
of these non-oncology drug candidates.
Throughout this report, we use the term "proprietary" to refer to some of
our products and technology. By use of this term, we mean to refer to those
products and technology that are protected from competition by patents,
licenses, manufacturing know-how or a combination of these competitive barriers.
In January 1999, we executed an agreement to acquire all of the outstanding
capital stock of Sparta Pharmaceuticals, Inc. for 650,000 shares (subject to
adjustment) of our common stock. The acquisition is subject to the approval of
Sparta's stockholders. If all conditions of the acquisition are satisfied, we
expect to complete this transaction by May 1999. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
We incorporated in March 1991 as a California corporation and changed our
state of incorporation to Delaware on November 3, 1997. Our executive offices
are located at Two Annabel Lane, Suite 220, San Ramon, California 94583, and our
telephone number at that address is (925) 327-0200.
STRATEGY
Our objective is to become a leading supplier of oncology therapies as well
as pharmaceuticals for other serious diseases, such as blood cell disorders,
obesity and diabetes. We focus our product development efforts where we believe
there are significant market opportunities, as well as in smaller niche markets
such as anticancer drug markets where we believe there is limited competition.
Within our focused oncology market, we seek to develop a diversified offering of
products, including proprietary and Extra drugs. We are implementing a staged
strategy for commercializing oncology products in a multitude of therapeutic and
other areas, such as immunotherapies and vaccines, photodynamic therapy, new
biotechnology-based drugs, diagnostic agents and prophylaxis. We believe that by
marketing acquired anticancer products, such as Nipent-Registered Trademark-, we
are developing our reputation and presence in the oncology market. Concurrently,
we will continue to develop our proprietary and Extra products, which have a
longer development cycle but may offer us more significant market opportunities.
We will consider development and marketing of generic drugs only if they offer
access to large markets or can serve as an initial step in the application of
our Extra technology.
Our strategy is to license or buy the rights to lead compounds rather than
engaging in pure discovery research. These compounds are typically at the late
preclinical or early stage of clinical development and have shown efficacy in
humans or in an animal model relevant to a particular disease. We then seek to
enhance and complete the product development and bring the product to market.
Our objective is to shorten the research and development cycle and thereby
reduce the time, expense and technical risk associated with drug development. We
believe that our approach minimizes the significant financial investment
required by pure discovery research and reduces the risk of failure in
developing a commercially viable product.
Our Extra and generic drug development program targets and develops products
based on compounds which have been fully developed, approved by the United
States Food and Drug Administration ("FDA") and marketed by others but which are
no longer protected by patents. We also seek to acquire rights to products which
have been similarly commercialized and which we believe have strong market
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positions or potential. In addition, we may acquire other companies that own
products or compounds that complement our portfolio. Our initial development
efforts target diseases in the oncology, anemia and obesity fields that have
small patient populations and are therefore eligible for Orphan Drug
Designation. In the areas of anemia and obesity, we will explore partnership
opportunities when we feel we have built enough value into the programs to
maximize the return on our expenditures.
We have a highly experienced management team and maintain operations focused
primarily on product development and clinical registration. In late 1997, we
established the SuperGen Pharmaceutical Research Institute near our corporate
headquarters, where we conduct much of the management of the preclinical,
product development and regulatory functions. While we believe it is essential
that we perform these functions ourselves, our current strategy is to outsource
other activities to keep our costs relatively low while maintaining high
technical and operational standards. For example, we outsource manufacturing to
avoid the high fixed costs of operating a plant with a large manufacturing
staff, while maintaining our own proprietary manufacturing process. We also
contract our inventory control function to an established third party that
handles warehousing, shipping, invoicing and product delivery.
PRODUCTS AND PRODUCTS IN DEVELOPMENT
Our current products and our products in development include our proprietary
oncology drugs, Nipent-Registered Trademark- and RFS 2000, Extra and generic
oncology drugs, and proprietary compounds for blood cell disorders,
obesity/diabetes and autoimmune diseases. A description of each of these
products and potential products appears below. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results."
SUPERGEN PRODUCTS AND PRODUCTS IN DEVELOPMENT
ONCOLOGY PRODUCTS AND PRODUCTS IN DEVELOPMENT
PROPRIETARY ONCOLOGY COMPOUNDS
NIPENT-REGISTERED TRADEMARK-
<TABLE>
<CAPTION>
ESTIMATED
U.S. MARKET(1)
INDICATION STATUS -------------------
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<S> <C> <C>
Hairy Cell Leukemia Currently marketed in the U. S. $ 15
Cutaneous T-cell lymphoma NDA filed in February 1999 65
Chronic lymphocytic leukemia Clinical studies ongoing 150
Non-Hodgkin's lymphoma Clinical studies ongoing 150
Prolymphocytic leukemia Clinical studies ongoing 10
</TABLE>
We are currently marketing Nipent-Registered Trademark- (pentostatin for
injection), a proprietary drug that we acquired from Warner-Lambert Company in
1996. Nipent-Registered Trademark- is approved for the treatment of Hairy Cell
Leukemia, a type of B-lymphocytic leukemia. In 1998, our net sales of
Nipent-Registered Trademark- in the United States were approximately $2.1
million, which represented 14% of the estimated total United States market of
$15 million for products used to treat this disease. Our net sales of
Nipent-Registered Trademark- of $1.5 million in 1997 and $225,000 in 1996 were
from the finished goods inventory obtained when we acquired the drug. In
December 1997, we received approval from the FDA to begin selling our own
commercially manufactured Nipent-Registered Trademark-. Thereafter, sales have
consisted of product manufactured at our subcontractor's facility.
We are selling this drug only in the United States, although we have rights
to sell it in Canada and Mexico. We may sell it outside of North America for
diseases other than cancer until September 2006, at which time we may sell the
drug worldwide for any disease. Warner-Lambert retained a worldwide,
royalty-free license to sell Nipent-Registered Trademark- outside North America
but has agreed not to sell Nipent-Registered Trademark- in North America through
September 2006. In 1997, Warner-Lambert further agreed to buy all its
Nipent-Registered Trademark- for sales outside the United States from us through
at least October 2004. Shipments under this supply agreement
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(1) Estimates based on available industry data.
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commenced in the first quarter of 1998. We believe we can manufacture sufficient
product to actively promote sales of Nipent-Registered Trademark-, satisfy the
supply agreement referred to above, and conduct clinical trials for other
indications in both oncology and non-oncology fields.
Although Nipent-Registered Trademark- is approved only for the treatment of
Hairy Cell Leukemia, we believe that the drug has a unique mechanism of action
and may have activity in a variety of cancers and other diseases with larger
markets. In oncology fields, we are pursuing treatments for lymphatic
malignancies and disorders, such as cutaneous T-cell lymphoma, chronic
lymphocytic leukemia, non-Hodgkin's lymphoma and prolymphocytic leukemia.
Nipent-Registered Trademark- has received Orphan Drug Designation by the FDA for
use against cutaneous T-cell lymphoma and chronic lymphocytic leukemia. If
results from ongoing trials are consistent with previously completed trials, we
intend to pursue approval for both of these diseases. We filed for FDA approval
to use Nipent-Registered Trademark- to treat various mature T-cell lymphomas and
cutaneous T-cell lymphoma in February of 1999.
RFS 2000
<TABLE>
<CAPTION>
INDICATION STATUS
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Pancreatic cancer Phase III trials underway
Ovarian cancer Phase II trials completed; FDA
registration trials commencing
Myelodysplastic syndrome Phase II trials completed; FDA
registration trials commencing
Colorectal cancer Phase II trials underway
Lung cancer Phase II trials underway
Melanoma sarcoma Phase II trials underway
Other solid tumors (breast, prostate) Phase II trials being launched
Combinatorial therapy Phase I trials underway
</TABLE>
In September 1997, we acquired the exclusive worldwide royalty-bearing
rights to this patented anticancer compound developed by the Stehlin Foundation
for Cancer Research. RFS 2000 is a third-generation topoisomerase I inhibitor
that causes single-strand breaks in the DNA of rapidly dividing tumor cells. It
is a patented analogue of camptothecin, the active drug extracted from the
CAMPTOTHECA ACUMINATA tree. We believe that this is a platform drug for
leadership in the treatment of a broad array of solid tumors and hematological
malignancies. We are seeking rapid development and approval of the drug for
pancreatic cancer, for which there are limited treatment options. We have Orphan
Drug Designation for this disease. Pancreatic cancer is the fifth leading cause
of cancer death in the United States, with both an incidence and death rate of
about 29,000 individuals per year. The current United States market for products
used to treat this disease is more than $125 million a year(2). Median survival
for patients with an advanced form of this disease is only a few months. Results
of clinical trials using RFS 2000 indicate a favorable comparison with
historical data in quality of life, survival data and tumor size. In September
1998, we received FDA approval to use our own supplies of RFS 2000 manufactured
under current Good Manufacturing Practices for expanded human trials in
pancreatic cancer. We are conducting Phase III trials for pancreatic cancer in
over 50 sites in the United States, including leading cancer centers. These
trials consist of two primary studies. The first compares RFS 2000 to
Gemzar-Registered Trademark- (gemcitabine, marketed by Eli Lilly and Co.) in
patients who have not undergone chemotherapy. The second compares RFS 2000 to
5-FU (a generic anticancer drug typically prescribed for gastrointestinal
tumors) in patients who have failed treatment with gemcitabine.
RFS 2000 has also shown activity in more than 30 human and animal tumor
models in indications such as breast, lung, colorectal, ovarian and prostate
cancers and in hematological disorders such as myelodysplastic syndrome and
chronic myelo-monocytic leukemia. We estimate the current United States market
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(2) Unless otherwise indicated, product sales and market size information cited
in this Report consist of data provided by IMS HEALTH.
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for products to treat most of these diseases is at least $500 million. All of
these diseases represent significant market opportunities. In studies to date,
RFS 2000 has not exhibited any of the cardiac, pulmonary, hepatic or renal
toxicities that limit the acute and/or chronic dosages of most
chemotherapeutics. In addition, some early studies suggest RFS 2000 could be
used to treat cancer on a chronic rather than acute basis.
We believe that RFS 2000 may have significant advantages over many existing
anticancer drugs, including oral dosing and superior side effect profile. In
particular, we believe that the compound causes significantly less inhibition of
bone marrow function, due in part to its dosing schedule, which provides for a
cycle of five days of administration followed by two days of recovery. The
observed side effects are mild to moderate hematological toxicities, low-grade
cystitis, infrequent and mild hair loss and gastrointestinal disorder. Finally,
as an oral drug that can be taken at home, RFS 2000 may provide patients with
additional convenience and significantly reduce healthcare costs.
EXTRA AND GENERIC ANTICANCER DRUGS.
OUR EXTRA TECHNOLOGY. We have developed several applications for our
proprietary Extra technology. We believe this technology significantly improves
the safety profile and handling characteristics of several anticancer drugs
currently on the market. Current product targets include Mito Extra (mitomycin),
Nipent-Registered Trademark- Extra (pentostatin), Paxo Extra (paclitaxel),
Etoposide Extra, Dauno Extra (daunorubicin) and Cisplatin Extra. In March 1994,
we acquired exclusive worldwide rights to the patented cyclodextrin technology
used in our Extra technology from Janssen Biotech, N.V. and others.
Many anticancer generic drugs are available only in a powder form that must
be mixed into a liquid solution before injection into a vein. If successful, our
Extra technology will produce a ready-to-inject, stable solution that will ease
administration and save time by eliminating the potentially dangerous mixing
procedure. It could also provide safety benefits for those administering the
dose by reducing their risk of exposure to the drug. Moreover, we believe that
our ready-to-inject stable solutions may have a significantly longer shelf life
at room temperature than the mixed solutions. This means less waste of expensive
drugs as one vial could be utilized for several doses. In addition, many
existing anticancer pharmaceuticals, including those under development by us,
are potent toxins that can cause serious irreversible damage to a patient's
muscle or skin should the drug accidentally leak during injection. We believe
that our Extra technology may increase the safety of these existing anticancer
drugs by shielding the tissue from the drug at the injection site. The drug is
released upon circulation within the bloodstream. We believe that each of these
features will result in our Extra products having a significant competitive
advantage over their counterparts currently on the market.
We have filed an application for worldwide patent protection for our
anticancer Extra technology and, in February 1997, we obtained our first Extra
patent in the United States. An additional patent, issued in September 1998,
complements the first patent with more specific claims, including
Taxol-Registered Trademark- and amsacrine, and expands coverage to antibiotic,
antifungal, vesicant and other agents. In addition, we have licensed the rights
to the excipient used for the Extra technology. At the time we acquired the
licenses to this excipient, it was in its later stages of development and had
already undergone extensive animal toxicology and human testing in areas other
than anticancer drugs. Janssen Biotech, N. V. has received FDA approval for and
is now marketing an antifungal compound that uses the same underlying
technology.
GENERIC ANTICANCER DRUGS. We believe that the total estimated United States
sales for mitomycin, bleomycin, etoposide, cisplatin and other proposed generic
products have decreased over the last few years due to increased competition. We
also believe sales for these generics may continue to decrease as a result of
competitive factors. These factors may include reductions in the per unit sales
price, the introduction of additional generics as well as other cancer drugs,
new formulations for these drugs and the use of different therapies. Therefore,
we currently intend to limit our development of generic products to those that
we feel either require minimal effort to submit an New Drug Application ("NDA")
and obtain marketing clearance or that offer significant market opportunities.
These presently include paclitaxel, daunorubicin, and bleomycin.
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Our Extra and generic drugs anticancer drugs currently under development are
as follows:
MITOMYCIN is currently commercially available in powder form and is approved
to treat gastric and pancreatic cancer. Doctors also prescribe mitomycin for
breast, lung and colorectal cancer. Estimated sales of mitomycin in the United
States were approximately $15 million in 1998 and $21 million in 1997. The
patent for mitomycin expired in 1987 and, as of December 31, 1998, there were
only two approved generic versions of mitomycin in addition to the original
version produced by Bristol-Myers Squibb Company.
MITO EXTRA (MITOMYCIN). We filed an NDA for Mito Extra in December 1997,
which was accepted by the FDA in February 1998. We have received a response from
the FDA and anticipate responding to the FDA's request for additional
formulation, manufacturing and clinical information by the end of the first
quarter of 1999.
GENERIC MITOMYCIN. We received marketing approval for our generic version
of mitomycin in April 1998. Our sales of mitomycin, which commenced in June
1998, totaled $270,000 in 1998.
NIPENT-REGISTERED TRADEMARK- EXTRA. Pentostatin
(Nipent-Registered Trademark-) is approved to treat Hairy Cell Leukemia and has
the potential application to treat chronic lymphocytic leukemia and other
lymphatic malignancies. We believe that there is a potential for expanding its
application in oncology and non-oncology markets and intend to initiate
preclinical studies with Nipent-Registered Trademark- Extra.
PACLITAXEL (Taxol-Registered Trademark-) is approved to treat ovarian and
other solid tumors and is being used experimentally to treat numerous cancers.
It currently generates the highest revenue of all anticancer drugs sold in the
United States, with sales of approximately $620 million in 1998 and $570 million
in 1997.
PAXO EXTRA (paclitaxel). The current formulation of PACLITAXEL
(TAXOL-REGISTERED TRADEMARK-) has numerous problems because the
Cremophor-Registered Trademark- EL solvent used for the injection concentrate
causes hypersensitivity reactions, leaching of plasticizer from PVC infusion
bags, haziness of diluted solutions and the need for in-line filters. We believe
that our potential Paxo Extra product would reduce these problems. In 1997, we
secured a source of bulk paclitaxel, although the manufacturer has not undergone
a pre-approval inspection. We intend to file an NDA with the FDA relating to our
potential Paxo Extra.
GENERIC PACLITAXEL. In August 1998, we filed an Abbreviated New Drug
Application with the FDA for our generic version of paclitaxel. Although the
original period of marketing exclusivity for paclitaxel
(Taxol-Registered Trademark-) expired in December 1997, the FDA granted
Bristol-Myers Squibb a use patent that effectively extended its exclusive rights
to market the drug. Several companies have expressed interest in marketing
generic versions of paclitaxel and are challenging the use patent but, to date,
Bristol-Myers Squibb has successfully defended its exclusive marketing rights.
While other companies may continue to challenge the use patent, we do not have
the financial or other resources to do so. Therefore, our plans to market a
generic version of paclitaxel (Taxol-Registered Trademark-) in the United States
and the success of our related FDA filing are dependent upon the successful
outcome of challenges to the use patent made by others. These challenges may
never be successful and we may not be able to market our generic version of
paclitaxel (Taxol-Registered Trademark-) in the United States.
ETOPOSIDE EXTRA. Etoposide is used to treat small cell lung cancer and
testicular tumors unresponsive to other therapies. Etoposide had estimated sales
in the United States of $32 million in 1998 and $25 million in 1997. There are
currently six approved generic versions of etoposide, in addition to the
original version produced by Bristol-Myers Squibb. Generic formulations of
etoposide have limited stability and limited solubility. We believe that
etoposide Extra formulations would decrease such limitations. Formulation and
preclinical evaluation are currently in progress, and we intend to file an NDA
for this formulation.
DAUNORUBICIN is approved to treat a variety of acute leukemias. Daunorubicin
had estimated sales in the United States of $10 million in both 1998 and 1997.
Daunorubicin is currently sold in powder form only. We believe that daunorubicin
represents a niche market with limited competition from large pharmaceutical
companies due to its relatively small market size. However, we believe the use
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daunorubicin may increase substantially in the future, as recent experimental
studies suggest that daunorubicin may be used in an increasing number of
combination drug protocols treating a number of cancers.
DAUNO EXTRA (DAUNORUBICIN). We have commenced preclinical testing for our
potential Dauno Extra product and intend to file an NDA with the FDA.
GENERIC DAUNORUBICIN. We filed an Abbreviated New Drug Application with the
FDA in December 1998 for Marketing Approval for daunorubicin.
CISPLATIN EXTRA. Cisplatin is approved for the treatment of metastatic
testicular tumors, metastatic ovarian tumors and advanced bladder cancer. Sales
of cisplatin in the United States were estimated to be approximately $100
million in 1998 and $106 million in 1997. We intend to file an NDA with the FDA
relating to our potential Cisplatin Extra. Cisplatin is currently protected by a
17-year patent extension granted to Bristol-Myers Squibb in 1996. We expect that
other companies interested in marketing generic versions of cisplatin will
challenge the extension of Bristol-Myers Squibb's patent but we do not have the
financial or other resources to do so. Therefore, the success of our planned FDA
filing for our Extra version of cisplatin will be dependent upon the successful
outcome of challenges to the patent extension made by others. These challenges,
if made, may never be successful and we may not be able to market our generic
version of cisplatin in the United States.
GENERIC BLEOMYCIN. Bleomycin is indicated for the treatment of head and
neck cancer, Hodgkin's disease, reticulum cell sarcoma, lymphosarcoma and
testicular cancer. Sales of bleomycin in the United States were estimated to be
approximately $29 million in 1998 and $30 million in 1997. The patent for
bleomycin expired in 1989. Only one generic version of bleomycin has been
approved for commercial sale to date. We have a generic version of bleomycin
currently under development and intend to file an Abbreviated New Drug
Application.
NON-ONCOLOGY PROPRIETARY PRODUCTS
ANEMIAS
RF 1010. We are developing a series of proprietary products to treat
various forms of anemia and neutropenia. These diseases destroy red and white
blood cells and thereby weaken the immune system, leaving patients susceptible
to infection that could result in serious illness or death. The blood cell
disorders targeted by us frequently result from a severe insult (such as
pesticide or radiation poisoning); from treatment with existing anticancer
therapies, including chemotherapy and radiation; and from renal failure. We
believe that our products under development may have improved therapeutic
benefits relative to existing drugs commercially available and may be used in
conjunction with existing drugs or may replace existing drugs.
OBESITY AND DIABETES
RF 1051. Obesity is a disorder with significant mortality and morbidity due
to heart, joint or respiratory problems. The American Obesity Association has
estimated that 70 million Americans are defined as obese and that effective
prevention of obesity could result in healthcare system savings of up to $100
billion annually. We are developing a proprietary product in pill form for the
treatment of obesity. Most obesity drugs depend on suppressing appetite or on
stimulating increased metabolic activity by amphetamine-like activity, and some
users regain weight and develop severe complications. We believe that our
product, which is a naturally occurring substance in humans, may cause the body
to store less fat or use more fat to produce energy. Initial studies also
indicate that there is an inverse correlation between the body mass index of a
person and the amount of RF 1051 that is present. We have received Orphan Drug
Designation for RF 1051 in the treatment of Prader-Willi Syndrome, a type of
genetic obesity.
While the results of our clinical studies were consistent with our
expectations, we believe that highly publicized problems with other obesity
drugs have significantly increased the regulatory requirements for drugs
targeting general obesity. As RF 1051 appears to work in diabetic mouse models
as well as obese mouse models, and a direct correlation has been shown between
RF 1051 administration and reduced blood sugar levels, we have chosen to focus
upon multi-center Phase I/II trials in Type II diabetes, which we believe has a
more easily defined clinical endpoint for studies and thus a better chance of
regulatory approval.
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AUTOIMMUNE DISEASES
NIPENT-REGISTERED TRADEMARK-. Our non-oncology targets for
Nipent-Registered Trademark-are various autoimmune diseases, including graft-
versus-host disease and rheumatoid arthritis which is not responsive to standard
therapies. We estimate the United States market for graft-versus-host disease to
be $500 million and the market for refractory rheumatoid arthritis to be $1
billion. We currently are conducting clinical trials in both of these
indications.
CLINICAL DEVELOPMENT AND REGISTRATIONS
We believe that in-house management of clinical development and
registrations is central to our strategy for the accelerated, cost-effective
commercialization of drugs. We have assembled a team comprised of seasoned
professionals with significant industry experience to coordinate and manage
clinical development and registrations of all or our products. The amount we
spent on sponsored research and development was $10.5 million in 1998, $8.6
million in 1997 and $6.2 million in 1996.
NEW DRUG DEVELOPMENT AND APPROVAL PROCESS
The United States system of new drug approvals is the most rigorous in the
world. It costs an average of $500 million and takes an average of almost 15
years from the discovery of a compound to bring a single new pharmaceutical to
market. For every 5,000 to 10,000 chemically synthesized molecules screened,
only 250 are ever issued an Investigational New Drug Application and tested in
humans. Of those, the FDA will approve only one for commercialization.(3) Yet,
in recent years, societal and governmental pressures have created the
expectation that biotech and pharmaceutical companies will reduce the costs for
drug discovery and development without sacrificing safety, efficacy and
innovation. The need to significantly improve or provide alternative strategies
for successful pharmaceutical discovery, research and development remains a
major health care industry challenge.
DRUG DISCOVERY. In the initial stages of drug discovery before a compound
reaches the laboratory, tens of thousands of potential compounds are randomly
screened for activity against an assay assumed to be predictive for particular
disease targets. This drug discovery process can take several years. Once a
company locates a "screening lead", or starting point for drug development,
isolation and structural determination may begin. The development process
results in numerous chemical modifications to the screening lead in an attempt
to improve the drug properties of the lead. After a compound emerges from the
above process, the next steps are to conduct further preliminary studies on the
mechanism of action, further IN VITRO (test tube) screening against particular
disease targets and finally, some IN VIVO (animal) screening. If the compound
passes these barriers, the toxic effects of the compound are analyzed by
performing preliminary exploratory animal toxicology. If the results are
positive, the compound emerges from the basic research mode and moves into the
preclinical phase.
PRECLINICAL TESTING. During the preclinical testing stage, laboratory and
animal studies are conducted to show biological activity of the compound against
the targeted disease, and the compound is evaluated for safety. These tests
typically take approximately three and one-half years to complete.
INVESTIGATIONAL NEW DRUG APPLICATION. During the preclinical testing, an
IND is filed with the FDA to begin human testing of the drug. The IND becomes
effective if not rejected by the FDA within 30 days. The IND must indicate the
results of previous experiments, how, where and by whom the new studies will be
conducted, the chemical structure of the compound, the method by which it is
believed to work in the human body, any toxic effects of the compound found in
the animal studies and how the compound is manufactured. In addition, an
Institutional Review Board, comprised of physicians at the hospital or clinic
where the proposed studies will be conducted, must review and approve the IND.
Progress reports detailing the results of the clinical trials must be submitted
at least annually to the FDA.
- ------------------------
(3) Source: Pharmaceutical Research and Manufacturers of America.
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<PAGE>
Some limited human clinical testing may be done under a Physician's IND in
support of an IND application and prior to receiving an IND. A Physician's IND
is an IND application that allows a single individual to conduct a clinical
trial under less rigorous standards with a shorter FDA review process. A
Physician's IND does not replace the more formal IND process, but can provide a
preliminary indication as to whether further clinical trials are warranted, and
can, on occasion, facilitate the more formal IND process.
PHASE I CLINICAL TRIALS. After an IND becomes effective, Phase I human
clinical trials can begin. These tests, involving usually between 20 and 80
healthy volunteers, typically take approximately one year to complete. The tests
study a drug's safety profile, including the safe dosage range. The Phase I
clinical studies also determine how a drug is absorbed, distributed, metabolized
and excreted by the body, and the duration of its action. Phase I trials are
normally not conducted for anticancer product candidates.
PHASE II CLINICAL TRIALS. In Phase II clinical trials, controlled studies
are conducted on approximately 100 to 300 volunteer patients with the targeted
disease. The primary purpose of these tests is to evaluate the effectiveness of
the drug on the volunteer patients as well as to determine if there are any side
effects. These studies generally take approximately two years, and may be
conducted concurrently with Phase I clinical trials. In addition, Phase I/II
clinical trials may be conducted to evaluate not only the efficacy of the drug
on the patient population, but also its safety.
PHASE III CLINICAL TRIALS. This phase typically lasts about three years and
usually involves 1,000 to 3,000 patients. During the Phase III clinical trials,
physicians monitor the patients to determine efficacy and to observe and report
any reactions that may result from long-term use of the drug.
NEW DRUG APPLICATION. After the completion of all three clinical trial
phases, if the data indicates that the drug is safe and effective, an NDA is
filed with the FDA. The NDA must contain all of the information on the drug
gathered to that date, including data from the clinical trials. NDAs are often
over 100,000 pages in length. The average NDA review time for new
pharmaceuticals approved in 1997 was 16.2 months, down from 23 months in 1996.
ABBREVIATED NEW DRUG APPLICATION. This application is for a license to
market a generic version of a drug already approved for marketing under a full
NDA.
MARKETING APPROVAL. If the FDA approves the NDA, the drug becomes available
for physicians to prescribe. Periodic reports must be submitted to the FDA,
including descriptions of any adverse reactions reported. The FDA may request
additional studies (Phase IV) to evaluate long-term effects.
PHASE IV CLINICAL TRIALS AND POST MARKETING STUDIES. In addition to studies
requested by the FDA after approval, these trials and studies are conducted to
explore new indications. The purpose of these trials and studies and related
publications is to broaden the application and use of the drug and its
acceptance in the medical community.
ORPHAN DRUG DESIGNATION. The Orphan Drug Act provides incentives to
manufacturers to develop and market drugs for rare diseases and conditions
affecting fewer than 200,000 persons in the United States. The first developer
to receive FDA Marketing Approval for an orphan drug is entitled to a seven-year
exclusive marketing period in the United States following approval for that
product. However, the FDA will allow the sale of a drug clinically superior to
or different from another approved orphan drug, although for the same
indication, during the seven-year exclusive marketing period. There have been
140 drugs approved under this act since its adoption in 1983.
GENERIC DRUG DEVELOPMENT
The development of a generic drug is significantly abbreviated from that of
a new drug and the approval process may begin once all applicable patents for a
particular drug expire. For each generic drug,
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<PAGE>
FDA approval must be obtained for the active ingredient of the generic drug (the
"bulk source") and the final formulation ("Marketing Approval"). The entire
approval process takes approximately 36 months.
EXTRA DRUG DEVELOPMENT
Each Extra product candidate contains an active drug substance which has
already been approved by the FDA and may already also have generic versions
approved by the FDA. The excipient for the Extra technology has also been
approved by the FDA in a non-oncology application. To gain approval to market,
we must provide data to the FDA to support the safety, efficacy and quality of
each Extra product, but these data are more limited in scope and content than
would be required for a novel drug formulation. While extensive clinical trials
will not be required, we will be required to provide clinical data that
demonstrate the bioequivalence of our Extra formulation to the original product.
Overall, the data packages we will submit to the FDA for Extra product
candidates will be smaller than an NDA and may take less time to review.
We also expect that, after the safety and quality of the Extra technology
have been adequately demonstrated to the FDA, future Extra submissions will be
able to cross-refer to these data, further streamlining our submissions. We will
likely have to demonstrate clinical bioequivalence for each Extra formulation,
but, as stated above, future submissions should be smaller in size and may take
less time to review.
RECENT REGULATORY DEVELOPMENTS
The Food and Drug Administration Modernization Act of 1997, which extended
the highly successful Prescription Drug User Fee Act of 1992, is expected to
enable the FDA to further reduce regulatory approval times, allowing
manufacturers to make new cures and treatments available to patients about a
year earlier than otherwise would have been possible.(3) Under the user-fee law,
the FDA was able to cut drug approval times nearly in half over the past five
years. The FDA has also agreed to a number of specific performance goals to
streamline the development and approval of new drugs. For example, the FDA has
agreed to review standard NDAs, applications for biologics and efficacy
supplements in an average of ten months by the end of five years as compared
with the current average of twelve months. Other goals set periods for holding
meetings, ending clinical holds on INDs, and resolving disputes on procedural
and scientific issues. For the first time, the FDA has a legislatively
established mission to promote public health by the timely review of
applications for new products and to protect public health by ensuring that
regulated products are safe, effective and properly labeled.
Other major provisions of the FDA Modernization Act include:
- A provision for fast-track drugs that address unmet medical needs for
patients with serious or life-threatening conditions;
- Expanded access to investigational drugs for patients with serious
diseases and conditions;
- A reduction from two to one, adequately controlled clinical study, to
prove substantial evidence of effectiveness (at the discretion of the
FDA);
- A reduction of postmarket manufacturing changes needing FDA approval; and
- Adoption of guidance for the submission of abbreviated reports, standards
for review, including prompt review of supplemental applications for new
indications for approved products, and dispute resolution.
There is an additional provision of the FDA Modernization Act, which we feel
is very important to us. This provision will allow us to distribute, under
strict conditions and FDA supervision, copies of peer-reviewed medical journal
articles and other validated scientific information about unapproved uses of
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<PAGE>
approved drugs to physicians and other health-care professionals. Thus
physicians will have more up-to-date product information and will be better able
to meet their patients' medical needs.
MANUFACTURING
We currently outsource manufacturing for all of our bulk drugs,
Nipent-Registered Trademark-, RFS 2000, RF 1010, and RF 1051, as well as
mitomycin and other bulk generics used in the Extra and generic dosage forms. We
currently use both United States and foreign suppliers. We expect to continue to
outsource manufacturing in the near term. We believe our current suppliers will
be able to efficiently manufacture our bulk proprietary and generic compounds in
sufficient quantities and on a timely basis, while maintaining product quality.
We seek to maintain quality control over manufacturing through ongoing
inspections, rigorous review, control over documented operating procedures, and
thorough analytical testing by outside laboratories. We believe that our current
strategy of outsourcing manufacturing is cost-effective since we avoid the high
fixed costs of plant, equipment and large manufacturing staffs and conserve our
resources.
The FDA must issue marketing clearance and deem a manufacturer acceptable
under current Good Manufacturing Practices standards before production of bulk
proprietary or generic compounds for commercial sale may begin. Once a bulk
proprietary or generic compound is manufactured on our behalf, it is sent to one
or more domestic manufacturers that process it into the finished proprietary,
Extra, or generic dosage forms. We currently follow these procedures for our
marketed products, Nipent-Registered Trademark- and mitomycin. We then ship our
finished proprietary and generic products to an outside vendor for distribution
to our customers.
We have entered agreements with a domestic entity for the future production
of our bulk generics required for both our Extra and generic dosage forms. We
have licensed from this manufacturer, on an exclusive basis, proprietary
fermentation technology for anticancer antibiotic agents. In the future, we may
adapt this proprietary fermentation technology to produce other bulk generics.
In December 1997, we received approval from the FDA to commercially
manufacture Nipent-Registered Trademark- at our designated vendors'
manufacturing site using our proprietary manufacturing process. We believe we
own sufficient bulk inventory for the manufacture of
Nipent-Registered Trademark- to meet our clinical and commercial needs for the
near future. In April 1998, the FDA approved our application for the production
of bulk mitomycin using the fermentation technology described above.
We intend to continue evaluating our manufacturing requirements and may
establish or acquire our own facilities to manufacture our products for
commercial distribution if we feel doing so would reduce costs or improve
control and flexibility of product supply. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results."
SALES AND MARKETING
We sell Nipent-Registered Trademark- to Warner-Lambert Company for resale
and distribution outside North America. Warner-Lambert was our single largest
customer in 1998 with sales of approximately $600,000 or 20% of total net sales.
Our remaining Nipent-Registered Trademark- sales result from direct selling and
marketing. We market Nipent-Registered Trademark- and mitomycin to hospitals
(major cancer centers), private practice oncology clinics, oncology distributors
and drug wholesalers. Oncologists/hematologists, oncology nurses and oncology
pharmacists are included in each of these classes of customers. Our target
market is approximately 1,700 hospitals, the large majority of which are members
of hospital buying groups. We have focused on obtaining winning bids from these
groups for generic products since they control a significant majority of the
hospital business in the oncology and blood disorder pharmaceutical market.
Since acceptance from each buying group can be time consuming, there may be
significant delays before we can win bids and generate sales revenue. However,
we have taken significant steps toward such acceptance. A large number of these
buying groups, including Premier Purchasing Partners, Novation (formally
University HealthSystem Consortium), Kaiser Permanente, and the Department of
Veteran Affairs have given us approved vendor status. In addition, we
11
<PAGE>
have gained recognition as an approved vendor in each state that requires
registration or licensing before bidding for those customers. We will continue
to target these large buying groups and, as we attain market share, bid with
other buying groups while seeking to minimize any price erosion that may occur.
There are a large number of private practice physicians (approximately 5,000
oncologists/hematologists) in the United States. These physicians usually
purchase oncology products through distributors, with whom we are developing
relationships. The four major oncology distributors in the United States are
Oncology Therapeutic Network Joint Venture, L.P., Florida Infusion Services,
Inc., National Specialty Services, Inc. and Priority Healthcare Corporation.
These distributors control approximately 60% of the private practice oncology
clinics that in turn represent approximately 30% of the oncology-related
pharmaceutical market. We have taken significant steps in building relationships
with these distributors, all of whom have purchased
Nipent-Registered Trademark-. Our sales force will also continue to target the
important private practice oncology clinics within their assigned territories.
We also sell to large drug wholesalers that supply hospitals and hospital buying
groups. In 1998, two distributors and one wholesaler each accounted for ten
percent or more of revenues.
Generally, our business is not seasonal. However, as chemotherapeutic
products often have debilitating side effects, some patients may choose to abate
treatment during summer months or during holidays so that they may experience a
better temporary quality of life with their family and friends.
We have divided our sales group into three regions; each headed by a manager
who supervises local sales representatives, all of whom have extensive industry
experience. We plan to expand our sales force upon receipt of additional
Marketing Approvals for proprietary, Extra and generic products. Our sales and
marketing group conducts direct sales, sponsors speakers' programs, works with
distributors, performs market research analysis, develops marketing strategies,
creates and implements educational and promotional programs, establishes pricing
and product advertising and maintains compliance with hospital and other buying
groups. We contract warehousing, shipping, invoicing and a portion of our
customer service responsibilities with an established outside vendor. Customers
may return products for credit.
We may enter strategic marketing or sales arrangements with other companies,
particularly with respect to our non-oncology product candidates. No such
strategic arrangements exist as of the date of this Report.
PATENTS AND LICENSES
We actively pursue a policy of seeking patent protection for our proprietary
products and technologies whether developed in-house or from outside
acquisition. We have acquired licenses to or assignments of numerous United
States patents covering our principal proprietary drugs. In February 1997, we
received our United States patent relating to our Extra products. This initial
patent position was further enhanced in September 1998 with the issuance of an
additional patent with more specific claims including
Taxol-Registered Trademark- and amsacrine, as well as broader coverage of
anticancer, antibiotic, antifungal, vesicant and other chemical cytotoxic
agents. We have entered patent royalty agreements with The Jackson Laboratory
and The Stehlin Foundation for Cancer Research. Under these agreements, each of
these entities has assigned to us an exclusive license for patents and patent
applications (which may be important to our blood cell disorder and
obesity/diabetes product development programs). Under the terms of these
licenses, we will be obligated to pay fees and royalties and take reasonable
steps to achieve specified milestones. These milestones include filing INDs,
filing NDAs if commercially reasonable, and using diligent efforts to commence
marketing programs after Marketing Approvals. We further have a worldwide
license agreement with Janssen Biotech, N.V. related to patent rights and
know-how regarding hydroxypropyl-beta-cyclodextrin, which is important to our
Extra development program. This agreement gives us an exclusive license, outside
the United States, in return for consideration in the form of milestone payments
and royalties. In addition, we have a patent license agreement with Cyclex, Inc.
("Cyclex") to license a patent (which is important to our Extra development
program) and to make and sell licensed
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products for cytotoxic anticancer formulations containing
hydroxypropyl-beta-cyclodextrin in the United States in return for payments of
royalties to Cyclex.
In addition to pursuing patent protection in appropriate cases, we rely on
trade secret protection for our unpatented proprietary technology. We also
pursue a policy of having our employees and consultants execute proprietary
information agreements upon commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of the
relationship is confidential except in specified circumstances. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results."
COMPETITION
There are many companies, both public and private, including well-known
pharmaceutical companies, that are engaged in the development and sale of
pharmaceutical products for some of the applications that we are pursuing. Our
competitors and probable competitors include Ortho-McNeil Pharmaceutical, Amgen,
Inc., Gensia-Sicor Inc., Bristol-Myers Squibb and Immunex Corporation, among
others. These companies have substantially greater financial, research and
development, manufacturing and marketing experience and resources than we do and
represent substantial long-term competition for us. Such companies may succeed
in developing pharmaceutical products that are more effective or less costly
than any we may develop or market.
Factors affecting competition in the pharmaceutical industry vary depending
on the extent to which the competitor is able to achieve a competitive advantage
based on proprietary technology. If we are able to establish and maintain a
significant proprietary position with respect to our proprietary products,
competition will likely depend primarily on the effectiveness of the product and
the number, gravity and severity of its unwanted side effects as compared to
alternative products. Companies compete with respect to generic products
primarily on price and, to a lesser extent, on name recognition and the
reputation of the manufacturer in its target markets. Moreover, the number of
competitors offering a particular generic product could dramatically affect
price and gross margin for that product or an Extra product based on that
generic product. We may be at a disadvantage in competing with more established
companies based on price or market reputation. In addition, increased
competition in a particular generic market would likely lead to significant
price erosion for our generic products and Extra products based on such generic
products. This would have a negative effect on our sales and potential gross
profit margins. For example, we believe that the total estimated United States
sales for our proposed generic products, and generic products upon which we
propose to base our Extra products, have decreased in recent years due to
increased competition. We believe that sales volumes and unit prices of these
generics may continue to decrease as a result of competitive factors. These
factors include the introduction of additional generics and other cancer drugs,
the desire of some companies to increase their market share, new formulations
for those drugs and the use of different therapies.
Extensive research and development efforts and rapid technological progress
characterize the industry in which we compete. Although we believe that our
proprietary position may give us a competitive advantage with respect to our
proposed nongeneric drugs, we expect development of new products to continue.
Discoveries by others may render our current and potential products
noncompetitive. Our competitive position also depends on our ability to attract
and retain qualified scientific and other personnel, develop effective
proprietary products, implement development and marketing plans, obtain patent
protection and secure adequate capital resources. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results."
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EMPLOYEES
As of December 31, 1998, we had 54 full-time employees. We use consultants
and temporary employees to complement our staffing. Our employees are not
subject to any collective bargaining agreements, and we regard our relations
with employees to be good. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Future
Operating Results."
EXECUTIVE OFFICERS OF THE REGISTRANT
Our officers and their ages as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- --------------------------------------------------------
<S> <C> <C>
Joseph Rubinfeld............. 66 Chief Executive Officer, President and Director
Frank Brenner................ 51 Vice President of Sales
Frederick L. Grab............ 57 Vice President of Pharmaceutical Operations
R. David Lauper.............. 54 Vice President of Professional Services
Luigi Lenaz.................. 57 Senior Vice President of Clinical Research and Medical
Affairs
Rajesh C. Shrotriya.......... 54 Executive Vice President and Chief Scientific Officer
Simeon M. Wrenn.............. 54 Vice President of Biotechnology
</TABLE>
JOSEPH RUBINFELD, PH.D. co-founded the Company in 1991. He has served as
Chief Executive Officer, President, and a director of the Company since our
inception and was Chief Scientific Officer from inception until September 1997.
Dr. Rubinfeld was one of the four initial founders of Amgen in 1980 and served
as Vice President and Chief of Operations until 1983. From 1987 to 1990, he was
a Senior Director at Cetus Corporation. From 1968 to 1980, Dr. Rubinfeld was
employed at Bristol-Myers Company International Division ("Bristol-Myers") in a
variety of positions, most recently as Vice President and Director of Research
and Development. While at Bristol-Myers, Dr. Rubinfeld was instrumental in
licensing the original anticancer line of products for Bristol-Myers, including
Mitomycin and Bleomycin. Before that time, Dr. Rubinfeld was a research
scientist with several pharmaceutical and consumer product companies including
Schering-Plough Corporation and Colgate-Palmolive Co. He received his BS in
chemistry from C.C.N.Y., and his MA and Ph.D. in chemistry from Columbia
University. Dr. Rubinfeld has numerous patents and/or publications on a wide
range of inventions and developments, including the 10-second developer for
Polaroid film, manufacture of cephalosporins and the first commercial synthetic
biodegradable detergent. In 1984, Dr. Rubinfeld received the Common Wealth Award
for Invention.
FRANK BRENNER joined us as Vice President of Sales and Marketing in January
1994. Before joining us, he was an independent management consultant for various
biotechnology and pharmaceutical companies from September 1991 to January 1994.
From December 1987 to September 1991, Mr. Brenner was Senior Director of
National Sales for Cetus Corporation and was a Regional Sales Manager from
October 1986 to December 1987. Before that time, he served in a variety of
positions at Lederle International, including as Senior Product Manager. Mr.
Brenner received his BS from California State University at Dominguez Hills. He
resigned as Vice President of Sales in January 1999, and we hired his
replacement in February 1999.
FREDERICK L. GRAB, PH.D. joined us as Vice President of Pharmaceutical
Operations in July 1996. From April 1989 to July 1996, Dr. Grab was Director,
Regulatory Affairs, Generic Drugs for Pharmacia Inc., a developer and
manufacturer of pharmaceuticals. From 1982 to 1988, Dr. Grab served as Manager,
Pharmaceutical Product Development at Pharmacia Inc. Dr. Grab received his BS in
Pharmacy from
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Columbia University, College of Pharmacy and his Ph.D. in pharmaceutical
chemistry from the University of California, San Francisco Medical Center.
R. DAVID LAUPER, PHARM.D. has served as Vice President of Professional
Services since December 1996 and as Vice President of Oncology Product
Development from August 1995 to November 1996. Dr. Lauper joined SuperGen from
Chiron Corp. where he served as Director of Professional Services, Chiron
Therapeutics, from 1994 to 1995. Before that time, from 1986 to 1993, Dr. Lauper
served in the same capacity at Cetus Corporation. From 1980 to 1986, Dr. Lauper
was with Bristol-Myers Squibb as Assistant
Director of Medical Information Oncology. He received his Pharm.D. in pharmacy
from the University of California School of Pharmacy.
LUIGI LENAZ, M.D. has served as Senior Vice President of Clinical Research
and Medical Affairs since October 1997. Before joining SuperGen, he was Senior
Medical Director, Oncology Franchise Management for Bristol-Myers Squibb from
1990 to 1997 and was Director, Scientific Affairs, Anti-Cancer for Bristol-Myers
Squibb from 1978 to 1990. Dr. Lenaz was a Post Doctoral Fellow at both the
Memorial Sloan-Kettering Cancer Center in New York and at the National Cancer
Institute in Milan, Italy. He received his medical training at the University of
Bologna Medical School in Bologna, Italy.
RAJESH C. SHROTRIYA, M.D. has served as our Executive Vice President and
Chief Scientific Officer since October 1997 and as Senior Vice President and
Special Assistant to the President from January 1997 to September 1997. Before
joining us, Dr. Shrotriya was Vice President and Chief Medical Officer of MGI
Pharma, Inc., an oncology company, from August 1994 to October 1996. Previously
he spent 18 years at Bristol-Myers Squibb in a variety of positions most
recently as Executive Director, Worldwide CNS Clinical Research. Dr. Shrotriya
received his medical training in India at Grant Medical College in Bombay, Delhi
University and the Armed Forces Medical College in Poona.
SIMEON M. WRENN, PH.D. joined SuperGen in January 1996 as Vice President of
Biotechnology. From September 1995 to January 1996 he was a consultant to The
Purdue Frederick Company, a privately held manufacturer and distributor of drug
products. From 1983 to 1995, Dr. Wrenn served in several senior research and
product development positions at Lederle Laboratories. He also was a founding
scientist of Centocor, Inc. Dr. Wrenn has been an Assistant Professor of
Medicine at Baylor College and the University of Pennsylvania and an Associate
Professor of Medicine at Johns Hopkins University. He received his Ph.D. from
Emory University in Atlanta, Georgia and completed his Postdoctoral Fellowship
at Harvard Medical School and Massachusetts General Hospital in Boston,
Massachusetts.
ITEM 2. PROPERTIES.
Our principal administrative facility is currently located in leased general
office space in San Ramon, California, under a lease that expires on January 31,
2002. Either the landlord or we may cancel the lease upon substantial
catastrophic damage to the property or its condemnation, and the landlord has
the right to move us, at its expense, to comparable facilities. We have the
right to extend the lease for one additional five-year period at the fair market
rental rate. In late 1998, we ended the lease for the office space used in our
sales and marketing efforts in Parsippany, New Jersey, and those activities are
now being coordinated from San Ramon. In April 1997, we purchased an unimproved
industrial building in Pleasanton, California, and located our laboratory
operations there upon substantial completion of the improvements in December
1997. We believe the above properties are suitable for our operations. The San
Ramon office facility and Pleasanton laboratory facility are nearing full
utilization, therefore, we have leased additional office space in Pleasanton for
a period of seven years commencing May, 1999.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of our stockholders during the fiscal
quarter ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET FOR COMMON STOCK
Our Common Stock trades on the Nasdaq Stock Market under the symbol "SUPG."
Our Common Stock Purchase Warrants trade on the Nasdaq Stock Market under the
symbol "SUPGW." The following table sets forth the high and low bid information
for the Common Stock for each quarterly period in the two most recent fiscal
years as reported on the Nasdaq Stock Market:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997
Quarter ended March 31, 1997............................................... $ 14.13 $ 9.63
Quarter ended June 30, 1997................................................ 14.75 10.88
Quarter ended September 30, 1997........................................... 18.81 12.88
Quarter ended December 31, 1997............................................ 18.63 14.50
1998
Quarter ended March 31, 1998............................................... 15.13 11.69
Quarter ended June 30, 1998................................................ 17.75 9.63
Quarter ended September 30, 1998........................................... 12.50 5.13
Quarter ended December 31, 1998............................................ 9.31 5.38
</TABLE>
HOLDERS OF RECORD
As of March 12, 1999, there were 338 holders of record of the Common Stock
and approximately 6,900 beneficial stockholders.
DIVIDENDS
We have never paid cash dividends on our capital stock and do not expect to
pay any dividends in the foreseeable future. We intend to retain future
earnings, if any, for use in our business.
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 1998, we issued the following securities:
- 74,416 shares of common stock in March 1998, in connection with the 1997
acquisition of a patent royalty agreement and other intellectual property
related to our obesity/diabetes product candidate, RF 1051.
- 460,000 shares of common stock in December 1998, in a private placement to
an institutional investor for a total of $3,000,000.
The issuances of shares described above were in reliance on Section 4(2) of
the Securities Act of 1933, as amended.
We made no public solicitation in connection with the issuance of the above
securities nor were there any other offerees. We relied on representations from
the recipients of the securities that they purchased the securities for
investment for their own account and not with a view to, or for resale in
connection with, any distribution thereof and that they were aware of our
business affairs and financial condition and had sufficient information to reach
an informed and knowledgeable decision regarding their acquisition of the
securities.
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USE OF PROCEEDS
On March 13, 1996, we commenced our initial public offering (the "IPO") of
4,025,000 units and an underwriters' over-allotment option consisting of 525,000
units at a public offering price of $6.00 per unit. We made this offering
pursuant to a registration statement on Form S-B (file no. 333-476 LA) filed
with the Securities and Exchange Commission. A unit consisted of one share of
Common Stock, $.001 par value per share, and a warrant to purchase one share of
Common Stock at $9.00. Of the units registered, 4,024,302 were sold. Paulson
Investment Company was the managing underwriter of the IPO. The aggregate gross
proceeds of the IPO (before deduction of underwriting discounts and commissions
and expenses of the offering and any exercises of the warrants) were
$24,146,000. We have not yet sold all of the shares registered for the exercise
of the warrants. There were no selling stockholders in the IPO.
We paid total expenses of $2,615,000 in connection with the IPO consisting
of underwriting discounts, commissions and expenses of $1,992,000 and other
expenses of $623,000. The net proceeds of the IPO through December 31, 1998,
including subsequent exercises of warrants to purchase common stock, were
$23,424,000.
From March 13, 1996, the effective date of the registration statement for
the IPO, to December 31, 1998 (our most recent fiscal year end), the approximate
amount of net proceeds used were:
<TABLE>
<S> <C>
Construction of plant, building and facilities................. $1,246,000
Purchase and installation of machinery and equipment........... 295,000
Purchase of real estate........................................ 744,000
Working capital used in operations............................. 16,862,000
Repurchase of common stock..................................... 3,557,000
Purchase of equity investment.................................. 500,000
Acquisition of developed technology............................ 220,000
</TABLE>
None of such payments consisted of direct or indirect payments to directors,
officers, 10% stockholders or affiliates, with the exception of:
- The payment to repurchase common stock, which was made to a stockholder
that, immediately prior to the repurchase, owned more than 10% of the our
then outstanding common stock; and
- Payments to directors and officers as compensation for services provided.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth below is not necessarily indicative of results of
future operations and should be read in conjunction with the financial
statements and notes thereto appearing in Item 14 of Part IV of this Report.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1997 1996 1995 1995
------------ ------------ ------------ ------------ -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 3,004 $ 1,802 $ 264 $ 13 $ 169
Net loss................................... (15,577) (15,996) (8,758) (2,729) (3,639)
Total assets............................... 19,793 30,772 17,936 2,162 2,440
Basic net loss per common share............ (0.77) (0.85) (0.55) (0.22) (0.31)
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING
STATEMENTS REPRESENT OUR EXPECTATIONS OR BELIEFS CONCERNING FUTURE EVENTS AND
INCLUDE STATEMENTS, AMONG OTHERS, REGARDING:
- TIMING AND PROGRESS OF THE DEVELOPMENT OF OUR PROPOSED PRODUCTS;
- FILING FOR AND RECEIVING REGULATORY APPROVALS;
- ACQUIRING ADDITIONAL PRODUCTS AND TECHNOLOGIES;
- SOURCING OF BULK GENERICS;
- MANUFACTURING OF FINISHED PRODUCTS;
- ANTICIPATING THE MARKET OPPORTUNITIES FOR OUR EXTRA AND PROPRIETARY
PRODUCTS;
- MARKETING CURRENT AND PROPOSED PRODUCTS TO HOSPITAL BUYING GROUPS AND
OTHERS;
- DEVELOPING DISTRIBUTOR RELATIONSHIPS;
- FORMING STRATEGIC MARKETING RELATIONSHIPS;
- INCURRING OPERATING LOSSES;
- REQUIRING ADDITIONAL CAPITAL; AND
- INCURRING CAPITAL EXPENDITURES.
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF NUMEROUS FACTORS, INCLUDING, WITHOUT
LIMITATION:
- FAILURE TO OBTAIN ADDITIONAL FINANCING;
- THE FAILURE TO RECEIVE APPROPRIATE REGULATORY APPROVALS OF MARKETING OR
MANUFACTURING ACTIVITIES ON A TIMELY BASIS OR AT ALL;
- INABILITY TO MANUFACTURE APPROVED PRODUCTS IN SUFFICIENT VOLUME OR AT ALL;
- LACK OF MARKET ACCEPTANCE OF AND DEMAND FOR OUR PRODUCTS;
- PRICE OR PRODUCT COMPETITION;
- LACK OF AVAILABLE SUPPLY OF BULK GENERICS;
- FAILURE TO SELL EXISTING INVENTORIES AT PRICES SUFFICIENT TO COVER RELATED
COSTS; AND
- OTHER FACTORS SET FORTH IN "--FACTORS AFFECTING FUTURE OPERATING RESULTS"
AND ELSEWHERE IN THIS REPORT.
OVERVIEW
We are an emerging pharmaceutical company dedicated to the acquisition,
rapid development and commercialization of products for the treatment of
life-threatening diseases, particularly cancer. A key element of our strategy is
to identify and acquire potential pharmaceutical products in the later stages of
development that complement our portfolio. We may also acquire companies owning
such potential or approved products. We believe this strategy will shorten the
research and development cycle and thereby minimize the time, expense and
technical risk associated with drug development. Our primary oncology programs
target leukemias and lymphomas, solid tumors and the development of our
proprietary Extra technology (our enhanced line of already established
anticancer drugs). We also have non-oncology
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<PAGE>
programs in the large market areas of anemias and other blood cell disorders,
obesity/diabetes and certain autoimmune diseases. We intend to seek partnership
opportunities in these areas.
We currently sell two anticancer products, Nipent-Registered Trademark- and
mitomycin. We acquired Nipent-Registered Trademark- (pentostatin for injection),
along with associated North American marketing rights, in 1996. In December
1997, we received governmental approval to sell Nipent-Registered Trademark-
manufactured under our own Supplemental New Drug Application.
Nipent-Registered Trademark- is approved for the treatment of Hairy Cell
Leukemia and has Orphan Drug Designation for both chronic lymphocytic leukemia
and cutaneous T-cell lymphoma. In April 1998, we received FDA approval to market
the generic drug mitomycin for injection. Mitomycin, originally developed and
marketed by Bristol-Myers Squibb under the tradename
Mutamycin-Registered Trademark-, is approved in the United States for the
treatment of adenocarcinoma of the stomach and pancreas in combination with
other approved chemotherapeutics. We began to sell mitomycin in June 1998.
Sales of Nipent-Registered Trademark- were responsible for 91% of product
revenues in 1998, 84% of product revenues in 1997 and virtually all product
revenues in 1996. Remaining product revenues in 1998 consisted of sales of
mitomycin, and remaining product revenues in 1997 and 1996 consisted of sales of
other generic products purchased in 1997 and 1996 under a program that we have
discontinued.
In September 1997, we acquired exclusive worldwide rights to a patented
anticancer compound (RFS 2000), which is currently in Phase III human trials for
pancreatic cancer, the fifth leading cause of cancer death. This compound has
also shown activity against an array of solid tumors and hematological
malignancies in animal and initial human studies with a favorable side effect
profile.
Late in 1997, we filed for governmental approval for our first Extra
product, Mito Extra. The Food and Drug Administration accepted that filing for
review in February 1998 and we are responding to the comments we received from
them in December 1998. We intend to file for approval of several additional
Extra and generic anticancer products over the next several years.
Also, we have continued development of a proprietary blood cell disorder
product for the treatment of aplastic anemia (and other anemias associated with
chemotherapy, radiotherapy, and renal failure). Our proprietary obesity/diabetes
pill has shown promise in early preclinical and human studies. It is currently
in Phase II clinical trials for a genetic disorder leading to chronic obesity
and we plan to begin multi-center Phase I/II trials of this pill for Type II
diabetes. We have received Orphan Drug Designations for our aplastic anemia
agent and for our obesity pill for the treatment of a genetic disorder leading
to chronic obesity.
We expect our research and development expenses to increase as a result of
expanded clinical trials of RFS 2000, Nipent-Registered Trademark-, the Extra
product line and other drugs. We expect our marketing and sales expenses to
increase as we expand our United States direct sales and marketing organization.
In January 1999, we executed an agreement to acquire all of the outstanding
capital stock of Sparta Pharmaceuticals, Inc. for 650,000 shares (subject to
adjustment) of our common stock. Sparta has several anticancer compounds in
late-stage clinical development. The acquisition is subject to the approval of
Sparta's stockholders. If Sparta's stockholders approve the acquisition we
anticipate accounting for the acquisition using the purchase method of
accounting. Assuming that the SuperGen common stock market price used at the
time of acquisition is equal to the stock's closing price on March 12, 1999
($10.13) we estimate the purchase price for this acquisition would be
approximately $6.6 million. We believe that substantially all of this estimated
amount will represent an excess of the purchase price over the net book value of
Sparta's assets at the time of acquisition.
We expect our future operating results to fluctuate and these results will
depend on a variety of factors, including:
- Changes in our level of research and development, including the timing of
any expansion of clinical trials;
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<PAGE>
- Acquisitions of products, technology or companies owning such assets;
- Regulatory approvals of new products or expanded labeling of existing
products;
- The price, volume and timing of sales of our products;
- Our ability to successfully manufacture approved products for sale;
- The mix between Nipent-Registered Trademark- sales in the United States
and those under a supply agreement for sale outside North America;
- Variations in gross margins of our products, which may be affected by the
sales mix referred to above;
- Competitive pricing pressures; and,
- Fluctuations in manufacturing yields.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Total revenues were $3.0 million in 1998 compared to $1.8 million in 1997.
The increase in revenues was due primarily to higher sales volumes of
Nipent-Registered Trademark- in 1998. This volume increase resulted principally
from sales of Nipent-Registered Trademark- under a supply agreement for sale
outside North America. We began to sell mitomycin late in the second quarter of
1998 and revenues from sales of mitomycin contributed slightly to the overall
revenue increase.
Gross margin was higher in 1998 due primarily to lower
Nipent-Registered Trademark- unit costs. In 1998, virtually all
Nipent-Registered Trademark- sales consisted of our own manufactured inventory.
In 1997, sales of Nipent-Registered Trademark- consisted entirely of inventory
acquired from Warner-Lambert Company and the relatively high unit cost of that
inventory affected our margins. The unit cost of manufactured
Nipent-Registered Trademark- has been, and is expected to continue to be,
significantly lower than the unit cost assigned to the
Nipent-Registered Trademark- inventory acquired from Warner-Lambert Company.
This positive effect upon margin was partially offset by lower selling prices
for Nipent-Registered Trademark- sold under the supply agreement and a $667,000
charge to cost of sales for unabsorbed fixed product manufacturing costs. We
have limited Nipent-Registered Trademark- sales and manufacturing experience and
current Nipent-Registered Trademark- margins may not be indicative of future
margins due to variations in average selling prices and manufacturing costs.
Research and development expenses were $10.5 million in 1998 compared to
$8.6 million in 1997. Product formulation and development costs associated with
RFS 2000, Nipent-Registered Trademark- and mitomycin contributed to the overall
increase in expenses in 1998. Costs attributable to expansion of the research
and development staff also contributed to the increase in research and
development expense, as did our investment of $200,000 in a related party in the
first quarter of 1998.
Sales and marketing expenses were $3.2 million in 1998 compared to $2.0
million in 1997. This increase was primarily due to costs reflecting the
continued expansion of the sales and marketing group in 1998. Upon receiving NDA
approval to begin selling our own manufactured Nipent-Registered Trademark- we
began media advertising for Nipent-Registered Trademark- and expanded our
participation at strategic trade shows. Costs associated with these activities
also contributed to the overall increase in sales and marketing expenses.
General and administrative expenses were $3.8 million in 1998, compared to
$2.9 million in 1997. The increase was due principally to consultancy costs
relating to investor relations, patent related legal fees and information
technology services. Higher facilities and personnel costs also contributed to
the overall increase in expense. We moved into larger administrative offices in
March of 1997 and we have hired additional administrative staff to accommodate
increases in headcount and business activities.
20
<PAGE>
In 1997, we incurred the following charges for the acquisition of in-process
research and development:
- $831,000 related to the acquisition of the generic anticancer drug
etoposide; and
- A non-cash charge of $1,875,000 for the acquisition of RFS 2000.
- $800,000 consisting of non-cash charge of $750,000 and $50,000 of
additional cash expenses for the acquisition of a patent royalty agreement
and other intellectual property related to our obesity/ diabetes product
candidates, RF 1051.
We incurred no such charges in 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Total revenues were $1.8 million in 1997 compared to $264,000 in 1996.
Product revenues in 1997 and 1996 consisted primarily of sales of
Nipent-Registered Trademark- acquired in September 1996 and were limited to
inventory then acquired. The increase in revenues in 1997 was primarily due to
the increased volume resulting from a full year's sales of
Nipent-Registered Trademark- compared to only the fourth quarter's sales in
1996. The remainder of 1997 and 1996 sales related to the generic etoposide
inventory acquired in January 1997 and other generic products purchased in 1996.
We have no further plans to market etoposide as competition has eroded market
prices and potential margins below an acceptable level. In 1997, we concluded
our program of selling other generic products we had acquired in 1996. The
primary intent of this program was to establish a marketing presence and
initiate sales activities.
Gross margin was relatively low in both 1997 and 1996 primarily due to the
high cost assigned to Nipent-Registered Trademark- acquired in 1996.
Research and development expenses were $8.6 million in 1997 compared to $6.2
million in 1996. The increase in 1997 resulted from costs associated with a
higher number of research and development personnel and projects undertaken, as
well as increased legal and facilities costs and the cost of bulk drugs used for
product research. While overall expense was higher in 1997, costs associated
with clinical trials were lower stemming from a reduced level of clinical trial
activity in 1997.
Sales and marketing expenses were $2.0 million in 1997 compared to $982,000
in 1996. We began to sell products in the fourth quarter of 1996 and established
our sales staff shortly before then. The increase in expense in 1997 was
primarily due to the effects of a full year's payroll and related costs
associated with increased levels of staffing. Costs of promotional materials,
sales-related services and sales and marketing facilities also contributed to
the increased expense in 1997.
General and administrative expenses were $2.9 million in 1997 compared to
$1.9 million in 1996. The administrative resources needed to support our
increased activities in both research and development and sales and marketing
resulted in increased expense. Our payroll costs were higher in 1997 due to
increased staffing for administration, finance and investor relations. Service
provider costs were higher in 1997 primarily due to increased investor relations
activity following our initial public offering in March 1996. Legal costs were
also higher in 1997 due primarily to legal and other costs associated with our
first annual report and proxy statement.
We incurred charges for the acquisition of in-process research and
development of $3,506,000 (as described above) in 1997 compared to $442,000 in
1996. The 1996 charge was related to the acquisition of
Nipent-Registered Trademark-.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and marketable securities totaled $11.9 million
at December 31, 1998, compared to $23.3 million at December 31, 1997. The net
cash used in operating activities of $13.8 million in 1998 reflected the net
loss of $15.6 million partially offset by non-cash charges for depreciation,
stock
21
<PAGE>
options granted to consultants and the termination of a consultancy relationship
with a former director. Cash used for 1998 purchases of property and equipment
was $672,000, principally for equipment, fixtures and computer equipment at our
research facility established in Pleasanton, California, late in 1997.
We believe our cash, cash equivalents and investments in marketable
securities on-hand at December 31, 1998, together with the ability to borrow up
to $5 million under a secured promissory note executed in March 1999, will
satisfy our budgeted cash requirements at least through December 31, 1999. Our
primary planned uses of cash during that period are:
- Funding operations;
- Conducting clinical testing of RFS 2000, Nipent-Registered Trademark- and
product candidates;
- Marketing for expanded indications for Nipent-Registered Trademark- that
may be developed; and
- Continuing other research and development programs.
In December 1998, we sold 460,000 shares of common stock for net proceeds of
$2.632 million to an institutional investor.
We are actively considering future contractual arrangements that would
require significant financial commitments, particularly for clinical trials for
existing and new drug candidates and acquisition of product rights to additional
drug candidates. In addition, we may incur significant capital expenditures in
1999 for tenant improvements relating to new office facilities.
We are seeking additional funding through public or private financings or
collaborative or other arrangements with third parties. In evaluating potential
private placements and other forms of equity funding, we consider both our
liquidity needs and the dilutive effects of such financings upon our
stockholders. We seek additional equity funding only when necessary and when we
believe that we can negotiate a transaction that is in the best interest of the
Company and our stockholders. It has been our recent experience that private
placements of restricted stock have been the best source of funding available to
us. While we would prefer to offer registered stock through underwritten
offerings at market prices, we believe that market conditions and our stage of
development make it more difficult to enter into an underwritten offering.
We believe offering stock to private placement investors at a discount to
market is necessary to attract investors. For example, the private placement we
closed in August 1997 for approximately $9.8 million reflected a discount of
approximately 20% to the market price of our stock at that time. This discount
resulted from prior discussions with several of the participants and the selling
price was the highest amount we believed we could achieve given the restrictive
nature of the stock. In June 1997, we executed a private placement to Tako
Ventures, LLC ("Tako") an investment entity controlled by Lawrence J. Ellison,
Founder and Chairman of Oracle Corporation, for approximately $23 million. This
transaction reflected a discount of approximately 20% to the market price of our
stock and included further incentives in the form of options and warrants
granted to Tako. We considered the size of the Tako investment, the limited
number of events that could trigger further dilution and the anticipated
positive effect of adding Mr. Ellison to our Board of Directors to be
significant factors, which we believe warranted the incentives provided in this
transaction.
Also, we believe that private placements have substantially the same effect
upon existing stockholders as would underwritten offerings as stock prices
typically decline in reaction to announcements of underwritten secondary
offerings. Furthermore, underwriters' fees are typically more substantial than
costs associated with private placements.
We have no credit facility or other committed sources of capital other than
those described above. We cannot assure you that additional funds will be
available on acceptable terms, if at all. See "--Factors Affecting Future
Operating Results."
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<PAGE>
AFFECT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer software applications being
written using two rather than four digits to define a year. On January 1, 2000,
computers and other equipment using time sensitive software may not be able to
distinguish whether "00" means 1900 or 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, prepare invoices,
or engage in similar normal business activities.
We converted to new accounting software in 1998 and we believe that software
properly recognizes dates beyond December 31, 1999. We believe that no other
software programs that we currently use will require significant modification or
replacement to properly recognize dates beyond December 31, 1999. We have
initiated and maintain formal communications with significant contract
manufacturers, contract research organizations and certain other vendors to
determine the extent to which we are vulnerable to those third parties' failure
to address their own Year 2000 issues. Based upon those communications, we
believe that all significant computer software programs utilized by third
parties upon which we rely are either Year 2000 compliant or will be converted
to Year 2000 compliance prior to December 31, 1999.
Our total estimated cost of addressing and mitigating our Year 2000 issue is
less than $10,000.
One or more of our own or our business partners' software applications may
prove to be non-Year 2000 compliant. If so, we may experience difficulties on
and after January 1, 2000. Our worst case Year 2000 scenario would involve
delays in invoicing and shipping, inventory production, and clinical trial
documentation. We believe that such delays, if encountered, will be addressed
quickly and will not result in a material adverse affect upon our business,
results of operations, or cash flows.
We are developing a contingency plan to address a worst case Year 2000
scenario as described above and we plan to complete this contingency plan in the
second quarter of 1999.
FACTORS AFFECTING FUTURE OPERATING RESULTS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. OUR BUSINESS OPERATIONS MAY BE IMPAIRED BY
ADDITIONAL RISKS AND UNCERTAINTIES THAT WE DO NOT KNOW OF OR THAT WE CURRENTLY
CONSIDER IMMATERIAL.
OUR BUSINESS, RESULTS OF OPERATIONS OR CASH FLOWS MAY BE ADVERSELY AFFECTED
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR. IN SUCH CASE, THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THIS REPORT ALSO CONTAINS AND INCORPORATES BY REFERENCE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS, INCLUDING THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS
REPORT.
WE HAVE INCURRED LOSSES AND MAY NEVER ACHIEVE SIGNIFICANT REVENUES OR
PROFITABLE OPERATIONS. We have incurred cumulative losses of $56.0 million for
the period from inception through December 31, 1998. These losses include
non-cash charges of $7.5 million for the acquisition of in-process research and
development. We have not achieved profitability and we expect to continue to
incur substantial operating losses at least through 2000. Substantially all of
our revenues have come from sales of Nipent-Registered Trademark-, and we expect
this trend to continue for some time. Our ability to achieve profitability will
depend in part upon our ability to develop, obtain regulatory approval for and
successfully market Nipent-Registered Trademark- for other indications, and
bring several of our other proprietary products to market. Our ability to
achieve profitability will also depend upon a variety of other factors,
including the following:
- The price, volume and timing of sales of products;
- The mix between Nipent-Registered Trademark- sales in the United States
and those under a supply agreement with Warner-Lambert Company for sales
outside North America;
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<PAGE>
- Variations in gross margins of our products, which may be affected by
sales mix and competitive pricing pressures;
- Regulatory approvals of new products or expanded labeling of existing
products;
- Changes in the level of our research and development, including the timing
of any expansion of clinical trials; and
- Acquisitions of products or technology.
Our long-term success will also be affected by expenses, difficulties and
delays frequently encountered in developing and commercializing new
pharmaceutical products, competition, and the regulatory environment in which we
operate.
OUR PROPOSED PROPRIETARY PRODUCTS WILL REQUIRE SIGNIFICANT ADDITIONAL
DEVELOPMENT. Our proposed proprietary products are in the development rather
than the research stage. However, we must significantly develop all of our
proposed products before we can market them. Although we believe that our
preclinical and pilot clinical studies support further development of our
proprietary products, the results we have obtained to date do not necessarily
indicate results of further testing, including controlled human clinical
testing. All of the potential proprietary products that we are currently
developing will require extensive clinical testing before we can submit any
regulatory application for their commercial use.
OUR PRODUCT DEVELOPMENT EFFORTS MAY ULTIMATELY FAIL. Our proposed
proprietary products and our proposed Extra and generic products are subject to
the risks of failure inherent in the development of pharmaceutical products.
These risks include the following:
- Some of our potential products may be found to be unsafe or ineffective,
or may fail to receive the necessary regulatory clearances in a timely
fashion, if at all;
- Our products, if safe and effective, may be difficult to manufacture on a
large scale or may be uneconomical to market;
- The proprietary rights of third parties may preclude us from marketing
such products; and
- Third parties may market more effective or less costly products for
treatment of the same diseases.
As a result, we cannot be certain that any of our products will be
successfully developed, receive required governmental regulatory approvals on a
timely basis, become commercially viable or achieve market acceptance. Also, we
have only limited experience in conducting clinical trials and other aspects of
the regulatory process.
Our generic products and our potential Extra products based on generic
products are also subject to additional risks. These risks relate to the
expiration or anticipated expiration of the patents for the underlying drug. For
instance, although the original period of exclusivity for
Taxol-Registered Trademark- expired in December 1997 and the patent for
cisplatin expired in December 1996, the FDA has granted Bristol Myers Squibb
extended patent protection for both drugs. We expect that other companies
interested in marketing generic versions of these drugs will challenge these
patent extensions but we do not have the financial or other resources to do so.
We cannot be certain that the issues relating to these patents will be resolved
favorably or in a timely manner. In addition, similar patent or other
intellectual property issues could affect other Extra and generic products or
potential products. An unfavorable resolution or significant delays in the
resolution of such issues could significantly limit or prevent our ability to
compete in these marketplaces and could adversely effect our business, results
of operations and cash flows. In addition, because of the lack of proprietary
protection of generic products, such products could face intense competition and
prices and gross profit margins could be significantly eroded. See
"--Competition."
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<PAGE>
WE WILL NEED ADDITIONAL FINANCING WHICH MAY NOT BE READILY AVAILABLE. We
expect that we will need substantial additional funding. Our business, results
of operations and cash flows will be adversely affected if we fail to obtain
adequate funding in a timely manner.
Our funding requirements will depend on many factors, including:
- The progress of our development programs;
- The availability of additional drugs or drug candidates for acquisition or
in-licensing;
- The availability of companies as potential acquisition or merger
candidates;
- Future revenue growth, if any;
- The amount of cash generated, if any, by our operations;
- The timing and receipt of regulatory approvals;
- The costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual property
rights;
- Developments related to reimbursement matters;
- Competing technological and market developments; and
- The need for additional office and manufacturing facilities to accommodate
any growth.
We anticipate that our existing capital resources will be adequate to fund
operations and capital expenditures at least through December 31, 1999. However,
if we experience unanticipated cash requirements during this period, we could
require additional funds much sooner. We cannot be certain that any such funding
will occur, or if it occurs, that it will be on favorable terms. Also, the
dilutive effect of equity funding may adversely affect our results per share.
OUR BUSINESS WILL SUFFER IF WE FAIL TO COMPLY WITH GOVERNMENTAL
REGULATIONS. Our research, testing, manufacturing, labeling, distribution,
marketing and advertising activities are regulated extensively by governmental
authorities in the United States. If we fail to comply with these regulatory
requirements, we may be subject to regulatory or judicial enforcement actions.
Such actions could include product recalls or seizures, injunctions, civil
penalties, criminal prosecution, refusals to approve new products, withdrawal of
existing approvals and potentially enhanced product liability exposure.
OUR BUSINESS WILL SUFFER IF WE FAIL TO OBTAIN REGULATORY MANUFACTURING OR
MARKETING APPROVALS IN A TIMELY MANNER. The FDA and comparable agencies in
foreign countries impose substantial requirements for the introduction of new
pharmaceutical products through lengthy and detailed clinical testing
procedures, sampling activities and other costly and time-consuming compliance
procedures. We have obtained clearance from the FDA related to our
Nipent-Registered Trademark- manufacturing processes, Marketing Approval for
internally developed mitomycin and approval of sources of bulk drugs for our
Extra and generic products. However, we have not yet received Marketing Approval
for any of our internally developed proprietary products. Our proprietary drugs
and Extra drugs may require substantial clinical trials and FDA review as new
drugs. Our generic drugs require both approval of the bulk source of the drug
and FDA approval of their final formulation. We cannot predict with certainty if
or when we might submit for regulatory review those products currently under
development. Once we submit our potential products for review, we cannot assure
you that the FDA or other regulatory agencies will grant approvals for any of
our pharmaceutical products on a timely basis or at all. For example, we
initially believed that the FDA would abbreviate the approval process for our
Extra products. However, the FDA is reviewing Mito Extra, our first Extra
product submission, as a new drug. Sales of our products outside the United
States will be subject to regulatory requirements governing clinical trials and
Marketing Approval. These requirements vary widely from country to country and
could delay the introduction of our products in those countries.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR
INTELLECTUAL PROPERTY. We will suffer negative consequences if competitors
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets, if our trade secrets are disclosed
or if we cannot effectively protect our rights to unpatented trade secrets.
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<PAGE>
We actively seek patent protection for our proprietary products and
technologies. We have a number of United States patents and we have licenses to
or assignments of numerous issued United States patents. However, litigation may
be necessary to protect our patent position, and we cannot be certain that we
will have the required resources to pursue such litigation or otherwise to
protect our patent rights. Our efforts to protect our patents may fail. In
addition to pursuing patent protection in appropriate cases, we also rely on
trade secret protection for unpatented proprietary technology. However, trade
secrets are difficult to protect.
Our proprietary products are dependent upon compliance with certain licenses
and agreements. These licenses and agreements require us to make certain royalty
and other payments, reasonably exploit the underlying technology of the
applicable patents, and comply with certain regulatory filings. If we fail to
comply with such licenses and agreements, we could lose the underlying rights to
one or more of these potential products, which could adversely effect our
business, results of operations and cash flows.
Claims may be brought against us in the future based on patents held by
others. Such other persons could bring legal actions against us claiming damages
and seeking to enjoin clinical testing, manufacturing and marketing of the
affected product. If any actions are successful, in addition to any potential
liability for damages, we could be required to obtain a license in order to
continue to manufacture or market the affected product. We cannot assure you
that we would prevail in any such action or that we could obtain any license
required under any such patent on acceptable terms, if at all. There has been,
and we believe that there will continue to be, significant litigation in the
pharmaceutical industry regarding patent and other intellectual property rights.
If we become involved in any litigation, it could consume a substantial portion
of our resources, regardless of the outcome of such litigation.
Extensive research and development efforts and rapid technological progress
characterize our industry. Although we believe that our proprietary position
gives us a competitive advantage with respect to our proposed non-generic drugs,
we anticipate that development will continue and discoveries by others may
render our current and potential products noncompetitive. In addition, we have
only limited experience in selling and marketing pharmaceutical products. Our
competitive position also depends on our ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products,
implement development and marketing plans, obtain patent protection and secure
adequate capital resources.
BECAUSE WE ARE DEPENDENT ON THIRD PARTIES FOR MANUFACTURING OUR BUSINESS MAY
BE HARMED. We currently rely on vendors for manufacturing activities related to
Nipent-Registered Trademark- and our generic version of mitomycin. The
facilities used by these vendors have passed plant inspections required by the
FDA before market clearance of all pharmaceutical products. The FDA conducts
these inspections to ensure compliance with current Good Manufacturing Practices
("cGMP") regulations enforced by the FDA. If the facilities fail to maintain
their cGMP status, or there is an interruption at any of these facilities due to
the occurrence of a fire, natural disaster, equipment failure or other
condition, we may not be able to locate other facilities that are FDA-approved
for manufacturing activities in a timely manner or on commercially acceptable
terms.
In addition, we store the majority of our Nipent-Registered Trademark- crude
concentrate at a single storage location. Improper storage, fire, natural
disaster, theft or other conditions at this location that may lead to the loss
or destruction of our Nipent-Registered Trademark- crude concentrate could
adversely affect our business, results of operations and cash flows. We are
currently negotiating a long-term agreement with the vendor that purifies our
current supply of crude concentrate to continue its purification services.
However, we cannot assure you that we will be able to finalize such an
agreement. If we are not able to do so, our supply of
Nipent-Registered Trademark- may be interrupted while we seek to locate another
facility and to have that facility approved by the FDA. Such a delay could
adversely affect our business, results of operations and cash flows.
We will encounter similar issues with respect to any potential products that
the FDA clears for sale. We must establish and maintain relationships with
manufacturers to produce and package our finished pharmaceutical products,
including RFS 2000. In addition, the FDA must clear the facilities used by these
contract manufacturers. If we are unable to obtain or retain third-party
manufacturing on commercially
26
<PAGE>
acceptable terms or obtain necessary FDA clearances to manufacture the products
currently being developed, we may not be able to commercialize pharmaceutical
products as planned. Our dependence upon third parties for the manufacture of
pharmaceutical products may adversely affect our profit margins and our ability
to develop and deliver pharmaceutical products on a timely and competitive
basis.
We currently rely on foreign manufacturers for the production of certain of
bulk Extra and generic formulations and on domestic manufacturers to supply
sufficient quantities of compounds to conduct clinical trials on proposed
proprietary products. If we are unable to contract for or obtain a sufficient
supply of pharmaceutical products on acceptable terms, or such supplies are
delayed or contaminated, we could experience significant reductions in sales,
delays in bringing our proposed proprietary, Extra and generic products to
market, delays in preclinical and human clinical testing schedules, and delays
in submitting products for regulatory approval and initiating new development
programs. Any of these factors could adversely affect our business, results of
operations and cash flows.
We do not currently intend to manufacture any pharmaceutical products,
although we may choose to do so in the future. If we decide to manufacture
products, we will be subject to the regulatory requirements described above. We
will also be subject to similar risks regarding delays or difficulties
encountered in manufacturing any such pharmaceutical product and we will require
additional facilities and substantial additional capital. In addition, we have
only limited experience in manufacturing pharmaceutical products. We cannot
assure you that we would be able to manufacture any such product successfully
and in a cost-effective manner.
IF WE LOSE THE SERVICES OF CERTAIN KEY EMPLOYEES, OUR BUSINESS WILL BE
HARMED. Our success is dependent on certain key management and scientific
personnel, including Dr. Joseph Rubinfeld, the loss of whose services could
significantly affect our ability to achieve our planned development objectives.
We maintain a key executive life insurance policy for $2.1 million on Dr.
Rubinfeld. The loss of key personnel or the inability to attract and retain the
additional, highly skilled personnel required for the expansion of our
activities could adversely affect our business, results of operations and cash
flows.
THE CONTINUING EFFORTS OF GOVERNMENT AND THIRD-PARTY PAYERS TO CONTAIN OR
REDUCE THE COSTS OF HEALTH CARE MAY ADVERSELY AFFECT OUR REVENUES AND
PROFITABILITY. We cannot predict the effect that health care reforms may have
on our business, and it is possible that any such reforms will adversely affect
our business. In addition, in both the United States and elsewhere, sales of
prescription pharmaceuticals are dependent in part on the availability of
reimbursement to the consumer from third-party payers, such as government and
private insurance plans. Third-party payers are increasingly challenging the
prices charged for medical products and services. If our current and proposed
products are not considered cost-effective, reimbursement to the consumer may
not be available or be sufficient to allow us to sell products on a competitive
basis.
THE NATURE OF OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY CLAIMS. Clinical
trials or marketing of any of our current and potential pharmaceutical products
may expose us to liability claims from the use of such pharmaceutical products.
We currently carry product liability insurance. However, we cannot be certain
that we will be able to maintain insurance on acceptable terms for clinical and
commercial activities or that such insurance would be sufficient to cover any
potential product liability claim or recall.
OUR OFFICERS AND DIRECTORS OWN A SIGNIFICANT PORTION OF OUR STOCK AND THEY
MAY NOT ACT IN THE BEST INTEREST OF OTHER STOCKHOLDERS. Our officers and
directors beneficially own approximately 30% of the outstanding shares of Common
Stock. Beneficial ownership includes shares of Common Stock subject to options
exercisable at May 11, 1999. These stockholders, if acting together, may be able
to elect all of our directors and otherwise significantly influence matters
requiring approval by our stockholders. This concentration of ownership and the
lack of cumulative voting may also delay or prevent a third party from acquiring
us.
27
<PAGE>
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Due to the short-term nature of our interest bearing assets we believe that
our exposure to interest rate market risk is not significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
All information required by this item is included on pages F-1 to F-17 in
Item 14 of Part IV of this Report and is incorporated into this item by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding our Board of Directors is incorporated by reference to
the section entitled "Election of Directors" appearing in our proxy statement
for the annual meeting of stockholders to be filed with the Commission by April
30, 1999. Certain information with respect to persons who are or may be deemed
to be executive officers of the Registrant is set forth under the caption
"Executive Officers of the Registrant" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is incorporated by reference to
the information set forth under the caption "Executive Compensation" in our
Proxy Statement for the Annual Meeting of Stockholders to be filed with the
Commission by April 30, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the information set forth under the
caption "Voting Securities of Principal Stockholders and Management" in our
Proxy Statement for the Annual Meeting of Stockholders to be filed with the
Commission by April 30, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is
incorporated by reference to the information set forth under the caption
"Certain Transactions" in our Proxy Statement for the Annual Meeting of
Stockholders to be filed with the Commission by April 30, 1999.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. FINANCIAL STATEMENTS. The following financial statements of the
Company and the Report of Ernst & Young LLP, Independent Auditors, are
included in Part IV of this Report on the pages indicated:
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................................... F-1
Consolidated Balance Sheets............................................................ F-2
Consolidated Statements of Operations.................................................. F-3
Consolidated Statement of Changes in Stockholders' Equity.............................. F-4
Consolidated Statements of Cash Flows.................................................. F-5
Notes to Consolidated Financial Statements............................................. F-6
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or
the notes thereto.
3. EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- ------------------------------------------------------------
<C> <S>
(f)3.1 Certificate of Incorporation of the Registrant.
(m)3.2 Bylaws, as amended, of the Registrant.
(m)4.1 Specimen Common Stock Certificate.
(a)4.2 Form of Representative's Warrant.
(a)4.3 Form of Warrant Agreement (including form of Common Stock
Purchase Warrant).
(l)10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
(n)10.2 1993 Stock Option Plan (as amended through March 9, 1998)
(i)10.3 Forms of stock option agreements under the 1993 Stock Option
Plan.
(i)10.4 1996 Directors' Stock Option Plan, as amended effective
February 3, 1997, and form of stock option agreement
thereunder.
(c)10.5 Employees and Consultants Stock Option Agreement/Plan.
(n)10.6 1998 Employee Stock Purchase Plan
(b)(q)10.7 Patent License and Royalty Agreement dated August 30, 1993
between the Registrant and The Jackson Laboratory.
(b)(q)10.8 Worldwide License Agreement dated March 1, 1994 between the
Registrant and Janssen Biotech, N.V.
(b)(q)10.9 Patent License Agreement dated March 1, 1994 between the
Registrant and Cyclex Inc.
(b)(q)10.10 Patent License and Royalty Agreement dated November 15, 1993
between the Registrant and The Long Island Jewish Medical
Center.
(b)(q)10.11 License Agreement dated February 1, 1995 between the
Registrant and Pharmos Corporation.
(i)10.12 Common Stock Sale/Repurchase Agreement dated August 6, 1997
between Israel Chemicals, Ltd. ("ICL") and the Registrant.
(m)10.13 First Amendment to Common Stock Sale/Repurchase Agreement
between ICL and the Registrant dated November 12, 1997.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- ------------------------------------------------------------
<C> <S>
(m)10.14 Amended and Restated Employment, Confidential Information
and Invention Assignment Agreement dated January 1, 1998
between the Registrant and Joseph Rubinfeld.
(b)10.15 Consulting Agreement between the Registrant and Vida
International Pharmaceutical Consultants.
(d)10.16 Purchase and Sale Agreement dated as of September 30, 1996
between the Registrant and Warner-Lambert Company, a
Delaware corporation.
(e)(q)10.17 Asset Purchase Agreement dated January 15, 1997 between the
Registrant and Immunex Corporation, a Washington
corporation.
(e)10.18 Bishop Ranch Business Park Building Lease dated October 14,
1996 between the Registrant and Annabel Investment
Company, a California partnership.
(g)(q)10.19 License Agreement between Inflazyme Pharmaceuticals Ltd. and
the Registrant dated April 11, 1997.
(g)(q)10.20 Nonexclusive Supply Agreement between the Registrant and
Yunnan Hande Technological Development Co. Ltd. dated May
7, 1997.
(g)10.21 Assignment and Assumption Agreement between the Registrant
and R&S, LLC, dated April 17, 1997.
(h)10.22 Convertible Secured Note, Option and Warrant Purchase
Agreement dated June 17, 1997 among the Registrant, Tako
Ventures, LLC and, solely as to Sections 5.3 and 5.5
thereof, Lawrence J. Ellison (the "Tako Purchase
Agreement").
10.23 Amendment No. 1 to the Tako Purchase Agreement dated March
17, 1999.
(j)10.24 Form of Common Stock Purchase Agreement among the purchasers
and the Registrant dated August 29, 1997.
(j)(q)10.25 License Agreement between Stehlin Foundation for Cancer
Research and the Registrant dated September 3, 1997.
(j)10.26 Letter Agreement dated August 13, 1997 between the
Registrant and South Bay Construction, Inc.
(k)(q)10.27 Supply Agreement dated October 20, 1997 between the
Registrant and Warner-Lambert Company.
(l)10.28 Standard Industrial/Commercial Multi-Tenant Lease dated
October 13, 1997 between R&S, LLC and Quark Biotech, Inc.
10.29 Registration Rights Agreement dated November 23, 1998.
(o)10.30 Agreement and Plan of Reorganization by and among the
Registrant, Royale Acquisition Corp., and Sparta
Pharmaceuticals, Inc. dated as of January 18, 1999.
10.31 Stock Purchase Agreement between the Registrant and Tako
dated January 29, 1999.
10.32 Standard Industrial/Commercial Multi-Tenant Lease dated
February 12, 1999 between the Registrant and Sea Cliff
Properties, a California general partnership (for the
premises at 1075 Serpentine Lane, Pleasanton, California,
Suite A).
10.33 Standard Industrial/Commercial Multi-Tenant Lease dated
February 12, 1999 between the Registrant and Sea Cliff
Properties, a California general partnership (for the
premises at 1075 Serpentine Lane, Pleasanton, California,
Suite B).
10.34 Secured Promissory Note Commitment dated March 25, 1999
issued by the Registrant to Tako.
10.35 Common Stock Purchase Warrant dated March 25, 1999.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- ------------------------------------------------------------
<C> <S>
(p)(q)10.36 Letter of Intent regarding Nipent--Registered Trademark--
Manufacturing.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(a) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-476-LA) filed with the Securities and Exchange
Commission January 18, 1996.
(b) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed with the
Securities and Exchange Commission February 26, 1996.
(c) Incorporated by reference from the Registrant's Report on Form S-8 filed
with the Securities and Exchange Commission on July 1, 1996.
(d) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 15, 1996.
(e) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1997.
(f) Incorporated by reference from the Registrant's Proxy Statement filed with
the Securities and Exchange Commission on April 25, 1997.
(g) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on May 15, 1997.
(h) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on July 2, 1997.
(i) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on August 13, 1997.
(j) Incorporated by reference from Amendment No. 2 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission October 6, 1997.
(k) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 31, 1997.
(l) Incorporated by reference from Amendment No. 3 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission November 5, 1997.
(m) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 19, 1998.
(n) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 (Reg. No. 333-58303) filed with the Securities and Exchange
Commission on July 1, 1998.
(o) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on January 28, 1999.
(p) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on November 12, 1998.
(q) Confidential treatment has been previously granted for certain portions of
these exhibits.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed in 1998.
(c) EXHIBITS. See Item 14(a) above.
(d) FINANCIAL STATEMENT SCHEDULES. See Item 14(a) above.
31
<PAGE>
Board of Directors and Stockholders
SuperGen, Inc.
We have audited the accompanying consolidated balance sheets of SuperGen,
Inc. as of December 31, 1998 and 1997, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SuperGen, Inc.
at December 31, 1998 and 1997 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
March 25, 1999
F-1
<PAGE>
SUPERGEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................. $ 8,614 $ 23,326
Marketable securities..................................................................... 3,299 --
Accounts receivable, net.................................................................. 712 64
Inventories............................................................................... 1,245 1,428
Due from related parties.................................................................. 91 570
Prepaid expenses and other current assets................................................. 615 493
--------- ---------
Total current assets.................................................................... 14,576 25,881
Property, plant and equipment, net.......................................................... 2,939 2,906
Developed technology at cost, net........................................................... 1,266 1,289
Investment in preferred stock of related party.............................................. 500 500
Due from related party...................................................................... 450 80
Other assets................................................................................ 62 116
--------- ---------
Total assets............................................................................ $ 19,793 $ 30,772
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................................................. $ 2,451 $ 1,243
Accrued employee benefits................................................................. 524 212
Amount due under asset purchase agreement................................................. -- 750
--------- ---------
Total current liabilities............................................................... 2,975 2,205
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized; none outstanding........... -- --
Common stock, $.001 par value; 40,000,000 shares authorized; 20,969,953 and 20,177,696
shares issued and outstanding at December 31, 1998 and December 31, 1997,
respectively............................................................................ 21 20
Additional paid in capital................................................................ 72,818 68,956
Accumulated other comprehensive loss...................................................... (128) (93)
Accumulated deficit....................................................................... (55,893) (40,316)
--------- ---------
Total stockholders' equity.............................................................. 16,818 28,567
--------- ---------
Total liabilities and stockholders' equity.............................................. $ 19,793 $ 30,772
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
F-2
<PAGE>
SUPERGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Net sales....................................................................... $ 3,004 $ 1,802 $ 264
Operating expenses:
Cost of sales................................................................. 1,925 1,539 283
Research and development...................................................... 10,511 8,583 6,152
Sales and marketing........................................................... 3,232 2,018 982
General and administrative.................................................... 3,814 2,934 1,912
Acquisition of in-process research and development............................ -- 3,506 442
---------- ---------- ---------
Total operating expenses.................................................... 19,482 18,580 9,771
---------- ---------- ---------
Loss from operations............................................................ (16,478) (16,778) (9,507)
Interest income................................................................. 901 782 749
---------- ---------- ---------
Net loss........................................................................ $ (15,577) $ (15,996) $ (8,758)
---------- ---------- ---------
---------- ---------- ---------
Basic net loss per common share................................................. $ (0.77) $ (0.85) $ (0.55)
---------- ---------- ---------
---------- ---------- ---------
Weighted average shares used in basic net loss per common share calculation..... 20,353 18,765 15,961
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes
F-3
<PAGE>
SUPERGEN, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
-------------- PAID IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL LOSS DEFICIT TOTAL
------ ------ ------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996............. 12,752 $13 $17,200 $ -- $(15,562) $ 1,651
Net loss.............................. -- (8,758) (8,758)
Issuance of common stock and
warrants............................ 27 -- 134 -- -- 134
Issuance of common stock and warrants
in connection with the initial
public offering, net of offering
costs of $2,615..................... 4,024 4 21,527 -- -- 21,531
Issuance of common stock upon exercise
of warrants and stock options....... 55 -- 326 -- -- 326
Issuance of common stock for
acquisition of developed
technology.......................... 72 -- 700 -- -- 700
Compensation expense from grants of
options to vendors and acceleration
of option vesting................... -- -- 123 -- -- 123
------ ------ ------- ----- ----------- --------
Balances at December 31, 1996........... 16,930 17 40,010 -- (24,320) 15,707
Comprehensive loss:
Net loss............................ -- -- -- -- (15,996) (15,996)
Other comprehensive loss--Unrealized
loss on investments............... -- -- -- (93) -- (93)
--------
Comprehensive loss.................... (16,089)
Issuance of common stock and warrants
in connection with the Tako
Ventures, LLC private placement, net
of offering costs of $268........... 2,550 3 22,679 -- -- 22,682
Repurchase of common stock from Israel
Chemicals, Ltd, including
transaction costs of $26............ (740) (1) (7,891) -- -- (7,892)
Issuance of common stock in connection
with a private placement, net of
offering costs of $4................ 889 1 9,773 -- -- 9,774
Issuance of common stock for
acquisition of in-process research
and development..................... 183 -- 1,875 -- -- 1,875
Issuance of common stock upon exercise
of warrants and stock options....... 366 -- 2,179 -- -- 2,179
Compensation expense from grants of
options to vendors and acceleration
of option vesting................... -- -- 331 -- -- 331
------ ------ ------- ----- ----------- --------
Balances at December 31, 1997........... 20,178 20 68,956 (93) (40,316) 28,567
Comprehensive loss:
Net loss............................ -- -- -- -- (15,577) (15,577)
Other comprehensive loss--Unrealized
loss on investments............... -- -- -- (35) -- (35)
--------
Comprehensive loss.................... (15,612)
Issuance of common stock in connection
with a private placement, net of
offering costs of $368.............. 460 1 2,631 -- -- 2,632
Issuance of common stock for
acquisition of patent royalty
agreement and other intellectual
property............................ 75 -- 750 -- -- 750
Issuance of common stock upon exercise
of warrants and stock options....... 134 -- 190 -- -- 190
Issuance of common stock in connection
with employee stock purchase plan... 16 -- 103 -- -- 103
Issuance of common stock to Tako
Ventures, LLC....................... 107 -- -- -- -- --
Compensation expense from grants of
options to vendors and acceleration
of option vesting................... -- -- 188 -- -- 188
------ ------ ------- ----- ----------- --------
Balances at December 31, 1998........... 20,970 $21 $72,818 $(128) $(55,893) $ 16,818
------ ------ ------- ----- ----------- --------
------ ------ ------- ----- ----------- --------
</TABLE>
See accompanying notes
F-4
<PAGE>
SUPERGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss..................................................................... $ (15,577) $ (15,996) $ (8,758)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................ 585 470 119
Gain on sale of property and equipment................................... (19) -- --
Stock options granted to consultants..................................... 188 331 123
Non-cash charges related to acquisition of in-process research and
development............................................................ -- 2,625 --
Changes in operating assets and liabilities:
Accounts receivable.................................................... (648) 57 (120)
Inventories............................................................ 183 146 (1,574)
Prepaid expenses and other assets...................................... (116) 51 (389)
Accounts payable and other liabilities................................. 1,520 (159) 1,028
Due to related parties................................................. -- (334) 128
Due from related parties............................................... 109 (650) --
Amount due under asset purchase agreements............................. -- (500) --
---------- ---------- ---------
Net cash used in operating activities.......................................... (13,775) (13,959) (9,443)
Investing activities:
Purchases of marketable securities........................................... (5,363) 167 --
Sale of marketable securities................................................ 2,077 -- --
Purchase of property and equipment........................................... (672) (2,556) (377)
Sale of property and equipment............................................... 96 -- --
Acquisition of developed technology.......................................... -- (150) (70)
Purchase of equity investment in related party............................... -- (500) --
---------- ---------- ---------
Net cash used in investing activities:......................................... (3,862) (3,373) (447)
Financing activities:
Issuance of common stock and warrants, net of offering costs................. 2,925 34,635 21,990
Repurchase of common stock................................................... -- (7,892) --
---------- ---------- ---------
Net cash provided by financing activities...................................... 2,925 26,743 21,990
---------- ---------- ---------
Net (decrease) increase in cash and cash equivalents........................... (14,712) 9,411 12,100
Cash and cash equivalents at beginning of year................................. 23,326 13,915 1,815
---------- ---------- ---------
Cash and cash equivalents at end of year....................................... $ 8,614 $ 23,326 $ 13,915
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes
F-5
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SuperGen, Inc. ("we", "us" or the "Company") was incorporated in California
in March 1991. We changed our state of incorporation to Delaware in 1997. We are
a pharmaceutical company dedicated to the acquisition, development and
commercialization of products to treat life-threatening diseases, particularly
cancer and blood cell (hematological) disorders and other serious conditions
such as obesity and diabetes. We operate in one industry segment--the
pharmaceutical industry. We were a development stage company through September
30, 1997, and our activities during that time consisted primarily of performing
research and development, raising capital and recruiting personnel. We began
marketing acquired anticancer products in the United States during the fourth
quarter of 1996 and we are developing a portfolio of anticancer drugs, many of
which are proprietary. We are also developing a group of proprietary blood cell
disorder products for the treatment of anemia associated with renal failure,
chemotherapy, radiotherapy, and aplastic anemia. Our proprietary obesity pill,
which we are developing for chronic genetic obesity and general obesity, is in
Phase II clinical studies. We are commencing phase I/II trials of this pill for
Type II diabetes.
At December 31, 1998 our stockholders' equity was $16,818,000 and our
accumulated deficit was $55,893,000 and our cash, cash equivalents and
marketable securities totaled $11,913,000. We will need to obtain additional
funds to continue our research and development activities, fund operating
expenses and fund the market launch of our product candidates. We believe that
we will be able to obtain additional funds through product sales, private equity
or debt financings, collaborative or other arrangements with corporate partners
or from other sources. In March 1999, we entered into a promissory note under
which we may borrow up to $5 million (see Note 9). If adequate funds are not
available, we may need to reduce our level of spending, eliminate one or more of
our research or development programs, or reduce marketing and other product
related costs.
PRINCIPLES OF CONSOLIDATION
Our consolidated financial statements include the accounts of two
wholly-owned subsidiaries, which are immaterial.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results may differ from those estimates.
REVENUE RECOGNITION
Our net sales relate principally to one pharmaceutical product. We recognize
sales revenue upon shipments to customers, with allowances provided for
estimated returns. We established a reserve for product returns in 1996. In 1996
and 1997 we charged additions to the reserve of $62,000 and $210,000,
respectively, to sales. In 1997, we applied $33,000 of the reserve to products
returned by customers. In 1998, we relieved the reserve in the net amount of
$85,000 and we applied $93,000 of the reserve to products returned by customers.
F-6
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Our principal customers are clinics, hospitals and hospital buying groups in
the United States and drug distributors and wholesalers in the United States and
Europe. We do not require collateral from our customers.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash and cash equivalents include bank demand deposits, certificates of
deposit, marketable securities with maturities of three months or less and money
market funds which invest primarily in U.S. government obligations and
commercial paper. These instruments are highly liquid and are subject to
insignificant market risk.
Marketable securities consist of corporate or government debt securities and
equity securities that have an ascertainable market value and are readily
marketable. These investments are reported at fair value. All marketable
securities are designated as available-for-sale, with unrealized gains and
losses included in equity.
The following is a summary of available-for-sale securities as of December
31, 1998 (in thousands):
<TABLE>
<CAPTION>
GROSS
AMORTIZED UNREALIZED ESTIMATED
COST GAINS (LOSSES) FAIR VALUE
----------- --------------- -----------
<S> <C> <C> <C>
U.S. corporate debt securities............................................ $ 2,220 $ 2 $ 2,222
U.S. government debt securities........................................... 1,223 11 1,234
Marketable equity security................................................ 167 (141) 26
----------- ----- -----------
Total................................................................. $ 3,610 $ (128) $ 3,482
----------- ----- -----------
----------- ----- -----------
</TABLE>
<TABLE>
<CAPTION>
GROSS
AMORTIZED UNREALIZED ESTIMATED
COST GAINS (LOSSES) FAIR VALUE
----------- --------------- -----------
<S> <C> <C> <C>
Amounts included in cash and cash equivalents............................. $ 157 $ -- $ 157
Marketable securities, current............................................ 3,286 13 3,299
Other assets, non-current................................................. 167 (141) 26
----------- ----- -----------
Total................................................................. $ 3,610 $ (128) $ 3,482
----------- ----- -----------
----------- ----- -----------
</TABLE>
Available-for-sale securities at December 31, by contractual maturity, are
shown below (in thousands):
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Debt securities
Due in one year or less................................................... $ 1,391 $ --
Due after one year through three years.................................... 2,065 --
--------- ---------
3,456 --
Marketable equity security.................................................. 26 74
--------- ---------
Total..................................................................... $ 3,482 $ 74
--------- ---------
--------- ---------
</TABLE>
Realized gains and losses for the year ended December 31 1998, were not
material. At December 31, 1997, available for sale securities consisted of one
marketable equity security with amortized cost of $167,000 and an unrealized
loss of $93,000.
F-7
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUITY INVESTMENTS
Equity investments in securities without a readily determinable fair value
are either expensed upon acquisition or carried at cost, depending upon our
estimate of the near term viability of the investee and underlying net assets.
We periodically review those carried at cost and believe the amounts continue to
be realizable.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market value. Inventories were as follows at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Raw materials.............................................................. $ 210 $ 235
Work in process............................................................ 511 720
Finished goods............................................................. 524 473
--------- ---------
$ 1,245 $ 1,428
--------- ---------
--------- ---------
</TABLE>
Bulk materials for our primary pharmaceutical product must be purified at a
United States Food and Drug Administration (FDA) approved facility that meets
stringent Good Manufacturing Practices standards. We currently use a single
vendor to perform this manufacturing process using our own equipment located at
the vendor's site. We have contracted with a separate vendor to manufacture the
Nipent-Registered Trademark- finished dosage at its approved facility. In
addition, we store the majority of our bulk raw materials at a single storage
location. Although there are a limited number of vendors who may be qualified to
perform these services, we believe that other vendors could be engaged to
provide similar services on comparable terms. However, the time required to
locate and qualify other vendors or replace lost bulk inventory could cause a
delay in manufacturing that might be financially and operationally disruptive.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of building,
equipment and furniture and fixtures is provided on a straight-line basis over
the estimated original useful lives of the respective assets, which range from 3
to 31 years. Manufacturing equipment is amortized to cost of sales on a units-
manufactured basis expected to approximate six years. Leasehold improvements are
amortized over the shorter of the life of the lease or their estimated useful
lives using the straight-line method.
Property, plant and equipment consist of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Land and building.......................................................... $ 1,867 $ 1,666
Equipment.................................................................. 509 707
Furniture and fixtures..................................................... 1,395 930
--------- ---------
Total property and equipment............................................... 3,771 3,303
Less accumulated depreciation and amortization............................. (832) (397)
--------- ---------
Property, plant and equipment, net......................................... $ 2,939 $ 2,906
--------- ---------
--------- ---------
</TABLE>
F-8
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
We review long-lived assets and identifiable intangible assets to be held
and used, or disposed of, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. We assess the impairment of long-lived assets, including developed
technology, based upon the estimated future cash flows from these assets.
ACQUISITION COSTS
The costs related to the acquisition of an approved drug are allocated among
all the various assets purchased, which typically include inventory and
developed technology. Inventory is recorded at its selling price, less the cost
required to finish it, the cost to sell it, and the profit associated with those
efforts. Developed technology is valued using the income approach, which
requires that future revenues and the related manufacturing, selling and other
expenses be estimated. The resulting cash flows are then discounted to the
acquisition date using a discount rate reflecting the risks associated with
achieving those revenues.
DEVELOPED TECHNOLOGY
We amortize developed technology to cost of sales on a units-manufactured
basis over a period expected to approximate six years. We periodically assess
recoverability of developed technology based upon expected future cash flows of
the related product.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. We incurred $418,000 in
advertising costs in 1998, $227,000 in 1997. No advertising costs were incurred
in 1996.
SEGMENT INFORMATION
Our single largest customer in 1998 was Warner-Lambert Company, with whom we
have a supply agreement wherein we supply Nipent-Registered Trademark- to them
for sale outside of North America. Other major customers responsible for 10% or
more of net sales include buying groups. The percentage of sales to each of
these major customers for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Warner-Lambert Company............................................... 20% --% --%
Customer A........................................................... 16 12 17
Customer B........................................................... 10 10 36
Customer C........................................................... 10 9 --
Customer D........................................................... 6 16 8
Customer E........................................................... 1 11 12
All others........................................................... 37 42 27
--------- --------- ---------
Total................................................................ 100% 100% 100%
--------- --------- ---------
--------- --------- ---------
</TABLE>
BASIC NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing net loss by the
weighted average number of shares outstanding during the year.
F-9
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As we have reported operating losses each period since our inception, the
effect of assuming the exercise of our options and warrants would be
anti-dilutive and, therefore, we do not calculate or present diluted net loss
per common share. The anti-dilutive securities that we have omitted from the
calculation of basic net loss per common share are disclosed in Notes 3 and 4.
STOCK-BASED COMPENSATION
We account for stock options under the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" as permitted by
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation." Accordingly, we do not record compensation expense
for stock option grants to employees when the exercise price equals or exceeds
the market price of the Company's common stock on the date of grant.
RECLASSIFICATIONS
We have reclassified certain prior year amounts, as well as amounts reported
in Forms 10-Q filed in 1998, to conform to this year's presentation.
2. RELATED PARTY TRANSACTIONS
At the beginning of 1998, we had consulting agreements with two stockholders
who were both then directors of the Company. Both individuals resigned their
directorships in 1998 and we made no payments in 1998 pursuant to their
consulting agreements. In August 1997, we advanced $240,000 to one of these
individuals as payment for services to be performed under the terms of the
related consulting agreement for the ensuing two years. Of the total payments
made to this director/stockholder in 1997 of $356,000, $156,000 was included in
general and administrative expenses and $200,000 was included in "Due from
related parties" at December 31, 1997. In September 1998, the Board of Directors
terminated this consulting agreement and forgave the amount due relating to
services not yet rendered, and we charged the entire $200,000 to general and
administrative expense in 1998. Payments in 1996 under these agreements totaled
$127,000 and are included in general and administrative expenses.
One SuperGen director is a former director of a privately-held company
conducting research and development work partially funded by SuperGen. We
provided research funding to this company of $245,000 in 1998, $325,000 in 1997
and $248,000 in 1996. In addition, we own less than 1% of this company as of
December 31, 1998. We carry our investment in this company at no value.
At December 31, 1998, we owned 10% of another privately-held company. This
company performs research and development work almost exclusively for us and
sells us research supplies. We paid this company $331,000 in 1998, $464,000 in
1997 and $287,000 in 1996 for services and supplies. We carry our investment in
this company at no value.
Two SuperGen director/stockholders are directors and stockholders of a
privately-held development stage biotechnology company headquartered in Israel.
In June 1997, we made an equity investment of $500,000 in this company's
preferred stock, which represents less than 1% of the outstanding shares as of
December 31, 1998. We carry our investment in this company at cost. In November
1997, we leased approximately one-third of the laboratory square footage at the
SuperGen Pharmaceutical Research Institute to this company for $3,000 per month
for three years, plus its pro-rata share of specified common expenses. We also
completed certain building and laboratory improvements and purchased furniture
on
F-10
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RELATED PARTY TRANSACTIONS (CONTINUED)
behalf of this company for a total of approximately $750,000, which is to be
reimbursed. As of December 31, 1998, $450,000 of the amount to be reimbursed was
unpaid and is classified as "Due from related party."
3. STOCKHOLDERS' EQUITY
COMMON STOCK
In December 1998, we closed a private placement and issued 460,000 shares of
unregistered restricted common stock for net proceeds of $2.632 million. We
granted registration rights in connection with this transaction. This
transaction reflected a discount of 4% to a weighted average stock price for a
specific period of time prior to the purchase. The method of calculation of the
purchase price and the related discount resulted from arms-length negotiations
with the purchaser, an institutional investor.
In December 1997, we entered into an agreement to acquire certain
intellectual property rights related to a compound in development in exchange
for shares of unregistered restricted common stock and $50,000 in cash. We did
not grant registration rights in connection with this transaction. In March
1998, this agreement was finalized and we issued 74,416 shares of unregistered
restricted common stock (see Note 5).
In September 1997, we issued 183,458 shares of unregistered restricted
common stock to acquire exclusive worldwide rights to a patented anticancer
compound, RFS 2000 (see Note 5). We did not grant registration rights in
connection with this transaction.
In August 1997, we closed a private placement for approximately $9.8
million. We issued a total of 888,907 shares of unregistered restricted common
stock for this placement in September and October 1997. We did not grant
registration rights in connection with this transaction. This transaction
reflected a discount of approximately 20% to the market price of our stock at
the time of the offering.
In August 1997, we executed a definitive agreement with Israel Chemicals
Ltd. ("ICL"), our largest stockholder at that time, and repurchased 740,000 of
the 2,571,000 shares of common stock then held by ICL for $10.63 per share, or a
total of $7.9 million, plus transaction costs. Under the terms of the agreement,
ICL relinquished all of its international marketing rights to our products and
released us from all residual obligations remaining from their strategic
investment in us.
In June 1997, we entered into an agreement with Tako Ventures, LLC ("Tako"),
an investment entity controlled by Lawrence J. Ellison, Founder and Chairman of
Oracle Corporation, for a private placement of unregistered restricted common
stock. Under this agreement, Tako purchased 1,700,000 shares of unregistered
restricted common stock in July 1997 for $15.3 million and was issued an option,
which it exercised in November 1997, to purchase 850,000 additional shares of
unregistered restricted common stock at $9.00 per share. Related offering costs
were $268,000. In connection with the purchases of stock under this agreement;
- Tako received warrants to acquire up to an additional 1,275,000 shares of
unregistered common stock at $13.50 per share. These warrants will expire
in June 2007.
- Tako received registration rights covering the shares issued and issuable
in connection with this agreement.
- For a period of five years from the date of the purchase Tako is subject
to restrictions regarding sales of the shares issued or issuable in
connection with this agreement.
- Mr. Ellison was granted a seat on our board of directors.
F-11
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
This agreement contains provisions regarding sales or issuances of stock
below a set minimum price of $9.00 per share during a two-year period commencing
June 1997. Sales or issuances of stock below the set minimum price will result
in adjustments to the exercise price of the Tako warrants and the issuance of
additional shares of common stock, at no cost to Tako. As the sales price of the
shares sold in the December 1998 private placement was below the set minimum
price, we issued an additional 107,333 shares to Tako and reduced the warrant
exercise price for 230,000 shares from $13.50 to $10.35.
The initial purchase of shares under this agreement reflected a discount to
market of approximately 20%. We have calculated the aggregate value of the
options and warrants issued in this transaction, using the Black Scholes
valuation model, to be approximately $6.7 million.
The Black-Scholes valuation model was developed for use in estimating the
fair value of traded options and warrants that are fully transferable. The
options and warrants issued to Tako have characteristics significantly different
than those of traded options and warrants. In addition, valuation models such as
the Black-Scholes model require the input of highly subjective assumptions
including the expected stock price volatility. The significant inputs we used in
this valuation were volatility of 0.6, expected life of seven years, and a
risk-free interest rate of 4.5%. Changes in the subjective input assumptions can
materially affect the estimate of fair value of options and warrants. Therefore,
in our opinion, existing valuation models do not necessarily provide a reliable
single measure of the fair value of the option and warrants issued in this
transaction.
In September 1996, we issued 71,813 shares of unregistered restricted common
stock in partial consideration of our acquisition of
Nipent-Registered Trademark- (see Note 5). We granted registration rights in
connection with this transaction.
In March 1996, we completed an initial public offering and issued 3,500,000
shares of common stock, raising net proceeds of approximately $18.6 million.
Additional net proceeds of approximately $2.9 million were received in April
1996 from the issuance of 524,302 shares in connection with the exercise of the
underwriter's overallotment option.
WARRANTS
At December 31, 1998, warrants to purchase the following shares of our
common stock were outstanding:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF SHARES PRICE ISSUE DATE EXPIRATION DATE
- ----------------- ------------- ------------- -----------------
<S> <C> <C> <C>
164,686....... $ 5.00 1995 2000
3,853,877..... 9.00 1996 2001
330,000....... 7.20 1996 2001
1,045,000..... 13.50 1997 2007
230,000....... 10.35 1997 2007
- -----------------
5,623,563
- -----------------
- -----------------
</TABLE>
In addition, upon exercise, the holders of the warrants to purchase 330,000
shares will receive an additional warrant to acquire 330,000 shares at $9.00 per
share. These additional warrants will expire in 2001. We can redeem the $5.00
and $9.00 warrants for $0.25 each upon thirty days written notice, if the
closing bid price exceeds $10.00 and $18.00, respectively, for specified periods
of time.
F-12
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK OPTION PLANS
We have 3,800,000 shares of common stock authorized for issuance upon the
grant of incentive stock options or nonstatutory stock options to employees,
directors, and consultants under our stock option plans. The number of shares to
be purchased, their price, and the terms of payment are determined by the
Company's Board of Directors, provided that the exercise price for incentive
stock options cannot be less than the fair market value on the date of grant.
The options granted generally expire ten years after the date of grant and
become exercisable at such times and under such conditions as determined by the
Board of Directors (generally over a four or five year period).
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE FAIR
NUMBER OF EXERCISE OPTIONS VALUE AT GRANT
SHARES PRICE EXERCISABLE DATE
---------- ----------- ---------- ---------------
Balance at January 1, 1996................................... 792,450 $ 2.80 347,949 $ --
Granted at fair value........................................ 1,058,000 7.21 4.45
Granted at greater than fair value........................... 120,000 2.80 2.80
Exercised.................................................... (8,450) 1.30
Forfeited.................................................... (56,000) 5.17
----------
Balance at December 31, 1996................................. 1,906,000 5.46 882,062
Granted at fair value........................................ 949,000 14.65 7.53
Exercised.................................................... (161,250) 3.38
Forfeited.................................................... (51,686) 11.50
----------
Balance at December 31, 1997................................. 2,642,064 8.80 1,384,425
Granted at fair value........................................ 759,898 8.76 4.60
Exercised.................................................... (134,489) 1.43
Forfeited.................................................... (35,297) 10.40
----------
Balance at December 31, 1998................................. 3,232,176 $ 9.08 1,825,972
----------
----------
</TABLE>
Information concerning the options outstanding at December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ -----------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE AVERAGE
NUMBER OF EXERCISE REMAINING NUMBER EXERCISE
RANGE SHARES PRICE CONTRACTUAL LIFE EXERCISABLE PRICE
- -------------------------------------------------- ---------- ----------- ----------------- ---------- -----------
$ 0.135 to $ 5.00................................. 790,778 $ 3.82 6.31 622,581 $ 3.61
5.01 to 6.00.................................. 751,578 5.96 8.03 489,408 5.99
6.01 to 12.50.................................. 703,320 9.98 8.58 295,107 11.51
12.51 to 15.38.................................. 849,500 14.74 8.81 382,563 14.90
15.39 to 17.50.................................. 137,000 16.91 8.77 36,313 16.70
---------- ----------
$ 0.135 to $17.50................................. 3,232,176 9.08 7.96 1,825,972 8.15
---------- ----------
---------- ----------
</TABLE>
Pro forma information regarding net loss and basic net loss per common share
is required by FASB Statement 123. We calculated this pro-forma information
using the fair value method of accounting for
F-13
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK OPTION PLANS (CONTINUED)
employee stock options under that Statement. We estimated the fair value for
these options at the date of grant using the Black-Scholes option valuation
model with the following assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Risk-free interest rate................................................. 5.39 6.34 6.02
Dividend yield.......................................................... -- -- --
Expected volatility..................................................... 0.6 0.6 0.7
Expected life (in years)................................................ 4.4 4.4 4.6
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting requirements and are fully
transferable. Employee stock options have characteristics significantly
different than those of traded options. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Changes in the subjective input assumptions can materially
affect the estimate of fair value of an employee stock option. Therefore, in our
opinion, existing option valuation models do not necessarily provide a reliable
single measure of the fair value of our employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
Pro forma net loss (in thousands)......................... $ (19,073) $ (18,332) $ (10,293)
Pro forma basic net loss per common share................. (0.94) (0.98) (0.64)
</TABLE>
5. ACQUISITION OF TECHNOLOGY AND RELATED ASSETS
In December 1997, we entered into an agreement to acquire certain
intellectual property rights related to RF 1051, our obesity/diabetes drug
candidate, in exchange for $1,000,000 in shares of unregistered restricted
SuperGen common stock (which was valued at $750,000 for accounting purposes) and
$50,000 in cash. The shares issued were subject to trading limitations typical
to an issuance of stock under a private placement exemption. In addition, the
acquirer agreed to hold the shares for a minimum of one year and to notify
SuperGen prior to any contemplated sale of the stock. We recorded the total
consideration as a charge to in-process research and development in 1997 and
issued 74,416 shares of unregistered restricted common stock in March 1998.
In September 1997, we acquired exclusive worldwide rights to a patented
anticancer compound ("RFS 2000") from the Stehlin Foundation for Cancer Research
("Stehlin"). We paid consideration of $2,500,000 in shares of unregistered
restricted common stock (which constituted 183,458 shares of such stock, was
valued at $1,875,000 for accounting purposes and was recorded as a charge for
the acquisition of in-process research and development). The shares issued were
subject to trading limitations typical to an issuance of stock under a private
placement exemption. In addition, Stehlin also agreed to hold the shares for a
minimum of 18 months and to notify SuperGen prior to any contemplated sale of
the stock. We also agreed to make monthly cash payments to Stehlin of $100,000
until the earlier of the date of FDA marketing approval of RFS 2000 or four
years. We paid a total of $1.3 million to Stehlin in 1998 and $600,000 in 1997.
Our agreement with Stehlin also calls for additional payments in SuperGen common
stock upon the achievement of specified milestones and royalties on any product
sales.
F-14
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITION OF TECHNOLOGY AND RELATED ASSETS (CONTINUED)
In May 1997, we entered into a supply agreement for an ongoing source of
bulk paclitaxel, an anticancer drug currently sold by Bristol-Myers Squibb
Company under the tradename Taxol-Registered Trademark-. Under this agreement we
paid $400,000 in 1997 and we charged that payment to research and development
expense. We have no further obligation to this supplier although we may purchase
bulk paclitaxel from it in the future.
In January 1997, we purchased from Immunex Corporation the rights to its
version of the generic anticancer drug etoposide. The acquisition included the
Abbreviated New Drug Application, Immunex's inventory of the product, records
relating to the production of etoposide, and data, information and know-how
relating to the manufacture, testing, storage and regulatory status of
etoposide. We paid approximately $1,315,000 in cash of which we allocated
$334,000 to inventory and $150,000 to developed technology. We recorded the
remainder of the purchase price as a charge for the acquisition of in-process
research and development.
In September 1996, we purchased from Warner-Lambert Company
("Warner-Lambert") the exclusive rights to the anticancer drug Pentostatin (the
"drug"-trade name Nipent-Registered Trademark-) for the United States, Canada
and Mexico. We also acquired certain assets pertaining to the drug, including
all of Warner-Lambert's crude concentrate form of the drug and certain of its
finished goods inventory; the trademarks, patents and data relating to the
manufacture of the drug; the United States New Drug Application relating to the
drug (including two Orphan Drug Designations); the Canadian New Drug Submission;
and certain clinical studies. In September 1996 we paid Warner-Lambert
$2,073,000 in cash and $1,000,000 in unregistered restricted shares of our
common stock (which constituted 71,813 shares of such stock, and which was
valued at $700,000 for accounting purposes). The shares issued were subject to
trading limitations typical to an issuance of stock under a private placement
exemption. In addition, Warner-Lambert agreed to hold the shares for a minimum
of two years. We granted Warner-Lambert registration rights for these shares. We
paid Warner-Lambert an additional $500,000 in cash in December 1997 upon the
FDA's approval of our supplemental NDA (permitting us to sell the drug purified
from the crude concentrate at our designated manufacturing facilities). Of the
total consideration of $3,273,000, we allocated $1,561,000 to inventory
(including $250,000 to raw materials inventory), $1,270,000 to developed
technology, which is being amortized to manufacturing costs of the drug, and
$442,000 as a charge for the acquisition of in-process research and development.
6. COMMITMENTS AND CONTINGENCIES
We lease our administrative facilities under a noncancelable operating
lease, which may be renewed for one period of five years. Future minimum rentals
under all operating leases with terms greater than one year are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------------
<S> <C>
1999.................................................................................. $ 207
2000.................................................................................. 207
2001.................................................................................. 207
2002.................................................................................. 37
2003 and thereafter................................................................... 22
---------
$ 680
---------
---------
</TABLE>
Rent expense was $259,000 in 1998, $155,000 in 1997, and $335,000 in 1996.
F-15
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
We maintain an employment contract with one key employee requiring payments
of $511,000 in 1999.
We also have entered into technology license agreements allowing us access
to certain technologies. These agreements generally require royalty payments
based upon the sale of approved products incorporating the technology under
license. No sales of such products have occurred as of December 31, 1998.
We have also entered into manufacturing and service agreements for certain
manufacturing services, the supply of research materials and the performance of
specified research studies. These agreements require payments based upon the
performance of the manufacturing entity, delivery of the research materials or
the completion of the studies. We will be required to pay a minimum of $2.7
million under such agreements in 1999 and may be required to make further
payments under the terms of the Stehlin agreement (see Note 5) in 2000 and 2001.
7. INCOME TAXES
The significant components of our deferred tax assets at December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net operating loss carryforwards...................................... $ 16,140 $ 10,700
Purchased in-process technology....................................... 1,930 2,000
Research and development credit carryforwards......................... 1,090 700
Capitalized research and development.................................. 920 600
Other................................................................. 50 100
---------- ----------
Total deferred tax assets............................................. 20,130 14,100
Valuation allowance................................................... (20,130) (14,100)
---------- ----------
Net deferred tax assets............................................... $ -- $ --
---------- ----------
---------- ----------
</TABLE>
The valuation allowance increased by $6,030,000 during 1998, by $6,750,000
during 1997 and by $3,520,000 during 1996.
As of December 31, 1998 we have net operating loss carryforwards for federal
income tax purposes of approximately $46,000,000 expiring in the years 2008
through 2018. At December 31, 1998, we had research and development credit
carryforwards for federal income tax purposes of approximately $840,000 which
expire in the years 2008 through 2013.
Because of the "change in ownership" provisions of the Tax Reform Act of
1986, utilization of our tax net operating loss carryforwards and tax credit
carryforwards may be subject to an annual limitation in future periods. As a
result of the annual limitation, a portion of these carryforwards may expire
before ultimately becoming available to reduce future income tax liabilities.
8. EMPLOYEE BENEFIT PLANS
In December 1996, we adopted a 401(k) Profit Sharing Plan (the "401(k)
Plan") for all eligible employees with over six months of service. We may be
obligated to make contributions to the plan to comply with statutory
requirements. Voluntary employee contributions to the 401(k) Plan may be matched
50% by the Company, up to 3% of each participant's annual compensation. Our
expense relating to contributions made to employee accounts under the 401(k)
Plan was approximately $102,000 in 1998, $97,000 in 1997 and $24,000 in 1996.
F-16
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
In May 1998, we established the SuperGen, Inc. 1998 Employee Stock Purchase
Plan (ESPP) and reserved 100,000 shares of Common Stock for issuance thereunder.
Employees participating in the ESPP are granted the right to purchase shares of
common stock at a price per share that is the lower of:
- 85% of the fair market value of a share of Common Stock on the first day
of an offering period or,
- 85% of the fair market value of a share of Common Stock on the last day of
that offering period.
We issued 16,131 shares through the ESPP in 1998 at $6.38 per share. As of
December 31, 1998, there were 83,869 shares reserved for future issuance under
the ESPP.
9. SUBSEQUENT EVENTS
In January 1999, we announced the acquisition of Sparta Pharmaceuticals Inc.
("Sparta"), a biopharmaceutical company engaged in the business of developing
technologies and drugs for the treatment of a number of life-threatening
diseases, including cancer, cardiovascular disorders, chronic metabolic diseases
and inflammation. Under the terms of the acquisition agreement, we will acquire
all of the outstanding capital stock of Sparta in exchange for approximately
650,000 shares of SuperGen, Inc. common stock. The acquisition is subject to the
approval of Sparta stockholders and other customary closing conditions.
On March 25, 1999, we entered into a promissory note with Tako Ventures,
LLC, whereby Tako has agreed to advance us up to $5 million through December 31,
1999. The interest rate for any amounts advanced under this agreement is 10% and
all principal and any unpaid interest are due March 25, 2000. Advances, if any,
will be secured by substantially all our assets. In connection with this
transaction, we issued Tako a five-year warrant to acquire 500,000 shares of
unregistered restricted common stock at an exercise price of $11.00 per share.
We have calculated the value of this warrant, using the Black-Scholes valuation
model. The significant inputs we used in the model were volatility of 0.6,
expected life of three years and a risk-free interest rate of 4.5%. We will
amortize the total estimated warrant value of approximately $2 million through
non-cash charges to operations in 1999. In our opinion, existing valuation
models do not necessarily provide a reliable single measure of the fair value of
the warrant issued in this transaction (see Note 3).
F-17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 30th day of
March, 1999.
<TABLE>
<S> <C> <C>
SUPERGEN, INC.
By: /s/ JOSEPH RUBINFELD
-----------------------------------------
Joseph Rubinfeld
CHIEF EXECUTIVE OFFICER, PRESIDENT AND
DIRECTOR
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each such person whose signature
appears below constitutes and appoints, jointly and severally, Joseph Rubinfeld
and Kevin C. Lee, his attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer,
/s/ JOSEPH RUBINFELD President and Director
- ------------------------------ (Principal Executive March 30, 1999
(Joseph Rubinfeld) Officer and Principal
Financial Officer)
/s/ KEVIN C. LEE
- ------------------------------ Controller (Principal March 30, 1999
(Kevin C. Lee) Accounting Officer)
- ------------------------------ Director March , 1999
(Denis Burger)
- ------------------------------ Director March , 1999
(Lawrence J. Ellison)
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JULIUS A. VIDA
- ------------------------------ Director March 29, 1999
(Julius A. Vida)
/s/ DANIEL ZURR
- ------------------------------ Director March 29, 1999
(Daniel Zurr)
</TABLE>
S-2
<PAGE>
Exhibit 10.23
SUPERGEN, INC.
AMENDMENT NO. 1 TO
CONVERTIBLE SECURED NOTE, OPTION AND WARRANT
PURCHASE AGREEMENT
This amendment (the "Amendment") is entered into as of March 17, 1999 among
SuperGen, Inc., a Delaware corporation (the "Company"), and Tako Ventures, LLC,
a California limited liability company ("Tako").
BACKGROUND
A. The Company and Tako are parties to that certain Convertible
Secured Note, Option and Warrant Purchase Agreement dated June 17, 1997 (the
"Purchase Agreement").
B. Section 5.2 of the Purchase Agreement provides that until the
occurrence of certain events, the Company shall not cause or permit the
aggregate number of shares of Common Stock issued or issuable under all Stock
Plans (as such term is defined in the Purchase Agreement) to exceed 12% of
the Company's Total Equity Securities (as such term is defined in the
Purchase Agreement) (the "Percentage Limitation").
C. The Company believes the Stock Plans play a key role in the
Company's ability to recruit, reward and retain executives, directors and key
employees and that increasing the Percentage Limitation will add value to the
Company and, therefore, to the Company's stockholders, including but not
limited to Tako.
D. The Company and Tako desire to amend Section 5.2 of the Purchase
Agreement to increase the Percentage Limitation from 12% to 15%.
AGREEMENT
NOW, THEREFORE, in consideration for the premises and covenants set
forth in this Amendment, the parties agree as follows:
1. AMENDMENT TO SECTION 5.2 OF PURCHASE AGREEMENT. Section 5.2 of the
Purchase Agreement is hereby amended to read in its entirety as follows:
"5.2. STOCK PLANS. Until the earlier of the seventh anniversary
of the date of this Agreement or such time as Purchaser no longer owns,
either outright or pursuant to rights to acquire, at least five percent (5%)
of the Common Stock of the Company on either a primary or fully diluted
basis, the Company shall not cause or permit the aggregate number of shares
of Common Stock issued or issuable under all Stock Plans to exceed fifteen
percent (15%) of the Company's Total Equity Securities. Any waiver by
Purchaser of this fifteen percent (15%) limit shall constitute a like
modification of the fifteen percent (15%) limitation referenced in Section
1.2(c)(i)."
<PAGE>
2. EFFECTIVENESS. This Amendment is effective as of March 8, 1998.
3. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The provisions hereof shall inure
to the benefit of the parties and their respective successors,
administrators, executors, representatives and heirs.
(b) ENTIRE AGREEMENT. This Amendment constitutes an amendment
to and a modification of the Purchase Agreement. Except as expressly amended
or modified hereby, the Purchase Agreement shall continue in full force and
effect in accordance with the provisions thereof as of the date hereof and
are hereby ratified and confirmed in all respects.
(c) GOVERNING LAW. This Amendment shall be governed in all
respects by the internal laws of the State of California.
(d) COUNTERPARTS. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
SUPERGEN, INC.
By: /s/ Joseph Rubinfeld
-----------------------------------
Title: Chief Executive Officer
--------------------------------
TAKO VENTURES, LLC
By: CEPHALOPOD CORPORATION, Member
By: /s/ Philip Simon
-----------------------------------
Title: President
--------------------------------
-3-
<PAGE>
Exhibit 10.29
CONFIDENTIAL TREATMENT REQUEST
*Portions denoted with an asterisk have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 23, 1998
(this "Agreement"), is made by and between SUPERGEN, INC., a Delaware
corporation (the "Company"), and * (the "Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Common Stock Purchase Agreement, dated as of November 23, 1998, between the
Investor and the Company (the "Purchase Agreement"), the Company has agreed to
issue and sell to the Investor, in an amount up to $3,000,000, shares of the
common stock, $.0001 par value per share (the "Common Stock"), of the Company
(the "Shares"); and
WHEREAS, to induce the Investor to execute and deliver the
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Shares and Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investor hereby agrees as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investor" means the Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Shares.
-1-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
(iv) "Registration Statement" means a registration statement
of the Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Purchase Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and
file with the SEC a Registration Statement on an appropriate form for
registering for resale by the Investor the Shares and the Company shall use its
best efforts to cause the Registration Statement to be declared effective no
later than 75 days after the Closing Date.
(b) PAYMENTS BY THE COMPANY.
If the Registration Statement covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
(i) has not been filed within thirty (30) days from the Closing Date, the
Company will pay the Investor liquidated damages equal to $20,000 per month for
each month (pro rated for a period which is less than an entire month) that the
Company fails to file the Registration Statement and/or (ii) has not been
declared effective by seventy-five (75) days following the Closing Date (except
as provided by the last sentence of Section 2(a)), then the Company will pay the
Investor liquidated damages equal to $20,000 per month for each month (pro rated
for a period which is less than an entire month) until the earlier of (x) the
date such Registration Statement is declared effective or (y) the date all such
Registrable Securities may be sold in reliance on Rule 144.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly and file with the SEC, a Registration
Statement with respect to not less than the number of Registrable Securities
provided in Section 2(a), above, and thereafter use its best efforts to cause
each Registration Statement relating to Registrable Securities to become
effective seventy-five (75) days after the Closing Date, and keep the
Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is three years after the Closing
Date (ii) the date when the Investor may sell all Registrable Securities under
Rule 144 or (iii) the date the Investor no longer owns any of the Registrable
Securities, which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
-2-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel
designated by the Investor to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC;
(d) Furnish to the Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one (1) copy of the Registration
Statement, each preliminary prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of a prospectus, and all
amendments and supplements thereto and such other documents, as the Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by the Investor;
(e) As promptly as practicable after becoming aware of such
event, the Company shall notify the Investor of (x) the issuance by the SEC of a
stop order suspending the effectiveness of the Registration Statement, (y) the
happening of any event of which the Company has knowledge as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or (z)
the occurrence or existence of any pending corporate development that, in the
reasonable discretion of the Company, makes it appropriate to suspend the
availability of the Registration Statement, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request; provided that, for not more than twenty (20) days (or a total of not
more than forty (40) days in any twelve (12) month period, the Company may delay
the disclosure of material non-public information concerning the Company (as
well as prospectus or Registration Statement updating) the disclosure of which
at the time is not, in the good faith opinion of the Company, the best interests
of the Company and in the opinion of counsel to the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investor in writing of the existence of material non-public information giving
rise to an Allowed Delay and (ii) advise the Investor in writing to cease all
sales under the Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f)
-3-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
with respect to the information giving rise thereto, and shall be obligated
to pay to the Investors any amounts provided for in Section 2(b).
(f) As promptly as practicable after becoming aware of such
event, notify the Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of a Notice of Effectiveness or any notice of effectiveness
or any stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(g) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(h) Cooperate with the Investor who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investor may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investor whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel; and
(i) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTOR. In connection with the
registration of the Registrable Securities, the Investor shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of the Investor that the Investor shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of the Registrable Securities held
by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days
prior to the first anticipated filing date of the Registration Statement, the
Company shall notify the Investor of the information the Company requires from
the Investor (the "Requested Information").
(b) The Investor agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation and
filing of the Registration Statement hereunder; and
-4-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
(c) The Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, the Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, the Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in the Investor's possession, of the prospectus covering
such Registrable Securities current at the time of receipt of such notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other
than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the Company,
shall be borne by the Company.
6. INDEMNIFICATION. The rights of the Investor and the
Company to indemnification and/or contribution in the event any Registrable
Securities are included in a Registration Statement under this Agreement are set
forth on Schedule A hereto.
7. REPORTS UNDER EXCHANGE ACT. With a view to making
available to the Investor the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may at
any time permit the Investor to sell securities of the Company to the public
without registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to the Investor so long as the Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investor to sell such securities pursuant to Rule 144 without
registration.
8. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to
have the Company register Registrable Securities pursuant to this Agreement
shall be automatically assigned by the Investor to any transferee of the
Registrable Securities only if: (a) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to
-5-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
the Company within a reasonable time after such assignment, (b) the Company
is, within a reasonable time after such transfer or assignment, furnished
with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration
rights are being transferred or assigned, (c) immediately following such
transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the
provisions contained herein, and (e) such transferee shall be an "accredited
investor" as defined in Rule 501 of Regulation D. In the event of any delay
in filing or effectiveness of the Registration Statement as a result of such
assignment, the Company shall not be liable for any damages arising from such
delay, or the payments set forth in Section 2(b) hereof.
9. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
Any amendment or waiver effected in accordance with this Section 9 shall be
binding upon the Investor and the Company.
10. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, 2 Annabel Lane, Suite 220, San Ramon, California 94583, Attention:
Joseph Rubinfeld, with a copy to Wilson Sonsini Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, California 94304-1050, Attention: Kathleen Block, Esq.; and
(ii) if to the Investor, at *, or at such other address as each such party
furnishes by notice given in accordance with this Section 10(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) calendar days after deposit with the United States
Postal Service.
(c) Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
-6-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
(d) This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Delaware, without giving
effect to the choice of law provisions. Each of the Company and the Investor
(i) hereby irrevocably submits to the jurisdiction of the United States District
Court and other courts of the United States sitting in the State of Delaware for
the purposes of any suit, action or proceeding arising out of or relating to
this Agreement and (ii) hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Investor consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section shall affect or limit any right to serve
process in any other manner permitted by law.
(e) A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
(f) This Agreement and the Purchase Agreement constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and supercede all prior agreements with respect to the subject matter
hereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
(g) Subject to the requirements of Section 8 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(h) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(i) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by
-7-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
telephone line facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
(j) Neither party shall be liable for consequential damages.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
SUPERGEN, INC.
By: /s/ Dr. Joseph Rubinfeld
------------------------------
Name: Dr. Joseph Rubinfeld
Title: Chief Executive Officer
*
By: /s/ *
------------------------------
Name: *
Title: *
-8-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
SCHEDULE A
(a) To the extent permitted by law, the Company will
indemnify and hold harmless the Investor who holds such Registrable Securities,
the directors, if any, of the Investor, the officers, if any, of the Investor,
each person, if any, who controls the Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person" or
"Indemnified Party"), against any losses, claims, damages, liabilities or
reasonable expenses (joint or several) incurred (collectively, "Claims") to
which any of them may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations in the Registration
Statement, or any post-effective amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective amendment thereof
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the SEC) or the omission
or alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to clause (b) of this
Schedule A, the Company shall reimburse the Investor, promptly as such expenses
are incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this clause (a) shall not (I)
apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, (II) be available to the extent such
Claim is based on a failure of the Investor to deliver or cause to be delivered
the prospectus made available by the Company; or (III) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. The
Investor ill indemnify the Company and its officers, directors and agents and
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act against any Claims arising out of or based
upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of the
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company hereunder.
A-1-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investor pursuant
to Section 8 of this Agreement.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Schedule A of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Schedule A, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Schedule A for any legal or other reasonable out-of-pocket
expenses subsequently incurred by such Indemnified Person or Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action of its
final conclusion. The Indemnified Person or Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the reasonable fees and reasonable out-of-pocket expenses
of such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Schedule A,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Schedule A shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
(c) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise
be liable under this Schedule A to the fullest extent permitted by law;
PROVIDED, HOWEVER, that (a) no contribution shall be made under circumstances
where the maker would not have been liable for indemnification under the
fault standards set forth in this Schedule A; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such fraudulent
A-2-
<PAGE>
CONFIDENTIAL TREATMENT REQUEST
misrepresentation; and (c) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received
by such seller from the sale of such Registrable Securities.
A-3-
<PAGE>
Exhibit 10.31
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into
effective as of this 29th day of January, 1999, by and among SuperGen, Inc.,
a Delaware corporation (the "COMPANY") and Tako Ventures, LLC, a California
limited liability company (the "PURCHASER").
BACKGROUND
A. Pursuant to Section 5.1 of that certain Convertible Note, Option
and Warrant Purchase Agreement dated as of June 17, 1997, by and among the
Company, the Purchaser and Lawrence J. Ellison ("ELLISON") (the "ORIGINAL
PURCHASE AGREEMENT"), the Purchaser has the right to purchase its pro rata
share of securities to be issued by the Company (the "PRE-EMPTIVE RIGHT").
B. In connection with the Company's sale and issuance of 460,000
shares of Common Stock to an institutional investor on December 23, 1998
pursuant to the Common Stock Purchase Agreement dated as of November 23, 1998
(the "NOVEMBER PURCHASE AGREEMENT"), the Purchaser desires to exercise its
Pre-emptive Right and purchase 61,350 shares of the Company's Common Stock
pursuant to this Agreement, and the Company and the Purchaser desire to
resolve certain differences that have arisen between them as to the
adjustments to be made pursuant to the antidilution provisions under Section
1.2(b) of the Original Purchase Agreement as a result of the November
Purchase Agreement.
NOW THEREFORE, the parties agree as follows:
1. SALE AND PURCHASE OF SECURITIES. On the terms and subject to the
conditions set forth in this Agreement, the Company will issue and sell to
the Purchaser, and the Purchaser will purchase 61,350 shares of the Company's
Common Stock (the "SHARES") at a per share purchase price of approximately
$6.52 for an aggregate purchase price of $400,002 (the "PURCHASE PRICE").
2. CLOSING.
a. The closing of the purchase and sale of the Shares (the
"CLOSING") will be held at the office of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California
94304-1050 at 10:00 a.m. on January 29, 1999, or such other time or place as
the parties may agree.
b. At the Closing, the representations and warranties of the
parties set forth in Section 3 below shall be true and correct in all
material respects.
c. At the Closing, (A) the Purchaser shall (i) pay the Purchase
Price by wire transfer to the Company's account and (ii) deliver to the
Company, for cancellation, exchange and reissuance in accordance with clause
(B)(ii) of this subsection, the Series 2 Warrants heretofore issued to
Purchaser to purchase an aggregate of seven hundred seventy-five thousand
(775,000) shares of Common Stock, and (B) the Company shall (i) cause the
transfer agent to deliver a
<PAGE>
certificate evidencing the Shares in the name of the Purchaser (ii) shall
deliver to Purchaser Series 1 Warrants to purchase an aggregate of seven
hundred seventy-five thousand (775,000) shares of Common Stock, two hundred
thirty thousand (230,000) of which shall be subject to an initial Warrant
Exercise Price of ten dollars thirty-five cents ($10.35) per share and five
hundred forty-five thousand (545,000) of which shall be subject to an initial
Warrant Exercise Price of thirteen dollars and fifty cents ($13.50) per
share, subject in each case to adjustment as set forth therein and in the
Original Purchase Agreement and (iii) shall deliver to Purchaser a
certificate evidencing 107,333 shares of Common Stock of the Company (the
"ANTIDILUTION SHARES"). The certificates evidencing the Shares and the
Antidilution Shares and the Series 1 Warrants issued hereunder shall bear the
restrictive legends set forth in Section 5.11 of the Original Purchase
Agreement.
3. REPRESENTATIONS AND WARRANTIES. (a) In connection with the
issuance and purchase of the Shares, the Series 1 Warrants and the
Antidilution Shares, the Purchaser hereby represents and warrants to the
Company as set forth in Section 4 of the Original Purchase Agreement
(provided that any references therein to Option, Note, Warrants or Securities
shall be deemed to refer solely to the Shares and the Antidilution Shares and
the Series 1 Warrants issued hereunder, and the term "Agreement" shall refer
to this Agreement), and (b) in connection with the issuance and purchase of
the Shares, the Company hereby represents and warrants to the Purchaser that
except as set forth on a separate disclosure letter delivered to the
Purchaser as of the date of this Agreement, the representations and
warranties set forth in Section 3.1 of the November Purchase Agreement are
true and correct in all material respects as of the date of this Agreement
(provided that the term "Agreement" shall refer to this Agreement and the
term "Shares" shall refer to the Shares, the Antidilution Shares and the
Series 1 Warrants issued hereunder and shares of Common Stock issued upon
exercise of the Series 1 Warrants). The Purchaser acknowledges and agrees
that the issuance of the Shares in accordance with this Agreement satisfies
its Pre-emptive Right with respect to the November Purchase Agreement and
that the issuance of the Series 1 Warrants and the Antidilution Shares in
accordance with this Agreement satisfies Purchaser's antidilution rights
under Section 1.2(b) of the Original Purchase Agreement with respect to the
November Purchase Agreement.
4. MISCELLANEOUS. This Agreement is governed by the laws of the state
of California. This Agreement may not be amended nor any provision waived
except in writing signed by both parties. This Agreement represents the
entire agreement between the parties regarding subject matter hereof. This
Agreement may be executed in counterparts, each of which shall be deemed an
original and all of which shall constitute one instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties execute this Agreement as of the date
first written above.
SuperGen, Inc.
/s/ Dr. Joseph Rubinfeld
-------------------------------------
Dr. Joseph Rubinfeld, CEO
Tako Ventures, LLC
By: CEPHALOPOD CORPORATION,
MEMBER
/s/ Philip Simon
-------------------------------------
Philip Simon, PRESIDENT
CEPHALOPOD CORPORATION
-3-
<PAGE>
EXHIBIT 10.32
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- GROSS,
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
February 12 , 1999 , is made by and between Sea Cliff Properties, a California
General Partnership (|"LESSOR") and SuperGen, Inc., a Delaware Corporation
("LESSEE"), (Collectively the "PARTIES," or individually a "PARTY").
1 .2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 1075 Serpentine Lane, Suite A, located
in the City of Pleasanton, County of Alameda, State of California, with zip code
94566, as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING" is
that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): Approximately 10,672+- square
feet of office space within a larger concrete tilt-up building consisting of
approximately 21,344+ square feet (per Exhibits A and B) In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "INDUSTRIAL CENTER." (Also
see Paragraph 2.)
1.2(b) PARKING: 20. 7% of available parking in the Industrial Center
unreserved vehicle parking spaces ("UNRESERVED PARKING SPACES"); and zero
reserved vehicle parking spaces ("RESERVED PARKING SPACES"). (Also see Paragraph
2.6.)
1.3 TERM: 5 years and 0 months ("ORIGINAL TERM") commencing July 1, 2001
(Refer to Addendum One, Items 1 & 2) ("COMMENCEMENT DATE") and ending 6/30/2006
("EXPIRATION DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see Paragraphs
3.2 and 3.3.)
1.5 BASE RENT: $ 10,565.00 per month ("BASE RENT"), payable on the first
day of each month commencing July 2001 (Also see Paragraph 4.)
/X/ If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum One, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $ 10,565.00 as Base Rent for the
period July 2001
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: per Addendum One,
Paragraph 5 percent (50%) ("LESSEE'S SHARE") as determined by prorata
square footage of the Premises as compared to the total square footage of the
Building or / / other criteria as described in Addendum __________.
1.7 SECURITY DEPOSIT: $15,000.00 (Refer to Addendum One, Item 1)
("SECURITY DEPOSIT"). (Also see Paragraph 5)
1.8 PERMITTED USE: Administrative, sales and general office; storage,
and other uses related to company operations. ("PERMITTED USE") (Also see
Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph
8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
/ /_____________________________represents Lessor exclusively ("LESSOR'S
BROKER");
/ /_____________________________represents Lessee exclusively ("LESSEE'S
BROKER"); or
/X/ Lee & Associates represents both Lessor and Lessee ("DUAL
AGENCY"). (Also see Paragraph 15.)
1 .10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $ per
agreement) for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by (N/A) ("GUARANTOR"). (Also see Paragraph 37.)
<PAGE>
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs I through 18, and Exhibits A through C, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1 .6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that to lessor's
knowledge the existing plumbing, electrical systems, fire sprinkler system,
lighting, air conditioning and heating systems and loading doors, if any, in the
Premises, other than those constructed by Lessee, shall be in good operating
condition on the Commencement Date. If a non-compliance with said warranty
exists as of the Commencement Date, Lessor shall, except as otherwise provided
in this Lease, promptly after receipt of written notice from Lessee setting
forth with specificity the nature and extent of such non-compliance, rectify
same at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within sixty (60) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that to Lessor's knowledge any improvements (other than those
constructed by Lessee or at Lessee's direction) on or in the Premises which have
been constructed or installed by Lessor or with Lessor's consent or at Lessor's
direction shall comply with all applicable covenants or restrictions of record
and applicable building codes, regulations and ordinances in effect on the
Commencement Date. Lessor further warrants to Lessee that Lessor has no
knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations, or ordinances
exist with regard to the Premises as of the Commencement Date. Said warranties
shall not apply to any Alterations or Utility Installations (defined in
Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply
with said warranties, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee given within six (6) months
following the Commencement Date and setting forth with specificity the nature
and extent of such non-compliance, take such action, at Lessor's expense, as may
be reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted
Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked
and loaded or unloaded as
<PAGE>
directed by Lessor in the Rules and Regulations (as defined in Paragraph 40)
issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in
areas other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center and interior utility raceways within the Premises
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have Use right, with notice, in addition to such other rights and remedies
that it may have, to remove the property and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the industrial Center.
2.10 COMMON AREAS -- CHANGES. Lessor shalt have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress; egress, direction of traffic, landscaped areas, walkways and
utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any
portion thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor
may, in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
<PAGE>
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partiaity occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. Ail other
terms of this Lease, however, (including, but not limited to, the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability U1erefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. if possession of the Premises is not
delivered to Lessee within ninety (90) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said ninety (90) day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shad
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and ail other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shad be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1 6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses. are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the
ownership and operation of the industrial Center, including, but
not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area fighting facilities, fences and
gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to service
the Common Areas.
(iii) Trash disposal, property management and security services and
the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common Areas.
(v) Any increase above the Base Real Property Taxes (as defined in
Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph 8.1).
(vii) The cost of insurance carried by Lessor with respect to the
Common Areas.
(viii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
<PAGE>
(ix) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof,
shall be allocated entirely to the Building or to such other building.
However, any Common Area Operating Expenses and Real Property Taxes that
are not specifically attributable to the Building or to any other building
or to the operation, repair and maintenance thereof, shall be equitably
allocated by Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide
those services unless the Industrial Center already has the same, Lessor
already provides the services, or Lessor has agreed elsewhere in this Lease
to provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within thirty (30) days after a reasonably detailed
statement of actual expenses is presented to Lessee by Lessor At Lessor's
option, however, an amount may be estimated by Lessor from time to time of
Lessee's Share of annual Common Area Operating Expenses and the same shall
be payable monthly or quarterly, as Lessor shall designate, during each
12-month period of the Lease term, on the same day as the Base Rent is due
hereunder. Lessor shall deliver to Lessee within sixty (60) days after the
expiration of each calendar year a reasonably detailed statement showing
Lessee's Share of the actual Common Area Operating Expenses incurred during
the preceding year. If Lessee's payments under this Paragraph 4.2(d) during
said preceding year exceed Lessee's Share as indicated on said statement,
Lessee shall be credited the amount of such overpayment against Lessee's
Share of Common Area Operating Expenses next becoming due. If Lessee's
payments under this Paragraph 4.2(d) during said preceding year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to
Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 18.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall not be required to keep all or
any part of tile Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, and for no other purpose. Lessee shall not
use or permit the use of the Premises in a manner that is unlawful, creates
waste or a nuisance, or that disturbs owners and/or occupants of, or causes
damage to the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same
will not impair the structural integrity of the improvements on the
Premises or in the Building or the mechanical or electrical systems
therein, does not conflict with uses by other lessees, is not significantly
more burdensome to the Premises or the Building and the improvements
thereon, and is otherwise permissible pursuant to this Paragraph 6. If
Lessor elects to withhold such consent, Lessor shall within five (5)
business days after such
<PAGE>
request give a written notification of same, which notice shall include
an explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material
or waste whose presence, nature, quantity and/or intensity of existence,
use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on
the Premises, is either (i) potentially injurious to the public health,
safety or welfare, the environment, or the Premises; (ii) regulated or
monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include,
but not be United to, hydrocarbons, petroleum, gasoline, crude oil or any
products or by-products thereof. Lessee shall not engage in any activity in
or about the Premises which constitutes a Reportable Use (as hereinafter
defined) of Hazardous Substances without the express prior written consent
of Lessor and compliance in a timely manner (at lessee's sole cost and
expense) with all Applicable Requirements (as defined in Paragraph 6.3).
"REPORTABLE USE" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business
plan is required to be filed with, any governmental authority, and (iii)
the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to
persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent,
but upon notice to Lessor and in compliance with all Applicable
Requirements, use any ordinary and customary materials reasonably required
to be used by Lessee in the normal course of the Permitted Use, so long as
such use is not a Reportable Use and does not expose the Premises, or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable
Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor such
additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor,
including, but not limited to, the installation (and, at Lessor's option,
removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to
by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding
given to, or received from, any governmental authority or private party
concerning the presence, spill, release, discharge of, or exposure to, such
Hazardous Substance including, but not limited to, all such documents as
may be involved in any Reportable Use involving the Premises. Lessee shall
not cause or permit any Hazardous Substance to be spilled or released in,
on, under or about the Premises (including, without limitation, through the
plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under
Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury
to person, property or the environment created or suffered by Lessee, and
the cost of investigation (including consultants and attorneys' fees and
testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.
<PAGE>
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS", which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to Lessee's U5e of the
Premises (including, but not limited to, matters pertaining to (i) industrial
hygiene, (ii) environmental conditions on, in, under or about the Premises,
including soil and groundwater conditions, and (iii) the use, generation,
manufacture, production, installation, maintenance, removal, transportation,
storage, spill, or release of any Hazardous Substance), now in effect or which
may hereafter come into effect. Lessee stiall, within five (5) days after
receipt of Lessor's written request, provide Lessor With copies of all documents
and information, including, but not limited to, permits, registrations,
manifests, applications, reports and certificates, evidencing Lessee's
compliance with any Applicable Requirements specified by Lessor, and shall
immediately upon receipt, notify Lessor in writing (with copies of any documents
involved) of any threatened or actual claim, notice, citation, warning,
complaint or report pertaining to or involving failure by Lessee or the Premises
to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including, but not limited to,
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Breach of
this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or unless the inspection is requested or ordered by a governmental authority as
the result of any such existing violation or contamination. In such case, Lessee
shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for
the costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee
shall, at Lessee's sole cost and expense and at all times, keep the
Premises and every part thereof in good order, condition and repair
(whether or not such portion of the Premises requiring repair, or the means
of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of lessee's
use, any prior use, the elements or the age of such portion of the
Premises), including, without limiting the generality of the foregoing, all
equipment or facilities specifically serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose
connections if within the Premises, fixtures, interior walls, interior
surfaces of exterior walls, ceilings, floors, windows, doors, plate glass,
and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in
good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state
of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance
for and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation
system for the Premises. However, Lessor reserves the right, upon notice to
Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after thirty (30) days
prior written notice to Lessee (except in the case of an emergency, in
<PAGE>
which case no notice shall be required), perform such obligations on
Lessee's behalf, and put the Premises in good order, condition and repair,
in accordance with Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Building, Industrial Center or
Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE
FIXTURES" shall mean Lessee's machinery and equipment which can be removed
without doing material damage to the Premises. The term "ALTERATIONS" shall
mean any modification of the improvements on the Premises which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures. Lessee-Owned Alterations and/or Utility
Installations are defined as Alterations and/or Utility Installations made
by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
Lessee shall not make nor cause to be made any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior
written consent. Lessee may, however, make non-structural Utility
Installations or alterations to the interior of the Premises (excluding the
rot without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cost
thereof does not exceed $5,000.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given
by Lessor, whether by virtue of Paragraph 7 3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the
furnishing of copies of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor prior
to commencement of the work thereon; and (iii) the compliance by Lessee
with all conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Lessee during the term of this
Lease shall be done in a good and workmanlike manner, with good and
sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $5,000.00 or more upon Lessee's providing
Lessor with a lien and completion bond in an amount equal to the estimated
cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics or materialmenqs lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days notice prior
to the commencement of any'work in, on, or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense, defend and protect itself, Lessor and the Premises against the
same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Lessor or the
Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety
<PAGE>
bond satisfactory to Lessor, in an amount equal to one and one-half times
the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. in addition, Lessor
may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in
this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but
considered a part of the Premises. Lessor may, at any time and at its
option, elect in writing to Lessee to be the owner of all or any specified
part of tile Lessee-Owned Alterations and Utility Installations Unless
otherwise instructed per Subparagraph 7.4(b) hereof all Lessee-Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon
the Premises and be surrendered with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by
Lessor. Lessor may require the removal at any time of all or any part of
any Alterations or Utility Installations made without the required consent
of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state
of repair, ordinary wear and tear excepted. Ordinary wear and tear shall
not include any damage or deterioration that would have been prevented by
good maintenance practice or by Lessee performing all of its obligations
under Uris Lease. Except as otherwise agreed or specified herein, the
Premises, as surrendered, shall include the Alterations and Utility
Installations. The obligation of Lessee shall include the repair of any
damage occasioned by the installation, maintenance or removal of lessee's
Trade Fixtures, furnishings, equipment, and Lessee-Owned Alterations and
Utility Installations, as well as the removal of any storage tank installed
by or for Lessee, and the removal, replacement, or remediation of any soil,
material or ground water contaminated by Lessee, all as may then be
required by Applicable Requirements and/or good practice. Lessee's Trade
Fixtures shall remain the property of Lessee and shall be removed by Lessee
subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined
as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs
8.2(b), 8.3(a) and 8.3(b), ("REQUIRED INSURANCE"), over and above the Base
Premium, as hereinafter defined, calculated on an annual basis. Coinsurance
Cost Increases shall include, but not be limited to, requirements of the
holder of a mortgage or deed of trust covering the Premises, increased
valuation of the Premises, and/or a general premium rate increase. The term
coinsurance Cost Increase's shall not, however, include any premium
increases resulting from the nature of the occupancy of any other lessee of
the Building. If the Parties insert a dollar amount in Paragraph 1.9, such
amount shall be considered the "Base Premium." If a dollar amount has not
been inserted in Paragraph 1.9 and if the Building has been previously
occupied during the twelve (12) month period immediately preceding the
Commencement Date, the "Base Premium" shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be
the lowest annual premium reasonably obtainable for the Required Insurance
as of the Commencement Date, assuming the most nominal use possible of the
Building. In no event, however, shall Lessee be responsible for any portion
of the premium cost attributable to liability insurance coverage in excess
of $1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant
to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
<PAGE>
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided
to Lessee in writing (as additional insures) against claims for bodily
injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises
endorsement and contain the Amendment of the Pollution Exclusion"
endorsement for damage caused by heat, smoke or fumes from a hostile fire.
The policy shad not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an reinsured contract" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance
required by this Lease or as carried by Lessee shall not, however, limit
the liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance to be carried by Lessee shall be primary to and not contributory
with any similar insurance carried by Lessor, whose insurance shall be
considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in
lieu of, the insurance required to be maintained by Lessee. Lessee shall
not be named as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring against
loss or damage to the Premises. Such insurance shall be for full
replacement cost, as the same shall exist from time to time, or the amount
required by any Lender(s), but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the
unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Lessee-Owned Alterations and Utility
Installations, Trade Fixtures and Lessee's personal property shall be
insured by Lessee pursuant to Paragraph 8 4. If the coverage is available
and commercially appropriate, Lessor's policy or policies shall insure
against ail risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any
ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Building required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws
as the result of a covered loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in
lieu of any co-insurance clause, waiver of subrogation, and inflation guard
protection causing an increase in the annual property insurance coverage
amount by a factor of not less than the adjusted U.S. Department of Labor
Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during
ttle term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full
rental and other charges payable by all lessees of the Building to Lessor
for one year (including all Real Property Taxes, insurance costs, all
Common Area Operating Expenses and any scheduled rental increases). Said
insurance may provide that in the event the Lease is terminated by reason
of an insured loss, the period of indemnity for such coverage shall be
extended beyond the date of the completion of repairs or replacement of the
Premises, to provide for one full yearns loss of rental revenues from the
date of any such loss. Said insurance shall contain an agreed valuation
provision in lieu of any co-insurance clause, and the amount of coverage
shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating
Expenses shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common
Areas or other buildings in the Industrial Center if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
<PAGE>
(d) LESSEE'S IMPROVEMENTS. Since Lessor is Use Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a)
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a General Policyholders Ratings
of at least Be, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Bests Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraphs 8 2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraphs 8, 8.3, and 8.4. The
effect of such releases and waivers of the right to recover damages shall not
be limited by the amount of insurance carried or required, or by any deductibles
applicable thereto. Lessor and Lessee agree to have their respective insurance
companies issuing property damage insurance waive any right to subrogation that
such companies may have against Lessor or Lessee, as the case may be, so long as
the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold hannless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys and constlitants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee, upon notice from Lessor, shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
<PAGE>
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
fifty percent (50o%) of the then Replacement Cost (as defined in Paragraph
9.1 (d)) of the Premises (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures) immediately prior to such damage or
destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction. In addition,
damage or destruction to the Building, other than Lessee-Owned Alterations
and Utility Installations and Trade Fixtures of any lessees of the
Building, the cost of which damage or destruction is fifty percent (50%) or
more of the then Replacement Cost (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures of any lessees of the Building) of
the Building shall, at the option of Lessor, be deemed to be Premises Total
Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.8(a) irrespective of any deductible
amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building
codes, ordinances or laws, and without deduction for depreciation.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement
<PAGE>
from Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as
reasonably possible after the required funds are available. If Lessee does
not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shad terminate as of the date specified in
Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Not withstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance
Condition for which Lessee is not legally responsible, the Base Rent, Common
Area Operating Expenses and other charges, if any, payable by Lessee hereunder
for the period during which such damage or condition, its repair, remediation or
restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired, but not in excess of proceeds from
insurance required to be carried under Paragraph 8.3(b). Except for abatement of
Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, ail other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under the
provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "Commence" as used in this Paragraph 9 6 shall mean
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever occurs first.
9.7 Refer to Adendum, Item 15.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
<PAGE>
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10 2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term 'Real Property Taxes" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond
or bonds, levy or tax (other than inheritance, personal income or estate
taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage,
or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion
thereof, Lessor's right to rent or other income therefrom, andlor lessor's
business of leasing the Premises. The term "Real Property Taxes" shad also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including but not limited to a
change in the ownership of the Industrial Center or in the improvements
thereon, the execution of this Lease, or any modification, amendment or
transfer thereof, and whether or not contemplated by the Parties.
(b) As used herein, the term Debase Real Property Tamest shall be
the amount of Real Property Taxes which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the
Real Property Taxes for any real estate tax year shall be included in the
calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for tile exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shad pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
<PAGE>
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessors consent. The transfer, on a cumulative basis,
of twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable
Breach without the necessity of any notice and grace period. If Lessor
elects to treat such unconsented to assignment or subletting as a
non-curable Breach, Lessor shall have the right to either (i) terminate
this Lease, or (ii) upon thirty (30) days written notice ("Lessor's
Notice"), increase the monthly Base Rent for the Premises to the greater
of the then fair market rental value of the Premises, as reasonably
determined by Lessor, or one hundred ten percent (110%) of the Base Rent
then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's
Notice, with any overpayment credited against the next installment(s) of
Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon
the determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises
held by Lessee shall be subject to similar adjustment to the then fair
market value as reasonably determined by Lessor (without the Lease being
considered an encumbrance or any deduction for depreciation or
obsolescence, and considering the Premises at its highest and best use and
in good condition) or one hundred ten percent (110%) of the price
previously in effect, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of
such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the
new rental bears to the Base Rent in effect immediately prior the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed
by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or
disapproval of an assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of any rent for
performance shall constitute a waiver or estoppel of Lessor's right to
exercise its remedies for the Default or Breach by Lessee of any of the
terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee
or to any subsequent or successive assignment or subletting by the assignee
or sublessee.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including, but not
limited to, the intended use and/or required modification of the Premises,
if any, together with a non-refundable deposit of $1,000 as reasonable
consideration for Lessor's considering and processing the request for
consent. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform
and comply with each and every term, covenant, condition and obligation
herein to be observed or
<PAGE>
performed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions
of an assignment or sublease to which Lessor has specifically consented
in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1 ) shall occur in the performance of Lessee's obligations
under this Lease, Lessee may, except as otherwise provided in this Lease,
receive, collect and enjoy the rents accruing under such sublease Lessor
shall not, by reason of the foregoing provision or any other assignment of
such sublease to Lessor, nor by reason of the collection of the rents from
a sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under
such Sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a
Breach exists in the performance of Lessee's obligations under this Lease,
to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary.
Lessee shall have no right or claim against such sublessee, or, until the
Breach has been cured, against Lessor, for any such rents and other charges
so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in
which event Lessor shall undertake the obligations of the sublessor under
such sublease from the time of the exercise of said option to the
expiration of such sublease; provided, however, Lessor shall not be liable
for any prepaid rents or security deposit paid by sud sublessee to such
sublessor or for any other prior defaults or breaches of such sublessor
under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3.
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of
Common Area Operating Expenses, or any other monetary payment required to
be made by Lessee hereunder as and when due, the failure by Lessee to
provide Lessor with reasonable evidence of insurance or surety bond
required under this Lease, or the failure of Lessee to fulfill any
obligation under this Lease which endangers or threatens life or property,
where such failure
<PAGE>
continues for a period of flve (5) days following written notice thereof
by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with
Applicable Requirements per Paragraph 6 3, (ii) the inspection, maintenance
and service contracts required under Paragraph 7.1(b), (iii) the rescission
of an unauthorized assignment or subletting per Paragraph 12.1, (iv) a
Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or
non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease if required under
Paragraphs 1.11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this
Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than
those described in Subparagraphs 13.1(a), (b) or (c); above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of Lessor to Lessee; provided, however, that if the
nature of lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a
Breach of this Lease by Lessee if Lessee commences such cure within said
thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for tile benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code
Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located at the Premises or
of lessee's interest in this Lease, where such seizure is not discharged
within thirty (30) days; provided, however, in the event that any provision
of this Subparagraph 13.1 (e) is contrary to any applicable law, such
provision shall be of no force or effect, and shall not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurances of security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation of
Lessee under this Lease, within ten (10) days after written notice to Lessee (or
in case of an emergency, without notice), Lessor may, at its option (but without
obligation to do so), perform such duty or obligation on Lessee's behalf,
including, but not limited to, the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefore If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to
Lessor. In such event Lessor shall be entitled to recover from Lessee: (i)
the worth at the time
<PAGE>
of the award of the unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance
of the term after the time of award exceeds the amount of such rental loss
that the Lessee proves could be reasonably avoided; and (iv) any other
amount necessary to compensate Lessor for all the detriment proximately
caused by the Lessee's failure to perform its obligations under this Lease
or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, the cost of recovering possession
of the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that portion of
any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of
award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco or the Federal
Reserve Bank District in which the Premises are located at the time of
award plus one percent (1%). Efforts by Lessor to mitigate damages caused
by Lessee's Default or Breach of this Lease shall not waive lessor's right
to recover damages under this Paragraph 13.2. If termination of this Lease
is obtained through the provisional remedy of unlawful detained Lessor
shall have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or
damages. If a notice and grace period required under Subparagraph 13.1 (b),
(c) or (d) was not previously given, a notice to pay rent or quit, or to
perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
Subparagraph 13.1 (b), (c) or (d). In such case, the applicable grace
period under the unlawful detainer statute shall run concurrently after the
one such statutory notice, and the failure of Lessee to cure the Default
within the greater of the two (2) such grace periods shall constitute both
an unlawful detainer and a Breach of this Lease entitling Lessor to the
remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. Lessor
and Lessee agree that the limitations on assignment and subletting in this
Lease are reasonable. Acts of maintenance or preservation, efforts to relet
the Premises, or the appointment of a receiver to protect the Lessor's
interest under this Lease, shall not constitute a termination of the
Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of lessee's
occupancy of the Premises.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder: In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a
<PAGE>
reasonable time slnall in no event be less than thirty (30) days after
receipt by Lessor, and by any Lender(s) whose name and address shall have
been furnished to Lessee in writing for such purpose, of written notice
specifying wherein such obligation of Lessor has not been performed;
provided, however, that if the nature of Lessor's obligation is such that
more than thirty (30) days after such notice are reasonably required for its
performance, then Lessor shall not be in breach of this Lease if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
14. CONDEMNATION, If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called Condemnation), this Lease shall terminate as to
the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-tive percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE: The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including, but not limited to,
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date
<PAGE>
due at the prime rate charged by the largest state chartered bank in the
state in which the Premises are located plus four percent (4%) per annum, but
not exceeding the maximum rate allowed by law, in addition to the potential
late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given three (3) business days after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shad not be a waiver of any Default or Breach by Lessee of any
provision hereof. Any payment given Lessor by Lessee may be accepted by Lessor
on account of monies or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit of
such payment.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
In the event that Lessee holds over in violation of this Paragraph 26 then the
Base Rent payable from and after the time of the expiration or earlier
termination of this Lease shall be increased to one hundred twenty five percent
(125%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
<PAGE>
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the state in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device*), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13 5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1 ) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the,same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Leased signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
<PAGE>
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required
to an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. lessor's actual reasonable costs and expenses
(including, but not limited to, architects', attorneys', engineers and
other consultants' fees) incurred in the consideration of, or response to,
a request by Lessee for any Lessor consent pertaining to this Lease or the
Premises, including, but not limited to, consents to an assignment a
subletting or the presence or use of a Hazardous Substance, shall be paid
by Lessee to Lessor upon receipt of an invoice and supporting documentation
therefor. In addition to the deposit described in Paragraph 12.2(e), Lessor
may, as a condition to considering any such request by Lessee, require that
Lessee deposit with Lessor an amount of money (in addition to the Security
Deposit held under Paragraph 5) reasonably calculated by Lessor to
represent the cost Lessor will incur in considering and responding to
Lessee's request. Any unused portion of said deposit shall be refunded to
Lessee without interest. Lessor's consent to any act, assignment of this
Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgement that no Default or Breach by Lessee of this Lease exists,
nor shall such consent be deemed a waiver of any then existing Default or
Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at ttle time of consent of such further or other
conditions as are then reasonable with reference to the particular matter
for which consent is being given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this Lease, including, but not limited to, the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
<PAGE>
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default
finder Paragraph 13.1 and continuing until the noticed Default is cured, or
(ii) during the period of time any monetary obligation due Lessor from
Lessee is unpaid (without regard to whether notice thereof is given
Lessee), or (iii) during the time Lessee is in Breach of this Lease, or
(iv) in the event that Lessor has given to Lessee three (3) or more notices
of separate Defaults under Paragraph 13.1 during the twelve (12) month
period immediately preceding the exercise of the Option, whether or not the
Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during
the term of this Lease, (i) Lessee fails to pay to Lessor a monetary
obligation of Lessee for a period of thirty (30) days after such obligation
becomes due (without any necessity of Lessor to give notice thereof to
Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of
separate Defaults under Paragraph 13.1 during any twelve (12) month period,
whether or not the Defaults are cured, or (iii) if Lessee commits a Breach
of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money
<PAGE>
is asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
<PAGE>
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<CAPTION>
<S> <C>
Executed at: San Francisco, California Executed at: San Ramon, California
on: 2/23/99 on: 2/19/99
By LESSOR: By LESSEE:
Sea Cliff Properties, a California General Supergen, Inc., a Delaware Corporation
Partnership
By: /s/ H.M. Shragge By: /s/ Joseph Rubinfeld
Name Printed: H.M. Shragge Name Printed: Joseph Rubinfeld
Title: Partner Title: Chief Executive Officer
By: By: /s/ Rajesh C. Shrotriya
Name Printed: Name Printed: Rajesh C. Shrotriya
Title: Title: EVP/CSO
Address: 12 Geary Street, Suite 303 Address: #2 Annabel Lane, Suite 220
San Francisco, CA 94108 San Ramon, California 94583
Telephone: (415) 781 - 8050 . Telephone: (925) 327 - 0200
Facsimile: (415) 781-1324 Facsimile: (925) 327 - 7347
BROKER: BROKER:
Lee & Associates . Lee & Associates
Executed at: Executed at:
on: on:
By: By:
Name Printed: Chris Pearson/Bob Kumnick Name Printed: Bob Kumnick
Title: Principals Title: Principal
Address: 5960 Stoneridge Drive, Suite 101 Address: 5960 Stoneridge Drive, Suite 101,
Pleasanton, California 94588 Pleasanton, California 94588
Telephone: (925) 737-4146 Telephone: (925) 737-4146
Facsimile: (925) 460-6210 Facsimile: (925) 460-6210
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION,700 South Flower
Street, Suite 600, Los Angeles, California 90017 (213) 687-8777.
<PAGE>
ADDENDUM ONE
This is an Addendum to the Standard Industrial/Commercial Multi-Lessee
Lease - Gross (the "Lease") dated as of February 12, 1999, between SEA CLIFF
PROPERTIES, a California general partnership, as Lessor, and SUPERGEN, INC., a
Delaware Corporation, as Lessee. The Lease covers approximately 10,672 square
feet of space commonly known as Suite A, 1075 Serpentine Lane, Pleasanton,
California. Except as otherwise provided herein, initial capitalized words
shall have the same definitions given to them in the Lease. The provisions of
this Addendum shall supercede all inconsistent provisions in the Lease.
1. LEASE DEPOSIT/SCHEDULE. A deposit of $7,500.00 will be submitted by
Lessee upon signing of this lease agreement. Six months prior to
lease commencement, Lessee will pay to Lessor the balance of the
security deposit of Seven Thousand Five Hundred and No/100 Dollars
($7,500.00) due on this lease and the first month's Base Rent of
$10,565.00.
2. EARLY OCCUPANCY. In the event the Premises becomes available prior to
the scheduled Commencement Date (July 1, 2001), Lessor may give Lessee
written notice ("Lessor's Notice") thereof and the Original Term shall
commence on the date specified in Lessor's Notice but in no event
sooner than ninety (90) days after Lessee receives Lessor's Notice.
Base Rent (Paragraph 3, below) and Common Area Operating Expenses
(Paragraph 4, below) for the period prior to July 1, 2001 shall be the
same as the Base Rent and Common Area Operating Expenses Lessee is
then obligated to pay under its lease covering the adjoining Suite B.
For example, if the Original Term commences on June 1, 2000, the Base
Rent through June 30, 2001 will be as follows:
<TABLE>
<S> <C>
6/1/2000 - 4/30/2001 $10,245.00 per month
5/1/2001 - 6/30/2001 $10,565.00 per month
</TABLE>
and the Common Area Operating Expenses will be $320.00 per month.
Within ten (10) days after receipt of Lessor's Notice, Lessee shall pay
Lessor the balance of the security deposit ($7,500.00) and the first month's
Base Rent.
3. BASE RENT. Base Rent during the Original Term shall be as follows:
<TABLE>
<S> <C>
7/1/2001 - 6/30/2002 $10,565.00 per month
7/1/2002 - 6/30/2003 $10,885.00 per month
7/1/2003 - 6/30/2004 $11,206.00 per month
7/1/2004 - 6/30/2005 $11,542.00 per month
7/1/2005 - 6/30/2006 $11,888.00 per month
</TABLE>
4. COMMON AREA OPERATING EXPENSES. To cover all of Lessee's current and
future obligations under Section 4.2, 8.1, and 10 of the Lease, Lessee shall pay
the sum of $320.00 ($0.03 per square foot) per month in advance along with Base
Rent from 7/1/2001 through June 30, 2004 and then pay increase to $427.00 ($0.04
per square foot) per month from July 1, 2004 through June 30, 2006.
5. LESSEE'S SHARE. Section 1.6 (b) of the Lease is clarified as
follows: Lessee's Share of expenses associated with the Building is 50%
(10,672PLUS MINUS square feet in the Premises vs. 21,344PLUS MINUS square
feet in the Building). Lessee's Share of expenses of the Project (which
consists of two buildings, one at 1177 Quarry Lane and another at 1075
Serpentine Lane) is 20.7% (10,672PLUS MINUS square feet in the Premises vs.
51,584 square feet in the Project).
<PAGE>
6. LESSEE IMPROVEMENTS. Lessee agrees to accept the Premises in its
as-is broom clean condition. Notwithstanding the foregoing, Lessor
agrees to remove all personal property of the present tenant inside
the Premises and to clean-up all debris from the exterior of Premises.
Lessor understands that Lessee intends to improve Premises for
Lessee's office requirements. All plans for such work shall be subject to
Lessor's prior written approval and to the requirements of Section 7.3 of the
Lease. If any of Lessee's improvements trigger other improvements in the
Premises or the Building (such as ADA work), Lessee shall pay for the cost
thereof. A conceptual space plan of planned improvements to be approved by
Lessor prior to lease signing and included as Exhibit C of the Lease. Lessor
reserves the right to have Lessee remove any or all of the improvements Lessee
has added to the Premises at lease expiration and restore interior improvements
to condition of Premises as of date of commencement. Removal cost will be at
Lessee's sole cost and expense.
7. GARBAGE COSTS. Lessor shall provide a trash enclosure on the Premises
and Lessee shall contract and pay for all trash removal services.
8. DOMESTIC WATER USE. In addition to Base Rent and Common Area
Operating Expenses, Lessee shall pay its prorata share of domestic water use as
measured by submeter on Premises. Lessor shall bill Lessee separately for this
water usage and payment shall be due within twenty (20) days after billing.
9. LESSEE'S ADDITIONAL MAINTENANCE OBLIGATIONS. All exterior doors and
windows of Lessee's Premises, including glass frames, locks, hinges and other
parts of the windows and doors, are excluded from Lessor's maintenance
obligations under Section 7.2 of the Lease and the maintenance and repair of
these items are included in the items of Lessee's obligations under Section 7.1
of the Lease. Even though Lessor is responsible for common area maintenance,
Lessee shall not litter the Premises, including the driveway, parking area, and
yard. Lessee shall also maintain and repair all electrical fixtures, floor
covering, plumbing and heating fixtures and other interior fixtures in the
Premises. The repair of broken glass and doors due to any cause, including
forced entry, are Lessee's responsibility. Any damage to the exterior doors,
such as bending, dents and the like, shall be repaired within 30 days of such
damage.
10. HVAC. Lessor shall have a licensed contractor inspect the heating,
ventilating, and air conditioning system ("HVAC") of the Premises and
certify that it is in good working order at the commencement of the
Original Term.
Section 7.1(b) of the Lease is modified to provide that Lessor shall
contract with an outside contractor for the inspection, maintenance and service
of the HVAC systems in the Premises and Lessee shall reimburse Lessor, within
ten (10) days after billing, for the cost thereof. However, Lessee shall not be
obligated to spend more than $5,000.00 in any calendar year to maintain, repair,
replace, and service the HVAC servicing the Premises. The cost of any necessary
maintenance, repair, replacement, and servicing of the HVAC system in the
Premises in excess of $5,000.00 in any calendar year shall be paid by Lessor.
11. ROOF. Lessee shall not have access to the roof and shall not use the
roof or exterior walls of the Building for any purpose without
Lessor's consent. Lessee shall not be permitted to make any
penetrations through the roof of the Building or ceiling of the
Premises without Lessor's prior written approval.
12. PARKING. The parking lot shall be used solely for parking of cars and
light trucks by Lessee and its customers during Lessee's operating hours. No
trucks or trailers or vehicles longer than 22 feet shall be parked in the
parking lot. No overnight parking will be allowed except only during the period
of tenant improvement construction (not to exceed six months).
<PAGE>
13. NO STORAGE, ETC. No storage or repair work on equipment will be
permitted outside the Premises or in the parking area. A storage container will
be permitted outside the Premises only during the period of tenant improvement
construction (not to exceed six months).
14. GARBAGE USE. Absolutely no debris, cartons, pallets or the like shall
be put in trash yards or in the paved areas. Lessee shall be responsible for
placing its trash in the dumpsters.
15. CC&RS. Lessee has received and approved a copy of The Valley Business
Park Covenants, Conditions and Restrictions ("CC&Rs"). Lessee agrees
to be bound by any provisions within the CC&Rs pertinent to Lessee's
occupancy and use of the Premises and the Industrial Center.
16. HAZARDOUS SUBSTANCES. To the best knowledge of Lessor, (a) no
Hazardous Substances are present on the Industrial Center of the soil,
surface water or goundwater thereof, (b) no underground storage tanks or
asbestos-containing building materials are present on the Industrial Center,
and (c) no action, proceeding, or claim is pending or threatened involving
the Industrial Center concerning any Hazardous Substances or pursuant to any
Applicable Laws or Requirements. Under no circumstance shall Lessee be liable
for, or indemnify Lessor from, any Hazardous Substance present at any time on
or about the Industrial Center, or the soil, air, improvements, groundwater
or surface water thereof, or the violation of any Applicable Laws or
Requirements relating to any such Hazardous Substance, except to the extent
that any of the foregoing directly or indirectly result from the release or
emission of Hazardous Substances on or about the Premises caused by Lessee,
its agents, employees or contractors. Lessee shall indemnify, defend and
hold harmless Lessor, its agents, contractors, stockholders, directors,
successors, representatives and assigns, from and against all losses, costs,
claims, liabilities and damages (including attorneys' and consultants' fees)
of every type and nature directly or indirectly arising out of or in
connection with any such release or emission of Hazardous Substances by
Lessee, its agents, employees or contractors. Lessor shall indemnify defend
and hold harmless Lessee, its agents, contractors, stockholders, directors,
successors, representatives and assigns, from and against all losses, costs,
claims, liabilities and damages (including attorneys' and consultants' fees)
of every type and nature directly or indirectly arising out of or in
connection with any release or emission of Hazardous Substances caused by
Lessor, its agents, employees or contractors, or arising out of or in any way
connected with the breach of any warranties or representations by Lessor
under this paragraph 17.
17. ASSIGNMENT AND SUBLETTING. Lessee, without Lessor's prior written
consent and without complying with any of the restrictions of Paragraphs 12
or 39 of the Lease, may sublet the Premises or assign the Lease to
(collectively, "Permitted Assignees"): a subsidiary, affiliate, franchisee,
division or corporation controlling, controlled by or under common control
with Lessee; (b) a successor corporation related to Lessee by merger,
consolidation, on bankruptcy reorganization or government action; or (c) a
purchaser of substantially all of Lessee's assets located at the Premises.
For purposes of the Lease, a sale of Lessee's capital stock shall not be
deemed an assignment, subletting or other transfer of the Lease or the
Premises requiring Lessor's consent.
18. CROSS-DEFAULT. Concurrent herewith, Lessor and Lessee are entering
into a Lease covering Suite B which adjoins the Premises (the 'Adjoining
Lease"). Any breach or default breach by Lessee under the Adjoining Lease shall
constitute a Breach under this Lease.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LESSOR LESSEE
SEA CLIFF PROPERTIES, SUPERGEN, INC.
a California general partnership a Delaware Corporation
By: /s/ H.M. Schragge By: /s/ Joseph Rubinfeld
------------------- -----------------------
Date: 2/23/99 By: /s/ Rajesh C. Shrotriya
-----------------------
Date: 2/19/99
</TABLE>
<PAGE>
EXHIBIT 10.33
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- GROSS,
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
February 12 , 1999, is made by and between Sea Cliff Properties, a
California General Partnership (|"LESSOR") and SuperGen, Inc., a Delaware
Corporation ("LESSEE"), (Collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 1075 Serpentine Lane, Suite B, located
in the City of Pleasanton, County of Alameda, State of California, with zip code
94566, as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING" is
that certain building containing the Premises and generally described as
(describe briefly the nature of the Building):
Approximately 10,672+- square feet of office space within a larger concrete
tilt-up building consisting of approximately 21,344+ square feet (per Exhibits A
and B)
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "INDUSTRIAL
CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: 20. 7% of available parking in the Industrial Center
unreserved vehicle parking spaces ("UNRESERVED PARKING SPACES"); and zero
reserved vehicle parking spaces ("RESERVED PARKING SPACES"). (Also see Paragraph
2.6.)
1.3 TERM: 7 years and 2 months ("ORIGINAL TERM") commencing May 1, l999
("COMMENCEMENT DATE") and ending 6/30/2006 ("EXPIRATION DATE"). (Also see
Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $ 9,925.00 per month ("BASE RENT"), payable on the first
day of each month commencing May l999 (Also see Paragraph 4.)
/X/ If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum One, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $ 9,925.00 as Base Rent for the
period May 1999
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: per Addendum
One, Paragraph 5 percent (50%) ("LESSEE'S SHARE") as determined by /X/ prorata
square footage of the Premises as compared to the total square footage of the
Building or / / other criteria as described in Addendum __________.
1.7 SECURITY DEPOSIT: $15,000.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5)
1.8 PERMITTED USE: Administrative, sales and general office; storage,
and other uses related to company operations. ("PERMITTED USE") (Also see
Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
/ /_____________________________represents Lessor exclusively ("LESSOR'S
BROKER");
/ /_____________________________represents Lessee exclusively ("LESSEE'S
BROKER"); or
/X/ Lee & Associates represents both Lessor and
Lessee ("DUAL AGENCY"). (Also see Paragraph 15.)
1 .10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $ per
agreement) for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by (N/A) ("GUARANTOR"). (Also see Paragraph 37.)
<PAGE>
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs I through 16, and Exhibits A through C, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1 .6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that to lessor's
knowledge the existing plumbing, electrical systems, fire sprinkler system,
lighting, air conditioning and heating systems and loading doors, if any, in the
Premises, other than those constructed by Lessee, shall be in good operating
condition on the Commencement Date. If a non-compliance with said warranty
exists as of the Commencement Date, Lessor shall, except as otherwise provided
in this Lease, promptly after receipt of written notice from Lessee setting
forth with specificity the nature and extent of such non-compliance, rectify
same at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within sixty (60) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that to Lessor's knowledge any improvements (other than those
constructed by Lessee or at Lessee's direction) on or in the Premises which
have been constructed or installed by Lessor or with Lessor's consent or at
Lessor's direction shall comply with all applicable covenants or restrictions
of record and applicable building codes, regulations and ordinances in effect
on the Commencement Date. Lessor further warrants to Lessee that Lessor has
no knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations, or
ordinances exist with regard to the Premises as of the Commencement Date.
Said warranties shall not apply to any Alterations or Utility Installations
(defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises
do not comply with said warranties, Lessor shall, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
given within six (6) months following the Commencement Date and setting forth
with specificity the nature and extent of such non-compliance, take such
action, at Lessor's expense, as may be reasonable or appropriate to rectify
the non-compliance. Lessor makes no warranty that the Permitted Use in
Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined
in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including, but not limited to, the electrical and
fire sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any covenants or restrictions of record (collectively,
"APPLICABLE LAWS") and the present and future suitability of the Premises for
Lessee's intended use; (b) that Lessee has made such investigation as it deems
necessary with reference to such matters, is satisfied with reference thereto,
and assumes all responsibility therefore as the same relate to Lessee's
occupancy of the Premises and/or the terms of this Lease; and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written representations
or warranties with respect to said matters other than as set forth in this
Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than full-
size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as
<PAGE>
directed by Lessor in the Rules and Regulations (as defined in Paragraph 40)
issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in
areas other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center and interior utility raceways within the Premises
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have Use right, with notice, in addition to such other rights and remedies
that it may have, to remove the property and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the industrial Center.
2.10 COMMON AREAS -- CHANGES. Lessor shalt have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress; egress, direction of traffic, landscaped areas, walkways and
utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any
portion thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be
appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
<PAGE>
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partiaity occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. Ail other
terms of this Lease, however, (including, but not limited to, the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability U1erefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. if possession of the Premises is not
delivered to Lessee within ninety (90) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said ninety (90) day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shad
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and ail other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shad be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1 6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses. are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the
ownership and operation of the industrial Center, including, but
not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area fighting facilities, fences and
gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to service
the Common Areas.
(iii) Trash disposal, property management and security services
and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Any increase above the Base Real Property Taxes (as defined
in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph 8.1).
(vii) The cost of insurance carried by Lessor with respect to the
Common Areas.
(viii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
<PAGE>
(ix) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other
building in the Industrial Center or to the operation, repair and
maintenance thereof, shall be allocated entirely to the Building or to
such other building. However, any Common Area Operating Expenses and Real
Property Taxes that are not specifically attributable to the Building or
to any other building or to the operation, repair and maintenance
thereof, shall be equitably allocated by Lessor to all buildings in the
Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or
to provide those services unless the Industrial Center already has the
same, Lessor already provides the services, or Lessor has agreed
elsewhere in this Lease to provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within thirty (30) days after a reasonably detailed
statement of actual expenses is presented to Lessee by Lessor At Lessor's
option, however, an amount may be estimated by Lessor from time to time
of Lessee's Share of annual Common Area Operating Expenses and the same
shall be payable monthly or quarterly, as Lessor shall designate, during
each 12-month period of the Lease term, on the same day as the Base Rent
is due hereunder. Lessor shall deliver to Lessee within sixty (60) days
after the expiration of each calendar year a reasonably detailed
statement showing Lessee's Share of the actual Common Area Operating
Expenses incurred during the preceding year. If Lessee's payments under
this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during
said preceding year were less than Lessee's Share as indicated on said
statement, Lessee shall pay to Lessor the amount of the deficiency within
ten (10) days after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 18.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorneys' fees) which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefore deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Lessor shall not be required
to keep all or any part of tile Security Deposit separate from its general
accounts. Lessor shall, at the expiration or earlier termination of the term
hereof and after Lessee has vacated the Premises, return to Lessee (or, at
Lessor's option, to the last assignee, if any, of Lessee's interest herein),
that portion of the Security Deposit not used or applied by Lessor. Unless
otherwise expressly agreed in writing by Lessor, no part of the Security Deposit
shall be considered to be held in trust, to bear interest or other increment for
its use, or to be prepayment for any monies to be paid by Lessee under this
Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, and for no other purpose.
Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to the Premises or neighboring premises or
properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants of Lessee, its
assignees and subtenants, for a modification of said Permitted Use, so
long as the same will not impair the structural integrity of the
improvements on the Premises or in the Building or the mechanical or
electrical systems therein, does not conflict with uses by other lessees,
is not significantly more burdensome to the Premises or the Building and
the improvements thereon, and is otherwise permissible pursuant to this
Paragraph 6. If Lessor elects to withhold such consent, Lessor shall
within five (5) business days after such
<PAGE>
request give a written notification of same, which notice shall include
an explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance,
chemical, material or waste whose presence, nature, quantity and/or
intensity of existence, use, manufacture, disposal, transportation,
spill, release or effect, either by itself or in combination with other
materials expected to be on the Premises, is either (i) potentially
injurious to the public health, safety or welfare, the environment, or
the Premises; (ii) regulated or monitored by any governmental authority;
or (iii) a basis for potential liability of Lessor to any governmental
agency or third party under any applicable statute or common law theory.
Hazardous Substance shall include, but not be United to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof.
Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and
compliance in a timely manner (at lessee's sole cost and expense) with
all Applicable Requirements (as defined in Paragraph 6.3). "REPORTABLE
USE" shall mean (i) the installation or use of any above or below ground
storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a
permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority,
and (iii) the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Laws require that a notice
be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's
prior consent, but upon notice to Lessor and in compliance with all
Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the
Permitted Use, so long as such use is not a Reportable Use and does not
expose the Premises, or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its
consent to any Reportable Use of any Hazardous Substance by Lessee upon
Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury
and/or liability therefor, including, but not limited to, the
installation (and, at Lessor's option, removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the
deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under
or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action,
or proceeding given to, or received from, any governmental authority or
private party concerning the presence, spill, release, discharge of, or
exposure to, such Hazardous Substance including, but not limited to, all
such documents as may be involved in any Reportable Use involving the
Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee or by
anyone under Lessee's control. Lessee's obligations under this Paragraph
6.2(c) shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation (including consultants
and attorneys' fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and
shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and
Lessee shall release Lessee from its obligations under this Lease with
respect to Hazardous Substances, unless specifically so agreed by Lessor
in writing at the time of such agreement.
<PAGE>
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS", which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to Lessee's U5e of the
Premises (including, but not limited to, matters pertaining to (i) industrial
hygiene, (ii) environmental conditions on, in, under or about the Premises,
including soil and groundwater conditions, and (iii) the use, generation,
manufacture, production, installation, maintenance, removal, transportation,
storage, spill, or release of any Hazardous Substance), now in effect or which
may hereafter come into effect. Lessee stiall, within five (5) days after
receipt of Lessor's written request, provide Lessor With copies of all documents
and information, including, but not limited to, permits, registrations,
manifests, applications, reports and certificates, evidencing Lessee's
compliance with any Applicable Requirements specified by Lessor, and shall
immediately upon receipt, notify Lessor in writing (with copies of any documents
involved) of any threatened or actual claim, notice, citation, warning,
complaint or report pertaining to or involving failure by Lessee or the Premises
to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including, but not limited to,
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Breach of
this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or unless the inspection is requested or ordered by a governmental authority as
the result of any such existing violation or contamination. In such case, Lessee
shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for
the costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2
(Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation),
Lessee shall, at Lessee's sole cost and expense and at all times, keep
the Premises and every part thereof in good order, condition and repair
(whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to
Lessee, and whether or not the need for such repairs occurs as a result
of lessee's use, any prior use, the elements or the age of such portion
of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical,
lighting facilities, boilers, fired or unfired pressure vessels, fire
hose connections if within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors,
plate glass, and skylights, but excluding any items which are the
responsibility of Lessor pursuant to Paragraph 7.2 below. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise
and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order,
condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and
substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilation system for the Premises. However, Lessor reserves the right,
upon notice to Lessee, to procure and maintain the contract for the
heating, air conditioning and ventilating systems, and if Lessor so
elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after thirty (30) days
prior written notice to Lessee (except in the case of an emergency, in
<PAGE>
which case no notice shall be required), perform such obligations on
Lessee's behalf, and put the Premises in good order, condition and
repair, in accordance with Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Building, Industrial Center or
Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power
panels, electrical distribution, security, fire protection systems,
communications systems, lighting fixtures, heating, ventilating and air
conditioning equipment, plumbing, and fencing in, on or about the
Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and
equipment which can be removed without doing material damage to the
Premises. The term "ALTERATIONS" shall mean any modification of the
improvements on the Premises which are provided by Lessor under the terms
of this Lease, other than Utility Installations or Trade Fixtures.
Lessee-Owned Alterations and/or Utility Installations are defined as
Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor
cause to be made any Alterations or Utility Installations in, on, under
or about the Premises without Lessor's prior written consent. Lessee may,
however, make non-structural Utility Installations or alterations to the
interior of the Premises (excluding the rot without Lessor's consent but
upon notice to Lessor, so long as they are not visible from the outside
of the Premises, do not involve puncturing, relocating or removing the
roof or any existing walls, or changing or interfering with the fire
sprinkler or fire detection systems and the cost thereof does not exceed
$5,000.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7 3(a) or by subsequent
specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities;
(ii) the furnishing of copies of such permits together with a copy of the
plans and specifications for the Alteration or Utility Installation to
Lessor prior to commencement of the work thereon; and (iii) the
compliance by Lessee with all conditions of said permits in a prompt and
expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and be in compliance with all
Applicable Requirements. Lessee shall promptly upon completion thereof
furnish Lessor with as-built plans and specifications therefor. Lessor
may (but without obligation to do so) condition its consent to any
requested Alteration or Utility Installation that costs $5,000.00 or more
upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to the estimated cost of such Alteration or Utility
Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured
by any mechanics or materialmenqs lien against the Premises or any
interest therein. Lessee shall give Lessor not less than ten (10) days
notice prior to the commencement of any'work in, on, or about the
Premises, and Lessor shall have the right to post notices of non-
responsibility in or on the Premises as provided by law. If Lessee shall,
in good faith, contest the validity of any such lien, claim or demand,
then Lessee shall, at its sole expense, defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety
<PAGE>
bond satisfactory to Lessor, in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying
Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. in
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and
costs in participating in such action if Lessor shall decide it is to
its best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to
the Premises by Lessee shall be the property of and owned by Lessee, but
considered a part of the Premises. Lessor may, at any time and at its
option, elect in writing to Lessee to be the owner of all or any
specified part of tile Lessee-Owned Alterations and Utility Installations
Unless otherwise instructed per Subparagraph 7.4(b) hereof all Lessee-
Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and
remain upon the Premises and be surrendered with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations
be removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by
Lessor. Lessor may require the removal at any time of all or any part of
any Alterations or Utility Installations made without the required
consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination
date, clean and free of debris and in good operating order, condition and
state of repair, ordinary wear and tear excepted. Ordinary wear and tear
shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under Uris Lease. Except as otherwise agreed or specified
herein, the Premises, as surrendered, shall include the Alterations and
Utility Installations. The obligation of Lessee shall include the repair
of any damage occasioned by the installation, maintenance or removal of
lessee's Trade Fixtures, furnishings, equipment, and Lessee-Owned
Alterations and Utility Installations, as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee,
all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and
shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined
as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs
8.2(b), 8.3(a) and 8.3(b), ("REQUIRED INSURANCE"), over and above the
Base Premium, as hereinafter defined, calculated on an annual basis.
Coinsurance Cost Increases shall include, but not be limited to,
requirements of the holder of a mortgage or deed of trust covering the
Premises, increased valuation of the Premises, and/or a general premium
rate increase. The term coinsurance Cost Increase's shall not, however,
include any premium increases resulting from the nature of the occupancy
of any other lessee of the Building. If the Parties insert a dollar
amount in Paragraph 1.9, such amount shall be considered the "Base
Premium." If a dollar amount has not been inserted in Paragraph 1.9 and
if the Building has been previously occupied during the twelve (12) month
period immediately preceding the Commencement Date, the "Base Premium"
shall be the annual premium applicable to such twelve (12) month period.
If the Building was not fully occupied during such twelve (12) month
period, the "Base Premium" shall be the lowest annual premium reasonably
obtainable for the Required Insurance as of the Commencement Date,
assuming the most nominal use possible of the Building. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000
procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior
to, or extending beyond, the term of this Lease shall be prorated to
coincide with the corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
<PAGE>
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have
been provided to Lessee in writing (as additional insures) against claims
for bodily injury, personal injury and property damage based upon,
involving or arising out of the ownership, use, occupancy or maintenance
of the Premises and all areas appurtenant thereto. Such insurance shall
be on an occurrence basis providing single limit coverage in an amount
not less than $1,000,000 per occurrence with an "Additional Insured-
Managers or Lessors of Premises endorsement and contain the Amendment of
the Pollution Exclusion" endorsement for damage caused by heat, smoke or
fumes from a hostile fire. The policy shad not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an reinsured contract"
for the performance of Lessee's indemnity obligations under this Lease.
The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee
shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance
only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in
lieu of, the insurance required to be maintained by Lessee. Lessee shall
not be named as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring
against loss or damage to the Premises. Such insurance shall be for full
replacement cost, as the same shall exist from time to time, or the
amount required by any Lender(s), but in no event more than the
commercially reasonable and available insurable value thereof if, by
reason of the unique nature or age of the improvements involved, such
latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's
personal property shall be insured by Lessee pursuant to Paragraph 8 4.
If the coverage is available and commercially appropriate, Lessor's
policy or policies shall insure against ail risks of direct physical loss
or damage (except the perils of flood and/or earthquake unless required
by a Lender or included in the Base Premium), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or policies
shall also contain an agreed valuation provision in lieu of any co-
insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a
factor of not less than the adjusted U.S. Department of Labor Consumer
Price Index for All Urban Consumers for the city nearest to where the
Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during ttle term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and any Lender(s), insuring the loss
of the full rental and other charges payable by all lessees of the
Building to Lessor for one year (including all Real Property Taxes,
insurance costs, all Common Area Operating Expenses and any scheduled
rental increases). Said insurance may provide that in the event the Lease
is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of
repairs or replacement of the Premises, to provide for one full yearns
loss of rental revenues from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any co-insurance
clause, and the amount of coverage shall be adjusted annually to reflect
the projected rental income, Real Property Taxes, insurance premium costs
and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible
amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common
Areas or other buildings in the Industrial Center if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
<PAGE>
(d) LESSEE'S IMPROVEMENTS. Since Lessor is Use Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and
Utility Installations unless the item in question has become the property
of Lessor under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a)
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a General Policyholders Ratings
of at least Be, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Bests Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraphs 8 2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraphs 8, 8.3, and 8.4. The
effect of such releases and waivers of the right to recover damages shall not
be limited by the amount of insurance carried or required, or by any deductibles
applicable thereto. Lessor and Lessee agree to have their respective insurance
companies issuing property damage insurance waive any right to subrogation that
such companies may have against Lessor or Lessee, as the case may be, so long as
the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold hannless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys and constlitants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee, upon notice from Lessor, shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires,appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
<PAGE>
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less
than fifty percent (50o%) of the then Replacement Cost (as defined in
Paragraph 9.1 (d)) of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such
damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction. In addition,
damage or destruction to the Building, other than Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees
of the Building, the cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees
of the Building) of the Building shall, at the option of Lessor, be
deemed to be Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations
and Trade Fixtures, which was caused by an event required to be covered
by the insurance described in Paragraph 8.8(a) irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of applicable
building codes, ordinances or laws, and without deduction for
depreciation.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial
Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense,
repair such damage (but not lessee's Trade Fixtures or Lessee-Owned Alterations
and Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement
<PAGE>
from Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as
reasonably possible after the required funds are available. If Lessee does
not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shad terminate as of the date specified in
Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Not withstanding any other provision hereof,
if Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance
Condition for which Lessee is not legally responsible, the Base Rent, Common
Area Operating Expenses and other charges, if any, payable by Lessee hereunder
for the period during which such damage or condition, its repair, remediation or
restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired, but not in excess of proceeds from
insurance required to be carried under Paragraph 8.3(b). Except for abatement of
Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, ail other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under the
provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "Commence" as used in this Paragraph 9 6 shall mean
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever occurs first.
9.7 Refer to Adendum, Item 15.
9.B TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it is
inconsistent herewith.
10. REAL PROPERTY TAXES.
<PAGE>
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10 2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term 'Real Property Taxes" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement
bond or bonds, levy or tax (other than inheritance, personal income or
estate taxes) imposed upon the Industrial Center by any authority having
the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any legal
or equitable interest of Lessor in the Industrial Center or any portion
thereof, Lessor's right to rent or other income therefrom, andlor
lessor's business of leasing the Premises. The term "Real Property Taxes"
shad also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
Applicable Law taking effect, during the term of this Lease, including
but not limited to a change in the ownership of the Industrial Center or
in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not
contemplated by the Parties.
(b) As used herein, the term Debase Real Property Tamest shall be
the amount of Real Property Taxes which are assessed against the
Premises, Building or Common Areas in the calendar year during which the
Lease is executed. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be
included in the calculation of Real Property Taxes for such calendar year
based upon the number of days which such calendar year and tax year have
in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for tile exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shad pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
<PAGE>
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessors consent. The transfer, on a cumulative
basis, of twenty-five percent (25%) or more of the voting control of
Lessee shall constitute a change in control for this purpose.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1, or a non-
curable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unconsented to assignment or subletting as a
non-curable Breach, Lessor shall have the right to either (i) terminate
this Lease, or (ii) upon thirty (30) days written notice ("Lessor's
Notice"), increase the monthly Base Rent for the Premises to the greater
of the then fair market rental value of the Premises, as reasonably
determined by Lessor, or one hundred ten percent (110%) of the Base Rent
then in effect. Pending determination of the new fair market rental
value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next
installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due
and payable immediately upon the determination thereof. Further, in the
event of such Breach and rental adjustment, (i) the purchase price of any
option to purchase the Premises held by Lessee shall be subject to
similar adjustment to the then fair market value as reasonably determined
by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises
at its highest and best use and in good condition) or one hundred ten
percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be
adjusted to require that the base index be determined with reference to
the index applicable to the time of such adjustment, and (iii) any fixed
rental adjustments scheduled during the remainder of the Lease term shall
be increased in the same ratio as the new rental bears to the Base Rent
in effect immediately prior the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due
Lessor hereunder or for the performance of any other obligations to be
performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or
disapproval of an assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of any rent for
performance shall constitute a waiver or estoppel of Lessor's right to
exercise its remedies for the Default or Breach by Lessee of any of the
terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first
exhausting Lessor's remedies against any other person or entity
responsible therefor to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including, but not
limited to, the intended use and/or required modification of the
Premises, if any, together with a non-refundable deposit of $1,000 as
reasonable consideration for Lessor's considering and processing the
request for consent. Lessee agrees to provide Lessor with such other or
additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform
and comply with each and every term, covenant, condition and obligation
herein to be observed or
<PAGE>
performed by Lessee during the term of said assignment or sublease,
other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and
Lessor may collect such rent and income and apply same toward Lessee's
obligations under this Lease; provided, however, that until a Breach (as
defined in Paragraph 13.1 ) shall occur in the performance of Lessee's
obligations under this Lease, Lessee may, except as otherwise provided in
this Lease, receive, collect and enjoy the rents accruing under such
sublease Lessor shall not, by reason of the foregoing provision or any
other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such Sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the
performance of Lessee's obligations under this Lease, to pay to Lessor
the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and
shall pay such rents and other charges to Lessor without any obligation
or right to inquire as to whether such Breach exists and notwithstanding
any notice from or claim from Lessee to the contrary. Lessee shall have
no right or claim against such sublessee, or, until the Breach has been
cured, against Lessor, for any such rents and other charges so paid by
said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in
which event Lessor shall undertake the obligations of the sublessor under
such sublease from the time of the exercise of said option to the
expiration of such sublease; provided, however, Lessor shall not be
liable for any prepaid rents or security deposit paid by sud sublessee to
such sublessor or for any other prior defaults or breaches of such
sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's
prior written consent .
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such
notice. The sublessee shall have a right of reimbursement and offset from
and against Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3.
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of
Common Area Operating Expenses, or any other monetary payment required to
be made by Lessee hereunder as and when due, the failure by Lessee to
provide Lessor with reasonable evidence of insurance or surety bond
required under this Lease, or the failure of Lessee to fulfill any
obligation under this Lease which endangers or threatens life or
property, where such failure
<PAGE>
continues for a period of five (5) days following written notice
thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with
Applicable Requirements per Paragraph 6 3, (ii) the inspection,
maintenance and service contracts required under Paragraph 7.1(b), (iii)
the rescission of an unauthorized assignment or subletting per Paragraph
12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the
subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease
if required under Paragraphs 1.11 and 37, (vii) the execution of any
document requested under Paragraph 42 (easements), or (viii) any other
documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues
for a period of ten (10) days following written notice by or on behalf of
Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40
hereof that are to be observed, complied with or performed by Lessee,
other than those described in Subparagraphs 13.1(a), (b) or (c); above,
where such Default continues for a period of thirty (30) days after
written notice thereof by or on behalf of Lessor to Lessee; provided,
however, that if the nature of lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not
be deemed to be a Breach of this Lease by Lessee if Lessee commences such
cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for tile benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code
Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession
of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where possession is not restored to
Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at
the Premises or of lessee's interest in this Lease, where such seizure is
not discharged within thirty (30) days; provided, however, in the event
that any provision of this Subparagraph 13.1 (e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall
not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor,
was materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent
or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to
honor the guaranty, or (v) a Guarantor's breach of its guaranty
obligation on an anticipatory breach basis, and Lessee's failure, within
sixty (60) days following written notice by or on behalf of Lessor to
Lessee of any such event, to provide Lessor with written alternative
assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources
of Lessee and the Guarantors that existed at the time of execution of
this Lease
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may, at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to, the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefore If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the
Premises to Lessor. In such event Lessor shall be entitled to recover
from Lessee: (i) the worth at the time
<PAGE>
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the time
of award of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of such rental loss
that the Lessee proves could be reasonably avoided; and (iv) any other
amount necessary to compensate Lessor for all the detriment proximately
caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and that portion of any leasing commission paid by
Lessor in connection with this Lease applicable to the unexpired term of
this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the immediately preceding sentence shall be computed
by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco or the Federal Reserve Bank District in which the
Premises are located at the time of award plus one percent (1%). Efforts
by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the
provisional remedy of unlawful detained Lessor shall have the right to
recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and
grace period required under Subparagraph 13.1 (b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as
the case may be, given to Lessee under any statute authorizing the
forfeiture of leases for unlawful detainer shall also constitute the
applicable notice for grace period purposes required by Subparagraph 13.1
(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within
the greater of the two (2) such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the
remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. Lessor
and Lessee agree that the limitations on assignment and subletting in
this Lease are reasonable. Acts of maintenance or preservation, efforts
to relet the Premises, or the appointment of a receiver to protect the
Lessor's interest under this Lease, shall not constitute a termination of
the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of lessee's
occupancy of the Premises.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder: In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due
<PAGE>
and payable quarterly in advance.
13.5 BREACH BY LESSOR Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time slnall in no event be less than thirty (30) days after receipt
by Lessor, and by any Lender(s) whose name and address shall have been furnished
to Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION, If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called Condemnation), this Lease shall terminate as to
the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-tive percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE: The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall
within ten (10) days after written notice from the other Party (the "Requesting
Party") execute, acknowledge and deliver to the Requesting Party a statement in
writing in a form similar to the then most current "Tenancy Statement" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including, but not limited to,
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date
<PAGE>
due at the prime rate charged by the largest state chartered bank in the
state in which the Premises are located plus four percent (4%) per annum, but
not exceeding the maximum rate allowed by law, in addition to the potential
late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given three (3) business days after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shad not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of monies or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
In the event that Lessee holds over in violation of this Paragraph 26 then the
Base Rent payable from and after the time of the expiration or earlier
termination of this Lease shall be increased to one hundred twenty five percent
(125%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
<PAGE>
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the state in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device*), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13 5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1 ) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the,same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Leased signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
<PAGE>
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is
required to an act by or for the other Party, such consent shall not be
unreasonably withheld or delayed. lessor's actual reasonable costs and
expenses (including, but not limited to, architects', attorneys',
engineers and other consultants' fees) incurred in the consideration of,
or response to, a request by Lessee for any Lessor consent pertaining to
this Lease or the Premises, including, but not limited to, consents to an
assignment a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee to Lessor upon receipt of an invoice and
supporting documentation therefor. In addition to the deposit described
in Paragraph 12.2(e), Lessor may, as a condition to considering any such
request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5)
reasonably calculated by Lessor to represent the cost Lessor will incur
in considering and responding to Lessee's request. Any unused portion of
said deposit shall be refunded to Lessee without interest. Lessor's
consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no
Default or Breach by Lessee of this Lease exists, nor shall such consent
be deemed a waiver of any then existing Default or Breach, except as may
be otherwise specifically stated in writing by Lessor at the time of such
consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude
the impositions by Lessor at ttle time of consent of such further or
other conditions as are then reasonable with reference to the particular
matter for which consent is being given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this Lease, including, but not limited to, the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a
Default of the Lessee under this Lease if any such Guarantor fails or refuses,
upon reasonable request by Lessor to give: (a) evidence of the due execution of
the guaranty called for by this Lease, including the authority of the Guarantor
(and of the party signing on Guarantor's behalf) to obligate such Guarantor on
said guaranty, and resolution of its board of directors authorizing the making
of such guaranty, together with a certificate of incumbency showing the
signatures of the persons authorized to sign on its behalf, (b) current
financial statements of Guarantor as may from time to time be requested by
Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty
is still in effect.
<PAGE>
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is in
full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease
in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default
finder Paragraph 13.1 and continuing until the noticed Default is cured,
or (ii) during the period of time any monetary obligation due Lessor from
Lessee is unpaid (without regard to whether notice thereof is given
Lessee), or (iii) during the time Lessee is in Breach of this Lease, or
(iv) in the event that Lessor has given to Lessee three (3) or more
notices of separate Defaults under Paragraph 13.1 during the twelve (12)
month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during
the term of this Lease, (i) Lessee fails to pay to Lessor a monetary
obligation of Lessee for a period of thirty (30) days after such
obligation becomes due (without any necessity of Lessor to give notice
thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more
notices of separate Defaults under Paragraph 13.1 during any twelve (12)
month period, whether or not the Defaults are cured, or (iii) if Lessee
commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money
<PAGE>
is asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS,
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A
STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.<PAGE>
<PAGE>
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<CAPTION>
<S> <C>
Executed at: San Francisco, California Executed at: San Ramon, California
on: 2/23/99 on: 2/19/99
By LESSOR: By LESSEE:
Sea Cliff Properties, a California General Supergen, Inc., a Delaware Corporation
Partnership
By: /s/ H.M. Shragge By: /s/ Joseph Rubinfeld
Name Printed: H.M. Shragge Name Printed: Joseph Rubinfeld
Title: Partner Title: Chief Executive Officer
By: By: /s/ Rajesh C. Shrotriya
Name Printed: Name Printed: Rajesh C. Shrotriya
Title: Title: EVP/CSO
Address: 12 Geary Street, Suite 303 Address: #2 Annabel Lane, Suite 220
San Francisco, CA 94108 San Ramon, California 94583
Telephone: (415) 781 - 8050 . Telephone: (925) 327 - 0200
Facsimile: (415) 781-1324 Facsimile: (925) 327 - 7347
BROKER: BROKER:
Lee & Associates . Lee & Associates
Executed at: Executed at:
on: on:
By: By:
Name Printed: Chris Pearson/Bob Kumnick Name Printed: Bob Kumnick
Title: Principals Title: Principal
Address: 5960 Stoneridge Drive, Suite 101 Address: 5960 Stoneridge Drive, Suite 101,
Pleasanton, California 94588 Pleasanton, California 94588
Telephone: (925) 737-4146 Telephone: (925) 737-4146
Facsimile: (925) 460-6210 Facsimile: (925) 460-6210
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION,700 South Flower
Street, Suite 600, Los Angeles, California 90017 (213) 687-8777.
<PAGE>
ADDENDUM ONE
This is an Addendum to the Standard Industrial/Commercial Multi-Lessee
Lease -- Gross (the "Lease") dated as of February 12, 1999, between SEA CLIFF
PROPERTIES, a California general partnership, as Lessor, and SUPERGEN, INC., a
Delaware Corporation, as Lessee. The Lease covers approximately 10,672 square
feet of space commonly known as Suite B, 1075 Serpentine Lane, Pleasanton,
California. Except as otherwise provided herein, initial capitalized words
shall have the same definitions given to them in the Lease. The provisions of
this Addendum shall supercede all inconsistent provisions in the Lease.
1. BASE RENT. Base Rent during the Original Term shall be as follows:
<TABLE>
<CAPTION>
<S> <C>
5/1/1999 - 4/30/2000 $ 9,925.00 per month
5/1/2000 - 4/30/2001 $10,245.00 per month
5/1/2001 - 4/30/2002 $10,565.00 per month
5/1/2002 - 4/30/2003 $10,885.00 per month
5/1/2003 - 4/30/2004 $11,206.00 per month
5/1/2004 - 4/30/2005 $11,542.00 per month
5/1/2005 - 6/30/2006 $11,888.00 per month
</TABLE>
2. COMMON AREA OPERATING EXPENSES. To cover all of Lessee's current and
future obligations under Section 4.2, 8.1, and 10 of the Lease, Lessee
shall pay the sum of $320.00 ($0.03 per square foot) per month in
advance along with Base Rent from May 1, 1999 through April 30, 2004
and then pay an increase to $427.00 ($0.04 per square foot) per month
from May 1, 2004 through June 30, 2006.
3. LESSEE'S SHARE. Section 1.6 (b) of the Lease is clarified as follows:
Lessee's Share of expenses associated with the Building is 50%
(10,672PLUS MINUS square feet in the Premises vs. 21,344PLUS MINUS
square feet in the Building). Lessee's Share of expenses of the
Project (which consists of two buildings, one at 1177 Quarry Lane
and another at 1075 Serpentine Lane) is 20.7% (10,672PLUS MINUS
square feet in the Premises vs. 51,584 square feet in the Project).
4. LESSEE IMPROVEMENTS. Lessee agrees to accept the Premises in its
as-is broom clean condition. Notwithstanding the foregoing, Lessor
agrees to remove all personal property of the present tenant inside
the Premises and to clean-up all debris from the exterior of Premises.
Lessor understands that Lessee intends to improve Premises for
Lessee's office requirements. All plans for such work shall be subject
to Lessor's prior written approval and to the requirements of Section 7.3
of the Lease. If any of Lessee's improvements trigger other improvements
in the Premises or the Building (such as ADA work), Lessee shall pay for
the cost thereof. A conceptual space plan of planned improvements to be
approved by Lessor prior to lease signing and included as Exhibit C of
the Lease.
5. GARBAGE COSTS. Lessor shall provide a trash enclosure on the Premises
and Lessee shall contract and pay for all trash removal services.
<PAGE>
6. DOMESTIC WATER USE. In addition to Base Rent and Common Area
Operating Expenses, Lessee shall pay its prorata share of domestic water use as
measured by submeter on Premises. Lessor shall bill Lessee separately for this
water usage and payment shall be due within twenty (20) days after billing.
7. LESSEE'S ADDITIONAL MAINTENANCE OBLIGATIONS. All exterior doors and
windows of Lessee's Premises, including glass frames, locks, hinges and other
parts of the windows and doors, are excluded from Lessor's maintenance
obligations under Section 7.2 of the Lease and the maintenance and repair of
these items are included in the items of Lessee's obligations under Section 7.1
of the Lease. Even though Lessor is responsible for common area maintenance,
Lessee shall not litter the Premises, including the driveway, parking lot, and
yard. Lessee shall also maintain and repair all electrical fixtures, floor
covering, plumbing and heating fixtures and other interior fixtures in the
Premises. The repair of broken glass and doors due to any cause, including
forced entry, are Lessee's responsibility. Any damage to the exterior doors,
such as bending, dents and the like, shall be repaired within 30 days of such
damage.
8. HVAC. Lessor shall have a licensed contractor inspect the heating,
ventilating, and air conditioning system ("HVAC") of the Premises and
certify that it is in good working order at the commencement of the
Original Term.
Section 7.1(b) of the Lease is modified to provide that Lessor shall
contract with an outside contractor for the inspection, maintenance and service
of the HVAC systems in the Premises and Lessee shall reimburse Lessor, within
ten (10) days after billing, for the cost thereof. However, Lessee shall not be
obligated to spend more than $5,000.00 in any calendar year to maintain, repair,
replace, and service the HVAC servicing the Premises. The cost of any necessary
maintenance, repair, replacement, and servicing of the HVAC system in the
Premises in excess of $5,000.00 in any calendar year shall be paid by Lessor.
9. ROOF. Lessee shall not have access to the roof and shall not use
the roof or exterior walls of the Building for any purpose without Lessor's
consent. Lessee shall not be permitted to make any penetrations through the
roof of the Building or ceiling of the Premises without Lessor's prior written
approval.
10. PARKING. The parking lot shall be used solely for parking of cars
and light trucks by Lessee and its customers during Lessee's operating hours.
No trucks or trailers or vehicles longer than 22 feet shall be parked in the
parking lot. No overnight parking will be allowed except only during the period
of tenant improvement construction (not to exceed six months).
11. NO STORAGE, ETC. No storage or repair work on equipment will be
permitted outside the Premises or in the parking area. A storage container will
be permitted outside the Premises only during the period of tenant improvement
construction (not to exceed six months).
12. GARBAGE USE. Absolutely no debris, cartons, pallets or the like
shall be put in trash yards or in the paved areas. Lessee shall be responsible
for placing its trash in the dumpsters provided by Lessor.
13. CC&RS. Lessee has received and approved a copy of The Valley
Business Park Covenants, Conditions and Restrictions ("CC&Rs"). Lessee agrees
to be bound by any provisions within the CC&Rs pertinent to Lessee's occupancy
and use of the Premises and the Industrial Center.
<PAGE>
14. HAZARDOUS SUBSTANCES. To the best knowledge of Lessor, (a) no
Hazardous Substances are present on the Industrial Center of the soil, surface
water or goundwater thereof, (b) no underground storage tanks or asbestos-
containing building materials are present on the Industrial Center, and (c) no
action, proceeding, or claim is pending or threatened involving the Industrial
Center concerning any Hazardous Substances or pursuant to any Applicable Laws or
Requirements. Under no circumstance shall Lessee be liable for, or indemnify
Lessor from, any Hazardous Substance present at any time on or about the
Industrial Center, or the soil, air, improvements, groundwater or surface water
thereof, or the violation of any Applicable Laws or Requirements relating to any
such Hazardous Substance, except to the extent that any of the foregoing
directly or indirectly result from the release or emission of Hazardous
Substances on or about the Premises caused by Lessee, its agents, employees or
contractors. Lessee shall indemnify, defend and hold harmless Lessor, its
agents, contractors, stockholders, directors, successors, representatives and
assigns, from and against all losses, costs, claims, liabilities and damages
(including attorneys' and consultants' fees) of every type and nature directly
or indirectly arising out of or in connection with any such release or emission
of Hazardous Substances by Lessee, its agents, employees or contractors. Lessor
shall indemnify defend and hold harmless Lessee, its agents, contractors,
stockholders, directors, successors, representatives and assigns, from and
against all losses, costs, claims, liabilities and damages (including attorneys'
and consultants' fees) of every type and nature directly or indirectly arising
out of or in connection with any release or emission of Hazardous Substances
caused by Lessor, its agents, employees or contractors, or arising out of or in
any way connected with the breach of any warranties or representations by Lessor
under this paragraph 15.
15. ASSIGNMENT AND SUBLETTING. Lessee, without Lessor's prior written
consent and without complying with any of the restrictions of Paragraphs 12 or
39 of the Lease, may sublet the Premises or assign the Lease to (collectively,
"Permitted Assignees"): a subsidiary, affiliate, franchisee, division or
corporation controlling, controlled by or under common control with Lessee; (b)
a successor corporation related to Lessee by merger, consolidation, on
bankruptcy reorganization or government action; or (c) a purchaser of
substantially all of Lessee's assets located at the Premises. For purposes of
the Lease, a sale of Lessee's capital stock shall not be deemed an assignment,
subletting or other transfer of the Lease or the Premises requiring Lessor's
consent.
16. CROSS-DEFAULT. Concurrent herewith, Lessor and Lessee are entering
into a Lease covering Suite A which adjoins the Premises (the "Adjoining
Lease"). Any breach or default breach by Lessee under the Adjoining Lease shall
constitute a Breach under this Lease.
<TABLE>
<CAPTION>
<S> <C>
LESSOR LESSEE
SEA CLIFF PROPERTIES, SUPERGEN, INC.
a California general partnership a Delaware Corporation
By: /s/ H.M. Schragge By: /s/ Joseph Rubinfeld
------------------------- ----------------------------
Date: 2/23/99 By: /s/ Rajesh C. Shrotriya
----------------------------
Date: 2/19/99
</TABLE>
<PAGE>
Exhibit 10.34
SECURED PROMISSORY NOTE
Five Million Dollars
($5,000,000.00) March 25, 1999
FOR VALUE RECEIVED, the undersigned, SuperGen, Inc., a Delaware
corporation ("BORROWER"), hereby promises to pay to TAKO Ventures, LLC, a
California limited liability company ("LENDER"), or order, the principal sum
of Five Million Dollars ($5,000,000) or so much of such principal sum as may
from time to time have been advanced and be outstanding, together with
accrued interest as provided herein.
A. PRINCIPAL.
1. ADVANCES. From the date hereof until 11:59 p.m. Pacific Time on
December 31, 1999, Borrower may from time to time request advances from
Lender (individually an "ADVANCE" and collectively the "ADVANCES") by giving
written notice to Lender in accordance with the terms hereof, which notice
shall indicate the amount of the Advance requested, the proposed use of the
Advance proceeds and the amount of equity and debt financing from any third
party which has been received (or which has become available to be received)
by the Company from and after the date hereof through the date of such notice
("THIRD PARTY FINANCING"). Subject to the satisfaction or waiver of the
Conditions set forth in Section A.2. below, and provided that the requested
Advance would not cause an Event of Default (as defined in Section G below)
to occur, Lender shall make the Advance to Borrower within thirty (30) days
of receipt of Borrower's notice for the first Advance, and within five (5)
days of receipt of Borrower's notice for each subsequent Advance. Lender
shall not be obligated to make an Advance to the extent that such Advance,
when aggregated with all prior Advances, would exceed Five Million Dollars
($5,000,000), less the amount of all Third Party Financing. Borrower shall
not have the right to re-borrow any Advance to the extent that it has been
repaid.
2. CONDITIONS TO ADVANCES. Borrower's right to request, and
Lender's obligation to make, each Advance shall be subject, in each case, to
the satisfaction of the following conditions, any or all of which may be
waived by Lender, in its sole and exclusive discretion, to the extent
permitted by law:
(a) Borrower shall have delivered to Lender, in form and
substance reasonably satisfactory to Lender, (i) a certificate of the
Secretary of Borrower with respect to incumbency and resolutions authorizing
the execution and delivery of this Note; (ii) a financing statement (Form
UCC-1); (iii) an intellectual property security agreement.
(b) The representations and warranties contained in Section D
and Section F.2. shall be true and correct in all material respects on and as
of the date of such request for an
1
<PAGE>
Advance and on the effective date of each Advance as though made at and as of
each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance (PROVIDED, HOWEVER, that those
representations and warranties expressly referring to another date shall be
true, correct and complete in all material respects as of such date), and
Borrower shall have delivered to Lender a certificate signed by the Chief
Executive Officer or Chief Financial Officer of Borrower to such effect.
(c) There shall be no law, order, rule or regulation of any
governmental authority in effect (i) which has the effect of prohibiting or
making unlawful any of the transactions contemplated by this Note, or (ii)
which would reasonably be likely to have a Material Adverse Effect.
3. USE OF PROCEEDS. The proceeds of Advances shall be used for
general corporate purposes, including for working capital.
B. INTEREST. Interest shall accrue with respect to Advances on the
principal sum hereunder at the per annum rate of ten percent (10%). However,
if an Event of Default (as defined in Section G below) has occurred and is
continuing, then interest shall accrue during the continuance of such Event
of Default at the rate per annum equal to two percent (2%) plus the rate that
would otherwise be in effect (the "DEFAULT RATE"). Interest payable
hereunder shall be calculated on the basis of a three hundred sixty (360) day
year for actual days elapsed. Interest shall be due and payable in arrears on
the first day of each calendar month, commencing with the first month after
the date hereof.
C. PAYMENT.
1. SCHEDULED PAYMENT. All principal indebtedness shall be payable
in full on the first anniversary of the date hereof.
2. PREPAYMENT. Borrower shall have the right at any time and from
time to time to prepay, in whole or in part, the principal of this Note,
without payment of any premium or penalty. Any principal prepayment shall be
accompanied by a payment of all interest accrued on the amount prepaid
through the date of such prepayment.
3. FORM OF PAYMENT. Principal and interest and all other amounts
due hereunder are to be paid in lawful money of the United States of America
in federal or other immediately available funds.
D. REPRESENTATIONS AND WARRANTIES. On and as of the date of this Note,
Borrower represents and warrants to Lender, and on and as of the date of each
Advance under this Note, Borrower shall represent and warrant to Lender, that
as of each such date:
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1. DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of this Note are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to
which Borrower is a party or by which Borrower is bound. Borrower is not in
default under any agreement to which it is a party or by which it is bound,
which default could have a Material Adverse Effect.
2. SEC REPORTS. Borrower has delivered or made available to Lender
complete and accurate copies (including exhibits) of each report,
registration statement (on a form other than Form S-8) and definitive proxy
statement filed by Borrower with the Securities and Exchange Commission
("SEC") since March 15, 1998 (the "SEC DOCUMENTS"). As of the time it was
filed with the SEC (or, if amended or superseded by a subsequent filing, then
on the date of such filing): (i) each of the SEC Documents complied in all
material respects with the applicable requirements of the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, and all
rules and regulations promulgated thereunder, and (ii) none of the SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
3. NO MATERIAL ADVERSE CHANGE. Since the date of the most recent
financial statements contained in the SEC Documents, there has been no event
that would constitute a Material Adverse Effect. All consolidated financial
statements related to Borrower that are delivered by Borrower to Lender
fairly present in all material respects Borrower's consolidated financial
condition as of the date thereof and Borrower's consolidated results of
operations for the period then ended.
4. FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Lender
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates
or statements not misleading.
E. COVENANTS.
1. INSURANCE. From the effective date of the first Advance under
this Note, Borrower, at its expense and with such companies as are reasonably
acceptable to Lender, shall maintain business interruption and liability
insurance and fire, theft and other hazard insurance which covers the
Collateral, which insurance shall be in such amounts as are ordinarily
carried by other owners in similar businesses conducted in the locations
where Borrower's business is conducted on the date hereof. All such
liability insurance policies shall show Lender as an additional insured or
loss payee, as applicable, and shall specify that the insurer must give at
least thirty (30) days' notice to Lender before canceling its policy for any
reason. Borrower, upon
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Lender's request, shall deliver to Lender certified copies of such policies
of insurance and evidence of the payments of all premiums therefor.
F. SECURITY INTEREST.
1. GRANT OF SECURITY INTEREST. Borrower grants to Lender a security
interest in the Collateral, as defined herein, to secure the payment of all
of the indebtedness hereunder (the "SECURED OBLIGATIONS").
2. REPRESENTATIONS AND WARRANTIES REGARDING COLLATERAL. On and as
of the date of this Note, Borrower represents and warrants to Lender, and on
and as of the date of each Advance under this Note, Borrower shall represent
and warrant to Lender, that as of each such date, Borrower is the true and
lawful owner of the Collateral, having good and marketable title thereto,
free and clear of any and all Liens other than the Lien and security interest
granted to Lender hereunder and Permitted Liens. Borrower shall not create
or assume or permit to exist any such Lien on or against any of the
Collateral except as created or permitted by this Note and Permitted Liens,
and Borrower shall promptly notify Lender of any such other Lien against the
Collateral and shall defend the Collateral against, and take all such action
as may be necessary to remove or discharge, any such Lien. No part of the
Intellectual Property Collateral has been judged invalid or unenforceable, in
whole or in part, and to Borrower's knowledge no claim has been made that any
part of the Intellectual Property Collateral violates the rights of any third
party.
3. PERFECTION OF SECURITY INTEREST. Borrower agrees to take all
actions requested by Lender and reasonably necessary to perfect, to continue
the perfection of, and to otherwise give notice of, the Lien granted
hereunder, including, but not limited to, execution of financing statements.
G. EVENTS OF DEFAULT.
1. DEFINITION OF EVENT OF DEFAULT. The occurrence of any one or
more of the following events shall constitute an "EVENT OF DEFAULT" hereunder:
(a) Borrower's breach of the obligation to pay any amount
payable hereunder within five (5) business days after the date that it is due
and payable;
(b) Borrower's failure to perform, keep or observe any
obligation under this Note or any of the covenants contained in this Note
which failure is not cured within 30 days from the occurrence thereof;
(c) occurrence of a Material Adverse Effect, or a material
impairment of the prospect of repayment of any portion of the Advances, or
material impairment of the value or
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priority of Lender's security interest in the Collateral; PROVIDED, HOWEVER,
that changes in Borrower's financial condition as a result of continuing cash
losses from operations (that is, losses excluding non-cash charges relating
to acquisitions, equity compensation transactions and the like) in amounts
that do not in any quarter exceed 150% of the cash losses from operations
(determined on the same basis) sustained in the comparable fiscal quarter of
1998 shall not constitute a Material Adverse Effect or a material impairment
for purposes of this Note;
(d) Borrower's institution of proceedings against it, or
Borrower's filing of a petition or answer or consent seeking reorganization
or release, under the federal Bankruptcy Code, or any other applicable
federal or state law relating to creditor rights and remedies, or Borrower's
consent to the filing of any such petition or the appointment of a receiver,
liquidator, assignee, trustee or other similar official of Borrower or of any
substantial part of its property, or Borrower's making of an assignment for
the benefit of creditors, or the taking of corporate action in furtherance of
such action;
(e) the creation (whether voluntary or involuntary) of any
Lien upon any of the Collateral, other than the Permitted Liens, or the
making or any attempt to make any levy, seizure or attachment thereof;
(f) the occurrence and continuance of any default under any
lease or agreement for borrowed money that gives the lessor or the creditor
of such indebtedness, as applicable, the right to accelerate the payment of
lease payments or the repayment of indebtedness, as applicable, in an amount
exceeding $1,000,000, or the right to exercise any rights or remedies with
respect to any of the Collateral;
(g) the entry of any judgment or order in an amount in excess
of $1,000,000 against Borrower which remains unsatisfied or undischarged and
in effect for thirty (30) days after such entry without a stay of enforcement
or execution; or
(i) the existence of a material misstatement or omission in
any representation or warranty set forth in this Note, on the date hereof, or
in any certificate delivered to Lender by Borrower, on the date thereof.
2. RIGHTS AND REMEDIES ON EVENT OF DEFAULT.
(a) During the continuance of an Event of Default, Lender
shall have the right, itself or through any of its agents, with or without
notice to Borrower (as provided below), as to any or all of the Collateral,
by any available judicial procedure, or without judicial process (PROVIDED,
HOWEVER, that it is in compliance with the UCC), declare all obligations
evidenced by this Note immediately due and payable, cease advancing money or
extending credit to or for the benefit of Borrower under this Note, and to
exercise any and all rights afforded to a secured party under the UCC or
other applicable law. Without limiting the generality of the foregoing,
Lender
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shall have the right to sell or otherwise dispose of all or any part
of the Collateral, either at public or private sale, in lots or in bulk, for
cash or for credit, with or without warranties or representations, and upon
such terms and conditions, all as Lender, in its sole discretion, may deem
advisable, and it shall have the right to purchase at any such sale.
Borrower agrees that a notice sent at least fifteen (15) days before the time
of any intended public sale or of the time after which any private sale or
other disposition of the Collateral is to be made shall be reasonable notice
of such sale or other disposition. The proceeds of any such sale, or other
Collateral disposition shall be applied, first to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like,
and to Lender's reasonable attorneys' fees and legal expenses, and then to
the Secured Obligations and to the payment of any other amounts required by
applicable law, after which Lender shall account to Borrower for any surplus
proceeds. If, upon the sale or other disposition of the Collateral, the
proceeds thereof are insufficient to pay all amounts to which Lender is
legally entitled, Borrower shall be liable for the deficiency, together with
interest thereon at the Default Rate, and the reasonable fees of any
attorneys Lender's employs to collect such deficiency; PROVIDED, HOWEVER,
that the foregoing shall not be deemed to require Lender to resort to or
initiate proceedings against the Collateral prior to the collection of any
such deficiency from Borrower. To the extent permitted by applicable law,
Borrower waives all claims, damages and demands against Lender arising out of
the retention or sale or lease of the Collateral or other exercise of
Lender's rights and remedies with respect thereto.
(b) To the extent permitted by law, Borrower covenants that
it will not at any time insist upon or plead, or in any manner whatever claim
or take any benefit or advantage of, any stay or extension law now or at any
time hereafter in force, nor claim, take or insist upon any benefit or
advantage of or from any law now or hereafter in force providing for the
valuation or appraisal of the Collateral or any part thereof, prior to any
sale or sales thereof to be made pursuant to any provision herein contained,
or the decree, judgment or order of any court of competent jurisdiction; or,
after such sale or sales, claim or exercise any right under any statute now
or hereafter made or enacted by any state or otherwise to redeem the property
so sold or any part thereof, and, to the full extent legally permitted,
hereby expressly waives all benefit and advantage of any such law or laws,
and covenants that it will not invoke or utilize any such law or laws or
otherwise hinder, delay or impede the execution of any power herein granted
and delegated to Lender, but will suffer and permit the execution of every
such power as though no such power, law or laws had been made or enacted.
(c) Any sale, whether under any power of sale hereby given or
by virtue of judicial proceedings, shall operate to divest all Borrower's
right, title, interest, claim and demand whatsoever, either at law or in
equity, in and to the Collateral sold, and shall be a perpetual bar, both at
law and in equity, against Borrower, its successors and assigns, and against
all persons and entities claiming the Collateral sold or any part thereof
under, by or through Borrower, its successors or assigns.
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(d) Borrower appoints Lender, and any officer, employee or
agent of Lender, with full power of substitution, as Borrower's true and
lawful attorney-in-fact, effective as of the date hereof, with power, in its
own name or in the name of Borrower, during the continuance of an Event of
Default, to endorse any notes, checks, drafts, money orders, or other
instruments of payment in respect of the Collateral that may come into
Lender's possession, to sign and endorse any drafts against debtors,
assignments, verifications and notices in connection with accounts, and other
documents relating to Collateral; to pay or discharge taxes or Liens at any
time levied or placed on or threatened against the Collateral; to demand,
collect, issue receipt for, compromise, settle and sue for monies due in
respect of the Collateral; to notify persons and entities obligated with
respect to the Collateral to make payments directly to Lender; and,
generally, to do, at Lender's option and at Borrower's expense, at any time,
or from time to time, all acts and things which Lender deems necessary to
protect, preserve and realize upon the Collateral and Lender's security
interest therein to effect the intent of this Note, all as fully and
effectually as Borrower might or could do; and Borrower hereby ratifies all
that said attorney shall lawfully do or cause to be done by virtue hereof.
This power of attorney shall be irrevocable as long as any of the Secured
Obligations are outstanding.
(e) All of Lender's rights and remedies with respect to the
Collateral, whether established hereby or by any other agreements,
instruments or documents or by law shall be cumulative and may be exercised
singly or concurrently.
H. OTHER PROVISIONS.
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
"COLLATERAL" means the property described on Exhibit A attached hereto.
"COPYRIGHTS" means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not
the same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.
"INTELLECTUAL PROPERTY COLLATERAL" means:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
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(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents
or Trademarks, and all license fees and royalties arising from such use to
the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable
in respect of any of the foregoing.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, security interest, charge,
claim or other encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any agreement to give or refrain
from giving a lien, mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, charge, claim or other encumbrance of any
kind.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, assets, properties, operations or condition (financial or
otherwise) of Borrower and its subsidiaries taken as a whole or (ii) the
ability of Borrower to repay the obligations or otherwise perform its
obligations under this Note; PROVIDED, HOWEVER, that changes in Borrower's
financial condition as a result of continuing cash losses from operations
(that is, losses excluding non-cash charges relating to acquisitions, equity
compensation transactions and the like) in amounts that do not in any quarter
exceed 150% of the cash losses from operations (determined on the same basis)
sustained in the comparable fiscal quarter of 1998 shall not constitute a
material adverse effect for purposes of this Note.
"PATENTS" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations in part of the same.
"PERMITTED LIENS" means: (i) Liens imposed by law, such as carriers',
warehousemen's, materialmen's and mechanics' liens, or Liens arising out of
judgments or awards against Borrower with respect to which Borrower at the
time shall currently be prosecuting an appeal or proceedings for review; (ii)
Liens for taxes not yet subject to penalties for nonpayment and Liens for
taxes the payment of which is being contested in good faith and by
appropriate proceedings and for which, to the extent required by generally
accepted accounting principles then in effect,
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proper and adequate book reserves relating thereto are established by
Borrower; (iii) purchase money security interests and liens in connection
with capital leases incurred in the ordinary course of business or existing
on after acquired property at the time of its acquisition by the Borrower;
(iv) liens existing on property as of the date of this Agreement; (v) liens
securing the performance of bids, trade contracts, leases, surety bonds and
the like; (vi) leases and sublicenses granted to others in the ordinary
course of business; (vii) liens consisting of rights of set-off or bankers
liens of a customary nature; and (viii) liens consisting of agreements to
refrain from giving or creating Liens (other than the Lien and security
interest granted to Lender hereunder) in connection with joint venture
agreements, strategic alliances and the like.
"TRADEMARKS" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower
connected with and symbolized by such trademarks.
"UCC" means the Uniform Commercial Code in effect from time to time in
the relevant jurisdiction.
2. GOVERNING LAW; VENUE. This Note shall be governed by the laws of
the State of California, without giving effect to conflicts of law
principles. Borrower and Lender agree that all actions or proceedings arising
in connection with this Note shall be tried and litigated only in the state
and federal courts located in the City and County of San Francisco, State of
California or, at Lender's option, any court in which Lender determines it is
necessary or appropriate to initiate legal or equitable proceedings in order
to exercise, preserve, protect or defend any of its rights and remedies under
this Note or otherwise or to exercise, preserve, protect or defend its Lien,
and the priority thereof, against the Collateral, and which has subject
matter jurisdiction over the matter in controversy. Borrower waives any
right it may have to assert the doctrine of forum non conveniens or to object
to such venue, and consents to any court ordered relief. Borrower waives
personal service of process and agrees that a summons and complaint
commencing an action or proceeding in any such court shall be promptly served
and shall confer personal jurisdiction if served by registered or certified
mail to Borrower. The choice of forum set forth herein shall not be deemed
to preclude the enforcement of any judgment obtained in such forum, or the
taking of any action under this Note to enforce the same, in any appropriate
jurisdiction.
3. NOTICES. Any notice or communication required or desired to be
served, given or delivered hereunder shall be in the form and manner
specified below, and shall be addressed to the party to be notified as
follows:
If to Lender: Tako Ventures, LLC
c/o Howson & Simon
101 Ygnacio Valley Road, Suite 310
Walnut Creek, CA 94596
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Attention: Philip Simon
Fax: (650) 977-9064
with a copies to: Dudnick Detwiler Rivin & Strikker
351 California Street, Fifteenth Floor
San Francisco, CA 94104
Attention: Andrew Dudnick, Esq.
Fax: (415) 982-1401
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Rod J. Howard, Esq., Brad Rock, Esq.
Fax: (415) 327-3699
If to Borrower: SuperGen, Inc.
Two Annabel Lane
Suite 220
San Ramon, California 94583
Attention: Dr. Joseph Rubinfeld
Fax: (510) 327-7347
with a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Page Mailliard, Esq.
Fax: (650) 493-6811
or to such other address as each party designates to the other by notice in
the manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by overnight
delivery service, (iii) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or (iv) sent
via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above. Notice mailed as provided in clause (iii)
above shall be effective upon the expiration of three (3) business days after
its deposit in the United States mail, and notice telecopied as provided in
clause (iv) above shall be effective upon receipt of such telecopy if the
duplicate signed copy is sent under clause (iv) above. Notice given in any
other manner described in this section shall be effective upon receipt by the
addressee thereof; PROVIDED, HOWEVER, that if any notice is tendered to an
addressee and delivery thereof is refused by such addressee, such notice
shall be effective upon such tender unless expressly set forth in such notice.
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4. LENDER'S RIGHTS; BORROWER WAIVERS. Lender's acceptance of partial
or delinquent payment from Borrower hereunder, or Lender's failure to
exercise any right hereunder, shall not constitute a waiver of any obligation
of Borrower hereunder, or any right of Lender hereunder, and shall not affect
in any way the right to require full performance at any time thereafter.
Except as otherwise expressly provided herein, Borrower waives presentment,
diligence, demand of payment, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note. In any action on this Note, Lender need not
produce or file the original of this Note, but need only file a photocopy of
this Note certified by Lender be a true and correct copy of this Note in all
material respects.
6. ENFORCEMENT COSTS. Borrower shall pay all costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses Lender
expends or incurs in connection with the enforcement of this Note, the
collection of any sums due hereunder, any actions for declaratory relief in
any way related to this Note, or the protection or preservation of any rights
of the holder hereunder.
7. SEVERABILITY. Whenever possible each provision of this Note shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision is prohibited by or invalid under applicable law,
it shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of the provision or the remaining
provisions of this Note.
8. AMENDMENT PROVISIONS. This Note may not be amended or modified,
nor may any of its terms be waived, except by written instruments signed by
Borrower and Lender.
9. BINDING EFFECT. This Note shall be binding upon, and shall inure
to the benefit of, Borrower and the holder hereof and their respective
successors and assigns; PROVIDED, HOWEVER, that Borrower's rights and
obligations shall not be assigned or delegated without Lender's prior written
consent, given in its sole discretion, and any purported assignment or
delegation without such consent shall be void AB INITIO.
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10. TIME OF ESSENCE. Time is of the essence of each and every
provision of this Note.
11. HEADINGS. Section headings used in this Note have been set forth
herein for convenience of reference only. Unless the contrary is compelled
by the context, everything contained in each section hereof applies equally
to this entire Note.
SUPERGEN, INC.
By /s/ Joseph Rubinfeld
---------------------------------
Title Chief Executive Officer
-----------------------------
TAKO VENTURES, LLC
By: CEPHALOPOD CORPORATION,
Member
By /s/ Philip Simon
---------------------------------
Philip Simon, President
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EXHIBIT "A"
COLLATERAL DESCRIPTION ATTACHMENT
TO SECURED PROMISSORY NOTE
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced
or acquired, including, but not limited to:
(1) all accounts receivable, accounts, chattel paper,
contract rights (including, without limitation, royalty agreements, license
agreements and distribution agreements), documents, instruments, money,
deposit accounts and general intangibles, including, without limitation,
returns, repossessions, books and records relating thereto, and equipment
containing said books and records, all investment property, including
securities and securities entitlements;
(2) all software, computer source codes and other computer
programs (collectively, the "Software Products"), and all common law and
statutory copyrights and copyright registrations, applications for
registration, now existing or hereafter arising, United States of America and
foreign, obtained or to be obtained on or in connection with the Software
Products, or any parts thereof or any underlying or component elements of the
Software Products together with the right to copyright and all rights to
renew or extend such copyrights and the right (but not the obligation) of
Lender (herein referred to as "Lender" or "Secured Party") to sue in its own
name and/or the name of the Debtor for past, present and future infringements
of copyright;
(3) all goods, including, without limitation, equipment and
inventory (including, without limitation, all export inventory);
(4) all guarantees and other security therefor;
(5) all trademarks, service marks, trade names and service
names and the goodwill associated therewith;
(6)(a) all patents and patent applications filed in the United
States Patent and Trademark Office or any similar office of any foreign
jurisdiction, and interests under patent license agreements, including,
without limitation, the inventions and improvements described and claimed
therein, (b) licenses pertaining to any patent whether Debtor is licensor or
licensee, (c) all income, royalties, damages, payments, accounts and accounts
receivable now or hereafter due and/or payable under and with respect
thereto, including, without limitation, damages and payments for past,
present or future infringements thereof, (d) the right (but not the
obligation) to sue for past, present and future infringements thereof, (e)
all rights corresponding thereto throughout the world in all jurisdictions in
which such patents have been issued or applied for, and (f) the reissues,
divisions, continuations, renewals, extensions and continuations-in-part with
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any of the foregoing (all of the foregoing patents and applications and
interests under patent license agreements, together with the items described
in clauses (a) through (f) in this paragraph are sometimes herein
individually and collectively referred to as the "Patents"); and
(7) all products and proceeds, including, without limitation,
insurance proceeds, of any of the foregoing.
Notwithstanding the foregoing, the grant of a security interest as provided
herein shall not extend to, and the term "Collateral" shall not include, any
contractual, license or lease rights or interests in which Borrower is the
grantee, licensee or lessee thereunder to the extent that Borrower, whether
by law or by the terms of such contract, license or lease, is not permitted
to assign or grant a security in interest in its rights thereunder without
the consent of the other party thereto.
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Exhibit 10.35
THE SECURITY EVIDENCED BY THIS WARRANT AND THE SECURITIES TO BE PURCHASED UNDER
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
SALE, TRANSFER OR ASSIGNMENT IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT,
OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER OR
ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT.
THE SECURITY EVIDENCED BY THIS WARRANT AND THE SECURITIES TO BE PURCHASED UNDER
THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER, INCLUDING RIGHTS OF FIRST
REFUSAL SET FORTH IN A CONVERTIBLE SECURED NOTE, OPTION AND WARRANT PURCHASE
AGREEMENT DATED JUNE 17, 1997, BY AND AMONG SUPERGEN, INC., TAKO VENTURES, LLC
AND, SOLELY FOR PURPOSES OF SECTIONS 5.3 AND 5.5 THEREOF, LAWRENCE J. ELLISON, A
COPY OF WHICH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF SUPERGEN, INC. AT
SUPERGEN, INC.'S PRINCIPAL EXECUTIVE OFFICES.
March 25, 1999 Right to Purchase 500,000
Void after March 25, 2004 Shares of Common Stock
SUPERGEN, INC.
SERIES 1 COMMON STOCK PURCHASE WARRANT
(Non-redeemable)
SuperGen, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for good and valuable consideration, Tako Ventures, LLC, a California
limited liability company (the "Warrant Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company at any time during the
period commencing at 10:00 a.m. on March 25, 1999 and ending at 5:00 p.m.,
Pacific Time, on March 25, 2004 (the "Exercise Period"), up to the number of
fully-paid and non-assessable shares of Common Stock of the Company set forth in
Section 1 below for the price per share set forth in Section 2 below, subject to
adjustment as herein provided.
1. NUMBER OF SHARES. Subject to adjustment as provided in Section 8
below, this Warrant shall be exercisable for five hundred thousand (500,000)
shares of Common Stock of the Company, par value $0.001 (the "Shares").
2. EXERCISE PRICE. This Warrant shall be exercisable at a price
(the "Exercise Price") equal to Eleven Dollars ($11.00) per Share, in U.S.
dollars, subject to adjustment as provided in Section 8 below.
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3. REDEMPTION BY THE ISSUER. This Warrant is not subject to
redemption by the Company.
4. EXERCISE OF WARRANT.
4.1. EXERCISE. During the Exercise Period, this Warrant may
be exercised in whole or in part by the Warrant Holder by executing and
delivering to the Company at its principal office the written notice of exercise
in the form attached hereto as EXHIBIT W-1, specifying the portion of the
Warrant to be exercised and accompanied by this Warrant, and paying to the
Company the amount obtained by multiplying the number of Shares designated in
the notice of exercise by the Exercise Price, as then in effect, in cash (in
immediately available funds) or, where permitted by law, by cancellation of
indebtedness of the Company to the Warrant Holder, or by surrender of shares of
the Company's Common Stock that are clear of all liens, claims, encumbrances or
security interests. Cash used in payment of some or all of the purchase price
of any exercise hereunder, if in an amount in excess of One Hundred Thousand
Dollars ($100,000), shall be by wire transfer of immediately available funds
payable to the order of the Company.
4.2. INVESTMENT LETTER. Upon exercise of the Warrant in
accordance with Section 4.1 hereof, the Warrant Holder shall either (i) execute
and deliver to the Company an investment letter in the form attached hereto as
EXHIBIT W-2 or (ii) deliver to the Company an opinion of counsel for the Warrant
Holder reasonably satisfactory to the Company, stating that such exercise or
conversion is exempt from the registration and prospectus delivery requirements
of such the Securities Act of 1933, as amended (the "Securities Act").
4.3. LIMITATION ON EXERCISE . Notwithstanding Section 4.1 and
any other provisions of this Warrant, the Warrant Holder's rights to obtain
shares of Common Stock (or other voting securities that the Warrant Holder may
otherwise become entitled to receive in accordance with Section 8 below) upon
exercise of this Warrant shall be subject to the expiration or early termination
of any applicable waiting periods relating to the acquisition of such securities
by the Warrant Holder under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and, if applicable, shall be subject to and limited by the
provisions set forth in Section 5.5 of the Convertible Secured Note, Option and
Warrant Purchase Agreement by and among the Company, Tako Ventures, LLC and,
solely for purposes of Sections 5.3 and 5.5 thereof, Lawrence J. Ellison dated
as of June 17, 1997 (the "Purchase Agreement").
5. DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable
after the exercise of this Warrant (in full or in part) in accordance with
Section 4 above, the Company at its expense will cause to be issued in the name
of and delivered to the Warrant Holder (i) a certificate or certificates for the
number of fully paid and nonassessable Shares to which the Warrant Holder shall
be entitled upon such exercise and (ii) a new Warrant of like tenor to purchase
all of the Shares that may be purchased pursuant to the portion, if any, of the
Warrant not exercised by the Warrant Holder. The Warrant Holder shall for all
purposes be deemed to have become the holder of record of such Shares at the
close of business on the date on which this Warrant was surrendered together
with a notice of exercise and that payment of the Exercise Price was made,
irrespective of the date of
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delivery of such certificate or certificates, except that, if the date of
such surrender, notice and payment is a date when the stock transfer books of
the Company are closed, the Warrant Holder shall be deemed to have become the
holder of record of such Shares at the close of business on the next
succeeding date on which the stock transfer books are open.
6. COVENANTS AS TO COMMON STOCK. The Company covenants and agrees
that all the Shares will, upon issuance, be validly issued and outstanding,
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens and charges with respect to
the issuance thereof. The Company further covenants and agrees that the Company
will at all times have authorized and reserved, and free from preemptive rights,
a sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
7. REGISTRATION RIGHTS. This Warrant and the Shares issued or
issuable upon the exercise of this Warrant are subject to registration in
accordance with the registration rights in favor of the Warrant Holder as
provided for in Article VI of the Purchase Agreement.
8. ADJUSTMENTS.
8.1. In the event that the Company shall (i) pay a dividend
in, or make a distribution of, shares of capital stock or other securities
(including, without limitation, any rights or options to subscribe to or
purchase any additional shares of any class of its capital stock, any evidence
of its indebtedness or assets, or any other rights or options) on its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of such shares or (iii) combine its outstanding shares of
Common Stock into a smaller number of such shares, the total number of Shares
purchasable upon the exercise of this Warrant shall be adjusted so that upon the
subsequent exercise of this Warrant, the Warrant Holder shall be entitled to
receive at the same aggregate Exercise Price the number of shares of capital
stock and other securities (of one or more classes) which such holder would have
owned or would have been entitled to receive immediately following the happening
of any of the events described above had this Warrant been exercised in full
immediately prior to the record date with respect to such event. Any adjustment
made pursuant to this Section shall, in the case of a dividend or distribution
of stock or other securities, become effective as of the record date therefor
and, in the case of a subdivision or combination, be made as of the effective
date thereof. If, as a result of an adjustment made pursuant to this Section,
the Warrant Holder shall become entitled to receive shares or other units of two
or more classes of capital stock or other securities of the Company upon a
subsequent exercise hereof, the Board of Directors of the Company (whose
reasonable determination shall be conclusive and, upon request by the Warrant
Holder, shall be evidenced by a certified Board resolution delivered to the
Warrant Holder) shall determine the allocation of the adjusted Exercise Price
between or among shares of such classes of capital stock. The above provisions
of this Section 8.1 shall apply similarly to successive stock dividends,
subdivisions and combinations.
8.2. In the event of a capital reorganization or a
reclassification of the Common Stock (except as provided in Section 8.1 above or
Section 8.4 below), any Warrant Holder, upon
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exercise of this Warrant, shall be entitled to receive, in substitution for
the Common Stock to which it would have become entitled upon exercise
immediately prior to such reorganization or reclassification, the shares (of
any class or classes) or other securities or property of the Company (or
cash) that it would have been entitled to receive at the same aggregate
Exercise Price upon such reorganization or reclassification if this Warrant
had been exercised immediately prior to the record date with respect to such
event; and in any such case, appropriate provision (as determined by the
Board of Directors of the Company, whose reasonable determination shall be
conclusive and, upon request by the Warrant Holder, shall be evidenced by a
certified Board resolution delivered to the Warrant Holder) shall be made for
the application of this Section 8.2 with respect to the rights and interests
thereafter of the Warrant Holder (including but not limited to the allocation
of the Exercise Price between or among shares of classes of capital stock or
other securities), to the end that this Section 8.2 (including the
adjustments of the number of shares of Common Stock or other securities
purchasable and the Exercise Price thereof) shall thereafter be reflected, as
nearly as reasonably practicable, in all subsequent exercises of this Warrant
for any shares or securities or other property (or cash) thereafter
deliverable upon the exercise hereof. The above provisions of this Section
8.2 shall apply similarly to successive reorganizations or recapitalizations.
8.3. Whenever the number of shares of Common Stock or other
securities purchasable upon exercise of this Warrant is adjusted as provided in
this Section 8, the Company will promptly deliver to the Warrant Holder a
certificate signed by a Chairman or co-Chairman of the Board or the President or
a Vice President of the Company and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Company setting forth the
number and kind of securities or other property purchasable upon exercise of
this Warrant, as so adjusted, stating that such adjustments in the number or
kind of shares or other securities or property conform to the requirements of
this Section 8, and setting forth a brief statement of the facts accounting for
such adjustments; PROVIDED, HOWEVER, that failure to deliver any notice required
under this Section 8.3, or any defect therein, shall not affect the legality or
validity of any such adjustments under this Section 8; and PROVIDED, FURTHER,
that, where appropriate, such notice may be given in advance and included as
part of the notice required to be given pursuant to Section 9 hereof.
8.4. In the event of any consolidation or share exchange
reorganization of the Company with, or merger of the Company into, another
corporation (other than a consolidation, share exchange reorganization or merger
which does not result in any reclassification or change of the outstanding
Common Stock), or in case of any sale or conveyance to another corporation of
the property of the Company as an entirety or substantially as an entirety, the
entity formed by such consolidation, share exchange reorganization or merger or
the person which shall have acquired such property, as the case may be, shall
execute and deliver to the Warrant Holder a new warrant providing that the
Warrant Holder shall have the right thereafter (until the expiration of this
Warrant) to receive, upon exercise of such warrant, solely the kind and amount
of shares of stock and other securities and property (or cash) receivable upon
such consolidation, share exchange reorganization, merger, sale or transfer by a
holder of the number of shares of Common Stock of the Company for which this
Warrant might have been exercised immediately prior to such consolidation, share
exchange reorganization, merger, sale or transfer. Such new warrant
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shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in this Section 8.4. The above
provision of this Section 8.4 shall similarly apply to successive
consolidations, share exchange reorganizations, mergers, sales or transfers.
8.5. Irrespective of any adjustments in the number or kind of
shares or other securities or property issuable upon exercise of this Warrant,
this Warrant and any replacement or balance Warrants thereafter issued may
continue to express the same price and number and kind of shares as are stated
in the original Warrant.
8.6. The Company may retain a firm of independent public
accountants of recognized standing, which may be the firm regularly retained by
the Company, selected by the Board of Directors of the Company or the Executive
Committee of said Board, to make any computation required under this Section 8,
and a certificate signed by such firm shall, in the absence of fraud or gross
negligence, be conclusive evidence of the correctness of any computation made
under this Section 8.
8.7. For the purpose of this Section 8, the term "Common
Stock" shall mean (i) the class of stock designated as Common Stock in the
Certificate of Incorporation of the Company, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time as a result of an
adjustment made pursuant to this Section 8, the Warrant Holder shall become
entitled to receive any shares of capital stock of the Company other than shares
of Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in this Section 8, and all other
provisions of this Warrant, with respect to the Common Stock, shall apply on
like terms to any such other shares.
8.8. The Company may, from time to time and to the extent
permitted by law, reduce the exercise price of this Warrant by any amount for a
period of not less than twenty (20) days. If the Company so reduces the
exercise price of this Warrant, it will give the Warrant Holder not less than
fifteen (15) days' notice of such decrease, and shall take such other steps as
may be required under applicable law in connection with any offers or sales of
securities at the reduced price.
8.9. Whenever the number of Shares purchasable upon the
exercise of this Warrant is adjusted as provided in Section 8, the Exercise
Price for each Share payable upon exercise shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, the numerator
of which shall be the number of Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and the denominator of which shall
be the number of Shares so purchasable immediately thereafter.
9. NOTICE OF CERTAIN CORPORATE ACTIONS. In case the Company after
the date hereof shall propose (i) to offer to the holders of Common Stock,
generally, rights to subscribe to or purchase any additional shares of any class
of its capital stock, any evidences of its indebtedness or assets, or any other
rights or options or (ii) to effect any reclassification of Common Stock
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(other than a reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock) or any capital
reorganization, or any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required,
or any sale, transfer or other disposition of its property and assets
substantially as an entirety, or the liquidation, voluntary or involuntary
dissolution or winding-up of the Company, then, in each such case, the
Company shall deliver to the Warrant Holder notice of such proposed action,
which notice shall specify the date on which the books of the Company shall
close or a record be taken for such offer of rights or options, or the date
on which such reclassification, reorganization, consolidation, merger, sale,
transfer, other disposition, liquidation, voluntary or involuntary
dissolution or winding-up shall take place or commence, as the case may be,
and which shall also specify any record date for determination of holders of
Common Stock entitled to vote thereon or participate therein and shall set
forth such facts with respect thereto as shall be reasonably necessary to
indicate any adjustments in the Exercise Price and the number or kind of
shares or other securities purchasable upon exercise of the Warrant which
will be required as a result of such action. Such notice shall be sent, in
the case of any action covered by clause (i) above, at least ten (10) days
prior to the record date for determining holders of the Common Stock for
purposes of such action or, if a record is not to be taken, the date as of
which the holders of shares of Common Stock of record are to be entitled to
such offering; and, in the case of any action covered by clause (ii) above,
at least twenty (20) days prior to the earlier of the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
other disposition, liquidation, voluntary or involuntary dissolution or
winding-up is expected to become effective and the date on which it is
expected that holders of shares of Common Stock of record on such date shall
be entitled to exchange their shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation,
merger, sale, transfer, other disposition, liquidation, voluntary or
involuntary dissolution or winding-up.
10. TAXES. The Company shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock or other securities of the Company upon the exercise hereof.
11. NO FRACTIONAL INTERESTS. The Company shall not be required to
issue any replacement or balance Warrant evidencing a fraction of a Warrant or
to issue fractions of shares or other securities upon the exercise or conversion
of this Warrant. If any fraction (calculated to the nearest one-hundredth) of a
Warrant or of a share or other securities would, except for the provisions of
this Section 11, be issuable upon the exercise or conversion of any Warrant, the
Company shall, at its option, either purchase such fraction for an amount in
cash equal to the current value of such fraction computed on the basis of the
Fair Market Value thereof, or issue the required fractional Warrant, or share or
other security. The Warrant Holder expressly waives any right to receive a
replacement or balance Warrant evidencing any fraction of a Warrant or to
receive any fractional share or other securities upon exercise or conversion of
this Warrant, except as expressly provided in this Section 11. Each adjustment
in the number of shares of Common Stock purchasable hereunder shall be
calculated to the nearest whole share with fractional shares disregarded.
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12. NO STOCKHOLDER RIGHTS. This Warrant, as such, shall not entitle
the Warrant Holder to vote, receive dividends or be deemed the holder of Common
Stock or any other securities of the Company which may at any time be issuable
on the exercise of this Warrant for any purpose whatever, nor shall anything
contained herein be construed to confer upon the Warrant Holder any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance or
otherwise), or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 9 hereof), or to receive dividend or
subscription rights, or otherwise, until this Warrant shall have been exercised
or converted in accordance with the provisions hereof.
13. TRANSFER AND EXCHANGE OF WARRANT. Subject to Section 11, this
Warrant is exchangeable, upon the surrender hereof by the Warrant Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the rights to subscribe for and purchase the number of Shares
which may be subscribed for and purchased hereunder, each of such new Warrants
to represent the right to subscribe for and purchase such number of Shares as
shall be designated by the Warrant Holder at the time of such surrender.
Subject, if applicable, to the restrictions provided in Section 5.10 of the
Purchase Agreement, this Warrant and all rights hereunder may be transferred, in
whole or in part, on the books of the Company maintained for such purpose at the
principal office of the Company, by the Warrant Holder hereof in person, or by
duly authorized attorney, upon surrender of this Warrant properly endorsed and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer, the Company will issue and
deliver to the Warrant Holder a new Warrant with respect to the Warrant balance
not so transferred. Each taker and holder of this Warrant or any Warrant issued
upon transfer hereof, by taking or holding the same, consents and agrees to be
bound by the terms, conditions, representations and warranties hereof (and as a
condition to any transfer of this Warrant the transferee shall upon request by
the Company execute an agreement confirming the same), and, when this Warrant
shall have been so endorsed and presented, the person in possession of this
Warrant may be treated by the Company, and all other persons dealing with this
Warrant, as the absolute owner hereof for any purpose and as the person entitled
to exercise the rights represented hereby, any notice to the contrary
notwithstanding; PROVIDED, HOWEVER that until a transfer of this Warrant is duly
registered on the books of the Company, the Company may treat the Warrant Holder
hereof as the owner of this Warrant for all purposes.
14. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated or destroyed, the Company may, on such customary and
reasonable terms as to indemnity or otherwise as it may in its discretion impose
(which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as the Warrant so
lost, stolen, mutilated or destroyed.
15. RESTRICTIONS ON TRANSFER.
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15.1. CERTIFICATES. Certificates representing any of the
Shares acquired pursuant to the provisions of this Warrant shall have endorsed
thereon the following legends, as appropriate.
(a) Unless such Shares are received in a transaction
registered under the Securities Act and qualified (if necessary) under
applicable state securities laws:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) If such Shares are to be issued to Tako Ventures,
LLC or its affiliates:
"UNTIL JUNE 17, 2002, THE SECURITIES EVIDENCED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER, INCLUDING RIGHTS OF
FIRST REFUSAL SET FORTH IN A CONVERTIBLE SECURED NOTE, OPTION AND
WARRANT PURCHASE AGREEMENT DATED AS OF JUNE 17, 1997 BY AND AMONG
SUPERGEN, INC., TAKO VENTURES, LLC AND, SOLELY FOR PURPOSES OF
SECTIONS 5.3 AND 5.5 THEREOF, LAWRENCE J. ELLISON, A COPY OF WHICH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF SUPERGEN, INC.
AT SUPERGEN, INC.'S PRINCIPAL EXECUTIVE OFFICES."
(c) Any legend required to be placed thereon by any
applicable state securities laws.
15.2. COMPLIANCE WITH ACT.
(a) The Warrant Holder, by acceptance hereof, agrees
that this Warrant and the Shares to be issued upon the exercise or conversion
hereof are being acquired solely for its own account and not as a nominee for
any other party and not with a view toward the resale or distribution thereof
and that it will not offer, sell or otherwise dispose of this Warrant or any
Shares to be issued upon the exercise or conversion hereof except under
circumstances which will not result in a violation of the Securities Act or of
applicable state securities laws.
(b) The Warrant Holder, by acceptance hereof,
represents that it is (i) an accredited investor within the meaning of Rule 501
under the Securities Act and has such knowledge and experience in financial and
business matters that it is capable of evaluating the
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merits and risks of the purchase of the Warrant; (ii) aware of the Company's
business affairs and financial condition; and (iii) aware that the Warrant
has not been registered under the Securities Act in reliance upon a specific
exemption therefrom.
16. MISCELLANEOUS.
16.1. ENTIRE AGREEMENT. This Warrant and the related
agreements referenced herein constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
16.2. WAIVERS AND AMENDMENTS. This Warrant or any provision
hereof may be changed, waived, discharged or terminated only by a statement in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
16.3. APPLICABLE LAW. This Warrant shall be governed and
controlled as to validity, enforcement, interpretation, construction, effect and
in all other respects by the internal laws (excluding conflicts of law rules) of
the State of Delaware applicable to contracts made and performed in that State.
16.4. NOTICES. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed given when delivered in person
or sent by confirmed facsimile, or when received if given by Federal Express or
other internationally recognized overnight courier service, or by mail, postage
prepaid, registered or certified airmail, addressed to the applicable party as
follows:
if to the Warrant Holder, addressed
to the Warrant Holder: Tako Ventures, LLC
c/o Howson & Simon
101 Ygnacio Valley Road, Suite 310
Walnut Creek, CA 94596
Attention: Philip Simon
Fax: (925) 977-9064
with copies to: Rivin Detwiler Dudnick & Strikker
351 California Street, Fifteenth Floor
San Francisco, CA 94104
Attention: Andrew Dudnick, Esq.
Fax: (415) 982-1401
Gray Cary Ware & Freidenrich, A
Professional Corporation
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Rod J. Howard, Esq., Brad J.
Rock, Esq.
Fax: (650) 327-3699
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if to the Company,
addressed to the Company: SuperGen, Inc.
Two Annabel Lane
Suite 220
San Ramon, California 94583
Attention: Dr. Joseph Rubinfeld
Fax: (925) 327-7347
with a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Page Mailliard, Esq.
(650) 493-6811
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 16.4.
16.5. HEADINGS. The headings in this Warrant are for
convenience of reference only and shall not affect the meaning or interpretation
of this Warrant.
SUPERGEN, INC.:
By: /s/ Joseph Rubinfeld
-----------------------
Title: Chief Executive Officer
-----------------------
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EXHIBIT W-1
NOTICE OF EXERCISE
Date: _______, _____
SuperGen, Inc.
Two Annabel Lane
Suite 220
San Ramon, California 94583
Attention:_______________
Dear M__________________:
The undersigned hereby elects to exercise the enclosed Warrant dated
March ____, 1999 issued to it by SuperGen, Inc. (the "Company") and to purchase
thereunder shares of the Common Stock of the Company (the
"Shares") at an exercise price of $11.00 per Share (as adjusted pursuant to
Section 8 of the Warrant), or an aggregate purchase price of
Dollars ($ ) (the "Purchase Price").
Pursuant to the terms of the Warrant, the undersigned has delivered the Purchase
Price herewith in full, of which Purchase Price, $ is to be paid by
tender of shares of the Company's Common Stock which are delivered
herewith in form suitable for transfer.
The undersigned hereby represents and warrants that all of the
representations and warranties of the undersigned set forth in Section 15.2 of
the Warrant are true and correct as of the date hereof, and that the undersigned
has executed and delivered the Investment Letter attached as EXHIBIT W-2 to the
Warrant.
Very truly yours,
Warrant Holder
By:
-------------------------
Title:
----------------------
Accepted and Acknowledged:
SuperGen, Inc.
By:
-------------------------
Dated: __________________, _______
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EXHIBIT W-2
THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO SUPERGEN, INC. ALONG
WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE
WARRANT DATED MARCH 25, 1999 WILL BE ISSUED.
INVESTMENT LETTER
_____________, ____
SuperGen, Inc.
Two Annabel Lane, Suite 220
San Ramon, California 94583
Attention: ____________________
Dear M___________________:
The undersigned, _____________________("Purchaser"), intends to
acquire up to ____________ shares of the Common Stock (the "Stock") of
SuperGen, Inc. ("SuperGen") from SuperGen pursuant to the exercise of certain
warrants to purchase stock held by the Purchaser. The Stock will be issued
to Purchaser in a transaction not involving a public offering and pursuant to
an exemption from registration under the Securities Act of 1933, as amended
(the "1933 Act") and applicable state securities laws. In connection with
such purchase and in order to comply with the exemptions from registration
relied upon by SuperGen, Purchaser represents, warrants and agrees as follows:
The Purchaser is an accredited investor within the meaning of Rule 501
under the 1933 Act and has such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and
risks of the purchase of the Stock and of protecting Purchaser's interests in
connection therewith.
Purchaser is acquiring the Stock for its own account, to hold for
investment, and Purchaser shall not make any sale, transfer or other disposition
of the Stock in violation of the 1933 Act or the General Rules and Regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC") or
in violation of any applicable state securities law.
Purchaser has been advised that the Stock has not been registered under
the 1933 Act or state securities laws on the ground that this transaction is
exempt from registration, and that reliance by SuperGen on such exemptions is
predicated in part on Purchaser's representations set forth in this letter.
Purchaser has been informed that under the 1933 Act, the Stock must be
held indefinitely unless it is subsequently registered under the 1933 Act or
unless an exemption from such registration (such as Rule 144) is available with
respect to any proposed transfer or disposition by
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Purchaser of the Stock. Purchaser further agrees that SuperGen may refuse to
permit Purchaser to sell, transfer or dispose of the Common Stock (except as
permitted under Rule 144) unless there is in effect a registration statement
under the 1933 Act and any applicable state securities laws covering such
transfer, or unless Purchaser furnishes an opinion of counsel reasonably
satisfactory to counsel for SuperGen, to the effect that such registration is
not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitutions therefor, applicable legends
stating in substance:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
If such Shares are to be issued to Tako Ventures, LLC or its affiliates:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER, INCLUDING RIGHTS OF FIRST REFUSAL SET FORTH IN A CONVERTIBLE SECURED
NOTE, OPTION AND WARRANT PURCHASE AGREEMENT DATED AS OF JUNE 17, 1997 BY AND
AMONG SUPERGEN, INC., TAKO VENTURES, LLC AND, SOLELY FOR PURPOSES OF
SECTIONS 5.3 AND 5.5 THEREOF LAWRENCE J. ELLISON, A COPY OF WHICH AGREEMENT MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF SUPERGEN, INC. AT SUPERGEN, INC.'S PRINCIPAL
EXECUTIVE OFFICES."
Purchaser has carefully read this letter and has discussed its
requirements and other applicable limitations upon Purchaser's resale of the
Stock with Purchaser's counsel.
Very truly yours,
Purchaser
By:
---------------------------
Title:
---------------------------
-13-
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in Form S-8 (Registration No.
333-07295) pertaining to the 1993 Stock Option Plan and 1998 Employee Stock
Purchase Plan, Form S-3 (No. 333-58303) and the Post-Effective Amendment No. 3
on Form S-3 to Form SB-2 (Form SB-2 No. 333-476-LA) for the registration of
4,724,302 shares of common stock of our report dated March 25, 1999, with
respect to the consolidated financial statements of SuperGen, Inc. included in
the Annual Report (Form 10-K) for the year ended December 31, 1998.
ERNST & YOUNG LLP
Palo Alto, California
March 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SUPERGEN, INC DECEMBER 31, 1998 CONSOLIDATED FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,614
<SECURITIES> 3,299
<RECEIVABLES> 722
<ALLOWANCES> 10
<INVENTORY> 1,245
<CURRENT-ASSETS> 14,576
<PP&E> 3,771
<DEPRECIATION> 832
<TOTAL-ASSETS> 19,793
<CURRENT-LIABILITIES> 2,975
<BONDS> 0
0
0
<COMMON> 72,839
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,793
<SALES> 3,004
<TOTAL-REVENUES> 3,004
<CGS> 1,925
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,557
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,577)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,577)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,577)
<EPS-PRIMARY> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
