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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
--------------- TO
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COMMISSION FILE NO. 0-21905
COULTER PHARMACEUTICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 94-32190758
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
550 CALIFORNIA AVENUE, PALO ALTO, CALIFORNIA 94306
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA 650-849-7500
CODE:
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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 $.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of 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 upon the closing price of the Common Stock on the Nasdaq
Stock Market on February 27, 1998 was $211,951,859*.
The number of shares outstanding of the Registrant's Common Stock was
13,625,028 as of February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statement filed with the
Commission pursuant to Regulation 14A in connection with the 1998 Annual Meeting
are incorporated herein by reference into Part III of this Report.
Certain Exhibits filed with the Registrant's Registration Statement on Form
S-1 (Registration Nos. 333-17661 and 333-36607), are incorporated herein by
reference into Part IV of this Report.
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* Based on a closing price of $23.25 per share. Excludes 4,508,819 shares of the
Registrant's Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
February 27, 1998. Exclusion of such shares should not be construed to
indicate that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the Registrant
or that such person is controlled by or under common control with the
Registrant.
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PART I
Except for historical information contained herein, this Annual Report on
Form 10-K contains forward-looking statements which involve risks and
uncertainties. All forward-looking statements included in this document are
based upon information available to the Company as of the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. It
is important to note that the Company's actual results could differ materially
from those in such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors" at
the end of Item 1 Business.
ITEM 1. BUSINESS
Coulter Pharmaceutical is engaged in the development of novel drugs and
therapies for the treatment of people with cancer. The Company currently is
developing a family of cancer therapeutics based upon two drug discovery
programs: therapeutic antibodies and targeted oncologics. Within these broad
drug discovery programs, the Company is currently concentrating on two distinct
platform technologies: therapeutic antibodies based on conjugated antibody
technology and targeted oncologics based on tumor activated peptide ("TAP")
pro-drugs.
The Company's most advanced product candidate, Bexxar, consists of a
monoclonal antibody conjugated with a radioisotope. The Company intends to seek
expedited initial approval of Bexxar for the treatment of low-grade and
transformed low-grade non-Hodgkin's lymphoma ("NHL") in patients refractory to
chemotherapy, while simultaneously pursuing clinical trials to expand the
potential use of Bexxar to other indications. In a Phase I/II clinical trial of
Bexxar, 42 patients with low-grade or transformed low-grade NHL who had relapsed
from previous chemotherapy regimens achieved an 83% overall response rate, with
a 48% complete response rate and a 35% partial response rate. Of those patients
who experienced a complete response, the average duration of response was 20.2
months as of July 1997. In December 1997, the Company presented data on a
multi-center, Phase II clinical trial in heavily pre-treated low-grade and
transformed low-grade NHL patients. The patients achieved a complete response
rate of 31% of the 45 evaluable patients with the median duration of complete
response not yet reached (longest complete response of greater than twenty
months). Currently, the Company is conducting a pivotal Phase III clinical trial
in patients with low-grade and transformed low-grade NHL refractory to
chemotherapy. This trial includes a target enrollment of 60 evaluable patients
and a post-treatment follow-up period of up to six months. The Company intends
to file for United States Food and Drug Administration ("FDA") marketing
approval of Bexxar for this indication in the second half of 1998. The Company
believes that Bexxar, if successfully developed, could become the first
radioimmunotherapy approved in the United States for the treatment of people
with cancer.
The Company intends to pursue additional trials to expand the potential use
of Bexxar to other indications. The Company currently is conducting a
single-center Phase II trial in newly diagnosed low-grade NHL patients. An
interim analysis of data from the first 24 patients showed a 100% overall
response rate, with 71% having achieved complete responses. Seventeen (17)
patients are in ongoing remission, with the longest being eighteen (18) months
as of December 1997. The Company believes that its Phase II trial of Bexxar for
patients newly diagnosed with NHL is the first clinical trial of a
radioimmunotherapy as a stand-alone, first-line treatment for people with
cancer.
The objective of the Company's second technology platform, the TAP pro-drug
program, is to broaden significantly the therapeutic windows of conventional
chemotherapies. The Company currently is developing a pro-drug version of
doxorubicin to treat certain solid tumor cancers with the objective of
commencing clinical trials as early as the end of 1998.
The Company was incorporated under the laws of Delaware in February 1995.
The Company's conjugated antibody program is based upon the antibody
therapeutics program which originated in the late 1970s at Coulter Corporation,
a recognized leader in the field of hematology. Upon its formation in February
1995, the Company acquired worldwide rights to Bexxar and related intellectual
property, know-how and other assets from Coulter Corporation. In October 1997,
Coulter Corporation was acquired by Beckman Instruments, Inc., upon which
occurrence Coulter Corporation became known as Beckman Coulter ("Beckman
Coulter").
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BACKGROUND
CANCER: THE DISEASE AND ITS TREATMENT
Cancer afflicts millions of people worldwide. It is currently the second
leading cause of death in the United States and is estimated to account for more
than 560,000 deaths in 1997 alone. Some forty percent of Americans are expected
to develop cancer and, despite noteworthy success in the treatment of some
cancers, about half of these cancer patients will die from the disease.
Cancer is a family of more than one hundred diseases that can be
categorized into two broad groups: (i) hematologic or blood-borne malignancies
(e.g., lymphomas and leukemia's) and (ii) solid tumor cancers (e.g., lung,
prostate, breast and colon cancers). Both groups are generally characterized by
a breakdown of the cellular mechanisms that regulate cell growth and cell death
("apoptosis") in normal tissues.
Blood-borne cancers involve a disruption of the developmental processes of
blood cell formation, preventing these cells from functioning normally in the
blood and lymph systems. Death from blood-borne cancers ultimately is caused by
infection, organ failure or bleeding. While chemotherapy is the primary
treatment for blood-borne malignancies, many such malignancies are
radiosensitive and some localized lymphomas can be treated with radiation
therapy. Nonetheless, radiation therapy cannot be used in the treatment of most
blood-borne malignancies because the levels of radiation necessary to destroy
diseases that are widely disseminated within the body would result in severe
damage to the bone marrow of the patient, leading to life-threatening
suppression of the immune system, and other serious side effects.
In solid tumor cancers, malignant tumors invade and disrupt nearby tissues
and can also spread throughout the body or "metastasize." The impact of these
tumors on vital organs such as the lungs and the liver frequently leads to
death. Surgery is used to remove solid tumors that are accessible to the surgeon
and can be effective if the cancer has not metastasized. Radiation therapy also
can be employed to irradiate a solid tumor and surrounding tissues and is a
first-line therapy for inoperable tumors, but side effects are a limiting factor
in treatment. Radiation therapy is used frequently in conjunction with surgery
either to reduce the tumor mass prior to surgery or to destroy tumor cells that
may remain at the tumor site after surgery. However, radiation therapy cannot
assure that all tumor cells will be destroyed and has only limited utility for
treating widespread metastases. While surgery and radiation therapy are the
primary treatments for solid tumors, chemotherapy and hormonal treatments often
are used as adjunctive therapies and also are used as primary therapies for
inoperable or metastatic cancers.
Chemotherapy, which typically involves the intravenous administration of
drugs designed to destroy malignant cells, is used for the treatment of both
solid tumors and blood-borne malignancies. Chemotherapeutic drugs generally
interfere with cell division and are therefore more toxic to rapidly dividing
cancer cells. Since cancer cells can often survive the effect of a single drug,
several different drugs usually are given in a combination therapy designed to
target overlapping mechanisms of cellular metabolism to overwhelm the ability of
cancer cells to develop resistance to chemotherapy. Combination chemotherapy is
used widely as first-line therapy for leukemias and lymphomas and has had
considerable success in the treatment of some forms of these cancers.
Nevertheless, partial and even complete remissions obtained through chemotherapy
often are not durable, and the patient relapses when the cancer reappears and/or
resumes its progression within a few months or years of treatment. The relapsed
patient's response typically becomes shorter and shorter with each successive
treatment regimen as the cancer becomes resistant to the chemotherapy.
Eventually, patients may become "refractory" to chemotherapy, meaning that the
length of their response, if any, to treatment is so brief as to lead to the
conclusion that further chemotherapy regimens would be of little or no benefit.
Chemotherapeutic drugs are not sufficiently specific to cancer cells to
avoid affecting normal cells, especially those that are growing rapidly. As a
result, patients often experience debilitating side effects such as nausea,
vomiting, hair loss, anemia, nerve toxicity, and fatigue, as well as
life-threatening side effects such as immune system suppression and cardiac
toxicity. Such side effects can limit the effectiveness of therapy because the
clinician must avoid exceeding the maximum dose of drug that the patient can
tolerate. Since dosages must be limited to avoid unacceptable side effects, it
may not be possible to administer sufficiently
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high doses of chemotherapeutic drugs to overcome the natural ability of cancer
cells to become resistant. A number of chemotherapeutic agents originally
thought to have promise as cancer drugs have failed in the clinic because the
minimum effective dose exceeded the maximum tolerable dose. Ideally, a
chemotherapeutic agent would have a minimum effective dose well below the
maximum tolerable dose, thereby providing physicians with a wide "therapeutic
window" or a range of doses within which all patients could be treated
effectively.
In cases of certain severe blood-borne malignancies and metastatic solid
tumor cancers, bone marrow transplants ("BMT") may be performed to treat
patients who typically have exhausted all other treatment options. Transplants
generally are performed in connection with regimens of aggressive chemotherapy
and/or radiation therapy. While techniques are improving, BMTs are associated
with significant mortality and high rates of morbidity and remain a very
expensive alternative.
EMERGING METHODS OF TREATMENT
Scientific progress in the elucidation of the underlying molecular biology
of cancer in recent years has yielded a number of promising treatment
approaches. These approaches generally are designed to enhance the specificity
and potency of cancer therapeutics, to improve overall efficacy and to reduce
side effects. The Company believes that two of the most promising of these
approaches are (i) monoclonal antibodies that bind to targeted cells to
stimulate the body's immune system and/or to deliver cytotoxic agents to destroy
malignant cells and (ii) modifications of conventional chemotherapeutic drugs
and drug formulations to improve efficacy by expanding their therapeutic
windows.
MONOCLONAL ANTIBODIES
The human immune system is composed of specialized cells, including B-cells
and T-cells, that function in the recognition, destruction and elimination of
disease-causing foreign substances and of virally infected or malignant cells.
Human antibodies, which are produced by the B-cells, play a vital role in the
proper functioning of the immune system. They have predetermined functions based
primarily upon their ability to recognize specific antigens, which are molecular
structures on the surface of disease-causing substances or diseased cells. Each
antigen serves as a binding site for the antibody specific to that antigen, and
each disease-causing substance or diseased cell can be identified by its
antigens.
The ability of specific antibodies to bind to specific antigens that are
expressed on the surface of targeted cells, and to trigger an immune system
attack on those cells, provides the theoretical basis for the development of
cancer immunotherapeutics. In the 1970s, researchers discovered techniques to
produce unlimited supplies of identical murine (mouse-derived) antibodies,
referred to as monoclonal antibodies, by cloning antibody producing cells that
were derived from hybridization of a single B-cell. These techniques provided
researchers with the tools to identify and study specific antigens and to
produce potential therapeutics. In principle, once an antigen expressed by
malignant cells has been identified, a monoclonal antibody specific to that
antigen can be created. If an antibody could be produced that binds to an
antigen expressed exclusively by human cancer cells, the antibody would be
specific to only those cells. As a result, the use of such a monoclonal antibody
as a therapeutic would have few, if any, side effects. However, the development
of such a therapy has proven to be more problematic than originally hoped.
Immunotherapies based solely upon monoclonal antibodies have had only limited
clinical effectiveness, particularly in solid tumors where the uneven supply of
blood throughout such tumors prevents adequate exposure of monoclonal antibodies
to malignant cells.
The effectiveness of a particular monoclonal antibody in the treatment of
cancer fundamentally is linked to the characteristics of the antigen to which it
binds. For example, while researchers have identified numerous antigens on
cancer cells that can be recognized by monoclonal antibodies, most of these
antigens are also expressed to some degree by other types of cells. An antibody
to such an antigen may not be sufficiently specific to the cancer cells to avoid
or minimize unintended side effects caused by damage to normal cells. Moreover,
the behavior of antigens following binding with an antibody is quite variable:
the bound antibody-antigen complex can remain on the cell surface, can be
internalized into the cell or can be released from the
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cell surface. Thus, the identification of suitable antigens to serve as targets
for therapeutic monoclonal antibodies must account for these and other
complexities.
Once a suitable antigen has been identified, researchers have found that
different antibodies binding to different sites on the antigen may not have the
same biological activity, introducing another element of variability. Antibodies
also differ in the degree to which they stimulate an immune system response and
in the extent to which they have other effects on the cell. Even the most
effective antibodies have limited biological activity. In addition, research
conducted since the late 1970s has revealed the importance of selecting the
proper type of antibody for use in the intended therapy. Murine antibodies are
appropriate in treatments involving a single dose or other short treatment
regimen where it is beneficial that the antibodies, together with any
therapeutic conjugate, are metabolized and cleared from the body fairly quickly.
Chimerized or humanized antibodies are desirable for multi-dose or chronic
treatment regimens as they reduce the risk of a human immune response to the
antibodies themselves. While these manipulations of the antibodies have
permitted more extended therapeutic regimens in some circumstances, they do not
overcome the inherent limitations in the biological activity of the underlying
antibodies. Thus, despite early expectations, no monoclonal antibody has yet
been shown to be effective as a stand-alone, first-line therapy in the treatment
of cancer.
Researchers have attempted to increase the effectiveness of antibodies by
attaching radioisotopes or other cytotoxic agents for use in
"radioimmunotherapy" or "chemoimmunotherapy," respectively. By using an antibody
to deliver a radioisotope or other cytotoxic agent to the targeted cells, the
effect of the radiation or cytotoxic agent can be concentrated in the immediate
vicinity of malignant cells. Development of effective radioimmunotherapies,
however, presents an additional set of challenges, including the need to select
an appropriate radioisotope for the intended therapy, to develop a reliable
means of linking the radioisotope to the antibody and to devise a therapeutic
protocol that optimizes therapeutic effect while minimizing undesirable side
effects. The development of effective chemoimmunotherapies presents similar
challenges.
ENHANCEMENTS OF CONVENTIONAL CHEMOTHERAPIES
A number of organizations have explored methods of improving the delivery
of cytotoxic drugs to tumor cells, with the objective of expanding the
therapeutic window for these drugs in the treatment of cancer. Approaches that
have been commercialized include encapsulation of the drug in a liposome to
regulate the rate at which it is released and impregnation of an implantable
matrix with the drug to enable its delivery locally over time as the matrix
dissolves. Sustained release of cytotoxic drugs using liposomal formulations has
modestly enhanced the therapeutic window for these compounds, but instability of
the formulations and accumulations in the skin have produced undesirable side
effects. Surgical implantation of a matrix is limited inherently to the
treatment of localized tumor masses and is not applicable to blood-borne or
metastatic cancers.
Another approach, the development of pro-drugs, involves the chemical
modification of cytotoxic drugs to render them inactive until they are delivered
to, or into the proximity of, targeted cancer cells. The pro-drug is transformed
into its active form only in the presence of enzymes or other chemicals produced
by the tumor cells. The preferential activation of a pro-drug in the tumor
milieu increases its lethal effect on tumor cells while limiting side effects to
non-malignant tissues. Pro-drug versions of cytotoxic drugs offer the potential
to broaden significantly the therapeutic windows of such drugs beyond that which
can be achieved using existing approaches such as liposomal formulations.
Challenges that have constrained the development of effective pro-drugs to date
have included the inability to construct or identify suitable tumor-specific
activation mechanisms and difficulties in designing pro-drugs that will have
adequate stability in circulation.
COULTER PHARMACEUTICAL'S APPROACH
Coulter Pharmaceutical is developing a family of cancer therapeutics to
address the shortcomings of current therapies based upon two drug discovery
programs: therapeutic antibodies and targeted oncologics. Within these broad
drug discovery programs, the Company is currently concentrating on two distinct
platform
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technologies: therapeutic antibodies based on conjugated antibody technology and
targeted oncologics based on tumor activated peptide pro-drugs.
The Company is developing conjugated antibody therapies to overcome the
inherent limitations of monoclonal antibodies when used as stand-alone
therapeutics and to provide advantages over current chemotherapy and radiation
therapy treatments. The Company believes that Bexxar, its first product
candidate, incorporates each of the principal attributes of an effective
radioimmunotherapy for the treatment of NHL: (i) an antigen specific to B-cells,
(ii) a therapeutically active monoclonal antibody, (iii) the radioisotope
appropriate for the disease profile, and (iv) an optimized therapeutic protocol.
In a Phase I/II clinical trial of Bexxar conducted at the University of
Michigan Medical Center, 42 patients with low-grade and transformed low-grade
NHL, who on average had failed more than four prior treatment regimens with
chemotherapy, achieved an 83% overall response rate, with a 48% complete
response rate and a 35% partial response rate. In a multi center Phase II
clinical trial of Bexxar in heavily pre-treated low-grade and transformed low
grade NHL patients, 31% of the 45 evaluable patients achieved a complete
response. Bexxar is currently the subject of a pivotal Phase III trial for the
treatment of low-grade and transformed low-grade NHL patients refractory to
chemotherapy as its initial indication. The Company also intends to seek
approval for other NHL indications based on additional clinical trials, and has
commenced a Phase II clinical trial of Bexxar as a stand-alone, first-line
treatment for patients newly diagnosed with low-grade NHL. An interim analysis
of data presented in December 1997 from the first 24 patients in this trial
showed a 100% overall response rate, with 71% having achieved complete
responses. Seventeen (17) patients are in ongoing remission, with the longest
being eighteen (18) months as of December 1997. The Company believes that this
Phase II trial is the first clinical trial of a radioimmunotherapy as a
stand-alone, first-line treatment for people with cancer. See "-- Clinical
Results and Development Plan."
The Company believes that radioimmunotherapies will emerge as important
treatments for blood-borne cancers due to the radiosensitivity of these
malignancies and the ready accessibility of the blood and lymph systems to
monoclonal antibodies. Radioimmunotherapy also may become an important
adjunctive therapy for the treatment of certain solid tumor cancers following
surgery, radiation therapy or chemotherapy, where it may be useful in
eliminating circulating and other undetected malignant cells missed by primary
therapies. In the future, the Company intends to use its expertise in conjugated
antibodies to expand beyond radioimmunotherapy to develop effective
chemoimmunotherapies for the treatment of certain cancers.
The Company's second technology platform, its TAP pro-drug technology, has
the potential to broaden significantly the therapeutic windows of conventional
chemotherapies based on the Company's understanding of biochemical mechanisms
involved in metastasis and the identification of a potential means for
exploiting these mechanisms. TAP pro-drug versions of existing cytotoxic drugs
are designed to be activated preferentially in the proximity of metastatic
cancer cells, yet stable in circulation and in normal tissues. Accordingly,
relatively larger quantities of cytotoxic agents are expected to reach and enter
malignant cells as opposed to normal cells, which could permit a significant
increase in maximum tolerated dosages, potentially overcoming drug resistance in
cancer cells. The Company also believes that cytotoxic agents currently
considered too toxic to be used in their unmodified forms may be suitable
candidates to become TAP pro-drugs.
COULTER PHARMACEUTICAL'S STRATEGY
The Company's goal is to develop and commercialize novel drugs and drug
therapies for the treatment of people with cancer based on selected insights
from the emerging understanding of the molecular biology of malignant cells. The
Company's conjugated antibody program is based upon the antibody therapeutics
program which originated in the late 1970s at Beckman Coulter, a recognized
leader in the field of hematology. Upon its formation, Coulter Pharmaceutical
obtained worldwide rights to Bexxar and related intellectual property, as well
as a significant body of expertise pertaining to the selection and development
of suitable antibodies and appropriate radioisotopes (and other cytotoxic
agents) and methods for devising optimized therapies. The Company's TAP pro-drug
program is based upon technology that has been under development at Catholique
Universite de Louvain, Belgium, since 1986 and which was exclusively licensed to
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the Company in 1996. Based on this foundation, the Company has established a
strategy comprised of the following primary elements:
Pursue Expedited Initial Approval of Bexxar. The Company intends to seek
expedited FDA review for marketing approval for Bexxar for the treatment of
low-grade and transformed low-grade NHL in patients refractory to chemotherapy,
while simultaneously pursuing clinical trials to expand the potential use of
Bexxar to other indications. The ongoing pivotal Phase III clinical trial of
Bexxar is designed to take advantage of regulatory changes intended to
accelerate the testing, review and approval of therapies for patients who have
limited treatment options. This multi-center trial includes a target enrollment
of 60 evaluable patients and a post-treatment follow-up period of up to six
months. The Company intends to file for FDA marketing approval for this
indication in the second half of 1998. The Company also intends to seek approval
for other NHL indications based on additional clinical trials, and has commenced
a Phase II clinical trial of Bexxar as a stand-alone, first-line treatment for
patients newly diagnosed with low-grade NHL.
Establish Sales and Marketing Capability. The Company intends to market and
sell its products in the United States through a direct sales force and, where
appropriate, in collaboration with marketing partners. This strategy is intended
to enable the Company to establish a commercial presence in the cancer
therapeutics market with Bexxar, if approved, and to create the capability to
sell other products that it may develop or in-license. The Company believes that
an established sales and marketing capability will enable it to compete
effectively for opportunities to license or distribute later-stage product
candidates and approved products. Internationally, the Company intends to
distribute its products through marketing partners.
Leverage Existing Technology Platforms. The Company intends to develop
additional products based on the lead compounds being generated in its TAP
pro-drug program and by leveraging its expertise in conjugated antibodies to
develop other immunotherapies. In its TAP pro-drug program, the Company
currently is engaged in preclinical development of Super-Leu-Dox, a pro-drug
version of doxorubicin, with the objective of commencing clinical trials as
early as the end of 1998. The Company also intends to apply its TAP pro-drug
technology to other classes of cytotoxic drugs to broaden significantly the
therapeutic windows of such agents. The Company is evaluating potential
conjugated antibody therapies for the treatment of other blood-borne
malignancies and selected solid tumor cancers.
Leverage Development Expertise. The Company believes that it has built
substantial product development capabilities and expertise in the cancer field
due in part to the advanced stage of the Bexxar program at the time that it was
obtained from Beckman Coulter. The Company believes it can leverage this
development expertise to accelerate the development of other products in the
cancer therapeutics field. The Company intends to pursue other product
candidates derived from sponsored research or available for in-licensing in both
blood-borne malignancies and solid tumor cancers, particularly in areas that may
be complementary to its existing technology platforms.
Utilize Contract Manufacturers. The Company intends to manufacture its
commercial products through contract manufacturers. This strategy is expected to
(i) accelerate the scale-up of manufacturing processes to commercial scale, (ii)
reduce initial capital investment, (iii) result in competitive manufacturing
costs, and (iv) provide access to a wide range of manufacturing technologies.
BEXXAR: RADIOIMMUNOTHERAPY FOR NON-HODGKIN'S LYMPHOMA
The Company's first product candidate, Bexxar, is in clinical trials for
the treatment of NHL. The Company believes that Bexxar, if successfully
developed, could become the first radioimmunotherapy approved in the United
States for the treatment of people with cancer.
Non-Hodgkin's Lymphoma and Its Current Treatment
Non-Hodgkin's lymphomas are blood-borne cancers of the immune system, all
sharing the common feature of a proliferation of malignant B-cells. According to
statistics from the National Cancer Institute, approximately 270,000 people are
afflicted with NHL in the United States. More than 54,000 new cases are
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expected to be diagnosed in 1998. NHL is currently the sixth leading cause of
death among cancers in the United States and has the second fastest growing
mortality rate.
NHL is categorized by histology as either low-, intermediate- or high-grade
disease. These classifications differ significantly with respect to the speed of
disease progression, the pattern of response to and relapse after conventional
chemotherapy and the average life expectancy. In relapsed low-grade patients,
the disease can transform to an intermediate- or high-grade histology
("transformed low-grade NHL"). In the United States, the Company estimates that
approximately 140,000 patients have low-grade or transformed low-grade, 100,000
have intermediate-grade and 30,000 have high-grade NHL. Initially, the Company
is pursuing clinical development of Bexxar for the treatment of patients with
low-grade and transformed low-grade NHL. Patients with low-grade NHL have a
fairly long life expectancy from the time of diagnosis with a median survival of
more than six years. While patients with low-grade and transformed low-grade NHL
can often achieve one or more remissions with chemotherapy, these patients
eventually relapse. Relapsed patients are more difficult to treat as remissions
are harder to achieve and, if achieved, last for shorter periods of time as the
disease becomes more resistant to chemotherapy and/or transforms to an
intermediate- or high-grade histology. Patients ultimately die from the disease
or from complications of treatment. Intermediate- and high-grade NHL are more
rapidly growing forms of the disease. However, approximately one-half of all
intermediate- and high-grade cases can be treated effectively with conventional
chemotherapy.
Description of Bexxar
Bexxar consists of a radioisotope, (131)Iodine ("(131)I"), combined with a
monoclonal antibody that recognizes and binds to the CD20 antigen, an antigen
commonly expressed on the surface of B-cells primarily during that stage of
their life cycle when NHL arises. Bexxar is administered to patients in a
proprietary therapeutic protocol consisting of a single, two-dose regimen. The
Company believes that the potential benefits of Bexxar result from the following
four constituent elements:
PROPRIETARY PROTOCOL
Bexxar is administered intravenously in a single, two-dose regimen
consisting of a dosimetric dose, three whole body radioactive counts and a
therapeutic dose. The proprietary protocol is flexible: the timing of the counts
and of the therapeutic dose can be adjusted to some extent to accommodate the
schedules of clinicians and patients. The chart below depicts an example of
Bexxar's protocol used in the Company's current clinical trials. The dosimetric
dose consists of 35 mg of B-1 Antibody trace-labeled with 5 millicuries ("mCi")
of (131)I. Immediately after the dosimetric dose, the patient is scanned with a
gamma camera to provide whole body counts. The patient returns for additional
counts on the third and eighth days of the therapy to show how much of the
radiolabeled antibody has been eliminated from the body at each point in time.
This information is used to calculate the correct therapeutic dose to achieve a
total body radiation of 75 centiGray ("cGy"). The amount of radiolabeled
antibody needed to achieve this optimal dose ranges from approximately 50 to 200
mCi of (131)I due to wide patient-to-patient variability in the rates at which
the antibody is eliminated. Both the dosimetric dose and the therapeutic dose
immediately are preceded by a 450 mg dose of unlabeled B-1 Antibody to improve
the targeting of malignant B-cells by the radiolabeled B-1 Antibody. These
pre-doses of unlabeled B-1 Antibody serve to protect the spleen, liver and other
vital organs from excessive radiation exposure by binding to some of the CD20
antigens on circulating B-cells which naturally accumulate in these
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organs. Additionally, the patient takes non-radioactive iodine drops orally
during the course of the therapy to prevent uptake of (131)I into the thyroid
gland.
[FLOW CHART]
Relying upon the dosimetric properties of (131)I to account for critical
patient-to-patient variability in the rate at which the antibody is cleared
makes it possible to deliver predictably a total body radiation dose that has
been determined to maximize therapeutic benefit with manageable side effects and
without the need for bone marrow rescue. Because Bexxar is administered in a
single, two-dose regimen and is well tolerated, it is expected to require
relatively little patient follow-up and physician intervention. In contrast,
chemotherapy requires administration of several cytotoxic agents in repeated
cycles of therapy over a six- to eight-month period during which the patient
must be monitored carefully and/or treated for side effects. Until recently,
patients have been kept in the hospital to monitor radiation levels for up to
three days following the therapeutic dose. However, under recently enacted NRC
regulations, some patients have been treated with Bexxar on an outpatient basis.
Although the Company believes that Bexxar can be administered primarily on an
outpatient basis, some hospitals may be required to administer the therapeutic
dose on an inpatient basis under their own or under applicable state or local
regulations. See "-- Radioactive and Other Hazardous Materials."
CD20 ANTIGEN
The CD20 antigen is a highly selective cell surface marker found on
B-cells: expression of the CD20 antigen is limited to B-cells, is found on 95%
of such cells and occurs on B-cells primarily during that stage of their life
cycle when NHL arises. The CD20 antigen is not expressed by stem cells, B-cell
progenitor cells or plasma cells; thus, these cells are not targeted by Bexxar.
As a result, while Bexxar targets and destroys both normal and malignant
B-cells, unaffected plasma cells continue to function in the immune system and
B-cell populations can be regenerated after therapy by unaffected B-cell
progenitor cells.
[B-Cell Life Cycle Diagram]
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In addition, the CD20 antigen is neither internalized by the B-cell nor
released into circulation after it has been bound to the B-1 Antibody, ensuring
that the antibody-radioisotope conjugate will remain in place to destroy the
B-cell.
THE B-1 ANTIBODY
The B-1 Antibody exhibits very high specificity for the CD20 antigen and,
because it is a murine sub-class IgG(2a) antibody, is capable of recruiting an
immune response to those B-cells to which it binds. Further, the B-1 Antibody
directly affects cell function, triggering apoptosis in a portion of the B-cells
to which it binds. The use of a murine antibody promotes rapid clearance of
unbound radiolabeled antibody from circulation, which reduces radiotoxicity. Due
to the impaired state of the NHL patient's immune system and the short course of
therapy, the human immune response to the murine antibody has been minimal to
date and has not been a limiting factor in treatment under the protocol.
The B-1 Antibody used in Bexxar was generated in 1978 by the Dana-Farber
Cancer Institute in collaboration with Beckman Coulter. The B-1 Antibody has
been available commercially from Beckman Coulter as a diagnostic reagent since
1982 and is generally accepted as the reference standard for the identification
of B-cells. Rights to the antibody for therapeutic applications were transferred
to Coulter Pharmaceutical from Beckman Coulter in February 1995.
(131)IODINE RADIOISOTOPE
The (131)I radioisotope used in Bexxar was selected over other
radioisotopes because it (i) produces both gamma emissions which permit
dosimetry for dose optimization and compact beta emissions for a concentrated
therapeutic effect, (ii) provides additional commercial and clinical benefits
based on its relatively long half-life, (iii) has characteristics which reduce
the risk of bone marrow damage without sacrificing efficacy, and (iv) has
long-established medical uses in other cancer treatments.
Gamma emissions from (131)I permit dose optimization by enabling clinicians
to calculate the actual clearance rate of radiolabeled antibody for each
patient. Use of the same radioisotope for both the dosimetric and the
therapeutic dose provides assurance that the clearance rates observed in
dosimetry also will apply for the therapeutic dose. Having established the
patient's actual clearance rate, the clinician can determine reliably the
therapeutic dose which will deliver the optimized level of total body radiation.
The lower relative energy and short path length of the beta emission of
(131)I concentrate the destructive energy of the radioisotope on the B-cell to
which the antibody is bound and, in a so-called bystander effect, on adjacent
B-cells in the microscopic clusters of malignant cells which are common to NHL.
Moreover, (131)I causes minimal damage to nearby normal tissues in contrast to
other radioisotopes that have longer path length beta emissions which may extend
too far beyond the targeted area.
The relatively long half-life of (131)I, approximately eight days, permits
radiolabeling at a centralized facility to ensure consistent quality, increase
the number of clinical sites capable of administering this radioimmunotherapy
and reduce overall manufacturing costs. The eight-day half-life also provides
the therapeutic advantage of exposing bound malignant cells to radiation over a
longer period of time.
When bound to a B-cell, (131)I's lower relative energy and short path
length, together with its relatively long half-life, minimize bone marrow damage
while optimizing the therapeutic effect of the radiation. Further, as the B-1
Antibody is metabolized, the released (131)I radioisotope is eliminated rapidly
and unlike other radioisotopes does not concentrate naturally in the bone
matrix.
(131)Iodine is an inexpensive radioisotope that has long-established
medical uses in other cancer treatments. Hence, medical facilities and
clinicians are accustomed to its handling, use and disposal and already have
developed the appropriate procedures and facilities for its safe therapeutic
application.
CLINICAL RESULTS AND DEVELOPMENT PLAN
Bexxar was developed initially in the course of an extended Phase I/II dose
escalation clinical trial at the University of Michigan Medical Center which
completed patient enrollment in early 1996. This trial was used
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to develop and refine the proprietary therapeutic protocol, to determine the
maximum tolerated dose of total body radiation and to assess the safety and
efficacy profile of treatment with the radiolabeled B-1 Antibody in patients
representing a full range of NHL histologies. Based on the data generated in
this clinical trial, the Company is pursuing clinical development of Bexxar for
the treatment of low-grade and transformed low-grade NHL.
The following definitions apply to all discussions of the results of the
Company's clinical trials: A "complete response" is defined as the disappearance
of all detectable disease and all signs and symptoms of the disease. A "partial
response" is defined as a greater than 50% reduction in tumor measurement. The
"overall response" rate combines complete response with partial response.
Complete and partial response classifications also require that there be no
progression at any disease site and no new sites of disease.
PHASE I/II TRIAL RESULTS
A total of 59 patients were enrolled in the Phase I/II dose escalation
clinical trial. Preliminary data from this clinical trial were first published
in August 1993 in the New England Journal of Medicine and updated, interim
clinical results were reported in July 1996 in the Journal of Clinical Oncology.
Of the 59 patients enrolled in this trial, 42 had low-grade or transformed
low-grade NHL, which are the histologies the Company is pursuing in its clinical
trials. These 42 patients, who had failed on average more than four prior
treatment regimens with chemotherapy, achieved an 83% overall response rate,
with a 48% complete response rate and a 35% partial response rate. This
42-patient cohort included eight patients who previously had received and failed
an autologous bone marrow transplant prior to participation in the clinical
trial. The 42 patients in this cohort received total body radiation doses of up
to 85 cGy in this dose escalation trial. Four of the 42 patients did not receive
the therapeutic dose of radiolabeled antibody due to their rapidly deteriorating
medical condition or the presence of a human immune response to the murine
antibody, which arose prior to May 1993 in the early stages of the Phase I/II
dose escalation clinical trial under the yet to be optimized treatment protocol.
Of the 38 patients who received a therapeutic dose, 53% experienced a complete
response with an average duration of response of 20.2 months, with a range of
five to 46 months as of July 1997. As of such date, nine of these patients were
still in complete response.
On an intent-to-treat basis, which includes all enrolled patients whether
treated or not, the 59 enrolled patients achieved an overall response rate of
71%, with a complete response rate of 34% and a 37% partial response rate. Of
the 17 patients in this trial who had intermediate- or high-grade NHL, the
overall response rate was 41%, with no complete responders. While this data is
encouraging, the Company currently is pursuing clinical development of Bexxar in
low-grade and transformed low-grade NHL patients.
Bexxar was generally well tolerated by patients. Dose limiting side effects
were hematologic, consisting primarily of reversible declines in blood cell
counts. These toxicities were generally mild to moderate, with no patient
requiring stem cell rescue. Other side effects observed were mild and consisted
primarily of temporary flu-like symptoms.
PHASE II DOSIMETRY VALIDATION CLINICAL TRIAL
The Company completed a multi-center dosimetry validation clinical trial in
a total of 47 patients with relapsed or refractory low-grade and transformed
low-grade NHL in order to demonstrate that Bexxar's treatment protocol could be
implemented consistently at multiple clinical sites. During this trial, the
Company refined its proprietary protocol to streamline the therapeutic dose
calculation, establishing that accurate antibody elimination rates could be
determined from three gamma camera scans. Overall, 45 of the 47 enrolled
patients were evaluable, having received the protocol-specified therapy. The
evaluable patients had received on average, over four prior therapies, 42% had
bulky disease (tumor burden of greater than 500 grams), and 53% had not
responded to their last chemotherapy. Of the evaluable patients, 31% (14
patients) achieved a complete response. Ten of the 14 patients with a complete
response had not relapsed with the longest duration of response exceeding 20
months as of December 1997. None of the evaluable patients developed human
anti-mouse antibodies. A complete response was achieved at each clinical site
involved in the trial.
Results presented are based upon interim data which have been submitted to
the FDA, certain portions of which have not yet been published in a peer
reviewed publication. No assurance can be given that the
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Company's future clinical results will be consistent with the results of the
Phase I/II dose escalation and the Phase II dosimetry validation trials, which
were conducted at relatively few sites with a relatively small number of
patients per NHL histology and disease stage and had different clinical
objectives than the Company's current or planned clinical trials. See "Risk
Factors -- Uncertainties Related to Product Development."
CLINICAL DEVELOPMENT OF BEXXAR
Based on the foregoing results of the Phase I/II and Phase II dosimetry
validation clinical trials, the Company will rely on two additional clinical
trials to support an application to the FDA for the initial marketing approval
of Bexxar: an ongoing pivotal Phase III clinical trial for the treatment of
patients refractory to chemotherapy, and interim data from an ongoing Phase II
clinical trial to evaluate the extent to which the therapeutic benefit of Bexxar
is derived from the combination of the B-1 Antibody and the radioisotope, in
comparison to the B-1 Antibody alone. To expand the use of Bexxar to other
indications, the Company also is conducting a Phase II clinical trial of Bexxar
as a first-line treatment for patients with low-grade NHL and intends to conduct
additional clinical trials in the future.
Pivotal Phase III Clinical Trial. The Company's pivotal Phase III clinical
trial, which commenced in December 1996, is designed to enroll a target of 60
evaluable patients who have low-grade and transformed low-grade NHL, are
refractory to chemotherapy, and have not received prior bone marrow
transplantation. This multi-center clinical trial is focused on the refractory
segment of this NHL population in an effort to qualify for expedited FDA
approval of Bexxar. Because of the limited treatment options for refractory
patients, each patient's response to Bexxar will be measured against his or her
own response to the previous regimen of chemotherapy, rather than by comparison
to patients in a separate control arm. Based on this primary endpoint, the
Company designed this clinical trial with a relatively short post-treatment
follow-up period of approximately six months. In March 1998, the Company
announced that it had reached target enrollment in the Phase III trial.
Phase II Unlabeled Versus Labeled Antibody Clinical Trial. The Company is
conducting a multi-center Phase II clinical trial in 78 patients with relapsed,
low-grade and transformed low-grade NHL. Patients are randomized into two
groups: one group receives Bexxar pursuant to the proprietary protocol; the
other group receives two 485 mg doses of unlabeled B-1 Antibody eight days apart
in a treatment regimen that is parallel to Bexxar. The objective of this
clinical trial is to assess the incremental clinical activity from radiolabeling
the B-1 Antibody as compared to the clinical activity of the unlabeled B-1
Antibody alone. Administration of the unlabeled B-1 Antibody has not been
designed for use as a stand-alone therapy, nor has the treatment regimen been
optimized for such use. This trial was the subject of an abstract presented at
the 1997 American Society of Therapeutic Radiation Oncology meeting in October
1997. The Company's objective is to complete enrollment of patients in this
clinical trial in the second half of 1998.
Phase II First-Line, Stand-Alone Treatment Clinical Trial. The Company
currently is conducting a single-center Phase II trial in 60 newly diagnosed
low-grade NHL patients. An interim analysis of data from the first 24 patients
was presented at the American Society of Hematology meeting in December 1997.
All 24 patients (100%) had responded to Bexxar, with 71% having achieved
complete responses. All side-effects were mild to moderate and self-limited. The
Company's objective is to complete enrollment of patients in this clinical trial
in the second half of 1998.
The ability of the Company to conduct and complete its ongoing and planned
clinical trials in a timely manner is subject to a number of uncertainties and
risks, including the rate at which patients can be accrued in each clinical
trial, the Company's ability to obtain necessary regulatory approvals, the
capacity of the Company's contract manufacturers to supply unlabeled and
radiolabeled B-1 Antibody as needed for patient treatment and the occurrence of
unanticipated adverse events. Any suspension or delay of one or more of such
clinical trials could have a material adverse effect on the Company's business,
financial condition and results of operation. See "Risk Factors -- Uncertainties
Related to Product Development," "-- Government Regulation; No Assurance of
Regulatory Approvals," and "-- Dependence on Suppliers; Manufacturing and Scale-
up Risk."
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OTHER CLINICAL TRIALS
The radiolabeled B-1 Antibody has been the subject of other clinical trials
to assess the efficacy of using the radiolabeled B-1 Antibody to deliver the
high levels of radiation necessary to prepare patients for autologous bone
marrow transplants. The conventional preparation for autologous bone marrow
transplants is chemotherapy and total body irradiation. These clinical trials
were designed to demonstrate improved tolerability, response rate and duration
of response.
The first of two clinical trials conducted at the University of Washington
Cancer Center and the Fred Hutchinson Cancer Research Center tested radiolabeled
B-1 Antibody as a single agent to prepare patients for an autologous bone marrow
transplant by achieving a total body radiation level of up to 997 cGy (over ten
times Bexxar's dose). As reported in The Lancet in August 1995, of the 21
patients receiving the full radiotherapeutic regimen, the overall response rate
was 86%, with a 76% complete response rate and a 10% partial response rate. High
incidences of radiotoxicity-related side effects were reported due to the
extreme dosages employed. Interim data from this clinical trial were published
in the New England Journal of Medicine in October 1993.
The second clinical trial, currently ongoing, is designed to test the
combination of similarly high doses of radiolabeled B-1 Antibody and standard
doses of chemotherapy in preparation for autologous bone marrow transplant. This
clinical trial has enrolled 40 patients since its commencement in January 1995.
Data from this clinical trial have not yet appeared in a peer reviewed
publication.
In addition, a Phase II dose escalation clinical trial has commenced at the
University of Nebraska for the combined use of radiolabeled B-1 Antibody and
standard chemotherapy as preparation for autologous bone marrow transplant.
TAP PRO-DRUG PLATFORM
The Company's second technology platform, its tumor-activated peptide
pro-drug technology, has the potential to broaden significantly the therapeutic
window of cytotoxic agents. The TAP pro-drug technology is based upon an
understanding of the biochemical mechanisms utilized by cancer cells to
metastasize and the identification of a potential means for exploiting these
mechanisms and is being developed in collaboration with the Catholique
Universite de Louvain, Belgium. TAP pro-drugs are designed to be (i) activated
preferentially at the tumor site by enzymes secreted by the tumor, (ii) stable
in circulation and in normal tissues and (iii) unable to penetrate normal cells
or malignant cells until activated. As a result, relatively larger quantities of
cytotoxic agents are expected to reach and enter malignant cells as opposed to
normal cells, which could permit a significant increase in maximum tolerated
dosages, potentially overcoming drug resistance in cancer cells. The Company's
lead preclinical pro-drug candidate is a pro-drug version of doxorubicin known
as Super-Leu-Dox. Doxorubicin is an off-patent chemotherapeutic drug which
currently is used in the treatment of a number of solid tumor cancers, including
breast, prostrate, ovarian and soft-tissue sarcoma cancers.
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SUPER LEU DOX
As depicted in the graphic above, Super-Leu-Dox is based on a proprietary
peptide of four amino acids (a "tetrapeptide") that can be linked to
doxorubicin's active site. In the two-step activation process, (1) the
extracellular tumor enzyme cleaves three amino acids from the tetrapeptide
leaving a leucine amino acid-doxorubicin conjugate that is able to penetrate
cells. (2) The resulting conjugate is then capable of entering cells. Since this
first activation step occurs in the immediate vicinity of tumor cells that are
secreting the enzyme, the probability that the cytotoxic drug will enter tumor
cells as opposed to normal cells is increased. Moreover, the conjugate remains
inactive inside the cells until (3) the remaining leucine is removed from
doxorubicin's active site by an intracellular enzyme. Although it is expressed
in both normal and tumor cells, this intracellular enzyme is present in tumor
cells in concentrations three to five times higher than in normal cells. As a
result, (4) the doxorubicin is activated to a greater extent in tumor cells
relative to normal cells.
This two-step activation process is designed to produce a significantly
higher ratio of active to inactive doxorubicin in cancer cells relative to
normal cells. In in vitro studies of Super-Leu-Dox, researchers have found that
the concentration of activated to inactivated doxorubicin in tumor cells was 40
times higher than in normal cells. These results, if confirmed in clinical
trials, offer the potential to improve significantly the therapeutic window of
doxorubicin. The Company currently plans to complete preclinical development of
Super-Leu-Dox and to commence clinical trials as early as the end of 1998.
Prior to the licensing of the TAP pro-drug technology by Coulter
Pharmaceutical, an earlier generation leucine-doxorubicin conjugate was tested
as a stand-alone therapy for the treatment of solid tumors in two separate dose
escalation clinical trials in Europe. A total of 59 patients were enrolled in
these clinical trials, and patients safely tolerated doses well in excess of
those associated with unmodified doxorubicin. Results from these clinical
trials, along with data from preclinical studies, will be used by the Company to
select the initial indication to pursue in clinical trials of Super-Leu-Dox.
Selection of the particular indication or indications to be evaluated in such
clinical trials has not been finalized.
While the Company will focus initially on previously approved
chemotherapeutic drugs, it also is evaluating TAP pro-drug versions of cytotoxic
agents currently considered too toxic to be used in their unmodified forms. The
Company believes that the TAP pro-drug technology potentially can be applied to
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several classes of cytotoxic agents, including the vinca alkaloids, which are
used commonly to treat blood-borne malignancies and some solid tumors. The
Company also plans to develop and evaluate other peptide structures for possible
use in pro-drug versions of cytotoxic agents and other cancer therapeutics.
Under its agreement with Catholique Universite de Louvain, Belgium, the
Company has secured an exclusive license to the intellectual property underlying
the program and will pay royalties on sales of licensed products. The agreement
also provides for specified minimum payments, including one payment that will be
due if the Company should elect to relocate the program outside of Belgium. The
amounts of these payments are not material and, in any event, the Company does
not currently intend to relocate the research program. In 1997, the Company also
entered into a sponsored research agreement with Catholique Universite de
Louvain to conduct research in the area of TAP pro-drugs.
OTHER PRODUCT CANDIDATES
In 1997, the Company began a program which actively seeks to in-license
promising product development candidates in the area of cancer therapeutics with
the objective of expanding the Company's product pipeline.
RESEARCH AND DEVELOPMENT
The Company incurred research and development expenses of $2.5 million,
$13.7 million and $21.0 million for the periods from inception (February 16,
1995) to December 31, 1995 and for the years ended December 31, 1996 and 1997,
respectively.
MANUFACTURING
The Company intends to utilize contract manufacturers for most of the
preclinical and clinical requirements for its potential products and for all of
its commercial needs. This strategy is expected to (i) accelerate the scale-up
of manufacturing processes to commercial scale, (ii) reduce initial capital
investment, (iii) result in competitive manufacturing costs, and (iv) provide
access to a wide range of manufacturing technologies.
Pursuant to a development contract with the Company, Lonza Biologics PLC
("Lonza") now is supplying the B-1 Antibody for use in ongoing clinical trials
and to meet initial commercial requirements. The Company's contract with Lonza
is structured on a staged basis, with specified payments due upon Lonza's
satisfactory completion of particular steps in the re-cloning and production
scale-up process. Aggregate commitments under this contract are approximately
$10.7 million, of which approximately $5.8 million had been incurred and
expensed through 1997. The Company will make purchases of material from Lonza
pursuant to purchase orders to be issued from time to time based on the
Company's needs. The level of purchases that will be made from Lonza during the
course of the program is currently unknown. The Company has entered into an
agreement whereby Lonza has committed to provide material and, further, the
Company is negotiating a definitive commercial supply agreement with Lonza.
There can be no assurance that agreement will be entered into in a timely
manner.
In addition, the Company has entered into a Development Agreement with
Boehringer Ingleheim Pharma KG ("BI Pharma KG") to manufacture and supply B-1
Antibody for use in ongoing clinical trials and to meet commercial requirements.
Aggregate commitments under this contract are approximately $7.0 million, of
which $2.9 million had been incurred and expensed through 1997. The Company is
currently negotiating a commercial supply agreement that will, in addition to
manufacturing, provide for fill/finish and packaging services. There can be no
assurance that agreement will be entered into in a timely manner or that the
material produced under the Development Agreement will be suitable for human
use.
Radiolabeling currently is conducted at MDS Nordion Inc.'s ("Nordion")
centralized radiolabeling facility. The Company has a development contract with
Nordion that is structured on a cost-plus-a-percentage-of-cost basis and
provides a framework for the negotiation of separate facilities and supply
agreements. The Company paid a total of $5.1 million to Nordion under this
development contract. The
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Company and Nordion currently are negotiating an agreement for supply of the
radiolabeled B-1 Antibody for both clinical trials and commercial sale. In the
interim, the Company is procuring radiolabeling services from Nordion on a
purchase order basis. There can be no assurance that the contract with Nordion
will be entered into in a timely manner, if at all, or that clinical trials or
commercial supply will not be delayed or disrupted as a result.
If Bexxar is successfully developed and is approved for marketing by the
FDA, the Company expects that production for commercialization will consist of
(i) production of bulk B-1 Antibody by Lonza and BI Pharma KG, (ii) filling and
labeling of individual product vials with B-1 Antibody by another third-party
supplier and/or BI Pharma KG, and (iii) radiolabeling of B-1 Antibody at
Nordion. While the Company plans to develop additional suppliers of these
services, it expects to rely on its current suppliers for all or a significant
portion of its requirements for Bexxar for the foreseeable future. Radiolabeled
antibody cannot be stockpiled against future shortages due to the eight-day
half-life of the (131)I radioisotope. Accordingly, any change in the Company's
existing or planned contractual relationships with, or interruption in supply
from, its third-party suppliers could adversely affect the Company's ability to
complete its ongoing clinical trials and to market Bexxar, if approved. Any such
change or interruption would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Dependence on Suppliers; Manufacturing and Scale-up Risk."
The Company believes that the products it expects to develop in its TAP
pro-drug program can be produced with standard chemical synthesis processes and
expects to utilize third parties to meet clinical trial and any commercial
requirements for these products. The Company is in discussions with potential
manufacturers of Super-Leu-Dox, its initial pro-drug product candidate. There
can be no assurance that agreements will be entered into in a timely manner or
that the material produced under the agreements will be suitable for human use.
MARKETING AND SALES
The Company intends to market and sell its products in the United States
through a direct sales force and, where appropriate, in collaboration with
marketing partners. This strategy is intended to enable the Company to establish
a commercial presence in the cancer therapeutics market with Bexxar, if
approved, and to create the capability to sell other products that it may
develop or in-license. The sales force is expected to initially call upon
oncologists, hematologists and nuclear medicine physicians in connection with
the sale of Bexxar. The Company initially will focus its sales force on those
physicians who treat the largest volume of NHL patients. These physicians
generally are concentrated in large metropolitan areas. Because of the
characteristics of Bexxar, the target physician must have access to a facility
with radiopharmaceutical and gamma camera scan capabilities. The Company
believes such facilities generally are available in large metropolitan areas
such that a significant portion of physicians who treat NHL patients will be
able to prescribe Bexxar. The Company intends to distribute its products
internationally through marketing partners. The Company has not yet identified
or entered into any agreements with any such partners, and there is no assurance
that it will be able to do so in a timely manner, if at all. The Company has not
yet established a sales force in North America, and there is no assurance that
it will be able to do so in a timely or cost effective manner, if at all.
The current purchasers of cancer therapeutics are hospitals, clinics,
physicians, pharmacies, large HMOs and state and federal governments.
Historically, physicians made treatment decisions and prescribed therapeutics
which then were dispensed through the clinic, hospital or pharmacy. However, the
United States health care system is undergoing significant changes and the
decision-making authority of the physician varies. These changes may make it
necessary for the Company to alter its strategy prior to launch of Bexxar or
even after launch and could affect adversely the ability of the Company to
generate revenues.
The Company's ability to market effectively may be affected adversely by a
number of factors including physicians' resistance to change from established
methods of treatment such as chemotherapy or radiation therapy and the special
handling and administration requirements of a radioimmunotherapy. Further, the
Company can provide no assurance as to whether Bexxar will be priced
competitively compared to existing
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methods of treatment such as chemotherapy and radiation therapy. See "Risk
Factors -- Uncertainty of Market Acceptance of Bexxar."
PHARMACEUTICAL PRICING AND REIMBURSEMENT
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Initiatives to reduce
the federal deficit and to reform health care delivery are increasing
cost-containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause the Company to limit or
eliminate spending on development projects and affect the Company's ultimate
profitability. Legislative debate is expected to continue in the future, and
market forces are expected to drive reductions of health care costs. The Company
cannot predict what impact that adoption of any federal or state health care
reform measures or future private sector reforms may have on its business.
In both domestic and foreign markets, sales of the Company's proposed
products will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payors increasingly are challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
Bexxar, as potentially the first radioimmunotherapy for cancer, faces particular
uncertainties due to the absence of a comparable, approved therapy to serve as a
model for pricing and reimbursement decisions. There can be no assurance that
the Company's product candidates will be considered cost effective or that
adequate third-party reimbursement will be available to enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product development. Further, there can be no assurance that
products can be manufactured on a commercial scale at a cost that will enable
the Company to price its products within reimbursable rates. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for medical products. If adequate
coverage and reimbursement rates are not provided by the government and
third-party payors for the Company's products, the market acceptance of these
products would be adversely affected, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
GOVERNMENT REGULATION
The testing, manufacturing, labeling, advertising, promotion, export and
marketing, among other things, of the Company's proposed products are subject to
extensive regulation by governmental authorities in the United States and other
countries. In the United States, pharmaceutical products are regulated by the
United States Food and Drug Administration ("FDA") under the Federal Food, Drug
and Cosmetic Act and other laws, including, in the case of biologics, the Public
Health Service Act. At the present time, the Company believes that Bexxar and
other immunotherapeutics that it may develop will be regulated by the FDA as
biologics and that other products to be developed by the Company, including
Super-Leu-Dox and other TAP pro-drugs, are likely to be regulated as drugs.
The steps required before a drug or biologic may be approved for marketing
in the United States generally include (i) preclinical laboratory tests and
animal tests, (ii) the submission to the FDA of an Investigational New Drug
application ("IND") for human clinical testing, which must become effective
before human clinical trials may commence, (iii) adequate and well-controlled
human clinical trials to establish the safety and efficacy of the product, (iv)
in the case of a biologic, the submission to the FDA of a Biologic License
Application ("BLA"), or in the alternative a Product License Application ("PLA")
for the product and an Establishment License Application ("ELA") for the
facility at which the product is manufactured, or in the case of a drug, a New
Drug Application ("NDA"), (v) FDA review of the BLA (or PLA/ELA) or NDA and (vi)
satisfactory completion of an FDA inspection of the manufacturing facilities at
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which the product is made to assess compliance with Good Manufacturing Practices
("GMP"). The testing and approval process requires substantial time, effort and
financial resources, and there can be no assurance that any approval will be
granted on a timely basis, if at all.
Preclinical studies include laboratory evaluation of the product, as well
as animal studies to assess the potential safety and efficacy of the product.
The results of the preclinical studies, together with manufacturing information
and analytical data, are submitted to the FDA as part of the IND, which must
become effective before clinical trials may be commenced. The IND automatically
will become effective thirty days after receipt by the FDA, unless the FDA
before that time raises concerns or questions about the conduct of the trials as
outlined in the IND. In such case, the IND sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials.
Clinical trials involve the administration of the investigational products
to healthy volunteers or patients under the supervision of a qualified principal
investigator. Further, each clinical trial must be reviewed and approved by an
independent Institutional Review Board ("IRB") at each institution at which the
study will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is usually tested for safety (adverse effects), dosage
tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II clinical trials usually involve studies in a limited patient population
to (i) evaluate the efficacy of the drug for specific, targeted indications,
(ii) determine dosage tolerance and optimal dosage and (iii) identify possible
adverse effects and safety risks. Phase III clinical trials generally further
evaluate clinical efficacy and test further for safety within an expanded
patient population and at multiple clinical sites. Phase IV clinical trials are
conducted after approval to gain additional experience from the treatment of
patients in the intended therapeutic indication and to document a clinical
benefit in the case of drugs approved under accelerated approval regulations. If
the FDA approves a product while a company has ongoing clinical trials that were
not necessary for approval, a company may be able to use the data from these
clinical trials to meet all or part of any Phase IV clinical trial requirement.
These clinical trials are often referred to as "Phase III/IV post-approval
clinical trials." Failure to conduct promptly Phase IV clinical trials could
result in withdrawal of approval for products approved under accelerated
approval regulations.
In the case of products for severe or life-threatening diseases, the
initial clinical trials are sometimes done in patients rather than in healthy
volunteers. Since these patients are afflicted already with the target disease,
it is possible that such clinical trials may provide evidence of efficacy
traditionally obtained in Phase II clinical trials. These trials are referred to
frequently as Phase I/II trials. There can be no assurance that Phase I, Phase
II or Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk.
The results of the preclinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA in the form of a BLA requesting approval to market the
product. Before approving a BLA or NDA, the FDA will inspect the facilities at
which the product is manufactured and will not approve the product unless the
manufacturing facility complies with GMP. The FDA may delay approval of a BLA or
NDA if applicable regulatory criteria are not satisfied, require additional
testing or information, and/or require postmarketing testing and surveillance to
monitor safety or efficacy of a product. There can be no assurance that FDA
approval of any BLA or NDA submitted by the Company will be granted on a timely
basis, if at all. Also, if regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which such product may
be marketed.
The Company also will be subject to a variety of foreign regulations
governing clinical trials and sales of its products. Whether or not FDA approval
has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing of the
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product in those countries. The approval process varies from country to country
and the time needed to secure approval may be longer or shorter than that
required for FDA approval.
CLINTON-KESSLER CANCER INITIATIVE
In March 1996, the FDA announced a new policy intended to accelerate the
approval process for cancer therapies addressing disease conditions in which
patients have limited treatment options. The Company may elect to seek approval
of Bexxar under this accelerated approval process. Significant uncertainty
exists as to the extent to which such initiative will result in accelerated
review and approval. Further, the FDA has not made available comprehensive
guidelines with respect to this initiative, and it retains considerable
discretion in determining eligibility for accelerated review and approval and is
not bound by discussions that an applicant may have with FDA staff. Accordingly,
the FDA could employ such discretion to deny eligibility of Bexxar as a
candidate for accelerated review or require additional clinical trials or other
information before approving Bexxar. The Company cannot predict the ultimate
impact, if any, of the new approval process on the timing or likelihood of FDA
approval of Bexxar or any of its other potential products.
ORPHAN DRUG DESIGNATION
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition," which is generally a
disease or condition that affects fewer than 200,000 individuals in the United
States. Orphan drug designation must be requested before submitting a BLA. After
the FDA grants orphan drug designation, the generic identity of the therapeutic
agent and its potential orphan use are disclosed publicly by the FDA. Orphan
drug designation does not convey any advantage in, or shorten the duration of,
the regulatory review and approval process. If a product that has orphan drug
designation subsequently receives FDA approval for the indication for which it
has such designation, the product is entitled to orphan exclusivity, i.e., the
FDA may not approve any other applications to market the same drug for the same
indication, except in very limited circumstances, for seven years. Bexxar has
received orphan drug designation from the FDA. Although the FDA recently decided
to remove NHL from the list of diseases for which orphan drug designation may be
obtained, the previous designation of Bexxar will not be affected. In any event,
there can be no assurance that competitors will not receive approval of other,
different drugs or biologics for low-grade NHL. Thus, although obtaining FDA
approval to market a product with orphan drug exclusivity can be advantageous,
there can be no assurance that it would provide the Company with a material
commercial benefit.
RADIOACTIVE AND OTHER HAZARDOUS MATERIALS
The manufacturing and administration of Bexxar requires the handling, use
and disposal of (131)I, a radioactive isotope of iodine. These activities must
comply with various state and federal regulations, regarding the handling and
use of radioactive materials. Violations of these regulations could
significantly delay completion of clinical trials and commercialization of
Bexxar. For its ongoing clinical trials and for commercial-scale production, the
Company relies on Nordion to radiolabel the B-1 Antibody with (131)I at a single
location in Canada. Violations of safety regulations could occur and the risk of
accidental contamination or injury cannot be eliminated completely. In the event
of any such noncompliance or accident, the supply of radiolabeled B-1 Antibody
for use in clinical trials or commercially could be interrupted, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Manufacturing."
The administration of Bexxar entails the introduction of radioactive
materials into patients. These patients emit radioactivity at levels that pose a
safety concern to others around them, especially healthcare workers for whom the
cumulative effect of repeated exposure to radioactivity is of particular
concern. These concerns are addressed in regulations promulgated by the NRC, as
well as by various state and local governments and individual hospitals.
Generally, patients who emit radioactivity above specified levels were required
to be admitted to the hospital, where they could be isolated from others until
radiation fell to acceptable levels. The NRC recently enacted regulations that
have made it easier for hospitals to treat patients with radioactive materials
on an outpatient basis. Under these regulations, Bexxar may be administered on
an
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outpatient basis in most cases. Although state and local governments often
follow the lead of the NRC, many currently do not, and there can be no assurance
that they will do so or that patients receiving Bexxar will not have to remain
in the hospital for one to three days following administration of the
therapeutic dose, adding to the overall cost of the therapy.
The Company also expects to use hazardous chemicals and radioactive
compounds in its ongoing research activities. Although the Company believes that
safety procedures for handling and disposing of such materials will comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. The Company could be held liable for any damages that result from
such an accident, as well as for unexpected remedial costs and penalties that
may result from any violation of applicable regulations, which could result in a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may incur substantial costs to
comply with environmental regulations.
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company believes that patent and trade secret protection is important
to its business and that its future will depend in part on its ability to
maintain its technology licenses, protect its trade secrets, secure additional
patents and operate without infringing the proprietary rights of others. The
Company currently holds exclusive rights to one issued United States patent and
several patent applications that relate to the Bexxar therapeutic protocol. The
Company also holds exclusive rights to a United States patent application
relating to the manufacture of Bexxar and to several patent applications
relating to the dosimetry methods employed in the administration of Bexxar. The
Company also holds an exclusive license to patent applications filed in the
United States and Europe relating to its TAP pro-drug program.
The pharmaceutical and biotechnology fields are characterized by a large
number of patent filings. A substantial number of patents have already been
issued to other pharmaceutical and biotechnology companies. Research has been
conducted for many years in the monoclonal antibody field by pharmaceutical and
biotechnology companies and other organizations. Competitors may have filed
applications for or have been issued patents and may obtain additional patents
and proprietary rights related to products or processes competitive with or
similar to those of the Company. Patent applications are maintained in secrecy
for a period after filing. Publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries and the filing of
related patent applications. The Company may not be aware of all of the patents
potentially adverse to the Company's interest that may have been issued to other
companies, research or academic institutions, or others. No assurances can be
given that such patents do not exist, have not been filed, or could not be filed
or issued, which contain claims relating to the Company's technology, products
or processes.
To date, no consistent policy has emerged regarding the breadth of claims
allowed in pharmaceutical and biotechnology patents. If patents have been or are
issued to others containing preclusive or conflicting claims and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to one or more of such patents or to develop or obtain alternative
technology. The Company is aware of various patents that have been issued to
others that pertain to a portion of the Company's prospective business; however,
the Company believes that it does not infringe any patents that ultimately would
be determined to be valid. There can be no assurance that patents do not exist
in the United States or in other foreign countries or that patents will not be
issued to third parties that contain preclusive or conflicting claims with
respect to Bexxar or any of the Company's other product candidates or programs.
Commercialization of monoclonal antibody-based products may require licensing
and/or cross-licensing of one or more patents with other organizations in the
field. There can be no assurance that the licenses that might be required for
the Company's processes or products would be available on commercially
acceptable terms, if at all.
The Company's breach of an existing license or failure to obtain a license
to technology required to commercialize its product candidates may have a
material adverse effect on the Company's business, financial condition and
results of operations. Litigation, which could result in substantial costs to
the Company, may also be necessary to enforce any patents issued to the Company
or to determine the scope and validity of third-
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party proprietary rights. If competitors of the Company prepare and file patent
applications in the United States that claim technology also claimed by the
Company, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office to determine priority
of invention, which could result in substantial cost to the Company, even if the
eventual outcome is favorable to the Company. An adverse outcome could subject
the Company to significant liabilities to third parties and require the Company
to license disputed rights from third parties or to cease using such technology.
The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. The Company protects its proprietary technology and processes, in
part, by confidentiality agreements with its employees, consultants, advisory
board members, collaborators and certain contractors. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets or those of its
collaborators or contractors will not otherwise become known or be discovered
independently by competitors.
Patents issued and patent applications filed internationally relating to
biologics are numerous and there can be no assurance that current and potential
competitors and other third parties have not filed or in the future will not
file applications for, or have not received or in the future will not receive,
patents or obtain additional proprietary rights relating to products or
processes used or proposed to be used by the Company. Moreover, there is certain
subject matter which is patentable in the United States and not generally
patentable outside of the United States. Statutory differences in patentable
subject matter may limit the protection the Company can obtain on some of its
inventions outside of the United States. For example, methods of treating humans
are not patentable in many countries outside of the United States. These and/or
other issues may prevent the Company from obtaining patent protection outside of
the United States which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Rights to use the name "Coulter Pharmaceutical, Inc." are licensed from
Beckman Coulter. The rights expire on October 31, 2002 or earlier upon the
occurrence of certain events.
COMPETITION
The pharmaceutical and biotechnology industries are intensely competitive.
Any product candidate developed by the Company would compete with existing drugs
and therapies. There are many pharmaceutical companies, biotechnology companies,
public and private universities and research organizations actively engaged in
research and development of products for the treatment of people with cancer.
Many of these organizations have financial, technical, manufacturing and
marketing resources greater than those of the Company. Several of them have
developed or are developing therapies that could be used for treatment of the
same diseases targeted by the Company. One competitor known to the Company
recently received approval from the FDA for a non-radiolabeled chimeric antibody
for the treatment of low-grade NHL. If a competing company were to develop or
acquire rights to a more efficient or safer cancer therapy for treatment of the
same diseases targeted by the Company, or one which offers significantly lower
costs of treatment, the Company's business, financial condition and results of
operations could be materially adversely affected.
The Company believes that competition in the development and marketing of
new cancer therapies will be based primarily on product efficacy and safety,
time to market and price. To the extent the Company's product programs are
successful, it also intends to rely to some degree on patents and other
intellectual property and orphan drug designations to protect its products from
competition.
The Company believes that its product development programs will be subject
to significant competition from companies utilizing alternative technologies as
well as to increasing competition from companies that develop and apply
technologies similar to the Company's technologies. Other companies may succeed
in developing products earlier than the Company, obtaining approvals for such
products from the FDA more rapidly than the Company or developing products that
are safer and more effective than those under development or proposed to be
developed by the Company. There can be no assurance that research and
development by others will not render the Company's technology or potential
products obsolete or non-competitive or result in treatments superior to any
therapy developed by the Company, or that any therapy developed by the Company
will be preferred to any existing or newly developed technologies.
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PRODUCT LIABILITY AND INSURANCE
The manufacture and sale of human therapeutic products involve an inherent
risk of product liability claims and associated adverse publicity. The Company
has only limited product liability insurance for clinical trials and no
commercial product liability insurance. There can be no assurance that the
Company will be able to maintain existing insurance or obtain additional product
liability insurance on acceptable terms or with adequate coverage against
potential liabilities. Such insurance is expensive, difficult to obtain and may
not be available in the future on acceptable terms, if at all. An inability to
obtain sufficient insurance coverage on reasonable terms or to otherwise protect
against potential product liability claims brought against the Company in excess
of its insurance coverage, if any, or a product recall could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
HUMAN RESOURCES
As of December 31, 1997 the Company had 66 employees, 39 of whom were
engaged in product development activities. Twenty-eight of such employees hold
post-graduate degrees, including four with medical degrees and eleven with
Ph.D.s. The Company's employees are not represented by a collective bargaining
agreement. The Company believes its relations with its employees are good.
SCIENTIFIC ADVISORY BOARD
James O. Armitage, M.D., is Chairman of the Department of Internal Medicine
at the University of Nebraska Medical Center. He previously directed the Bone
Marrow Transplant Program at the University of Iowa, where he was an Assistant
Professor of Medicine.
Paul P. Carbone, M.D., MACP, D.Sc. (Hon.), is the Director of the
University of Wisconsin Comprehensive Cancer Center. He also is Professor
Emeritus of Medicine and Associate Dean for Program Development at the
University of Wisconsin Medical School. He previously served as a physician
scientist at the National Institutes of Health. His clinical research has
included the development of active combination chemotherapy for Hodgkin's
disease, non-Hodgkin's lymphoma and breast cancer.
Lawrence H. Einhorn, M.D., is Distinguished Professor of Medicine at
Indiana University Medical Center. His research of germ cell tumors focused upon
the discovery of treatments for testicular and ovarian cancer. Dr. Einhorn's
work has also been directed toward the optimization of combination chemotherapy
for these cancers.
Robert J. Mayer, M.D., is the President of the American Society of Clinical
Oncology, Chief of the Division of Clinical Oncology at the Dana-Farber Cancer
Institute and Professor of Medicine at Harvard Medical School. He also is an
attending physician at The Brigham and Women's Hospital, The Massachusetts
General Hospital and the Beth Israel/Deaconess Medical Center. Dr. Mayer is
known for his work in the treatment of leukemia and gastrointestinal cancers and
for developing programs to train cancer researchers and clinicians.
Saul Rosenberg, M.D., MACP, is Professor of Medicine and Radiology Emeritus
at Stanford University School of Medicine and is an oncologist known for his
contributions to advances in the treatment of Hodgkin's disease.
Daniel Douglas Von Hoff, M.D., is Professor of Cellular and Structural
Biology and Clinical Professor of Oncology at The University of Texas Health
Science Center at San Antonio. Dr. Von Hoff also serves as Director of Research
and as Director of the Institute for Drug Development at the Cancer Therapy &
Research Center in San Antonio, Texas. He is also an Adjunct Scientist at the
Southwest Foundation for Biomedical Research and President of the CTRC Research
Foundation, both in San Antonio, Texas.
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RISK FACTORS
In this Section, the Company summarizes certain risks that should be
considered by stockholders and prospective investors in the Company. These risks
are discussed in greater detail below, and are discussed in context in other
Sections of this Report.
Uncertainties Related to Product Development. The Company's product
candidates are generally in early stages of development, with only one in
clinical trials. The development of safe and effective therapies for the
treatment of people with cancer is highly uncertain and subject to numerous
risks. Product candidates that may appear to be promising at early stages of
development may not reach the market for a number of reasons. Product candidates
may be found ineffective or cause harmful side effects during clinical trials,
may take longer to progress through clinical trials than had been anticipated,
may fail to receive necessary regulatory approvals, may prove impracticable to
manufacture in commercial quantities at reasonable cost and with acceptable
quality or may fail to achieve market acceptance.
The results of initial preclinical and clinical testing of the products
under development by the Company are not necessarily indicative of results that
will be obtained from subsequent or more extensive preclinical studies and
clinical testing. The Company's clinical data gathered to date with respect to
Bexxar are primarily from a Phase I/II dose escalation trial which was designed
to develop and refine the therapeutic protocol, to determine the maximum
tolerated dose of total body radiation and to assess the safety and efficacy
profile of treatment with a radiolabeled antibody. Further, the data from this
Phase I/II dose escalation trial were compiled from testing conducted at a
single site and with a relatively small number of patients per NHL histology and
disease stage. The Company has since completed a multi-center Phase II dosimetry
clinical trial and currently is conducting a multi-center pivotal Phase III
clinical trial. However, substantial additional development, clinical testing
and investment will be required prior to seeking any regulatory approval for
commercialization of this potential product. There can be no assurance that
clinical trials of Bexxar or other product candidates under development will
demonstrate the safety and efficacy of such products to the extent necessary to
obtain regulatory approvals for the indications being studied, or at all.
Companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in advanced clinical trials, even after obtaining promising
results in earlier trials. The failure to demonstrate adequately the safety and
efficacy of Bexxar or any other therapeutic product under development could
delay or prevent regulatory approval of the product and would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Furthermore, the timing and completion of current and planned clinical
trials of Bexxar, as well as clinical trials of other products, are dependent
upon, among other factors, the rate at which patients are enrolled, which is a
function of many factors, including the size of the patient population, the
proximity of patients to the clinical sites, the number of clinical sites, the
eligibility criteria for the study and the existence of competing clinical
trials. There can be no assurance that delays in patient enrollment in clinical
trials will not occur, and any such delays may result in increased costs,
program delays or both, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Early Stage of Development. Since its inception in 1995, the Company has
been engaged in the development of drugs and related therapies for the treatment
of people with cancer. The Company's product candidates are generally in early
stages of development, with only one in clinical trials. No revenues have been
generated from product sales or product royalties; and products resulting from
the Company's research and development efforts, if any, are not expected to be
available commercially for at least the next few years. No assurance can be
given that the Company's product development efforts, including clinical trials,
will be successful, that required regulatory approvals for the indications being
studied can be obtained, that its products can be manufactured at acceptable
cost and with appropriate quality or that any approved products can be
successfully marketed. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Government Regulation; No Assurance of Regulatory Approvals. All new drugs
and biologics, including the Company's products under development, are subject
to extensive and rigorous regulation by the federal government, principally the
FDA under the Food, Drug and Cosmetic Act and other laws including, in the
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case of biologics, the Public Health Services Act, and by state and local
governments. Such regulations govern, among other things, the development,
testing, manufacture, labeling, storage, premarket approval, advertising,
promotion, sale and distribution of such products. If drug products are marketed
abroad, they also are subject to extensive regulation by foreign governments.
The regulatory process, which includes preclinical studies and clinical
trials of each potential product, is lengthy, expensive and uncertain. Prior to
commercial sale in the United States, most new drugs and biologics, including
the Company's products under development, must be approved by the FDA. Securing
FDA marketing approvals often requires the submission of extensive preclinical
and clinical data and supporting information to the FDA. Product approvals, if
granted, can be withdrawn for failure to comply with regulatory requirements or
upon the occurrence of unforeseen problems following initial marketing.
Moreover, regulatory approvals for products such as new drugs and biologics,
even if granted, may include significant limitations on the uses for which such
products may be marketed.
There can be no assurance that the Company will be able to obtain necessary
regulatory approvals on a timely basis, if at all, for any of its product
candidates, and delays in receipt or failures to receive such approvals or
failures to comply with existing or future regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. Certain material manufacturing changes to new drugs and
biologics also are subject to FDA review and approval. There can be no assurance
that any approvals that are required, once obtained, will not be withdrawn or
that compliance with other regulatory requirements can be maintained. Further,
failure to comply with applicable FDA and other regulatory requirements can
result in sanctions being imposed on the Company or the manufacturers of its
products, including warning letters, fines, product recalls or seizures,
injunctions, refusals to permit products to be imported into or exported out of
the United States, refusals of the FDA to grant premarket approval of drugs and
biologics or to allow the Company to enter into government supply contracts,
withdrawals of previously approved marketing applications and criminal
prosecutions.
Manufacturers of drugs and biologics also are required to comply with the
applicable FDA good manufacturing practice ("GMP") regulations, which include
requirements relating to quality control and quality assurance as well as the
corresponding maintenance of records and documentation. Manufacturing facilities
are subject to inspection by the FDA, including unannounced inspection, and must
be licensed before they can be used in commercial manufacturing of the Company's
products. There can be no assurance that the Company or its suppliers will be
able to comply with the applicable GMP regulations and other FDA regulatory
requirements. Such failure could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company may elect to seek approval of Bexxar under the Clinton-Kessler
Cancer Initiative. Significant uncertainty exists as to the extent to which such
initiative will result in accelerated review and approval. Further, the FDA has
not made available comprehensive guidelines with respect to this initiative,
retains considerable discretion to determine eligibility for accelerated review
and approval and is not bound by discussions that an applicant may have had with
FDA staff. Accordingly, the FDA could employ such discretion to deny eligibility
of Bexxar as a candidate for accelerated review or to require additional
clinical trials or other information before approving Bexxar. A determination
that Bexxar is not eligible for accelerated review or delays and additional
expenses associated with generating a response to any such request for
additional trials could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Government Regulation."
Dependence on Suppliers; Manufacturing and Scale-up Risk. The Company has
no existing capacity or experience with respect to manufacturing products for
large-scale clinical trials or commercial purposes. The Company has contracted
with two third-party manufacturers, Lonza and BI Pharma KG to produce unlabeled
B-1 Antibody. The Company is negotiating commercial supply agreements. The
manufacturers have limited experience producing the B-1 Antibody, and there can
be no assurance that they will be able to produce the Company's requirements at
commercially reasonable prices or with acceptable quality.
The Company relies upon Nordion for radiolabeling of the B-1 Antibody at
Nordion's centralized radiolabeling facility. The Company and Nordion are
negotiating an agreement for supply of the radiolabeled
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B-1 Antibody for both clinical trials and commercial sale. If Bexxar is approved
and is successful in the market, Nordion's capacity to radiolabel antibodies may
not be sufficient to meet all of the Company's commercial requirements. There
can be no assurance that the contract with Nordion will be entered into in a
timely manner, if at all.
The Company is aware of only a limited number of manufacturers capable of
producing the B-1 Antibody in commercial quantities or radiolabeling the
antibody with (131)I on a commercial scale. Should the Company's existing or
planned contractual relationships for production or radiolabeling of the B-1
Antibody cease or be interrupted, or if its existing suppliers are unable to
meet the Company's requirements for any reason, there can be no assurance that
any additional or alternative third parties could be engaged to carry out said
production or radiolabeling on a timely basis or on commercially acceptable
terms, if at all. To establish and qualify a new facility to centrally
radiolabel antibodies could take as long as two years. Further, radiolabeled
antibody cannot be stockpiled against future shortages due to the eight-day
half-life of the (131)I radioisotope. Accordingly, any change in the Company's
existing contractual relationships with, or interruption in supply from, its
producer of unlabeled antibody or its radiolabeler could affect adversely the
Company's ability to complete its ongoing clinical trials and to market Bexxar,
if approved. Any such change or interruption would have a material adverse
effect on the Company's business, financial condition and results of operations.
Although the Company is evaluating additional sources of supply for production
and radiolabeling of the B-1 Antibody, no assurance can be given that such
sources will be secured on commercially reasonable terms, on a timely basis, or
at all.
Prior to August 1997, the Company obtained B-1 Antibody from an inventory
produced by Beckman Coulter, and radiolabeling was performed by radiopharmacies
at the individual clinical trial sites. In order to begin using the centrally
radiolabeled B-1 Antibody from Nordion, the Company filed and the FDA cleared an
IND amendment to establish that the centrally radiolabeled material was
biologically and biochemically equivalent to the on-site radiolabeled B-1
Antibody. The Company is collecting data from its ongoing clinical trials to be
filed with the FDA to establish clinical comparability between the centrally and
on-site radiolabeled B-1 Antibody, however, there can be no assurance that it
will be able to establish clinical comparability. A failure to establish
clinical comparability could lead to a requirement that the Company enlarge the
size of its ongoing Phase III pivotal clinical trial, which would delay the
completion of such trial, increase its cost and potentially delay the Company's
initial pursuit of regulatory approval for Bexxar.
Third-party manufacturers must comply with GMP regulations prescribed by
the FDA and other standards prescribed by various federal, state and local
regulatory agencies in the United States and any other relevant country. Failure
to comply with these regulations could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Government Regulation; No Assurance of Regulatory Approvals" and
"Business -- Government Regulation."
Future Capital Needs; Uncertainty of Additional Funding. The Company's
operations to date have consumed substantial and increasing amounts of cash. The
negative cash flow from operations is expected to continue and to accelerate in
the foreseeable future. The development of the Company's technology and
potential products will require a commitment of substantial funds. The Company
expects that its existing capital resources will be adequate to satisfy the
requirements of its current and planned operations into 1999. However, the rate
at which the Company expends its resources is variable, may be accelerated and
will depend on many factors, including the scope and results of preclinical
studies and clinical trials, continued progress of the Company's research and
development of product candidates, the cost, timing and outcome of regulatory
approvals, the expenses of establishing a sales and marketing force, the timing
and cost of establishment or procurement of requisite production, radiolabeling
and other manufacturing capacities, the cost involved in preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims, the acquisition
of technology licenses, the status of competitive products and the availability
of other financing.
The Company will need to raise substantial additional capital to fund its
operations and intends to seek such additional funding through public or private
equity or debt financings, as well as through collaborative arrangements. There
can be no assurance that such additional funding will be available on acceptable
terms, if at all. If additional funds are raised by issuing equity securities,
substantial dilution to stockholders may result.
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If adequate funds are not available, the Company may be required to delay,
reduce the scope of, or eliminate one or more of its research and development
programs or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Uncertainty of Market Acceptance of Bexxar. Even if the Company's product
candidates are approved for marketing by the FDA and other regulatory
authorities, there can be no assurance that the Company's products will be
commercially successful. If the Company's most advanced product candidate,
Bexxar, is approved, it would represent a significant departure from currently
approved methods of treatment for NHL and would require the handling of
radioactive materials. Accordingly, Bexxar may experience under-utilization by
oncologists and hematologists who are unfamiliar with the application of Bexxar
in the treatment of NHL. Further, oncologists and hematologists are not
typically licensed to administer radioimmunotherapies such as Bexxar and will
need to engage a nuclear medicine physician or receive specialty training to
administer Bexxar. Recently enacted NRC regulations permit Bexxar to be
administered on an outpatient basis in most cases as is currently contemplated
by the Company. However, market acceptance could be affected adversely because
some hospitals may be required to administer the therapeutic dose of Bexxar on
an inpatient basis under applicable state or local or individual hospital
regulations. As with any new drug, doctors may be inclined to continue to treat
patients with conventional therapies, in this case chemotherapy. Market
acceptance also could be affected by the availability of third-party
reimbursement. Failure of Bexxar to achieve significant market acceptance would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Uncertainty Related to Health Care Reform and
Third-Party Reimbursement," "-- Hazardous and Radioactive Materials," and
"Business -- Radioactive and Other Hazardous Materials."
Absence of Commercialization Resources and Experience. The Company intends
to market and sell its products in the United States through a direct sales
force and, where appropriate, in collaboration with marketing partners, and
internationally through marketing partners. The Company currently does not
possess the resources and experience necessary to commercialize any of its
product candidates. The Company's ability to market Bexxar, if approved, will be
contingent upon recruitment, training and deployment of a sales and marketing
force. Development of an effective sales force will require significant
financial resources and time. There can be no assurance that the Company will be
able to establish such a sales force in a timely or cost effective manner, if at
all, or that such a sales force will be capable of generating demand for Bexxar
or other product candidates. The Company has no collaborative arrangements for
the distribution of Bexxar, and there can be no assurance that the Company will
be able to enter into any such arrangements in a timely manner or on
commercially favorable terms, or at all. Failure to enter into any such
collaborative arrangements could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Marketing and Sales."
Dependence Upon Proprietary Technology; Uncertainty of Patents and
Proprietary Technology. The pharmaceutical and biotechnology fields are
characterized by a large number of patent filings. A substantial number of
patents have already been issued to other pharmaceutical and biotechnology
companies. Research has been conducted for many years in the monoclonal antibody
field by pharmaceutical and biotechnology companies and other organizations.
Competitors may have filed applications for or have been issued patents and may
obtain additional patents and proprietary rights related to products or
processes competitive with or similar to those of the Company. Patent
applications are maintained in secrecy for a period after filing. Publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries and the filing of related patent applications. The Company may not
be aware of all of the patents potentially adverse to the Company's interests
that may have been issued to other companies, research or academic institutions,
or others. No assurance can be given that such patents do not exist, have not
been filed, or could not be filed or issued, which contain claims relating to
the Company's technology, products or processes.
To date, no consistent policy has emerged regarding the breadth of claims
allowed in pharmaceutical and biotechnology patents. If patents have been or are
issued to others containing preclusive or conflicting claims
25
<PAGE> 27
and such claims are determined ultimately to be valid, the Company may be
required to obtain licenses to one or more of such patents or to develop or
obtain alternative technology. The Company is aware of various patents that have
been issued to others that pertain to a portion of the Company's prospective
business; however, the Company believes that it does not infringe any patents
that ultimately would be determined to be valid. There can be no assurance that
patents do not exist in the United States or in other foreign countries or that
patents will not be issued to third parties that contain preclusive or
conflicting claims with respect to Bexxar or any of the Company's other product
candidates or programs. Commercialization of monoclonal antibody-based products
may require licensing and/or cross-licensing of one or more patents with other
organizations in the field. There can be no assurance that the licenses that
might be required for the Company's processes or products would be available on
commercially acceptable terms, if at all.
The Company's breach of an existing license or failure to obtain a license
to technology required to commercialize its product candidates may have a
material adverse effect on the Company's business, financial condition and
results of operations. Litigation, which could result in substantial costs to
the Company, may also be necessary to enforce any patents issued to the Company
or to determine the scope and validity of third-party proprietary rights. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome is favorable to
the Company. An adverse outcome could subject the Company to significant
liabilities to third parties and require the Company to license disputed rights
from third parties or to cease using such technology.
The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. The Company protects its proprietary technology and processes, in
part, by confidentiality agreements with its employees, consultants, advisory
board members, collaborators and certain contractors. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets or those of its
collaborators or contractors will not otherwise become known or be discovered
independently by competitors.
Patents issued and patent applications filed internationally relating to
biologics are numerous and there can be no assurance that current and potential
competitors and other third parties have not filed or in the future will not
file applications for, or have not received or in the future will not receive,
patents or obtain additional proprietary rights relating to products or
processes used or proposed to be used by the Company. Moreover, there is certain
subject matter which is patentable in the United States and not generally
patentable outside of the United States. Statutory differences in patentable
subject matter may limit the protection the Company can obtain on some of its
inventions outside of the United States. For example, methods of treating humans
are not patentable in many countries outside of the United States. These and/or
other issues may prevent the Company from obtaining patent protection outside of
the United States which would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Patents and Other Intellectual Property."
History of Operating Losses; Anticipated Future Losses. The Company has a
limited history of operations and has experienced significant losses since
inception. As of December 31, 1997, the Company's accumulated deficit was
approximately $44.7 million. The Company expects to incur significant additional
operating losses over the next several years and expects cumulative losses to
increase substantially due to expanded research and development efforts,
preclinical studies and clinical trials and development of manufacturing,
marketing and sales capabilities. The Company expects that losses will fluctuate
from quarter to quarter and that such fluctuations may be substantial. All of
the Company's product candidates are in development in preclinical studies and
clinical trials, and no revenues have been generated from product sales. To
achieve and sustain profitable operations, the Company, alone or with others,
must develop successfully, obtain regulatory approval for, manufacture,
introduce, market and sell its products. The time frame necessary to achieve
market success is long and uncertain. The Company does not expect to generate
product revenues for at least the next few years. There can be no assurance that
the Company will ever generate sufficient product revenues to become profitable
or to sustain profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
26
<PAGE> 28
Highly Competitive Industry; Risk of Technological Obsolescence. The
pharmaceutical and biotechnology industries are intensely competitive. Any
product candidate developed by the Company would compete with existing drugs and
therapies. There are many pharmaceutical companies, biotechnology companies,
public and private universities and research organizations actively engaged in
research and development of products for the treatment of people with cancer.
Many of these organizations have financial, technical, manufacturing and
marketing resources greater than those of the Company. Several of them may have
developed or are developing therapies that could be used for treatment of the
same diseases targeted by the Company. One competitor known to the Company
recently received a approval from the FDA of its non-radiolabeled chimeric
antibody for the treatment of low-grade NHL. If a competing company were to
develop or acquire rights to a more efficacious or safer cancer therapy for
treatment of the same diseases targeted by the Company, or one which offers
significantly lower costs of treatment, the Company's business, financial
condition and results of operations could be materially adversely affected. The
Company believes that its product development programs will be subject to
significant competition from companies utilizing alternative technologies as
well as to increasing competition from companies that develop and apply
technologies similar to the Company's technologies. Other companies may succeed
in developing products earlier than the Company, obtaining approvals for such
products from the FDA more rapidly than the Company or developing products that
are safer and more effective than those under development or proposed to be
developed by the Company. There can be no assurance that research and
development by others will not render the Company's technology or product
candidates obsolete or non-competitive or result in treatments superior to any
therapy developed by the Company, or that any therapy developed by the Company
will be preferred to any existing or newly developed technologies. See
"Business -- Competition."
Dependence on Management and Other Key Personnel. The Company is dependent
upon a limited number of key management and technical personnel. The loss of the
services of one or more of such key employees could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company's success will be dependent upon its ability to attract
and retain additional highly qualified sales, management, manufacturing and
research and development personnel. The Company faces intense competition in its
recruiting activities, and there can be no assurance that the Company will be
able to attract and/or retain qualified personnel.
Exposure to Product Liability. The manufacture and sale of human
therapeutic products involve an inherent risk of product liability claims and
associated adverse publicity. The Company has only limited product liability
insurance for clinical trials and no commercial product liability insurance.
There can be no assurance that the Company will be able to maintain existing
insurance or obtain additional product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Such insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms, if at all. An inability to obtain sufficient insurance
coverage on reasonable terms or to otherwise protect against potential product
liability claims brought against the Company in excess of its insurance
coverage, if any, or a product recall could have a material adverse effect upon
the Company's business, financial condition and results of operations. See
"Business -- Product Liability and Insurance."
Uncertainty Related to Health Care Reform and Third-Party
Reimbursement. Political, economic and regulatory influences are subjecting the
health care industry in the United States to fundamental change. Initiatives to
reduce the federal deficit and to reform health care delivery are increasing
cost-containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause the Company to limit or
eliminate spending on development projects and affect the Company's ultimate
profitability. Legislative debate is expected to continue in the future, and
market forces are expected to drive reductions of health care costs. The Company
cannot predict what impact the adoption of any federal or state health care
reform measures or future private sector reforms may have on its business.
27
<PAGE> 29
In both domestic and foreign markets, sales of the Company's proposed
products will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations.
Third-party payors are increasingly challenging the price and cost effectiveness
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. Bexxar, as
potentially the first radioimmunotherapy for cancer, faces particular
uncertainties due to the absence of a comparable, approved therapy to serve as a
model for pricing and reimbursement decisions. Further, if Bexxar is not
administered in most cases on an outpatient basis, as is contemplated currently
by the Company, the projected cost of the therapy will be higher than
anticipated. In addition, there can be no assurance that products can be
manufactured on a commercial scale for a cost that will enable the Company to
price its products within reimbursable rates. Consequently, there can be no
assurance that the Company's product candidates will be considered cost
effective or that adequate third-party reimbursement will be available to enable
the Company to maintain price levels sufficient to realize an appropriate return
on its investment in product development. If adequate coverage and reimbursement
rates are not provided by the government and third-party payors for the
Company's products, the market acceptance of these products could be adversely
affected, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Pharmaceutical
Pricing and Reimbursement."
Hazardous and Radioactive Materials. The manufacturing and administration
of Bexxar requires the handling, use and disposal of (131)I, a radioactive
isotope of iodine. These activities must comply with various state and federal
regulations. Violations of these regulations could delay significantly
completion of clinical trials and commercialization of Bexxar. For its ongoing
clinical trials and for commercial-scale production, the Company relies on
Nordion to radiolabel the B-1 Antibody with (131)I at a single location in
Canada. Violations of safety regulations could occur with this manufacturer,
and, therefore, there is a risk of accidental contamination or injury. In the
event of any such noncompliance or accident, the supply of radiolabeled B-1
Antibody for use in clinical trials or commercially could be interrupted, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company also expects to use hazardous chemicals and radioactive
compounds in its ongoing research activities. The Company could be held liable
for any damages that result from such an accident, contamination or injury from
the handling and disposal of these materials, as well as for unexpected remedial
costs and penalties that may result from any violation of applicable
regulations, which could result in a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company may incur substantial costs to comply with environmental regulations.
See "Business -- Radioactive and Other Hazardous Materials."
Control By Officers, Directors and Principal Stockholders. As of December
31, 1997, executive officers and principal stockholders of the Company will
beneficially own approximately 33.7% of the outstanding shares of the Company's
Common Stock. Accordingly, these stockholders, individually and as a group, may
be able to control the Company and direct its affairs and business, including
any determination with respect to a change in control of the Company, future
issuances of Common Stock or other securities by the Company, declaration of
dividends on the Common Stock and the election of directors. See "Principal
Stockholders."
Potential Volatility of Stock Price. The securities markets have from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. The market prices of the
common stock of many publicly held biotechnology and pharmaceutical companies
have in the past been, and can in the future be expected to be, especially
volatile. Announcements of technological innovations or new products by the
Company or its competitors, release of reports by securities analysts,
developments or disputes concerning patents or proprietary rights, regulatory
developments, changes in regulatory or medical reimbursement policies, economic
and other external factors, as well as period-to-period fluctuations in the
Company's financial results, may have a significant and adverse impact on the
market price of the Common Stock. See "Price Range of Common Stock."
Potential Adverse Impact of Shares Eligible for Future Sale. Sales of
shares of Common Stock (including shares issued upon the exercise of outstanding
options) in the public market could adversely affect
28
<PAGE> 30
the market price of the Common Stock. Such sales also might make it more
difficult for the Company to sell equity securities or equity-related securities
in the future at a time and price that the Company deems appropriate.
Adverse Impact of Possible Issuances of Preferred Stock; Anti-Takeover
Effect of Certain Charter and Bylaw Provisions. The Board of Directors has
authority to issue up to 3,000,000 shares of Preferred Stock and to fix the
price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock could affect adversely
the voting power of holders of Common Stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation. Additionally, the
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
affect adversely the market price of and the voting and other rights of the
holders of the Common Stock. In addition, the Company's Bylaws provide that
special meetings of stockholders may be called only by the Chairman of the Board
of Directors, the Chief Executive Officer or the Board of Directors pursuant to
a resolution approved by a majority of the Board of Directors. In July 1997, the
Company adopted a Share Purchase Rights Plan, commonly referred to as a "poison
pill." In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibits the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. These provisions, along with certain provisions of
California law that may be applicable to the Company, could have the effect of
discouraging certain attempts to acquire the Company which could deprive the
Company's stockholders of the opportunity to sell their shares of Common Stock
at prices higher than prevailing market prices. See "Description of Capital
Stock."
ITEM 2. PROPERTIES
The Company currently leases approximately 15,000 square feet of office
space located in Palo Alto, California, under a short-term lease agreement. In
November 1997, the Company entered into a cancelable agreement to build and
lease new facilities in South San Francisco. The first building will be
approximately 50,000 square feet and contain both office and laboratory
facilities. The Company expects to relocate to the new facilities in late 1998.
In connection with its lease agreement, the Company obtained a letter of credit
agreement from a bank which secures the aggregate future payments under the
lease.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
29
<PAGE> 31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "CLTR." Trading of the Company's Common Stock commenced on January
28, 1997, following effectiveness of its initial public offering. The following
table presents quarterly information on the price range of the Company's Common
Stock, indicating the high and low sales prices reported by the Nasdaq National
Market. These prices do not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ------ ------
<S> <C> <C>
First Quarter (from January 28)................ 13.250 8.750
Second Quarter................................. 12.625 6.500
Third Quarter.................................. 15.125 7.875
Fourth Quarter................................. 23.500 13.000
</TABLE>
As of March 19, 1998, the Company had approximately 331 holders of record
of its Common Stock.
The Company has never paid any cash dividends on its capital stock and does
not expect to pay any such dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1996
and 1997 and for each of the two years in the period ended December 31, 1997 and
the periods and from inception (February 16, 1995) to December 31, 1995 and 1997
are derived from the consolidated financial statements of Coulter
Pharmaceutical, Inc. that have been audited by Ernst & Young LLP, independent
auditors, and which are included herein. The selected consolidated financial
data as of December 31, 1995 are derived from the consolidated financial
statements of Coulter Pharmaceutical, Inc. that have been audited by Ernst &
Young LLP, and which are not included herein. The selected consolidated
financial data as of December 31, 1993 and 1994 and for each of the two years in
the period ended December 31, 1994 and for the period from January 1, 1995 to
February 15, 1995 are derived from the financial statements of the Antibody
Therapeutics Business Operations of Coulter Corporation that have been audited
by Ernst & Young LLP, and which are not included herein.
<TABLE>
<CAPTION>
FULL YEAR 1995
----------------------------
ANTIBODY THERAPEUTICS BUSINESS
OPERATIONS OF COULTER
CORPORATION(2) COMPANY
------------------------------- ---------------------------------------------------------
YEAR ENDED INCEPTION INCEPTION
DECEMBER 31, JAN 1, 1995 (FEB 16, 1995) YEAR ENDED YEAR ENDED (FEB 16, 1995)
----------------- TO FEB 15, TO DEC 31, DEC 31, DEC 31, TO DEC 31,
1993 1994 1995 1995 1996 1997 1997
------- ------- ----------- -------------- ---------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating expenses:
Research and development.......... $ 1,838 $ 2,798 $ 200 $ 2,539 $ 13,681 $ 21,045 $ 37,265
Selling, general and
administrative.................. 178 288 36 581 2,409 7,610 10,600
------- ------- ----- ----------- -------- -------- --------
Total operating expenses.... 2,016 3,086 236 3,120 16,090 28,655 47,865
Interest income and other, net...... -- -- -- 127 752 2,327 3,206
------- ------- ----- ----------- -------- -------- --------
Net loss............................ $(2,016) $(3,086) $(236) $ (2,993) $(15,338) $(26,328) $(44,659)
======= ======= ===== =========== ======== ======== ========
Basic and diluted net loss per
share(1).......................... $(12,736.17) $(649.39) $ (2.58)
----------- -------- --------
Shares used in computing basic and
diluted net loss per share(1)..... 0.235 24 10,197
----------- -------- --------
Pro forma basic and diluted net loss
per share......................... $ (1.28) $ (2.65)
----------- --------
Shares used in computing pro forma
basic and diluted net loss per
share............................. 2,342 5,793
----------- --------
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
ANTIBODY THERAPEUTICS
BUSINESS OPERATIONS OF
COULTER CORPORATION(2) COMPANY
--------------------------- ------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.... $ -- $ -- $ 3,438 $ 16,443 $ 75,445
Working capital (deficit)............................ (124) (50) 2,878 10,737 65,202
Total assets......................................... 109 135 3,628 18,321 78,671
Noncurrent portion of equipment financing obligations
and debt facility.................................. -- -- -- 1,535 2,298
Deficit accumulated during the development stage..... -- -- (2,993) (18,331) (44,659)
Total stockholders' equity........................... -- -- 2,997 10,546 65,861
Coulter Corporation(2) net investment................ (15) 85 -- -- --
----- ---- ------- -------- --------
</TABLE>
- ---------------
(1) Retroactively restated to comply with Staff Accounting Bulletin No. 98,
which was issued by the staff of the Securities and Exchange Commission in
February 1998.
(2) Coulter Corporation was acquired by Beckman Instruments, Inc. upon which
occurance the entity is known as Beckman Coulter.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Coulter Pharmaceutical is engaged in the development of novel drugs and
therapies for the treatment of people with cancer. The Company currently is
developing a family of cancer therapeutics based upon two drug discovery
programs, therapeutic antibodies and targeted oncologics. Within these broad
discovery programs, the Company is currently concentrating on two distinct
platform technologies: therapeutic antibodies based on congugated antibody
technology and targeted oncologics based on tumor activated peptide pro-drugs.
The Company's most advanced product candidate, Bexxar (formerly known as
the "B-1 Therapy"), consists of a monoclonal antibody conjugated with a
radioisotope. The Company intends to seek initial approval of Bexxar for the
treatment of low-grade and transformed low-grade non-Hodgkin's lymphoma ("NHL")
in patients refractory to chemotherapy, while simultaneously pursuing clinical
trials to expand the potential use of Bexxar to other indications. Bexxar is
based upon the antibody therapeutics program which originated at Coulter
Corporation. In 1995 Coulter Pharmaceutical was incorporated and acquired
worldwide rights to Bexxar and related intellectual property, know-how and other
assets from Coulter Corporation. In 1997 Beckman Instruments, Inc. acquired
Coulter Corporation, upon which occurrence Coulter Corporation became known as
Beckman Coulter ("Beckman Coulter").
To date, the Company has devoted substantially all of its resources to
research and development programs, as well as selling, general and
administrative activities needed to support product development and potential
product sales. No revenues have been generated from product sales, and products
resulting from the Company's research and development efforts, if any, are not
expected to be available commercially for at least the next few years. The
Company has a limited history of operations and has experienced significant
operating losses to date. The Company expects to incur significant additional
operating losses over the next several years and expects cumulative losses to
increase substantially due to expanded research and development efforts,
preclinical studies and clinical trials and development of manufacturing,
marketing and sales capabilities. The Company expects that losses will fluctuate
from quarter to quarter and that such fluctuations may be substantial. There can
be no assurance that the Company will successfully develop, manufacture and
commercialize its products or ever achieve or sustain product revenues or
profitability. As of December 31, 1997, the Company's accumulated deficit was
approximately $44.7 million.
31
<PAGE> 33
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, DECEMBER 31, 1996 AND PERIOD FROM
INCEPTION (FEBRUARY 16, 1995) TO DECEMBER 31, 1995.
Operating Expenses. Research and development expenses were $21.0 million
for the year ended December 31, 1997, compared to $13.7 million for the year
ended December 31, 1996 and $2.5 million for the period from inception (February
16, 1995) to December 31, 1995. The $7.3 million increase from the year ended
December 31, 1996 to the year ended December 31, 1997 was due primarily to
increases in staffing and expenditures associated with the development of
Bexxar, including costs of clinical trials and manufacturing expenses. These
manufacturing expenses included certain expenses associated with scaled-up
production of monoclonal antibodies and the establishment of a centralized
radiolabeling capability. The $11.2 million increase from the period from
inception (February 16, 1995) to December 31, 1995 to the year ended December
31, 1996 was due primarily to increases in staffing and in expenditures
associated with the development of Bexxar, including costs of clinical trials
and manufacturing expenses. The Company expects its research and development
expenses to grow in 1998, reflecting anticipated increased costs related to
additions to staffing, preclinical studies, clinical trials and manufacturing.
Selling, general and administrative expenses were $7.6 million for the year
ended December 31, 1997, compared to $2.4 million for the year ended December
31, 1996 and $0.6 million for the period from inception (February 16, 1995) to
December 31, 1995. The $5.2 million increase from the year ended December 31,
1996 to the year ended December 31, 1997 was incurred to support the Company's
increased pre-commercialization expenses, as well as facilities and staffing
expansion, increased corporate development activities and related legal and
patent activities. The $1.8 million increase in expenses from the period from
inception (February 16, 1995) to December 31, 1995 to the year ended December
31, 1996 was incurred to support the Company's facilities expansion, increased
research and development efforts, and related legal and patent activities. The
Company expects its selling, general and administrative expenses to continue to
increase in 1998, due to increasing commercialization efforts in anticipation of
potential product sales, as well as to support its increased research and
development, patent and corporate development activities and facilities
expansion.
Interest Income and other, net. Interest income was $2.3 million for the
year ended December 31, 1997, compared to $0.8 million for the year ended
December 31, 1996 and $0.1 million for the period from inception (February 16,
1995) to December 31, 1995. The Company first recorded interest income in the
period from inception (February 16, 1995) to December 31, 1995 which resulted
from investment of the net proceeds from the sale of the Company's preferred
stock in 1995. The $0.7 million increase from the period from inception
(February 16, 1995) to December 31, 1995 to the year ended December 31, 1996 was
due to higher average cash, cash equivalent and short-term investment balances
as a result of the Company's sale of preferred stock in August 1995 and April
1996. The $1.5 million increase from the year ended December 31, 1996 to the
year ended December 31, 1997 was due to higher average cash, cash equivalent and
short-term investment balances as a result of the Company's initial public
offering of common stock in January 1997 and follow-on offering of common stock
in October 1997.
LIQUIDITY AND CAPITAL RESOURCES
In January 1997, the Company completed its initial public offering of
2,500,000 shares of common stock at a price to the public of $12.00 per share
resulting in net proceeds to the Company of approximately $27.1 million. Also in
January 1997, the Company received an additional $3.1 million from the exercise
of warrants to purchase 385,315 shares of common stock. In February 1997, the
Company received an additional $4.2 million from the sale of 375,000 shares of
its common stock pursuant to the exercise of the underwriters' over-allotment
option in connection with its initial public offering.
In October 1997 the Company completed a follow-on public offering of
2,750,000 shares of common stock at a price to the public of $15.50 per share,
resulting in net proceeds to the Company of approximately $40.2 million. Also in
October 1997, the underwriters for the Company's follow-on offering of common
stock exercised their full over-allotment option to purchase 412,500 additional
shares of common stock, raising additional net proceeds of $6.0 million.
32
<PAGE> 34
Since its inception through December 31, 1997, the Company has financed its
operations primarily through private placements and public offerings of equity
securities totaling $109.2 million. In addition, the Company entered into a $3.8
million equipment lease financing and debt facility in December 1996, $0.3
million of which is available at December 31, 1997. Cash, cash equivalents and
short-term investments totaled $75.4 million at December 31, 1997.
The negative cash flow from operations results primarily from the Company's
net operating losses and is expected to continue and to accelerate in the
foreseeable future. The Company expects to incur substantial and increasing
research and development expenses, including expenses related to additions to
personnel, preclinical studies, clinical trials, manufacturing and
commercialization efforts. The Company will need to raise substantial additional
capital to fund its operations. The Company intends to seek such additional
funding through public or private equity or debt financings from time to time,
as market conditions permit. There can be no assurance that additional financing
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research and development programs or obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates
or products that the Company would otherwise seek to develop or commercialize.
Net cash used in operations was $21.1 million for the year ended December
31, 1997, compared to $10.4 million for the year ended December 31, 1996. This
increase is primarily the result of the increased net loss for the period ended
December 31, 1997. Net cash used in investing activities increased to $49.0
million for the year ended December 31, 1997 from $8.5 million for the year
ended December 31, 1996 primarily resulting from the purchase of $61.5 million
in short-term investments using a portion of the proceeds from the Company's
sales of common stock in January and October 1997. The Company's capital
expenditures increased to $1.6 million for the year ended December 31, 1997 from
$0.9 million for the year ended December 31, 1996, primarily representing
investment in equipment for the central radiolabeling facility and equipment and
furniture related to increased staffing. Net cash provided by financing
activities increased to $81.7 million for the year ended December 31, 1997 from
$24.3 million for the year ended December 31, 1996, resulting primarily from the
public offerings of the Company's common stock in January and October 1997. Net
cash used in operations was $10.4 million for the year ended December 31, 1996,
compared to $2.6 million for the combined year ended December 31, 1995. This
increase was primarily the result of the increased net loss for the period ended
December 31, 1996, partially offset by an increase in accrued liabilities. Net
cash used in investing activities increased $8.4 million for the year ended
December 31, 1996 from $0.1 million for the combined year ended December 31,
1995 primarily resulting from the purchase of $8.6 million in short-term
investments using a portion of the proceeds of the Company's sale of preferred
stock in April 1996. The Company's capital expenditures increased to $0.9
million for the year ended December 31, 1996 from $0.1 million for the combined
year ended December 31, 1995, primarily representing investment in equipment
associated with the centralized radiolabeling capability. Net cash provided by
financing activities increased to $24.3 million for the year ended December 31,
1996 from $6.2 million for the combined year ended December 31, 1995, resulting
primarily from the sale of the Company's preferred stock in April 1996.
The Company expects that its existing capital resources, including the net
proceeds of its public offerings and interest thereon, will be adequate to
satisfy the requirements of its current and planned operations into 1999. At
December 31, 1997, the Company had entered into a long-term lease obligation for
office and laboratory space that will require material commitments for capital
expenditures. The Company's future capital requirements will depend on a number
of factors, including: the scope and results of preclinical studies and clinical
trials; continued progress of the Company's research and development of
potential products; the cost, timing and outcome of regulatory approvals; the
expenses of establishing a sales and marketing force; the timing and cost of
establishment or procurement of requisite production, radiolabeling and other
capacities; the cost involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; the need to acquire licenses to new
technology; the status of competitive products; and the availability of other
financing.
33
<PAGE> 35
IMPACT OF THE YEAR 2000
At this time, the Company believes that with upgrades of existing software
and conversions to new software, both of which are readily available in the
market, the Year 2000 issue will not pose significant operational problems for
its internal computer systems. Modifications and conversions to the Company's
internal computer systems are expected to be completed not later than September
30, 1999. Some risks associated with the Year 2000 issue are beyond the ability
of the Company to control, for example, the extent to which the Company's
suppliers and service providers, including providers of telephone services,
address the Year 2000 issue. A failure by a third party to adequately address
the Year 2000 issue would have a material adverse impact on such third party,
and could result in a material adverse impact on the Company. The Company,
however, has initiated formal communications with its significant suppliers and
service providers to determine the extent to which the Company may be vulnerable
to those third parties' failure to remediate their own Year 2000 issues. The
Company does not expect the estimated cost of implementing its Year 2000 plan to
be significant.
34
<PAGE> 36
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Coulter Pharmaceutical, Inc.
We have audited the accompanying consolidated balance sheets of Coulter
Pharmaceutical, Inc. (a development stage company) (the "Company") as of
December 31, 1997 and 1996, and the related consolidated statements of
operations and cash flows for each of the two years in the period ended December
31, 1997 and for the periods from inception (February 16, 1995) to December 31,
1995 and 1997 and the related statement of stockholders' equity for the period
from inception (February 16, 1995) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coulter
Pharmaceutical, Inc. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1997 and for the periods from inception (February 16, 1995)
to December 31, 1995 and 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 26, 1998
35
<PAGE> 37
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 20,451 $ 8,826
Short-term investments.................................... 54,994 7,617
Prepaid expenses and other current assets................. 269 499
Current portion of employee loans receivable.............. -- 35
-------- --------
Total current assets.............................. 75,714 16,977
Property and equipment, net................................. 2,263 924
Employee loans receivable................................... 323 271
Other assets................................................ 371 149
-------- --------
$ 78,671 $ 18,321
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,768 $ 1,490
Payable to Beckman Coulter................................ 70 111
Accrued liabilities....................................... 7,959 4,330
Current portion of equipment financing obligations and
debt facility.......................................... 715 309
-------- --------
Total current liabilities......................... 10,512 6,240
Non current portion of equipment financing obligations and
debt facility............................................. 2,298 1,535
Commitments
Stockholders' equity:
Preferred stock, issuable in series, $.001 par value:
3,000,000 and 20,000,000 shares authorized; none and
19,797,940 shares issued and outstanding at December
31, 1997 and 1996, respectively........................ -- 28,355
Common stock, $.001 par value: 30,000,000 shares
authorized; 13,570,224 and 437,612 shares issued and
outstanding at December 31, 1997 and 1996,
respectively........................................... 14 1
Additional paid-in capital.................................. 111,598 2,488
Net unrealized loss on securities available-for-sale........ (7) (3)
Deferred compensation....................................... (1,085) (1,964)
Deficit accumulated during the development stage............ (44,659) (18,331)
-------- --------
Total stockholders' equity........................ 65,861 10,546
-------- --------
$ 78,671 $ 18,321
======== ========
</TABLE>
See accompanying notes.
36
<PAGE> 38
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE PERIOD FROM
FROM INCEPTION INCEPTION
(FEBRUARY 16, (FEBRUARY 16,
1995) TO YEAR ENDED YEAR ENDED 1995) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1997
--------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development.................. $ 2,539 $ 13,681 $ 21,045 $ 37,265
Selling, general and administrative....... 581 2,409 7,610 10,600
------------ -------- -------- --------
Total operating expenses.................... 3,120 16,090 28,655 47,865
Interest income and other, net.............. 127 752 2,327 3,206
------------ -------- -------- --------
Net loss.................................... $ (2,993) $(15,338) $(26,328) $(44,659)
============ ======== ======== ========
Basic and diluted net loss per share........ $ (12,736.17) $(649.39) $ (2.58)
------------ -------- --------
Shares used in computing
basic and diluted net loss per share...... 0.235 24 10,197
============ ======== ========
Pro forma basic and diluted net loss per
share..................................... $ (1.28) $ (2.65)
------------ --------
Shares used in computing pro forma basic and
diluted net loss per share................ 2,342 5,793
============ ========
</TABLE>
See accompanying notes.
37
<PAGE> 39
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET
UNREALIZED
CONVERTIBLE PREFERRED LOSS
STOCK COMMON STOCK ADDITIONAL ON SECURITIES
--------------------- ------------------- PAID-IN AVAILABLE-FOR- DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL SALE COMPENSATION
----------- ------- ---------- ------ ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A convertible
preferred stock to founders at
$1.00 per share for cash and
technology in February 1995..... 7,500,000 $ 2,500 -- $-- $ -- $-- $ --
Issuance of Series B convertible
preferred stock to a founder at
$1.50 per share for cash in
August and October 1995, less
issuance costs of $11............ 2,333,333 3,489 -- -- -- -- --
Exercise of common stock options
by a consultant at $0.30 per
share for cash in November
1995............................. -- -- 2,059 -- 1 -- --
Net loss.......................... -- -- -- -- -- -- --
----------- ------- ---------- --- -------- --- -------
Balances at December 31, 1995..... 9,833,333 $ 5,989 2,059 -- $ 1 -- --
Issuance of Series C convertible
preferred stock and warrants for
498,705 shares of common stock to
investors at $2.25 per share for
cash in April 1996, less issuance
costs of $55..................... 9,964,607 22,366 -- -- -- -- --
Issuance of common stock to a
prospective officer at $0.45 per
share for cash in March 1996..... -- -- 400,000 1 179 -- --
Issuance of common stock pursuant
to stock option exercises........ -- -- 35,553 -- 14 -- --
Unrealized loss on securities
available-for-sale, net.......... -- -- -- -- -- (3) --
Deferred compensation related to
grants of certain stock
options.......................... -- -- -- -- 2,294 -- (2,294)
Amortization of deferred
compensation..................... -- -- -- -- -- -- 330
Net loss.......................... -- -- -- -- -- -- --
----------- ------- ---------- --- -------- --- -------
Balances at December 31, 1996..... 19,797,940 $28,355 437,612 $ 1 $ 2,488 $(3) $(1,964)
Conversion of convertible
preferred stock into common
stock............................ (19,797,940) (28,355) 6,599,287 6 28,349 -- --
Issuance of 2,875,000 shares of
common stock at $12.00 per share
less issuance costs of $3,226.... -- -- 2,875,000 3 31,274 -- --
Issuance of common stock pursuant
to stock options exercises....... -- -- 77,358 -- 45 -- --
Issuance of common stock pursuant
to warrant exercises............. -- -- 385,315 1 3,127 -- --
Deferred compensation related to
grant of certain stock options... -- -- -- -- 206 -- (206)
Amortization of deferred
compensation..................... -- -- -- -- -- -- 1,085
Issuance of common stock pursuant
to the employee stock purchase
plan............................. -- -- 33,152 -- 280 -- --
Issuance of 3,162,500 shares of
common stock at $15.50 per share
less issuance costs of $3,190.... -- -- 3,162,500 3 45,829 -- --
Unrealized loss on securities
available-for-sale, net.......... -- -- -- -- -- (4) --
Net loss.......................... -- -- -- -- -- -- --
----------- ------- ---------- --- -------- --- -------
Balance at December 31, 1997...... -- $ -- 13,570,224 $14 $111,598 $(7) $(1,085)
=========== ======= ========== === ======== === =======
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
------------ -------------
<S> <C> <C>
Issuance of Series A convertible
preferred stock to founders at
$1.00 per share for cash and
technology in February 1995..... $ -- $ 2,500
Issuance of Series B convertible
preferred stock to a founder at
$1.50 per share for cash in
August and October 1995, less
issuance costs of $11............ -- 3,489
Exercise of common stock options
by a consultant at $0.30 per
share for cash in November
1995............................. -- 1
Net loss.......................... (2,993) (2,993)
-------- --------
Balances at December 31, 1995..... $ (2,993) $ 2,997
Issuance of Series C convertible
preferred stock and warrants for
498,705 shares of common stock to
investors at $2.25 per share for
cash in April 1996, less issuance
costs of $55..................... -- 22,366
Issuance of common stock to a
prospective officer at $0.45 per
share for cash in March 1996..... -- 180
Issuance of common stock pursuant
to stock option exercises........ -- 14
Unrealized loss on securities
available-for-sale, net.......... -- (3)
Deferred compensation related to
grants of certain stock
options.......................... --
Amortization of deferred
compensation..................... -- 330
Net loss.......................... (15,338) (15,338)
-------- --------
Balances at December 31, 1996..... $(18,331) $ 10,546
Conversion of convertible
preferred stock into common
stock............................ -- --
Issuance of 2,875,000 shares of
common stock at $12.00 per share
less issuance costs of $3,226.... -- 31,277
Issuance of common stock pursuant
to stock options exercises....... -- 45
Issuance of common stock pursuant
to warrant exercises............. 3,128
Deferred compensation related to
grant of certain stock options... --
Amortization of deferred
compensation..................... -- 1,085
Issuance of common stock pursuant
to the employee stock purchase
plan............................. -- 280
Issuance of 3,162,500 shares of
common stock at $15.50 per share
less issuance costs of $3,190.... -- 45,832
Unrealized loss on securities
available-for-sale, net.......... -- (4)
Net loss.......................... (26,328) (26,328)
-------- --------
Balance at December 31, 1997...... $(44,659) $ 65,861
======== ========
</TABLE>
See accompanying notes.
38
<PAGE> 40
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE PERIOD FROM
FROM INCEPTION INCEPTION
(FEBRUARY 16, YEAR ENDED (FEBRUARY 16,
1995) TO DECEMBER 31, 1995) TO
DECEMBER 31, ------------------- DECEMBER 31,
1995 1996 1997 1997
-------------- -------- -------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(2,993) $(15,338) $(26,328) $(44,659)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization....................... 12 49 250 311
Amortization of deferred compensation............... -- 330 1,085 1,415
Changes in operating assets and liabilities:
Prepaid expenses and other current assets........... (40) (459) 230 (269)
Employee loans receivable........................... (31) (275) (17) (323)
Other assets........................................ (26) (123) (222) (371)
Accounts payable.................................... 341 1,149 278 1,768
Payable to Beckman Coulter.......................... 25 86 (41) 70
Accrued liabilities................................. 265 4,152 3,629 8,046
------- -------- -------- --------
Net cash used in operating activities....... (2,447) (10,429) (21,136) (34,012)
------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments................... -- (10,879) (61,525) (72,404)
Maturities of short-term investments.................. -- 986 14,144 15,130
Sale of short-term investments........................ -- 2,270 -- 2,270
Purchases of property and equipment................... (105) (876) (1,589) (2,570)
------- -------- -------- --------
Net cash used in investing activities....... (105) (8,499) (48,970) (57,574)
------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of equipment financing obligations and debt
facility............................................ -- (44) (531) (575)
Borrowings under equipment financing obligations and
debt facility....................................... -- 1,800 1,700 3,500
Proceeds from issuances of convertible preferred
stock, net.......................................... 5,989 22,366 -- 28,355
Proceeds from issuance of common stock, net........... 1 194 80,562 80,757
------- -------- -------- --------
Net cash provided by financing activities............. 5,990 24,316 81,731 112,037
------- -------- -------- --------
Net increase in cash and cash equivalents............. 3,438 5,388 11,625 20,451
Cash and cash equivalents at beginning of period...... -- 3,438 8,826 --
------- -------- -------- --------
Cash and cash equivalents at end of period............ $ 3,438 $ 8,826 $ 20,451 $ 20,451
======= ======== ======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid......................................... $ -- $ -- $ 283 $ 283
Schedule of non-cash investing and financing
activities:
Net exercises of warrants to purchase 37,785 shares of
common stock........................................ $ -- $ -- $ 453 $ 453
Acquisition of equipment pursuant to supplemental
lease obligation.................................... $ -- $ 78 $ -- $ 78
Deferred compensation related to grant of certain
stock options....................................... $ -- $ 2,294 $ 206 $ 2,500
</TABLE>
See accompanying notes.
39
<PAGE> 41
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Consolidation
Coulter Pharmaceutical, Inc. (the "Company" or "Coulter") was incorporated
in the State of Delaware on February 16, 1995 to engage in the research and
development of products for the treatment of cancer. The Company's principal
activities to date have involved conducting research and development, recruiting
management and technical personnel, obtaining financing and securing operating
facilities. Therefore, the Company is classified as a development stage company.
In the course of its development activities, the Company has sustained
continuing operating losses and expects such losses to continue over the next
several years. The Company plans to continue to finance its operations with a
combination of stock sales, collaborative agreements with corporate partners,
revenues from product sales and technology licenses. The Company's ability to
continue as a going concern is dependent upon successful execution of financings
and, ultimately, upon achieving profitable operations.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Coulter Pharma Belgium, SA which was formed
under the laws of Belgium in June 1996. Intercompany balances and transactions
have been eliminated.
In connection with its formation, the Company issued 5,000,000 shares of
its Series A preferred stock (since converted to 1,666,666 shares of common
stock) to Coulter Corporation in exchange for rights to certain intellectual
property, contractual rights and other assets pertaining to Bexxar(TM). In 1997
Beckman Instruments acquired Coulter Corporation (now known as "Beckman
Coulter"). Prior to the acquisition, all shares of the Company's stock were
distributed to the members of the Coulter family. Beckman Coulter retains the
rights to the assignment agreement and under the terms of this assignment
agreement, royalties are payable to Beckman Coulter upon commercial sale of
product, if any, derived from these licenses. Beckman Coulter also has the
right, in lieu of receiving cash, to purchase shares of the Company's equity
securities at the then current fair market value of such securities with respect
to the first $4.5 million payable to Beckman Coulter under this assignment
agreement. This transaction was accounted for as an acquisition of assets from
an affiliate with the amounts brought over at their historical basis of $0.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Loss Per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Standards No. 128 "Earnings Per Share" ("SFAS 128"). The Statement requires the
presentation of basic earnings (loss) per share and diluted earnings (loss) per
share, if more dilutive, for all periods presented.
For all periods presented, both basic and diluted net loss per share are
computed based on weighted average number of common shares outstanding during
the period. Stock options and warrants to purchase common shares could
potentially dilute basic earnings per share in the future, but were excluded
from the computation of diluted net loss per share as their effect is
anti-dilutive for the periods presented.
Pro forma basic net loss per share as presented in the Statements of
Operations has been computed as described above and also gives effect to the
conversion of the convertible preferred stock that automatically
40
<PAGE> 42
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
converted into common stock upon completion of the Company's initial public
offering in January 1997 (using the if converted method). Such shares are
included from their original date of issuance.
A reconciliation of shares used in the calculation of basic and diluted and
pro forma basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(FEBRUARY 16, 1995) YEAR ENDED DECEMBER 31
TO DECEMBER ---------------------------
1995 1996 1997
--------------------- ------------ ------------
<S> <C> <C> <C>
Net loss......................... $(2,993,000) $(15,338,000) $(26,328,000)
=========== ============ ============
Basic and diluted
Weighted-average shares of Common
Stock outstanding.............. 235 23,619 10,197,225
----------- ------------ ------------
Shares used in computing basic
and diluted net loss per
share.......................... 235 23,619 10,197,225
=========== ============ ============
Basic and diluted net loss per
share.......................... $(12,736.17) $ (649.39) $ (2.58)
=========== ============ ============
Pro Forma Basic and diluted
Shares used in computing basic
and diluted net loss per
share.......................... 235 23,619
Adjusted to reflect the effect of
the assumed conversion of
Preferred Stock................ 2,341,665 5,768,911
----------- ------------
Shares used in computing pro
forma basic and diluted net
loss per share................. 2,341,900 5,792,530
=========== ============
Pro forma basic and diluted net
loss per share................. $ (1.28) $ (2.65)
=========== ============
</TABLE>
Current Vulnerability to Certain Concentrations
The Company has contracted with two third-party manufacturers, Boehringer
Ingleheim Pharma KG ("BI Pharma KG") and LONZA Biologics plc ("Lonza"), to
produce a monoclonal antibody (the "B-1 Antibody"). The Company has also
contracted with a third-party manufacturer, MDS Nordion, Inc. ("Nordion") for
the radiolabeling of the B-1 Antibody in a centralized facility. However, should
the Company not be able to obtain sufficient quantities of the B-1 Antibody from
BI Pharma KG or Lonza or radiolabeled B-1 Antibody from Nordion, or additional
suppliers, certain research and development activities may be delayed.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with maturities of
three months or less from the date of purchase to be cash equivalents.
Short-term investments consist of investments with original maturities greater
than three months, but less than two years.
The Company accounts for its cash equivalents and short-term investments
under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). Under the
provisions of SFAS 115, the Company has classified its cash equivalents and
short-term investments as "available-for-sale." Such investments are recorded at
fair value and unrealized gains and losses, which are considered to be
temporary, are recorded as a separate component of Stockholders' equity until
realized. The Company classifies all investments in its available-for-sale
portfolio as current assets.
41
<PAGE> 43
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Foreign Currency Translation
The functional currency of Coulter Pharma Belgium, SA is the U.S. Dollar.
Assets and liabilities of Coulter Pharma Belgium, SA are translated at current
exchange rates, and the related revenues and expenses are translated at average
exchange rates in effect during the period. The resulting translation adjustment
is recorded in selling, general and administrative expense in the accompanying
consolidated statements of operations and has been immaterial since the
formation of the subsidiary in June 1996.
Property and Equipment
Purchased property and equipment are stated at cost less accumulated
depreciation which is calculated using the straight-line method over the
estimated useful lives of the respective assets of three to five years.
Sponsored Research and License Fees
Research and development expenses paid to third parties under sponsored
research arrangements are recognized as the related services are performed,
generally ratably over the period of service. License fees are expensed when the
related obligation is incurred.
Stock-Based Compensation
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for its employee stock option plans. Under APB 25,
if the exercise price of the Company's employee stock options equals or exceeds
the fair value of the underlying stock on the date of grant as determined by the
Company's Board of Directors, no compensation expense is recognized.
42
<PAGE> 44
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Money market funds............................ $ 1,409 $-- $ -- $ 1,409
Commercial paper.............................. 22,792 -- (7) 22,785
Corporate Bond................................ 23,661 5 (8) 23,658
US Government-backed securities............... 11,061 -- (4) 11,057
Certificate of Deposits....................... 16,316 4 -- 16,320
-------- -- ---- --------
Total............................... 75,239 9 (19) 75,229
Less amounts classified as cash equivalents... (20,238) -- (3) (20,235)
-------- -- ---- --------
Total short-term investments........ $ 55,001 $9 $(16) $ 54,994
======== == ==== ========
December 31, 1996
Money market funds............................ $ 1,874 $-- $ -- $ 1,874
Commercial paper.............................. 14,481 -- (3) 14,478
-------- -- ---- --------
Total............................... 16,355 -- (3) 16,352
Less amounts classified as cash equivalents... (8,735) -- -- (8,735)
-------- -- ---- --------
Total short-term investments........ $ 7,620 $-- $ (3) $ 7,617
======== == ==== ========
</TABLE>
There were no realized gains or losses on the sales of available-for-sale
securities in the year ended December 31, 1997. Realized gain or losses of
available-for-sale securities in the year ended December 31, 1996 were not
significant.
At December 31, 1997, the contractual maturities of short-term investments
were as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Due in one year or less............................. $47,260 $47,253
Due after one year through two years................ 7,741 7,741
------- -------
$55,001 $54,994
======= =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
---- ------
<S> <C> <C>
Machinery and equipment..................................... $143 $1,427
Furniture and fixtures...................................... 95 176
Construction in process..................................... 743 967
---- ------
981 2,570
Less accumulated depreciation............................... (57) (307)
---- ------
Property and equipment, net................................. $924 $2,263
==== ======
</TABLE>
43
<PAGE> 45
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SPONSORED RESEARCH AND LICENSE AGREEMENTS
The Company has entered into numerous agreements with research
institutions, universities, and other entities for the performance of research
and development activities and for the acquisition of licenses related to those
activities. As of December 31, 1997, noncancelable commitments under these
arrangements were approximately $1.6 million. In order to maintain certain of
these licenses, the Company must pay specified annual license fees. Certain of
the licenses provide for the payment of royalties by the Company on future
product sales, if any.
5. ACCRUED LIABILITIES
Accrued liabilities consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accrued research and development expenses.................. $3,505 $6,426
Accrued clinical trial costs............................... 342 620
Other...................................................... 483 913
------ ------
Total............................................ $4,330 $7,959
====== ======
</TABLE>
6. EQUIPMENT FINANCING OBLIGATIONS AND LONG TERM DEBT
In December 1996, the Company entered into a $3,827,000 equipment lease
financing and debt facility with a financing company of which $327,000 remains
available at December 31, 1997. The Company makes monthly payments plus interest
on amounts borrowed over the 48-month term of the facility. Amounts outstanding
under the equipment facility are secured by the underlying assets. Included in
property and equipment at December 31, 1997 are assets with a cost of $1,165,000
($78,000 at December 31, 1996) acquired pursuant to a fixed interest rate
equipment loan. Accumulated amortization of assets acquired pursuant to these
obligations was approximately $196,000 and $15,000 at December 31, 1997 and
1996, respectively.
In December 1996, the Company borrowed $1,722,000 under the unsecured debt
provision of the facility. The Company will make 48 monthly payments of
approximately $42,000 followed by a final payment of approximately $172,000 all
of which include interest at a fixed rate of 11.75%.
In March 1997, the Company borrowed $613,000 under the unsecured debt
provision of the facility. The Company will make 48 monthly payments
approximately $15,000 followed by a final payment of approximately $61,000, all
of which include interest at a fixed rate of 11.91%.
44
<PAGE> 46
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, the Company's aggregate commitment under such
agreement, together with the net present value of the obligations, is as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31:
------------
<S> <C>
1998................................................... $1,023
1999................................................... 1,023
2000................................................... 1,200
2001................................................... 424
------
$3,670
Less amounts representing interest.......................... (657)
Less current portion........................................ (715)
------
$2,298
======
</TABLE>
7. COMMITMENTS
The Company leases its offices under operating leases which expire at
various dates beginning in 1999 through 2002. Rent expense under these leases
totaled approximately $461,000 for the year ended December 31,1997, $186,000 for
the year ended December 31, 1996, and $71,000 for the period from inception
(February 16, 1995) to December 31, 1995.
At December 31, 1997, the aggregate noncancelable future minimum payments
under the operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING OPERATING
DECEMBER 31: LEASES
------------ ---------
<S> <C>
1998..................................................... $ 567
1999..................................................... 398
2000..................................................... 321
2001..................................................... 268
2002..................................................... 99
------
Total............................................ $1,653
======
</TABLE>
On November 7, 1997, the Company entered into a cancelable agreement to
lease additional facilities. The monthly rent payments are from $78,000 to
$120,000 throughout the term of the lease. In connection with its lease
agreement, the Company obtained a letter of credit agreement from a bank which
secures the aggregate future payments under the lease.
The Company is also contractually committed under development agreements
with contract manufacturers. Such future commitments are approximately
$8,300,000 at December 31, 1997 (none at December 31, 1996).
8. RELATED PARTY TRANSACTIONS
The Company issued loans to employees totaling $30,000 and $455,000 for the
period from inception (February 16, 1995) to December 31, 1995 and the year
ended December 31, 1996, respectively. The loans were either repaid in full or
converted to new loan agreements in 1997. The Company entered into loan
agreements with certain key employees, totaling $670,000 for the period ended
December 31, 1997. The loans are non-interest bearing with various terms ranging
from four to ten years. The forgiven amount and the repaid amount will be
calculated on a pro-rata basis over years one through ten of continued
employment. In the
45
<PAGE> 47
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
event an employee ceases to be employed by the Company, the loan becomes
interest-bearing and due within a reasonable period not to exceed three months.
Each loan is secured by a Second Deed of Trust on employee's residence. As of
December 31, 1997, $595,000 was outstanding.
The Company had a relationship with Beckman Coulter, an affiliate at the
time. Prior to the acquisition of Coulter Corporation by Beckman Instruments,
Inc. in 1997, all of the Company's stock was distributed to members of the
Coulter family. Beckman Coulter had supplied the B-1 Antibody and certain other
services at its cost in support of the Company's ongoing development of Bexxar.
In addition, pursuant to a sublicense assignment agreement, the Company has
agreed to reimburse Beckman Coulter for royalties due to third parties with
respect to certain intellectual property rights sublicensed to the Company.
Beckman Coulter also has the right, in lieu of receiving cash, to purchase
shares of the Company's equity securities at the then current market value of
such securities with respect to the first $4.5 million payable under the
assignment agreement for royalties due upon commercial sale of product, if any,
derived from these licenses. Included in research and development expense is
$254,000 and $172,000 for the years ended December 31, 1996 and 1997,
respectively and $291,000 for the period from inception (February 16, 1995) to
December 31, 1995 related to services provided by Beckman Coulter and
reimbursements to Beckman Coulter for license fees and supplies.
9. STOCKHOLDERS' EQUITY
Preferred Stock
In January 1997, the Company completed its initial public offering of
common stock under the Securities Act of 1933, in which approximately $31.3
million in net proceeds was realized (including net proceeds from the exercise
of the underwriter's over-allotment option). Upon the completion of the initial
public offering all of the Series A, B and C preferred stock outstanding
converted into 6,599,287 shares of common stock. Also upon the completion of the
offering, the Company's Certificate of Incorporation was amended to authorize
3,000,000 shares of preferred stock, none of which are issued or outstanding.
The Company's board of directors is authorized to determine the designation,
powers, preferences and rights of any such series. The company has reserved
200,000 shares of preferred stock for potential issuance under the Share
Purchase Rights Plan.
EQUITY INCENTIVE PLANS
The 1995 Equity Incentive Plan (the "1995 Plan") was adopted in 1995 by the
Board of Directors and allowed for the granting of options for up to 866,666
shares of common stock to employees, consultants and directors.
In December 1996, the Board of Directors adopted the 1996 Equity Incentive
Plan (the "1996 Plan") under which a total of 1,400,000 shares of the Company's
authorized but unissued common stock has been reserved for issuance thereunder.
Stock options granted under the 1995 and 1996 Plans (collectively, the
"Plans") may be either incentive stock options or non-qualified stock options.
Incentive stock options may be granted to employees with exercise prices not
less than the fair market value at the date of grant and nonqualified stock
options may be granted at exercise prices of no less than 85% of the fair market
value of the common stock on the date of grant, as determined by the Board of
Directors. All options are to have a term not greater than 10 years from the
date of grant. Options vest as determined by the Board of Directors, generally
at the rate of 25% at the end of the first year with the remaining balance
vesting ratably over the next three years (but not less than 20% of the total
number of shares granted per year). The 1995 Plan terminated upon the closing of
the Company's initial public offering in January 1997.
46
<PAGE> 48
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Activity under the Plans was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------
OPTIONS NUMBER EXERCISE WEIGHTED-
AVAILABLE OF PRICE AVERAGE
FOR GRANT SHARES PER SHARE EXERCISE PRICE
---------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Shares authorized..................... 333,333 -- $ -- $ --
Options granted....................... (220,756) 220,756 $ 0.30 $ 0.30
Options exercised..................... -- (2,059) $ 0.30 $ 0.30
---------- --------- ------------ ------
Balance at December 31, 1995.......... 112,577 218,697 $ 0.30 $ 0.30
Shares authorized..................... 533,333 -- $ -- --
Options granted....................... (658,492) 658,492 $0.30-$12.00 $ 1.99
Options exercised..................... -- (35,551) $0.30-$ 2.25 $ 0.41
Options canceled...................... 19,333 (19,333) $0.30-$ 0.75 $ 0.73
---------- --------- ------------ ------
Balance at December 31, 1996.......... 6,751 822,305 $0.30-$12.00 $ 1.64
Shares authorized..................... 1,400,000 -- $ -- $ --
Options granted....................... (1,010,100) 1,010,100 $8.50-$19.13 $10.83
Options exercised..................... -- (77,358) $0.30-$ 2.25 $ 0.59
Options cancelled..................... 106,063 (106,063) $0.30-$10.75 $ 2.04
Options terminated.................... (100,314) -- -- --
---------- --------- ------------ ------
Balance at December 31, 1997.......... 402,400 1,648,984 $0.30-$19.13 $ 7.29
========== ========= ============ ======
</TABLE>
Options were exercisable to purchase 11,104 shares (at a weighted-average
exercise price of $0.30 per share), 65,440 shares (at a weighted-average
exercise price of $0.43 per share), and 222,201 shares (at a weighted-average
exercise price of $6.52 per share) at December 31, 1995, 1996 and 1997,
respectively.
Exercise prices for options outstanding under the Plans as of December 31,
1997 ranged from $0.30 to $19.13 per share. The weighted-average remaining
contractual life of those options is 9.1 years.
<TABLE>
<CAPTION>
WEIGHTED-
OPTIONS OUTSTANDING AVERAGE EXERCISABLE OPTIONS
-------------------------- REMAINING -------------------------
WEIGHTED- CONTRACTUAL WEIGHTED-
EXERCISE PRICE AVERAGE LIFE AVERAGE
RANGE NUMBER EXERCISE PRICE (IN YEARS) NUMBER EXERCISE PRICE
- -------------- --------- -------------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
$0.30-$0.75 292,082 $ 0.5545 8.1 127,266 $ 0.5039
$1.20-$2.25 288,970 $ 2.0078 8.9 64,813 $ 1.8785
$4.50-$8.50 198,332 $ 7.4849 9.2 16,722 $ 4.8189
$8.625-$8.625 524,400 $ 8.6250 9.6 3,000 $ 8.6250
$8.875-$18.50 207,800 $12.7359 9.3 10,000 $12.1875
$19.125-$19.125 137,400 $19.1250 9.9 400 $19.1250
--------- -------- --- ------- --------
1,648,984 $ 7.2917 9.1 222,201 $ 1.8985
</TABLE>
The Company has reserved 2,051,384 shares of its common stock for options
to purchase common shares which may be issued under the Plans.
In March 1996, 400,000 shares of common stock were purchased at $0.45 per
share by an officer of the Company. The Company has the right to repurchase
these shares under certain conditions. At December 31, 1997, 225,000 common
shares were available for repurchase.
The Company recorded deferred compensation expense for the difference
between the exercise price and the deemed fair value for financial statement
presentation purposes of the Company's common stock, as
47
<PAGE> 49
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
determined by the Board of Directors, for common stock issued and common stock
options granted in 1996 and 1997. Such amount totals approximately $2,500,000
and are being amortized over the corresponding vesting period of each respective
share purchase or option, generally four years.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value of these options was estimated at the date of grant using the
minimum value method with weighted-average risk-free assumptions for 1995 and
1996 of 5.94% and 6.06%, respectively. The weighted-average expected life of the
options was approximately 4.9 years and 5.1 years for 1995 and 1996,
respectively. The fair value of employee stock options granted subsequent to
December 1996 was estimated at the date of grant using a Black-Scholes option
pricing model for the single option approach with the following weighted-average
assumptions for 1997: weighted average risk-free interest rate of 5.8%;
volatility factor of the expected market price of the Company's common stock of
68%; and a weighted-average expected life of the option of 4.1 years from the
granting date. No dividend payments are expected.
The pro forma information required by SFAS 123 includes compensation
expenses related to the Company's employee stock purchase plan and has also been
calculated based on the fair value method using a Black-Scholes option pricing
model using the weighted-average assumptions discussed above.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information follows (in thousands, except for earnings per
share information):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY
16, 1995) YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, -----------------------------
1995 1996 1997
------------ ------------- ------------
<S> <C> <C> <C>
Pro forma (as adjusted) net loss...... $(2,994) $(15,378) $(27,296)
Pro forma (as adjusted) net loss per
share............................... $ (1.28) $ (2.65) $ (2.68)
</TABLE>
The weighted average fair market value of options granted from the period
of inception (February 16, 1995) to December 31, 1995, and for the years ended
December 31, 1996 and 1997 was $0.08, $1.46 and $10.83, respectively. Because
SFAS 123 is applicable only to options granted subsequentl to December 31, 1994,
its pro forma effect will not be fully reflected until fiscal 1998.
1996 Employee Stock Purchase Plan
In December 1996, the Board of Directors adopted the 1996 Employee Stock
Purchase Plan (the "Purchase Plan") under which employees can purchase shares of
the Company's common stock based on a percentage of their compensation. The
purchase price per share must be equal to at least 85% of the market value on
the date offered or the date purchased. A total of 350,000 shares of common
stock are reserved for issuance thereunder. At December 31, 1997, 33,152 shares
had been issued under the Purchase Plan (none at December, 1996).
The Company has reserved sufficient shares of its common stock, which may
be issued under the Purchase Plan.
48
<PAGE> 50
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Share Purchase Rights Plan
In July 1997, the Company adopted a Share Purchase Rights Plan (the "Rights
Plan"), commonly known as a "poison pill". The Rights Plan provides for the
distribution of certain rights to acquire shares of the Company's Series A
Junior Participating Preferred Stock (the "Rights") as a dividend for each share
of common stock held of record as of August 20, 1997. Under certain conditions
involving an acquisition or proposed acquisition by any person or group holding
20% or more of the common stock, the Rights permit the holders (other than the
20% holder) to purchase the Company's common stock at a 50% discount from the
market price at that time, upon payment of an exercise price of $70 per Right.
In addition, in the event of certain business combinations, the Rights permit
the purchase of shares of common stock of an acquirer at a 50% discount from the
market price at that time. The Rights have no voting privileges and are attached
to and automatically trade with the Company's common stock. The Rights expire on
July 30, 2007.
Warrants
In January 1997, the Company received approximately $3.1 million from the
cash exercise of warrants to purchase 347,530 shares of its common stock and
issued an additional 37,785 shares of its common stock upon the net exercise of
warrants to purchase 151,173 shares of its common stock.
As of December 31, 1997, a warrant to purchase 24,666 shares of common
stock at an exercise price of $9.75 per share was outstanding and expires on or
before dates ranging from December 6, 1996 through December 6, 2002.
The Company has reserved sufficient shares of its common stock which may be
issued upon the exercise of outstanding warrants.
10. INCOME TAXES
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $42,500,000. The federal net operating loss
carryforwards will expire at various dates beginning in 2010 through 2012 if not
utilized.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets are as follows
at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Net operating loss carryforwards........................ $ 6,200 $ 14,900
Capitalized research and development.................... 900 2,100
Research credit carryforwards (expiring 2010 - 2012).... 100 600
Other -- net............................................ 100 100
------- --------
Total deferred tax assets..................... 7,300 17,700
Valuation allowance..................................... (7,300) (17,700)
------- --------
Net deferred tax assets................................. $ 0 $ 0
======= ========
</TABLE>
Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $6,200,000 during the year ended December 31, 1996.
49
<PAGE> 51
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors and Executive Officers
The information required by this Item concerning the Company's directors
and executive officers is incorporated by reference to the Registrant's
Definitive Proxy Statement filed with the Commission pursuant to Regulation 14A
in connection with the 1998 Annual Meeting (the "Proxy Statement") under the
headings "Nominees" and "Executive Officers."
Compliance with Section 16(a) of the Exchange Act
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Certain Transactions" and "Executive
Compensation."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION OF DOCUMENT
- -------- ------- -----------------------
<C> <C> <S>
(1) 3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
(1) 3.2 Bylaws of the Registrant.
(1) 4.1 Reference is made to Exhibits 3.1 and 3.2.
(1) 4.2 Specimen stock certificate
(1) 4.3 Amended and Restated Investors' Rights Agreement, dated
April 18, 1996, between the Registrant and certain
investors.
(1) 4.4 Warrant Agreement to purchase Common Stock, dated December
6, 1996, between the Registrant and Lease Management
Services, Inc.
(1) 10.1 Form of Indemnity Agreement to be entered into between the
Registrant and its officers and directors.
(2) 10.2 1996 Equity Incentive Plan.
(2) 10.3 Form of Equity Incentive Stock Option.
(2) 10.4 Form of Nonstatutory Stock Option.
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION OF DOCUMENT
- -------- ------- -----------------------
<C> <C> <S>
(2) 10.5 1996 Employee Stock Purchase Plan.
(1) 10.6 Assignment Agreement, dated February 24, 1995, between the
Registrant, Beckman Coulter and certain investors.
(1) 10.7 Manufacturing Agreement, dated August 20, 1996, between
Lonza Biologics PLC and the Registrant.
(1) 10.8 Equipment Lease Financing Agreement, dated December 6, 1996,
between the Registrant and Lease Management Services, Inc.
(1) 10.9+ First Amendment to Manufacturing Agreement, dated November
21, 1996, by and between Lonza Biologics PLC and the
Registrant.
(1) 10.10+ Development Agreement, dated November 15, 1995, by and
between MDS Nordion Inc. and the Registrant.
(1) 10.11+ Patent License Agreement, dated March 15, 1996, by and
between the Region Wallone, the Universite Cathololique de
Louvain and Coulter Pharma Belgium, SA.
(3) 10.12+ Second Amendment to Manufacturing Agreement, dated June 30,
1997, by and between Lonza Biologics PLC and the Registrant.
(4) 10.13+ Third Amendment to Manufacturing Agreement, date September
26, 1997, by and between Lonza Biologics PLC and the
Registrant.
(4) 10.14+ Fourth Amendment to Manufacturing Agreement, dated September
17, 1997, by and between Lonza Biologics PLC and the
Registrant
10.15+ Contract Research and Development Agreement, dated October
22, 1997, by and between Dr. Karl Thomae GmbH and the
Registrant
10.16+ Fifth Amendment to Manufacturing Agreement, dated October
27, 1997, by and between Lonza Biologics PLC and the
Registrant.
10.17+ Lease Agreement, dated November 7, 1997, by and between HMS
Gateway Office L.P. and the Registrant.
(1) 21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated by reference to the indicated exhibit in the Company's
Registration Statement on Form S-1 (File No. 333-17661), as amended.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-23265) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Special Report on Form 8-K filed
September 29, 1997 and incorporated herein by reference.
+ Portions omitted pursuant to a request of confidentiality filed separately
with the Commission.
(3) Form 8-K.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the last
quarter covered by this Report.
51
<PAGE> 53
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.
COULTER PHARMACEUTICAL, INC.
BY: /s/ MICHAEL F. BIGHAM
-----------------------------------
Michael F. Bigham
President and CEO
Date: March 20, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael F. Bigham and William G. Harris
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or any of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL F. BIGHAM President, Chief Executive March 20, 1998
- ----------------------------------------------------- Officer and Director
(Michael F. Bigham) (Principal Executive
Officer)
/s/ WILLIAM G. HARRIS Vice President and Chief March 20, 1998
- ----------------------------------------------------- Financial Officer
(William G. Harris) (Principal Financial and
Accounting Officer)
/s/ BRIAN ATWOOD Director March 20, 1998
- -----------------------------------------------------
(Brian Atwood)
/s/ DONALD L. LUCAS Director March 20, 1998
- -----------------------------------------------------
(Donald L. Lucas)
/s/ ROBERT MOMSEN Director March 20, 1998
- -----------------------------------------------------
(Robert Momsen)
/s/ ARNOLD ORONSKY Director March 20, 1998
- -----------------------------------------------------
(Arnold Oronsky)
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SUE VAN Director March 20, 1998
- -----------------------------------------------------
(Sue Van)
/s/ GEORGE J. SELLA, JR. Director March 20, 1998
- -----------------------------------------------------
(George J. Sella, Jr.)
/s/ JOSEPH R. COULTER, III Director March 20, 1998
- -----------------------------------------------------
(Joseph R. Coulter, III)
</TABLE>
53
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION OF DOCUMENT
- -------- ------- -----------------------
<C> <C> <S> <C>
(1) 3.1 Amended and Restated Certificate of Incorporation of the
Registrant..................................................
(1) 3.2 Bylaws of the Registrant....................................
(1) 4.1 Reference is made to Exhibits 3.1 and 3.2...................
(1) 4.2 Specimen stock certificate..................................
(1) 4.3 Amended and Restated Investors' Rights Agreement, dated
April 18, 1996, between the Registrant and certain
investors...................................................
(1) 4.4 Warrant Agreement to purchase Common Stock, dated December
6, 1996, between the Registrant and Lease Management
Services, Inc. .............................................
(1) 10.1 Form of Indemnity Agreement to be entered into between the
Registrant and its officers and directors...................
(2) 10.2 1996 Equity Incentive Plan..................................
(2) 10.3 Form of Equity Incentive Stock Option.......................
(2) 10.4 Form of Nonstatutory Stock Option...........................
(2) 10.5 1966 Employee Stock Purchase Plan...........................
(1) 10.6 Assignment Agreement, dated February 24, 1995, between the
Registrant, Beckman Coulter and certain investors...........
(1) 10.7 Manufacturing Agreement, dated August 20, 1996, between
Lonza Biologics PLC and the Registrant......................
(1) 10.8 Equipment Lease Financing Agreement, dated December 6, 1996,
between the Registrant and Lease Management Services,
Inc. .......................................................
(1) 10.9+ First Amendment to Manufacturing Agreement, dated November
21, 1996, by and between Lonza Biologics PLC and the
Registrant..................................................
(1) 10.10+ Development Agreement, dated November 15, 1995, by and
between MDS Nordion, Inc. and the Registrant................
(1) 10.11+ Patent License Agreement, dated March 15, 1996, by and
between the Region Wallone, the Universite Cathololique de
Louvain and Coulter Pharma Belgium, SA......................
(3) 10.12+ Second Amendment to Manufacturing Agreement, dated June 30,
1997, by and between Lonza Biologics PLC and the
Registrant..................................................
(4) 10.13+ Third Amendment to Manufacturing Agreement, dated September
26, 1997, by and between Lonza Biologics PLC and the
Registrant..................................................
(4) 10.14+ Fourth Amendment to Manufacturing Agreement, dated Septem-
ber 17, 1997, by and between Lonza Biologics PLC and the
Registrant..................................................
10.15+ Contract Research and Development Agreement, dated October
22, 1997, by and between Dr. Karl Thomae GmbH and the
Registrant..................................................
10.16+ Fifth Amendment to Manufacturing Agreement, dated October
27, 1997, by and between Lonza Biologics PLC and the
Registrant..................................................
10.17+ Lease Agreement, dated November 7, 1997, by and between HMS
Gateway Office L.P. and the Registrant......................
(1) 21.1 Subsidiaries of the Registrant..............................
23.1 Consent of Ernst & Young LLP, Independent Auditors..........
27.1 Financial Data Schedule.....................................
</TABLE>
- ---------------
(1) Incorporated by reference to the indicated exhibit in the Company's
Registration Statement on Form S-1 (File No. 333-17661), as amended.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-23265) and incorporated herein by reference.
54
<PAGE> 56
(3) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Special Report on Form 8-K filed
September 29, 1997 and incorporated herein by reference.
+ Portions omitted pursuant to a request of confidentiality filed separately
with the Commission.
55
<PAGE> 1
EXHIBIT 10.15
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
8 Oktober 1997
CONTRACT RESEARCH AND DEVELOPMENT AGREEMENT
THIS CONTRACT RESEARCH AND DEVELOPMENT AGREEMENT ("Agreement") is made effective
as of October 22, 1997 ("Effective Date"), by and among Coulter Pharmaceutical,
Inc. ("COULTER"), a Delaware corporation having a place of business at 550
California Avenue, Palo Alto, California 94306-144Q, U.S.A., and Dr. Karl THOMAE
GmbH ("THOMAE") a German corporation having its principal place of business at
Birkendorfer Strabe 65, 88397 Biberach an der Riss, Federal Republic of Germany.
BACKGROUND
COULTER is the proprietor of a [...***...] cell line known as B1 which produces
[...***...] monoclonal antibody ANTI B1.
THOMAE owns specialized [...***...] facilities that may be suitable for
production of ANTI lB1, and employs personnel who have experience in [...***...]
processes as well as in CMC registration of biopharmaceuticals.
COULTER desires to have THOMAE personnel evaluate the THOMAE generic
manufacturing process for the COULTER B1 Cell Line and sterile liquid filling of
the resulting product in THOMAE's facilities.
COULTER and THOMAE have previously entered into a Material Transfer Agreement
dated December 3/5, 1996 to evaluate the Cell Line with THOMAE's serum free
medium.
The parties have already entered into a Feasibility Agreement, signed by Coulter
May 9, 1997, covering the evaluation of a generic manufacturing process
developed by Thomae, applied to the Anti-B1 Antibody and equivalence testing of
the resulting product, and the Amendment No. 1 dated June 2, 1997 covering
period from April 1, 1997 to December 31, 1997 for the scale up to the
[...***...].
AGREEMENT
IN CONSIDERATION OF the mutual covenants set forth in this Agreement, THOMAE,
and COULTER hereby agree as follows:
1. DEFINITIONS.
1.1 "COULTER" shall mean Coulter Pharmaceutical Inc. as laid down first
above.
1
*Confidential Treatment Requested
<PAGE> 2
1.2 "COULTER Confidential Information" shall mean the Cell Line, Process,
Product and all technical and other information relating thereto,
excluding the THOMAE Confidential Information that is disclosed or
supplied to THOMAE by COULTER pursuant to this Agreement whether
patented or unpatented, including, without limitation, trade secrets,
know-how, processes, concepts, experimental methods and results and
business and scientific plans.
1.3 "ANTI B1" shall mean the [...***...] antibody directed against B-cells,
[...***...].
1.4 "Cell Line" shall mean the novel and proprietary cell line [...***...]
developed by COULTER and provided to THOMAE pursuant to the terms of
this Agreement, including, without limitation, all modifications,
analogs, progeny, other improvements and derivatives of such cell line.
1.5 "Certificate of Analysis" shall mean a document describing testing
methods and results, the accuracy of which has been certified by the
issuing party.
1.6 "Effective Date" shall mean the date first above written, which shall be
the effective date of this Agreement.
1.7 "GMP" shall mean the regulatory requirements for good manufacturing
practices promulgated by the FDA under the United States Federal Food,
Drug and Cosmetic Act, as amended, 21 C.F.R. Section 210 et seq and 21
C.F.R. Sections 600-610, as applicable.
1.8 "Master Cell Bank" shall mean COULTER's reference deposit or collection
of vials of the Cell Line, from which THOMAE's cell banks (Master Cell
Bank and Working Cell Bank) is derived.
1.9 "Process" shall refer to a generic THOMAE process for using the Cell
Line, including defined procedures, equipment and analytical
methodologies for in-process control, release testing and Product
characterization, that has been developed by THOMAE to the [...***...]
fermentation scale. The present Process is laid down in APPENDIX 8.
1.10 "Product" shall mean the ANTI B1 produced by THOMAE using the Cell Line
in accordance with the Process.
1.11 "Project" shall mean the activities and work to be performed as laid
down in the respective chapter of the Master Project plan attached
hereto as APPENDIX 1. The primary objectives, which will be to
establish, to adapt and scale up the Process in the THOMAE facility,
successfully demonstrate that equivalent Product can be reproducibly
manufactured in THOMAE's facilities, and generate a comprehensive report
compiling all relevant data generated hereunder. A proposed timeline for
the Project is included in Appendix 1.
1.12 "Project Fee" shall have the meaning specified in Section 6 hereof.
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<PAGE> 3
1.13 "Project Manager" shall have the meaning specified in Section 2.1
hereof.
1.14 "Project Team" shall have the meaning specified in Section 2.2 hereof.
1.15 "Start Date" shall mean [...***...].
1.16 "THOMAE Confidential Information" shall mean all technical and other
information relating to THOMAE's facilities and associated technologies,
excluding the COULTER Confidential Information that is disclosed or
supplied to, or used on behalf of, COULTER by THOMAE pursuant to this
Agreement, whether patented or unpatented, including, without
limitation, trade secrets, know-how, processes, concepts, experimental
methods and results and business and scientific plans.
1.17 "Working Cell Bank" shall mean THOMAE's vialed collection serially
subcultivated cells that is derived from the COULTER Master Cell Bank.
The Working Cell Bank is used to establish seed cultures of the Cell
Line to initiate the Process.
1.18 "Specifications" shall mean the specifications for the Product and the
respective test methods attached hereto as APPENDIX 5 on the basis of
the specifications provided by COULTER and as such specifications may be
amended from time to time by mutual agreement of COULTER and THOMAE
according to further development of the Process and Product.
2. COOPERATION BETWEEN THE PARTIES IN THE COURSE OF THE PROJECT.
2.1 Designation of Project Manager.
THOMAE and COULTER shall each identify a Project Manager who will be
responsible for communicating all instructions and information
concerning the Project to the other party. Each Project Manager will be
available on an agreed upon bi-monthly basis for consultation at
pre-arranged times during the course of the Project. In the absence of
the Project Manager, a substitute shall be appointed. Additional modes
or methods of communication and decision making may be implemented with
the mutual consent of each party.
2.2 Project Team.
THOMAE and COULTER shall each name representatives to a Project Team,
which shall consist of knowledgeable specialists in appropriate
disciplines who shall be responsible for planning and executing the
Project and any subsequent interactions between the parties. At regular
intervals, the Project Managers shall schedule meetings between each
company's representatives for the purpose of communicating project
updates and providing a forum for strategic decision making and rapid
resolution of issues. Joint project meetings shall be conducted by
telephoneconference, video conference and face to face meetings. Meeting
minutes shall be prepared jointly by the Project Managers to record all
issues discussed and decisions made. The present list of the members of
the Project Team is attached hereto as Appendix 6. The members of the
Project Team may be changed from time to time as appropriate.
*Confidential Treatment Requested
3
<PAGE> 4
2.3 Cooperation.
In the course of the Project, THOMAE will at all times take into
consideration and implement the recommendations of COULTER as long as
they do not adversely affect THOMAE's ability to perform other THOMAE
biotech operations and are agreed upon by the Project Team; in the
absence of explicit instructions from COULTER, THOMAE shall be entitled
to employ its reasonable judgment in carrying out the Project consistent
with THOMAE's overall obligations under this Agreement. THOMAE shall be
entitled to rely upon any written instructions or oral directives
confirmed in writing provided by any COULTER representative and shall
not be responsible for failure to achieve any objective or the inability
to adhere to any guideline due to causes beyond the control of THOMAE
including, but not limited to technical failures, incomplete direction
or documentation of Process variables.
2.4 Disputes.
In the event that a disagreement, dispute, controversy or claim should
arise relating to scientific or technical issues, the parties will
attempt in good faith to resolve their differences. If the parties are
unable to resolve such dispute, COULTER shall have the final decision.
THOMAE then shall follow the decision of COULTER at the sole risk of
COULTER if and as long as such decision doesn't affect the Master
Projectplan attached hereto as APPENDIX 1 with regard to costs and/or
time. If the latter is the case the parties shall have to agree as laid
down in paragraph 4.4 below.
2.5 FDA Interaction.
THOMAE has the express right to send representatives to any meeting of
or on behalf of COULTER with the FDA for discussions (regarding the
CMC-part of BLA) involving the Product. THOMAE shall have advance notice
of at least thirty (30) days before any meeting scheduled with the FDA.
2.6 Access to Facilities.
THOMAE shall permit COULTER, upon reasonable prior notice to THOMAE, to
review the originals of all batch records and other primary documents at
its facilities. THOMAE shall allow COULTER personnel to be present in
its facilities at appropriate times for audits or observance in critical
parts of the development as agreed upon by the Project Team. While at
any facility, personnel shall comply with all security and' safety
policies and procedures of the facility owner.
3. COULTER RESPONSIBILITIES.
3.1 License to Use of COULTER Cell Line and Intellectual Property.
COULTER hereby grants to THOMAE [...***...] to use the Cell Line,
Process and COULTER Confidential Information solely for the purpose of
conducting the Project.
3.2 Materials and Information to be Provided.
To enable THOMAE to begin and continue the Project, COULTER shall
perform the work and tasks as laid down and detailed in APPENDIX 9
hereto and shall provide all materials and information as laid down
therein.
*Confidential Treatment Requested
4
<PAGE> 5
4. THOMAE RESPONSIBILITIES.
4.1 General.
In the course of this Agreement THOMAE shall perform the work and tasks
as laid down and detailed in APPENDIX 10 hereto.
4.2 Documentation.
As soon as reasonably available THOMAE shall provide COULTER with the
CMC-part of the BLA (all other parts of registration and the
registration itself being the task and responsibility of COULTER), in
formats to be mutually agreed upon. Such CMC-part shall be in English
and shall contain all required portions of the respective filing as laid
down in APPENDIX 2 hereto. All information provided under this section
shall be deemed to be COULTER Confidential Information, except for
THOMAE Confidential Information.
4.3 Stability Program.
The Stability Program shall be performed by THOMAE as laid down in
APPENDIX 4 hereto. The timeline for this work is laid down in the Master
Projectplan including Project Timeline (Appendix 1).
4.4 Additional Work.
On request of COULTER, THOMAE shall perform additional work to sustain
the progress of the Project on conditions in terms of money, time and
scope to be subject to mutual agreement of the parties hereto
4.5 Reference to THOMAE's ELA.
COULTER will be authorized by THOMAE to reference THOMAE's ELA with
respect to the manufacture of the Product in support of COULTER's ELA.
4.6 BLA Timelines.
COULTER will determine the filing date for the BLA. The current timeline
is listed in Appendix 1 and may be changed from time to time in writing
by COULTER. THOMAE will make reasonable efforts to meet the current
timeline. If THOMAE is unable to meet the deadline, THOMAE expressly
agrees that COULTER may file as planned and THOMAE data will be filed in
an amendment to the BLA.
5. PROJECT TO BE CONDUCTED ON [...***...] BASIS.
The Project shall be conducted by THOMAE for COULTER on [...***...]
basis, in consideration of payment by COULTER of the Project Fee.
COULTER acknowledges that the Project is experimental in nature and that
no favorable or useful result can be assured by THOMAE. Accordingly
provided THOMAE has complied with the terms of this Agreement, THOMAE
shall not be responsible to COULTER for any failure of fermentations or
inability to obtain useful yields of Product, and the Project Fee shall
be payable in full regardless of result unless the Project is terminated
prior to its scheduled completion pursuant to Section 12 hereof.
*Confidential Treatment Requested
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<PAGE> 6
6. PROJECT FEE.
COULTER shall pay THOMAE a Project Fee of [...***...] for the services
provided in carrying out the Project. This fee includes THOMAE's work
according to Article(degree)4 hereof. Disposal of organic and hazardous
waste is included in the Project Fee. The Project Fee shall be payable
in [...***...] as provided for in the Master Projectplan (APPENDIX 1).
THOMAE shall have the right to receive adequate installments according
to the progress of the Project, in accordance with APPENDIX 1.
Each invoice shall be payable within 60 clays following of the
respective due date as laid down in the Master Projectplan (APPENDIX 1)
and upon receipt by COULTER of the report for each section of the
workplan which result in an invoice, whatever is later.
7. ORDERING START-UP MATERIAL FOR [...***...] HARVEST.
COULTER and THOMAE expect that a raw material purchase for Phase III
will be necessary prior to the signment of this Agreement. This is
already covered by the Amendment No. 1 to the Feasibility Agreement as
of June 2, 1997 for the amount of [...***...].
8. OWNERSHIP OF PROJECT DATA / FUTURE ACTIVITIES / COMMERCIAL PRODUCTION.
8.1 Ownership of Project Data.
In consideration of the Project Fee, THOMAE shall carry out the Project
and transfer all relevant information and materials obtained in the
course of the Project to COULTER. However, this shall not apply to
information regarding THOMAE's facility and technical equipment. All
transferred information including but not limited to inventions,
know-how, data, trade secrets and materials - with the exception of
THOMAE Confidential Information - shall be the sole and exclusive
property of COULTER and COULTER shall have the right to use such
information for any purpose without further obligation to THOMAE.
COULTER shall have a [...***...] license to use THOMAE Confidential
Information that is used in carrying out the process to file for
regulatory approval, market, and sell the Product.
8.2 Further Future Activities regarding Research and Development.
If the results of the Project are favorable, THOMAE and COULTER may
confer to determine if additional work should be undertaken pursuant to
subsequent agreement between THOMAE and COULTER. Neither party shall be
obligated to conduct any further undertakings on behalf of the other
except as provided for herein or as may be mutually agreed and set forth
in a subsequent written agreement.
COULTER shall not assert any right to use THOMAE facilities at any
future date as a result of its use of THOMAE facilities pursuant to this
Agreement.
*Confidential Treatment Requested
6
<PAGE> 7
8.3 THOMAE's Right for Commercial Production and Supply.
The parties acknowledge and agree that, in case COULTER decides to
commercialize the Product, and provided the Product is held biologically
equivalent by the respective regulatory authorities of the USA and EU,
THOMAE has [...***...] to produce and supply commercial quantities of
the Product (in bulk drug, final product and/or finished product form)
to COULTER within its respective capacity not exceeding the present
forecast estimation of COULTER as laid down in APPENDIX 11.
Promptly upon the execution of this Agreement the parties shall
negotiate in good faith and consummate a multi-year commercial supply
agreement at the earliest opportunity for the supply by THOMAE of
commercial quantities of the respective Product for the period as of
first commercial marketing until [...***...] any prolongation to be
subject to separate agreement of the parties. This commercial supply
agreement shall be [...***...].
8.4 Terms and Conditions of Supply Agreement.
Such agreement shall contain terms and conditions customary for such a
supply agreement.
In particular, the parties hereby agree that the pricing from THOMAE for
the Product under such supply agreement shall be in accordance with a
volume discount pricing matrix as set forth in Appendix 7 attached
hereto, which pricing matrix will establish an absolute initial price
ceiling for the Product under the supply agreement and will provide a
framework to establish the Product costs for variable length production
campaigns.
In APPENDIX 11 COULTER has laid down its present forecast estimation of
its total requirements of Product. This forecast is non-binding however,
THOMAE's capacity planning for commercial supply is based on and ceiled
by COULTER's forecast.
THOMAE will make reasonable efforts to provide additional material as
requested by COULTER and the Parties shall negotiate the terms and
conditions (e.g. in time and money) thereof in good faith..
9. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION.
9.1 COULTER.
COULTER hereby represent, warrant and agree that:
(a) COULTER is free to supply the Cell Line and COULTER Confidential
Information to THOMAE;
(b) COULTER is not aware of any special or unusual hazards involved
in handling the Cell Line or Product;
(c) COULTER has full corporate authority, subject to Board of
Directors approval to enter into this Agreement and this
Agreement is binding upon COULTER in accordance with its terms;
and
*Confidential Treatment Requested
7
<PAGE> 8
(d) COULTER shall indemnify, defend and hold THOMAE, its affiliates,
and their respective officers, employees and agents harmless from
and against all losses, damages, costs and expenses (including,
without limitation, reasonable attorneys' fees), including injury
to persons or damage to property resulting from (i) any breach of
the representations and warranties made by COULTER under this
Section, or (ii) as a result of any claim of infringement of the
intellectual property rights of a third party based upon THOMAE's
activities in implementing the Process or producing the Product
in accordance with the instructions and documentation provided by
COULTER or developed in the course of the Project, or (iii) as a
result of the use by COULTER of the results of the Project or the
use of any Product by COULTER or any third party.
[...***...]
9.2 THOMAE.
THOMAE hereby represents, warrants and agrees that:
(a) THOMAE is the owner of the facilities and THOMAE Confidential
Information to be used for purposes set forth in this Agreement;
(b) THOMAE is not aware of any special or unusual hazards that would
arise as a result of its carrying out of the Project as planned;
(c) THOMAE has full corporate authority, subject to Board of
Directors approval to enter into this Agreement and this
Agreement is binding upon THOMAE in accordance with its terms;
and
(d) THOMAE shall indemnify, defend and hold COULTER and its officers,
employees and agents harmless from and against all losses,
damages, costs and expenses (including, without limitation,
reasonable attorneys' fees), including injury to persons or
damage to property, resulting (i) from any breach of the
representations and warranties made by THOMAE under this Section,
or (ii) of any claim that THOMAE has violated any local law or
ordinance in carrying out its biotechnical manufacturing
responsibilities under this Agreement, or (iii) of any claim of
infringement of the intellectual property rights of a third party
based upon THOMAE's use of THOMAE Confidential Information.
[...***...]
*Confidential Treatment Requested
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<PAGE> 9
10. LIABILITY.
10.1 No Warranty of Merchantability or Fitness.
THOMAE shall provide the results of the Project to COULTER without any
warranty of any kind, express or implied, including, without limitation,
any warranties of merchantability or fitness for a particular purpose.
THOMAE warrants solely that the Project shall be conducted as described
to COULTER and in accordance with this Agreement and all applicable
laws, and that any documentation of Project results or procedures
provided to COULTER by THOMAE shall be accurate in all material
respects.
10.2 Limitation of Liability.
THOMAE has no knowledge or awareness of or control over the manner in
which COULTER intends to use any Product or results obtained in the
Project, and in particular does not know whether COULTER intends to use
such Product or results for a therapeutic or other pharmaceutical
purpose, whether in preclinical or clinical studies or otherwise. THOMAE
shall not be liable to COULTER for any losses, damages, costs or
expenses of any nature incurred or suffered by COULTER or by a third
party, arising out of any dispute or other claims or proceedings made by
or brought against COULTER in respect of the results of the Project, or
the use of any Product by COULTER or by a third party (including,
without limitation, product liability claims and claims by a third party
alleging infringement of its intellectual property rights), nor shall
THOMAE be responsible in any way for dealing with any such disputes,
claims or proceedings.
COULTER shall indemnify, defend and hold THOMAE, its affiliates and
their respective officers, employees and agents harmless from and
against all such losses, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees).
10.3 Maximum Amount.
THOMAE undertakes to use its best efforts to perform the Project under
the Master Project plan and to meet the target dates set forth in
Appendix 1 hereto. However, due to the biological nature of the work to
be performed hereunder THOMAE's liability under this Agreement shall in
no event amount to more than the cost for the replacement of
[...***...].
10.4 Product and/or Materials destroyed at THOMAE facilities.
THOMAE shall be liable for Product and/or Materials destroyed at THOMAE
facilities.
11. CONFIDENTIALITY.
11.1 THOMAE shall not disclose COULTER Confidential Information to any person
other than its employees or employees of affiliated companies of the
Boehringer Ingelheim group who have a need to know such information in
order to perform their duties in carrying out the Project hereunder.
*Confidential Treatment Requested
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<PAGE> 10
11.2 COULTER shall not disclose any THOMAE Confidential Information to any
person other than
(a) its employees or consultants who are bound by similar obligations
of confidentiality and who have a need to know such information
in order to provide direction to THOMAE or evaluate the results
of the Project, or
(b) regulatory authorities, for example, the FDA, that require such
information in order to review an IND or other regulatory filing.
11.3 The obligations of confidentiality applicable to COULTER Confidential
Information and THOMAE Confidential Information shall not apply to any
information that is:
(a) known publicly or becomes known publicly through no fault of the
recipient;
(b) learned by the recipient from a third party entitled to disclose
it;
(c) developed by the recipient independently of information or
materials obtained from the disclosing party;
(d) already known to the recipient before receipt from the disclosing
party, as shown by its prior written records;
(e) required to be disclosed by law, regulation or the order of a
judicial or administrative authority; or
(f) released with the prior written consent of the disclosing party.
11.4 No right or license, either express or implied, under any patent or
proprietary right is granted hereunder by virtue of the disclosure of
COULTER Confidential Information or THOMAE Confidential Information.
Either party shall be entitled to injunctive relief in the event of a
breach of this Agreement by. the other party. The obligations of both
parties under this Section 11 shall survive the expiration or
termination of this Agreement. Both COULTER and THOMAE shall use
reasonable and customary precautions to safeguard COULTER Confidential
Information and THOMAE Confidential Information, including ensuring that
all employees or consultants who are provided access to such information
are informed of the confidential and proprietary nature of such
information and understand that all such information is required to be
maintained confidential.
10
<PAGE> 11
12. TERM AND TERMINATION.
12.1 Term.
This Agreement shall, unless terminated earlier, commence as of the
Effective Date and shall terminate upon the date of payment of the last
sum due hereunder, or upon the date when the last services required to
be performed hereunder are performed, whichever date shall last occur.
12.2 Right to Terminate.
If it becomes apparent to either party at any stage of the Project that
it will not be possible to carry out the Project for material scientific
or technical reasons or as a result of Force Majeure, the parties shall
permit thirty (30)) business days or as mutually agreed by the parties
for discussion to resolve, if possible, the scientific or technical
issue giving rise to the problem. If the parties fail to resolve the
problem, either party shall have the right to terminate this Agreement
effective upon written notice to the other or to identify a mutually
agreed upon way to work around the Force Majeure. In the event of such
termination, the amount due to THOMAE hereunder shall include
[...***...] and [...***...].
Either party may terminate this Agreement effective upon written notice
if either of the following events occurs.
(a) The other party commits a material breach of this Agreement and
the material breach is not remedied within 30 days after the
receipt of written notice identifying the material breach and
requiring its remedy; or
(b) The other party (I) becomes unable to pay its debts as they
become due, (II) suspends payment of its debts, (III) enters into
or becomes subject to corporate rehabilitation or bankruptcy
proceedings or liquidation or dissolution, (IV) makes an
assignment for the benefit of its creditors or (V) seeks relief
under any similar laws for debtor's relief.
12.3 Effect of Termination.
Upon the expiration or termination of this Agreement:
(a) At the request of COULTER, THOMAE shall either destroy the Cell
Line as well as the material derived from its culture or deliver
the same to COULTER or a party nominated by COULTER at COULTER's
cost and shall promptly return all COULTER Confidential
Information to COULTER; except for a single copy and/or sample of
each material for documentation purposes only. [...***...] and
(b) COULTER shall promptly return all THOMAE Confidential Information
to THOMAE, except for a single copy and/or sample for
documentation purposes only.
The respective rights of THOMAE and COULTER to indemnification as
set forth in Section 9 hereof shall survive termination of this
Agreement with respect to any claims that relate to or derive
from the Project, or any acts or failures to act,
*Confidential Treatment Requested
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<PAGE> 12
of either THOMAE or COULTER in connection with the Project that
occur prior to termination.
Section 8.1 shall survive termination of this Agreement; paragraphs
11.1, 11.2, 11.3 and 11.4 shall survive termination of this Agreement
for a period of [...***...] from the Start Date.
13. FORCE MAJEURE.
Neither party shall be in breach of this Agreement if there is any
failure of performance under this Agreement (except for payment of any
amounts due hereunder) occasioned by any act of God, fire, act of
government or state, war, civil commotion, insurrection, embargo,
prevention from or hindrance in obtaining energy or other utilities,
labor disputes of whatever nature or any other reason beyond the control
of either party.
14. PUBLICITY.
No press release or other form of publicity regarding the Project or
this Agreement shall be permitted by either party to be published unless
both parties have indicated their consent to the form of the release in
writing.
15. NOTICES.
Any notice required or permitted to be given hereunder by either party
shall be in writing and shall be (a) delivered personally, (b) sent by
registered mail, return receipt requested, postage prepaid or (c)
delivered by facsimile with immediate telephonic confirmation of
receipt, to the addresses or facsimile numbers set forth below:
If to THOMAE: Dr. Karl Thomae GmbH
Birkendorfer Strasse 65
D-88397 Biberach an der Riss
Federal Republic of Germany
Attention: Prof. Dr. Roll G. Werner
(cc. Dr. Wolfgang Noe)
Fax: 0 73 51/54-51 31
Phone 0 73 51/54-48 00
If to COULTER:Coulter Pharmaceutical Inc.
550 California Avenue, Suite 200
Palo Alto
California, USA, 94306-1440
Attention: Dr. Kent Iverson (cc. William G. Harris)
Fax: 415-842-1303
Phone 415-842-1304
Each notice shall be deemed given (a) on the date it is received if it
is delivered personally, (b) 1 day after the date it is postmarked if it
is sent by certified United States
*Confidential Treatment Requested
12
<PAGE> 13
mail, return receipt requested, postage prepaid or (c) on the date it is
received if it is sent by facsimile with immediate telephonic
confirmation of receipt.
16. APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the place of domicile of the party sued and the courts of the
place of domicile of the party sued shall have exclusive jurisdiction
over all legal matters and proceedings hereunder.
17. COMPLIANCE WITH LAWS.
THOMAE shall perform the work hereunder in conformance with GMP, as
applicable, and all German and/or EEC laws, ordinances and governmental
rules or regulations pertaining thereto.
18. INDEPENDENT CONTRACTORS.
Each of the parties hereto is an independent contractor and nothing
herein contained shall be deemed to constitute the relationship of
partners, joint ventures, nor of principal and agent between the parties
hereto. Neither party shall hold itself out to third persons as
purporting to act on behalf of, or serving as the agent of, the other
party.
19. WAIVER.
No waiver of any term, provision or condition of this Agreement whether
by conduct or otherwise in any one or more instances shall be deemed to
be or construed as a further or continuing waiver of any such term,
provision or condition or of any other term, provision or condition of
this Agreement.
20. SEVERABILITY.
If any provision of this Agreement is held to be invalid or
unenforceable by a court of competent jurisdiction all other provisions
shall continue in full force and effect.
The parties hereby agree to attempt to substitute for any invalid or
unenforceable provision a valid or enforceable provision which achieves
to the greatest extent possible the economic legal and commercial
objectives of the invalid or unenforceable provision.
21. ENTIRETY.
This Agreement, including any exhibits and appendices attached hereto
and referenced herein, constitutes the full understanding of the parties
and a complete and exclusive statement of the terms of their agreement,
and no terms, conditions, understandings or agreements purporting to
modify or vary the terms thereof shall be binding unless it is hereafter
made in writing and signed by both parties. This Agreement has been
prepared in English language and the English language shall control its
interpretation.
13
<PAGE> 14
22. ASSIGNMENT.
This Agreement shall be binding upon the successors and assigns of the
Parties and the name of a party appearing herein shall be deemed to
include the names of its successors and assigns, provided always that
nothing herein shall permit any assignment by either party, except as
THOMAE may assign this Agreement to an affiliated company taking over
the operative biotech business of THOMAE, and COULTER may assign in the
case of a merger or acquisition or transfer of list assets related to
the Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the Effective Date.
COULTER PHARMACEUTICAL INC. DR. KARL THOMAE GmbH
By /s/ William G. Harris /s/ Dr. Jacob /s/ Dr. Micheberger
--------------------------- ---------------------------------------------
Title Vice President and CFO Dr. Jacob Dr. Michelberger
------------------------ ---------------------------------------------
(Member of the Board) (Head of Legal Dept.)
Date October 30, 1997 22 October 1997
------------------------- ---------------------------------------------
APPENDICES:
Appendix 1 Master Project plan including Project Timeline
Appendix 2 Tasks of the parties with respect to Documentation and THOMAE's
Documentation Work regarding CMC-part of BLA
Appendix 3 Present cost estimate for initial material (see Appendix 1 to the
Amendment No. 1 to the Feasibility Agreement)
Appendix 4 Stability Program
Appendix 5 Specifications and Test Methods for the Product
Appendix 6 Project Managers and Project Team Members
Appendix 7 Basic Production Assumptions and Pricing System for Commercial
Supply
Appendix 8 Flow Chart on Fermentation, Purification and Filling Process
Appendix 9 COULTER's Responsibilities
Appendix 10 THOMAE's Tasks in Detail
Appendix 11 Forecast Estimation of COULTER's total Requirements of Product
14
<PAGE> 15
APPENDIX 1
- --------------------------------------------------------------------------------
MASTER PROJECTPLAN : ANTI-B1
COULTER PHARMACEUTICAL / THOMAE
Forecast of proposed Workscope and Cost Estimate
Scale up to Commercial Scale [...***...]
- --------------------------------------------------------------------------------
TIME TOTAL DATE OF
LINE WORKSCOPE COST INVOICE
[...***...]
- --------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
- --------------------------------------------------------------------------------
APPENDIX 1
MASTER PROJECT PLAN: ANTI-B1
COULTER PHARMACEUTICALS/THOMAE
Premises:
Fermentation / Purification Process
[...***...]
Filing Process
[...***...]
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<PAGE> 16
APPENDIX 1
TIMELINE COULTER ANTI-B1 MANUFACTURING H84
[...***...]
*Confidential Treatment Requested
<PAGE> 17
APPENDIX 2:
TASKS OF THE PARTIES WITH RESPECT TO DOCUMENTATION AND THOMAE'S
DOCUMENTATION WORK REGARDING CMC-PART OF BLA
BIOLOGICS LICENSE APPLICATION
- --------------------------------------------------------------------------------
Table of Content Data Source
- --------------------------------------------------------------------------------
I. INTRODUCTION
- --------------------------------------------------------------------------------
II. DRUG SUBSTANCE
A. DESCRIPTION AND CHARACTERIZATION
1. Description
2. Characterization / Proof of Structure
a. Physicochemcial Characterization of [...***...]
Reference Standard and Qualifing Lots
- --------------------------------------------------------------------------------
b. Biological Activity
[...***...]
- --------------------------------------------------------------------------------
B. MANUFACTURER(S)
1. Identification
2. Floor Diagram
3. Other Products [...***...]
C. METHOD(S) OF MANUFACTURE
1. Raw Material
2. Flow Charts
- -------------------------------------------------------------------------------
3. Detailed Description
a. Animals Sources
b. Cellular Sources
i. Cell Substrate Monoclonal Antibodies [...***...]
ii. Cell Seed Lot System
A. Master Cell Bank [...***...]
- --------------------------------------------------------------------------------
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<PAGE> 18
- --------------------------------------------------------------------------------
Table of Content Data Source
- --------------------------------------------------------------------------------
B. Working Cell Bank [...***...]
- --------------------------------------------------------------------------------
C. End of Production Cells (EPC)
iii. Cell Growth and Harvesting [...***...]
c. Purification and Downstream Processing
4. Batch Record
- --------------------------------------------------------------------------------
D. PROCESS CONTROL
1. In-Process Controls
- -------------------------------------------------------------------
2. Process Validation
a. Validation Studies for the Cell Growth and
Harvesting Process
b. Validation Studies for the Purification [...***...]
Process
- -------------------------------------------------------------------
c. Microbiology
- --------------------------------------------------------------------------------
E. REFERENCE STANDARD(S)
1. Primary Reference Standard [...***...]
- -------------------------------------------------------------------
2. Working Reference Standard (is Used)
- --------------------------------------------------------------------------------
F. SPECIFICATION / ANALYTICAL METHODS
1. Drug Substance Specification and Tests
a. Specifications and Analytical Methods
b. Certificates of Analysis and Analytical
Results
- -------------------------------------------------------------------
2. Impurities Profile
- -------------------------------------------------------------------
G. CONTAINER / CLOSURES SYSTEM [...***...]
- --------------------------------------------------------------------------------
H. DRUG SUBSTANCE STABILITY [...***...]
- --------------------------------------------------------------------------------
III. DRUG PRODUCT [...***...]
A. COMPOSITION
B. SPECIFICATIONS & METHODS DRUG INGREDIENTS
1. Drug Substance Including all active Ingredients
- --------------------------------------------------------------------------------
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<PAGE> 19
- --------------------------------------------------------------------------------
Table of Content Data Source
- --------------------------------------------------------------------------------
2. Excipients
a. Compendial Excipient(s)
b. Non-Compendial Excipient(s)
- --------------------------------------------------------------------------------
C. MANUFACTURER(S)
D. METHODS OF MANUFACTURE AND PACKAGING [...***...]
E. SPECIFICATION & TEST METHODS FOR DRUG PRODUCT
1. Sampling Procedures [...***...]
2. Specification & Methods [...***...]
F. CONTAINER / CLOSURE SYSTEM [...***...]
G. MICROBIOLOGY [...***...]
- --------------------------------------------------------------------------------
H. DRUG PRODUCT STABILITY [...***...]
- --------------------------------------------------------------------------------
IV. INVESTIGATIONAL PRODCUT/FORMULATION [...***...]
- --------------------------------------------------------------------------------
V. ENVIRONMENTAL ASSESSMENT
VI. METHOD VALIDATION [...***...]
VII.REFERENCES
- --------------------------------------------------------------------------------
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<PAGE> 20
APPENDIX 3 THE START-UP MATERIAL IS ALREADY COVERED BY THE AMENDMENT NO. 1 TO
THE FEASIBILITY AGREEMENT OF JUNE 2, 1997
- --------------------------------------------------------------------------------
START-UP MATERIAL COMMERCIAL SCALE [...***...]
MASTER PROJECTPLAN : ANTI-B1
- --------------------------------------------------------------------------------
Quantity Price/Unit Total Amount
[...***...] [...***...]
- --------------------------------------------------------------------------------
Start-up Material Commercial Scale
[...***...]
- --------------------------------------------------------------------------------
Fermentation
[...***...] [...***...] [...***...] [...***...]
- --------------------------------------------------------------------------------
Purification
[...***...] [...***...] [...***...] [...***...]
- --------------------------------------------------------------------------------
Total Start-up Material [...***...]
- --------------------------------------------------------------------------------
[...***...]
*Confidential Treatment Requested
<PAGE> 21
APPENDIX 4
STABILITY STUDIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
DESCRIPTION CONDITIONS TIME POINTS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
[...***...] L Lot No. 1 - Intermediate [...***...] To be defined once process
and hold steps
- ------------------------------------------------------------------------------------------------
[...***...] are finalized
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
[...***...] L Lot Nos. 1, 2 & 3 - FVP [...***...] [...***...] months
- ------------------------------------- -------------------------- -------------------------------
[...***...] [...***...] months
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
[...***...] L Not Nos. 1, 2 & 3 - Bulk [...***...] [...***...] months
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] months
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] days
- ------------------------------------------------------------------------------------------------
- ------------------------------------- -------------------------- -------------------------------
TEST METHOD BULK FINAL CONTAINER
================================================================================================
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 22
APPENDIX 5 a
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
Product Specification Doc. Number: PSP/PCP XXXXX
ANTI-B1 ANTIBODY BULK Effective Date: DRAFT
Manufactured by Dr. Karl Thomae GmbH Page Number: 1 of 3
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION
- ------------------------------------------------------------------------------------------------
Purified Monoclonal Antibody Bulk directed against [...***...] formulated in
[...***...].
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PART NUMBER: LOT NUMBER: STORAGE CONDITIONS [...***...]
- ------------------------------------------------------------------------------------------------
MANUFACTURER: THOMAE MANUFACTURE DATE EXPIRATION DATE [...***...]
- ------------------------------------------------------------------------------------------------
ATTRIBUTE TEST METHOD SPECIFICATION
- ------------------------------------------------------------------------------------------------
QUALITY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
IDENTITY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] Comparable to Reference;
Report pl range of bands
present
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] Comparable to Reference
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
COMPOSITION
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- -------------------------------- ------------------------------- -------------------------------
- ------------------------------------------------------------------------------------------------
PURITY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
Comparable to Reference
Reduced:
Comparable to Reference
[...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
Comparable to Reference
Report Results
- ------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Treatment Requested
<PAGE> 23
<TABLE>
<CAPTION>
APPENDIX 5 a
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
POTENCY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
SAFETY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
FOR INFORMATION ONLY
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
ATTRIBUTE TEST METHOD SPECIFICATION
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Treatment Requested
<PAGE> 24
APPENDIX 5 b
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
Product Specification Doc. Number: PSP/PCA XXXXX
ANTI-B1 FINAL BAGGED PRODUCT Effective Date: DRAFT
for further manufacturing Page Number: 1 of 3
Manufactured by Dr. Karl Thomae GmbH
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION
- ------------------------------------------------------------------------------------------------
Purified Monoclonal Antibody directed against [...***...] formulated in
[...***...].
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PART NUMBER: LOT NUMBER: STORAGE CONDITIONS [...***...]
- ------------------------------------------------------------------------------------------------
MANUFACTURER: THOMAE MANUFACTURE DATE EXPIRATION DATE [...***...]
- ------------------------------------------------------------------------------------------------
ATTRIBUTE TEST METHOD SPECIFICATION
- ------------------------------------------------------------------------------------------------
QUALITY
- ------------------------------------------------------------------------------------------------
Label [...***...] Identical to file copy
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
IDENTITY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] Comparable to Reference;
Report pl range of bands
present
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
COMPOSITION
- ------------------------------------------------------------------------------------------------
[...***...] Mass [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PURITY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
Comparable to Reference
Reduced:
Comparable to Reference
[...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
Comparable to Reference;
Report Results
- ------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Treatment Requested
<PAGE> 25
<TABLE>
<CAPTION>
APPENDIX 5 b
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
POTENCY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
SAFETY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...]
[...***...]
- ------------------------------------------------------------------------------------------------
FOR INFORMATION ONLY
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
ATTRIBUTE TEST METHOD SPECIFICATION
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Treatment Requested
<PAGE> 26
<TABLE>
<CAPTION>
APPENDIX 5 c
- ------------------------------------------------------------------------------------------------
<S> <C>
Product Specification Doc. Number: PSP/PCA XXXXX
ANTI-B1 ANTIBODY FINAL VIALED PRODUCT Effective Date: DRAFT
Manufactured by Dr. Karl Thomae GmbH Page Number: 1 of 2
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION
- ------------------------------------------------------------------------------------------------
Purified Monoclonal Antibody directed against [...***...] formulated in
[...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
ATTRIBUTE TEST METHOD SPECIFICATION
- ------------------------------------------------------------------------------------------------
QUALITY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] Identical to file copy
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
[...***...]
[...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
IDENTITY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] Comparable to Reference;
Report pl range of bands
present
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
COMPOSITION
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PURITY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
[...***...] Comparable to Reference
Reduced:
Comparable to Reference
[...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
[...***...] Comparable to Reference;
Report Results
- ------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Treatment Requested
<PAGE> 27
<TABLE>
<CAPTION>
APPENDIX 5 c
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
POTENCY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
SAFETY
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...]
[...***...]
- ------------------------------------------------------------------------------------------------
FOR INFORMATION ONLY
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
ATTRIBUTE TEST METHOD SPECIFICATION
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Treatment Requested
<PAGE> 28
APPENDIX 6
MASTER-PROJECTPLAN: ANTI - B1
COULTER PHARMACEUTICALS INC. THOMAE
PROJECT MANAGERS AND PROJECT TEAMS MEMBERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACTIVITY THOMAE COULTER
- ------------------------------------------------------------------------------------------------------------------------------------
STEERING COMMITTEE [...***...] [...***...]
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS [...***...] [...***...]
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACTS [...***...] [...***...]
- ------------------------------------------------------------------------------------------------------------------------------------
QUALITY CONTROL, ANALYTICAL CHEMISTRY [...***...] [...***...]
- ------------------------------------------------------------------------------------------------------------------------------------
QUALITY ASSURANCE [...***...] [...***...]
- ------------------------------------------------------------------------------------------------------------------------------------
REGULATORY [...***...] [...***...]
- ------------------------------------------------------------------------------------------------------------------------------------
PROJECT MANAGEMENT [...***...] [...***...]
- ------------------------------------------------------------------------------------------------------------------------------------
DEVELOPMENT [...***...] [...***...]
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING [...***...] [...***...]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Treatment Requested
<PAGE> 29
APPENDIX 7
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
MASTER PROJECTPLAN : ANTI B1
COULTER PHARMACEUTICAL / THOMAE
- ------------------------------------------------------------------------------------------------
Basic Production Assumptions and Pricing System for Commercial Supply
- ------------------------------------------------------------------------------------------------
MANUFACTURING PROCESS PARAMETERS BULK PRODUCT
<S> <C> <C> <C>
Scale [...***...] [...***...] [...***...]
Titer [...***...] [...***...] [...***...]
Overall Yield [...***...] [...***...] [...***...]
Total amount per run [...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
PRICE PER GRAM RELEASED PURIFIED BULK MATERIAL
Quantity per year Price per gram Price per gram Price per gram
[...***...] [...***...] [...***...] [...***...]
[...***...] [...***...] [...***...] [...***...]
[...***...] [...***...] [...***...] [...***...]
[...***...] [...***...] [...***...] [...***...]
- ------------------------------------------------------------------------------------------------
STERILE LIQUID FILLING [...***...] VIAL
Batch Size [...***...]
Final Dosage [...***...]
Fill Volume [...***...]
Price per released Vial [...***...]
[...***...]
- ------------------------------------------------------------------------------------------------
*) S = SURCHARGE
If the annual Quantity falls below the Minimum Quantity of [...***...]
of anti-B1 Thomae will charge Coulter an annual surcharge, calculated as
follows:
[...***...]-
[...***...]
[...***...]
- ------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Treatment Requested
<PAGE> 30
APPENDIX 8A: FERMENTATION SCHEME
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
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<PAGE> 31
APPENDIX 8B: RECOVERY SCHEME
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
*Confidential Treatment Requested
<PAGE> 32
APPENDIX 8C: FINAL VIAL SCHEME
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
*Confidential Treatment Requested
<PAGE> 33
APPENDIX 9
COULTER'S RESPONSIBILITIES
1. Materials and Information to be Provided
(a) sufficient vials of the Master Cell Bank [...***...] to enable
Thomae to begin quarantine testing of [...***...] Cell bank.
(b) a Certificate of Analysis specifying [...***...] for complete
testing of the original [...***...] Master Cell Bank.
2. ACTIVITIES TO BE PERFORMED
As the Project is carried out, Coulter shall:
(a) conduct and conclude its existing Master Cell Bank [...***...]
stability testing program and supply data and results to Thomae
as needed to assist with documentation of [...***...]; and
(b) at the request of Thomae, transfer to Thomae on a continuous
basis any available additional information concerning the
Process, analytical test methods, reference materials and any
critical reagents that Coulter deem necessary to facilitate the
Project.
(c) provide Thomae with following parts of the BLA: [...***...]
(d) CPI retains final responsibility for [...***...].
(e) CPI will [...***...].
(f) Coulter will be responsible for definition of a [...***...].
*Confidential Treatment Requested
<PAGE> 34
APPENDIX 10
1. THOMAE RESPONSIBILITIES (PHASE I-III)
1.1 Control of Cell Line
Thomae shall maintain the Cell Line in safe and secure storage under its
control in its facilities and shaft not permit the transfer of the Cell
Line to any third party that is not specifically authorized by Coulter.
Thomae shall comply with all applicable regulatory requirements relating
to general safety and biosafety in handling the Cell Line and any raw
materials used in the Project.
1.2 Quarantine and Testing
Commencing as of the Start Date, Thomae will quarantine and test the
Cell Line samples provided to it in order to verify that the Cell Line
is suitable for introduction into Thomae's facilities. The quarantine
and testing time is estimated to be about [...***...].
1.3 Fermentation
Following verification of the Cell Line, Thomae will adapt the Coulter
cell line [...***...] in its pilot facility to a generic Thomae process
as laid down in the Master Projectplan (Appendix 1 ).
Within the scope of the Process described by Thomae. Thomae will
[...***...] to adapt the Process and achieve success in establishing a
suitable process in its fermentors, followed by implementation of the
process as an applicable large-scale form, laid down in the Master
Projectplan (Appendix 1).
1.4 Downstream Processing
Upon completion of fermentation at the respective scale, Thomae shall
adapt a suitable generic downstream process and adequate purification
steps of the process in its facilities. Thomae will [...***...] to
establish and document, in its facilities, analytical methods for
inprocess control, release testing and characterization of the product
as laid down in the Master Projectplan (Appendix 1).
1.5 Contractor will be responsible for performing all testing according to
the bulk and final product specifications.
1.6 Contractor will be responsible for stability studies for the [...***...]
lots to establish shelf life according to a protocol reviewed and
approved by CPI.
1.7 Sterile Liquid Filling Process
If purification of the Product is successful, Thomae will [...***...]
to establish a sterile liquid filling process for the Product in its
facility.
1.8 Cleaning Validation
Thomae will establish cleaning validation protocols and reports that
have been employed on the Coulter process in Thomaes facilities. Based
upon this information and its own facility operating procedures. Thomae
shall develop appropriate cleaning protocols.
*Confidential Treatment Requested
<PAGE> 35
1.9 Materials and Information to be Delivered
Thomae will provide Coulter with the materials and information as
described in the Master Projectplan (Appendix 1 ) at the times indicated
therein.
1.10 Product to be Delivered
Based upon the premises (Appendix 1 ) attached, and if the basic process
parameters are met, Thomae shall supply Product derived from the Project
as laid down in Appendix 1 to Coulter for clinical testing and market
supply. All product produced in the course of the Project shall be
retained by Thomae, stored under conditions specified by Coulter not
longer than [...***...] as of production, and delivered to Coulter as
instructed by Coulter and at the cost and risk of Coulter.
1.11 Prior Approval
Prior to implementing any deviation from the Process, Thomae shall
notify Coulter and obtain the approval of the Project Manager or other
responsible person at Coulter. Additional development work beyond the
Project activities shall be approved by Coulter and shall be charged
separately.
1.12 Retention Samples
Thomae shall isolate, identify and retain samples of all raw materials
used in fermentations carried out in the course of the Project, obtain
retention samples of Process media at appropriate time points in each
fermentation, and retain samples of Product at each appropriate stage of
purification. Retention samples shall be provided to Coulter at its
request within [...***...]. Shipment shall be at the cost and risk of
Coulter.
*Confidential Treatment Requested
<PAGE> 36
APPENDIX 11
Manufacturing Forecast for Coulter B1 Therapy
Draft for Discussion Purposes only
<TABLE>
<CAPTION>
YEARS
<S> <C> <C> <C> <C> <C>
(IN GRAMS) [...***...] [...***...] [...***...] [...***...] [...***...]
US Demand [...***...] [...***...] [...***...] [...***...] [...***...]
European Demand [...***...] [...***...] [...***...] [...***...] [...***...]
Total Demand [...***...] [...***...] [...***...] [...***...] [...***...]
Assumes:
[...***...]
[...***...]
</TABLE>
*Confidential Treatment Requested
<PAGE> 1
EXHIBIT 10.16
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
THIS FIFTH AMENDMENT is made the 27th day of October, 1997 to an Agreement dated
20 August 1996, by agreement between the parties ("the Agreement")
BETWEEN
COULTER PHARMACEUTICAL INC. of 550 California Avenue, Suite 200, Palo Alto, CA
94306, USA ("the Customer")
AND
LONZA BIOLOGICS PLC of 228 Bath Road, Slough, Berkshire, SL1 4DY, England
("Lonza")
WHEREAS:
A. The parties entered into the Agreement pursuant to which Lonza agreed to
provide Services to the Customer to develop a Process for production of
Product which agreement has been previously amended; and
B. Customer now wishes Lonza to perform certain additional Services in
association with the above mentioned development and manufacture of
Product; and
C. Lonza is prepared to provide such additional Services on the terms and
conditions set out herein.
NOW THEREFORE it is hereby agreed to amend the terms of the Agreement as
follows:
1. A new Stage 16 shall be added to Schedule 2 as follows:
"Stage 16 - Validation of [...***...]
16.1 Objectives
* Confidential Treatment Requested
1.
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16.1.1 To obtain [...***...] data for each of the [...***...]
steps used in the manufacture of bulk Product.
16.1.2 To investigate the [...***...] during the primary recovery
operations by analysing [...***...] extracted from samples
collected throughout the Process.
16.1.3 To carry out [...***...] studies to determine the
[...***...].
16.2 Activities
16.2.1 Agree a GMP study protocol with the Customer.
16.2.2 Extract and purify [...***...] from [...***...]. Determine
the [...***...].
16.2.3 Collect samples from a [...***...] manufacturing batch of
Product. Samples will be collected throughout the primary
recovery operation and appropriate load samples taken
prior to each [...***...] step.
16.2.4 Extract and purify [...***...] from samples collected
throughout the primary recovery Process and analyse the
[...***...] by [...***...].
16.2.5 Carry out the scaled down Process for each of the
[...***...] without labelled [...***...] spike. Compare
the elution profile, Product yield and purity with the
full manufacturing Process.
16.2.6 Repeat the scaled-down Process with each column load
sample spiked with [...***...]. Analyse load and eluate
samples.
16.2.7 Calculate [...***...] factors for each column step.
16.2.8 Issue a final study report to the Customer, copies of data
generated under Stage 16 if requested by the Customer and
deviations and amendments to the protocol agreed under
16.2.1. [...***...] during the course of this Stage 16 if
requested by the Customer (and more frequently if agreed
between the parties) Lonza will issue to the Customer
unaudited interim data
2.
*Confidential Treatment Requested
<PAGE> 3
summaries provided such requests from the Customer are
reasonable in nature.
16.3 Timescale
Stage 16 will be complete on issue of the final study report
under activity 16.2.8. It is estimated that this final report
will be issued [...***...] from commencement of Stage 16."
2. A new Stage 17b shall be added to Schedule 2 as follows:
"Stage 17b Validation of [...***...] for Bulk Purified Product
17b.1 Objective
To validate these Product release assays to ensure their accuracy
and reliability for Product release and for Product stability
testing where this is relevant. Data will be generated by
specific assay validation studies and also taken from assays
carried out as part of the [...***...] of the Product. Product
made by the manufacturing `Process will be used for the specific
assay validation studies.
17b.2 Activities
17b.2.1 [...***...] (Reduced and Non-reduced)
Agree a GMP study protocol with the Customer. This will be
a Product-specific study; the following assay performance
areas will be defined:
o [...***...]
o [...***...]
o [...***...]
o [...***...]
o [...***...]
3.
*Confidential Treatment Requested
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o [...***...]
Accuracy and precision of the method using the Product
will be determined for reduced and non-reduced
[...***...], with particular attention being paid to
[...***...] obtained as part of an estimate of the
precision of the method.
17b.2.2 [...***...] Assay
o Isolate [...***...] from the supernatant and cell
fractions from a large-scale fermenter harvest of
the Cell Line.
o Purify the [...***...] from each fraction.
o Assess the quantity and quality of the [...***...]
using appropriate procedures. Compare the
[...***...] by [...***...] to that of the Lonza
generic [...***...] standard. If the generic
standard and the [...***...] from the Cell Line are
not comparable then a new Cell Line-specific
standard will need to be prepared.
o Determine the degree of cross-reactivity between
the [...***...] and the generic [...***...]
standard in the [...***...] assay.
o Issue a report of activities containing a
recommendation on the most appropriate course of
action for routine testing to the Customer and
outline testing procedures. Issue copies of data
generated under activity 17b.2.2 if requested by
the Customer. [...***...] during the course of this
activity 17b.2.2 if requested by the Customer (and
more frequently if agreed between the parties)
Lonza will issue to the Customer interim data
summaries provided such requests from the Customer
are reasonable in nature.
4.
*Confidential Treatment Requested
<PAGE> 5
17b.2.3 [...***...]
Agree a GMP study protocol with the Customer.
Carry out a study to compare the performance of the
Product in the [...***...] assay with results obtained for
a range of different monoclonal antibodies. Accuracy and
precision of the method using the Product will be
determined using the following criteria:
o [...***...]
o [...***...]
o [...***...]
o [...***...]
o [...***...]
o [...***...]
17b.2.4 [...***...]
Agree a GMP study protocol with the Customer.
Carry out a Product specific study to compare the
performance of the Product on [...***...] using Lonza's
[...***...] method with results obtained for a range of
different monoclonals. Precision and limit of detection of
the assay for Product will be determined using the
following criteria:
o [...***...]
o [...***...]
o [...***...]
5.
*Confidential Treatment Requested
<PAGE> 6
Validate [...***...]. Calculate [...***...] values of
major bands. Make a recommendation on the standardisation
of reporting of minor bands.
17b.2.5 [...***...]
Agree a GMP study protocol with the Customer.
Validate the specificity and sensitivity of the assay for
testing of the Product.
17b.2.6 [...***...] Assays
Agree GMP study protocols with the Customer.
Carry out validation of the assays for [...***...].
Accuracy, precision and storage times prior to assay will
be determined. The following studies will be performed:
o [...***...].
o [...***...].
o [...***...].
o [...***...].
17b.2.7 [...***...]
Agree a GMP study protocol with the Customer.
Assay parameters to be validated will be accuracy, cross-
reactivity or specificity, limits of detection and
stability of [...***...] prior to testing.
Study the effect of the load on the sample band profile,
recovery of [...***...] in the presence of Product, within
and between assay precision and the limit of detection of
Product on [...***...].
6.
*Confidential Treatment Requested
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Analyse, by [...***...], all contaminant bands that
account for [...***...] or more of total protein, using
[...***...] and [...***...] that distinguish antibody
fragments.
Note: It is understood that the Customer will provide
Lonza with a reagent expected to be suitable for
the detection of antibody light chain for this
Product. If this reagent is not available or not
suitable it is possible some contaminant bands may
not be identified.
17b.2.8 Performance Review
Review performance of the assays during [...***...] of the
Product against the performance required to meet the
Specification for Product and defined in the validation
studies.
17b.2.9 [...***...]
Summarise [...***...] test performance during [...***...]
testing of Product and analyse the suitability of these
tests for Product.
17b.2.10 Prepare final validation reports for activities 17b.2.1,
17b.2.3, 17b.2.4, 17b.2.5, 17b.2.6 and 17b.2.7 and submit
to the Customer together with details of the testing
procedures listed in Appendix 1 hereto and outline summary
procedures for the Customer Tests not included in that
list. Provide the Customer with copies of data generated
under Stage 17b if requested by the Customer and
deviations and amendments to the GMP protocols agreed
under Stage 17b. [...***...] during the course of each
assay validation if requested by the Customer (and more
frequently if agreed between the parties) Lonza will issue
to the Customer unaudited interim data summaries provided
such requests from the Customer are reasonable in nature.
7.
*Confidential Treatment Requested
<PAGE> 8
Note: These Stage 17b reports will not review the
performance of the assays during the Process
validation studies that will be carried out under
other Stages in these Services. Such review will be
incorporated into the reports issued at the end of
the stages in question as appropriate.
Note: Save for those particularised as being released to
the Customer pursuant to Stage 17.b.2.10 of the
Services, analytical procedures will not be issued
to the Customer as part of these Services. It is
Lonza's responsibility to ensure that the Services
are performed in accordance with the regulatory
requirements of this Agreement where applicable.
17b.3 Timescale
Each assay programme will be complete upon issue of the relevant
report to the Customer. Stage 17b shall be complete upon the
issue of the final report. It is estimated that Stage 1To will
take approximately [...***...] to complete."
3. The following shall be added to Clauses 1 and 2 of Schedule 3:
"1. Price
In consideration for Lonza carrying out the Services as detailed
in Schedule 2 (Stages 16 and 17b) the Customer shall pay Lonza as
follows:
Stage 16 Evaluation of [...***...] [...***...]
Stage 17b Validation of [...***...] Assays
for Bulk Purified Product
17b.2.1 [...***...] [...***...]
17b.2.2 [...***...] [...***...]
17b.2.3 [...***...] [...***...]
8.
*Confidential Treatment Requested
<PAGE> 9
17b.2.5 [...***...] [...***...]
17b.2.6 [...***...] [...***...]
17b.2.6 [...***...] [...***...]
17b.2.6 [...***...] [...***...]
17b.2.7 [...***...] [...***...]
17b.2.9 [...***...] [...***...]
2. Payment
Payment by the Customer of the Price for Stages 16 and 17b shall
be made against Lonza's invoices as follows:
2.1 For Stage 16
[...***...] Upon commencement of Stage 16
[...***...] Upon completion of Stage 16.
2.2 For Stage 17b
[...***...] of the Price for each assay validation in
Stage 17b upon commencement of the Services on that assay
validation (total on commencement of all assays:
[...***...]).
[...***...] of the Price for each assay validation in
Stage 17b upon completion of the Services on that assay
validation (total on completion of all assays:
[...***...])."
4. Save as expressly provided herein, the terms and conditions of the
Agreement shall remain in full force and effect.
9.
*Confidential Treatment Requested
<PAGE> 10
AS WITNESS the hands of the duly authorised representatives of the
parties hereto the day and year first above written.
Signed for and on behalf of /s/
LONZA BIOLOGICS PLC -------------------------------------------
Assistant Company Secretary
-------------------------------------------
TITLE
Signed for and on behalf of /s/ William G. Hanis
COULTER PHARMACEUTICALS INC -------------------------------------------
Vice President and Chief Financial Officer
-------------------------------------------
TITLE
10.
<PAGE> 11
APPENDIX 1
TEST METHOD SOP
-------------------------------
[...***...] [...***...]
[...***...] [...***...]
[...***...] [...***...]
[...***...] [...***...]
[...***...] [...***...]
[...***...] [...***...]
[...***...] [...***...]
[...***...] [...***...]
[...***...] [...***...]
[...***...] [...***...]
[...***...] [...***...]
11.
*Confidential Treatment Request
<PAGE> 1
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
LEASE AGREEMENT BY AND BETWEEN
HMS GATEWAY OFFICE L.P.,
A DELAWARE LIMITED PARTNERSHIP
AS LANDLORD, AND
COULTER PHARMACEUTICAL, INC.,
A DELAWARE CORPORATION
AS TENANT
DATED NOVEMBER 7, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
BASIC LEASE INFORMATION .................................................... IV
1. DEMISE ............................................................... 1
2. PREMISES ............................................................. 1
3. TERM ................................................................. 2
4. RENT ................................................................. 2
(A) Base Rent and Letter of Credit ........................... 2
(1) Base Rent .................................... 2
(2) Letter of Credit ............................. 3
(B) Additional Rent .......................................... 5
(C) Payment of Additional Rent ............................... 9
(D) General Payment Terms .................................... 10
(E) Audit .................................................... 10
5. UTILITY EXPENSES ..................................................... 11
6. LATE CHARGE .......................................................... 11
7. SECURITY DEPOSIT ..................................................... 12
8. POSSESSION ........................................................... 12
(A) Tenant's Right of Possession ............................. 12
(B) Delay in Delivering Possession ........................... 12
(C) Time for Performance ..................................... 13
(D) Outside Completion Date .................................. 13
9. USE OF PREMISES ...................................................... 13
(A) Permitted Use ............................................ 13
(B) Compliance with Governmental Regulations and Private
Restrictions.............................................. 14
(C) Compliance with Americans with Disabilities Act .......... 14
10. ACCEPTANCE OF PREMISES ............................................... 15
11. SURRENDER ............................................................ 15
12. ALTERATIONS AND ADDITIONS ............................................ 17
13. MAINTENANCE AND REPAIRS OF PREMISES .................................. 19
(A) Maintenance by Tenant .................................... 19
(B) Maintenance by Landlord .................................. 20
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
(C) Tenant's Waiver of Rights ................................ 20
14. LANDLORD'S INSURANCE ................................................. 21
15. TENANT'S INSURANCE ................................................... 21
(A) Commercial General Liability Insurance ................... 21
(B) Personal Property Insurance .............................. 21
(C) Worker's Compensation Insurance; Employer's Liability
Insurance 22
(D) Evidence of Coverage ..................................... 22
16. INDEMNIFICATION ...................................................... 22
(A) Of Landlord .............................................. 22
(B) Of Tenant ................................................ 23
(C) No Impairment of Insurance ............................... 23
17. SUBROGATION .......................................................... 23
18. SIGNS ................................................................ 23
19. FREE FROM LIENS ...................................................... 23
20. ENTRY BY LANDLORD .................................................... 24
21. DESTRUCTION AND DAMAGE ............................................... 24
22. CONDEMNATION ......................................................... 26
23. ASSIGNMENT AND SUBLETTING ............................................ 27
24. TENANT'S DEFAULT ..................................................... 30
25. LANDLORD'S REMEDIES .................................................. 32
(A) Termination .............................................. 32
(B) Continuation of Lease .................................... 33
(C) Re-entry ................................................. 33
(D) Reletting ................................................ 34
(E) Termination .............................................. 34
(F) Cumulative Remedies ...................................... 34
(G) No Surrender ............................................. 34
26. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS ..................... 35
27. ATTORNEY'S FEES ...................................................... 35
28. TAXES ................................................................ 36
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
29. EFFECT OF CONVEYANCE ................................................. 36
30. TENANT'S ESTOPPEL CERTIFICATE ........................................ 36
31. SUBORDINATION ........................................................ 37
32. ENVIRONMENTAL COVENANTS .............................................. 37
33. NOTICES .............................................................. 40
34. WAIVER ............................................................... 40
35. HOLDING OVER ......................................................... 41
36. SUCCESSORS AND ASSIGNS ............................................... 41
37. TIME ................................................................. 42
38. BROKERS .............................................................. 42
39. LIMITATION OF LIABILITY .............................................. 42
40. FINANCIAL STATEMENTS ................................................. 42
41. RULES AND REGULATIONS ................................................ 43
42. MORTGAGEE PROTECTION ................................................. 43
(A) Modifications for Lender ................................. 43
(B) Rights to Cure ........................................... 43
43. ENTIRE AGREEMENT ..................................................... 43
44. INTEREST ............................................................. 44
45. INTERPRETATION ....................................................... 44
46. REPRESENTATIONS AND WARRANTIES ....................................... 44
(A) Of Tenant ................................................ 44
(B) Of Landlord .............................................. 45
47. SECURITY ............................................................. 45
48. JURY TRIAL WAIVER .................................................... 45
49. OPTION TO RENEW ...................................................... 46
50. RIGHT OF FIRST NEGOTIATION ........................................... 47
51. RIGHT OF FIRST OFFER ................................................. 48
52. RIGHT TO EXPAND ...................................................... 49
53. MEMORANDUM OF LEASE .................................................. 51
</TABLE>
iii.
<PAGE> 5
LEASE AGREEMENT
BASIC LEASE INFORMATION
Lease Date: November 7, 1997
Landlord: HMS Gateway Office, L.P.
A Delaware Limited partnership
Landlord's Address: C/o Hines Interests Limited Partnership
101 California Street, Suite 1000
San Francisco, California 94111-5848
Attn: Tom Kruggel
All notices sent to Landlord under this
Lease shall be sent to the above address,
with copies to:
Hines Interests Limited Partnership
101 California Street, Suite 1000
San Francisco, California 94111-5848
Attn: Paul Paradis Tenant:
Tenant: Coulter Pharmaceutical, Inc.,
A Delaware corporation
Tenant's Contact Person: William G. Harris
Tenant's Address and
Telephone Number: 550 California Avenue
Suite 200
Palo Alto, California 94306-1440
(650) 842-7300
Premises Square Footage: [...***...] square feet, subject to final
determination by Landlord's Architect upon
Commencement of the Term. Such measurement
to be made in accordance with Landlord's
Architect's standard measurement procedures
or research and development space.
Premises Address: 600 Gateway Boulevard
South San Francisco, California
Project: Approximately 7.85 acres of land commonly
known as Lot 2B of the Gateway Center and
referred to as the Gateway Technology
Center, together with the land and
improvements on which the Project is
situated and all Common Areas.
Building (if not the
same as the Project): 600 Gateway Boulevard
South San Francisco, California
iv.
<PAGE> 6
Tenant's Proportionate
Share of Project: [...***...] subject to adjustment in
accordance with Paragraph 4(c)(3)
Tenant's Proportionate
Share of Building: 100%
Length of Term: [...***...]
Estimated Commencement Date: August 15, 1998
Estimated Expiration Date: [...***...]
Monthly Base Rent: The above Monthly Base Rent calculations are
subject to change after final determination
of the Premises Square Footage and any such
adjustment shall be based on a Monthly Base
Rent for the first Lease year of [...***...]
per square foot multiplied by the Premises
Square Footage, and each subsequent Lease
Year being [...***...] of the preceding
Lease Year's Monthly Base Rent.
Prepaid Rent: None
Prepaid Additional Rent: None
Security Deposit: [...***...]
Permitted Use: General office and research and development
activities associated with
biotechnology/pharmaceutical services. All
uses must be in accordance with zoning
ordinances of the City of South San
Francisco.
Unreserved Parking Spaces: [...***...] non-exclusive and undesignated
parking spaces.
Broker(s): CB Commercial Real Estate Group, Inc. CB
Madison Advisory Group
Tenant's Allowance: [...***...]
v.
<PAGE> 7
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into by and between Landlord
and Tenant on the Lease Date. The defined terms used in this Lease which are
defined in the Basic Lease Information attached to this Lease Agreement ("Basic
Lease Information") shall have the meaning and definition given them in the
Basic Lease Information. The Basic Lease Information, the exhibits, the addendum
or addenda described in the Basic Lease Information, and this Lease Agreement
are and shall be construed as a single instrument and are referred to herein as
the "Lease."
1. DEMISE
In consideration for the rents and all other charges and payments
payable by Tenant, and for the agreements, terms and conditions to be performed
by Tenant in this Lease, LANDLORD DOES HEREBY LEASE TO TENANT, AND TENANT DOES
HEREBY HIRE AND TAKE FROM LANDLORD, the Premises described below (the
"Premises"), upon the agreements, terms and conditions of this Lease for the
Term hereinafter stated.
2. PREMISES
The "Premises" demised by this Lease are to consist initially of that
certain building (the "Building") specified in the Basic Lease Information,
which Building is to be located in that certain real estate development (the
"Project") specified in the Basic Lease Information. If at any time during the
Term, Tenant is leasing, in accordance with the terms and conditions of this
Lease, less than all of the Building, the "Premises" shall be deemed to include
only that portion of the Building then leased by Tenant pursuant to this Lease.
Tenant shall have the non-exclusive right (in common with the other tenants,
Landlord and any other person granted use by Landlord) to use the Common Areas
(as hereinafter defined), except that, with respect to parking, Tenant shall
have only a license to use the number of non-exclusive and undesignated parking
spaces set forth in the Basic Lease Information in the Project's parking areas
(the "Parking Areas"); provided however, Landlord shall use commercially
reasonable efforts to enforce Tenant's right to use such parking spaces. No
easement for light or air is incorporated in the Premises. For purposes of this
Lease, the term "Common Areas" shall mean all areas and facilities outside the
Premises and within the exterior boundary line of the Project that are from time
to time provided and designated by Landlord for the non-exclusive use of
Landlord, Tenant and other tenants of the Project and their respective
employees, guests and invitees.
Landlord shall cause the construction of the Base Building Improvements
in accordance with the terms and conditions of the Base Building Construction
Agreement attached hereto as Exhibit A. Additionally, Tenant shall cause the
construction of certain tenant improvements in the interior of the Premises in
accordance with the terms and conditions of the Premises Construction Agreement
attached hereto as Exhibit B.
Except as otherwise provided in the last sentence of this Paragraph,
Landlord has the right, in its sole discretion, from time to time, to: (a) make
changes to the Common Areas, including, without limitation, changes in the
location, size, shape and number of driveways, entrances, parking spaces
(provided however, Landlord shall not have the right, except as
1.
<PAGE> 8
otherwise provided herein, to reduce the total number of parking spaces below
the number allocated to Tenant in the Basic Lease Information) parking areas,
ingress, egress, direction of driveways, entrances, corridors and walkways; (b)
close temporarily any of the Common Areas for maintenance or construction
purposes so long as reasonable access to the Premises remains available; (c) add
additional buildings and improvements to the Common Areas or remove existing
buildings or improvements therefrom; (d) use the Common Areas while engaged in
making additional improvements, repairs or alterations to the Project or any
portion thereof so long as reasonable access to the Premises remains available;
and (e) do and perform any other acts or make any other changes in, to or with
respect to the Common Areas and the Project as Landlord may, in its sole
discretion, deem to be appropriate. Notwithstanding (a), and (c) above, Landlord
shall make no material changes or add additional buildings or material
improvements to any portion of the Common Areas described on the Site Plan, as
defined in the Base Building Construction Agreement, without obtaining Tenant's
consent, which consent shall not be unreasonably withheld, conditioned or
delayed; provided however, such consent shall not be required if any change or
addition is required or requested by a governmental agency having jurisdiction
over the Project or as required by law.
3. TERM
The term of this Lease (the "Term") shall be for the period of months
specified in the Basic Lease Information, commencing on, subject to Paragraph D
of Exhibit B, the earliest to occur of the following dates (the "Commencement
Date"):
(A) The date the Tenant Improvements are approved by the appropriate
governmental agency as being in accordance with its building code and the
building permit issued for such improvements, as evidenced by the issuance of a
final building inspection approval; or
(B) The date Tenant's Architect and Tenant's Contractor have both
certified in writing to Tenant that the Tenant Improvements have been
substantially completed in accordance with the plans and specifications
therefor; or
(C) The date Tenant commences occupancy of the Premises.
In the event the actual Commencement Date, as determined pursuant to the
foregoing, is a date other than the Estimated Commencement Date, then Landlord
and Tenant shall promptly execute a Commencement and Expiration Date Memorandum
in the form attached hereto as Exhibit D, wherein, the parties shall specify the
Commencement Date, the date on which the Term expires (the "Expiration Date")
and the date on which Tenant is to commence paying Rent.
4. RENT
(A) BASE RENT AND LETTER OF CREDIT.
(1) BASE RENT. Tenant shall pay to Landlord, in advance on the first
day of each month, without further notice or demand and without offset or
deduction, the monthly installments of rent specified in the Basic Lease
Information (the "Base Rent").
2.
<PAGE> 9
(2) LETTER OF CREDIT. Concurrently with execution hereof, Tenant shall
deliver to Landlord, at Tenant's sole cost and expense, the Letter of Credit
described below in the amount of [...***...] as security for the full and
faithful performance of Tenant's covenants and Obligations under this Lease.
Upon the earlier of Tenant's delivery to Landlord of a Guaranty by a Qualified
Corporate Partner or forty-five (45) days after the expiration of the Term or
earlier termination, the Letter of Credit shall be returned to Tenant, reduced
by any amounts that Landlord reasonably estimates to be required to remedy any
defaults on the part of Tenant hereunder. The portion of the Letter of Credit
not so estimated to be required shall be paid over to Tenant within two (2)
weeks after expiration of the Term. Landlord may (but shall not be required to)
draw upon the Letter of Credit and use the proceeds therefrom (the "Letter of
Credit Proceeds") or any portion thereof to cure any default under this Lease
and to compensate Landlord for any damage Landlord incurs as a result of such
default, it being understood that any use of the Letter of Credit Proceeds shall
not constitute a bar or defense to any of Landlord's remedies set forth in this
Lease. In such event and upon written notice from Landlord to Tenant specifying
the amount of the Letter of Credit Proceeds so utilized by Landlord, Tenant
shall immediately deliver to Landlord an amendment to the Letter of Credit or a
replacement Letter of Credit in an amount equal to [...***...] of the amount
specified below. Tenant's failure to deliver such replacement Letter of Credit
to Landlord within ten (10) days of Landlord's notice shall constitute a default
hereunder.
As used herein, Letter of Credit shall mean an unconditional, stand-by
(hereinafter referred to as the "Letter of Credit") issued by a major national
bank mutually satisfactory to Landlord and Tenant (collectively, the "Bank"),
naming Landlord as beneficiary, in the amount of [...***...]. During the period
from the Commencement Date through the last day of the [...***...] Lease Year,
the amount of the Letter of Credit shall be reduced by [...***...] on the last
day of each such Lease Year. During the period from the [...***...] Lease
Year-through the Expiration Date, the amount of the Letter of Credit shall be
reduced by [...***...] on the last day of each such Lease Year. The Letter of
Credit shall be for a one-year term and in any event shall be maintained in
effect from the date hereof through the date that is forty-five (45) days after
expiration of the Term or earlier termination. The Letter of Credit shall
provide: (i) that Landlord may make partial and multiple draws thereunder, up to
the face amount thereof, (ii) that Landlord may draw upon the Letter of Credit
up to the full amount thereof, as determined by Landlord, and the Bank will pay
to Landlord the amount of such draw upon receipt by the Bank of a sight draft
signed by Landlord, accompanied by a written statement from Landlord that Tenant
is in default under the Lease, and (iii) that, in the event of Landlord's
assignment or other transfer of its interest in this Lease, the Letter of Credit
shall be freely transferable (with Tenant paying all costs and expenses charged
by the Bank in connection with any such transfer) Landlord, without recourse, to
the assignee or transferee of such interest and the Bank shall confirm the same
to Landlord and such assignee or transferee. In the event that the Bank shall
fail to notify Landlord at least forty-five (45) days prior to expiration of the
Letter of Credit that the Letter of Credit will be renewed for at least one (1)
year beyond the then applicable expiration date, and deliver to Landlord a
replacement Letter of Credit or a modification to the existing Letter of Credit
effectuating such renewal at least forty-five (45) days prior to expiration of
the Letter of Credit, and Tenant shall not have otherwise delivered to
*CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE> 10
Landlord, at least forty-five (45) days prior to the relevant annual expiration
date, a replacement Letter of Credit in the amount required hereunder and
otherwise meeting the requirements set forth above, then Landlord shall be
entitled to draw on the Letter of Credit as provided above, and shall hold the
proceeds of such draw as security for the full and faithful performance of
Tenant's obligations hereunder, until Tenant shall have provided a new Letter of
Credit, in which event Landlord shall promptly return the proceeds of such draw,
not otherwise used in accordance with the terms of the Lease, to Tenant.
Notwithstanding the foregoing, at anytime after the commencement of the
Term, Landlord agrees to allow Tenant to replace the Letter of Credit as
required hereunder with an unconditional guaranty of Tenant's obligations under
this Lease in the form of Exhibit C (the "Guaranty"), from a Qualified Corporate
Partner. A Qualified Corporate Partner shall mean an Affiliate, as that term is
defined in Paragraph 23 below, that, at the time of executing the Guaranty, has:
[...***...]
As used in the preceding paragraph, the following terms shall have the
meanings set forth below:
"CASH AND CASH EQUIVALENTS" shall mean the aggregate amount of
the following, to the extent owned by the Guarantor free and clear of
all loans, repayment obligations, encumbrances and rights of others: (i)
cash on hand; (ii) dollar demand deposits maintained in the United
States with any commercial bank and dollar time deposits maintained in
the United States with, or certificates of deposit having a maturity of
one year or less issued by, any commercial bank or other financial
institution acceptable to the Landlord; (iii) direct obligations of, or
unconditionally guaranteed by, the United States and having a maturity
of one year or less; and (iv) readily marketable commercial paper having
a maturity of one year or less, issued by any corporation organized and
existing under the laws of the United States or any state thereof or the
District of Columbia and rated by Standard & Poor's or Moody's (or, if
neither such organization shall rate such commercial paper at any time,
rated by any nationally recognized rating organization in the United
States) with the highest rating assigned by such organization.
"REVENUES" shall mean increases in assets or decreases in
liabilities from operation of Guarantor's business for the twelve (12)
month period prior to the execution of the Guaranty, calculated in
accordance with generally accepted accounting principles,
consistently applied.
"NET PROFITS" shall mean revenues, less the sum of expenses
(including taxes, but excluding amortization and depreciation) and
return of owners' equity, calculated in accordance with generally
accepted accounting principles, consistently applied.
*CONFIDENTIAL TREATMENT REQUESTED
4.
<PAGE> 11
As used in this Lease, the term "LEASE YEAR" shall mean a period of
twelve (12) full calendar months commencing on the Commencement Date, and each
subsequent sequential twelve (12) full calendar month period thereafter.
(B) ADDITIONAL RENT. This Lease is intended to be a triple-net Lease with
respect to Landlord; and subject to Paragraph 13(b) below, the Base Rent owing
hereunder is (1) to be paid by Tenant net of all costs and expenses relating to
Landlord's ownership and operation of the Project and the Building, and (2) not
to be reduced, offset or diminished, directly or indirectly, by any cost, charge
or expense payable hereunder by Tenant or by others in connection with the
Premises, the Building and/or the Project or any part thereof. The provisions of
this Paragraph 4(b) for the payment of Tenant's Proportionate Share(s) of
Expenses (as hereinafter defined) are intended to pass on to Tenant its share of
all such costs and expenses. In addition to the Base Rent, Tenant shall pay to
Landlord, in accordance with this Paragraph 4, Tenant's Proportionate Share(s)
of all costs and expenses paid or incurred in connection with the operation,
maintenance, management and repair of the Premises, the Building and/or the
Project or any part thereof (collectively, the "Expenses"), including, without
limitation, all the following items (Tenant's Proportionate Share(s) of the
Expenses is hereinafter referred to as "Additional Rent"):
(1) All supplies, materials and rental equipment used in the operation
and maintenance of the Project.
(2) Utilities, that are not separately metered to Tenant, including,
without limitation, water, power, gas, sewer, waste disposal, communication and
cable T.V. facilities, heating, cooling, lighting and ventilation of the
Project.
(3) A management fee equal to [...***...] of the annual Base Rent
derived from the Building; and all wages, salaries and other compensation for
any employees who provide service to the Building and/or the Project; provided
such wages, salads and other compensation shall not exceed [...***...] in any
given year (the "Wage Ceiling) (such Wage Ceiling to increase each year by
[...***...] of the Wage Ceiling for the preceding year).
(4) Legal and accounting services for the Project, including, but not
limited to, the costs of audits by certified public accountants of Basic
Operating Cost records; provided, however, that legal expense shall not include
the cost of (i) negotiating lease terms for prospective tenants, (ii)
negotiating termination or extension of leases with existing tenants, (iii)
proceedings against any other specific tenant relating to such tenant's breach
of its lease, including without limitation failure to pay rent or other sums due
to Landlord from such tenant, or (iv) legal costs incurred in connection with
development and/or construction of the Project.
(5) All insurance premiums and costs, including but not limited to,
the premiums and costs of fire, casualty, liability, rental abatement and
earthquake insurance applicable to the Project and Landlord's personal property
used in connection therewith (and all mounts paid as a result of loss sustained
that would be covered by such policies but for "deductible" or self-insurance
provisions); provided, however, that Landlord may, but shall not be obligated
to, carry earthquake
*CONFIDENTIAL TREATMENT REQUESTED
5.
<PAGE> 12
insurance. Notwithstanding the foregoing, if Landlord elects to carry earthquake
insurance, Tenant shall only be obligated to pay the following amounts on
account of such earthquake insurance during any calendar year: (i) if the
premiums and costs associated with the earthquake insurance for the Building
carried by Landlord for any given year are equal to or less than the Break Point
defined below, Tenant shall pay [...***...] of such premiums and costs as
Additional Rent; or (ii) if the premiums and costs associated with the
earthquake insurance for the Building carried by Landlord for any given year
exceed the Break Point, Tenant shall only pay [...***...] of such premiums and
costs as-Additional Rent. For purposes of this provision, "Break Point") shall
equal [...***...] (such amount to increase each year by [...***...] of the Break
Point for the preceding year). By way of example, if the premium and costs for
earthquake insurance carried by Landlord in a calendar year are [...***...],
Tenant shall be responsible for payment [...***...] as Additional Rent; however,
if the premiums and costs for earthquake insurance carried by Landlord in a
calendar year are [...***...], Tenant shall be responsible for paying
[...***...] as Additional Rent. If for any reason the earthquake insurance
carried by Landlord is part of an umbrella or overall insurance policy covering
the Building, the Project and other buildings, the determination of premiums and
costs shall be based on the allocated portion of the premium and costs with
respect to the Building, as reasonably determined by Landlord.
(6) Repairs, replacements and general maintenance (except for repairs
and replacements (i) paid for from the proceeds of insurance, (ii) paid for
directly by Tenant, other tenants or any third party, or (iii) for the benefit
solely of tenants of the Project other than Tenant to the extent that Tenant
could not obtain similar services from Landlord without an obligation to
reimburse Landlord for the entire cost thereof under the provisions of this
Lease).
(7) All real estate or personal property taxes, possessory interest
taxes, business or license taxes or fees, service payments in lieu of such taxes
or fees, annual or periodic license or use fees ("Real Property Taxes"),
including, but not limited to, all of the following: (i) all real estate taxes
and assessments, and all other taxes relating to, or levied, assessed or imposed
on, the Project, or any portion thereof, or interest therein; (ii) all taxes,
assessments, charges, levies, fees, excises or penalties, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind and
nature imposed, levied upon, measured by or attributable to Landlord's
equipment, furniture, fixtures and other property located in, or used in
connection with, the Project, or levied upon, measured by or reasonably
attributable to the cost or value of any of the foregoing; (iii) all other
taxes, assessments, charges, levies, fees, or penalties, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind and
nature imposed, levied, assessed, charged or collected by any governmental
authority or other entity either directly or indirectly (A) for public
improvements, user, maintenance or development fees, transit, housing,
employment, police, fire, open space, streets, sidewalks, utilities, job
training, child care or other governmental services or benefits, (B) upon or
with respect to the development, possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of, or business operations in,
the Project (c) upon, against or measured by the area of the Project. or uses
made thereof. or leases made to tenants thereof, or all or any part of the rents
collected or collectible from tenants thereof, and (D) for environmental matters
or as a result of the imposition of mitigation measures, including parking
taxes, employer parking
*CONFIDENTIAL TREATMENT REQUESTED
6.
<PAGE> 13
regulations, or fees, charges or assessments as a result of the treatment of the
Project, or any portion thereof or interest therein, as a source of pollution or
storm water runoff; (iv) any tax or excise, however described, imposed in
addition to, or in substitution partially or totally of, any or all of the
foregoing taxes, assessments, charges or fees; and (v) any and all costs,
expenses and attorneys' fees paid or incurred by Landlord in connection with any
proceeding or action to contest in whole or in part, formally or informally, the
imposition, collection or validity of any of the foregoing taxes, assessments,
charges or fees. If by law any Real Property Taxes may be paid in installments
at the option of the taxpayer, then Landlord shall include within Real Property
Taxes only those installments (including interest, if any) which would become
due by exercise of such option. Real estate taxes shall not include (i)
inheritance or estate taxes imposed upon or assessed against the Project, or any
part thereof or interest therein, or (ii) taxes computed upon the basis of the
net income derived from the Project by Landlord or the owner of any interest
therein.
(8) Amortization (together with reasonable financing charges) of
capital improvements made to the Premises, the Building or the Project
subsequent to the Commencement Date that (i) are or will be required to comply
with applicable law, ordinance rule or regulation, enacted or enforced after the
Commencement Date, (ii) are replacements of items which Landlord is obligated to
maintain; or (iii) are designed to improve the operating efficiency of the
Project ("Limited Capital Improvements"); provided, however, that in the case of
Limited Capital Improvements made solely for efficiency purposes, the amount
chargeable as an Expense in any year shall not exceed Landlord's reasonable
determination of the efficiency achieved either in direct cost savings,
avoidance of cost increases anticipated to be realized during the Term, or a
combination of both. As used in this Paragraph 4(b)(8), "amortization" shall
mean allocation of the cost equally to each year of useful life of the items
being amortized or a shorter period equal to the number of years required to
recover the cost of said item of capital improvement out of the savings in
operating efficiency derived therefrom.
(9) Capital improvements to the Premises, the Building or the Project
which do not constitute Limited Capital Improvements and which, in the
aggregate, do not exceed [...***...] for the year in question.
Notwithstanding any other provision herein to the contrary, if the
Project is not fully occupied during any year of the Term, an adjustment shall
be made in computing Additional Rent for such year so that Additional Rent shall
be computed as though the Project had been fully occupied during such year;
provided, however, that in no event shall Landlord collect in total, from Tenant
and all other tenants of the Project, an amount greater than [...***...] of the
actual Expenses during any year of the Term.
Notwithstanding anything to the contrary contained in this Lease, the
following shall not be treated as Expenses for purposes of this Paragraph 4(b):
(i) Leasing commissions, attorneys' fees, costs, disbursements,
and other expenses incurred in connection with negotiations or disputes with
tenants (other than
*CONFIDENTIAL TREATMENT REQUESTED
7.
<PAGE> 14
Tenant), or in connection with leasing, renovating, or improving space for
tenants or other occupants or prospective tenants or other occupants of the
Building.
(ii) The cost of any service sold to any tenant (including
Tenant) or other occupant for which Landlord is entitled to be reimbursed as an
additional charge or rental over and above the basic rent and escalations
payable under the lease with that tenant.
(iii) Any depreciation on the Building or Project.
(iv) Expenses in connection with services or other benefits of a
type that are not provided to Tenant but which are provided another tenant or
occupant of the Building or Project.
(v) Costs incurred due to Landlord's violation of any terms or
conditions of this Lease or any other lease relating to the Building or Project.
(vi) Overhead profit increments paid to Landlord's subsidiaries
or affiliates for management or other services on or to the Building or for
supplies or other materials to the extent that the cost of the services,
supplies, or materials exceeds the cost that would have been paid had the
services, supplies, or materials been provided by unaffiliated parties on a
competitive basis.
(vii) All interest, loan fees, and other carrying costs related
to any mortgage or deed of trust or related to any capital item, and all rental
due under any ground or underlying lease, or any lease for any equipment
ordinarily considered to be of a capital nature (except janitorial equipment
which is not affixed to the Building.)
(viii) Any compensation paid to clerks, attendants, or other
persons in commercial concessions operated by Landlord.
(ix) Advertising and promotional expenditures.
(x) Costs of repairs and other work occasioned by fire,
windstorm, or other casualty that are insured or required to be insured by
Landlord hereunder, excluding any deductible.
(xi) Any costs, fines, or penalties incurred due to violations by
Landlord of any governmental rule or authority, this Lease or any other lease in
the Project, or due to Landlord's gross negligence or willful misconduct.
(xii) Costs for sculpture, paintings, or other objects of art
(nor insurance thereon or extraordinary security in connection therewith).
(xiii) Wages, salaries, or other compensation paid to any
executive employees above the grade of building manager; provided however,
Landlord may charge as an Expense wages, salaries and other compensation for any
employees who provide service to the Building and/or Project in reasonable
proportion to the time spent in providing such service to the Building and/or
Project.
8.
<PAGE> 15
(xiv) The cost of correcting any building code or other
violations which were violations prior to the Commencement Date.
(xv) The cost of containing, removing, or otherwise remediating
any contamination of the Project (including the underlying land and ground
water) by any Hazardous Materials either (i) where such contamination existed
prior to the date of this Lease or (ii) where such costs, in any given calendar
year, exceed, in the aggregate, [...***...]. Nothing in this provision shall be
deemed to limit Tenant's liability with respect to Hazardous Materials as set
forth in this Lease, including without limitation, Paragraph 16 and Paragraph 32
below.
(xvi) Any other expense, except as otherwise specifically
provided for in this Lease, that under generally accepted accounting principles
and practice consistently applied would not be considered a normal maintenance
or operating expense.
(C) PAYMENT OF ADDITIONAL RENT.
(1) Upon commencement of this Lease, Landlord shall submit to Tenant
an estimate of monthly Additional Kent for the period between the Commencement
Date and the following December 31 and Tenant shall pay such estimated
Additional Kent on a monthly basis, in advance, on the first day of each month.
Tenant shall continue to make said monthly payments until notified by Landlord
of a change therein. By April 1 of each calendar year, Landlord shall endeavor
to provide to Tenant a statement (the "Expense Statement") showing the actual
Additional Rent due to Landlord for the prior calendar year, to be prorated
during the first year from the Commencement Date. If the total of the monthly
payments of Additional Rent that Tenant has made for the prior calendar year is
less than the actual Additional Rent chargeable to Tenant for such prior
calendar year, then Tenant shall pay the difference in a lump sum within ten
(10) days after receipt of such statement from Landlord. Any overpayment by
Tenant of Additional Rent for the prior calendar year shall be credited towards
the Additional Rent next due, or returned to Tenant in cash if no subsequent
Additional Rent will be payable.
(2) Landlord's then-current annual operating and capital budgets for
the Building and the Project or the pertinent part thereof shall be used for
purposes of calculating Tenant's monthly payment of estimated Additional Rent
for the current year, subject to adjustment as provided above. Landlord shall
make the final determination of Additional Rent for the year in which this Lease
terminates as soon as possible after termination of such year. Even though the
Term has expired and Tenant has vacated the Premises, Tenant shall remain liable
for payment of any amount due to Landlord in excess of the estimated Additional
Rent previously paid by Tenant, and, conversely, Landlord shall promptly return
to Tenant any overpayment. Failure of Landlord to submit statements as called
for herein shall not be deemed a waiver of Tenant's obligation to pay Additional
Rent as herein provided.
(3) With respect to Expenses which Landlord allocates to the Building,
Tenant's "Proportionate Share of the Building" shall be the percentage set forth
in the Basic Lease Information as Tenant's Proportionate Share of the Building,
as adjusted by Landlord from time to time as a result of changes in the square
footage leased by Tenant hereunder. With respect to
*CONFIDENTIAL TREATMENT REQUESTED
9.
<PAGE> 16
Expenses which Landlord allocates to the Project as a whole or to only a portion
of the Project, Tenant's "Proportionate Share of the Project" shall be, with
respect to Expenses which Landlord allocates to the Project as a whole, the
percentage set forth in the Basic Lease Information as Tenant's Proportionate
Share of the Project and, with respect to Expenses which Landlord allocates to
only a portion of the Project, a percentage calculated by Landlord from time to
time in its reasonable discretion and furnished to Tenant in writing (for
example, if the Building constitutes the only occupied premises of the Project,
Landlord may allocate [...***...] of such Expenses as lighting, landscaping and
Common Area maintenance to Tenant), in either case as adjusted by Landlord from
time to time for changes in the square footage leased by Tenant, addition of
improvements to the Project or changes in the physical size of the Project,
whether such changes in size are due to an addition to or a sale or conveyance
of a portion of the Project or otherwise. Notwithstanding the foregoing,
Landlord may equitably adjust Tenant's Proportionate Share of the Building or of
the Project, as applicable, for all or part of any item of expense or cost
reimbursable by Tenant that relates to a repair, replacement, or service that
benefits only the Premises.
(D) GENERAL PAYMENT TERMS. The Base Rent, Additional Rent and all other
sums payable by Tenant to Landlord hereunder, including, without limitation, any
Late Charges, as defined below, assessed pursuant to Paragraph 6 below and any
interest assessed pursuant to Paragraph 44 below, are referred to as the "Rent".
All Rent shall be paid without deduction, offset or abatement in lawful money of
the United States of America. Checks are to be made payable to HMS Gateway
Office, L.P. and shall be mailed: c/o Hines Interests Limited Partnership, 101
California Street, Suite 1000, San Francisco, California 94111-5848, Attn: Tom
Kruggel or to such other person or place as Landlord may, from time to time,
designate to Tenant in writing. The Rent for any fractional part of a calendar
month at the commencement or termination of the Lease term shall [se a prorated
amount of the Rent for a full calendar month based upon the number of days in
the month of the commencement or termination of the Lease term, as applicable.
(E) AUDIT. Provided Tenant is not in Default under the terms of this Lease,
Tenant, at its sole cost and expense, shall have the right within ninety (90)
days after the delivery of each Expense Statement to review and audit Landlord's
books and records regarding such Expense Statement for the sole purpose of
determining the accuracy of such Expense Statement. Such review or audit shall
be performed by a nationally recognized accounting firm that calculates its fees
with respect to hours actually worked and that does not discount its time or
rate (as opposed to a calculation based upon percentage of recoveries or other
incentive arrangement), shall take place during normal business hours in the
office of Landlord or Landlord's property manager and shall be completed within
three (3) business days after the commencement thereof provided that Landlord or
Landlord's property manager has made the books and records regarding the Expense
Statement available for review. If Tenant does not so review or audit Landlord's
books and records, Landlord's Expense Statement shall be final and binding upon
Tenant. In the event that Tenant determines on the basis of its review of
Landlord's books and records that the amount of Expenses paid by Tenant pursuant
to this Paragraph 4 for the period covered by such Expense Statement is less
than or greater than the actual amount properly payable by Tenant under the
*CONFIDENTIAL TREATMENT REQUESTED
10.
<PAGE> 17
terms of this Lease, Tenant shall promptly pay any deficiency to Landlord or
Landlord shall promptly refund any excess payment to Tenant and pay for any
reasonable audit expenses, if such excess payment exceeds the aggregate Expenses
in Landlord's Expense Statement by [...***...], as the case may be.
5. UTILITY EXPENSES
(A) Tenant shall pay the cost of all water, sewer use, sewer discharge
fees, gas, heat, electricity, refuse pick-up, janitorial service (including,
without limitation, exterior and interior window washing), telephone and all
materials and services or other utilities (collectively, "Utilities") billed or
metered separately to the Premises and/or Tenant, together with all taxes,
assessments, charges and penalties added to or included within such cost. Tenant
acknowledges that the Premises. The Building and/or the Project may become
subject to the rationing of Utility services or restrictions on Utility use as
required by a public utility company, governmental agency or other similar
entity having jurisdiction thereof. Tenant acknowledges and agrees that its
tenancy and occupancy hereunder shall be subject to such rationing or
restrictions as may be imposed upon Landlord, Tenant, the Premises, the Building
and/or the Project, and Tenant shall in no event be excused or relieved from any
covenant or obligation to be kept or performed by Tenant by reason of any such
rationing or restrictions. Tenant agrees to comply with energy conservation
programs implemented by Landlord by reason of rationing, restrictions or Laws.
(B) Landlord shall not be liable for any loss, injury or damage to property
caused by or resulting from any variation, interruption, or failure of Utilities
due to any cause whatsoever, or from failure to make any repairs or perform any
maintenance. No temporary interruption or failure of such services incident to
the making of repairs, alterations, improvements, or due to accident, strike, or
conditions or other events shall be deemed an eviction of Tenant or relieve
Tenant from any of its obligations hereunder. In no event shall Landlord be
liable to Tenant for any damage to the Premises or for any loss, damage or
injury to any property therein or thereon occasioned by bursting, rupture,
leakage or overflow of any plumbing or other pipes (including, without
limitation, water, steam, and/or refrigerant lines), sprinklers, tanks, drains,
drinking fountains or washstands, or other similar cause in, above, upon or
about the Premises, the Building, or the Project, unless caused by Landlord's
gross negligence or willful misconduct.
6. LATE CHARGE
Notwithstanding any other provision of this Lease, Tenant hereby
acknowledges that late payment to Landlord of Rent, or other amounts due
hereunder will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. If any Rent or
other sums due from Tenant are not received by Landlord or by Landlord's
designated agent when due, then Tenant shall pay to Landlord a late charge equal
to [...***...] of such overdue amount (the Late Charge"), plus any costs and
reasonable attorneys' fees incurred by Landlord by reason of Tenant's failure to
pay Rent and/or other charges when due hereunder; provided however, Landlord
hereby waives its right to collect the first two (2) Late Charges payable by
Tenant hereunder during the Term. Landlord and Tenant hereby agree
*CONFIDENTIAL TREATMENT REQUESTED
11.
<PAGE> 18
that such late charges represent a fair and reasonable estimate of the cost that
Landlord will incur by reason of Tenant's late payment and shall not be
construed as a penalty. Landlord's acceptance of such late charges shall not
constitute a waiver of Tenant's default with respect to such overdue amount or
estop Landlord from exercising any of the other rights and remedies granted
under this Lease.
Initials: Landlord ________ Tenant ________
7. SECURITY DEPOSIT
Concurrently with Tenant's execution of the Lease, Tenant shall deposit
with Landlord the Security Deposit specified in the Basic Lease Information as
security for the full and faithful performance of each and every term, covenant
and condition of this Lease. Landlord may use, apply or retain the whole or any
part of the Security Deposit as may be reasonably necessary (a) to remedy
Tenant's default in the payment of any Rent, (b) to repair damage to the
Premises caused by Tenant, (c) to clean the Premises upon termination of this
Lease, provided that Tenant has, in the reasonable judgment of Landlord, not
cleaned the Premises in accordance with Paragraph II, (d) to reimburse Landlord
for the payment of any amount which Landlord may reasonably spend or be required
to spend by reason of Tenant's default, or (e) to compensate Landlord for any
other loss or damage which Landlord may suffer by reason of Tenant's default.
Should Tenant faithfully and fully comply with all of the terms, covenants and
conditions of this Lease, within thirty (30) days following the expiration of
the Term, the Security Deposit or any balance thereof shall be returned to
Tenant or, at the option of Landlord, to the last assignee of Tenant's interest
in this Lease. Landlord shall keep the Security Deposit separate from its
general funds and shall deposit such in a financial institution selected by
Landlord and Tenant shall be entitled to any interest paid by such Bank on the
Security Deposit and such interest shall be paid on an annual basis to Tenant by
Landlord concurrently with the delivery of the Expense Statement or credited
against any amounts owed by Tenant to Landlord as shown on such Expense
Statement. If Landlord so uses or applies all or any portion of said deposit,
within five (5) days after written demand therefor Tenant shall deposit cash
with Landlord in an amount sufficient to restore the Security Deposit to the
full extent of the above amount, and Tenant's failure to do so shall be a
default under this Lease. In the event Landlord transfers its interest in this
Lease, Landlord shall transfer the then remaining amount of the Security Deposit
to Landlord's successor in interest, and thereafter Landlord shall have no
further liability to Tenant with respect to such Security Deposit.
8. POSSESSION
(A) TENANT'S RIGHT OF POSSESSION. Subject to Paragraph 8(b), Tenant shall
be entitled to possession of the Premises upon commencement of the Term.
(B) DELAY IN DELIVERING POSSESSION. If for any reason whatsoever, Landlord
cannot deliver possession of the Premises to Tenant on or before the Estimated
Commencement Date, this Lease shall not be void or voidable (except as otherwise
expressly provided in Paragraph 8(c) and (d) below), nor shall Landlord, or
Landlord's agents, advisors, employees, partners, shareholders, directors,
invitees or independent contractors (collectively, "Landlord's Agents"), be
liable to Tenant for any loss or damage resulting therefrom. Subject to
Paragraph D of
12.
<PAGE> 19
Exhibit B, Tenant shall not be liable for Rent until Landlord delivers
possession of the Premises to Tenant. The Expiration Date shall be extended by
the same number of days that Tenant's possession of the Premises was delayed
beyond the Estimated Commencement Date.
(C) TIME FOR PERFORMANCE. The parties have set forth on Exhibit H certain
events which must occur prior to or during the construction of the Base Building
Improvements (each a "Condition"), together with certain dates upon which each
condition must be satisfied ("Initial Window Date"); provided however, if
Landlord is delayed in satisfying any Condition due to Tenant Delays or Force
Majeure Events (as defined in Exhibit B), all of the Initial Window Dates set
forth on Exhibit H shall be extended for a period equal to the length of such
delay. If any condition is not satisfied on or before its Initial Window Date,
Tenant shall have the right to terminate this Lease by delivering written notice
to Landlord within five (5) business days after expiration of the applicable
Initial Window Date. If Tenant does not deliver written notice of termination to
Landlord within such five day period, Tenant shall have waived its right to
terminate as a result of Landlord's failure to satisfy the particular Condition
in question, all rights and obligations of Landlord and Tenant shall continue in
full force and effect, including satisfaction of the remaining Conditions. If
Tenant timely elects to terminate this Lease, the Lease shall terminate and
Landlord shall promptly refund to Tenant all sums paid to Landlord by Tenant,
including without limitation Carry Costs, if any.
(D) OUTSIDE COMPLETION DATE. Notwithstanding anything in this Lease to the
contrary, if Landlord has not obtained a temporary certificate of occupancy
relating to the Base Building Improvements on or before [...***...], either
Tenant or Landlord shall have the right to terminate this Lease by delivering
written notice to the other on or before [...***...]; provided, however, if
Landlord is delayed in obtaining the temporary certificate of occupancy relating
to the Base Building Improvements as a result of Tenant Delays, such date shall
be extended for a period equal to the length of any such Tenant Delay. If
neither party delivers written notice of termination to the other within such
time period, each party shall have waived its right to terminate and all rights
and obligations of Landlord and Tenant shall continue in full force and effect,
including satisfaction of the remaining Conditions. If either Tenant or Landlord
timely elects to terminate this Lease, the Lease shall terminate and Landlord
shall promptly refund to Tenant all sums paid to Landlord by Tenant, including
without limitation Carry Costs, if any.
9. USE OF PREMISES
(A) PERMITTED USE. The use of the Premises by Tenant and Tenant's agents,
advisors, employees, partners, shareholders, directors, invitees and independent
contractors (collectively, "Tenant's Agents") shall be solely for the Permitted
Use specified in the Basic Lease Information and for no other use. Tenant shall
not permit any objectionable or unpleasant odor, smoke, dust, gas, noise or
vibration to emanate from or near the Premises. The Premises shall not be used
to create any nuisance or trespass, for any illegal purpose, for any purpose not
permitted by Laws, for any purpose that would invalidate the insurance or
increase the premiums for insurance on the Premises, the Building or the Project
or for any purpose or in any manner that would interfere with other tenants' use
or occupancy of the Project. Tenant agrees to pay to
*CONFIDENTIAL TREATMENT REQUESTED
13.
<PAGE> 20
Landlord, as Additional Rent, any increases in premiums on policies resulting
from Tenant's Permitted Use or any other use or action by Tenant or Tenant's
Agents which increases Landlord's premiums or requires additional coverage by
Landlord to insure the Premises. Tenant agrees not to overload the floor(s) of
the Building.
(B) COMPLIANCE WITH GOVERNMENTAL REGULATIONS AND PRIVATE RESTRICTIONS.
Tenant and Tenant's Agents shall, at Tenant's expense, faithfully observe and
comply with (1) all municipal, state and federal laws, statutes, codes, rules,
regulations, ordinances, requirements, and orders (collectively, "Laws"), except
such laws applicable to the construction of the Base Building Improvements now
in force or which may hereafter be in force pertaining to the Premises or
Tenant's use of the Premises, the Building or the Project, including without
limitation, any Laws requiring installation of fire sprinkler systems, seismic
reinforcement and related alterations, whether substantial in cost or otherwise,
provided, however, that except as provided in Paragraph 9(c) below, Tenant shall
not be required to make or, except as provided in Paragraph 4 above, pay for,
structural changes to the Premises or the Building not related to Tenant's
specific use of the Premises unless the requirement for such changes is imposed
as a result of any improvements or additions made or proposed to be made at
Tenant's request; (2) all recorded covenants, conditions and restrictions
affecting the Project ("Private Restrictions") now in force or which may
hereafter be in force; and (3) any and all rules and regulations set forth in
Exhibit E and any other rules and regulations now or hereafter promulgated by
Landlord related to parking or the operation of the Premises, the Building
and/or the Project (collectively, the "Rules and Regulations"). The judgment of
any court of competent jurisdiction, or the admission of Tenant in any action or
proceeding against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any such Laws or Private Restrictions, shall be conclusive
of that fact as between Landlord and Tenant.
(C) COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Landlord and Tenant
hereby agree and acknowledge that the Premises, the Building and/or the Project
may be subject to, among other Laws, the requirements of the Americans with
Disabilities Act, a federal law codified at 42 U.S.C. 12101 et seq., including,
but not limited to Title III thereof, and all regulations and guidelines related
thereto, together with any and all laws, rules, regulations, ordinances, codes
and statutes now or hereafter enacted by local or state agencies having
jurisdiction thereof, including all requirements of Title 24 of the State of
California, as the same may be in effect on the date of this Lease and may be
hereafter modified, amended or supplemented (collectively, the "ADA"). Landlord
shall cause the Base Building Improvements to be constructed in compliance with
the ADA. Any Tenant Improvements to be constructed hereunder shall be in
compliance with the requirements of the ADA, and all costs incurred for purposes
of compliance therewith shall be a part of and included in the costs of the
Tenant Improvements. Tenant shall be solely responsible for conducting its own
independent investigation of this matter and for ensuring that the design of all
Tenant Improvements strictly complies with all requirements of the ADA. Subject
to reimbursement pursuant to Paragraph 4 above, if any barrier removal work or
other work is required to the Building, the Common Areas or the Project under
the ADA, then such work shall be the responsibility of Landlord; provided, if
such work is required under the ADA as a result of Tenant's use of the Premises
or any work or Alteration (as hereinafter defined) made to the Premises by or on
behalf of Tenant, then such work shall be performed by Landlord at the sole cost
and expense of Tenant. Except as otherwise expressly provided in this provision,
Tenant shall be responsible at its sole cost and
14.
<PAGE> 21
expense for fully and faithfully complying with all applicable requirements of
the ADA, including without limitation, not discriminating against any disabled
persons in the operation of Tenant's business in or about the Premises, and
offering or otherwise providing auxiliary aids and services as, and when,
required by the ADA. Within ten (10) days after receipt, Tenant shall advise
Landlord in writing, and provide Landlord with copies of (as applicable), any
notices alleging violation of the ADA relating to any portion of the Premises,
the Building or the Project; any claims made or threatened orally or in writing
regarding noncompliance with the ADA and relating to any portion of the
Premises, the Building, or the Project; or any governmental or regulatory
actions or investigations instituted or threatened regarding noncompliance with
the ADA and relating to any portion of the Premises, the Building or the
Project. Tenant shall and hereby agrees to protect, defend (with counsel
acceptable to Landlord) and hold Landlord and Landlord's Agents harmless and
indemnify Landlord and Landlord's Agents from and against all liabilities,
damages, claims, losses, penalties, judgments, charges and expenses (including
attorneys' fees, costs of court and expenses necessary in the prosecution or
defense of any litigation including the enforcement of this provision) arising
from or in any way related to, directly or indirectly, Tenant's or Tenant's
Agents' violation or alleged violation of the ADA. Landlord shall and hereby
agrees to protect, defend (with counsel acceptable to Tenant) and hold Tenant
and Tenant's Agents harmless and indemnify Tenant and Tenant's Agents from and
against all liabilities, damages, claims, losses, penalties, judgments, charges
and expenses (including attorneys' fees, costs of court and expenses necessary
in the prosecution or defense of any litigation including the enforcement of
this provision) arising from or in any way related to, directly or indirectly,
Landlord's failure to have the Building Improvements constructed in compliance
with the ADA.
10. ACCEPTANCE OF PREMISES
By taking possession of the Premises hereunder Tenant accepts the Premises as
suitable for Tenant's intended use and as being in good and sanitary operating
order, condition and repair, AS IS, and without representation or warranty by
Landlord as to the condition, use or occupancy which may be made thereof, except
for Landlord's express obligations described in Exhibit A. Any exceptions to the
foregoing must be by written agreement executed by Landlord and Tenant.
11. SURRENDER
(A) Tenant agrees that on the last day of the Term, or on the sooner
termination of this Lease, Tenant shall surrender the Premises to Landlord (i)
in good condition and repair (damage by acts of God, fire, and normal wear and
tear excepted), but with all interior walls painted or cleaned so they appear
painted and, where appropriate, patched, any carpets cleaned, all floors cleaned
and waxed, and all plumbing fixtures in good condition and working order and,
where appropriate, capped, and (ii) otherwise in accordance with Paragraph
32(h). Normal wear and tear shall not include any damage or deterioration that
would have been prevented by proper maintenance by Tenant, or Tenant otherwise
performing all of its obligations under this Lease. On or before the expiration
or sooner termination of this Lease, Tenant shall, in accordance with this
Paragraph 11, and at Tenant's sole cost and expense, remove, and repair any
damage caused by such removal, (A) all of Tenant's Property (as hereinafter
defined) and Tenant's signage from the Premises, the Building and the Project
and (B) all Tenant Improvements and all Alterations required to be removed
pursuant to Paragraph 12 and Exhibit A. Any of Tenant's Property not
15.
<PAGE> 22
so removed by Tenant as required herein shall be deemed abandoned and may be
stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant
waives all claims against Landlord for any damages resulting from Landlord's
retention and disposition of such property; provided, however, that Tenant shall
remain liable to Landlord for all costs incurred in storing and disposing of
such abandoned property of Tenant. All Tenant Improvements and Alterations
except those which Tenant is required to remove pursuant to Paragraph 12 and
Exhibit A shall remain in the Premises as the property of Landlord. If the
Premises are not surrendered at the end of the Term or sooner termination of
this Lease, and in accordance with the provisions of this Paragraph 11 and
Paragraph 32(h) below, Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all loss or liability resulting from delay by Tenant in
so surrendering the Premises including, without limitation, any loss or
liability resulting from any claim against Landlord made by any succeeding
tenant or prospective tenant founded on or resulting from such delay and losses
to Landlord due to lost opportunities to lease any portion of the Premises to
any such succeeding tenant or prospective tenant, together with, in each case,
actual attorneys' fees and costs.
(B) Notwithstanding Paragraph 1l(a) above, with respect to all R&D Space,
as defined below, within the Premises, Tenant shall, on the last day of the Term
or on the sooner termination of this Lease, surrender such space to Landlord as
follows:
(1) The Allowable R&D Space, as defined below, shall be surrendered to
Landlord in the condition specified in Paragraphs 11 (a)(i) and (ii), above,
except that Tenant shall not be required to paint or patch any interior walls
located within the Allowable R&D Space.
(2) The Additional R&D Space, as defined below, shall be surrendered
to Landlord in the conditions specified in Paragraphs 11 (a)(i) and (ii), above.
In addition, Tenant shall pay to Landlord on or before the last day of the Term
or on the sooner termination of this Lease, the costs, as reasonably determined
by Landlord, necessary to remove all Tenant Improvements and Alterations
required to be removed under Paragraph 12 and Exhibit A, and otherwise to
surrender the Premises in a condition ready for Landlord to commence build-out
of such space for a succeeding tenant.
(3) The Converted Office Space, as defined below, shall be surrendered
to Landlord in the condition required of Additional R&D Space, as provided in
Paragraph 11(b)2 above; provided however, Tenant shall also pay to Landlord on
or before the last day of the Term or on the sooner termination of this Lease,
the Conversion Allowance, as defined below.
(C) For the purposes of this Paragraph 11, the following definitions shall
apply:
(1) ALLOWABLE R&D SPACE shall mean (i) that portion of R&D Space
within the original Premises (specifically excluding the Expansion Space, as
defined below) (the "Original Premises") that, in the aggregate, does not exceed
[...***...] square feet and (ii) that portion of R&D Space within the Expansion
Space-that, in the aggregate, does not exceed [...***...] square feet, the
location of which shall be reasonably designated by Landlord in a notice to
Tenant
*CONFIDENTIAL TREATMENT REQUESTED
16.
<PAGE> 23
given not later than ninety (90) days prior to the Expiration Date (except in
the event of a termination of this Lease prior to the scheduled Expiration Date,
in which event, no advance notice shall be required).
(2) ADDITIONAL R&D SPACE shall mean that portion of R&D Space within
the Original Premises in excess of the maximum Allowable R&D Space under
Paragraph 1l(c)(1) above; provided that the Additional R&D Space shall not
exceed an aggregate of [...***...] square feet. The location of the Additional
R&D Space shall be reasonably designated by Landlord in a notice to Tenant given
not later than ninety (90) days prior to the Expiration Date (except in the
event of a termination of this Lease prior to the scheduled Expiration Date, in
which event, no advance notice shall be required).
(3) CONVERTED OFFICE SPACE shall mean (i) that portion of R&D Space
within the Original Premises in excess of the maximum Additional R&D Space for
the Original Premises and (ii) that portion of K&D Space within the Expansion
Space in excess of the maximum Allowable R&D Space for the Expansion Space.
(4) R&D SPACE shall mean space that has been improved for research,
development, engineering, evaluation and testing activities and that, without
reconfiguration, cannot be used for standard office use, all as determined by
Landlord in its reasonable discretion based upon market conditions generally
existing at the time.
(5) CONVERSION ALLOWANCE shall be an amount, calculated upon
termination of the Lease, equal to the greater of (i) [...***...] multiplied by
the total square feet of Converted Office Space or (ii) [...***...] multiplied
by the number of full Lease Years expired at the termination of the Lease,
multiplied by the total square feet of Converted Office Space. By way of
example, if the Lease is terminated in the [...***...] Lease Year and the
Converted Office Space is [...***...] square feet, then the Conversion Allowance
would be [...***...] whichever is greater than [...***...].
(D) If at any time during the Term, the total square footage of the R&D
Space in (i) the Original Premises exceeds [...***...] square feet or (ii) the
Expansion Space exceeds [...***...] square feet (each excess amount being
referred to as the "Excess R&D Space Square Footage"), Tenant shall deposit with
Landlord, as security for Tenant's surrender obligations under this Paragraph
11, an amount equal to the sum of [...***...] multiplied by the Excess R&D Space
Square Footage. Such amount shall be held by Landlord in an interest bearing
account, with all interest earned thereon to be held by Landlord, and such
amount, including interest, shall be subsequently applied or disbursed in
accordance with Paragraph 7.
12. ALTERATIONS AND ADDITIONS
(A) Tenant shall not make, or permit to be made, any alteration, addition
or improvement (hereinafter referred to individually as an "Alteration" and
collectively as the "Alterations") to the Premises or any part thereof without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, that Landlord
*CONFIDENTIAL TREATMENT REQUESTED
17.
<PAGE> 24
shall have the right in its sole and absolute discretion to consent or to
withhold its consent to any Alteration which affects the structural portions of
the Premises, the Building or the Project or the mechanical, electrical or
life-safety systems serving the Premises, the Building and/or the Project or any
portion thereof (the "Systems"). Notwithstanding the foregoing, but subject to
the conditions set forth below, Tenant may, without Landlord's consent, make
Alterations within the Premises provided that such Alterations (i) do not affect
the structural portions of the Premises, the Building or the Project or the
Systems, and (ii) the cost, on an individual project basis, of any Alteration,
is less than [...***...] and, in the aggregate for the Term, does not exceed
[...***...].
(B) Any Alteration to the Premises shall be at Tenant's sole cost and
expense, in compliance with all applicable Laws and all requirements requested
by Landlord, including, without limitation, the requirements of any insurer
providing coverage for the Premises or the Project or any part thereof, and in
accordance with plans and specifications approved in writing by Landlord, which
approval shall not be unreasonably withheld, conditioned or delayed.
Notwithstanding the foregoing, with respect to Alterations that may be made
without Landlord's prior consent as permitted above, Landlord agrees that Tenant
shall not be required to submit plans and specifications for prior approval of
the Landlord and that Landlord shall not require prior approval of the
installing contractor; provided, however, if Tenant does not obtain the prior
approval of plans and specifications for any Alteration, then subject to the
terms of this Paragraph 12(b), Landlord may, by notice to Tenant given not later
than ninety (90) days prior to the Expiration Date (except in the event of a
termination of this Lease prior to the scheduled Expiration Date, in which event
no advance notice shall be required), require Tenant, at Tenant's expense, to
remove, and repair any damage caused by removal of, any and all such
Alterations. If Tenant does not obtain Landlord's prior consent as to the
installing contractor, Tenant shall be responsible for maintaining harmonious
labor relations with all contractors and service providers servicing the
Premises, Building and/or Project. In addition, with respect to any Alterations
made without Landlord's prior consent as permitted above, Tenant agrees to meet
with Landlord, at Landlord's request, not more than once in every calendar year,
to discuss any such Alterations that have been made to the Premises. In such
meeting, Tenant shall provide Landlord with "as-built" plans and, if requested
by Tenant, Landlord shall within 30 days of such meeting, provide Tenant with a
list of those Alterations reviewed by Landlord that will be required to be
removed upon termination of the Lease. Any Alterations requiring the prior
consent of Landlord shall contain a request that Landlord specify in writing to
Tenant those Alterations that Tenant will be required to remove in accordance
with Paragraph 1 l(a) upon expiration or sooner termination of this Lease. Upon
receipt of such request, Landlord shall make such determination and respond to
Tenant within five (5) business days of such request. Before Alterations may
begin, valid building permits or other permits or licenses required must be
furnished to Landlord, and, once the Alterations begin, Tenant will diligently
and continuously pursue their completion. Landlord may monitor construction of
the Alterations and Tenant shall reimburse Landlord for its costs (including,
without limitation, the costs of any construction manager retained by Landlord)
in reviewing plans and documents and in monitoring construction. Tenant shall
maintain during the course of construction, at its sole cost and expense,
builders' risk insurance for the amount of the completed value of the
Alterations on an all-risk non-reporting form covering all improvements under
construction, including building materials, and other insurance in amounts and
against
*CONFIDENTIAL TREATMENT REQUESTED
18.
<PAGE> 25
such risks as Landlord shall reasonably require in connection with the
Alterations. In addition to and without limitation on the generality of the
foregoing, Tenant shall ensure that its contractor(s) procure and maintain in
full force and effect during the course of construction a "broad form"
commercial general liability and property damage policy of insurance naming
Landlord, Tenant and Landlord's lenders as additional insureds. The minimum
limit of coverage of the aforesaid policy shall be in the amount of not less
than [...***...] for injury or death of one person in any one accident or
occurrence and in the amount of not less than [...***...] for injury or death of
more than one person in any one accident or occurrence, and shall contain a
severability of interest clause or a cross liability endorsement. Such insurance
shall further insure Landlord and Tenant against liability for property damage
of at least [...***...].
(C) Except as otherwise expressly stated herein or agreed to between the
parties, all Alterations, including, but not limited to, heating, lighting,
electrical, air conditioning, fixed partitioning, drapery, wall covering and
paneling, built-in cabinet work and carpeting installations made by Tenant,
together with all property that has become an integral part of the Premises or
the Building, shall at once be and become the property of Landlord, and shall
not be deemed trade fixtures or Tenant's Property.
(D) No private telephone systems, utilities and/or other related computer,
utility or telecommunications equipment or lines may be installed without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed. If Landlord gives such consent, all equipment
must be installed within the Premises and, unless Landlord, at the time of
installation, notified Tenant in writing that removal would not be required,
removed upon the expiration or sooner termination of this Lease and the Premises
restored to the same condition as before such installation.
(E) Notwithstanding anything herein to the contrary, before installing any
equipment or lights which generate an undue amount of heat in the Premises, or
if Tenant plans to use any high-power usage equipment in the Premises, Tenant
shall obtain the written permission of Landlord which permission shall not be
unreasonably withheld, conditioned or delayed. Landlord may refuse to grant such
permission unless Tenant agrees to pay the costs to Landlord for installation of
supplementary air conditioning capacity or electrical systems necessitated by
such equipment.
(F) Tenant agrees not to proceed to make any Alterations, notwithstanding
consent from Landlord to do so, until Tenant notifies Landlord in writing of the
date Tenant desires to commence construction or installation of such Alterations
and Landlord has approved such date in writing, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work.
13. MAINTENANCE AND REPAIRS OF PREMISES
(A) MAINTENANCE BY TENANT. Throughout the Term, Tenant shall, at its sole
expense, (1) keep and maintain in good order and condition the Premises, and
repair and replace every part
*CONFIDENTIAL TREATMENT REQUESTED
19.
<PAGE> 26
thereof, including interior glass, windows, window frames and casements,
interior doors and door frames and door closers; interior lighting (including,
without limitation, light bulbs and ballasts), the plumbing and electrical
systems exclusively serving the Premises, all communications systems serving the
Premises, signage, interior demising walls and partitions, equipment, interior
painting and interior walls and floors, and the roll-up doors, ramps and dock
equipment, including, without limitation, dock bumpers, dock plates, dock seals,
dock levelers and dock lights located in or on the Premises (excepting only
those portions of the Building or the Project to be maintained by Landlord, as
provided in Paragraph 13Co) below), (2) furnish all expendables, including light
bulbs, paper goods and soaps, used in the Premises, and (3) keep and maintain in
good order and condition, repair and replace all of Tenant's security systems in
or about or serving the Premises. Tenant shall not do nor shall Tenant allow
Tenant's Agents to do anything to cause any damage, deterioration or
unsightliness to the Premises, the Building or the Project.
(B) MAINTENANCE BY LANDLORD. Subject to the provisions of Paragraphs 13(a),
21 and 22, and further subject to Tenant's obligation under Paragraph 4 to
reimburse Landlord, in the form of Additional Rent, for Tenant's Proportionate
Share of the Project and the Building, as applicable, of the cost and expense of
the following items, Landlord agrees to repair and maintain the following items:
exterior glass, windows, window frames and casements, exterior doors and door
frames and door closers; the roof coverings (provided that Tenant installs no
additional air conditioning or other equipment on the roof that damages the roof
coverings, in which event Tenant shall pay all costs resulting from the presence
of such additional equipment); the Systems serving the Premises and the
Building, excluding the plumbing and electrical systems exclusively serving the
Premises; and the Parking Areas, pavement, landscaping, sprinkler systems,
sidewalks, driveways, curbs, and lighting systems in the Common Areas. Subject
to the provisions of Paragraphs 13(a), 21 and 22, Landlord, at its own cost and
expense, agrees to repair and maintain the following items: the structural
portions of the roof (specifically excluding the roof coverings), the
foundation, the footings, the floor slab, and the load bearing walls and
exterior walls of the Building (excluding any glass and any routine maintenance,
including, without limitation, any painting, sealing, patching and waterproofing
of such walls). Notwithstanding anything in this Paragraph 13 to the contrary,
Landlord shall have the right to either repair or to require Tenant to repair
any damage to any portion of the Premises, the Building and/or the Project
caused by or created due to any act, omission, negligence or willful misconduct
of Tenant or Tenant's Agents and to restore the Premises, the Building and/or
the Project, as applicable, to the condition existing prior to the occurrence of
such damage; provided, however, that in the event Landlord elects to perform
such repair and restoration work, Tenant shall reimburse Landlord upon demand
for all costs and expenses incurred by Landlord in connection therewith.
Landlord's obligation hereunder to repair and maintain is subject to the
condition precedent that Landlord shall have received written notice of the need
for such repairs and maintenance and a reasonable time to perform such repair
and maintenance. Tenant shall promptly report in writing to Landlord any
defective condition known to it which Landlord is required to repair, and
failure to so report such defects shall make Tenant responsible to Landlord for
any liability incurred by Landlord by reason of such condition.
(C) TENANT'S WAIVER OF RIGHTS. Tenant hereby expressly waives all rights to
make repairs at the expense of Landlord or to terminate this Lease, as provided
for in California Civil
20.
<PAGE> 27
Code Sections 1941 and 1942, and 1932(1), respectively, and any similar or
successor statute or law in effect or any amendment thereof during the Term.
14. LANDLORD'S INSURANCE
Landlord shall purchase and keep in force "all risk" property insurance
covering the Building and the Project. Tenant shall, at its sole cost and
expense, comply with any and all reasonable requirements pertaining to the
Premises, the Building and the Project of any insurer necessary for the
maintenance of reasonable fire and commercial general liability insurance.
covering the Building and the Project. Landlord, at Tenant's cost, may maintain
"Loss of Rents" insurance, insuring that the Rent will be paid in a timely
manner to Landlord for a period of at least twelve (12) months if the Premises,
the Building or the Project or any portion thereof are destroyed or rendered
unusable or inaccessible by any cause insured against under this Lease.
Notwithstanding the foregoing, in the event Tenant provides satisfactory
evidence to Landlord that Tenant maintains insurance reasonably acceptable to
Landlord insuring that the Rent will be paid in a timely manner to Landlord for
a period of at least twelve (12) months if the Premise, the Building or the
Project or any portion thereof are destroyed or rendered unusable or
inaccessible by any cause insured against under this Lease, Landlord will not
charge Tenant for the cost of maintaining "Loss of Rents" insurance; provided
however, if for any reason Tenant fails to maintain such insurance, Tenant shall
be responsible for payment of the Rent that would have been paid to Landlord had
Tenant maintained insurance for such lost Rent.
15. TENANT'S INSURANCE
(A) COMMERCIAL GENERAL LIABILITY INSURANCE. Tenant shall, at Tenant's
expense, secure and keep in force a Commercial General Liability insurance
policy covering the Premises, insuring Tenant, and naming Landlord and its
lenders as additional insureds, against liability arising out of the ownership,
use, occupancy or maintenance of the Premises. The minimum limit of coverage of
such policy shall be in the amount of not less than [...***...] for each
occurrence combined single limited for bodily injury and property damage, shall
include an extended liability endorsement providing contractual liability
coverage (which shall include coverage for Tenant's indemnification obligations
in this Lease), and shall contain a severability of interest clause or a cross
liability endorsement. Landlord may from time to time require reasonable
increases in any such limits if Landlord believes that additional coverage is
necessary or desirable. The limit of any insurance shall not limit the liability
of Tenant hereunder. No policy maintained by Tenant under this Paragraph 15(a)
shall contain a deductible greater than [...***...]. No policy shall be
cancelable without thirty (30) days prior written notice to Landlord. Such
policies of insurance shall be issued as primary policies and not contributing
with or in excess of coverage that Landlord may carry, by an insurance company
authorized to do business in the State of California for the issuance of such
type of insurance coverage and rated A:XIII or better in Best's Key Rating
Guide.
(B) PERSONAL PROPERTY INSURANCE. Tenant shall maintain in full force and
effect on all of its personal property, furniture, furnishings, trade or
business fixtures, equipment and such
*CONFIDENTIAL TREATMENT REQUESTED
21.
<PAGE> 28
other items listed on Exhibit I (collectively, "Tenant's Property") located on
the Premises, a policy or policies of fire and extended coverage insurance with
water damage and sprinkler leakage coverage to the extent greater than
[...***...]. During the term of this Lease the proceeds from any such policy or
policies of insurance shall be used for the repair or replacement of the
fixtures and equipment so insured. Landlord shall have no interest in the
insurance upon Tenant's equipment and fixtures and will sign all documents
reasonably necessary in connection with the settlement of any claim or loss by
Tenant. Landlord will not carry insurance on Tenant's possessions.
(C) WORKER'S COMPENSATION INSURANCE; EMPLOYER'S LIABILITY INSURANCE. Tenant
shall, at Tenant's expense, maintain in full force and effect worker's
compensation insurance with not less than the minimum limits required by law,
and employer s liability insurance with a minimum limit of coverage of
[...***...].
(D) EVIDENCE OF COVERAGE. Tenant shall deliver to Landlord certificates of
insurance and true and complete copies of any and all endorsements required
herein for all insurance required to be maintained by Tenant hereunder at the
time of execution of this Lease by Tenant. Tenant shall, at least thirty (30)
days prior to expiration of each policy, furnish Landlord with certificates of
renewal or "binders" thereof. Each certificate shall expressly provide that such
policies shall not be cancelable except after thirty (30) days prior written
notice to Landlord and the other parties named as additional insurers as
required in this Lease (except for cancellation for nonpayment of premium, in
which event cancellation shall not take effect until at least ten (10) clays
notice has been given to Landlord).
16. INDEMNIFICATION
(A) OF LANDLORD. Tenant shall indemnify and hold harmless Landlord and
Landlord's Agents against and from any and all claims, liabilities, judgments,
costs, demands, causes of action and expenses (including, without limitation,
reasonable attorneys' fees) arising from (1) the use of the Premises, the
Building or the Project by Tenant or Tenant's Agents, or from any activity done,
permitted or suffered by Tenant or Tenant's Agents in or about the Premises, the
Building or the Project, and (2) any act, neglect, fault, willful misconduct or
omission of Tenant or Tenant's Agents, or from any breach or default in the
terms of this Lease by Tenant or Tenant's Agents, and (3) any action or
proceeding brought on account of any matter in items (1) or (2). If any action
or proceeding is brought against Landlord by reason of any such claim, upon
notice from Landlord, Tenant shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord. As a material part of the
consideration to Landlord, Tenant hereby releases Landlord and Landlord's Agents
from responsibility for, waives its entire claim of recovery for and assumes all
risk of (i) damage to property or injury to persons in or about the Premises,
the Building or the Project from any cause whatsoever (except that which is
caused by the gross negligence or willful misconduct of Landlord or Landlord's
Agents or by the failure of Landlord to observe any of the terms and conditions
of this Lease, if such failure has persisted for an unreasonable period of time
after written notice of such failure), or (ii) loss resulting from
*CONFIDENTIAL TREATMENT REQUESTED
22.
<PAGE> 29
business interruption or loss of income at the Premises. The obligations of
Tenant under this Paragraph 16 shall survive any termination of this Lease.
(B) OF TENANT. Landlord shall indemnify and hold harmless Tenant and
Tenant's Agents against and from any and all claims, liabilities, judgments,
costs, demands, causes of action and expenses (including, without limitation,
reasonable attorneys' fees) relating to the Project and arising from the gross
negligence or willful misconduct of Landlord or Landlord's Agents, and any
action or proceeding brought on account of such claims. If any action or
proceeding is brought against Tenant by reason of any such claim, upon notice
from Tenant, Landlord shall defend the same at Landlord's expense by counsel
reasonably satisfactory to Landlord. The obligations of Landlord under this
Paragraph 16 shall survive any termination of this Lease.
(C) NO IMPAIRMENT OF INSURANCE. The foregoing indemnity shall not relieve
any insurance carrier of its obligations under any policies required to be
carried by either party pursuant to this Lease, to the extent that such policies
cover the peril or occurrence that results in the claim that is subject to the
foregoing indemnity.
17. SUBROGATION
Landlord and Tenant hereby mutually waive any claim against the other and its
Agents for any loss or damage to any of their property located on or about the
Premises, the Building or the Project that is caused by or results from perils
covered by the property insurance required to be carried by the respective
parties in accordance with Paragraphs 14 and 15 of this Lease, whether or not
due to the negligence of the other party or its Agents. Because the foregoing
waivers will preclude the assignment of any claim by way of subrogation to an
insurance company or any other person, each party now agrees to immediately give
to its insurer written notice of the terms of these mutual waivers and shall
have their insurance policies endorsed to prevent the invalidation of the
insurance coverage because of these waivers. Nothing in this Paragraph 17 shall
relieve a party of liability to the other for failure to carry insurance
required by this Lease.
18. SIGNS
Landlord shall install, at Landlord's expense, building signage and
monument signage reflecting Tenant's occupancy of the Premises mutually
acceptable to Landlord and Tenant and complying with all applicable Laws or any
covenants, conditions or restrictions effecting the Project. Tenant shall not
place or permit to be placed in, upon, or about the Premises, the Building or
the Project any exterior, decorations, balloons, flags, pennants, banners,
advertisements or notices, or erect or install any signs, windows or door
lettering, placards, decorations, or advertising media of any type which can be
viewed from the exterior the Premises without obtaining Landlord's prior written
consent.
19. FREE FROM LIENS
Tenant shall keep the Premises, the Building and the Project free from
any liens arising out of any work performed, material furnished or obligations
incurred by or for Tenant in accordance with the provisions of this Paragraph
19. In the event that Tenant shall not, within ten (10) days following the
imposition of any such lien, cause the lien to be released of record by payment
or posting of a proper bond, Landlord shall have in addition to all other
remedies
23.
<PAGE> 30
provided herein and by law the right but not the obligation to cause same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith (including, without limitation,
attorneys' fees) shall be payable to Landlord by Tenant upon demand. Landlord
shall have the right at all times to post and keep posted on the Premises any
notices permitted or required by law or that Landlord shall deem proper for the
protection of Landlord, the Premises, the Building and the Project, from
mechanics' and materialmen's liens. Tenant shall give to Landlord at least five
(5) business days' prior written notice of commencement of any repair or
construction on the Premises.
20. ENTRY BY LANDLORD
Tenant shall permit Landlord and Landlord's Agents to enter into and
upon the Premises at all reasonable times, upon reasonable notice (except in the
case of an emergency, for which no notice shall be required), and subject to
Tenant's reasonable security arrangements, for the purpose of inspecting the
same or showing the Premises to prospective purchasers, lenders or tenants or to
alter, improve, maintain and repair the Premises or the Building as required or
permitted of Landlord under the terms hereof, or for any other business purpose,
without any rebate of Rent and without any liability to Tenant for any loss of
occupation or quiet enjoyment of the Premises thereby occasioned (except for
actual damages resulting from the gross negligence or willful misconduct of
Landlord); and Tenant shall permit Landlord to post notices of
non-responsibility and ordinary "for sale" or "for lease" signs. No such entry
shall be construed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an eviction of Tenant from the Premises. Landlord may
temporarily close entrances, doors, corridors, elevators or other facilities
without liability to Tenant by reason of such closure in the case of an
emergency and when Landlord otherwise reasonably deems such closure necessary.
21. DESTRUCTION AND DAMAGE
(A) If the Premises are damaged by fire or other perils covered by extended
coverage insurance, Landlord shall, at Landlord's option:
(1) In the event of total destruction (which shall mean destruction or
damage in excess of [...***...] of the full insurable value thereof) of the
Premises, elect either to commence promptly to repair and restore the Premises
and prosecute the same diligently to completion, in which event this Lease shall
remain in full force and effect; or not to repair or restore the Premises, in
which event this Lease shall terminate. Landlord shall give Tenant written
notice of its intention within sixty (60) days after the date (the "Casualty
Discovery Date") Landlord obtains actual knowledge of such destruction. If
Landlord elects not to restore the Premises, this Lease shall be deemed to have
terminated as of the date of such total destruction.
(2) In the event of a partial destruction (which shall mean
destruction or damage to an extent not exceeding [...***...] of the full
insurable value thereof) of the Premises for which Landlord will receive
insurance proceeds sufficient to cover the cost to repair and restore such
partial destruction and, if the damage thereto is such that the Premises may be
substantially
*CONFIDENTIAL TREATMENT REQUESTED
24.
<PAGE> 31
repaired or restored to its condition existing immediately prior to such damage
or destruction within one hundred eighty (180) days from the Casualty Discovery
Date, Landlord shall commence and proceed diligently with the work of repair and
restoration, in which event the Lease shall continue in full force and effect.
If such repair and restoration requires longer than one hundred eighty (180)
days or if the insurance proceeds therefor (,plus any amounts Tenant may elect
or is obligated to contribute) are not sufficient to cover the cost of such
repair and restoration, Landlord may elect either to so repair and restore, in
which event the Lease shall continue in full force and effect, or not to repair
or restore, in which event the Lease shall terminate. In either case, Landlord
shall give written notice to Tenant of its intention within sixty (60) days
after the Casualty Discovery Date. If Landlord elects not to restore the
Premises, this Lease shall be deemed to have terminated as of the date of such
partial destruction.
(B) If the Premises are damaged by any peril not covered by extended
coverage insurance, and the cost to repair such damage exceeds any amount Tenant
may agree to contribute, Landlord may elect either to commence promptly to
repair and restore the Premises and prosecute the same diligently to completion,
in which event this Lease shall remain in full force and effect; or not to
repair or restore the Premises, in which event this Lease shall terminate.
Landlord shall give Tenant written notice of its intention within sixty (60)
days after the Casualty Discovery Date. If Landlord elects not to restore the
Premises, this Lease shall be deemed to have terminated as of the date on which
Tenant surrenders possession of the Premises to Landlord, except that if the
damage to the Premises materially impairs Tenant's ability to continue its
business operations in the Premises, then this Lease shall be deemed to have
terminated as of the date such damage occurred.
(C) Notwithstanding anything to the contrary in this Paragraph 21, Landlord
shall have the option to terminate this Lease, exercisable by notice to Tenant
within sixty (60) days after the Casualty Discovery Date, in each of the
following instances:
(1) If more than [...***...] of the full insurable value of the
Building is damaged or destroyed, regardless of whether or not the Premises are
destroyed.
(2) If the Building or the Project or any portion thereof is damaged
or destroyed and the repair and restoration of such damage requires longer than
one hundred eighty (180) days from the Casualty Discovery Date.
(3) If the Building or the Project or any portion thereof is damaged
or destroyed and the insurance proceeds therefor are not sufficient to cover the
costs of repair and restoration.
(4) If the Building or the Project or any portion thereof is damaged
or destroyed during the last twelve (12) months of the Term.
(D) In the event of repair and restoration as herein provided, the monthly
installments of Base Rent shall be abated proportionately in the ratio which
Tenant's use of the Premises is impaired during the period of such repair or
restoration, but only to the extent of rental abatement insurance proceeds
received by Landlord, provided, however, that Tenant shall not be
*CONFIDENTIAL TREATMENT REQUESTED
25.
<PAGE> 32
entitled to such abatement to the extent that such damage or destruction was
caused by the acts or inaction of Tenant or Tenant's Agents. The number of
parking spaces allocated to Tenant hereunder shall be reduced on a proportionate
basis in the event any of the parking spaces in the Parking Areas are eliminated
as a result of such damage or destruction affecting such Parking Areas. Except
as expressly provided in the immediately preceding sentence with respect to
abatement of Base Rent, Tenant shall have no claim against Landlord for, and
hereby releases Landlord and Landlord's Agents from responsibility for and
waives its entire claim of recovery for any cost, loss or expense suffered or
incurred by Tenant as a result of any damage to or destruction of the Premises,
the Building or the Project or the repair or restoration thereof, including,
without limitation, any cost, loss or expense resulting from any loss of use of
the whole or any part of the Premises, the Building or the Project and/or any
inconvenience or annoyance occasioned by such damage, repair or restoration
unless caused by the gross negligence or willful misconduct of Landlord.
(E) If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall repair or restore only the initial Tenant Improvements
constructed in the Premises pursuant to the terms of this Lease, substantially
to their condition existing immediately prior to the occurrence of the damage or
destruction; and Tenant may, but shall not be obligated to, promptly repair and
restore, at Tenant's expense, Tenant's Alterations which were not constructed by
Landlord.
(F) Tenant hereby waives the provisions of California Civil Code Section
1932(2) and Section 1933(4) which permit termination of a lease upon destruction
of the leased premises, and the provisions of any similar law now or hereinafter
in effect, and the provisions of this Paragraph 21 shall govern exclusively in
case of such destruction.
(G) If Landlord elects to repair or restore the Premises in accordance with
the terms and conditions set forth in this Paragraph 21 but fails to
substantially complete such repair or restoration within two hundred and seventy
(270) days after the Casualty Discovery Date (the "Repair Period") and such
damage to the Premises materially and adversely affects Tenant in the conduct of
its business operations, Tenant shall have the right to terminate this Lease by
providing written notice to Landlord within five (5) business days after the end
of the Repair Period, in which event this Lease shall terminate as of the date
of such casualty.
22. CONDEMNATION
If [...***...] or more of the Premises or the Building or the parking areas for
the Building as shown on the Site Plan is taken for any public or quasi-public
purpose by any lawful governmental power or authority, by exercise of the right
of appropriation, inverse condemnation, condemnation or eminent domain, or sold
to prevent such taking (each such event being referred to as a "Condemnation"),
Landlord may, at its option, terminate this Lease as of the date title vests in
the condemning party. If [...***...] or more of the Premises is taken and if the
Premises remaining after such Condemnation and any repairs by Landlord would
materially and adversely affect Tenant in the conduct of its business
operations, Tenant shall have the right
*CONFIDENTIAL TREATMENT REQUESTED
26.
<PAGE> 33
to terminate this Lease as of the date title vests in the condemning party. If
either party elects to terminate this Lease as provided herein, such election
shall be made by written notice to the other party given within thirty (30) days
after the nature and extent of such Condemnation have been finally determined.
If neither Landlord nor Tenant elects to terminate this Lease to the extent
permitted above, Landlord shall promptly proceed to restore the Premises, to the
extent of any Condemnation award received by Landlord, to substantially the same
condition as existed prior to such Condemnation, allowing for the reasonable
effects of such Condemnation, and a proportionate abatement shall be made to the
Base Rent corresponding to the time during which, and to the portion of the
floor area of the Premises (adjusted for any increase thereto resulting from any
reconstruction) of which, Tenant is deprived on account of such Condemnation and
restoration, as reasonably determined by Landlord. In addition, the number of
parking spaces allocated to Tenant hereunder shall be reduced on a proportionate
basis in the event any of the parking spaces in the Parking Areas are taken or
otherwise eliminated as a result of any Condemnation affecting such Parking
Areas. Except as expressly provided in the immediately preceding sentence with
respect to abatement of Base Rent, Tenant shall have no claim against Landlord
for, and hereby releases Landlord and Landlord's Agents from responsibility for
and waives its entire claim of recovery for any cost, loss or expense suffered
or incurred by Tenant as a result of any Condemnation or the repair or
restoration of the Premises, the Building or the Project or the parking areas
for the Building or the Project following such Condemnation, including, without
limitation, any cost, loss or expense resulting from any loss of use of the
whole or any part of the Premises, the Building, the Project or the parking
areas and/or any inconvenience or annoyance occasioned by such Condemnation,
repair or restoration. The provisions of California Code of Civil Procedure
Section 1265.130, which allows either party to petition the Superior Court to
terminate the Lease in the event of a partial taking of the Premises, the
Building or the Project or the parking areas for the Building or the Project,
and any other applicable law now or hereafter enacted, are hereby waived by
Tenant.
(A) Landlord shall be entitled to any and all compensation, damages,
income, rent, awards, or any interest therein whatsoever which may be paid or
made in connection with any Condemnation, and Tenant shall have no claim against
Landlord for the value of any unexpired term of this Lease or otherwise;
provided, however, that Tenant shall be entitled to receive any award separately
allocated by the condemning authority to Tenant for Tenant's relocation expenses
or the value of Tenant's Property (specifically excluding fixtures, Alterations
and other components of the Premises which under this Lease or by law are or at
the expiration of the Term will become the property of Landlord), provided that
such award does not reduce any award otherwise allocable or payable to Landlord.
23. ASSIGNMENT AND SUBLETTING
(A) Except as specifically provided for in (b) below, Tenant shall not
voluntarily or by operation of law, (1) mortgage, pledge, hypothecate or
encumber this Lease or any interest herein, (2) assign or transfer this Lease or
any interest herein, sublease the Premises or any part thereof, or any right or
privilege appurtenant thereto, or allow any other person (the employees and
invitees of Tenant excepted) to occupy or use the Premises, or any portion
thereof, without first obtaining the written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed provided that Tenant
is not then in Default under this Lease nor is any event then occurring which
with the giving of notice or the passage of time, or both, would
27.
<PAGE> 34
constitute a Default hereunder. When Tenant requests Landlord's consent to such
assignment or subletting, it shall notify Landlord in writing of the name and
address of the proposed assignee or subtenant and the nature and character of
the business of the proposed assignee or subtenant and shall provide current and
prior financial statements for the proposed assignee or subtenant prepared in
accordance with generally accepted accounting principles, consistently applied.
Tenant shall also provide Landlord with a copy of the proposed sublease or
assignment agreement, including all material terms and conditions thereof. In
the event Tenant wishes to assign or sublet the entire Premises for the
remainder of the Term (except in either event in connection with a Permitted
Transfer) Landlord shall have the option, to be exercised within thirty (30)
clays of receipt of the foregoing, to (1) terminate this Lease in its entirety,
(2) sublease or take an assignment, as the case may be, from Tenant of the
interest, in this Lease and/or the Premises that Tenant proposes to assign or
sublease, on the same terms and conditions as stated in the proposed sublet or
assignment agreement, (3) consent to the proposed assignment or sublease, or (4)
refuse its consent to the proposed assignment or sublease, providing that such
consent shall not be unreasonably withheld, conditioned or delayed so long as
Tenant is not then in Default under this Lease nor is any event then occurring
which with the giving of notice or the passage of time, or both, would
constitute a Default hereunder. In the event Landlord elects to terminate this
Lease or sublease or take an assignment from Tenant of the interest in the Lease
and/or the Premises that Tenant proposes to assign or sublease as provided in
the foregoing clauses (1) and (2), respectively, then Landlord shall have the
additional right to negotiate directly with Tenant's proposed assignee or
subtenant and to enter into a direct lease or occupancy agreement with such
party on such terms as shall be acceptable to Landlord in its sole and absolute
discretion, and Tenant hereby waives any claims against Landlord related
thereto, including, without limitation, any claims for any compensation or
profit related to such lease or occupancy agreement.
(B) Without otherwise limiting the criteria upon which Landlord may
withhold its consent, Landlord shall be entitled to consider all reasonable
criteria including, but not limited to, the following: (1) whether or not the
proposed subtenant or assignee is engaged in a business which, and the use of
the Premises will be in an manner which, is in keeping with the then character
and nature of all other tenancies in the Project, (2) whether the use to be made
of the Premises by the proposed subtenant or assignee will conflict with any
so-called "exclusive" use then in favor of any other tenant of the Building or
the 'Project, and whether such use would be prohibited by any other portion of
this Lease, including, but not limited to, any rules and regulations then in
effect, or under applicable Laws, and whether such use imposes an unreasonable
load upon the Premises and the Building and Project services, (3) the business
reputation of the proposed individuals who will be managing and operating the
business operations of the assignee or subtenant, and the long-term financial
and; competitive business prospects of the proposed assignee or subtenant, and
(4) the creditworthiness and financial stability of the proposed assignee or
subtenant in light of the responsibilities involved. In any event, Landlord may
withhold its consent to any assignment or sublease, if the actual use proposed
to be conducted in the Premises or portion thereof conflicts with the provisions
of Paragraph 9(a) or (b) above or with any other lease which restricts the use
to which any space in the Building or the Project may be put. Notwithstanding
the foregoing, Tenant may, without Landlord's consent, but upon notice and
delivery of evidence documenting such assignment or subletting, assign or sublet
to an Affiliate (as defined below) of the original Tenant, provided that such
Affiliate has a net worth (calculated in accordance .with generally accepted
accounting
28.
<PAGE> 35
principles, consistently applied) equal to or greater than the net worth of the
original Tenant on the Commencement Date or the date of the proposed assignment
or subletting, whichever is higher (such assignment or subletting being referred
to as a "Permitted Transfer"). For purposes hereof, "Affiliate" shall mean any
person, firm or corporation (i) which shall be controlled by, under the control
of, or under common control with the original Tenant, (ii) which results from a
merger of, reorganization of, or consolidation with the original Tenant or (iii)
which acquires substantially all of the stock or assets of the original Tenant.
For purposes hereof, "control" shall mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
person, firm or corporation, whether through the ownership of voting securities,
by contract or otherwise.
(C) If Landlord approves an assignment or subletting as herein provided,
Tenant shall pay to Landlord, as Additional Rent, all of the difference, if any,
between (1) the Base Rent plus Additional Rent allocable to that part of the
Premises affected by such assignment or sublease pursuant to the provisions of
this Lease, and (2) the rent and any additional rent payable by the assignee or
sublessee to Tenant, less actual leasing commissions, reasonable attorneys'
fees, tenant improvement costs and other reasonable out-of-pocket expenses, if
any, incurred by Tenant in connection with such assignment or sublease as
evidenced by written records reasonably satisfactory to Landlord. The assignment
or sublease agreement, as the case may be, after approval by Landlord, shall not
be amended without Landlord's prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed, and shall contain a provision
directing the assignee or subtenant to pay the rent and other sums due
thereunder directly to Landlord upon receiving written notice from Landlord that
Tenant is in default under this Lease with respect to the payment of Rent. In
the event that, notwithstanding the giving of such notice, Tenant collects any
rent or other sums from the assignee or subtenant, then Tenant shall hold such
sums in trust for the benefit of Landlord and shall immediately forward the same
to Landlord. Landlord's collection of such rent and other sums shall not
constitute an acceptance by Landlord of attornment by such assignee or
subtenant. A consent to one assignment, subletting, occupation or use shall not
be deemed to be a consent to any other or subsequent assignment, subletting,
occupation or use, and consent to any assignment or subletting shall in no way
relieve Tenant of any liability under this Lease. Any assignment or subletting
without Landlord's consent shall be void, and shall, at the option of Landlord,
constitute a Default under this Lease.
(D) Notwithstanding any assignment or subletting, Tenant and any guarantor
or surety of Tenant's obligations under this Lease shall at all times remain
fully responsible and liable for the payment of the Rent and for compliance with
all of Tenant's other obligations under this Lease (regardless of whether
Landlord's approval has been obtained for any such assignment or subletting).
(E) Tenant shall pay Landlord's reasonable fees (including, without
limitation, the fees of Landlord's counsel), incurred in connection with
Landlord's review and processing of
29.
<PAGE> 36
documents regarding any proposed assignment or sublease, which fees shall not
exceed [...***...].
(F) Notwithstanding anything in this Lease to the contrary, in the event
Landlord consents to an assignment or subletting by Tenant in accordance with
the terms of this Paragraph 23, Tenant's assignee or subtenant shall have no
right to further assign this Lease or any interest therein or thereunder or to
further sublease all or any portion of the Premises except in accordance with
the terms of this Paragraph 23.
(G) Tenant acknowledges and agrees that the restrictions, conditions and
limitations imposed by this Paragraph 23 on Tenant's ability to assign or
transfer this Lease or any interest herein, to sublet the Premises or any part
thereof, to transfer or assign any right or privilege appurtenant to the
Premises, or to allow any other person to occupy or use the Premises or any
portion thereof, are, for the purposes of California Civil Code Section 1951.4,
as amended from time to time, and for all other purposes, reasonable at the time
that the Lease was entered into, and shall be deemed to be reasonable at the
time that Tenant seeks to assign or transfer this Lease or any interest herein,
to sublet the Premises or any part thereof, to transfer or assign any right or
privilege appurtenant to the Premises, or to allow any other-person to occupy or
use the Premises or any portion thereof.
24. TENANT'S DEFAULT
The occurrence of any one of the following events shall constitute an
event of default on the part of Tenant ("Default"):
(A) The vacation of the Premises for a period, in the aggregate, of
[...***...] or abandonment of the Premises by Tenant for a period of [...***...]
consecutive days or any vacation or abandonment of the Premises by Tenant which
would cause any insurance policy to be invalidated or otherwise lapse, or the
failure of Tenant to continuously operate Tenant's business in the Premises, in
each of the foregoing cases irrespective of whether or not Tenant is then in
monetary default under this Lease. Tenant agrees to notice and service of notice
as provided for in this Lease and waives any right to any other or further
notice or service of notice which Tenant may have under any statute or law now
or hereafter in effect;
(B) Failure to pay any installment of Rent or any other monies due and
payable hereunder, said failure continuing for a period of three (3) days after
Landlord's notice of such failure;
(C) A general assignment by Tenant or any guarantor or surety of Tenant's
obligations hereunder (collectively, "Guarantor") for the benefit of creditors;
(D) The filing of a voluntary petition in bankruptcy by Tenant or any
Guarantor, the filing by Tenant or any Guarantor of a voluntary petition for an
arrangement, the filing by or against Tenant or any Guarantor of a petition,
voluntary or involuntary, for reorganization, or the filing
*CONFIDENTIAL TREATMENT REQUESTED
30.
<PAGE> 37
of an involuntary petition by the creditors of Tenant or any Guarantor, said
involuntary petition remaining undischarged for a period of sixty (60) days;
(E) Receivership, attachment, or other judicial seizure of substantially
all of Tenant's assets on the Premises, such attachment or other seizure
remaining undismissed or undischarged for a period of sixty (60) days after the
levy thereof;
(F) Death or disability of Tenant or any Guarantor, if Tenant or such
Guarantor is a natural person, or the failure by Tenant or any Guarantor to
maintain its legal existence, if Tenant or such Guarantor is a corporation,
partnership, limited liability company, trust or other legal entity;
(G) Failure of Tenant to execute and deliver to Landlord any estoppel
certificate, subordination agreement, or lease amendment in the time periods and
manner required by Paragraphs 30 or 31 or 42;
(H) An assignment or sublease, or attempted assignment or sublease, of this
Lease or the Premises by Tenant contrary to the provision of Paragraph 24,
unless such assignment or sublease is expressly conditioned upon Tenant having
received Landlord's consent thereto;
(I) Failure of Tenant to restore the Security Deposit to the amount and
within the time period provided in Paragraph 7 above;
(J) Failure in the performance of any of Tenant's covenants, agreements or
obligations hereunder (except those failures specified as events of Default in
subparagraphs (b), (1) or (m) above or any other subparagraphs of this Paragraph
25, which shall be governed by such other Paragraphs), which failure continues
for ten (10) days after written notice thereof from Landlord to Tenant, provided
that, if Tenant has exercised reasonable diligence to cure such failure and such
failure cannot be cured within such ten (10) day period despite reasonable
diligence, Tenant shall not be in default under this subparagraph so long as
Tenant thereafter diligently and continuously prosecutes the cure to completion
and actually completes such cure within a reasonable time after the giving of
the aforesaid written notice;
(K) Chronic delinquency by Tenant in the payment of Rent, or any other
periodic payments required to be paid by Tenant under this Lease. "Chronic
delinquency" shall mean failure by Tenant to pay Rent, or any other periodic
payments required to be paid by Tenant under this Lease and Landlord's delivery
of written notice of such failure (i) for any three (3) months (consecutive or
nonconsecutive) during any period of twelve (12) months or (ii) for any six (6)
months (consecutive or nonconsecutive) during the Term. In the event of a
Chronic Delinquency, in addition to Landlord's other remedies for Default
provided in this Lease, at Landlord's option, Landlord shall have the right to
require that Rent be paid by Tenant quarterly, in advance;
(L) Chronic overuse by Tenant or Tenant's Agents of the number of
undesignated parking spaces set forth in the Basic Lease Information. "Chronic
Overuse" shall mean use by Tenant or Tenant's Agents of a number of parking
spaces greater than the number of parking spaces set forth in the Basic Lease
Information more than three (3) times during any twelve (12) month period after
written notice by Landlord;
31.
<PAGE> 38
(M) Any insurance required to be maintained by Tenant pursuant to this
Lease shall be canceled or terminated or shall expire or be reduced or
materially changed, except as permitted in this Lease; and
(N) Any failure by Tenant to discharge any lien or encumbrance placed on
the Project or any part thereof in violation of this Lease within ten (10) days
after the date such lien or encumbrance is filed or recorded against the Project
or any part thereof.
Tenant agrees that any notice given by Landlord pursuant to Paragraph
25(j), (k) or (1) above shall satisfy the requirements for notice under
California Code of Civil Procedure Section 1161, and Landlord shall not be
required to give any additional notice in order to be entitled to commence an
unlawful detainer proceeding.
Notwithstanding anything in this Paragraph 24 to the contrary, Tenant
may cure a Default under Paragraph 24(c), (d) or (f) above relating to the
Guarantor (or an event which with the giving of notice or the passing of time or
both, would constitute such a Default hereunder) ("Potential Default"), by
delivering to Landlord a Letter of Credit in accordance with Paragraph 4 of this
Lease within ten (10) days after written notice from Landlord of such Default or
Potential Default.
25. LANDLORD'S REMEDIES
(A) TERMINATION. In the event of any Default by Tenant, then in addition to
any other remedies available to Landlord at law or in equity and under this
Lease, Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event that Landlord shall elect to so terminate this Lease
then Landlord may recover from Tenant:
(1) the worth at the time of award of any unpaid Rent and any other
sums due and payable which have been earned at the time of such termination;
plus
(2) the worth at the time of award of the amount by which the unpaid
Rent and any other sums due and payable which would have been earned after
termination until the time of award exceeds the amount of such rental loss
Tenant proves could have been reasonably avoided; plus
(3) the worth at the time of award of the amount by which the unpaid
Rent and any other sums due and payable for the balance of the term of this
Lease after the time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; plus
(4) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom, including, without limitation, (A) any costs or expenses incurred by
Landlord (1) in retaking possession of the Premises; (2) in maintaining,
repairing, preserving, restoring, replacing, cleaning, altering, remodeling or
rehabilitating the Premises or any affected portions of the Building or the
Project, including such actions undertaken in connection with the reletting or
attempted reletting of the Premises to a new tenant or tenants; (3) for leasing
commissions, advertising costs and other expenses of
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reletting the Premises; or (4) in carrying the Premises, including taxes,
insurance premiums, utilities and security precautions; (B) any unearned
brokerage commissions paid in connection with this Lease; (c) reimbursement of
any previously waived or abated Base Rent or Additional Rent or any free rent or
reduced rental rate granted hereunder; and (D) any concession made or paid by
Landlord to the benefit of Tenant in consideration of this Lease including, but
not limited to, any moving allowances, contributions, payments or loans by
Landlord for tenant improvements or build-out allowances (including without
limitation, any unamortized portion of the Tenant Improvement Allowance (such
Tenant Improvement Allowance to be amortized over the Term in the manner
reasonably determined by Landlord), if any, and any outstanding balance
(principal and accrued interest) of the Tenant Improvement Loan, if any), or
assumptions by Landlord of any of Tenant's previous lease obligations; plus
(5) such reasonable attorneys' fees incurred by Landlord as a result
of a Default, and costs in the event suit is filed by Landlord to enforce such
remedy; and plus
(6) at Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable law.
As used in subparagraphs (1) and (2) above, the "worth at the time of award" is
computed by allowing interest at an annual rate equal to [...***...] per annum
or the maximum rate permitted by law, whichever is less. As used in subparagraph
(3) above, the "worth at the time of award" is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award, plus [...***...]. Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other pertinent present or future Law, in the event Tenant is evicted
or Landlord takes possession of the Premises by reason of any Default of Tenant
hereunder.
(B) CONTINUATION OF LEASE. In the event of any Default by Tenant, then in
addition to any other remedies available to Landlord at law or in equity and
under this Lease, Landlord shall have the remedy described in California Civil
Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant's
Default and abandonment and recover Rent as it becomes due, provided Tenant has
the right to sublet or assign, subject only to reasonable limitations). In
addition, Landlord shall not be liable in any way whatsoever for its failure or
refusal to relet the Premises. For purposes of this Paragraph 25(b), the
following acts by Landlord will not constitute the termination of Tenant's right
to possession of the Premises:
(1) Acts of maintenance or preservation or efforts to relet the
Premises, including; but not limited to, alterations, remodeling, redecorating,
repairs, replacements and/or painting as Landlord shall consider advisable for
the purpose of reletting the Premises or any part thereof; or
(2) The appointment of a receiver upon the initiative of Landlord to
protect Landlord's interest under this Lease or in the Premises.
(C) RE-ENTRY. In the event of any Default by Tenant, Landlord shall also
have the right, with or without terminating this Lease, in compliance with
applicable law, to re-enter the
*CONFIDENTIAL TREATMENT REQUESTED
33.
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Premises and remove all persons and property from the Premises; such property
may be removed and stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant.
(D) RELETTING. In the event of the abandonment of the Premises by Tenant or
in the event that Landlord shall elect to re-enter as provided in Paragraph
25(c) or shall take possession of the Premises pursuant to legal proceeding or
pursuant to any notice provided by law, then if Landlord does not elect to
terminate this Lease as provided in Paragraph 25(a), Landlord may from time to
time, without terminating this Lease, relet the Premises or any part thereof for
such term or terms and at such rental or rentals and upon such other terms and
conditions as Landlord in its sole discretion may deem advisable with the right
to make alterations and repairs to the Premises in Landlord's sole discretion.
In the event that Landlord shall elect to so relet, then rentals received by
Landlord from such reletting shall be applied in the following order: (1) to
reasonable attorneys' fees incurred by Landlord as a result of a Default and
costs in the event suit is filed by Landlord to enforce such remedies; (2) to
the payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord; (3) to the payment of any costs of such reletting; (4) to the payment
of the costs of any alterations and repairs to the Premises; (5) to the payment
of Rent due and unpaid hereunder; and (6) the residue, if any, shall be held by
Landlord and applied in payment of future Rent and other sums payable by Tenant
hereunder as the same may become due and payable hereunder. Should that portion
of such rentals received from such reletting during any month, which is applied
to the payment of Rent hereunder, be less than the Rent payable during the month
by Tenant hereunder, then Tenant shall pay such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.
(E) TERMINATION. No re-entry or taking of possession of the Premises by
Landlord pursuant to this Paragraph 25 shall be construed as an election to
terminate this Lease unless a written notice of such intention is given to
Tenant or unless the termination thereof is decreed by a court of competent
jurisdiction. Notwithstanding any reletting without termination by Landlord
because of any Default by Tenant, Landlord may at any time after such reletting
elect to terminate this Lease for any such Default.
(F) CUMULATIVE REMEDIES. The remedies herein provided are not exclusive and
Landlord shall have any and all other remedies provided herein or by law or in
equity.
(G) NO SURRENDER. No act or conduct of Landlord, whether consisting of the
acceptance of the keys to the Premises, or otherwise, shall be deemed to be or
constitute an acceptance of the surrender of the Premises by Tenant prior to the
expiration of the Term, and such acceptance by Landlord of surrender by Tenant
shall only flow from and must be evidenced by a written acknowledgment of
acceptance of surrender signed by Landlord. The surrender of this Lease by
Tenant, voluntarily or otherwise, shall not work a merger unless Landlord elects
in writing that such merger take place, but shall operate as an assignment to
Landlord of any and all existing subleases, or Landlord may, at its option,
elect in writing to treat such surrender as a merger terminating Tenant's estate
under this Lease, and thereupon Landlord may terminate any or all
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such subleases by notifying the sublessee of its election so to do within
[...***...] days after such surrender.
26. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
(A) Without limiting the rights and remedies of Landlord contained in
Paragraph 25 above, if Tenant shall be in Default in the performance of any of
the terms, provisions, covenants or conditions to be performed or complied with
by Tenant pursuant to this Lease, then Landlord may at Landlord's option,
without any obligation to do so, and without notice to Tenant perform any such
term, provision, covenant, or condition, or make any such payment and Landlord
by reason of so doing shall not be liable or responsible for any loss or damage
thereby sustained by Tenant or anyone holding under or through Tenant or any of
Tenant's Agents, unless caused by Landlord's gross negligence or willful
misconduct.
Without limiting the rights of Landlord under Paragraph 25(a) above, Landlord
shall have the right at Landlord's option, without any obligation to do so, to
perform any of Tenant's covenants or obligations under this Lease without notice
to Tenant in the case of an emergency, as determined by Landlord in its sole and
absolute judgment, or if Landlord otherwise determines in its reasonable
discretion that such performance is necessary or desirable for the proper
management and operation of the Building or the Project or for the preservation
of the rights and interests or safety of other tenants of the Building or the
Project.
(B) If Landlord performs any of Tenant's obligations hereunder in
accordance with this Paragraph 26, the full amount of the cost and expense
incurred or the payment so made or the amount of the loss so sustained shall
immediately be owing by Tenant to Landlord, and Tenant shall promptly pay to
Landlord upon demand, as Additional Rent, the full amount thereof with interest
thereon from the date of payment by Landlord at the lower of [...***...] per
annum, or (2) [...***...].
27. ATTORNEY'S FEES
(A) If either party hereto fails to perform any of its obligations under
this Lease or if any dispute arises between the parties hereto concerning the
meaning or interpretation of any provision of this Lease, then the defaulting
party or the party not prevailing in such dispute, as the case may be, shall pay
any and all costs and expenses incurred by the other party on account of such
default and/or in enforcing or establishing its rights hereunder, including,
without limitation, court costs and reasonable attorneys' fees and
disbursements. Any such attorneys' fees and other expenses incurred by either
party in enforcing a judgment in its favor under this Lease shall be recoverable
separately from and in addition to any other amount included in such judgment,
and such attorneys' fees obligation is intended to be severable from the other
provisions of this Lease and to survive and not be merged into any such
judgment.
(B) Without limiting the generality of Paragraph 27(a) above, if Landlord
utilizes the services of an attorney for the purpose of collecting any Rent due
and unpaid by Tenant or in connection with any other breach of this Lease by
Tenant, Tenant agrees to pay Landlord
*CONFIDENTIAL TREATMENT REQUESTED
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reasonable attorneys' fees as determined by Landlord for such services,
regardless of the fact that no legal action may be commenced or filed by
Landlord.
28. TAXES
Tenant shall be liable for and shall pay, prior to delinquency, all
taxes levied against Tenant's Property. If any Alteration installed by Tenant
pursuant to Paragraph 12 or any of Tenant's Property is assessed and taxed with
the Project or Building, Tenant shall pay such taxes to Landlord within ten (10)
days after delivery to Tenant of a statement therefor.
29. EFFECT OF CONVEYANCE
The term "Landlord" as used in this Lease means, from time to time, the
then current owner of the Building or the Project containing the Premises, so
that, in the event of any sale of the Building or the Project, Landlord shall be
and hereby is entirely freed and relieved of all covenants and obligations of
Landlord arising hereunder from and after the date of such transfer, and it
shall be deemed and construed, without further agreement between the parties and
the purchaser at any such sale, that the purchaser of the Building or the
Project has assumed and agreed to carry out any and all covenants and
obligations of Landlord hereunder.
30. TENANT'S ESTOPPEL CERTIFICATE
From time to time, upon written request of either party (the "Requesting
Party"), the other party (the "Responding Party") shall execute, acknowledge and
deliver to the Requesting Party or its designee, a written certificate stating
(a) the date this Lease was executed, the Commencement Date of the Term and the
date the Term expires; (b) the date Tenant entered into occupancy of the
Premises; (c) the amount of Rent and the date to which such Rent has been paid;
(d) that this Lease is in full force and effect and has not been assigned,
modified, supplemented or amended in any way (or, if assigned, modified,
supplemented or amended, specifying the date and terms of any agreement so
affecting this Lease); (e) that this Lease represents the entire agreement
between the parties with respect to Tenant's right to use and occupy the
Premises (or specifying such other agreements, if any); (f) that all obligations
under this Lease to be performed by the Requesting Party as of the date of such
certificate have been satisfied (or specifying those as to which the Responding
Party claims that the Requesting Party has yet to perform); (g) that all
required contributions by Landlord to Tenant on account of Tenant's improvements
have been received (or stating exceptions thereto); (h) that on such date there
exist no defenses or offsets that Tenant has against the enforcement of this
Lease by Landlord (or stating exceptions thereto); (i) that no Rent or other sum
payable by Tenant hereunder has been paid more than one (1) month in advance (or
stating exceptions thereto); (j) that a currently valid letter of credit and
security deposit have been deposited with Landlord, stating the original amount
thereof and any increases or decreases thereto; and (k) any other matters
evidencing the status of this Lease that may be required either by a lender
making a loan to Landlord to be secured by a deed of trust covering the Building
or the Project or by a purchaser of the Building or the Project or a purchase of
Tenant's stock or assets. Any such certificate delivered pursuant to this
Paragraph 30 may be relied upon by a prospective purchaser of Landlord's
interest or a mortgagee of Landlord's interest or assignee of any mortgage upon
Landlord's interest in the Premises. If the Responding Party shall fail to
provide such certificate
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within ten (10) days of receipt by the Responding Party of a written request by
the Requesting Party as herein provided, such failure shall, at the Requesting
Perry's election, constitute a Default under this Lease.
31. SUBORDINATION.
Landlord shall have the right to cause this Lease to be and remain subject and
subordinate to any and all mortgages, deeds of trust and ground leases, if any
("Encumbrances") that are now or may hereafter be executed covering the
Premises, or any renewals, modifications, consolidations, replacements or
extensions thereof, for the full amount of all advances made or to be made
thereunder and without regard to .the time or character of such advances,
together with interest thereon and subject to all the terms and provisions
thereof; provided only, and as an express condition precedent to such
subordination, that in the event of termination of any such ground lease or upon
the foreclosure of any such mortgage or deed of trust, so long as Tenant is not
in default, the holder thereof ("Holder") shall agree to recognize Tenant's
rights under this Lease as long as Tenant shall pay the Rent and observe and
perform all the provisions of this Lease to be observed and performed by Tenant.
Within [...***...] days after Landlord's written request, Tenant shall execute,
acknowledge and deliver any and all reasonable documents required by Landlord or
the Holder to effectuate such subordination. If Tenant fails to do so, such
failure shall constitute a Default by Tenant under this Lease. Notwithstanding
anything to the contrary set forth in this Paragraph 31, Tenant hereby attorns
and agrees to attorn to any person or entity purchasing or otherwise acquiring
the Premises at any sale or other proceeding or pursuant to the exercise of any
other rights, powers or remedies under such Encumbrance.
32. ENVIRONMENTAL COVENANTS
(A) Prior to executing this Lease, Tenant has completed, executed and
delivered to Landlord a Hazardous Materials Disclosure Certificate ("Initial
Disclosure Certificate"), a fully completed copy of which is attached hereto as
Exhibit F and incorporated herein by this reference. Tenant covenants,
represents and warrants to Landlord that the information on the Initial
Disclosure Certificate is, to the best of Tenant's knowledge, true and correct
and accurately describes the Hazardous Materials which will be manufactured,
treated, used or stored on or about the Premises by Tenant or Tenant's Agents.
[...***...] Tenant shall deliver to Landlord copies of any and all filings (a
"Filing") made after the Commencement Date with any state, local or federal
governmental agencies relating to Hazardous Materials used or to be used on or
about the Premises and Tenant shall promptly upon Landlord's request make
appropriate representatives of Tenant available to discuss with Landlord any
such Filing. Tenant shall make no use of Hazardous Materials on or about the
Premises except as described in the Initial Disclosure Certificate or an Updated
Disclosure Certificate, as required hereunder.
(B) As used in this Lease, the term "Hazardous Materials" shall mean and
include any substance that is or contains (1) any "hazardous substance" as now
or hereafter defined in Section 101 (14) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA") (42
U.S.C. Section 9601 et seq.) or any regulations promulgated under
*CONFIDENTIAL TREATMENT REQUESTED
37.
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CERCLA; (2) any "hazardous waste" as now or hereafter defined in the Resource
Conservation and Recovery Act, as amended ("RCRA") (42 U.S.C. Section 6901 et
seq.) or any regulations promulgated under RCRA; (3) any substance now or
hereafter regulated by the Toxic Substances Control Act, as amended ("TSCA") (15
U.S.C. Section 2601 et seq.) or any regulations promulgated under TSCA; (4)
petroleum, petroleum by-products, gasoline, diesel fuel, or other petroleum
hydrocarbons; (5) asbestos and asbestos-containing material, in any form,
whether friable or non-friable; (6) polychlorinated biphenyls; (7) lead and
lead-containing materials; or (8) any additional substance, material or waste
(A) the presence of which on or about the Premises (i) requires reporting,
investigation or remediation under any Environmental Laws (as hereinafter
defined), (ii) causes or threatens to cause a nuisance on the Premises or any
adjacent area or property or poses or threatens to pose a hazard to the health
or safety of persons on the Premises or any adjacent area or property, or (iii)
which, if it emanated or migrated from the Premises, could constitute a
trespass, or(B) which is now or is hereafter classified or considered to be
hazardous or toxic under any Environmental Laws.
(C) As used in this Lease, the term "Environmental Laws" shall mean and
include (1) CERCLA, RCRA and TSCA; and (2) any other federal, state or local
laws, ordinances, statutes, codes, rules, regulations, orders or decrees now or
hereinafter in effect relating to (A) pollution, (B) the protection or
regulation of human health, natural resources or the environment, (c) the
treatment, storage or disposal of Hazardous Materials, or (D) the emission,
discharge, release or threatened release of Hazardous Materials into the
environment.
(D) Tenant agrees that during its use and occupancy of the Premises it will
(1) not (A) permit Hazardous Materials to be present on or about the Premises
except in a manner and quantity necessary for the ordinary performance of
Tenant's business or (B) release, discharge or dispose of any Hazardous
Materials on, in, at, under, or emanating from, the Premises, the Building or
the Project; (2) comply with all Environmental Laws relating to Tenant's use of
Hazardous Materials in, on or about the Premises and not engage in or permit
Tenant's Agents to engage in any activity in, on or about the Premises in
violation of any Environmental Laws; and (3) immediately notify Landlord of (A)
any inquiry, test, investigation or enforcement proceeding by any governmental
agency or authority against Tenant, Landlord or the Premises, Building or
Project relating to any Hazardous Materials or under any Environmental Laws or
(B) the occurrence of any event or existence of any condition that would cause a
breach of any of the covenants set forth in this Paragraph 32.
(E) If Tenant's use of Hazardous Materials on or about the Premises results
in a release, discharge or disposal of Hazardous Materials on, in, at, under, or
emanating from, the Premises, the Building or the Project, Tenant agrees to
investigate, clean up, remove or remediate such Hazardous Materials in full
compliance with (1) the requirements of (A) all Environmental Laws and (B) any
governmental agency or authority responsible for the enforcement of any
Environmental Laws; and (2) any additional requirements of Landlord that are
reasonably necessary to protect the value of the Premises, the Building or the
Project.
(F) Upon reasonable notice to Tenant, Landlord may inspect the Premises and
surrounding areas for the purpose of determining whether there exists on or
about the Premises any Hazardous Material or other condition or activity that is
in violation of the requirements of this Lease or of any Environmental Laws.
Such inspections may include, but are not limited to,
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entering upon the property adjacent to or surrounding the Premises with drill
rigs or other machinery for the purpose of obtaining laboratory samples.
Landlord shall not be limited in the number of such inspections during the Term
of this Lease but such inspections shall be reasonable in light of the
circumstances. In the event (1) such inspections reveal the presence of any such
Hazardous Material or other condition or activity caused by Tenant or its Agents
in violation of the requirements of this Lease or of any Environmental Laws, or
(2) Tenant or its Agents contribute or knowingly consent to the importation of
any Hazardous Materials in, on, under, through or about the Premises, the
Building or the Project or knowingly exacerbate the condition of or the
conditions caused by any Hazardous Materials in, on, under, through or about the
Premises, the Building or the Project, Tenant shall reimburse Landlord for the
cost of such inspections within ten (10) days of receipt of a written statement
therefor. Tenant will supply to Landlord such historical and operational
information regarding the Premises and surrounding areas as may be reasonably
requested to facilitate any such inspection and will make available for meetings
appropriate personnel having knowledge of such matters. Tenant agrees to give
Landlord at least sixty (60) days' prior notice of its intention to vacate the
Premises so that Landlord will have an opportunity to perform such an inspection
prior to such vacation. The right granted to Landlord herein to perform
inspections shall not create a duty on Landlord's part to inspect the Premises,
or liability on the part of Landlord for Tenant's use, storage, treatment or
disposal of Hazardous Materials, it being understood that Tenant shall be solely
responsible for all liability in connection therewith.
(G) Landlord shall have the right, but not the obligation, prior or
subsequent to a Default, without in any way limiting Landlord's other rights and
remedies under this Lease, to enter upon the Premises, or to take such other
actions as it deems necessary or advisable, to investigate, clean up, remove or
remediate any Hazardous Materials or contamination by Hazardous Materials
present on, in, at, under, or emanating from, the Premises, the Building or the
Project in violation of Tenant's obligations under this Lease or under any
Environmental Laws. Notwithstanding any other provision of this Lease, Landlord
shall also have the right, at its election, in its own name or as Tenant's
agent, to negotiate, defend, approve and appeal, at Tenant's expense, any action
taken or order issued by any governmental agency or authority with regard to any
such Hazardous Materials or contamination by Hazardous Materials. All costs and
expenses paid or incurred by Landlord in the exercise of the rights set forth in
this Paragraph 32 shall be payable by Tenant upon demand.
(H) Tenant shall surrender the Premises to Landlord upon the expiration or
earlier termination of this Lease free of debris, waste or Hazardous Materials
placed on, about or near the Premises by Tenant or Tenant's Agents, and in a
condition which complies with (i) all Environmental Laws relating to Hazardous
Materials placed on, about or near the Premises by Tenant or Tenant's Agents and
(ii) any additional requirements of Landlord that are reasonably necessary to
protect the value of the Premises, the Building or the Project, including,
without limitation, the obtaining of any closure permits or other governmental
permits or approvals related to Tenant' s use of Hazardous Materials in or about
the Premises. Tenant's obligations and liabilities pursuant to the provisions of
this Paragraph 32 shall survive the expiration or earlier termination of this
Lease. If it is determined by Landlord that the condition of all or any portion
of the Premises, the Building, and/or the Project is not in compliance with the
provisions of this Lease with respect to Hazardous Materials, including, without
limitation, all Environmental Laws, at the expiration or earlier termination of
this Lease, then at Landlord's
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sole option, Landlord may require Tenant to hold over possession of the Premises
until Tenant can surrender the Premises to Landlord in the condition in which
the Premises existed as of the Commencement Date and prior to the appearance of
such Hazardous Materials which Tenant or Tenant's Agents caused to be present
except for normal wear and tear, including, without limitation, the conduct or
performance of any closures as required by any Environmental Laws. The burden of
proof hereunder shall be upon Tenant. For purposes hereof, the term "normal wear
and tear" shall not include any deterioration in the condition or diminution of
the value of any portion of the Premises, the Building, and/or the Project in
any manner whatsoever related to directly, or indirectly, Hazardous Materials.
Any such holdover by Tenant will be with Landlord's consent, will not be
terminable by Tenant in any event or circumstance and will otherwise be subject
to the provisions of Paragraph 35 of this Lease.
(I) Tenant agrees to indemnify and hold harmless Landlord from and against
any and all claims, losses (including, without limitation, loss in value of the
Premises, the Building or the Project, liabilities and expenses (including
attorney's fees)) sustained by Landlord attributable to (1) any Hazardous
Materials placed on or about the Premises, the Building or the Project by Tenant
or Tenant's Agents, or (2) Tenant's breach of any provision of this Paragraph
32.
(J) Landlord agrees to indemnify and hold harmless Tenant from and against
any and all claims, losses (including, without limitation, liabilities and
expenses (including attorneys' fees)) actually sustained by Tenant attributable
to any Hazardous Materials placed on or about the Premises, the Building or the
Project by Landlord or Landlord's Agents, but specifically excluding any other
third parties.
(K) The provisions of this Paragraph 32 shall survive the expiration or
earlier termination of this Lease.
33. NOTICES.
All notices and demands which are required or may be permitted to be
given to either party by the other hereunder shall be in writing and shall be
sent by United States mail, postage prepaid, certified, or by personal delivery
or overnight courier, addressed to the addressee at Tenant's Address or
Landlord's Address as specified in the Basic Lease Information, or to such other
place as either party may from time to time designate in a notice to the other
party given as provided herein. Copies of all notices and demands given to
Landlord shall additionally be sent to Landlord's property manager at the
address specified in the Basic Lease Information or at such other address as
Landlord may specify in writing from time to time. Notice shall be deemed given
upon actual receipt (or attempted delivery if delivery is refused), if
personally delivered, or one (I) business day following deposit with a reputable
overnight courier that provides a receipt, or on the third (3rd) day following
deposit in the United States mail in the manner described above.
34. WAIVER.
The waiver of any breach of any term, covenant or condition of this
Lease shall not be deemed to be a waiver of such term, covenant or condition or
of any subsequent breach of the same or any other term, covenant or condition
herein contained. The subsequent acceptance of
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Rent by Landlord shall not be deemed to be a waiver of any preceding breach by
Tenant, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such Rent. No delay or omission in the exercise of any
right or remedy of Landlord in regard to any Default by Tenant shall impair such
a right or remedy or be construed as a waiver. Any waiver by Landlord of any
Default must be in writing and shall not be a waiver of any other Default
concerning the same or any other provisions of this Lease.
35. HOLDING OVER.
Any holding over after the expiration of the Term, without the express
written consent of Landlord, shall constitute a Default and, without limiting
Landlord's remedies provided in this Lease, such holding over shall be construed
to be a tenancy at sufferance, at a rental rate of [...***...] of the Base Rent
last due in this Lease, plus Additional Rent, and shall otherwise be on the
terms and conditions herein specified, so far as applicable; provided, however,
in no event shall any renewal or expansion option or other similar right or
option contained in this Lease be deemed applicable to any such tenancy at
sufferance. If the Premises are not surrendered at the end of the Term or sooner
termination of this Lease, and in accordance with the provisions of Paragraphs
11 and 32(h), Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all loss or liability resulting from delay by Tenant in so
surrendering the Premises including, without limitation, any loss or liability
resulting from any claim against Landlord made by any succeeding tenant or
prospective tenant caused by such delay and losses to Landlord due to lost
opportunities to lease any portion of the Premises to any such succeeding tenant
or prospective tenant, together with, in each case, actual attorneys' fees and
costs.
36. SUCCESSORS AND ASSIGNS.
(A) The terms, covenants and conditions of this Lease shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors, executors,
administrators and assigns of all of the parties hereto. If Tenant shall consist
of more than one entity or person, the obligations of Tenant under this Lease
shall be joint and several.
(B) Notwithstanding anything in this Lease to the contrary, Landlord shall
have the right to sell, transfer or otherwise convey, either separately or
jointly, its interest in the Building and/or Expansion Land and/or Expansion
Building, and all of Landlord's related rights hereunder, to any Person,
provided that the original Landlord hereunder retains the obligation to
construct and deliver the Building and, if Tenant exercises the Expansion
Option, the Expansion Building, in accordance with the terms hereof. By way of
example only (and without limiting Landlord's rights under this Paragraph
36(b)), subject to compliance with applicable zoning and subdivision laws,
Landlord shall have the right to convey its interest in the Building and retain
its interest in and rights and obligations hereunder with respect to the
Expansion Land and/or the Expansion Building. Tenant agrees to cooperate with
Landlord at Landlord's request and at Landlord's sole cost and expense (except
as limited below) and to enter into such substitute or replacement lease and
option documents (the "Substitute Lease Documents") as Landlord shall
*CONFIDENTIAL TREATMENT REQUESTED
41.
<PAGE> 48
reasonably request to effectuate the intent of this subparagraph 36(b),
(including any provisions relating to payment of the Carry Costs, as hereinafter
defined, to the original Landlord), provided that the obligations of Tenant
under this Lease shall not be increased nor shall Tenant's rights under this
Lease be diminished as a result of the execution and delivery of such Substitute
Lease Documents, and provided further that Landlord shall pay Tenant's
reasonable legal fees incurred in connection with such Substitute Lease
Documents.
37. TIME.
Time is of the essence of this Lease and each and every term, condition
and provision herein.
38. BROKERS.
Landlord and Tenant each represents and warrants to the other that neither it
nor its officers or agents nor anyone acting on its behalf has dealt with any
real estate broker except the Broker(s) specified in the Basic Lease Information
in the negotiating or making of this Lease, and each party agrees to indemnify
and hold harmless the other from any claim or claims, and costs and expenses,
including attorneys' fees, incurred by the indemnified party in conjunction with
any such claim or claims of any other broker or brokers to a commission in
connection with this Lease as a result of the actions of the indemnifying party.
Landlord shall pay the brokerage commissions due to the Brokers listed in the
Basic Lease Information.
39. LIMITATION OF LIABILITY.
Tenant agrees that, in the event of any default or breach by Landlord
with respect to any of the terms of the Lease to be observed and performed by
Landlord or with respect to the enforcement of an indemnity obligation of
Landlord under this Lease (1) Tenant shall look solely to the then-current
landlord's interest in the Building for the satisfaction of such indemnity
obligation of Landlord or for satisfaction of Tenant's remedies for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord; (2) no other property or assets of Landlord, its partners,
shareholders, officers, directors, employees, investment advisors, or any
successor in interest of any of them (collectively, the "Landlord Parties")
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies; (3) no personal liability shall at any time
be asserted or enforceable against the Landlord Parties; and (4) no judgment
will be taken against the Landlord Parties (except for a judgment against
Landlord which is enforceable only to the extent of Landlord's interest in the
Building). The provisions of this Paragraph shall apply only to the Landlord and
the parties herein described, and shall not be for the benefit of any insurer
nor any other third party.
40. FINANCIAL STATEMENTS.
Within [...***...] days after Landlord's request, Tenant shall deliver
to Landlord the then current financial statements of Tenant (including interim
periods following the end of the last fiscal year for which annual statements
are available), prepared or compiled by a certified public
*CONFIDENTIAL TREATMENT REQUESTED
42.
<PAGE> 49
accountant, including a balance sheet and profit and loss statement for the most
recent prior year, all prepared in accordance with generally accepted accounting
principles consistently applied.
41. RULES AND REGULATIONS.
Tenant agrees to comply with such reasonable rules and regulations as
Landlord may adopt from time to time for the orderly and proper operation of the
Building and the Project. Such rules may include but shall not be limited to the
following: (a) restriction of employee parking to a limited, designated area or
areas; and (b) regulation of the removal, storage and disposal of Tenant's
refuse and other rubbish at the sole cost and expense of Tenant. The then
current rules and regulations shall be binding upon Tenant upon delivery of a
copy of them to Tenant. Landlord shall not be responsible to Tenant for the
failure of any other person to observe and abide by any of said rules and
regulations; provided however, Landlord shall enforce such rules and regulation
in a non-discriminatory manner. Landlord's current rules and regulations are
attached to this Lease as Exhibit E.
42. MORTGAGEE PROTECTION.
(A) MODIFICATIONS FOR LENDER. If, in connection with obtaining financing
for the Project or any portion thereof, Landlord's lender shall request
reasonable modifications to this Lease as a condition to such financing, Tenant
shall not unreasonably withhold, delay or defer its consent to such
modifications, provided such modifications do not materially adversely affect
Tenant's rights or increase Tenant's obligations under this Lease.
(B) RIGHTS TO CURE. Tenant agrees to give to any trust deed or mortgage
holder ("Holder"), by registered mail, at the same time as it is given to
Landlord, a copy of any notice of default given to Landlord, provided that prior
to such notice Tenant has been notified, in writing, (by way of notice of
assignment of rents and leases, or otherwise) of the address of such Holder.
Tenant further agrees that if Landlord shall have failed to cure such default
within the time provided for in this Lease, then the Holder shall have an
additional [...***...] days after expiration of such period, or after receipt of
such notice from Tenant (if such notice to the Holder is required by this
Paragraph 42(b)), whichever shall last occur within which to cure such default
or if such default cannot be cured within that time, then such additional time
as may be necessary if within such [...***...] days, any Holder has commenced
and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings, if
necessary to effect such cure), in which event this Lease shall not be
terminated.
43. ENTIRE AGREEMENT.
This Lease, including the Exhibits and any Addenda attached hereto,
which are hereby incorporated herein by this reference, contains the entire
agreement of the parties hereto, and no representations, inducements, promises
or agreements, oral or otherwise, between the parties, not embodied herein or
therein, shall be of any force and effect.
*CONFIDENTIAL TREATMENT REQUESTED
43.
<PAGE> 50
44. INTEREST.
Any installment of Rent and any other sum due from Tenant under this
Lease which is not received by Landlord when due shall bear interest from the
date such payment was originally due under this Lease until paid at an annual
rate equal to the maximum rate of interest permitted by law; provided, however,
Landlord hereby waives its right to collect interest on the first two (2) such
sums not paid to Landlord as required hereunder. Payment of such interest shall
not excuse or cure any Default by Tenant. In addition, Tenant shall pay all
costs and reasonable attorneys' fees incurred by Landlord in collection of such
amounts.
45. INTERPRETATION.
This Lease shall be construed and interpreted in accordance with the laws of the
State of California. The parties acknowledge and agree that no rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall be employed in the interpretation of this Lease, including
the Exhibits and any Addenda attached hereto. All captions in this Lease are for
reference only and shall not be used in the interpretation of this Lease.
Whenever required by the context of this Lease, the singular shall include the
plural, the masculine shall include the feminine, and vice versa. If any
provision of this Lease shall be determined to be illegal or unenforceable, such
determination shall not affect any other provision of this Lease and all such
other provisions shall remain in full force and effect. As used herein, the term
"gross negligence" shall mean any action or inaction taken with a reckless
disregard for the consequences. Unless otherwise specifically stated herein to
the contrary, Landlord's consent may be given or withheld in Landlord's sole and
absolute discretion.
46. REPRESENTATIONS AND WARRANTIES.
(A) OF TENANT. Tenant hereby makes the following representations and
warranties, each of which is material and being relied upon by Landlord, is true
in all respects as of the date of this Lease, and shall survive the expiration
or termination of the Lease.
(1) If Tenant is an entity, Tenant is duly organized, validly existing
and in good standing under the laws of the state of its organization and the
persons executing this Lease on behalf of Tenant have the full right and
authority to execute this Lease on behalf of Tenant and to bind Tenant without
the consent or approval of any other person or entity. Tenant has full power,
capacity, authority and legal right to execute and deliver this Lease and to
perform all of its obligations hereunder. This Lease is a legal, valid and
binding obligation of Tenant, enforceable in accordance with its terms.
(2) Tenant has not (i) made a general assignment for the benefit of
creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of an involuntary petition by any creditors, (iii) suffered the
appointment of a receiver to take possession of all or substantially all of its
assets, (iv) suffered the attachment or other judicial seizure of all or
substantially all of its assets, (v) admitted in writing its inability to pay
its debts as they come due, or (vi) made an offer of settlement, extension or
composition to its creditors generally.
44.
<PAGE> 51
(B) OF LANDLORD. Landlord hereby makes the following representations and
warranties, each of which is material and being relied upon by Tenant, is true
in all respects as of the date of this Lease, and shall survive the expiration
or termination of the Lease.
(1) If Landlord is an entity, Landlord is duly organized, validly
existing and in good standing under the laws of the state of its organization
and the persons executing this Lease on behalf of Landlord have the full right
and authority to execute this Lease on behalf of Landlord and to bind Landlord
without the consent or approval of any other person or entity. Landlord has full
power, capacity, authority and legal right to execute and deliver this Lease and
to perform all of its obligations hereunder. This Lease is a legal, valid and
binding obligation of Landlord, enforceable in accordance with its terms.
Landlord has not (i) made a general assignment for the benefit of creditors,
(ii) filed any voluntary petition in bankruptcy or suffered the filing of an
involuntary petition by any creditors, (iii) suffered the appointment of a
receiver to take possession of all or substantially all of its assets, (iv)
suffered the attachment or other judicial seizure of all or substantially all of
its assets, (v) admitted in writing its inability to pay its debts as they come
due, or (vi) made an offer of settlement, extension or composition to its
creditors generally.
47. SECURITY.
(A) Tenant acknowledges and agrees that, while Landlord may engage security
personnel to patrol the Building or the Project, Landlord is not providing any
security services with respect to the Premises, the Building or the Project and
that Landlord shall not be liable to Tenant for, and Tenant waives any claim
against Landlord with respect to, any loss by theft or any other damage suffered
or incurred by Tenant in connection with any unauthorized entry into the
Premises or any other breach of security with respect to the Premises, the
Building or the Project.
(B) Tenant hereby agrees to the exercise by Landlord and Landlord's Agents,
within their sole discretion, of such security measures as, but not limited to,
the evacuation of the Premises, the Building or the Project for cause, suspected
cause or for drill purposes, the denial of any access to the Premises, the
Building or the Project and other similarly related actions that it deems
necessary to prevent any threat of property damage or bodily injury. The
exercise of such security measures by Landlord and Landlord's Agents, and the
resulting interruption of service and cessation of Tenant's business, if any,
shall not be deemed an eviction or disturbance of Tenant's use and possession of
the Premises, or any part thereof, or render Landlord or Landlord's Agents
liable to Tenant for any resulting damages, unless caused by the gross
negligence or willful misconduct of Landlord, or relieve Tenant from Tenant's
obligations under this Lease.
48. JURY TRIAL WAIVER.
Tenant hereby waives any right to trial by jury with respect to any
action or proceeding (i) brought by Landlord, Tenant or any other party,
relating to (A) this Lease and/or any understandings or prior dealings between
the parties hereto, or (B) the Premises, the Building or the Project or any part
thereof, or (ii) to which Landlord is a party. Tenant hereby agrees that
45.
<PAGE> 52
this Lease constitutes a written consent to waiver of trial by jury pursuant to
the provisions of California Code of Civil Procedure Section 631.
49. OPTION TO RENEW.
Tenant shall have two (2) options (each a "Renewal Option") to extend
the Term of this Lease with respect to either the Building or the Expansion
Space, or both, each for a [...***...] year extended term (the "Renewal Term").
If Tenant has exercised the Expansion Option set forth in Paragraph 52 below,
Tenant may exercise the Renewal Option with respect to all of the original
Premises and/or the Expansion Space; provided however, as a condition to
exercising such Renewal Option, Tenant must be in possession of at least
[...***...] of the square footage of the building for which Tenant desires to
exercise the Renewal Option. Each Renewal Option shall be effective only if
Tenant is not in Default under this Lease, nor has any event occurred which with
the giving of notice or the passage of time, or both, would constitute a Default
hereunder, either at the time of exercise of the Renewal Option or the time of
commencement of the Renewal Term. If Tenant exercises the first Renewal Option
in accordance herewith, the first Renewal Term shall commence on the day
following the last day of the initial Term and end on the day preceding the
[...***...] anniversary thereof. If Tenant exercises the second Renewal Option,
the second Renewal Term shall commence on the day following the last day of the
first Renewal Term and end on the day preceding the [...***...] anniversary
thereof. The second Renewal Option may not be exercised unless Tenant has
previously exercised the first Renewal Option. Each Renewal Term, if properly
exercised, shall be upon the same terms and conditions as the Lease except for
Base Rent (which shall be determined as provided in the following provisions of
this Paragraph) and the size of the Premises (which shall be determined based
upon the square footage of the space subject to the Renewal Notice). The Renewal
Option shall be personal to Tenant and any transferee of a Permitted Transfer
and shall not be assignable or otherwise transferable to any other permitted
assignee, subtenant or other third parties and there shall be no further Renewal
Option beyond the expiration of the second Renewal Term. In order to exercise a
Renewal Option, Tenant shall give written notice to Landlord of Tenant's
exercise of such election ("Tenant's Notice") at least [...***...] prior to
expiration of the then current Term and if such notice is not so given, the
Renewal Option shall lapse; the Tenant hereby expressly acknowledges and agrees
that time is of the essence for purposes of notice of exercise of a Renewal
Option and that Tenant's failure to do so by said date will relieve Landlord of
any obligation under this Paragraph. If Tenant gives such notice within the time
prescribed, Landlord and Tenant shall be deemed to have entered into an
extension of this Lease with respect to the entirety of the Premises for a
[...***...] extended term on the terms and conditions set forth herein.
The monthly Base Rent payable during any Renewal Term shall be an mount
equal to [...***...]. "Fair Market Rent" shall mean the rate being charged for
comparable Office/R&D space in the Northern Peninsula market area (excluding the
City of San Francisco), taking into consideration: tenant credit, tenant
improvements or allowances provided or to be provided and leasing commissions
but excluding tenant improvements paid for by Tenant. Landlord and Tenant shall
meet and attempt in good faith to mutually determine Fair Market Rent for the
*CONFIDENTIAL TREATMENT REQUESTED
46.
<PAGE> 53
purposes of the foregoing. If the parties have not reached agreement on Fair
Market Rent by the date that is thirty (30) days after Tenant's Notice, each
party shall appoint an appraiser and shall give to the other party the identity
of the appraiser no later than the date that is forty (40) days after the
Tenant's Notice. If either party fails to appoint an appraiser by the date that
is forty (40) days after Tenant's Notice, the sole appraiser appointed, if any,
shall determine the Fair Market Rent. If two appraisers are appointed, they
shall immediately meet and attempt to agree upon such Fair Market Rent. If the
appraisers cannot reach agreement on the Fair Market Rent by the date that is
sixty (60) days after Tenant's Notice, each appraiser shall submit a
determination of Fair Market Rent to Landlord and Tenant. If the determinations
of Fair Market Rent made by these two appraisers vary by [...***...] or less,
the Fair Market Rent shall be the average or, the two determinations. If the
determinations vary by more than [...***...], the two appraisers shall within
[...***...] after submission of their determinations, appoint a third appraiser.
If the two appraisers shall be unable to agree on the selection of a third
appraiser within the [...***...], then either Tenant or Landlord may request
such appointment by petitioning the presiding judge of the Superior Court in and
for the County of San Mateo. Such third appraiser shall, within thirty (30) days
after appointment, make a determination of the Fair Market Rent and submit such
determination to Landlord and Tenant. The Fair Market Rent shall be the
determination of Fair Market Rent submitted by the original two appraisers that
is closer to the Fair Market Rent determination of the third appraiser. If the
third appraiser's determination is exactly between the Fair Market Rent
determination of the original two appraisers, then Fair Market Rent shall be the
average of the original two determinations. For purposes of this Paragraph,
"appraiser" shall mean a licensed commercial real estate broker or MAI
designated appraiser with not less than 5 years of full-time commercial
appraisal or brokerage experience in the Northern Peninsula market area. Each
party shall bear the fees and costs incurred by each party's appraiser in
connection with the determination of Fair Market Rent and all fees and costs
incurred by the third appraiser, if any, in connection with the determination of
Fair Market Rent shall be shared equally by Landlord and Tenant. If the
determination of Fair Market Rent has not been made by the expiration of the
then expiring Term, Tenant shall (i) continue to pay monthly Base Rent at the
monthly Base Rent for the last month of the Term (the "Arbitration Period Base
Rent") as well as any additional rent due under the Lease and (ii) pay to
Landlord, or receive as a refund from Landlord, as applicable, on the first day
of the month after the determination of Fair Market Rent is made, an amount, if
any, equal to the difference between the Arbitration Period Base Rent that was
paid to Landlord and the monthly Base Rent for the Renewal Term that should have
been paid to Landlord as the monthly Base Rent for the Renewal Term as
determined hereunder.
50. RIGHT OF FIRST NEGOTIATION.
Provided Tenant is not then in Default hereunder, Landlord shall notify
Tenant of the availability of any existing rentable space available within the
Project during the Term, (the "Negotiation Space"). Landlord agrees to review
and negotiate in good faith with Tenant any proposals submitted by Tenant with
respect to leasing the Negotiation Space prior to entering into any final lease
agreement for the Negotiation Space with third parties. Tenant's rights under
this Paragraph are subject and subordinate to any extension or expansion options
of other tenants
*CONFIDENTIAL TREATMENT REQUESTED
47.
<PAGE> 54
of the Project, whether now existing or hereafter granted. If Landlord and
Tenant are unable to execute a final lease agreement for the Negotiation Space
within 20 days of Landlord's notice to Tenant of the availability of the
Negotiation Space, Landlord shall have no further obligation to Tenant under
this Paragraph and shall be free to lease the space to any third parties. Tenant
hereby expressly acknowledges and agrees that time is of the essence for
purposes of this Paragraph. Notwithstanding anything in this Paragraph to the
contrary, Landlord shall have no obligation to lease to Tenant and Tenant shall
have no obligation to lease from Landlord the Negotiation Space and as such,
each party may act in its sole and absolute discretion in connection with this
Paragraph.
51. RIGHT OF FIRST OFFER.
If subsequent to full execution of this Lease, Landlord desires to sell
the Building and/or, if Tenant has exercised the Expansion Option, the Expansion
Building, Landlord shall notify Tenant in writing of such intent to sell (the
"Offer Notice"); provided however, Landlord shall not be required to provide
Tenant with the Offer Notice with respect to the Building or Expansion Building
if Landlord has previously terminated this Lease with respect to, or recaptured,
all or any portion of the Premises or the Expansion Space, respectively.
Tenant's right to receive the Offer Notice shall further be effective only if
Tenant is not in Default under this Lease, nor has any event occurred which with
the giving of notice or the passage of time, or both, would constitute a Default
hereunder. In the event Tenant desires to purchase the Building and/or the
Expansion Building, Tenant shall notify Landlord in writing of its election to
purchase the Building and/or the Expansion Building (the "Election Notice")
within thirty (30) days following Tenant's receipt of the Offer Notice. In the
event Tenant timely delivers the Election Notice to Landlord, the parties shall
thereafter execute a purchase and sale agreement (the "Purchase and Sale
Agreement") reasonably acceptable to both Landlord and Tenant with the purchase
price of the Building and/or the Expansion Building equal to the quotient of the
Net Operating Income (as defined below) of the Building and/or the Expansion
Building divided by [...***...] and with a closing to be held on or before the
date that is one hundred and eighty (180) days after delivery of the Offer
Notice. If Tenant fails to deliver an Election Notice within the 30-day time
period, or if Tenant has not executed the Purchase and Sale Agreement within
thirty (30) days after the date of Landlord's receipt of the Election Notice,
Tenant's right to purchase the Building and/or the Expansion Building hereunder
shall automatically terminate and be of no further force and effect with respect
to Landlord or any subsequent purchaser and Landlord shall thereafter have the
right to sell the Building and/or the Expansion Building at anytime to any third
party. Tenant hereby expressly acknowledges and agrees that time is of the
essence for purposes of the Election Notice and that Tenant's failure to deliver
such Election Notice as specified herein will relieve Landlord of any obligation
under this Paragraph. As used herein, Net Operating Income shall mean the Base
Kent due under the Lease with respect to the Building or the Expansion Building,
as applicable, for the (12) full calendar months following the Offer Notice.
Notwithstanding anything in this Paragraph to the contrary, this Paragraph shall
be inapplicable to, and Landlord shall have no obligation to provide an Offer
Notice to Tenant in connection with any sale or proposed sale of the Building
and/or the Expansion Building to any Person (as defined below) who is the owner
of at least a fifty-one percent (51%) legal or
*CONFIDENTIAL TREATMENT REQUESTED
48.
<PAGE> 55
beneficial interest and holder of a controlling interest in Landlord as of the
date of this Lease or at anytime in the future. As used herein "Person" shall
mean any natural person, corporation, firm, association or other entity, whether
acting in an individual, fiduciary or other capacity. Tenant's rights under this
Paragraph 51 shall survive Landlord's transfer to such Person.
52. RIGHT TO EXPAND.
(A) Tenant shall have one (1) option to expand (the "Expansion Option") the
Premises to include an approximately [...***...] square feet Building (the
"Expansion Space") to be constructed in the Project in the area shown on the
attached Exhibit G (the "Expansion Land"). The Expansion Option shall be
effective only if Tenant is not in Default under this Lease, nor has any event
occurred which with the giving of notice or the passage of time, or both, would
constitute a Default hereunder, either at the time of exercise of the Expansion
Option or the time of delivery of the Expansion Space. The Expansion Option
shall be personal to Tenant and any transferee of a Permitted Transfer and shall
not be assignable or otherwise transferable to any other permitted assignee,
subtenant or other third parties. In order to exercise the Expansion Option,
Tenant shall give written notice to Landlord (the "Expansion Notice") on or
before the date (the "Final Expansion Notice Date") that is the last day of the
first Lease Year. If the Expansion Notice is not so given, the Expansion Option
shall, except as provided in (b) below, automatically lapse; Tenant hereby
expressly acknowledges and agrees that time is of the essence for purposes of
delivering the Expansion Notice and that Tenant's failure to do so by the Final
Expansion Notice Date will relieve Landlord of any obligation under this
Paragraph 52.
(B) Notwithstanding the terms of Paragraph 52(a) above, Tenant shall have
the right to extend the Final Expansion Notice Date to the last day of the
second Lease Year, provided that, on or before the expiration of the first Lease
Year Tenant delivers written notice of such election to Landlord (the "Extension
Notice"). If the Extension Notice is not so given, the Expansion Option shall
automatically lapse; Tenant hereby expressly acknowledges and agrees that time
is of the essence for purposes of delivering the Extension Notice and that
Tenant's failure to do so by said date will relieve Landlord of any obligation
under this Paragraph 52. If Tenant delivers the Extension Notice in a timely
manner as provided herein, Tenant shall have until the end of the second Lease
Year, (the "Extended Expansion Notice Date") to exercise the Expansion Option by
delivering an Expansion Notice to Landlord. If Tenant provides an Extension
Notice to Landlord and thereafter fails to exercise the Expansion Option in
accordance with this Paragraph 52(b), the monthly Base Rent then payable under
this Lease shall be increased by [...***...] per square foot and such increase
Base Rent shall thereafter be increased by [...***...] of the Monthly Base Rent
for the preceding Lease Year. By way of example, the monthly Base Rent payable
hereunder on a square footage basis during the [...***...] Lease Year shall be
adjusted to equal [...***...] which amount equals (i) the monthly Base Rent for
the [...***...] Lease Year, plus (ii) [...***...] per square foot and therefore,
the monthly Base Rent for the [...***...] Lease Year shall be [...***...].
(C) The Expansion Notice shall specify the date Tenant desires to occupy
the Expansion Space (the "Requested Delivery Date"). The Requested Delivery Date
shall be no earlier than
*CONFIDENTIAL TREATMENT REQUESTED
49.
<PAGE> 56
[...***...] after the Commencement Date. Upon delivery of the Expansion Notice
and as a condition precedent to the effectiveness thereof, Tenant shall (i)
increase the Security Deposit under this Lease by [...***...] to a total of
[...***...], and (ii) provide Landlord with detailed financial statements and
other information reasonably acceptable to Landlord demonstrating that, as of
the date of the Expansion Notice, Tenant has cash and cash equivalents, as
defined in Paragraph 4 above, greater than [...***...] and a current ratio of
[...***...] or greater. As used in this Paragraph, "current ratio shall mean the
number obtained by dividing Tenant's current assets by current liabilities, as
such amounts are shown on Tenant's then most recent quarterly filing (Form 1
O-Q) with the Securities and Exchange Commission. Notwithstanding the condition
in (ii) above, the Expansion Notice shall be effective if Tenant delivers to
Landlord, as additional security for the full and faithful performance of
Tenant's covenants and obligations under this Lease, a letter of credit, in the
form and subject to the terms and conditions set forth in Paragraph 4 above, in
the amount of [...***...]. Notwithstanding the terms of Paragraph 4, during the
period from the Expansion Space Commencement Date through the sixth Lease Year,
the amount of such letter of credit shall be reduced by [...***...] on the last
day of each such Lease Year. During the period from the seventh Lease Year
through the Expiration Date, the amount of the letter of credit shall be reduced
by [...***...] on the last day of each such Lease Year.
(D) Upon the Expansion Space Commencement Date (as defined in Exhibit B
hereto), the Lease shall be deemed amended such that the definition of Premises
shall include the Expansion Space and the definition of Building shall include
the newly constructed building in which the Expansion Space is located (the
"Expansion Building"). Tenant's occupancy of the Expansion Space shall be
subject to all of the terms and conditions of this Lease except as specifically
provided in Paragraph 52(f) below. Without limiting the generality of the
foregoing, Monthly Base Rent shall be due for the Expansion Space at the same
rate per square foot as then being charged for the original Premises (such
amount being determined by dividing the Monthly Base Rent by the original
Premises square footage) and shall be subject to the same adjustments as set
forth in the Lease, and Tenant's Proportionate Share(s) shall be adjusted to
include the addition of the Expansion Space, provided that any monetary
limitation on Expenses set forth in any provision of Paragraph 4 shall apply
separately to each building constituting a part of the Premises hereunder,
except that the [...***...] monetary limitation in Paragraph 4(b)(o) shall
remain at [...***...]. If, for any reason whatsoever, the Expansion Space
Commencement Date does not occur on or before the Requested Delivery Date, the
Expansion Option shall not be void or voidable, nor shall Landlord, or
Landlord's Agents, be liable to Tenant for any loss or damage resulting
therefrom. Tenant shall not be liable for Rent with respect to the Expansion
Space until the Expansion Space Commencement Date. Upon request from Landlord,
Tenant shall enter into a written amendment of the Lease prepared by Landlord
and memorializing the expansion of the Premises to include the Expansion Space
and the adjustment of the other economic terms of the Lease.
(E) In consideration of Landlord's granting the Expansion Option and with
the understanding that Landlord would not have otherwise agreed to the Expansion
Option, Tenant shall pay to Landlord upon execution of this Lease and on the
first day of each succeeding calendar month the sum of [...***...] (the "Carry
Costs") until such time as (i) Tenant notifies
*CONFIDENTIAL TREATMENT REQUESTED
50.
<PAGE> 57
Landlord that it has relinquished the Expansion Option, (ii) the Expansion
Option expires in accordance with the terms of this Paragraph 52 or, (iii) if
the Tenant delivers an Expansion Notice, until ten (10) months prior to the
Requested Delivery Date (said amounts to be prorated during any partial calendar
months hereunder). Notwithstanding the foregoing, Tenant may elect, by
delivering written notice of such election to Landlord upon execution of this
Lease, to pay on the Commencement Date all Carry Costs due for the period of
time from the date of this Lease through the Commencement Date, together with
interest thereon at the rate of [...***...] per annum. All Carry Costs due from
and after the Commencement Date shall be paid to Landlord on a monthly basis as
set forth above. Any delays in delivery of the Expansion Space beyond the
Requested Delivery Date due to Tenant Delays or Force Majeure Events, as such
terms are defined in Exhibit B hereto, shall result in Tenant's continued
payment of Carry Costs for the time attributable to the such delay.
(F) Promptly after the exercise of the Expansion Option by Tenant, Landlord
and Tenant shall enter into a building construction agreement and a premises
construction agreement (collectively, the "Expansion Construction Agreements")
in form and content substantially similar to the Building Construction Agreement
and Premises Construction Agreement attached hereto as Exhibit A and Exhibit B,
respectively, which Expansion Construction Agreements shall set forth the rights
and obligations of the parties with respect to the construction of the Expansion
Building and the Premises. Without limiting the foregoing, the building
construction agreement for the Expansion Space shall include Conditions
substantially similar to those set forth on Exhibit H with respect to the
Original Premises and performance periods for the satisfaction of such
Conditions of equivalent duration to the performance periods specified on said
Exhibit H (as measured by the time periods from the date of this Lease to the
respective Initial Window Dates). Landlord shall provide Tenant with a Tenant's
Allowance equal to the Expansion Space TI Dollars, as defined below, multiplied
by the Expansion this Paragraph, the Space square footage, as finally
determined. As used in "Expansion Space TI Dollars" shall mean an amount equal
to [...***...] increased at an annualized rate of [...***...] from the date of
this Lease until the date the Expansion Notice is properly given.
53. MEMORANDUM OF LEASE.
Promptly after full execution of this Lease, Landlord and Tenant shall
execute and cause to be recorded a Memorandum of Lease in the form attached
hereto as Exhibit J.
(signatures on next page)
*CONFIDENTIAL TREATMENT REQUESTED
51.
<PAGE> 58
Landlord and Tenant have executed and delivered this Lease as of the
Lease Date specified in the Basic Lease Information.
LANDLORD:
HMS GATEWAY OFFICE, L.P.,
A Delaware limited liability company
By: HINES GATEWAY OFFICE, L.P.,
General Partner
By: HINES INTERESTS LIMITED PARTNERSHIP,
General Partner
By: HINES HOLDING, INC.
General Partner
By: /s/ James Bule
-------------------------------
Name: James Bule
-------------------------------
Its: EVP
------------------------------
TENANT:
COULTER PHARMACEUTICAL, INC.,
A Delaware corporation
By: /s/ William G. Harris
-------------------------------
Name: William G. Harris
-------------------------------
Its: VP & CFO
------------------------------
52.
<PAGE> 59
EXHIBIT A
BASE BUILDING CONSTRUCTION AGREEMENT
This exhibit, entitled "Base Building Construction Agreement", is and
shall constitute Exhibit A to the Lease Agreement, dated as of the Lease Date,
by and between Landlord and Tenant. The terms and conditions of this Exhibit A
are hereby incorporated into and are made a part of the Lease.
Subject to the terms and conditions set forth herein and in the Lease,
Landlord shall cause construction of the Building in accordance with the
procedures set forth below:
(A) DEFINITIONS.
(1) "BASE BUILDING IMPROVEMENTS" shall mean a two (2) story building,
containing approximately [...***...] square feet, all exterior surfaces,
utilities, landscaping and paved parking, all in substantial compliance with
those items listed on the Preliminary Specifications as "Base Building" and
located substantially in accordance with the Site Plan.
(2) "BASE BUILDING PLANS AND SPECIFICATIONS" is defined in Section B.
1 below.
(3) "BUILDING WORK COST" is defined in Section B.3 below.
(4) "CONSTRUCTION WARRANTIES" is defined in Section D.2 below.
(5) "LANDLORD'S ARCHITECT" shall mean DES Architects/Engineers or any
replacement architect selected by Landlord in Landlord's reasonable discretion.
(6) "LANDLORD'S CONTRACTOR" shall mean a general contractor and any
replacement general contractors selected by Landlord in Landlord's reasonable
discretion.
(7) "PRELIMINARY SPECIFICATIONS" shall mean those preliminary
specifications for construction of the Base Building Improvements categorized as
"Base Building" and more particularly described on the attached Schedule A-1.
(8) "SITE PLAN" shall mean the site plan set forth on the attached
Schedule A-2 establishing the approximate location of the Building. All details
relating to the Project contained on the Site Plan, including without
limitation, location of the Building, parking areas, ingress, egress, direction
of driveways, and entrances are from time to time subject to change in
Landlord's discretion, upon written consent from Tenant, which consent shall not
be unreasonably withheld, conditioned or delayed and provided further that if
Tenant fails to respond within five (5) business days following Landlord's
request for consent, Tenant shall be conclusively deemed to have given its
approval to any such change. Notwithstanding the foregoing, Landlord may,
without the written consent of Tenant, change any details relating to the
Project as may be required by any governmental agency or as necessary to comply
with any
*CONFIDENTIAL TREATMENT REQUESTED
53.
<PAGE> 60
governmental requirements or to address structural or unanticipated field
conditions or which, in the reasonable discretion of Landlord, will not have a
material effect on Tenant's use of the Premises or a material effect on the
aesthetic appearance or impression relating to the area covered by the Site
Plan.
(9) "TENANT'S COSTS" is defined in Section B.6 below.
(10) "TENANT REQUESTED BASE BUILDING IMPROVEMENTS" shall mean those
improvements requested by Tenant in accordance with this Exhibit A that are to
be incorporated into the Base Building Plans and Specifications. Capitalized
terms not otherwise defined in this Exhibit A shall have the meanings ascribed
to them in the Lease.
(B) SCHEDULE.
(1) PLANS AND SPECIFICATIONS. At Landlord's sole cost and expense,
Landlord's Architect has prepared schematic plans and specifications (the "Base
Building Plans and Specifications") for construction of the Base Building
Improvements substantially in accordance with the Preliminary Specifications,
which plans are commonly referred to as the "September 5, 1997 Schematic
Drawings," as such drawings were modified by the City Council of the City of
South San Francisco on October 15, 1997. Tenant has reviewed and approved the
Base Building Plans and Specifications. Notwithstanding the foregoing, the Base
Building Plans and Specifications are, from time to time, subject to change in
Landlord's discretion, upon written consent from Tenant, which consent shall not
be unreasonably withheld, conditioned or delayed and provided further that if
Tenant fails to respond within [...***...] business days following Landlord's
request for consent, Tenant shall be conclusively deemed to have given its
consent to any such change. Landlord may without the written consent of the
Tenant change the Base Building Plans and Specifications as may be required by
any governmental agency or as necessary to comply with any governmental
requirements or to address structural or unanticipated field conditions or
which, in the reasonable discretion of Landlord, will not have a material effect
on Tenant's use of the Premises or a material effect on the aesthetic appearance
or impression relating to the Base Building Improvements.
(2) TENANT REQUESTED BASE BUILDING IMPROVEMENTS. On or before the date
that is [...***...] weeks after the date of this Lease, Tenant shall deliver to
Landlord's Architect detailed specifications for any Tenant Requested Base
Building Improvements. All Tenant Requested Base Building Improvements shall be
subject to review and approval by Landlord, which approval may be given or
withheld in Landlord's reasonable discretion, to ensure, among other things,
that the Tenant Requested Base Building Improvements are compatible with all
other construction and all electrical, mechanical, life safety, and other
systems within the Building. If Landlord disapproves the Tenant Requested Base
Building Improvements, then within five (5) business days thereafter, Landlord
shall meet with the Tenant's Architect (as defined in Exhibit B) and Tenant to
discuss, or shall submit to Tenant's Architect and Tenant in writing, the
reasons for Landlord's disapproval. Within five (5) business days following such
*CONFIDENTIAL TREATMENT REQUESTED
54.
<PAGE> 61
meeting 6i' submission, Tenant shall cause Tenant's Architect to revise the same
and to submit new Tenant Requested Base Building Improvements to Landlord. The
procedure set forth in this paragraph will be repeated as set forth above until
Landlord has approved the Tenant Requested Base Building Improvements.
(3) ESTIMATE OF BUILDING WORK COSTS. Promptly after approval of the
Tenant Requested Base Building Improvements, Landlord shall furnish Tenant with
an estimate of the cost of the Tenant Requested Base Building Improvements (the
"Building Work Cost").
(4) TENANT'S REVIEW OF BUILDING WORK COSTS. The Building Work Cost
shall be subject to Tenant's approval, which approval shall not be unreasonably
withheld, conditioned or delayed and provided further that if Tenant fails to
respond within five (5) business days following Landlord's request for consent,
Tenant shall be conclusively deemed to have given its approval to the Building
Work Costs. If Tenant timely disapproves the Building Work Cost, then within
five (5) business days thereafter, Tenant shall meet with Landlord, Landlord's
Contractor, Landlord's Architect and Tenant's Architect to discuss value
engineering changes to the Tenant Requested Base Building Improvements. Within
five (5) business days following such meeting, Tenant shall cause Tenant's
Architect to revise the Tenant Requested Base Building Improvements and to
submit revised Tenant Requested Base Building Improvements for approval by
Landlord in accordance with the procedure set forth above and for a new Building
Work Cost to be prepared by Landlord. The procedure set forth in this paragraph
will be repeated until Tenant has approved the Building Work Cost.
(5) REVISION OF PLANS & SPECIFICATIONS. Following Landlord's approval
of the Tenant Requested Base Building Improvements and Tenant's approval of the
Building Work Cost, Landlord shall cause Landlord's Architect to revise the Base
Building Plans and Specifications to incorporate the Tenant Requested Base
Building Improvements.
(6) TENANT'S RESPONSIBILITY FOR COST OF TENANT REQUESTED BASE BUILDING
IMPROVEMENTS. All costs associated with incorporating the Tenant Requested Base
Building Improvements into the Base Building Plans and Specifications and all
costs of constructing the Tenant Requested Base Building Improvements (the
"Tenant's Costs") shall be the responsibility of Tenant and shall not be
credited against Tenant's Allowance, as defined in Exhibit B. Tenant shall make
progress payments to Landlord from time to time as the Tenant Requested Base
Building Improvements are constructed. Tenant shall pay the portion of such
progress payments attributable to Tenant's Costs to Landlord within ten (10)
days of delivery of statements from Landlord to Tenant therefor. Upon receipt of
such payments, Landlord shall make all progress payments directly to Landlord's
Contractor or subcontractors, as appropriate. Landlord shall be entitled to
suspend or terminate construction of the Base Building Improvements and to
declare Tenant in default in accordance with the terms of the Lease, if payment
by Tenant to Landlord of Tenant's Costs has not been received as required
hereunder.
(C) CONSTRUCTION.
The Base Building Improvements shall be constructed, at Landlord's sole
cost and expense, by Landlord's Contractor in accordance with the Base Building
Plans and Specifications, as the same may be amended or modified from time to
time by Landlord and, if
55.
<PAGE> 62
required, as approved by Tenant in accordance with this Exhibit A. All changes
to the Base Building Plans and Specifications requiring Tenant's approval must
be evidenced by a written change order executed by Landlord and by Tenant or
each of their agents, describing the change required in the Base Building
Improvements and, the cost of such changes shall be paid in accordance with the
terms of this Exhibit A.
(D) GENERAL.
(1) RIGHT OF TERMINATION. Landlord and Tenant acknowledge that
construction of the Base Building Improvements and all matters relating thereto
are subject to Landlord obtaining all necessary governmental and private
approvals to commence construction of the Base Building Improvements. Landlord
shall use commercially reasonable efforts to obtain such approvals; however, if
Landlord is unable to obtain such approvals by [...***...],.either party shall
have the right to terminate' this Lease by delivering written notice of
termination to the other party on or before [...***...]. If written notice of
termination is given in a timely manner, the Lease shall immediately terminate,
except for any obligations which by their terms survive the termination or
earlier expiration of the Lease. Upon termination of the Lease in accordance
with this provision, Tenant shall receive a return of all Carry Costs, if any,
paid to Landlord pursuant to Paragraph 52(e) of the Lease. If no such notice of
termination is given, the Lease shall remain in full force and effect.
Notwithstanding anything herein to the contrary, Landlord shall not be liable to
Tenant for any loss or damage resulting from any delay in constructing or
developing the Base Building Improvements, nor shall such failure affect the
obligations of Tenant under the Lease, except as otherwise set forth in the
Lease.
(2) CONSTRUCTION WARRANTIES. Landlord shall obtain from Landlord's
Contractor, and shall request Landlord's Contractor to obtain from all
subcontractors and material suppliers, warranties (collectively, "Construction
Warranties") for all components of the Base Building Improvements for which
warranties are customarily provided in the construction industry and Landlord
shall enforce the Construction Warranties as reasonably requested by Tenant.
(3) LANDLORD'S COVENANTS. Subject to the terms and conditions of the
Lease, Landlord covenants that (a) the Base Building Improvements shall be
constructed in compliance with all applicable building code requirements in
effect and being actively enforced by the City of South San Francisco on the
date the applicable building permits for construction of the Base Building
Improvements were issued to Landlord's Contractor and substantially in
accordance with the Base Building Plans and Specifications and (b) that the Base
Building Improvements shall be free from material latent defects in design,
materials and workmanship; provided however, Landlord shall have no liability
under this paragraph unless failure to comply with the terms hereof materially
adversely affect Tenant's use of the Premises. Any claims by Tenant under clause
(a) above, shall be made in writing not later than one (1) year after
commencement of the Term and any claims by Tenant under clause (b) above, shall
be made in writing not later than the earlier of [...***...] years after
commencement of the Term or termination of the Lease. In the event Tenant fails
to deliver a written claim to Landlord on or before such dates, then
*CONFIDENTIAL TREATMENT REQUESTED
56.
<PAGE> 63
Landlord shall be conclusively deemed to have satisfied its obligations under
this paragraph. The covenants contained in this paragraph are subject to
Paragraph 39 of the Lease and are made specifically and exclusively for the
benefit of the original Tenant.
INITIALS:
TENANT:
LANDLORD:
57.
<PAGE> 64
COULTER PHARMACEUTICAL - SCHEDULE A1
PRELIMINARY SPECIFICATIONS
COST RESPONSIBILITY
<TABLE>
<CAPTION>
Base
Description Building Tenant
----------- -------- ------
SITEWORK
<S> <C> <C>
- - All necessary fees and permits for Base Building Works [...***...] [...***...]
- - All grading of the site to predetermined grades per DES Architects plans [...***...] [...***...]
- - Installation of all necessary underground utilities, storm drain, [...***...] [...***...]
sewer, catch basins, drain inlets, common trench, water, electricity,
cable televisions and gas meter per DES Architects documents
- - Installation of all offsite and onsite curbs, gutters and sidewalks [...***...] [...***...]
as shown on Des Architect construction documents
- - Installation of all irrigation and landscaping per DES Architect's plans [...***...] [...***...]
- - All area drains in landscaping areas, which shall be connected to the storm [...***...] [...***...]
drain system if required by DES Architect
- - Installation of separate water and electrical meters for all common area landscaping [...***...] [...***...]
- - Installation of code required informational and directional signage [...***...] [...***...]
- - Illuminated and non-illuminated interior signage by tenant [...***...] [...***...]
- - Illuminated monument signage and on building identification [...***...] [...***...]
signage as reviewed by Tenant
- - Striping of all parking areas per DES Architects documents [...***...] [...***...]
- - Installation of all trash screens as required by Planning Department of [...***...] [...***...]
the City of South San Francisco
- - Installation of all exterior lighting with a minimum coverage in both [...***...] [...***...]
parking areas and walkways of not less than one foot candle
STRUCTURE
- - All necessary fees and permits for Base Building work [...***...] [...***...]
- - All work necessary per code to make the Base Building handicap accessible [...***...] [...***...]
- - Minimum 5" slab on grade in conformance with specifications and [...***...] [...***...]
recommendations of Base Building geotechnical and engineering consultants.
Finish shall be smooth.
- - Sand fill and moisture barrier under slab on grade as recommended [...***...] [...***...]
by DES Architects
- - Exterior concrete walls shall be sandblasted and sealed [...***...] [...***...]
- - All structural steel shall be erected per DES Architect's specifications [...***...] [...***...]
- - All structural steel shall not be fireproofed unless required by local codes [...***...] [...***...]
- - Second floor decking shall be galvanized metal with a lightweight [...***...] [...***...]
concrete topping slab. Finish shall be smooth
- - All exterior vision glass shall be 1/4" thick with reflective coating [...***...] [...***...]
- - Roof membrane shall be 4-ply built-up system with a mineral fiber [...***...] [...***...]
cap sheet. Walk pads shall be installed to Base Building roof
mounted equipment, including fan units
- - All roof penetrations per Base Building drawings and specifications [...***...] [...***...]
- - All roof and floor penetrations per tenant drawings and specifications [...***...] [...***...]
- - All required condensate lines to be installed and terminated at the [...***...] [...***...]
nearest roof drain for Base Building equipment
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
1.
<PAGE> 65
COULTER PHARMACEUTICAL - SCHEDULE A1
PRELIMINARY SPECIFICATIONS
COST RESPONSIBILITY
<TABLE>
<CAPTION>
Base
Description Building Tenant
----------- -------- ------
SITEWORK
<S> <C> <C>
- - Roof drains per plan with drain lines tying into the storm drain system [...***...] [...***...]
Scuppers for overflow to be provided if required by code
- - Convenience outlets, as required by code, on the roof [...***...] [...***...]
- - Floor systems shall be designed to a minimum of 45 lbs. Per square foot [...***...] [...***...]
for office space and a minimum of 100 lbs. Per square foot on ground
floor for lab space
- - Roof insulation to meet minimum energy code [...***...] [...***...]
- - Roof live load to accommodate dead load and necessary reinforcement for [...***...]
additional lab related mechanical equipment
- - Required roof and floor penetrations, including blockouts, as shown on [...***...] [...***...]
base building for mechanical, electrical and plumbing trades
- - Required roof and floor penetrations, including blockouts, as shown on [...***...] [...***...]
tenant improvement drawings for tenant required mechanical, electrical
and plumbing work
- - Top of slab on grade to top of second floor slab shall be 15'-0" [...***...] [...***...]
Top of second floor slab to top of roof trusses shall be 13'-0"
- - All exterior doors, except entrance doors, shall be hollow core metal [...***...] [...***...]
with metal jambs as shown in schematic documents
- - One 12'-0" x 12'-0" steel rollup door shall be installed per Tenant [...***...] [...***...]
specifications for delivery area
- - Front entry doors shall be a pair of 3'-0" x 8'-0" fully supported, [...***...] [...***...]
balanced aluminum and glass doors with hardware reviewed by Tenant
- - All interior stairs as required by code, but not less than two per [...***...] [...***...]
building. All stairs shall be checker plate. If metal pan stairs
with concrete fill are requested by tenant, Coulter Pharmaceutical
pays the difference
- - Stair carpeting, if required, to be provided tenant [...***...] [...***...]
- - All interior stair handrails shall be primed and painted. Proper [...***...] [...***...]
backing shall be installed
- - All stairwells shall be sheetrocked, taped and ready for paint [...***...] [...***...]
- - All stairwells shall include code required lighting [...***...] [...***...]
- - All required base building life safety signage as required by code [...***...] [...***...]
- - All necessary equipment platforms on roof with a curb height of [...***...] [...***...]
not less than 10". All equipment platforms shall have a sheetmetal cap
and minimum 3" apron around the perimeter
- - One hydraulic passenger elevator, including all necessary wiring [...***...] [...***...]
and equipment, with a capacity of not less than 3,000 lbs. and
minimum speed of 100' per minute
- - A complete elevator cab that is the manufacturer's standard [...***...] [...***...]
- - Base Building to accommodate a 9'-0" finished ceiling height on both floors [...***...] [...***...]
- - All exterior concrete walls shall be finished on the interior with lightweight [...***...] [...***...]
metal studs, insulation and sheetrock, taped with a smooth finish
- - Master keyed exterior locks [...***...] [...***...]
- - Individual keying per tenant specifications [...***...] [...***...]
- - A complete fire sprinkler system, sized to meet code for a complete [...***...] [...***...]
open plan floorplate. This system shall be complete and operational except
for required drops to the suspended ceiling in tenant finished areas
The system shall include, but is not limited to, valves, dry stand pipes,
monitoring stations, ennciators, horns and storage tanks, if required by code
- - Roof access ladder and hatch in one stairwell [...***...] [...***...]
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE> 66
COULTER PHARMACEUTICAL - SCHEDULE A1
PRELIMINARY SPECIFICATIONS
COST RESPONSIBILITY
<TABLE>
<CAPTION>
Base
Description Building Tenant
----------- -------- ------
Sitework
<S> <C> <C>
UTILITIES AND BACKBONE SYSTEMS [...***...] [...***...]
- - 2,000 amp. 277/480 volt, 3 phase electrical service switchgear and meter [...***...] [...***...]
and switch center room
- - Separate electrical meter, panel and time clock for Parking lot lighting [...***...] [...***...]
and irrigation
- - Telephone trunk lines to the interior telephone room sufficient in size [...***...] [...***...]
to accommodate both the first and option buildings
- - Two PVC conduits, minimum of 4" between the first and option buildings [...***...] [...***...]
for telephone and data
- - Required water service for sprinkler system [...***...] [...***...]
- - A minimum of 2" domestic water service to building. There shall be a [...***...] [...***...]
separate meter for this water line and it shall terminate inside the
building below the second floor
- - A minimum 2" natural gas service building. There shall be a separate [...***...] [...***...]
meter for this service and it shall terminate inside the building
below the second floor
- - As required, a 6" cast iron, sanitary sewer gut line the entire length [...***...] [...***...]
of the building. This gut line shall have, at a minimum, one cleanout
at the end of its run, one in the restroom core and one cleanout at the
entrance to the building. Exact location of this gut line shall be
determined by tenant
- - All necessary electrical and fire sprinkler rooms, sized to accommodate [...***...] [...***...]
Tenant requirements, shall be completed with light weight metal studs,
metal doors and jambs, required ventilation through the roof membrane,
lighting, convenience outlets and sheetrock, taped and textured
MEP
- - All required electrical to base building equipment [...***...] [...***...]
- - All backboards as required by Tenant [...***...] [...***...]
- - All required electrical outlets and lighting to complete base [...***...] [...***...]
building requirements
- - Smoke detectors as required by code for Base Building [...***...] [...***...]
- - All required roof walk pads, conduit supports, and penetrations for Base [...***...] [...***...]
Building equipment
- - All sheetmetal necessary to provide moisture protection and flashing details [...***...] [...***...]
for Base Building equipment
- - All necessary seismic restraints on Base Building equipment [...***...] [...***...]
- - A centrally located, gas hot water heater large enough to accommodate all [...***...] [...***...]
of the tenant requirements including hot water to all labs. Coulter
pay difference in cost vs. standard system
- - A mechanical chiller system, sized to accommodate 50,000 square feet [...***...] [...***...]
of office space
- - All ductwork and penetrations necessary to provide both supply and return [...***...] [...***...]
air to each floor, elevator cores and lobby restrooms shall be provided
All necessary fire and smoke dampers shall be included for Base Building
work. Restrooms, elevator cores, lobby and stairwells shall be complete
- - All ductwork and roof mounted fans necessary to provide proper [...***...] [...***...]
ventilation in the restrooms
- - Screening of Base Building roof mounted equipment [...***...] [...***...]
- - Screening of tenant installed rooftop equipment [...***...] [...***...]
- - Exhaust ducts, through the roof, for lab ventilating as specified by Tenant [...***...] [...***...]
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE> 67
<TABLE>
<CAPTION>
Base
Description Building Tenant
----------- -------- ------
SITEWORK
<S> <C> <C>
- - Hose bib is near delivery and trash areas [...***...] [...***...]
LOBBY AREA
- - Landlord's architect design fees associated with the lobby area [...***...] [...***...]
- - Two story height with skylight, visibility to stairwell and a [...***...] [...***...]
catwalk and overlook at the second floor level
- - Area of Lobby to be 30' x 30' [...***...] [...***...]
- - All walls sheetrocked, taped with a smooth finish. If Tenant so [...***...] [...***...]
desires, all walls will be prepared and ready to accept wallcovering
- - Electrical outlets, telephone outlets and data outlets necessary [...***...] [...***...]
to accommodate the Tenant's proposed lobby layout
- - Ceramic tile entry, 8'-0" wide, from the front doors to the reception [...***...] [...***...]
counter. All other areas to be carpet, a 36 oz. loop mix minimum, and
if desired by Tenant, with a border
- - 6" or 2" rubber base in all areas [...***...] [...***...]
- - Entry doors to be a pair of aluminum glass with hardware reviewed by Tenant [...***...] [...***...]
- - All doors off of lobby to be wood grain, 3'-0" x 8'-0" minimum in [...***...] [...***...]
height. Hardware to be selected by tenant
- - All HVAC to be complete [...***...] [...***...]
- - All Base Building areas to be handicap accessible per code [...***...] [...***...]
- - All finishes to be reviewed by Tenant [...***...] [...***...]
- - Ceiling to be sheetrock, taped and textured [...***...] [...***...]
- - Lighting to include, but not be limited to, down lights, recessed wall washers, [...***...] [...***...]
recessed parabolic or halogen
- - Wallcovering on all walls if so desired by Tenant [...***...] [...***...]
- - Fully painted to Tenant specifications [...***...] [...***...]
ELEVATOR LOBBIES
- - Sheetrock walls and ceiling, taped with a smooth finish [...***...] [...***...]
- - Ceiling to have a multiple coffer with lighting behind [...***...] [...***...]
- - Electrical outlets to support work required in the area [...***...] [...***...]
- - Stainless steel jambs and head around elevator opening ground floor [...***...] [...***...]
- - Painted hollow metal jambs and head on 2nd floor [...***...] [...***...]
- - Nickel/silver threshold and elevator entrance [...***...] [...***...]
- - Grout under elevator thresholds [...***...] [...***...]
- - Carpet, 36 oz. loop minimum, and if desired by Tenant, with a border [...***...] [...***...]
- - 6" and 2" rubber base at all areas [...***...] [...***...]
- - Magnetic hold opens on all lobby doors if required by code [...***...] [...***...]
- - Lobby door to be wood grain, full height, with hardware reviewed by Tenant [...***...] [...***...]
- - Lighting to include recessed down lights, recessed lights or wall washers [...***...] [...***...]
- - Fully painted to Tenant specifications [...***...] [...***...]
- - All HVAC to be complete [...***...] [...***...]
- - All elevator lobby areas to have a one hour rating if required by code [...***...] [...***...]
RESTROOMS
- - Sheetrock walls taped with a smooth finish A cofer shall be installed over the [...***...] [...***...]
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
4.
<PAGE> 68
<TABLE>
<CAPTION>
Base
Description Building Tenant
----------- -------- ------
SITEWORK
<S> <C> <C>
vanity area
- - Ceiling to be drywall [...***...] [...***...]
- - Ceramic tile floors and wainscot on wet wall [...***...] [...***...]
- - All floors sloped to a floor drain [...***...] [...***...]
- - Light cove with egg crate louver over stalls and urinals [...***...] [...***...]
- - Provide janitor closets on each floor adjacent to restrooms [...***...] [...***...]
- - Provide sinks in janitor closets [...***...] [...***...]
- - Recessed lighting at entry, sinks and outside stalls [...***...] [...***...]
- - All partitions to be meal and hung from wall [...***...] [...***...]
- - All toilets and urinals to be hung from wall [...***...] [...***...]
- - Plastic laminate counter tops over moisture resistant plywood with [...***...] [...***...]
5' lipped apron and 6" splash
- - Full length B.B. mirror with polished stainless steel frame [...***...] [...***...]
- - Provide insulation for hot and cold water pipes [...***...] [...***...]
- - Minimum toilet accessories to include, but not limited to, sinks, [...***...] [...***...]
stainless faucets, toilets, urinals, recessed paper towel dispensers
with integral waste, counter mounted soap dispensers, sanitary napkin
dispenser, seat cover dispenser, toilet tissue dispenser, handicap grab
bars and partition mounted coat hooks
- - Paint above wainscot as directed by Tenant [...***...] [...***...]
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
5.
<PAGE> 69
SCHEDULE A-1
SITE PLAN
[GRAPHIC - MAP OF SITE]
1.
<PAGE> 70
EXHIBIT B
PREMISES CONSTRUCTION AGREEMENT
This exhibit, entitled "Premises Construction Agreement", is and shall
constitute Exhibit B to the Lease Agreement, dated as of the Lease Date, by and
between Landlord and Tenant. The terms and conditions of this Exhibit B are
hereby incorporated into and are made a part of the Lease.
Subject to the terms and conditions set forth herein and in the Lease,
Landlord shall allow the construction or installation of the improvements in the
interior of the Premises in accordance with the procedures set forth below:
(A) DEFINITIONS.
(1) "APPROVED PLANS" is defined in Section B.6 below.
(2) "TENANT'S ARCHITECT" shall mean CAS Architects, or such other
licensed architect designated by Tenant and subject to Landlord's prior
approval, which approval shall be given or withheld in Landlord's reasonable
discretion.
(3) "TENANT'S CONTRACTOR" shall mean Rudolph and Sletten, Inc., or
such other contractor designated by Tenant and subject to Landlord's prior
approval, which approval shall be given or withheld in Landlord's reasonable
discretion.
(4) "ESTIMATED WORK COST" is defined in Section B.3 below.
(5) "EXCESS TENANT IMPROVEMENTS" is defined in Section B.7 below.
(6) "FINAL COST QUOTATION" is defined in Section B.7 below and shall
include all costs associated with the Tenant Improvements, including without
limitation, costs of all tenant improvement work; architectural and engineering
fees; governmental agency fees for permits, licenses and inspections;
construction fees, including, without limitation, general contractors' overhead
and supervision fees; Landlord's administration fee of [...***...]; and such
other costs as may be reasonably incurred by Landlord in connection with such
construction.
(7) "LANDLORD'S CONTRACTOR" is defined in Section A.6 of Exhibit A.
(8) "PRELIMINARY PLANS" is defined in Section B. 1 below.
(9) "TENANT'S ALLOWANCE" shall mean an amount equal to [...***...],
which amount shall, except as otherwise provided in this Exhibit B, be paid by
Landlord toward the cost of completion of the Tenant Improvements and related
design, engineering, governmental, overhead, supervision and administration fees
and costs (collectively, the "Tenant Improvement Cost"). Notwithstanding the
foregoing, no portion of the Tenant's Allowance shall be paid by
*CONFIDENTIAL TREATMENT REQUESTED
1.
<PAGE> 71
Landlord toward the cost of the Tenant Requested Base Building Improvements, or
Tenant Improvements that constitute furniture, equipment or trade fixtures or
result in changes to the Base Building Improvements. If the Tenant Improvement
Cost exceeds the Tenant's Allowance, the difference shall be paid by Tenant in
accordance with this Exhibit B.
(10) "TENANT IMPROVEMENTS" shall mean all improvements made to the
Premises pursuant to the Approved Plans.
Capitalized terms not otherwise defined in this Exhibit B shall have the
meanings ascribed to them in the Lease.
(B) SCHEDULE.
(1) Tenant shall cause Tenant's Architect to furnish to Landlord on or
before [...***...], preliminary space plans and specifications (the "Preliminary
Plans"). Tenant shall be responsible for all costs associated with the
Preliminary Plans (collectively, the "Preliminary Design Costs"), including any
revisions required by Section B.2 hereunder; provided, however, Tenant shall be
reimbursed by Landlord out of the Tenant's Allowance for the Preliminary Design
Costs reasonably incurred upon delivery to Landlord of invoices, receipts and
other documents reasonably required to substantiate such costs.
(2) The Preliminary Plans shall be subject to Landlord's approval,
which approval shall not be unreasonably withheld, conditioned or delayed. If
Landlord disapproves the Preliminary Plans, then within five (5) business days
thereafter, Landlord shall meet with the Tenant's Architect and Tenant to
discuss, or shall submit to the Tenant's Architect and Tenant in writing, the
reasons for Landlord's disapproval. Within five (5) business days following such
meeting or submission, Tenant shall cause the Tenant's Architect to revise the
same and to submit new Preliminary Plans to Landlord. The same procedure set
forth in this paragraph will be repeated as set forth above until Landlord has
approved the Preliminary Plans.
(3) Promptly after approval of the Preliminary Plans, Tenant shall
cause Tenant's Contractor to furnish Landlord with an estimate of the cost of
the Tenant Improvements as shown on the Preliminary Plans and Landlord shall in
turn provide Tenant with an estimate of the cost of the Tenant Improvements,
including, without limitation, estimates of the following costs: architectural
and engineering fees, governmental agency fees for permits, licenses and
inspections, overhead and supervision fees, and Landlord's administrative fees
(the "Estimated Work Cost"). The Estimated Work Cost shall separately itemize
the cost of changes to the Base Building Improvements for those Tenant
Improvements that will necessitate changes in the Base Building Improvements.
(4) The Estimated Work Cost shall be subject to Tenant's approval,
which approval shall not be unreasonably withheld, conditioned or delayed and
provided further that if Tenant fails to respond within five
*CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE> 72
(5) business days following Landlord's delivery of the Estimated Work Cost,
Tenant shall be conclusively deemed to have given its approval of the Estimated
Work Cost. If Tenant timely disapproves the Estimated Work Cost, then within
five (5) business days thereafter, Tenant shall meet with Landlord, Tenant's
Contractor, Landlord's Contractor and Tenant's Architect to discuss value
engineering changes to the Preliminary Plans. Within five (5) business days
following such meeting, Tenant shall cause Tenant's Architect to revise the
Preliminary Plans and to submit new Preliminary Plans for approval by Landlord
in accordance with the procedure set forth above and for a new Estimated Work
Cost to be prepared by Landlord. The procedure set forth in this paragraph will
be repeated until Tenant has approved the Estimated Work Cost.
(5) Following Landlord's approval of the Preliminary Plans and
Tenant's approval of the Estimated Work Cost, Tenant shall cause Tenant's
Architect to prepare detailed construction drawings and specifications (the
"Working Drawings") for the Tenant Improvements based strictly upon the
Preliminary Plans, except as otherwise agreed in writing by Landlord and Tenant.
The Working Drawings shall be completed within [...***...] business days after
approval of the Preliminary Plans and Estimated Work Cost, but in no event later
than [...***...].
(6) The Working Drawings shall be subject to Landlord's approval,
which approval shall not be unreasonably withheld, conditioned or delayed. If
Landlord disapproves the Working Drawings, then within five (5) business days
thereafter, Landlord shall meet with Tenant's Architect and Tenant to discuss,
or shall submit to the Tenant's Architect and Tenant in writing, the reasons for
Landlord's disapproval. Within five (5) business days following such meeting or
submission, Tenant shall cause Tenant's Architect to revise the same and to
submit new Working Drawings to Landlord, and the same procedure will be repeated
as set forth above until Landlord has approved the Working Drawings (the
"Approved Plans"). The reasonable costs of preparing the Working Drawings,
together with any revisions thereto, may be paid by Landlord to Tenant from
Tenant's Allowance. Upon approval of the Working Drawings, Landlord shall
deliver to Tenant a list of Tenant Improvements to be removed by Tenant, at
Tenant's cost and expense in accordance with Paragraph 11 of the Lease, upon
expiration of the Term or earlier termination of the Lease. Notwithstanding the
foregoing, during the preparation of the Working Drawings, Landlord shall, upon
Tenant's request, advise Tenant of items that will be required to be removed
pursuant to the previous sentence.
(7) Within ten (10) business days after Landlord's approval of the
Approved Plans, Tenant shall cause Tenant's Contractor to furnish to Landlord a
cost estimate for the Tenant Improvements based upon the Approved Plans and
Landlord shall in turn provide Tenant with a final cost quotation for the Tenant
Improvements (the "Final Cost Quotation"). If the Final Cost Quotation is
greater than the Tenant's Allowance, Tenant shall be responsible for the
difference between the Tenant's Allowance and the Final Cost Quotation (the
"Excess Tenant Improvements Cost").
(8) Landlord and Tenant shall make progress payments on a pro rata
basis (in the proportion that the Tenant's Allowance paid by Landlord and the
Excess Tenant Improvements Cost paid by Tenant bear to the Final Cost Quotation)
from time to time as the Tenant Improvements are constructed in the Premises.
Tenant shall pay its pro rata share of any
*CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE> 73
progress payments directly to Tenant's Contractor or subcontractors, as
appropriate, and Landlord shall pay its pro rata share of any progress payments
directly to Tenant's Contractor or subcontractors, as appropriate. Landlord
shall be entitled to suspend or terminate construction of the Tenant
Improvements and to declare Tenant in default in accordance with the terms of
the Lease, if payment by Tenant of Tenant's pro rata share of any progress
payment has not been received by Tenant's Contractor when due, as required
hereunder.
(C) TENANT IMPROVEMENT CONSTRUCTION.
(1) All Tenant Improvements to be constructed or installed in the
Premises shall be performed by Tenant's Contractor in accordance with the
Approved Plans, subject to any changes agreed to by Landlord and Tenant in
writing. Landlord shall have no obligation to Tenant for defects in design,
workmanship or materials in connection with the Tenant Improvements. Any changes
to the Approved Plans shall require the written approval of Landlord and Tenant,
which approval shall not be unreasonably withheld, conditioned or delayed. All
such changes must be evidenced by a written change order executed by Landlord
and Tenant or their agent describing the change required in the Approved Plans,
and the cost of such changes shall be paid in accordance with the terms of this
Exhibit B.
(2) Landlord shall coordinate construction of the Tenant Improvements
by Tenant's Contractor with the construction of the Base Building Improvements
by Landlord's Contractor in the most efficient manner reasonably possible for
the timely completion of the Base Building Improvements and the Tenant
Improvements. Landlord agrees to allow Tenant's Contractor access to the
(3) Premises on or before the date to that is [...***...] days prior
to the Estimated Commencement Date (or such later date as may be reasonably
designated by Landlord) for the purpose of constructing the Tenant Improvements.
Landlord and Tenant shall each use good faith efforts to reasonably resolve any
issues or conflicts that may arise during the course of constructing the Tenant
Improvements and the Base Building Improvements. Entry by Tenant's Contractor in
accordance with this provision shall not constitute Tenant's occupancy of the
Premises under Paragraph 3 of the Lease; however, all terms and conditions of
the Lease shall apply to Tenant's Contractor's occupancy of and work within the
Premises.
(D) TERM COMMENCEMENT.
(1) Notwithstanding anything in the Lease to the contrary, the
Commencement Date shall be the earliest of (a) the Commencement Date determined
in accordance with Paragraph 3 of the Lease or (b) the date the Commencement
Date would have occurred but for delays caused by Tenant or any employee, agent
or representative of Tenant ("Tenant Delays"), including, without limitation,
delays caused by (i) failure to furnish information in accordance with this
Exhibit B or Exhibit A of the Lease; (ii) Tenant's request for any special, long
lead time materials or installations as part of the Tenant Improvements or the
Tenant Requested Base Building Improvements; (iii) Tenant's changes in the
Approved Plans; (iv) any changes initiated by reason of the disapproval of any
plans or drawings or any cost proposals or authorizations
*CONFIDENTIAL TREATMENT REQUESTED
4.
<PAGE> 74
resulting in the preparation of revised plans, drawings, cost proposals or
authorizations beyond the second submission to Landlord for approval; (v) field
changes to construction work; (vi) the delivery, installation or completion of
the Tenant Improvements work performed by Tenant s Contractor beyond the
[...***...] period set forth in Section C.2 above; (vii)Tenant's request for any
Tenant Requested Base Building Improvements, as defined in Exhibit A of the
Lease; or (viii) any other act or omission of Tenant.
(2) Except as may be otherwise specifically provided herein or in the
Lease, time periods for either party's performance under any provisions of this
Exhibit B, shall be extended for periods of time during which such party is
prevented due to circumstances beyond such party's control, including, without
limitation, strikes, embargoes, governmental regulations, delays in obtaining
permits or materials, acts of God, war, civil commotion or other strife ("Force
Majeure Events"). Each party shall use reasonable efforts to mitigate the effect
of any Force Majeure Event upon such party's performance hereunder.
(3) If, for any reason other than Tenant Delays, Landlord cannot
deliver possession of the Premises to Tenant on the Estimated Commencement Date,
or perform any other covenant contained in this Exhibit B or in the Lease
related to the work described in this Exhibit B, the Lease shall not be void or
voidable nor shall Landlord be liable to Tenant for any loss or damage resulting
therefrom, nor shall such failure affect the obligations of Tenant under the
Lease or this Exhibit B, except as otherwise specifically provided in the Lease
and except that all Rent shall be abated during the period between the Estimated
Commencement Date and the date Landlord delivers possession.
(E) GENERAL.
(1) All drawings, space plans, plans and specifications for any
improvements or installations in the Premises are expressly subject to
Landlord's prior written approval, which approval shall not be unreasonably
withheld, conditioned or delayed. Any approval by Landlord of any drawings,
plans or specifications prepared on behalf of Tenant including, without
limitation, any Preliminary Plans, Working Drawings or Approved Plans, or any
revisions thereto, shall not in any way bind Landlord, create any responsibility
or liability on the part of the Landlord for the completeness of the same, their
design sufficiency or compliance with applicable statutes, ordinances or
regulations or constitute a representation or warranty by Landlord as to the
adequacy or sufficiency of such drawings, plans or specifications, or the
improvements to which they relate, but such approval shall merely evidence the
consent of Landlord to such drawings, plans or specifications.
*CONFIDENTIAL TREATMENT REQUESTED
5.
<PAGE> 75
(2) Any failure by Tenant to pay any amounts due hereunder shall have
the same effect under the Lease as a failure to pay Rent and any failure by
Tenant to perform any of its other obligations hereunder shall be subject to
Paragraph 24 of the Lease.
INITIALS:
TENANT:
LANDLORD
6.
<PAGE> 76
EXHIBIT C
GUARANTY OF LEASE
THIS GUARANTY OF LEASE ("Guaranty") is made as of __________________, by
________________________, a _______________________ corporation ("Guarantor"),
to("Landlord"), with reference to the following facts:
A. Landlord has previously entered into a Lease Agreement ("Lease") with
_____________________, a ____________________ ("Tenant"), for certain premises
located at the Gateway Technology Center, South San Francisco, California, as
more particularly described in the Lease.
B. Guarantor is willing to execute this Guaranty for the express and
intended purpose of inducing Landlord to replace existing Security granted
Landlord by Tenant under the Lease. Landlord would not agree to replace such
Security but for the execution and delivery of this Guaranty by Guarantor.
C. Guarantor is affiliated with Tenant and will benefit from the
execution of the Lease. Guarantor is executing this Guaranty in consideration of
that anticipated benefit.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and agreed, Guarantor hereby agrees
as follows:
1. GUARANTY. Guarantor does hereby absolutely and unconditionally,
jointly and severally guarantee to Landlord the prompt payment of all mounts
that Tenant, or any assignee of the Lease, may at any time owe under the Lease,
any extensions, renewals or modifications thereof, and further guarantees to
Landlord the full, prompt and faithful performance by Tenant, or any assignee of
the Lease, of each and all of the covenants, terms, and conditions of the Lease,
or any extensions, modifications or renewals thereof, to be hereafter performed
and kept by Tenant, or any assignee of the Lease (all such obligations of Tenant
under the Lease are referred to as "Tenant's Obligations"). Guarantor hereby
agrees to indemnify, defend and hold Landlord harmless from any and all
liabilities, losses, damages, costs and expenses (including but not limited to
reasonable attorneys' fees), by reason of a breach or default under the Lease by
Tenant or any assignee of the Lease.
2. INDEPENDENT OBLIGATIONS. Guarantor's obligations hereunder are
independent of the obligations of Tenant, or any assignee of the Lease, and a
separate action or actions may be brought and prosecuted against Guarantor
whether or not action is brought against Tenant or any such assignee or whether
or not Tenant or any such assignee be joined in any such action or actions.
3. RIGHTS OF LANDLORD. Guarantor authorizes Landlord, without notice or
demand and without affecting its liability hereunder, from time to time to (a)
extend, accelerate, or otherwise change the time for any payment provided for in
the Lease, or any covenant, term or condition of the Lease, impair or suspend
the Landlord's remedies or rights against Tenant in connection with the Lease,
and to consent to any assignment, subletting or reassignment of the Lease; (b)
take and hold security for any payment provided for in the Lease or for the
1.
<PAGE> 77
performance of any covenant, term or condition of the Lease, or exchange, waive
or release any such security; and (c) apply such security and direct the order
or manner of sale thereof as Landlord in its discretion may determine. Landlord
may, without consideration to or consent of the Guarantor, assign this Guaranty,
the Lease, or the rents and other sums payable thereunder; provided however,
Landlord shall promptly after any such assignment notify Guarantor of such
action. Notwithstanding any termination, renewal, extension or holding over of
the Lease, this Guaranty shall continue until all of Tenant's Obligations have
been fully and completely performed by Tenant or any assignee of the Lease.
Guarantor shall not be released by any act or event which might, but for
this provision of this Guaranty, be deemed a legal or equitable discharge of a
surety, or by reason of any waiver, extension, modification, forbearance or
delay or other act or omission of Landlord or its failure to proceed promptly or
otherwise as against Tenant or Guarantor, or by reason of any action taken or
omitted or circumstance which may or might vary the risk or affect the rights or
remedies of Guarantor as against Tenant, or by reason of any further dealings
between Tenant and Landlord, whether relating to the Lease or otherwise, and
Guarantor hereby expressly waives and surrenders any defense to its liability
hereunder based upon any of the foregoing acts, omissions, things, agreements,
waivers or any of them; it being the purpose and intent of this Guaranty that
the obligations of Guarantor hereunder are absolute and unconditional under any
and all circumstances.
Guarantor further agrees that to the extent Tenant or Guarantor makes
any payment to Landlord in connection with. Tenant's Obligations and all or any
part of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid by Landlord or paid over to a
trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, and, to the extent of such payment or repayment
by Landlord, Tenant's Obligations or part thereof intended to be satisfied by
such Preferential Payment shall be revived and continued in full force and
effect as if said Preferential Payment had not been made.
4. WAIVER OF DEFENSES. Guarantor waives (a) any right to require
Landlord to (i) proceed against Tenant or any other person or entity; (ii)
proceed against or exhaust any security held from Tenant or Guarantor; (iii)
pursue any other remedy in Landlord's power which Guarantor cannot itself
pursue, and which would lighten its burden; (b) all statutes of limitations as a
defense to any action brought against Guarantor by Landlord to the fullest
extent permitted by law; (c) any defense based upon any legal disability of
Tenant, or any assignee of the Lease, or any discharge or limitation of the
liability of Tenant, or any assignee of the Lease, to Landlord, whether
consensual or arising by operation of law or any bankruptcy, reorganization,
receivership, insolvency, or debtor-relief proceeding, or from any other cause;
(d) presentment, demand, protest, and notice of any kind, except as specifically
provided below; and (e) any defense based upon or arising out of any defense
which Tenant, or any assignee of the Lease, may have to the payment or
performance of any part of Tenant's Obligations. Guarantor waives all demands
upon and notices to Tenant, or any assignee of the Lease, and to Guarantor
(except as specifically provided below), including demands for performance,
notices of non-performance, notices of non-payment and notice of acceptance of
this Guaranty. Landlord shall give three (3) days prior written notice. to
Guarantor of Landlord's demand for Guarantor to
2.
<PAGE> 78
perform under this Guaranty and Guarantor hereby agrees to so perform within
said time period. If Guarantor fails to so perform within said time period,
Landlord may enforce this Guaranty in accordance with all of Landlord's rights
and remedies provided in this Guaranty, at law or in equity. Notwithstanding
anything in the Guaranty to the contrary, failure by Landlord to give prior
notice of demand shall in no way relieve Guarantor of any of its obligations
under this Guaranty.
5. WAIVER OF SUBROGATION.
(a) Notwithstanding any other provision of this Guaranty to the
contrary, until the obligations of Tenant under the Lease are fully performed
and paid, Guarantor hereby waives any claims or other rights which Guarantor may
now have or hereafter acquire against Tenant or any other guarantor of all or
any of Tenant's Obligations, which claims or other rights arise from the
existence or performance of Guarantor's obligations under this Guaranty or the
Lease (all such claims and rights are referred to as "Guarantor's Conditional
Rights"), including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, or indemnification, any right to
participate in any claim or remedy of Landlord against Tenant or any collateral
which Landlord now has or hereafter acquires, whether or not such claim, remedy
or right arises in equity or under contract, statute or common law, by any
payment made hereunder or otherwise, including without limitation, the right to
take or receive from Tenant, directly or indirectly, in cash or other property
or by setoff or in any other manner, payment or security on account of such
claim or other rights. If, notwithstanding the foregoing provisions, any amount
shall be paid to Guarantor on account of any Guarantor's Conditional Rights and
either (i) such amount is paid to Guarantor at any time when Tenant's
Obligations shall not have been paid or performed in full, or (ii) regardless of
when such amount is paid to Guarantor, any payment made by Tenant to Landlord is
at any time determined to be a Preferential Payment, then such amount paid to
Guarantor shall be held in trust for the benefit of Landlord and shall forthwith
be paid to Landlord to be credited and applied upon Tenant's Obligations,
whether matured or unmatured, in such order as Landlord, in its sole and
absolute discretion, shall determine.
(b) To the extent that any of the provisions of subsection (a) of
the above Section shall not be enforceable, Guarantor agrees that until such
time as Tenant's Obligations have been paid and performed in full and the period
of time has expired during which any payment made by Tenant or Guarantor to
Landlord may be determined to be a Preferential Payment, Guarantor's Conditional
Rights to the extent not validly waived shall be subordinate to Landlord's right
to full payment and performance of Tenant's Obligations, and Guarantor shall not
enforce Guarantor's Conditional Rights during such period.
6. COSTS AND EXPENSES. If Guarantor fails to perform any of its
obligations under this Guaranty or if any dispute arises between the parties
hereto concerning the meaning or interpretation of any provision of this
Agreement, then the defaulting party or the party not prevailing in such
dispute, as the case may be, shall pay any and all costs and expenses incurred
by the other party on account of such default and/or in enforcing or
establishing its rights hereunder, including, without limitation, court costs
and reasonable attorneys' fees and disbursements. Any such attorneys' fees and
other expenses incurred by either party in enforcing a judgment in its favor
under this Agreement shall be recoverable separately from and
3.
<PAGE> 79
in addition to any other amount included in such judgment, and such attorneys'
fees obligation is intended to be severable from the other provisions of this
Agreement and to survive and not be merged into any such judgment.
7. NOTICES. Any notice, demand or request by Landlord to Guarantor shall
be in writing and shall be deemed to have been duly given or made if mailed by
certified or registered mail addressed to Guarantor at its address set forth
below its signature.
8. DELAY; CUMULATIVE REMEDIES. No delay or failure by Landlord to
exercise any right or remedy against Tenant or Guarantor will be construed as a
waiver of that right or remedy. All remedies of Landlord against Tenant and
Guarantor are cumulative.
9. MISCELLANEOUS.
(a) This Guaranty shall bind Guarantor, its successors and
assigns, and shall inure to the benefit of Landlord and its successors and
assigns.
(b) The invalidity or unenforceability of any one or more
provisions of this Guaranty will not affect any other provision.
(c) This Guaranty and each and every term and provision thereof
shall be construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, Guarantor has executed this instrument on the day
and year first above written.
GUARANTOR: ________________________________________ ,
a_____________________________corporation
By:_______________________________________
Print Name:_______________________________
Its:______________________________________
ADDRESS: ________________________________________
________________________________________
________________________________________
4.
<PAGE> 80
EXHIBIT D
COMMENCEMENT AND EXPIRATION DATE MEMORANDUM
LANDLORD: ___________________________________
TENANT: COULTER PHARMACEUTICAL, INC.
LEASE DATE: __________________________,1997
PREMISES: Located at ____________________, California
Tenant hereby accepts the Premises as being in the condition required
under the Lease, with all Tenant improvements completed (except for minor
punchlist items which Landlord agrees to complete).
The Commencement Date of the Lease is hereby established as
_______________,1997 and the Expiration Date is _______________________, ____.
TENANT: COULTER PHARMACEUTICAL, INC.,
a Delaware corporation
By:_______________________________
Print Name:_______________________
Its:______________________________
Approved and Agreed:
LANDLORD:
____________________________________
a___________________________________
By:_________________________________
Print Name:_________________________
Its:________________________________
INITIALS:
TENANT:
LANDLORD
1.
<PAGE> 81
EXHIBIT E
RULES AND REGULATIONS
This exhibit, entitled "Rules and Regulations," is and shall constitute
Exhibit E to the Lease Agreement, dated as of the Lease Date, by and between
Landlord and Tenant for the Premises. The terms and conditions of this Exhibit E
are hereby incorporated into and are made a part of the Lease. Capitalized terms
used, but not otherwise defined, in this Exhibit E have the meanings ascribed to
such terms in the Lease.
(1) Tenant shall not use any method of heating or air conditioning
other than that supplied by Landlord without the prior written consent of
Landlord, which consent shall not to be unreasonably withheld, conditioned or
delayed.
(2) All window coverings installed by Tenant and visible from the
outside of the building require the prior written approval of Landlord which
approval shall not to be unreasonably withheld, conditioned or delayed.
(3) Tenant shall not use, keep or permit to be used or kept any foul
or noxious gas or substance or any flammable or combustible materials on or
around the Premises, except to the extent that Tenant is permitted to use the
same under the terms of Paragraph 32 of the Lease.
(4) Tenant shall not alter any lock or install any new locks or bolts
on any door at the Premises without the prior written consent of Landlord, which
consent shall not to be unreasonably withheld, conditioned or delayed.
(5) Tenant shall not make any duplicate keys without the prior written
consent of Landlord, which consent shall not to be unreasonably withheld,
conditioned or delayed.
(6) Tenant shall park motor vehicles in parking areas designated by
Landlord except for loading and unloading. During those periods of loading and
unloading, Tenant shall not unreasonably interfere with traffic flow around the
Building or the Project and loading and unloading areas of other tenants.
(7) Tenant shall not disturb, solicit or canvas any tenant or other
occupant of the Building or Project and shall cooperate to prevent same.
(8) No person shall go on the roof without Landlord's permission.
(9) Business machines and mechanical equipment belonging to Tenant
which cause noise or vibration that may be transmitted to the structure of the
Building, to such a degree as to be objectionable to Landlord or other tenants,
shall be placed and maintained by Tenant, at Tenant's expense, on vibration
isolators or in noise-dampening housing or other devices sufficient to eliminate
noise or vibration.
(10) All goods, including material used to store goods, delivered to
the Premises of Tenant shall be immediately moved into the Premises and shall
not be left in parking or receiving areas overnight.
1.
<PAGE> 82
(11) Tenant is responsible for the storage and removal of all trash
and refuse. All such trash and refuse shall be contained in suitable receptacles
stored behind screened enclosures at locations approved by Landlord.
(12) Tenant shall not store or permit the storage or placement of
goods or merchandise in or around the common areas surrounding the Premises. No
displays or sales or merchandise shall be allowed in the parking lots or other
common areas.
(13) Tenant shall not permit any animals, including but not limited
to, any household pets, to be brought or kept in or about the Premises, the
Building, the Project or any of the common areas which would violate applicable
Laws or constitute a nuisance to the Premises, the Building or the Project.
INITIALS:
TENAN:
LANDLORD
2.
<PAGE> 83
EXHIBIT F
HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the
information provided by you in this Hazardous Materials Disclosure Certificate
is necessary for the Landlord to evaluate your proposed uses of the premises
(the "Premises") and to determine whether to enter into a lease agreement with
you as tenant. If a lease agreement is signed by you and the Landlord (the
"Lease Agreement"), on an annual basis in accordance with the provisions of
Paragraph 32 of the Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. Any questions
regarding this certificate should be directed to, and when completed, the
certificate should be delivered to:
Landlord:__________________________________________
c/o_________________________________
____________________________________
Phone: (___)________________________
Name of (Prospective) Tenant: Coulter Pharmaceutical, Inc.
Mailing Address:________________________________________________________________
________________________________________________________________________________
Contact Person, Title and Telephone Number(s):__________________________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):____________________________________________________________
Address of (Prospective) Premises:______________________________________________
Length of (Prospective) initial Term:___________________________________________
________________________________________________________________________________
1.
<PAGE> 84
1. GENERAL INFORMATION:
Describe the proposed operations to take place in, on, or about the
Premises, including, without limitation, principal products processed,
manufactured or assembled, and services and activities to be provided or
otherwise conducted. Existing tenants should describe any proposed changes to
on-going operations.
________________________________________________________________________________
________________________________________________________________________________
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials (as hereinafter defined) be used,
generated, treated, stored or disposed of in, on or about the
Premises? Existing tenants should describe any Hazardous
Materials which continue to be used, generated, treated, stored
or disposed of in, on or about the Premises.
Wastes Yes 0 No 0
Chemical Products Yes 0 No 0
Other Yes 0 No 0
If Yes is marked, please explain:
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, treated, stored or disposed of
in, on or about the Premises, including the applicable hazard
class and an estimate of the quantities of such Hazardous
Materials to be present on or about the Premises at any given
time; estimated annual throughput; the proposed location(s) and
method of storage (excluding nominal mounts of ordinary
household cleaners and janitorial supplies which are not
regulated by any Environmental Laws, as hereinafter defined);
and the proposed location(s) and method(s) of treatment or
disposal for each Hazardous Material, including, the estimated
frequency, and the proposed contractors or subcontractors.
Existing tenants should attach a list setting forth the
information requested above and such list should include actual
data from on-going operations and the identification of any
variations in such information from the prior year's
certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage or treatment of gasoline,
diesel, petroleum, or other Hazardous Materials in tanks or
sumps proposed in, on or about the Premises? Existing tenants
should describe any such actual or proposed activities.
Yes 0 No 0
2.
<PAGE> 85
If yes, please explain:
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator
I.D. Number? Existing tenants should describe any additional
identification numbers issued since the previous certificate.
Yes 0 No 0
4.2 Has your company filed a biennial or quarterly reports as a
hazardous waste generator? Existing tenants should describe any
new reports filed.
Yes 0 No 0
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
____ storm drain? ____ sewer?
____ surface water? _____ no wastewater or other wastes discharged.
Existing tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
5.2 Will any such wastewater or waste be treated before discharge?
Yes 0 No 0
If yes, describe the type of treatment proposed to be conducted.
Existing tenants should describe the actual treatment conducted.
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be used
in your company's operations in, on or about the Premises that
will discharge into the air; and will such air emissions be
monitored? Existing tenants should indicate whether or not
there are any such air filtration systems or stacks in use in,
on or about the Premises which discharge into the air and
whether such air emissions are being monitored.
Yes 0 No 0
If yes, please describe:
3.
<PAGE> 86
6.2 Do you propose to operate any of the following types of
equipment, or any other equipment requiring an air emissions
permit? Existing tenants should specify any such equipment being
operated in, on or about the Premises.
____ Spray booth(s) ____ Incinerator(s)
____ Dip tank(s) ____ Other (Please describe)
____ Drying oven(s) ____ No Equipment Requiring Air Permits
If yes, please describe: _______________________________________
________________________________________________________________
6.3 Please describe (and submit copies of with this Hazardous
Materials Disclosure Certificate) any reports you have flied in
the past [thirty-six] months with any governmental or
quasi-governmental agencies or authorities related to air
discharges or clean air requirements and any such reports which
have been issued during such period by any such agencies or
authorities with respect to you or your business operations.
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") or
Hazardous Materials Business Plan and Inventory ("Business
Plan") pursuant to Fire Department or other governmental or
regulatory agencies' requirements? Existing tenants should
indicate whether or not a Management Plan is required and has
been prepared.
Yes 0 No 0
If yes, attach a copy of the Management Plan or Business Plan.
Existing tenants should attach a copy of any required updates to the
Management Plan or Business Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the
Premises listed or regulated under Proposition 65? Existing
tenants should indicate whether or not there are any new
Hazardous Materials being so used which are listed or regulated
under Proposition 65.
Yes 0 No 0
If yes, please explain:_________________________________________
________________________________________________________________
4.
<PAGE> 87
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has
your company ever been subject to any agency enforcement
actions, administrative orders, or consent decrees or has your
company received requests for information, notice or demand
letters, or any other inquiries regarding its operations?
Existing tenants should indicate whether or not any such
actions, orders or decrees have been, or are in the process of
being, undertaken or if any such requests have been received.
Yes 0 No 0
If yes, describe the actions, orders or decrees and any
continuing compliance obligations imposed as a result of these
actions, orders or decrees and also describe any requests,
notices or demands, and attach a copy of all such documents.
Existing tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not
already delivered to Landlord pursuant to the provisions of
Paragraph 32 of the Lease Agreement.
8.2 Have there ever been, or are there now pending, any lawsuits
against your company regarding any environmental or health and
safety concerns?
Yes 0 No 0
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and other documents
related thereto as requested by Landlord. Existing tenants
should describe and attach a copy of any new complaint(s),
cross-complaint(s), pleadings and other related documents not
already delivered to Landlord pursuant to the provisions of
Paragraph 32 of the Lease Agreement.
8.3 Have there been any problems or complaints from adjacent
tenants, owners or other neighbors at your company's current
facility with regard to environmental or health and safety
concerns? Existing tenants should indicate whether or not there
have been any such problems or complaints from adjacent tenants,
owners or other neighbors at, about or near the Premises and the
current status of any such problems or complaints.
Yes 0 No 0
If yes, please describe. Existing tenants should describe any
such problems or complaints not already disclosed to Landlord
under the provisions of the signed Lease Agreement and the
current status of any such problems or complaints.
9. PERMITS AND LICENSES
9.1 Attach copies of all permits and licenses issued to your company
with respect to its proposed operations in, on or about the
Premises, including, without limitation, any Hazardous Materials
permits, wastewater discharge permits, air emissions
5.
<PAGE> 88
permits, and use permits or approvals. Existing tenants should
attach copies of any new permits and licenses as well as any
renewals of permits or licenses previously issued.
As used herein, "Hazardous Materials" shall mean and include any
substance that is or contains (a) any "hazardous substance" as
now or hereafter defined in Section 101 (I 4) of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA") (42 U.S.C. Section
9601 et seq.) or any regulations promulgated under CERCLA; (b)
any "hazardous waste" as now or hereafter defined in the
Resource Conservation and Recovery Act, as amended ("RCRA") (42
U.S.C. Section 6901 et seq.) or any regulations promulgated
under RCRA; (c) any substance now or hereafter regulated by the
Toxic Substances Control Act, as amended ("TSCA") (15 U.S.C.
Section 2601 et seq.) or any regulations promulgated under TSCA;
(d) petroleum, petroleum by-products, gasoline, diesel fuel, or
other petroleum hydrocarbons; (e) asbestos and
asbestos-containing materials, in any form, whether friable or
non-friable; (f) polychlorinated biphenyls; (g) lead and
lead-containing materials; or (h) any additional substance,
material or waste (A) the presence of which on or about the
Premises (i) requires reporting, investigation or remediation
under any Environmental Laws (as hereinafter defined), (ii)
causes or threatens to cause a nuisance on the Premises or any
adjacent property or poses or threatens to pose a hazard to the
health or safety of persons on the Premises or any adjacent
property, or (iii) which, if it emanated or migrated from the
Premises, could constitute a trespass, or (B) which is now or is
hereafter classified or considered to be hazardous or toxic
under any Environmental Laws; and "Environmental Laws" shall
mean and include (a) CERCLA, RCRA and TSCA; and (b) any other
federal, state or local laws, ordinances, statutes, codes,
rules, regulations, orders or decrees now or hereinafter in
effect relating to (i) pollution, (ii) the protection or
regulation of human health, natural resources or the
environment, (iii) the treatment, storage or disposal of
Hazardous Materials, or (iv) the emission, discharge, release or
threatened release of Hazardous Materials into the environment.
The undersigned hereby acknowledges and agrees that this
Hazardous Materials Disclosure Certificate is being delivered to
Landlord in connection with the evaluation of a Lease Agreement
and, if such Lease Agreement is executed, will be attached
thereto as an exhibit. The undersigned further acknowledges and
agrees that if such Lease Agreement is executed, this Hazardous
Materials Disclosure Certificate will be updated from time to
time in accordance with Paragraph 32 of the Lease Agreement. The
undersigned further acknowledges and agrees that the Landlord
and its partners, lenders and representatives may, and will,
rely upon the statements, representations, warranties, and
certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof
throughout the term, and any renewals thereof, of the Lease
Agreement. I [print name] ____________________, acting with full
authority to bind the (proposed) Tenant and on behalf of the
(proposed) Tenant, certify, represent and warrant that the
information contained in this certificate is true and correct.
6.
<PAGE> 89
(PROSPECTIVE) TENANT:
By:______________________________
Title:___________________________
Date:____________________________
INITIALS:
TENANT:
LANDLORD
7.
<PAGE> 90
EXHIBIT G
EXPANSION LAND
[GRAPHIC - MAP]
1.
<PAGE> 91
EXHIBIT H
INITIAL WINDOW DATES
CONDITION INITIAL WINDOW DATE
Certificate from Landlord's Architect that the foundation of [...***...]
the Building has been completed.
Certificate from Landlord's Architect that the construction of [...***...]
the Building has progressed to a "Water Tight Shell"
INITIALS:
TENANT:
LANDLORD
1.
<PAGE> 92
EXHIBIT I
TENANT'S PROPERTY
Laboratory related furniture and equipment including:
benches and tables
shelving
sinks
biosafety, laminar flow and fume hoods
cages/fencing
DI water system
emergency generator
vacuum pumps
compressed air
nitrogen manifold
Office related furniture and equipment including:
open office partitions
telephone and network equipment
reception desk
lobby furniture
lobby display cases
appliances
security system control panels, sensors, and cctv equipment
interior signage
INITIALS:
TENANT:
LANDLORD
1.
<PAGE> 93
EXHIBIT J
MEMORANDUM OF LEASE
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Cooley Godward, LLP
3000 El Camino Real
Palo Alto, California 94306
Attention: Anna B. Pope, Esq.
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE is executed as of ______________, by and
between HMS GATEWAY OFFICE, L.P., a Delaware limited partnership ("Landlord"),
and COULTER PHARMACEUTICAL, INC., a Delaware corporation ("Tenant"). Landlord
has previously leased to Tenant a portion of that certain real property
described on Exhibit A attached hereto and incorporated herein by reference,
consisting of the building commonly known as 600 Gateway Boulevard located in
South San Francisco, California, commencing on ________________ and terminating
on _________________, on the terms and conditions set forth in that certain
Lease between Landlord and Tenant dated as of November __, 1997 (the "Off Record
Lease"). Landlord has also granted to Tenant (i) options to renew the term of
the Lease for two (2) additional periods of [...***...]
each, (ii) a right to expand the premises being [eased by Tenant and (iii) a
right of first offer with respect to the premises being leased by Tenant, all on
terms and conditions of the Off Record Lease.
IN WITNESS WHEREOF, the undersigned have executed this Memorandum of
Lease so that third parties might have notice of the lease by Landlord and
Tenant herein.
Landlord: HMS Gateway Office, L.P.
a Delaware limited liability company
By: Hines Interests Limited Partnership,
General Partner
By: Hines Holdings, Inc.
General Partner
By:__________________________
Name:________________________
Its:_________________________
* Confidential Treatment Requested.
1.
<PAGE> 94
Tenant: COULTER PHARMACEUTICAL, INC.
a Delaware limited
liability company
By:__________________________
Name:________________________
Its:_________________________
2.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-23265) pertaining to the 1996 Equity Incentive Plan, 1995 Equity
Incentive Plan and Employee Stock Purchase Plan of Coulter Pharmaceutical, Inc.
of our report dated January 26, 1998, with respect to the consolidated financial
statements of Coulter Pharmaceutical, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
PALO ALTO, CALIFORNIA
MARCH 24, 1998
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