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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-20815
AVIRON
(Exact name of registrant as specified in its charter)
DELAWARE 77-0309686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
297 North Bernardo Avenue, Mountain View, California 94043
(Address of principal executive offices including zip code)
(650) 919-6500
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Common Stock $.001 par value 15,820,855 shares
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<S> <C>
(Class) (Outstanding at August 9, 1999)
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AVIRON
TABLE OF CONTENTS
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PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES (UNAUDITED)
Condensed Balance Sheets as of June 30, 1999
and December 31, 1998 3
Condensed Statements of Operations for the three-
and six-month periods ended June 30, 1999 and 1998 4
Condensed Statements of Cash Flows for the six-
month periods ended June 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18
PART II. OTHER INFORMATION 19
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVIRON
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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(UNAUDITED) (NOTE 1)
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ASSETS
Current Assets:
Cash and cash equivalents ....................................... $ 16,196 $ 28,164
Short-term investments .......................................... 46,356 60,692
Accounts receivable ............................................. 2,810 75
Inventory ....................................................... 956 --
Prepaid expenses and other current assets ....................... 1,012 1,228
--------- ---------
Total current assets .......................................... 67,330 90,159
Long-term investments ............................................. 8,514 6,002
Property and equipment, net ....................................... 23,443 18,521
Deposits and other assets ......................................... 7,010 6,303
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TOTAL ASSETS ...................................................... $ 106,297 $ 120,985
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................ $ 3,929 $ 2,792
Accrued compensation ............................................ 694 804
Accrued clinical trial costs .................................... 253 757
Accrued interest ................................................ 1,438 1,445
Accrued expenses and other liabilities .......................... 5,391 4,584
Current portion of capital lease obligations .................... 291 408
--------- ---------
Total current liabilities ..................................... 11,996 10,790
Deferred rent ..................................................... 1,716 1,116
Capital lease obligations, noncurrent ............................. 38 113
Convertible debt .................................................. 100,000 100,000
--------- ---------
Total liabilities ................................................. 113,750 112,019
--------- ---------
Commitments and contingencies
Stockholders' Equity (Deficit):
Preferred stock, $0.001 par value; 5.0 million shares authorized,
issuable in series; none outstanding at June 30, 1999 and
December 31, 1998 ............................................. -- --
Common stock, $0.001 par value; 30.0 million shares authorized,
15.8 million and 15.7 million shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively ............. 16 16
Additional paid-in capital ...................................... 130,890 130,524
Notes receivable from stockholders .............................. (83) (83)
Deferred compensation ........................................... (161) (237)
Accumulated deficit ............................................. (138,115) (121,254)
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Total stockholders' equity (deficit)............................... (7,453) 8,966
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $ 106,297 $ 120,985
========= =========
</TABLE>
See accompanying notes.
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AVIRON
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1999 1998 1999 1998
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REVENUES:
Contract revenues and grants ............ $ 2,944 $ 134 $ 18,475 $ 387
-------- -------- -------- --------
OPERATING EXPENSES:
Research and development .................. 14,362 10,874 28,367 20,657
General, administrative and marketing...... 3,151 2,591 5,833 4,652
-------- -------- -------- --------
TOTAL OPERATING EXPENSES .................... 17,513 13,465 34,200 25,309
-------- -------- -------- --------
LOSS FROM OPERATIONS ........................ (14,569) (13,331) (15,725) (24,922)
-------- -------- -------- --------
OTHER INCOME/(EXPENSE):
Interest income ........................... 1,062 1,847 2,273 2,800
Interest expense .......................... (1,613) (1,618) (3,187) (1,661)
-------- -------- -------- --------
TOTAL OTHER INCOME (EXPENSE), NET ........... (551) 229 (914) 1,139
-------- -------- -------- --------
NET LOSS .................................... $(15,120) $(13,102) $(16,639) $(23,783)
======== ======== ======== ========
Basic and diluted net loss per share ........ $ (0.96) $ (0.84) $ (1.06) $ (1.51)
======== ======== ======== ========
Shares used in computing basic and
diluted net loss per share .................. 15,749 15,571 15,726 15,787
</TABLE>
See accompanying notes.
4
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AVIRON
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................. $(16,639) $(23,783)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ..................................... 2,193 1,075
Amortization of debt issuance costs ............................... 288 139
Amortization of deferred compensation ............................. 76 223
Changes in assets and liabilities:
Accounts receivable ............................................... (2,735) --
Inventory ......................................................... (956) --
Prepaid expenses and other current assets ......................... 216 (114)
Deposits and other assets ......................................... (995) 138
Accounts payable .................................................. 1,137 (1,302)
Accrued expenses and other liabilities ............................ 186 (560)
Deferred rent ..................................................... 600 259
-------- --------
Net cash used in operating activities .................................... (16,629) (23,925)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments .......................................... (28,536) (34,399)
Maturities of investments ......................................... 40,138 25,725
Expenditures for property and equipment ........................... (7,115) (9,435)
-------- --------
Net cash provided by (used in) investing activities ...................... 4,487 (18,109)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligation .................... (192) (261)
Proceeds from convertible debt offering, net ...................... -- 96,000
Repurchase of Common Stock ........................................ -- (13,337)
Proceeds from issuance of Common stock, net: ...................... 366 682
-------- --------
Net cash provided by financing activities ................................ 174 83,084
-------- --------
Net increase (decrease) in cash and cash equivalents ..................... (11,968) 41,050
Cash and cash equivalents at beginning of period ......................... 28,164 15,239
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 16,196 $ 56,289
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</TABLE>
See accompanying notes.
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AVIRON
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X.
The financial information as of June 30, 1999 and for the three-month
and six-month periods ended June 30, 1999 and 1998 are unaudited, but includes
all adjustments (consisting only of normal recurring adjustments) which Aviron
(the Company) considers necessary for a fair presentation of the financial
position at such date and the operating results and cash flows for those
periods. The balance sheet data at December 31, 1998 is derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for a full
fiscal year.
Accounts Receivable
Accounts receivable is comprised principally of amounts receivable from
partners in connection with reimbursement of certain expenses associated with
the development and commercialization of FLUMIST(TM), the Company's live
cold-adapted virus vaccine.
Inventory
Inventory is comprised principally of sprayer components that will be
used in the manufacture of commercial batches of FLUMIST(TM) for sale. Inventory
is valued at the lower of cost (FIFO) or market value.
Comprehensive Income (Loss)
Comprehensive income (loss) is not presented separately as it
approximates the net loss presented in the statement of operations for the
three-month and six-month periods ended June 30, 1999 and 1998.
2. Net Loss Per Share
The Company calculates net loss per share in accordance with Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). SFAS
128 requires the presentation of basic earnings (loss) per share and diluted
earnings per share, if more dilutive, for all periods presented. Basic net loss
per share is computed using the weighted average number of common shares
outstanding during the period. Diluted net loss per share has not been presented
separately as, given the Company's net loss position, the result would be
anti-dilutive.
3. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133), which is required to be adopted for the year ending December 31, 2001.
Management does not anticipate that the adoption of SFAS 133 will have a
significant effect on the results of operations or the financial position of the
Company.
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As of January 1, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 requires companies to capitalize certain
qualifying computer software costs, which are incurred during the application
development stage, and amortize them over the software's estimated useful life.
The adoption of SOP 98-1 did not have a significant effect on the results of
operations or the financial position of the Company.
4. Collaboration Agreement
On January 12, 1999, the Company announced a worldwide collaboration
for the marketing of FLUMIST(TM) with Wyeth Lederle Vaccines, a business unit of
Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products
Corporation (Wyeth). On March 15, 1999, the Federal Trade Commission granted
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1996 regarding this collaboration.
Under the agreement, Aviron is granting Wyeth exclusive worldwide
rights to market FLUMIST(TM). Wyeth and Aviron will co-promote FLUMIST(TM) in
the United States, while Wyeth will have the exclusive right to market the
product outside the United States. In each case, Wyeth will hold the marketing
rights for up to eleven years. The collaboration excludes Korea, Australia, New
Zealand and certain South Pacific countries. The companies will collaborate on
the regulatory, clinical, and marketing programs for the product.
As consideration under the agreement, the Company received a cash
payment of $15 million for the initial license that was recognized as revenue
during the quarter ended March 31, 1999. During the quarter ended June 30, 1999,
the Company recorded $2.8 million of revenue in expense reimbursement from Wyeth
for a portion of its clinical development and commercialization costs incurred
during the period from March 15 through June 30, 1999.
In addition, the Company will receive $15.5 million upon acceptance for
filing with the U.S. Food and Drug Administration (FDA), and $20 million upon
FDA marketing approval for FLUMIST(TM). Compensation for achieving additional
development and regulatory milestones is included in the agreement terms. The
granting of certain rights under the license would trigger additional payments
in excess of $140 million to the Company. Consideration for the license also
includes a commitment to provide up to $40 million in future financing to the
Company from Wyeth, a portion of which is contingent upon regulatory approval of
the product, with the remaining amount to come from participation in the
Company's future securities offerings. The potential value for the license fees,
milestones and financing support that the Company could receive under the
collaboration exceeds $400 million. In addition to the payments mentioned above,
the Company anticipates that it will earn product revenues from Wyeth, in the
form of product transfer payments and royalties, which increase at higher sales
levels. The Company will incur expenses to supply and co-promote the product.
5. Credit Facility
On June 23, 1999 the Company entered into a $10 million general line of
credit. This credit facility is secured by various assets of the Company and
requires the maintenance of a minimum balance in the amount of $20 million of
cash and investments. As of June 30, 1999, no amounts have been drawn against
the credit line. Once drawn, the loan will be repaid over 48 months.
6. Subsequent Event
On July 2, 1999 the Company and Medeva Pharma Limited (Medeva Pharma),
a subsidiary of Medeva PLC, extended their collaboration covering the
manufacture of key components of FLUMIST(TM) through December 2005. The Company
paid Medeva Pharma $1 million upon execution of the agreement and will pay an
additional $1 million on December 31, 1999.
Under the terms of the new agreement, the Company will make specified
payments to Medeva for reaching certain technological, regulatory, and
employment milestones, supplying the vaccine components of FluMist(TM), and
providing the use of facilities. The Company is required to make minimum
payments to Medeva Pharma
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totaling 25 million British Pounds Sterling over the term of the agreement.
These minimum payments include all of the milestone, supply, and facility use
payments described above.
In addition, the Company will make payments to Medeva Pharma totaling $20
million over the term of the agreement based on net sales of FLUMIST(TM).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains, in addition to historical
information, forward-looking statements which involve risks and uncertainties.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those
set forth in the Company's Annual Report on Form 10-K in the section entitled
"Business Risks."
OVERVIEW
Since its inception in April 1992, Aviron has devoted substantially all
of its resources to its research and development programs. To date, Aviron has
not generated any revenues from the sale of products and does not expect to
generate any such revenues until 2000 at the earliest. Aviron has incurred
cumulative net losses of approximately $138.1 million as of June 30, 1999 and it
expects to incur substantial operating losses over at least the next few years.
Aviron has financed its operations through proceeds from private placements of
preferred stock, two public offerings and a private placement of Common Stock, a
private placement of convertible subordinated notes, revenue from its
collaborative agreements, equipment lease financings and investment income
earned on cash, cash equivalent balances and marketable securities.
On June 30, 1998 Aviron submitted its first Product License
Application/Establishment License Application (PLA/ELA) to the U.S. Food and
Drug Administration (FDA) for its live cold-adapted influenza vaccine,
FLUMIST(TM), a trivalent vaccine. On August 31, 1998 the Company announced that
it had received notice from the FDA that its submission was not accepted for
filing due to lack of data on manufacturing validation and stability.
On December 10, 1998, the Company reported on a meeting with the U.S. Food and
Drug Administration Center for Biologics Evaluation and Research (CBER)
regarding plans for submission of the Company's license applications for
FLUMIST(TM). Requirements for completion of the submission include data on
manufacturing and assay validation, stability, and clinical equivalence. If the
current manufacturing validation exercises are successful, the Company plans to
resubmit its application for U.S. licensure for FLUMIST(TM) to prevent influenza
and its complications in children and adults in the fall of 1999. The
resubmission will be in the form of a Biological License Application (BLA) in
accordance with current FDA requirements.
The Company expects its research and development expenditures to
increase substantially over the next several years as the Company expands its
research and development efforts, preclinical testing and clinical trials with
respect to certain of its programs, and manufacturing activities principally in
regard to FLUMIST(TM). In addition, general, administrative and marketing
expenses are expected to continue to increase as the Company expands its
operations and prepares for the potential commercial launch of FLUMIST(TM).
The Company announced in late 1998 positive preliminary results of a
Phase 2 clinical trial for a live intranasal vaccine for Parainfluenza Virus
Type 3 (PIV-3) to protect against croup. The Company intends to continue
preparation for further clinical trials for PIV-3. The Company also is
developing a subunit vaccine for Epstein-Barr Virus (EBV) to protect against
infectious mononucleosis in collaboration with SmithKline Beecham Biologicals,
S.A. (SmithKline Beecham). A Phase 1 clinical trial of this vaccine is being
completed. In addition, the Company expects to begin a clinical trial by early
2000 for a vaccine candidate for Cytomegalovirus (CMV) with the National
Institute of Allergy and Infectious Diseases (NIAID) of the National Institute
of Health (NIH). Aviron is also using its proprietary Rational Vaccine Design
technologies to develop vaccine candidates for diseases caused by Herpes Simplex
Virus Type 2 (HSV-2) and Respiratory Syncytial Virus (RSV).
Influenza Clinical Trials
The Company has conducted and continues to conduct clinical trials to
evaluate safety and efficacy of FLUMIST(TM). To date, the Company has tested
FLUMIST(TM) in over 11,000 children and adults in completed clinical trials. The
Company's clinical trials relate to the safety, efficacy, and effectiveness of
the trivalent formulation of its intranasal spray delivery method. The Company
enrolled a total of 647 patients in Phase 1 / Phase 2 clinical trials; 92
patients in a challenge efficacy study in healthy adults, in collaboration with
the NIH; 1,602 children in Year 1 of the Phase 3 pediatric protective efficacy
trial, 1,358 of whom returned for Year 2 and 948 of whom returned for Year 3 of
the trial; and 10,379 adults and children in six additional studies and in a
healthy working adult effectiveness trial. The Company has received limited data
on the efficacy of FluMist(TM) against culture-confirmed influenza from clinical
trials in healthy adults. There can be no assurance that data from such trials,
in addition to prior trials, will be sufficient to support the FDA approval in
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healthy children or adults. The Company's clinical trials are being designed to
support the planned BLA submission in the fall of 1999 seeking approval of
FLUMIST(TM) in several target populations. The estimated timing of submission of
this BLA and potential commercialization of FLUMIST(TM) are forward-looking
statements subject to risks and uncertainties, and there can be no assurance
that such filing or such approval will not be delayed materially or that
commercialization will occur as a result of certain factors, including those set
forth in "Uncertainties Related to Clinical Trials," "-- Uncertainties Related
to Early Stage of Development; Technological Uncertainty" in the "Business
Risks" section of the Company's 1998 Annual Report on Form 10-K.
Phase 3 Clinical Trials in Children
The Company has completed a two-year pivotal Phase 3 clinical trial to
evaluate one-and two-dose regimens in children. The Company's clinical trial
data suggest that a repeat or booster dose may be required in young children
without previous exposure to influenza or influenza vaccines. Two doses of the
inactivated injectable influenza vaccine are recommended annually for young
children receiving influenza prophylaxis for the first time. The Company
enrolled 1,602 children at 10 clinical sites in the pivotal Phase 3 clinical
trial, of which 1,314 were vaccinated with a second dose 46 to 74 days after
initial vaccination. The primary endpoint of the first stage of the study was
defined as protection of children from culture-confirmed influenza during
naturally occurring epidemics of influenza.
In May 1998, data from the first year of this trial of FLUMIST(TM) were
published in The New England Journal of Medicine. In the randomized,
placebo-controlled study, results show that only 14 of the 1,070 children
vaccinated with FLUMIST(TM) experienced culture-confirmed influenza, while 95 of
the 532 placebo recipients experienced culture-confirmed influenza. Of the
children who received FLUMIST(TM), only one child developed influenza-associated
otitis media (ear infection), while 20 of the placebo recipients developed
influenza-associated ear infections. Throughout the entire cough, cold and flu
season, 1,070 children vaccinated with FLUMIST(TM) experienced 30 percent fewer
ear infections with fever than children who received placebo and a 35 percent
reduction in related antibiotic use.
The children who participated in the first year of this study were
invited back to participate for a second year of the trial during the 1997-98
flu season, and they were vaccinated with either a single dose of FLUMIST(TM) or
a placebo spray. In September 1998, the results of Year 2 of the Phase 3
efficacy trial of FLUMIST(TM) in children, conducted in collaboration with
NIAID, were presented at the Interscience Conference on Antimicrobial Agents and
Chemotherapy (ICAAC). The study showed that FLUMIST(TM) provided 87 percent
protection against culture-confirmed influenza overall, 86 percent protection
against A/Sydney, an unexpected variant which was the predominant strain of
influenza circulating during the 1997-98 flu season, and 100 percent protection
against the influenza strains included in the 1997-98 vaccine. Among the 1,358
participants, there were five cases of influenza due to influenza strains
included in the vaccine and 66 cases caused by A/Sydney. Two percent of children
vaccinated with FLUMIST(TM) (15 out of 917) experienced culture-confirmed
influenza, all of which was attributable to the A/Sydney strain, while 13
percent of the placebo recipients (56 out of 441) experienced culture-confirmed
influenza. The difference between these two influenza attack rates is used to
calculate the overall protection rate of 87 percent.
The incidence of pneumonia and other lower respiratory diseases was
also reduced in those children vaccinated with FLUMIST(TM), compared to placebo
in Year 2 of the study. Eight children in the placebo group developed
influenza-related wheezing, bronchitis or pneumonia, all of which were due to
the A/Sydney strain. No children who received FLUMIST(TM) experienced such lower
respiratory complications. Among the 15 of the 917 children in the FLUMIST(TM)
group who did contract influenza, the illness appeared to be milder than in the
control group, based on frequency of complications and duration of fever.
The Company began a large scale clinical trial in August 1998 to assess
the impact of community-wide influenza immunization. The three-year trial,
taking place in Temple, Texas, is expected to enroll up to 15,000 children and
is funded by a $3 million grant from the NIAID awarded to the Baylor College of
Medicine. The trial will evaluate the impact of vaccinating pre-school and
school-age children with FluMist(TM) on the incidence of doctor visits for
flu-related illness.
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Clinical Trials in Healthy Adults
FLUMIST(TM) has been tested in a double-blind, placebo-controlled
challenge efficacy study at two Vaccine Treatment Evaluation Units (VTEUs)
involving 92 healthy young adults. Subjects were randomized to receive either
FLUMIST(TM), the inactivated injectable vaccine or placebo. There were no
serious adverse events attributable to FLUMIST(TM) seen in any subjects, and
there were no statistically significant differences in the occurrence of any
potential reactions assessed in the study between either vaccine or placebo.
Following vaccination and subsequent intranasal administration of the wild-type
challenge virus, the incidence of laboratory-documented influenza, a
prospectively defined primary endpoint of the trial, was 7 percent in subjects
vaccinated with FLUMIST(TM), 13 percent in subjects vaccinated with the
inactivated injectable influenza vaccine and 45 percent in subjects who received
placebo. The reduction in laboratory-documented influenza compared to placebo
was statistically significant for FLUMIST(TM) and the inactivated vaccine. These
data have not been peer reviewed. No assurance can be given that the conclusions
drawn from this analysis will not change as a result of further study by the
Company or during the peer review process.
The Company conducted a Phase 3 trial in 4,561 healthy working adults
to assess the impact of immunization on the frequency of influenza-like illness,
utilization of health care services, and absenteeism from work. Results of this
study were published in the July 14, 1999 issue of the Journal of the American
Medical Association. The double-blind, placebo-controlled study was conducted at
13 clinical sites nationwide during the 1997-98 flu season. The participants,
aged 18 to 65, each received one dose of vaccine. FLUMIST(TM) recipients had
reduced illness by multiple definitions including days of febrile illness (22.9
percent less), days of severe febrile illness (27.3 percent less) and days of
febrile upper respiratory tract illness (24.8 percent less).
Reductions in illness-associated absenteeism and health resource use
were observed across several illness definitions. For example, those receiving
FluMist(TM) missed 28.4 percent fewer work days due to febrile upper respiratory
illness and had a 40.9 percent reduction in health care provider visits. In
addition, FluMist(TM) recipients experienced a 45.2 percent reduction in days of
prescription antibiotic use and 28.0 percent fewer days of OTC medication due to
febrile upper respiratory illness. Data from this study are expected to be part
of the Company's BLA submission to the FDA.
Clinical Trials in High-Risk Adults
The Company has completed a clinical trial for safety in 200 elderly
high-risk adults for the use of FLUMIST(TM) for co-administration with the
inactivated injectable influenza vaccine. As this trial was not designed to
generate efficacy data on use of FLUMIST(TM) in high-risk adults, there can be
no assurance that data from this trial, combined with data from the Company's
other clinical trials and prior trials, will be sufficient to support FDA
approval for use of FLUMIST(TM) in high-risk adults even if the FDA were
satisfied with the safety data submitted. Early in the fourth quarter of 1998,
the Cooperative Studies program of the Department of Veterans Affairs Office of
Research and Development began a one-year trial to evaluate the potential
additional benefit of co-administration of FLUMIST(TM) with the flu shot,
compared to the flu shot alone, in high-risk patients with chronic obstructive
pulmonary disease. This study involved over 2,000 volunteers at 20
participating VA Medical Centers in the United States. Results from this trial
are not yet available for analysis.
Clinical Trials for Manufacturing Consistency and Process
In February 1998, the Company reported positive results from a
manufacturing consistency lot trial of bulk vaccine manufactured, blended, and
filled into sprayers at Medeva Pharma Limited (Medeva Pharma), formerly Evans
Medical Limited, a subsidiary of Medeva PLC. The Company conducted a randomized,
double-blind, placebo-controlled trial in 500 children, designed to evaluate the
safety and immunogenicity of three new manufacturing lots of FLUMIST(TM). The
children were vaccinated between April and September 1997. Analysis of patient
diary cards and antibody responses following two doses of FLUMIST(TM) showed
consistent safety and immunogenicity for the different lots according to the
pre-defined endpoints.
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On June 9, 1999, the Company announced completion of a bridging study
on FLUMIST(TM) designed to compare FluMist(TM) blended and filled at Aviron's
facility at Packaging Coordinators, Inc. (PCI) in Philadelphia, Pennsylvania, to
vaccine manufactured with the process used in earlier clinical trials, blended
and filled by Medeva Pharma.
The study's primary endpoint was to show that FluMist(TM) blended and
filled at Aviron's PCI facility had similar immunogenicity for all three 1997-98
influenza strains to the vaccine blended and filled at Medeva Pharma. The
secondary endpoint was to show that the two lots of vaccine had similar safety
and tolerability profiles.
The 225-person trial was conducted in Australia from December 1998
through March 1999. Participants were children aged 12 to 42 months, randomized
to receive vaccine blended and filled at one of the two manufacturing sites. The
study was conducted in collaboration with CSL Limited, Aviron's Australian
marketing partner for FLUMIST(TM).
The Company's preliminary analysis indicates that the results appear to
meet all of the Company's objectives. Aviron will include data from this
clinical study in its licensing application for the vaccine.
Partnering Agreements
The Company has entered into several development and marketing
agreements with respect to its products.
In January 1999, the Company announced a worldwide collaboration for
the marketing of FLUMIST(TM) with Wyeth Lederle Vaccines, a business unit of
Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products
Corporation (Wyeth), under which Wyeth and the Company will co-promote
FLUMIST(TM) in the United States, while Wyeth will have the exclusive right to
market the product outside the United States, except for Korea, Australia, New
Zealand and certain countries in the South Pacific region. Wyeth and the Company
will collaborate on the regulatory, clinical and marketing programs for
FLUMIST(TM). In June 1998, the Company announced the signing of an agreement
with CSL Limited to develop, sell and distribute FLUMIST(TM) in Australia, New
Zealand and certain countries in the South Pacific region. Under the agreement,
CSL Limited and Aviron will jointly carry out additional trials in Australia for
FLUMIST(TM). Expenses associated with these agreements are expected to increase
as the Company continues preclinical testing and clinical trials and prepares
for the potential commercial launch of FLUMIST(TM). No assurance can be given,
however, that the Company will receive any future payments from CSL Limited or
Wyeth.
In October 1995, the Company signed an agreement with SmithKline
Beecham defining a collaboration on the Company's EBV vaccine technology. Under
the terms of this agreement, the Company granted SmithKline Beecham an exclusive
license to produce, use and sell non-live EBV vaccines incorporating the
Company's technology for prophylactic and therapeutic uses on a worldwide basis,
except in Korea. The Company retained U.S. co-marketing rights to a monovalent
EBV vaccine formulation which will be supplied by SmithKline Beecham. The
Company is entitled to royalties from SmithKline Beecham based on net sales of
the non-live EBV vaccine. No assurance can be given, however, that the Company
will receive any future payments from SmithKline Beecham or that SmithKline
Beecham will not terminate this agreement.
In May 1995, the Company entered into a Development and License
Agreement with Sang-A Pharm. Co., Ltd. (Sang-A). The Company granted to Sang-A
certain exclusive clinical development and marketing rights in Korea for
specified products developed by the Company, including vaccines for influenza
(cold-adapted and recombinant), PIV, EBV, CMV, HSV-2 and RSV on meeting certain
conditions. However, the Company is under no obligation to develop any product.
Sang-A also will make payments to the Company upon Sang-A's meeting certain
regulatory milestones for each product in Korea and will pay a royalty to the
Company on net sales of such products in South and North Korea. No assurance can
be given, however, that the Company will receive any future payments from Sang-A
or that Sang-A will not terminate its agreement with the Company. In January
1997, Sang-A declared bankruptcy. The Company is unable to predict what, if any,
long-term effect the bankruptcy will have on Sang-A and on the Company's
agreement with Sang-A.
12
<PAGE> 13
Manufacturing Facilities
In April 1997, the Company entered into an agreement with Medeva Pharma
for the commercial manufacture of FLUMIST(TM) through December 2001. In July
1999, the agreement with Medeva Pharma was revised and extended through December
2005.
In October 1997, the Company entered into an agreement with PCI for the
blending, filling, labeling and packaging of FLUMIST(TM) in the United States
until October 2004. In 1998, Aviron and PCI opened a 34,000-square-foot
manufacturing suite in Philadelphia, Pennsylvania at PCI's site, in which PCI
blended, filled and packaged doses of FLUMIST(TM) for use in 1998 - 99 clinical
trials. If regulatory approval is received, the PCI facility is expected to be
used to blend, fill, label, package and store FLUMIST(TM).
The agreements with Medeva Pharma and PCI have required the Company to
fund the construction of facilities, improvements, and equipment and will
continue to require the Company to incur expenses for the duration of the
agreements for facility space, utilities and insurance.
In February 1999, the Company announced that it has leased a 69,000
square-foot building in Santa Clara, California. The facility will provide
additional laboratory, pilot plant, manufacturing and office space to
accommodate growth. This additional space will require the commitment of
significant additional funds during 1999, 2000, and 2001 for renovation,
equipment and furnishings.
In the event of a better than expected market acceptance, the Company
may be capacity constrained in its supply of FLUMIST(TM). In order to secure
future production capacity, the Company may extend and expand its existing
arrangements, collaborate with other third parties, or expand its own
manufacturing facilities. Using an alternative supplier or expanding its
proprietary facility would require a substantial amount of funds and additional
clinical trials and testing. There can be no assurance that an alternative
source of supply will be established on a timely basis, or that the Company will
have or be able to obtain funds sufficient for building or equipping such
additional facilities.
The Company is currently evaluating the costs and benefits of
developing internal manufacturing capabilities or contracting for expanded or
alternative sources of supply from third-party manufacturers for products other
than FLUMIST(TM).
Research Grants
In July 1998, the Company received notice from the NIAID of a Small
Business Innovation Research (SBIR) grant to support development of its live
attenuated vaccine for the prevention of disease caused by CMV. The $750,000
grant is the second that Aviron has received for research on CMV. In September
1998, the total grant amount was increased by an additional $200,000 to
$950,000. A portion of the award has been used to produce recombinant CMV
vaccine candidates for human testing. The remainder of the award will be used to
determine the safety and immunogenicity of these vaccine candidates in a Phase 1
clinical trial in collaboration with the NIAID Vaccine Treatment and Evaluation
Unit network. No assurance can be given, however, that the Company will receive
any future grants to support its research or that such research will result in
commercially viable products.
Business Risks
The Company's business is subject to significant risks, including but
not limited to the risks inherent in its research and development efforts,
including preclinical testing and clinical trials; uncertainties associated both
with obtaining and enforcing its patents and with the patent rights of others;
the lengthy, expensive and uncertain process of seeking regulatory approvals;
uncertainties regarding government reforms and product pricing and reimbursement
levels; technological change and competition; manufacturing uncertainties and
dependence on third parties. Even if the Company's product candidates appear
promising at an early stage of development, they may not reach the market for
numerous reasons. Such reasons include the possibilities that the products will
be found unsafe or ineffective during clinical trials, will fail to receive
necessary regulatory approvals, will be difficult to
13
<PAGE> 14
manufacture on a commercial scale, will be uneconomical to market or will be
precluded from commercialization by proprietary rights of third parties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues
The Company earned $2.9 million in revenue for the three months ended
June 30, 1999, compared to $134,000 for the three months ended June 30, 1998.
The 1999 revenues were comprised principally of $2.8 million in expense
reimbursement from Wyeth under the FLUMIST(TM) collaboration agreement, combined
with other revenues from other contracts. The 1998 revenue came from both a
grant payment from the NIH for research on the Company's CMV vaccine and from
contract services rendered to other biotechnology companies.
Operating Expenses
Research and development expenses increased to $14.4 million in the
three months ended June 30, 1999 from $10.9 million for the three months ended
June 30, 1998. The increase was due primarily to an increase in development
activities, depreciation, documentation, validation, and other expenses
associated with the commercial scale-up of the manufacturing facilities
associated with FLUMIST(TM). The Company expects these expenses to continue to
increase during the remainder of 1999 as development and manufacturing
activities expand in preparation for potential commercialization of FLUMIST(TM).
These expenses are expected to increase in the future in continued support of
these activities.
General, administrative and marketing expenses increased to $3.2
million in the three months ended June 30, 1999 from $2.6 million for the three
months ended June 30, 1998. This increase was due to additional staffing, legal
and other infrastructure costs necessary to support the development of
FLUMIST(TM) and other products. These expenses are also expected to increase in
the future in continued support of these activities.
Net Interest Income (Expense)
Net interest income decreased to a net expense of $551,000 in the three
months ended June 30, 1999, as compared to net interest income of $229,000 for
the three months ended June 30, 1998. The decrease in net interest is primarily
due to the reduced balances of cash, cash equivalents, and investment balances
as funds have been used to meet net operating expenses and capital requirements.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues
The Company earned $18.5 million in revenues for the six months ended
June 30, 1999, compared to $387,000 for the six months ended June 30, 1998. The
1999 revenues are comprised primarily of amounts earned from Wyeth under the
FLUMIST(TM) collaboration agreement, which included a non-refundable initial
payment in the amount of $15.0 million and $2.8 million in expense
reimbursements, combined with other revenues from other contracts and research
grants. The 1998 revenues were from a grant payment from the NIH for research on
the Company's CMV vaccine and from payments received for services rendered to
other biotechnology companies.
Operating Expenses
Research and development expenses increased to $28.4 million in the six
months ended June 30, 1999, from $20.7 million for the six months ended June 30,
1998. The increase was due primarily to an increase in development activities,
depreciation, documentation, validation, and other expenses associated with the
commercial scale-up of the manufacturing facilities associated with FLUMIST(TM).
The Company expects these expenses to increase in 1999 as development and
manufacturing activities expand in preparation for potential commercialization
of FLUMIST(TM). These expenses are expected to increase in the future in
continued support of these activities.
14
<PAGE> 15
General, administrative and marketing expenses increased to $5.8
million in the six months ended June 30, 1999, from $4.7 million for the six
months ended June 30, 1998. This increase was due to additional staffing, legal
and other infrastructure costs necessary to support the development of
FLUMIST(TM) and other products. These expenses are expected to increase in the
future in continued support of these activities.
Net Interest Income (Expense)
Net interest decreased to a net expense of $914,000 for the six months
ended June 30, 1999, as compared to net interest income of $1.1 million for the
six months ended June 30, 1998. The decrease in net interest is due to a
combination of increased interest expense associated with the issuance of the
Company's convertible debt on March 30, 1998 and decreased interest income
associated with a reduction in the average balances of cash, cash equivalents,
and investment balances as funds have been used to meet net operating expenses
and capital requirements.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and marketable securities at
June 30, 1999 of approximately $71.1 million. In order to preserve principal and
maintain liquidity, the Company's funds are invested in United States Treasury
and agency obligations, highly rated corporate obligations and other liquid
investments.
The Company has financed its operations since inception primarily
through private placements of Preferred Stock from 1992 to 1995, an initial
public offering of Common Stock in November 1996, a private sale of Common Stock
in March 1997, a second public offering of Common Stock in August 1997, and a
private placement of convertible subordinated notes in March 1998. Through June
30, 1999, the Company had raised approximately $236.3 million from such
activities net of offering expenses. In June 1999, the Company entered into a
$10 million general line of credit. (See Note 5 to the financial statements.)
Cash used in operations was $16.6 million and $23.9 million for the first six
months of 1999 and 1998, respectively. The decrease in cash used in operating
activities was primarily due to the receipt of the $15.0 million payment from
Wyeth, which was partially offset by increases in operating expenses. The
Company expects expenditures for research and development, clinical trials and
general, administrative and marketing expenses to continue to increase in 1999
as the Company develops its products, expands its clinical trials and prepares
for the potential commercial launch of FLUMIST(TM). Cash expended for capital
additions and to repay lease financing arrangements amounted to approximately
$7.1 million and $9.4 million for the six months ended June 30 of 1999 and 1998,
respectively. Capital expenditures decreased in 1999 primarily due to a decrease
in the level of expenditures for facilities and equipment at PCI. Capital
expenditures are expected to increase during the second half of 1999 and beyond,
primarily in connection with the Santa Clara facility.
The Company anticipates that its existing cash, cash equivalents and
short-term investments, revenues and other advances available under existing
collaborations, and borrowings under its existing credit facilities will enable
it to maintain its current and planned operations into 2000. The Company's
future cash requirements beyond 1999 will depend on numerous factors, including
the time and costs involved in obtaining regulatory approvals; the ability to
successfully launch FLUMIST(TM) in the United States; continued scientific
progress in the research and development of the Company's technology and vaccine
programs; the size and complexity of these programs; the ability of the Company
to establish and maintain collaborative arrangements; the timing of receipt of
milestone payments and loans, if any, under such collaborative agreements;
progress with preclinical testing and clinical trials; the cost involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims; the
cost of constructing or expanding any or all of its manufacturing facilities,
and product commercialization activities.
In addition, there can be no assurance that, should the Company require
outside funding through additional debt or equity financings, such funds will be
available on favorable 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 or development programs or to obtain funds through
collaborative agreements with 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 itself, which could
materially adversely affect the Company's business, financial condition and
results of operations.
15
<PAGE> 16
IMPACT OF "YEAR 2000"
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead, the so-called "Year 2000" problem (Y2K). If not corrected,
those programs could cause date-related failures.
The Company has completed its assessment of Y2K related problems. Four
potential areas of exposure --(a) internal information systems, (b) facility
support systems, (c) scientific equipment, and (d) the readiness of significant
third parties with whom the Company has material business relationships -- have
been evaluated. The results of the assessment and the status of remedial action
and testing are as indicated below.
(a) Internal Information Systems
The Company uses a number of computers and computer programs across its
entire operations. An inventory has been performed of computer equipment and
computer programs, to determine if Y2K problems exist which may affect the
Company's internal information processes.
- - The Company has completed the process of upgrading its older financial and
accounting programs to Y2K compliant systems. These systems will be tested
during the third quarter of 1999 to verify Y2K compliance.
- - During 1998, the Company also completed the installation of internal systems
for the accumulation and statistical evaluation of clinical trial data.
These systems will be tested during the third quarter of 1999 to verify Y2K
compliance.
- - To date, no other significant internal information systems have been
identified as non-Y2K compliant.
- - Procedures have been enacted to verify the Y2K compliance of new systems.
(b) Scientific Equipment
All major pieces of scientific equipment have been inventoried. As part
of its assessment, the Company made inquiries of its internal staff and
third-party vendors, including its suppliers of scientific equipment, to
determine if Y2K problems exist which may affect the Company's research and
development operations.
- - Only one piece of laboratory equipment was found to require remediation in
the form of an inexpensive software upgrade.
- - To date, no other significant pieces of scientific equipment have been
identified as non-Y2K compliant.
- - Procedures have been enacted to verify the Y2K compliance of new scientific
equipment.
(c) Facility Support Systems
The Company has made inquiries of its internal staff and third-party
vendors of utilities, communication and other facility support systems at the
Mountain View and Santa Clara facilities, to determine if Y2K problems exist
which may affect communications, administrative or support functions.
- - Remediation is necessary for certain of the communication and process
systems and for certain of the building control, assess and alarm systems.
Hardware replacements and software upgrades are expected to be completed by
the end of the third quarter of 1999 at a cost of less than $20,000. These
systems will be tested to verify Y2K compliance.
Third Parties with Major Business Relationships
The Company currently has no products available for commercial sale,
and does not anticipate FDA clearance for its lead product, FLUMIST(TM), until
mid-2000 at the earliest. In preparation for the potential commercial launch of
FLUMIST(TM), the Company has contacted its third party manufacturers and its
marketing and distribution partners to determine their level of Y2K readiness.
All of these parties have advised us that they have a Y2K plan in place and that
remediation steps, if any, will be completed prior to December 1999. It is not
possible for the Company to undertake an independent verification and testing of
the readiness of these parties for all potential Y2K issues. The failure of any
of these parties to successfully identify and remedy the impact of Y2K upon
their businesses could
16
<PAGE> 17
have a material adverse effect on the Company's business, including delaying or
adversely affecting the potential commercial launch of FLUMIST(TM).
The Company's remediation steps are expected to be completed during the
third quarter of 1999.
External and internal costs specifically associated with modifying
internal use software for Y2K compliance are expensed as incurred. To this
point, these costs have not been material, and the Company does not expect such
costs to be material in the future. There can be no assurance, however, that the
Company's assessment of Y2K's potential impact will not change as we complete
our assessment, or that Y2K will not ultimately cause a material disruption in
the business of the Company.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes to interest
rates and foreign currency exchange rates. The Company's exposure to such market
risk has not changed substantially since December 31, 1998 and reference is made
to the more detailed disclosures of market risk included in the Company's Annual
Report on Form 10K for such period.
Interest Rates -- The Company's investments and interest income are
sensitive to changes in the general level of interest rates, primarily U.S.
interest rates. In this regard, changes in U.S. interest rates primarily affect
the market value of the Company's cash equivalents and investments. To mitigate
market risk, the Company places its cash in investments that meet high credit
standards, as specified in the Company's investment policy guidelines, and
staggers the maturity of the investments to meet expected cash demands. The
policy also limits the amount of credit exposure to any one issue, issuer, or
type of investment and does not permit derivative financial instruments in its
investment portfolio. As a result, the Company does not expect any material loss
with respect to its investment portfolio.
Foreign Currency Exchange Rates -- The Company pays for the costs of
manufacturing and development activities, equipment, and facilities
modifications at Medeva Pharma, which is located in the United Kingdom (U.K.) in
British Pounds Sterling. As a result, the Company's financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the U.K. The Company is exposed to changes in exchange
rates in the United Kingdom. When the U.S. dollar strengthens against the
British Pounds Sterling, the U.S. dollar value of British Pounds Sterling-based
expenses decreases; when the U.S. dollar weakens, the U.S. dollar value of
British Pounds Sterling-based expenses increases. Accordingly, changes in
exchange rates, and in particular a weakening of the U.S. dollar, may adversely
affect the Company's financial position as expressed in U.S. dollars.
18
<PAGE> 19
AVIRON
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 30, 1999 the European Patent Office held oral
proceedings in an Opposition filed by American Cyanamid against
Aviron's granted European Patent No. 0490972 relating to methods and
compositions of recombinant negative-strand RNA viruses. At the oral
proceedings, the Opposition Division of the European Patent Office
informed the Company of its intent to issue a written opinion which
upholds claims limited to influenza and denies claims directed to
non-segmented negative-strand RNA viruses. This decision will not
affect Aviron's FLUMIST(TM) cold-adapted influenza product. Aviron
intends to appeal the decision insofar as it relates to the denied
claims; the appeal will request the Technical Board of Appeals to
reverse the decision with respect to the denial of the claims directed
to non-segmented RNA viruses. There can be no assurance that Aviron
will be successful in obtaining claims directed to non-segmented RNA
viruses as a result of the appeal. If Aviron does not succeed in the
appeal of the claims directed to non-segmented RNA viruses it could
negatively impact Aviron's ability to exclude others from
commercializing an RSV vaccine based on genetically engineered
candidates in Europe.
On July 8, 1999 a lawsuit entitled Joany Chou v. The
University of Chicago, ARCH Development Corp., Bernard Roizman and
Aviron Company, was filed in the U.S. District Court for the Northern
District of Illinois, Eastern Division by an individual formerly
associated with the University of Chicago. The complaint appears to
assert claims of inventorship, unjust enrichment, fraud, conversion,
breach of fiduciary duty, breach of contract and breach of implied
contract. All of the claims appear to relate to patents and patent
applications for HSV, and none appear to relate to Aviron's FLUMIST(TM)
cold-adapted influenza product or technology, or any other pipeline
products in research or development. Dr. Roizman is a founder and
director of Aviron and a member of its Scientific Advisory Board.
Aviron believes the allegations of the lawsuit are unfounded and
intends to vigorously defend itself in the matter. There can be no
assurance that the Company will prevail in the defense of this lawsuit.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders (Annual Meeting)
was held on June 3, 1999. At the Annual Meeting, the stockholders of
the registrant (i) elected the two people listed below to serve as
directors to hold office until the 2002 Annual Meeting of Stockholders
and until their successors are elected; (ii) approved an amendment to
the Company's 1996 Equity Incentive Plan; and (iii) ratified the
selection of Ernst & Young LLP as the Registrant's Independent
Accountants for the fiscal year ending December 31, 1999.
The Company had 15,768,680 shares of Common Stock outstanding
as of April 15, 1999, the record date for the Annual Meeting. At the
Annual Meeting, holders of a total of 10,778,993 shares of Common Stock
were present in person or represented by Proxy. The following sets
forth information regarding the results of the voting at the Annual
Meeting.
19
<PAGE> 20
PROPOSAL 1 -- ELECTION OF DIRECTORS
Director
PAUL H. KLINGENSTEIN
<TABLE>
<S> <C>
Votes in Favor ....................... 10,728,367
Votes Against ........................ 50,626
</TABLE>
Director
JANE E. SHAW, Ph.D.
<TABLE>
<S> <C>
Votes in Favor ....................... 10,727,667
Votes Against ........................ 51,326
</TABLE>
PROPOSAL 2 -- AMENDMENT TO THE COMPANY'S 1996 EQUITY INCENTIVE PLAN
<TABLE>
<S> <C>
Votes in Favor ....................... 8,345,026
Votes Against ........................ 2,385,911
Abstentions .......................... 48,056
</TABLE>
PROPOSAL 3 -- RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
<TABLE>
<S> <C>
Votes in Favor ....................... 10,734,910
Votes Against ........................ 12,750
Abstentions .......................... 31,333
</TABLE>
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
ITEM DESCRIPTION
---- -----------
<S> <C>
10.25 Real Property Lease by and between the Registrant
and Spieker Properties, L.P. dated February 5,
1999
10.26++ First Amendment to the Influenza Vaccine
Collaboration and License and Distribution
Agreement by and between the Registrant and CSL
Limited, A.C.N. dated June 7, 1999
10.27 Loan and Security Agreement by and between the
Registrant and Transamerica Business Credit
Corporation dated June 23, 1999
27.1 Financial Data Schedules.
</TABLE>
----------
++ Confidential treatment has been requested for portions of
this exhibit.
(b) REPORTS ON FORM 8-K
None
20
<PAGE> 21
AVIRON
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
AVIRON
Date: August 13, 1999 By: /s/ J. Leighton Read, M.D.
--------------------- -------------------------------
J. Leighton Read, M.D.
Chairman and
Chief Executive Officer
Date: August 13, 1999 By: /s/ Fred Kurland
--------------------- -------------------------------
Fred Kurland
Senior Vice President and
Chief Financial Officer
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. OF EXHIBIT DESCRIPTION
- -------------- -----------
<S> <C>
10.25 Real Property Lease by and between the Registrant and
Spieker Properties, L.P. dated February 5, 1999
10.26++ First Amendment to the Influenza Vaccine Collaboration
and License and Distribution Agreement by and between
the Registrant and CSL Limited, A.C.N. dated June 7,
1999
10.27 Loan and Security Agreement by and between the
Registrant and Transamerica Business Credit Corporation
dated June 23, 1999
27.1 Financial Data Schedules.
</TABLE>
- ----------
++ Confidential treatment has been requested for portions of this exhibit.
22
<PAGE> 1
Exhibit 10.25
BASIC LEASE INFORMATION
INDUSTRIAL NET
LEASE DATE:
(same as date in first paragraph of Lease) February 5, 1999
TENANT: Aviron, a Delaware corporation
TENANT'S NOTICE ADDRESS: 297 North Bernardo Ave., Mountain
View, California 94043
TENANT'S BILLING ADDRESS: 297 North Bernardo Ave., Mountain
View, California 94043
TENANT CONTACT: Chief Financial Officer
PHONE NUMBER: (650) 919-6500
FAX NUMBER: (650) 919-6612
LANDLORD: Spieker Properties, L.P., a
California limited partnership
LANDLORD'S NOTICE ADDRESS: 2180 Sand Hill Road, Suite 100,
Menlo Park, California 94025
LANDLORD'S REMITTANCE ADDRESS: Spieker Properties, P.O. Box 45587,
Department 10421, San Francisco,
California 94145-0587 Lease ID No.
AVIR--- 01
Premises: 3.82 acres of improved land
commonly known as 3055 Patrick
Henry Drive, Santa Clara,
California, together with the
Building (defined below)
Building: One office/research and development
building consisting of
approximately 68,987 square feet,
together with that certain 5,000
square foot addition described on
Schedule 2 attached hereto upon
completion by Tenant (the
"Additional Space")
Permitted Use: Subject to compliance with all
laws, office, research and
development, manufacturing, storage
and related legal uses subject to
Landlord's reasonable approval
Parking Density: Tenant shall be entitled to the
non-exclusive use of all parking
spaces at the Premises
Scheduled Term Commencement Date: February 5, 1999
Scheduled Length of Term: Nineteen (19) years, 360 days
Scheduled Term Expiration Date: January 31, 2019
Base Rent: Base Rent shall commence on the
Term Commencement Date and shall be
paid pursuant to Schedule 1
attached hereto and made a part
hereof.
Estimated First Year Operating Expenses: $8,315 per month
Security Deposit: $362,182
Tenant's Proportionate Share: 100%
<PAGE> 2
Of Premises: 100%
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
LANDLORD TENANT
Spieker Properties, L.P., Aviron,
a California limited partnership a Delaware corporation
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ [Signature Illegible] By: /s/ Fred Kurland
-------------------------------- ---------------------------
Its: Regional Senior Vice President Its: Senior Vice President and
-------------------------------- Chief Financial Officer
--------------------------
II
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. PREMISES......................................................................1
2. POSSESSION AND LEASE COMMENCEMENT.............................................1
3. TERM..........................................................................1
4. USE...........................................................................2
A. General................................................................2
B. Limitations............................................................2
C. Compliance with Regulations............................................2
D. Hazardous Materials....................................................2
5. RULES AND REGULATIONS.........................................................4
6. RENT..........................................................................4
A. Base Rent..............................................................4
B. Additional Rent........................................................4
7. OPERATING EXPENSES............................................................4
A. Operating Expenses.....................................................4
(1) Taxes...........................................................5
(2) Insurance.......................................................5
(3) Common Area Maintenance.........................................5
B. Payment of Estimated Operating Expenses................................7
C. Computation of Operating Expense Adjustment............................7
D. Net Lease..............................................................7
E. Tenant Audit...........................................................7
8. INSURANCE AND INDEMNIFICATION.................................................8
A. Landlord's Insurance...................................................8
(1) Property Insurance..............................................8
(2) Optional Insurance..............................................8
B. Tenant's Insurance.....................................................8
(1) Property Insurance..............................................8
(2) Liability Insurance.............................................8
(3) Workers' Compensation and Employers' Liability Insurance........9
(4) Commercial Auto Liability Insurance.............................9
(5) General Insurance Requirements..................................9
C. Indemnification........................................................9
9. WAIVER OF SUBROGATION........................................................10
10. LANDLORD'S REPAIRS AND MAINTENANCE...........................................10
11. TENANT'S REPAIRS AND MAINTENANCE.............................................10
12. ALTERATIONS..................................................................11
13. SIGNS........................................................................13
14. INSPECTION/POSTING NOTICES...................................................13
15. SERVICES AND UTILITIES.......................................................13
16. SUBORDINATION................................................................14
17. FINANCIAL STATEMENTS.........................................................14
18. ESTOPPEL CERTIFICATE.........................................................15
</TABLE>
I
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<TABLE>
<S> <C>
19. SECURITY DEPOSIT.............................................................15
20. LIMITATION OF TENANT'S REMEDIES..............................................15
21. ASSIGNMENT AND SUBLETTING....................................................16
A. (1) General...........................................................16
(2)Conditions of Landlord's Consent...................................16
(3)...................................................................16
B. Bonus Rent............................................................17
C. Corporation...........................................................17
D. Unincorporated Entity.................................................17
E. Liability.............................................................18
22. AUTHORITY....................................................................18
23. CONDEMNATION.................................................................18
A. Condemnation and Rights to Terminate..................................18
B. Award.................................................................18
C. Waiver of CCP Section 1265.130........................................19
24. CASUALTY DAMAGE..............................................................19
A. General...............................................................19
B. Rebuild and Repair....................................................19
C. Tenant's Fault........................................................19
D. Insurance Proceeds....................................................19
E. Waiver................................................................20
F. Tenant's Personal Property............................................20
25. HOLDING OVER.................................................................20
26. DEFAULT......................................................................20
A. Events of Default.....................................................20
(1) Abandonment....................................................20
(2) Nonpayment of Rent.............................................20
(3) Other Obligations..............................................20
(4) General Assignment.............................................21
(5) Bankruptcy.....................................................21
(6) Receivership...................................................21
(7) Attachment.....................................................21
(8) Insolvency.....................................................21
B. Remedies Upon Default.................................................21
(1) Termination....................................................21
(2) Continuation After Default.....................................21
(3) Increased Security Deposit.....................................21
C. Damages After Default.................................................22
D. Late Charge...........................................................22
E. Interest..............................................................22
F. Remedies Cumulative...................................................22
27. LIENS........................................................................22
28. [Intentionally Deleted]......................................................23
29. TRANSFERS BY LANDLORD........................................................23
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS..............................23
</TABLE>
II
<PAGE> 5
<TABLE>
<S> <C>
31. WAIVER.......................................................................23
32. NOTICES......................................................................24
A. Rent..................................................................24
B. Other.................................................................24
C. Required Notices......................................................24
33. ATTORNEYS' FEES..............................................................24
34. SUCCESSORS AND ASSIGNS.......................................................24
35. FORCE MAJEURE................................................................24
36. SURRENDER OF PREMISES........................................................24
37. MISCELLANEOUS................................................................25
A. General...............................................................25
B. Time..................................................................25
C. Choice of Law.........................................................25
D. Entire Agreement......................................................25
E. Modification..........................................................25
F. Severability..........................................................25
G. Recordation...........................................................25
H. Examination of Lease..................................................25
I. Accord and Satisfaction...............................................25
J. Easements.............................................................25
K. Drafting and Determination Presumption................................26
L. Exhibits..............................................................26
M. No Light, Air or View Easement........................................26
N. No Third Party Benefit................................................26
O. Quiet Enjoyment.......................................................26
P. Counterparts..........................................................26
Q. Multiple Parties......................................................26
R. Prorations............................................................26
38. ADDITIONAL PROVISIONS........................................................26
A. Option to Extend......................................................26
B. Letter of Credit......................................................29
1. Delivery of Letter of Credit.................................................29
2. Replacement of Letter of Credit..............................................29
3. Landlord's Right to Draw on Letter of Credit.................................29
4. LOC Security Deposit.........................................................29
5. Restoration of Letter of Credit and LOC Security Deposit.....................29
C. Option to Purchase....................................................29
</TABLE>
Exhibits:
Exhibit A...............................Site Plan, Property Description
III
<PAGE> 6
LEASE
THIS LEASE is made as of the 5th day of February, 1999, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"LANDLORD"), and Aviron, a Delaware corporation (hereinafter called "TENANT").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms
and conditions hereinafter set forth, those premises (the "PREMISES") outlined
in red on EXHIBIT A, described in the attached legal description and in the
Basic Lease Information. The Premises shall consist of the building (the
"BUILDING") described in the Basic Lease Information. The common areas shall
consist of the public areas surrounding the building which shall constitute the
landscaping, walkways, driveways and parking lot and Tenant shall have the
exclusive use of the common areas.
2. POSSESSION AND LEASE COMMENCEMENT
Term commencement date ("TERM COMMENCEMENT DATE") shall be February 5, 1999. If
for any reason Landlord cannot deliver possession of the Premises to Tenant on
the scheduled Term Commencement Date, Landlord shall not be subject to any
liability therefor, nor shall Landlord be in default hereunder nor shall such
failure affect the validity of this Lease, and Tenant agrees to accept
possession of the Premises at such time as Landlord is able to deliver the same,
which date shall then be deemed the Term Commencement Date. Tenant shall not be
liable for any Rent (defined below) for any period prior to the Term
Commencement Date. Tenant acknowledges that Tenant has inspected and accepts the
Premises in their present condition, broom clean, "as is," and as suitable for,
the Permitted Use (as defined below), and for Tenant's intended operations in
the Premises, subject to remediation required for Regulatory Approval (as
defined below). Subject to remediation required for Regulatory Approval, Tenant
agrees that the Premises and other improvements are in good and satisfactory
condition as of when possession was taken. Tenant further acknowledges that no
representations as to the condition or repair of the Premises nor promises to
alter, remodel or improve the Premises have been made by Landlord or any agents
of Landlord unless such are expressly set forth in this Lease. Upon Landlord's
request, Tenant shall promptly execute and return to Landlord a true and correct
"Start-Up Letter" in which Tenant shall agree, among other things, to acceptance
of the Premises, in accordance with the terms of this Lease, but Tenant's
failure or refusal to do so shall not negate Tenant's acceptance of the Premises
or affect determination of the Term Commencement Date. Tenant acknowledges that
Landlord is in the process of obtaining regulatory approvals required for the
closure or cessation of the operations of the prior tenant, Celtrix
Pharmaceuticals (the "Regulatory Approval"). As an accommodation to Tenant,
Landlord will deliver the Premises to Tenant prior to obtaining Regulatory
Approval upon the following terms and conditions: Tenant shall cooperate with
Landlord and Celtrix to allow Landlord and Celtrix to comply with all terms and
conditions of the Regulatory Approval imposed by Celtrix Pharmaceuticals,
Landlord, the City and County of Santa Clara and any and all agencies having
jurisdiction over such Regulatory Approval process, including, but not limited
to, the California Department of Health Services and shall cooperate with such
parties as reasonably requested. Nothing herein shall entitle Tenant to
terminate this Lease as a result of Landlord's failure to obtain Regulatory
Approval. Notwithstanding anything contained in this Lease to the contrary,
Landlord shall have no obligation to obtain regulatory approvals for the closure
or cessation of the operations of Comparative Biosciences, a proposed subtenant
of the Premises ("Comparative").
3. TERM
The term of this Lease (the "TERM") shall commence on the Term Commencement
Date and continue in full force and effect for the number of months specified as
the Length of Term in the Basic Lease Information or until this Lease is
terminated as otherwise provided herein. If the Term Commencement Date is a date
other than the first day of the calendar month, the Term shall be the number of
months of the Length of Term in addition to the remainder of the calendar month
following the Term Commencement Date.
<PAGE> 7
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified in the
Basic Lease Information ("PERMITTED USE") and for no other use or purpose.
Tenant shall control Tenant's employees, agents, customers, visitors, invitees,
licensees, contractors, assignees and subtenants (collectively, "TENANT'S
PARTIES") in such a manner that Tenant and Tenant's Parties cumulatively do not
exceed the parking density specified in the Basic Lease Information (the
"PARKING DENSITY") at any time. So long as Tenant is occupying the Premises,
Tenant and Tenant's Parties shall have the exclusive right to use the parking
areas, driveways and other common areas of the Premises, subject to the terms of
this Lease and such rules and regulations as Landlord may from time to time
prescribe. Landlord reserves the right, without notice or liability to Tenant,
and without the same constituting an actual or constructive eviction, to alter
or modify the common areas from time to time, including the location and
configuration thereof, and the amenities and facilities which Landlord may
determine to provide from time to time; provided, however, in the event Landlord
alters or modifies the common areas, amenities and/or facilities, Landlord shall
use reasonable efforts to avoid materially interfering with Tenant's Permitted
Use of the Premises.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas, substances,
noise or vibrations to emanate from the Premises or from any portion of the
common areas as a result of Tenant's or any Tenant's Party's use thereof, nor
take any action which would constitute a nuisance or would disturb, obstruct or
endanger any other tenants or occupants of areas near the Premises, or interfere
with their use of their respective premises or common areas. Tenant shall not
use or allow the Premises to be used for any improper or unlawful purpose, nor
shall Tenant cause or maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer the commission of any waste in, on
or about the Premises. Tenant shall not allow any sale by auction upon the
Premises, or place any loads upon the floors, walls or ceilings which could
endanger the structure, or place any harmful substances in the drainage system
of the Premises. No waste, materials or refuse shall be dumped upon or permitted
to remain outside the Premises except in trash containers placed inside exterior
enclosures designated for that purpose.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the
Premises in the condition existing as of the date of such entry. Tenant shall at
its sole cost and expense strictly comply with all existing or future applicable
municipal, state and federal and other governmental statutes, rules,
requirements, regulations, laws and ordinances, including zoning ordinances and
regulations, and covenants, easements and restrictions of record governing and
relating to the use, occupancy or possession of the Premises, to Tenant's use of
the common areas, or to the use, storage, generation or disposal of Hazardous
Materials (hereinafter defined) (collectively "REGULATIONS"), provided, however,
that Tenant shall not be responsible in any way for obtaining the Regulatory
Approval. Notwithstanding the foregoing, except if such preexisting condition is
aggravated or exacerbated by the willful affirmative act of Tenant or Tenant's
Parties, Tenant shall not be liable for any physical condition of the Premises
that exists prior to the date of execution of this Lease; provided, however,
Tenant acknowledges and agrees that it will repair water damage in the floor of
the Building due to water seepage and replace the existing roof. Tenant shall at
its sole cost and expense obtain any and all licenses or permits necessary for
Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly
comply with the requirements of any board of fire underwriters or other similar
body now or hereafter constituted. Tenant shall not do or permit anything to be
done in, on, under or about the Premises or bring or keep anything which will in
any way increase the rate of any insurance upon the Premises or upon any
contents therein or cause a cancellation of said insurance or otherwise
adversely affect said insurance in any manner. Tenant shall indemnify, defend
(by counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any loss, cost, expense, damage, attorneys' fees or
liability arising out of the failure of Tenant to comply with any Regulation.
Tenant's obligations pursuant to the foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIALS" shall
include, but not be limited to, hazardous, toxic and radioactive materials and
those substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar designations in any
Regulation.
(1) Tenant shall not cause, or allow any of Tenant's Parties to cause,
any Hazardous Materials to be handled, used, generated, stored, released
or disposed of in, on, under or
2
<PAGE> 8
about the Premises or surrounding land or environment in violation of
any Regulations. In the event Tenant elects to introduce any Hazardous
Materials onto the Premises, Tenant shall file a Hazardous Materials
Plan with the appropriate agency in compliance with any Regulation and
upon such filing, Tenant shall provide notice and a copy of such filing
to Landlord and Landlord's insurance administrator at the address set
forth in the Basic Lease Information. Notwithstanding the foregoing,
Tenant may handle, store, use and dispose of products containing small
quantities of Hazardous Materials for "general office purposes" (such as
toner for copiers) to the extent customary and necessary for the
Permitted Use of the Premises; provided that Tenant shall always handle,
store, use, and dispose of any such Hazardous Materials in a safe and
lawful manner and never allow such Hazardous Materials to contaminate
the Premises or surrounding land or environment. Tenant shall
immediately notify Landlord in writing of any Hazardous Materials'
contamination of any portion of the Premises of which Tenant becomes
aware, whether or not caused by Tenant. Landlord shall have the right at
all reasonable times to inspect the Premises and to conduct tests and
investigations to determine whether Tenant is in compliance with the
foregoing provisions, the costs of all such inspections, tests and
investigations to be borne by Tenant if and only if Tenant is required
to indemnify Landlord as hereinafter provided. Tenant shall indemnify,
defend (by counsel reasonably acceptable to Landlord), protect and hold
Landlord harmless from and against any and all claims, liabilities,
losses, costs, loss of rents, liens, damages, injuries or expenses
(including attorneys' and consultants' fees and court costs), demands,
causes of action, or judgments directly or indirectly arising out of or
related to the use, generation, storage, release, or disposal of
Hazardous Materials by Tenant or any of Tenant's Parties in, on, under
or about the Premises or surrounding land or environment, which
indemnity shall include, without limitation, damages for personal or
bodily injury, property damage, damage to the environment or natural
resources occurring on or off the Premises, losses attributable to
diminution in value or adverse effects on marketability, the cost of any
investigation, monitoring, government oversight, repair, removal,
remediation, restoration, abatement, and disposal, and the preparation
of any closure or other required plans, whether such action is required
or necessary prior to or following the expiration or earlier termination
of this Lease. Neither the consent by Landlord to the use, generation,
storage, release or disposal of Hazardous Materials nor the strict
compliance by Tenant with all laws pertaining to Hazardous Materials
shall excuse Tenant from Tenant's obligation of indemnification pursuant
to this Paragraph 4.D. Landlord shall indemnify, defend (by counsel
reasonably acceptable to Tenant), protect and hold Tenant harmless from
and against any and all claims, liabilities, losses, costs, damages,
injuries or expenses (including attorneys' and consultants' fees and
court costs), demands, causes of action, or judgments arising out of any
Hazardous Materials contamination existing prior to the date of this
Lease, excluding, however, any preexisting Hazardous Materials
contamination which is aggravated or exacerbated by a willful
affirmative act of Tenant or Tenant's Parties, to the extent of such
aggravation or exacerbation, in such case Tenant shall be obligated to
indemnify Landlord pursuant to this Section 4.D to the extent of such
aggravation or exacerbation, which indemnity shall include, without
limitation, damages for personal or bodily injury, property damage, the
cost of any investigation, monitoring, government oversight, repair,
removal, remediation, restoration, abatement, and disposal, and the
preparation of any closure or other required plans. Tenant's and
Landlord's obligations pursuant to the foregoing indemnity shall survive
the expiration or earlier termination of this Lease.
(2) Notwithstanding the provisions of sub-paragraph (1) above, Tenant
may handle, store, and use Hazardous Materials, limited to the types,
amounts, and use identified in EXHIBIT B attached hereto and made a part
hereof. Tenant hereby certifies to Landlord that the information
provided by Tenant pursuant to this Paragraph and on such Hazardous
Materials Exhibit is true, correct, and complete. Tenant covenants to
comply with the additional use restrictions, if any, shown on the
attached Hazardous Materials Exhibit. Without limiting Landlord's prior
approval rights hereunder, Tenant shall update such Hazardous Materials
Exhibit prior to bringing any new Hazardous Materials or to the Premises
or prior to substantially increasing the listed quantities. Tenant's
business and operations, and more especially its handling, storage, use
and disposal of Hazardous Materials in, on, under or about the Premises
shall at all times comply with all Regulations pertaining to Hazardous
Materials. Tenant shall secure and abide by all permits necessary for
Tenant's operations at the Premises. Tenant shall give or post all
3
<PAGE> 9
notices required by all applicable Regulations pertaining to Hazardous
Materials. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Premises of
which Tenant becomes aware, whether or not caused by Tenant. If Tenant
shall at any time fail to comply with this Paragraph, Tenant shall
immediately notify Landlord in writing of such noncompliance.
(3) Any increase in the premiums for necessary insurance on the Property
which arises from Tenant's use, placement and/or storage of Hazardous
Materials at or on the Premises shall be solely at Tenant's expense.
Tenant shall procure and maintain at its sole expense such additional
insurance as may be necessary to comply with any requirement of any
Federal, State or local governmental agency with jurisdiction over the
Premises.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with any rules and regulations
and any modifications thereto which Landlord may from time to time reasonably
prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises, provided
that such rules and regulations shall not materially interfere with Tenant's
Permitted Use and in the event of any conflict between the rules and regulations
and this Lease, the terms of the Lease shall control. Tenant shall cause
Tenant's Parties to comply with such rules and regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without
notice or demand throughout the Term, Base Rent as specified in the Basic Lease
Information, payable in monthly installments in advance on or before the first
day of each calendar month, in lawful money of the United States, without
deduction or offset whatsoever except for rent abatement specifically provided
for in this Lease,, at the Remittance Address specified in the Basic Lease
Information or to such other place as Landlord may from time to time designate
in writing. Base Rent for the first full month of the Term shall be paid by
Tenant upon Tenant's execution of this Lease. If the obligation for payment of
Base Rent commences on a day other than the first day of a month, then Base Rent
shall be prorated and the prorated installment shall be paid on the first day of
the calendar month next succeeding the Term Commencement Date. The Base Rent
payable by Tenant hereunder is subject to adjustment as provided elsewhere in
this Lease, as applicable. As used herein, the term "BASE RENT" shall mean the
Base Rent specified in the Basic Lease Information as it may be so adjusted from
time to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by
Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of
Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be
paid by Tenant under Paragraph 15, the interest and late charge described in
Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph
30 or any other sums that become due and owing to Landlord pursuant to the terms
and conditions of this Lease, shall be considered additional rent ("ADDITIONAL
RENT"). "RENT" shall mean Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid
hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate Share of
the Premises, as defined in the Basic Lease Information, of Operating Expenses
(defined below) in the manner set forth below. Landlord's determination of
Tenant's Proportionate Share of the Premises shall be conclusive so long as it
is reasonably and consistently applied. "OPERATING EXPENSES" shall mean all
expenses and costs of every kind and nature which Landlord shall pay or become
obligated to pay, because of or in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Premises and
its supporting facilities and such additional facilities now and in subsequent
years as may be determined by Landlord to be necessary or desirable to the
Premises (as determined in a reasonable manner) other than those expenses and
costs which are specifically attributable to Tenant or which are expressly made
the financial responsibility of Landlord pursuant to this Lease. Operating
Expenses shall include, but are not limited to, the following:
4
<PAGE> 10
(1) TAXES. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes
or fees, gross receipts taxes, service payments in lieu of such taxes or
fees, annual or periodic license or use fees, excises, transit charges,
and other impositions, general and special, ordinary and extraordinary,
unforeseen as well as foreseen, of any kind (including fees "in-lieu" of
any such tax or assessment) which are now or hereafter assessed, levied,
charged, confirmed, or imposed by any public authority upon the
Premises, its operations or the Rent (or any portion or component
thereof), or any tax, assessment or fee imposed in substitution,
partially or totally, of any of the above. Operating Expenses shall also
include any taxes, assessments, reassessments, or other fees or
impositions with respect to the development, leasing, management,
maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any portion thereof, including, without limitation, by or
for Tenant, and all increases therein or reassessments thereof whether
the increases or reassessments result from increased rate and/or
valuation (whether upon a transfer of the Premises or any portion
thereof or any interest therein or for any other reason). Operating
Expenses shall not include inheritance or estate taxes imposed upon or
assessed against the interest of any person in the Premises, or taxes
computed upon the basis of the net income of any owners of any interest
in the Premises. If it shall not be lawful for Tenant to reimburse
Landlord for all or any part of such taxes, the monthly rental payable
to Landlord under this Lease shall be revised to net Landlord the same
net rental after imposition of any such taxes by Landlord as would have
been payable to Landlord prior to the payment of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of
insurance paid by Landlord, including for the insurance coverage set
forth in Paragraph 8.A. herein.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of and for
the Premises and public and common areas and facilities of and
comprising the Premises, including, but not limited to, the
landscaped areas, parking and service areas, driveways,
sidewalks, truck staging areas, and any other items or areas
which affect the operation or appearance of the Premises, which
determination shall be at Landlord's reasonable discretion,
except for: those items expressly made the financial
responsibility of Landlord pursuant to Paragraph 10 hereof and
those items to the extent paid for by the proceeds of insurance.
(b) Repairs, replacements, and general maintenance shall include
the cost of any capital improvements made to or capital assets
acquired for the Premises that in Landlord's discretion may
reduce any other Operating Expenses, including present or future
repair work, are reasonably necessary for the health and safety
of the occupants of the Premises, or are required to comply with
any Regulation, such costs or allocable portions thereof to be
amortized over such reasonable period as Landlord shall
determine, which shall be substantially in compliance with
generally accepted accounting principles, together with interest
on the unamortized balance at the publicly announced "prime
rate" charged by Wells Fargo Bank, N.A. (San Francisco) or its
successor at the time such improvements or capital assets are
constructed or acquired, plus two (2) percentage points, or in
the absence of such prime rate, then at the U.S. Treasury
six-month market note (or bond, if so designated) rate as
published by any national financial publication selected by
Landlord, plus four (4) percentage points, but in no event more
than the maximum rate permitted by law, plus reasonable
financing charges.
(c) Payment under or for any easement, license, permit,
operating agreement, declaration, restrictive covenant or
instrument relating to the Premises.
(d) All expenses and rental related to services and costs of
supplies, materials and equipment used in operating, managing
and maintaining the Premises, the equipment therein and the
adjacent sidewalks, driveways, parking and service areas,
including, without limitation, expenses related to service
agreements regarding security, fire and other alarm systems,
janitorial services to the extent not addressed in Paragraph 11
hereof, window cleaning, elevator maintenance, Premises exterior
maintenance, landscaping and expenses related to the
5
<PAGE> 11
administration, management and operation of the Premises,
including without limitation salaries, wages and benefits and
management office rent.
(e) The cost of supplying any services and utilities which
benefit all or a portion of the Premises to the extent not
addressed in Paragraph 15 hereof.
(f) Legal expenses and the cost of audits by certified public
accountants.
(g) A management fee equal to two and one-half percent (2 1/2%)
of the Base Rent.
Operating Expenses shall not include except to the extent specifically provided
in Paragraph 7(a)(1)-(3) above,
(a) The initial construction cost of the Premises;
(b) Debt service on any mortgage or deed of trust recorded with
respect to the Premises;
(c) Costs of capital improvements, replacements or equipment and
any amortization expenses thereon;
(d) Costs incurred by Landlord for the repair of damage to the
Premises, to the extent that Landlord is reimbursed by insurance
proceeds;
(e) Marketing costs, including leasing commissions, attorneys'
fees in connection with disputes with tenants (including Tenant)
or with the negotiation and preparation or enforcement of
letters, deal memos, letters of intent, leases, subleases and/or
assignments, space planning costs, and other costs and expenses
incurred in connection with lease, sublease and/or assignment
negotiations and transactions with prospective tenants or other
occupants of the Building or the Premises;
(f) Costs incurred by Landlord due to the violation by Landlord
of the terms and conditions of any lease of space in the
Building or the Premises;
(g) Interest, principal, points and fees on debt or amortization
payments on any mortgage or deed of trust or any other debt
instrument encumbering the Premises or the land on which the
Premises is situated;
(g) Advertising and promotional expenditures;
(i) Costs incurred in connection with upgrading the Premises to
comply with disability, life, fire and safety codes in effect
prior to the issuance of the temporary certificate of occupancy
for the Building;
(j) Interest, fines or penalties incurred as a result of a
violation of law by Landlord or Landlord's failure to make
payments when due unless such failure is commercially reasonable
under the circumstances;
(k) Costs for acquisition of sculpture, paintings or other
objects of art in common areas;
(l) The depreciation of the real property structures in the
Premises;
(m) Landlord's general corporate overhead and general
administrative expenses not related to the operation of the
Premises; and
(n) Any bad debt loss, rent loss or reserves for bad debts or
rent loss, or reserves for equipment or capital replacement.
(o) Costs incurred by Landlord for remediation of Hazardous
Materials existing on the Premises prior to the date of this
Lease.
The above enumeration of services and facilities shall not be deemed to impose
an obligation on Landlord to make available or provide such services or
facilities except to the extent if any that
6
<PAGE> 12
Landlord has specifically agreed elsewhere in this Lease to make the same
available or provide the same. Without limiting the generality of the foregoing,
Tenant acknowledges and agrees that it shall be responsible for providing
adequate security for its use of the Premises and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING EXPENSES" for
any particular year shall mean Landlord's estimate of the Operating Expenses for
such fiscal year made with respect to such fiscal year as hereinafter provided.
Landlord shall have the right from time to time to revise its fiscal year and
interim accounting periods so long as the periods as so revised are reconciled
with prior periods in a reasonable manner. During the last month of each fiscal
year during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the Estimated Operating
Expenses with installments of Base Rent for the fiscal year to which the
Estimated Operating Expenses applies in monthly installments on the first day of
each calendar month during such year, in advance. Such payment shall be
construed to be Additional Rent for all purposes hereunder. If at any time
during the course of the fiscal year, Landlord determines that Operating
Expenses are projected to vary from the then Estimated Operating Expenses by
more than five percent (5%), Landlord may, by written notice to Tenant, revise
the Estimated Operating Expenses for the balance of such fiscal year, and
Tenant's monthly installments for the remainder of such year shall be adjusted
so that by the end of such fiscal year Tenant has paid to Landlord Tenant's
Proportionate Share of the revised Estimated Operating Expenses for such year,
such revised installment amounts to be Additional Rent for all purposes
hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE ADJUSTMENT"
shall mean the difference between Estimated Operating Expenses and actual
Operating Expenses for any fiscal year determined as hereinafter provided.
Within ninety (90) days after the end of each fiscal year, or as soon thereafter
as practicable, Landlord shall deliver to Tenant a statement of actual Operating
Expenses for the fiscal year just ended, accompanied by a computation of
Operating Expense Adjustment. If such statement shows that Tenant's payment
based upon Estimated Operating Expenses is less than Tenant's Proportionate
Share of Operating Expenses, then Tenant shall pay to Landlord the difference
within twenty (20) days after receipt of such statement, such payment to
constitute Additional Rent for all purposes hereunder. If such statement shows
that Tenant's payments of Estimated Operating Expenses exceed Tenant's
Proportionate Share of Operating Expenses, then (provided that Tenant is not in
default beyond any applicable cure period under this Lease) Landlord shall pay
to Tenant the difference within twenty (20) days after delivery of such
statement to Tenant. If this Lease has been terminated or the Term hereof has
expired prior to the date of such statement, then the Operating Expense
Adjustment shall be paid by the appropriate party within twenty (20) days after
the date of delivery of the statement. Should this Lease commence or terminate
at any time other than the first day of the fiscal year, Tenant's Proportionate
Share of the Operating Expense Adjustment shall be prorated based on a month of
thirty (30) days and the number of calendar months during such fiscal year that
this Lease is in effect. Notwithstanding anything to the contrary contained in
Paragraph 7.A or 7.B, Landlord's failure to provide any notices or statements
within the time periods specified in those paragraphs shall in no way excuse
Tenant from its obligation to pay Tenant's Proportionate Share of Operating
Expenses.
D. NET LEASE. This shall be a triple net Lease and Base Rent shall be paid to
Landlord absolutely net of all costs and expenses, except as specifically
provided to the contrary in this Lease. The provisions for payment of Operating
Expenses and the Operating Expense Adjustment are intended to pass on to Tenant
and reimburse Landlord for all costs and expenses of the nature described in
Paragraph 7.A. incurred in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Premises and
its supporting facilities and such additional facilities now and in subsequent
years as may be determined by Landlord to be necessary or desirable to the
Premises.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any statement
provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the
right, not later than sixty (60) days following receipt of such statement and
upon the condition that Tenant shall first deposit with Landlord the full amount
in dispute, to cause Landlord's books and records with respect to Operating
Expenses for such fiscal year to be audited by certified public accountants
selected by Tenant and subject to Landlord's reasonable right of approval. The
Operating
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Expense Adjustment shall be appropriately adjusted on the basis of such audit.
If such audit discloses a liability for a refund in excess of five percent (5%)
of Tenant's Proportionate Share of the Operating Expenses previously reported,
the cost of such audit shall be borne by Landlord; otherwise the cost of such
audit shall be paid by Tenant. If Tenant shall not request an audit in
accordance with the provisions of this Paragraph 7.E. within twenty (20) days
after receipt of Landlord's statement provided pursuant to Paragraph 7.B. or
7.C., such statement shall be final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the
sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance
insuring the Premises (excluding, however, the Initial Tenant
Improvements and any Alterations owned by Tenant, which however, shall
be insured by Tenant) ("LANDLORD'S PROPERTY INSURANCE") against damage
or destruction due to risk including fire, vandalism, and malicious
mischief in an amount not less than the replacement cost thereof, in the
form and with deductibles and endorsements as selected by Landlord. At
its election, Landlord may instead (but shall have no obligation to)
obtain "All Risk" coverage, and may also obtain earthquake, pollution,
and/or flood insurance in amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord shall carry insurance against loss of
rent, in an amount equal to the amount of Base Rent and Additional Rent
that Landlord could be required to abate to Tenant in the event of
condemnation or casualty damage for a period of twelve (12) months;
provided, however, Landlord shall have the right, in its sole and
absolute discretion, to terminate insurance coverage against loss of
rent by providing Tenant fifteen (15) days written notice and upon
receipt of such notice by Tenant, Tenant shall immediately maintain such
insurance. Landlord may also (but shall have no obligation to) carry
such other insurance as Landlord may deem prudent or advisable,
including, without limitation, liability insurance in such amounts and
on such terms as Landlord shall determine. Landlord shall not be
obligated to insure, and shall have no responsibility whatsoever for any
damage to, any furniture, machinery, goods, inventory or supplies, or
other personal property or fixtures which Tenant may keep or maintain in
the Premises, or any leasehold improvements, additions or alterations
within the Premises.
B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant agrees to maintain property insurance
insuring the Initial Tenant Improvements and any Alterations owned by
Tenant against damage or destruction due to risk including fire,
vandalism, and malicious mischief in an amount not less than the
replacement cost thereof ("TENANT'S PROPERTY INSURANCE"). Tenant shall
procure at Tenant's sole cost and expense and keep in effect from the
date of this Lease and at all times until the end of the Term, insurance
on all personal property and fixtures of Tenant and all improvements,
additions or alterations made by or for Tenant to the Premises on an
"All Risk" basis, insuring such property for the full replacement value
of such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term Commercial General Liability insurance
covering bodily injury and property damage liability occurring in or
about the Premises or arising out of the use and occupancy of the
Premises, and any part of either, and any areas adjacent thereto, and
the business operated by Tenant or by any other occupant of the
Premises. Such insurance shall include contractual liability coverage
insuring all of Tenant's indemnity obligations under this Lease. Such
coverage shall have a minimum combined single limit of liability of at
least Two Million Dollars ($2,000,000.00), and a minimum general
aggregate limit of Three Million Dollars ($3,000,000.00), with an
"Additional Insured - Managers or Lessors of Premises Endorsement" and
the "Amendment of the Pollution Exclusion Endorsement." All such
policies shall be written to apply to all bodily injury (including
death), property damage or loss, personal and advertising injury and
other covered loss, however occasioned, occurring during the policy
term, shall be endorsed to add Landlord and any party holding an
interest to which this Lease may be subordinated as an additional
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insured, and shall provide that such coverage shall be "PRIMARY" and
non-contributing with any insurance maintained by Landlord, which shall
be excess insurance only. Such coverage shall also contain endorsements
including employees as additional insureds if not covered by Tenant's
Commercial General Liability Insurance. All such insurance shall provide
for the severability of interests of insureds; and shall be written on
an "OCCURRENCE" basis, which shall afford coverage for all claims based
on acts, omissions, injury and damage, which occurred or arose (or the
onset of which occurred or arose) in whole or in part during the policy
period, provided, however, that the insurance may be written on a
"CLAIMS MADE" basis if a) such claims-made policy has a retroactive date
that precedes the commencement of this Lease, and b) Tenant purchases an
extended reporting period of at least one year if, within the term of
the Lease or three (3) years thereafter, such claims-made policy is
canceled or non-renewed and not replaced with a policy having the same
or an earlier retroactive date.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant
shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not
less than One Million Dollars ($1,000,000) each accident for bodily
injury by accident; One Million Dollars ($1,000,000) policy limit for
bodily injury by disease; and One Million Dollars ($1,000,000) each
employee for bodily injury by disease, throughout the Term at Tenant's
sole cost and expense.
(4) COMMERCIAL AUTO LIABILITY INSURANCE. Tenant shall procure at
Tenant's sole cost and expense and keep in effect from the date of this
Lease and at all times until the end of the Term commercial auto
liability insurance with a combined limit of not less than One Million
Dollars ($1,000,000) for bodily injury and property damage for each
accident. Such insurance shall cover liability relating to any auto
(including owned, hired and non-owned autos).
(5) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty
(30) days' notice of cancellation or change in terms; and (ii) waive all
rights of subrogation by the insurance carrier against Landlord. If at
any time during the Term the amount or coverage of insurance which
Tenant is required to carry under this Paragraph 8.B. is, in Landlord's
reasonable judgment, materially less than the amount or type of
insurance coverage typically carried by owners or tenants of properties
located in the general area in which the Premises are located which are
similar to and operated for similar purposes as the Premises or if
Tenant's use of the Premises should change with or without Landlord's
consent, Landlord shall have the right to require Tenant to increase the
amount or change the types of insurance coverage required under this
Paragraph 8.B. All insurance policies required to be carried by Tenant
under this Lease shall be written by companies rated A IX or better in
"Best's Insurance Guide" and authorized to do business in the State of
California. In any event deductible amounts under all insurance policies
required to be carried by Tenant under this Lease shall not exceed Five
Thousand Dollars ($5,000.00) per occurrence. Tenant shall deliver to
Landlord on or before the Term Commencement Date, and thereafter at
least thirty (30) days before the expiration dates of the expired
policies, certified copies of Tenant's insurance policies, or a
certificate evidencing the same issued by the insurer thereunder; and,
if Tenant shall fail to procure such insurance, or to deliver such
policies or certificates, Landlord may, at Landlord's option and in
addition to Landlord's other remedies in the event of a default by
Tenant hereunder, procure the same for the account of Tenant, and the
cost thereof shall be paid to Landlord as Additional Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action, or judgments, directly or indirectly
arising out of or related to: (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or indirectly from the use or
occupancy of the Premises by Tenant or Tenant's Parties, or from activities or
failures to act of Tenant or Tenant's Parties; (2) claims arising from work or
labor performed, or for materials or supplies furnished to or at the request of
Tenant in connection with performance of any work done for the account of Tenant
within the Premises; (3) claims arising from any breach or default on the part
of Tenant
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in the performance of any covenant contained in this Lease; and (4) claims
arising from the negligence or intentional acts or omissions of Tenant or
Tenant's Parties. The foregoing indemnity by Tenant shall not be applicable to
claims to the extent arising from the gross negligence or willful misconduct of
Landlord. Landlord shall not be liable to Tenant and Tenant hereby waives all
claims against Landlord for any injury or damage to any person or property in or
about the Premises by or from any cause whatsoever (other than Landlord's sole
and active negligence, willful misconduct or Landlord's breach of this Lease)
and, without limiting the generality of the foregoing, whether caused by water
leakage of any character from the roof, walls, basement or other portion of the
Premises, or caused by gas, fire, oil or electricity in, on or about the
Premises. The provisions of this Paragraph shall survive the expiration or
earlier termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage provided
by insurance to be maintained hereunder or any other rights or remedies,
Landlord and Tenant each waive any right to recover against the other for: (a)
damages for injury to or death of persons; (b) damages to property, including
personal property; (c) damages to the Premises or any part thereof; and (d)
claims arising by reason of the foregoing due to hazards covered by insurance
maintained or required to be maintained pursuant to this Lease to the extent of
proceeds recovered therefrom, or proceeds which would have been recoverable
therefrom in the case of the failure of any party to maintain any insurance
coverage required to be maintained by such party pursuant to this Lease. This
provision is intended to waive fully, any rights and/or claims arising by reason
of the foregoing, but only to the extent that any of the foregoing damages
and/or claims referred to above are covered or would be covered, and only to the
extent of such coverage, by insurance actually carried or required to be
maintained pursuant to this Lease by either Landlord or Tenant. This provision
is also intended to waive fully, and for the benefit of each party, any rights
and/or claims which might give rise to a right of subrogation on any insurance
carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its
rights as specified in this Paragraph 9 with respect to any subtenant that it
has approved pursuant to Paragraph 21 but only in exchange for the written
waiver of such rights to be given by such subtenant to Landlord upon such
subtenant taking possession of the Premises or a portion thereof. Each party
shall cause each insurance policy obtained by it to provide that the insurance
company waives all right of recovery by way of subrogation against either party
in connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair, reasonable
wear and tear excepted, the structural soundness of the roof, foundations, and
exterior walls of the Premises. The term "exterior walls" as used herein shall
not include windows, glass or plate glass, doors, dock bumpers or dock plates,
special store fronts or office entries. Landlord shall maintain in good repair,
reasonable wear and tear excepted, the common areas and the costs of such
maintenance shall constitute an Operating Expense pursuant to Paragraph 7 above.
Any damage caused by or repairs necessitated by any negligence or act of Tenant
or Tenant's Parties may be repaired by Landlord at Landlord's option and
Tenant's expense. Tenant shall immediately give Landlord written notice of any
defect or need of repairs in such components of the Premises for which Landlord
is responsible, after which Landlord shall have a reasonable opportunity and the
right to enter the Premises at all reasonable times to repair same. Landlord's
liability with respect to any defects, repairs, or maintenance for which
Landlord is responsible under any of the provisions of this Lease shall be
limited to the cost of such repairs or maintenance, and there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of repairs,
alterations or improvements in or to any portion of the Premises or to fixtures,
appurtenances or equipment in the Premises, except as provided in Paragraph 24.
By taking possession of the Premises, Tenant accepts them "as is," as being in
good order, condition and repair and the condition in which Landlord is
obligated to deliver them and suitable for the Permitted Use and Tenant's
intended operations in the Premises, whether or not any notice of acceptance is
given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all
parts of the Premises (except for those parts for which Landlord is responsible
under Paragraph 10 above) in a good, clean and secure condition and promptly
make all necessary repairs and replacements, as reasonably determined by
Landlord, including but not limited to, all windows, glass, doors,
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walls, including demising walls, and wall finishes, floors and floor covering,
the roof and roof membrane, heating, ventilating and air conditioning systems,
ceiling insulation, truck doors, hardware, dock bumpers, dock plates and
levelers, plumbing work and fixtures, downspouts, entries, skylights, smoke
hatches, roof vents, electrical, mechanical, lighting or other systems, fire
sprinklers and fire sprinkler systems, mechanical rooms, alarm systems, pest
extermination, sanitary and storm sewer lines, utility services, telephone
equipment and wiring service, lighting, and any other items or areas which
affect the operation of appearance of the Premises, with materials and
workmanship of the same character, kind and quality as the original. Tenant
shall at Tenant's expense also perform regular removal of trash and debris. If
Tenant uses rail and if required by the railroad company, Tenant agrees to sign
a joint maintenance agreement governing the use of the rail spur, if any. Tenant
shall, at Tenant's own expense, enter into a regularly scheduled preventative
maintenance/service contract with a reputable, licensed maintenance contractor
for servicing all hot water, heating and air conditioning systems and equipment
within or serving the Premises. The service contract must include all services
suggested by the equipment manufacturer within the operation/maintenance manual
and must become effective and a copy thereof delivered to Landlord within thirty
(30) days after the Term Commencement Date. If Tenant is in default (after
notice and expiration of applicable cure period, if any), Landlord may, upon
notice to Tenant, enter into such a service contract on behalf of Tenant or
perform the work and in either case charge Tenant the cost thereof along with a
reasonable amount for Landlord's overhead. Notwithstanding anything to the
contrary contained herein, Tenant shall, at its expense, promptly repair any
damage to the Premises resulting from or caused by any negligence or act of
Tenant or Tenant's Parties. Nothing herein shall expressly or by implication
render Tenant Landlord's agent or contractor to effect any repairs or
maintenance required of Tenant under this Paragraph 11, as to all of which
Tenant shall be solely responsible.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed with respect to proposed
Alterations which: (a) comply with all applicable Regulations (including,
without limitation, the Americans With Disabilities Act) and (b) are, in
Landlord's opinion, compatible with the Premises and its mechanical, plumbing,
electrical, and heating/ventilation/air conditioning systems. Specifically, but
without limiting the generality of the foregoing, Landlord shall have the right
of written consent for all plans and specifications for the proposed
Alterations, construction means and methods, all appropriate permits and
licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work, and may impose rules and
regulations for contractors and subcontractors performing such work. Tenant
shall also supply to Landlord any documents and information reasonably requested
by Landlord in connection with Landlord's consideration of a request for
approval hereunder. Tenant shall cause all Alterations to be accomplished in a
good and workmanlike manner, and to comply with all applicable Regulations and
Paragraph 27 hereof. Tenant shall at Tenant's sole expense, perform any
additional work required under applicable Regulations (including, without
limitation, the Americans With Disabilities Act) due to the Alterations
hereunder. No review or consent by Landlord of or to any proposed Alteration or
additional work shall constitute a waiver of Tenant's obligations under this
Paragraph 12. Tenant shall reimburse Landlord for all costs which Landlord may
incur in connection with granting approval to Tenant for any such Alterations,
including any costs or expenses which Landlord may incur in electing to have
outside architects and engineers review said plans and specifications, provided
that in no event shall Tenant's reimbursement obligation exceed Five Hundred
Dollars ($500) per request for expenses incurred by Landlord in connection with
Landlord's consent to an Alteration. Except as provided in Section 24 to the
contrary, all such Alterations shall remain the property of Tenant, until the
expiration or earlier termination of this Lease, at which time they shall be and
become the property of Landlord; provided, however, that concurrently with
Tenant's written request for Landlord's consent to any Alteration pursuant to
this Paragraph 12, Tenant may request from Landlord a written statement as to
whether Landlord will require Tenant to remove such Alteration at the expiration
or earlier termination of this Lease. Landlord may, at Landlord's option,
require that Tenant, at Tenant's expense, remove any or all Alterations made by
Tenant and restore the Premises by the expiration or earlier termination of this
Lease, to their condition existing prior to the construction of any such
Alterations. All such removals and restoration shall be accomplished in a
first-class and good and workmanlike manner so as not to cause any damage to the
Premises whatsoever. If Tenant fails to remove
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such Alterations or Tenant's trade fixtures or furniture or other personal
property, Landlord may keep and use them or remove any of them and cause them to
be stored or sold in accordance with applicable law, at Tenant's sole expense.
If Landlord fails to respond to Tenant's written request as to whether the
Alteration must be removed at the expiration or earlier termination of the Lease
within fifteen (15) days or Tenant fails to request a written statement from
Landlord, Tenant shall be obligated to remove the Alteration upon the expiration
of earlier termination of this Lease. In addition to and wholly apart from
Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses,
Tenant shall be responsible for and shall pay prior to delinquency any taxes or
governmental service fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other charges imposed upon, levied with
respect to or assessed against its fixtures or personal property, on the value
of Alterations within the Premises, and on Tenant's interest pursuant to this
Lease, or any increase in any of the foregoing based on such Alterations. To the
extent that any such taxes are not separately assessed or billed to Tenant,
Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
Notwithstanding the foregoing, Tenant shall have the right, without consent of,
but upon at least ten (10) business days' prior written notice (as provided
under Paragraph 12.B below) to, Landlord, to make non-structural, Alterations
within the interior of the Premises (and which are not visible from the outside
of the Premises), which do not impair the value of the Premises, and which cost,
in the aggregate, less than Fifty Thousand Dollars ($50,000.00) in any twelve
(12) month period during the Term of this Lease, provided that such Alterations
shall nevertheless be subject to all of the remaining requirements of this
Paragraph 12, including without limitation, subparagraphs (a) and (b) above and
the requirement that Tenant seek a written determination from Landlord as to
whether such Alteration must be removed at the expiration or earlier termination
of the Lease, other than the requirement of Landlord's prior consent. In
addition, all Alterations shall be performed by duly licensed contractors or
subcontractors reasonably acceptable to Landlord, proof of insurance shall be
submitted to Landlord as required under Paragraph 8.B above, and Landlord
reserves the right to impose reasonable rules and regulations for contractors
and subcontractors. Tenant shall, if requested by Landlord, promptly furnish
Landlord with complete as-built plans and specifications for any Alterations
performed by Tenant to the Premises, at Tenant's sole cost and expense. Tenant
may finance Alterations and encumber them and its leasehold interest hereunder
with a first priority security interest in the leasehold interest, including,
but not limited to, the Alterations constructed thereon, so long as any
financing or encumbering by Tenant of its Alterations, including, without
limitation, Tenant's Improvements shall be subject to the terms and conditions
of this Lease and the rights of any mortgagee of Landlord, Tenant's lender shall
have executed Landlord's Disclaimer and Consent substantially in the form of
EXHIBIT F attached hereto and made a part hereof, and at the expiration or
earlier termination of this Lease any Alterations remaining on the Premises are
free and clear of any liens. Landlord and Tenant shall reasonably cooperate with
the other party's lender to effectuate such financing at no cost to the other
party.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the Santa Clara County Recorder's office.
C. Notwithstanding anything contained in Sections 12.A and B to the contrary,
Tenant shall construct those certain tenant improvements (the "INITIAL TENANT
IMPROVEMENTS") described on and in accordance with EXHIBIT C attached hereto and
made a part hereof. Except for the Additional Space which shall be removed upon
the expiration or earlier termination of this Lease and in accordance with the
removal and restoration requirements hereinafter set forth in this Section 12.C,
upon the expiration or earlier termination of this Lease, Tenant shall not be
obligated to remove the Initial Tenant Improvements from the Premises. Upon the
expiration or earlier termination of this Lease, Tenant, at Tenant's expense,
shall remove Tenant's personal property and trade fixtures, a copy of such list
is attached hereto as EXHIBIT D ("TENANT'S PERSONAL PROPERTY"), and restore the
Premises to its condition as of the date of this Lease, normal wear and tear
excepted. All such removals and restoration shall be accomplished in a
first-class and good and workmanlike manner so as not to cause any damage to the
Premises whatsoever except that which Tenant can and does repair. If Tenant
fails to remove Tenant's Personal Property, Landlord may keep and use Tenant's
Personal Property or remove any of Tenant's Personal Property and cause Tenant's
Personal Property to be stored or sold in accordance with applicable law, at
Tenant's sole expense.
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13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs, notices,
graphics or banners whatsoever or any window decor which is visible in or from
public view or corridors, the common areas or the exterior of the Premises, in
or on any exterior window or window fronting upon any common areas or service
area or upon any truck doors or man doors without Landlord's prior written
approval which Landlord shall have the right to withhold in its absolute and
sole discretion; provided that Tenant's name shall be included in any
Premises-standard door and directory signage, if any, in accordance with
Landlord's signage program, including without limitation, payment by Tenant of
any fee charged by Landlord for maintaining such signage, which fee shall
constitute Additional Rent hereunder. Any installation of signs, notices,
graphics or banners on or about the Premises approved by Landlord shall be
subject to any Regulations and to any other requirements imposed by Landlord.
Tenant shall remove all such signs or graphics by the expiration or any earlier
termination of this Lease. Such installations and removals shall be made in such
manner as to avoid injury to or defacement of the Premises and any other
improvements contained therein, and Tenant shall repair any injury or defacement
including without limitation discoloration caused by such installation or
removal. Notwithstanding the foregoing, Tenant shall be entitled to use the two
(2) existing podiums to affix signs subject to any Regulations and the consent
of Landlord which shall not be unreasonably withheld, conditioned or delayed.
14. INSPECTION/POSTING NOTICES
Subject to Tenant's reasonable security requirements and the requirements of
Good Manufacturing Practice, after reasonable notice, except in emergencies
where no such notice shall be required, Landlord and Landlord's agents and
representatives, shall have the right to enter the Premises to inspect the same,
to clean, to perform such work as may be permitted or required hereunder, to
make repairs to the portion of the Premises, common areas or the exterior of the
Building for which Landlord is responsible, construct improvements or perform
alterations to the exterior of the Premises, to deal with emergencies, to post
such notices as may be permitted or required by law to prevent the perfection of
liens against Landlord's interest in the Premises or to exhibit the Premises to
prospective tenants, purchasers, encumbrancers or to others, or for any other
purpose as Landlord may deem reasonably necessary; provided, however, that
Landlord shall comply with Tenant's established procedures for entry and shall
use reasonable efforts not to unreasonably interfere with Tenant's business
operations. Tenant shall not be entitled to any abatement of Rent by reason of
the exercise of any such right of entry. Provided Landlord has materially
complied with the provisions of this Section 14, Tenant waives any claim for
damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby unless caused by Landlord's sole and active
negligence or willful misconduct. Landlord shall have the right to use any and
all means which Landlord may deem necessary or proper to open said doors in an
emergency, in order to obtain entry to any portion of the Premises, and any
entry to the Premises or portions thereof obtained by Landlord by any of said
means, or otherwise, shall not be construed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction, actual or constructive, of
Tenant from the Premises or any portions thereof. At any time within six (6)
months prior to the expiration of the Term or following any earlier termination
of this Lease or agreement to terminate this Lease, Landlord shall have the
right to erect on the Premises a suitable sign indicating that the Premises are
available for lease.
15. SERVICES AND UTILITIES
A. Tenant shall pay directly for all water, gas, heat, air conditioning, light,
power, telephone, sewer, sprinkler charges and other utilities and services used
on or from the Premises, together with any taxes, penalties, surcharges or the
like pertaining thereto, and maintenance charges for utilities and shall furnish
all electric light bulbs, ballasts and tubes. All sums payable under this
Paragraph 15 shall constitute Additional Rent hereunder.
B. Tenant acknowledges that Tenant has inspected and accepts the water,
electricity, heat and air conditioning and other utilities and services being
supplied or furnished to the Premises as of the date Tenant takes possession of
the Premises, if any, as being sufficient in their present condition, "as is,"
for the Permitted Use, and for Tenant's intended operations in the Premises.
C. Landlord shall not be liable for any damages directly or indirectly resulting
from nor shall the Rent or any monies owed Landlord under this Lease herein
reserved be abated by reason of:
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(a) the installation, use or interruption of use of any equipment used in
connection with the furnishing of any such utilities or services, or any change
in the character or means of supplying or providing any such utilities or
services or any supplier thereof; (b) the failure to furnish or delay in
furnishing any such utilities or services when such failure or delay is caused
by acts of God or the elements, labor disturbances of any character, or any
other accidents or other conditions beyond the reasonable control of Landlord or
because of any interruption of service due to Tenant's use of water, electric
current or other resource in excess of that being supplied or furnished for the
use of the Premises as of the date Tenant takes possession of the Premises; or
(c) the inadequacy, limitation, curtailment, rationing or restriction on use of
water, electricity, gas or any other form of energy or any other service or
utility whatsoever serving the Premises otherwise; or (d) the partial or total
unavailability of any such utilities or services to the Premises, whether by
Regulation or otherwise; nor shall any such occurrence constitute an actual or
constructive eviction of Tenant. Landlord shall further have no obligation to
protect or preserve any apparatus, equipment or device installed by Tenant in
the Premises, including without limitation by providing additional or
after-hours heating or air conditioning. Tenant may, but shall not be obligated
to, upon notice to Landlord, contract with or otherwise obtain any electrical or
other such service for or with respect to the Premises or Tenant's operations
therein from any supplier or provider of any such service. In the event Tenant
elects to obtain any electrical or other service, Tenant shall be solely
responsible for any installing, maintaining, repairing, replacing or upgrading
such service or any equipment or machinery associated therewith.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises are situated, or both; and (b)
any mortgage or deed of trust which may now exist or be placed upon the Premises
and/or the land upon which the Premises are situated, or said ground leases or
underlying leases, or Landlord's interest or estate in any of said items which
is specified as security. Notwithstanding the foregoing, Landlord shall have the
right to subordinate or cause to be subordinated any such ground leases or
underlying leases or any such liens to this Lease. If any ground lease or
underlying lease terminates for any reason or any mortgage or deed of trust is
foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant
shall, notwithstanding any subordination, attorn to and become the Tenant of the
successor in interest to Landlord provided that Tenant shall not be disturbed in
its possession under this Lease by such successor in interest so long as Tenant
is not in default under this Lease. Within ten (10) days after request by
Landlord, Tenant shall execute and deliver any additional documents evidencing
Tenant's attornment or the subordination of this Lease with respect to any such
ground leases or underlying leases or any such mortgage or deed of trust, in the
form requested by Landlord or by any ground landlord, mortgagee, or beneficiary
under a deed of trust, subject to such nondisturbance requirement. In the event
this Lease shall be subject to the prior rights of any mortgagee or ground
lessor, then Landlord shall secure from such mortgagee or ground lessor an
agreement in writing whereby Tenant, so long as Tenant is not in default
hereunder, may remain in possession of the Premises pursuant to the terms hereof
and without any diminution of Tenant's rights should Landlord become in default
with respect to such mortgage or ground lease or should the Premises become the
subject of any action to foreclose any mortgage or to dispossess Landlord. Such
agreement would provide, among other things, that the new owner following any
foreclosure, sale or conveyance shall not be (i) liable for any act or omission
of any prior landlord or with respect to events occurring prior to acquisition
of ownership; (ii) subject to any offsets or defenses which Tenant might have
against any prior landlord; (iii) bound by prepayment of more than one (1)
month's Rent; or (iv) liable to Tenant for any security deposit not actually
received by such new owner. Each ground landlord, mortgagee, or beneficiary
under a deed of trust shall be an express third party beneficiary of the
provisions of this Paragraph 16 and any other provisions of this Lease that are
for the benefit of such party.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to Landlord
Tenant's then existing financial statements or other information discussing
financial worth of Tenant and any guarantor, which Landlord shall use solely for
purposes of this Lease and in connection with the ownership, management,
financing and disposition of the Premises.
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18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of Landlord,
to deliver to Landlord, or Landlord's designee, an estoppel certificate stating
that this Lease is in full force and effect, that this Lease has not been
modified (or stating all modifications, written or oral, to this Lease), the
date to which Rent has been paid, the unexpired portion of this Lease, that
there are no current defaults by Landlord or Tenant under this Lease (or
specifying any such defaults), that the leasehold estate granted by this Lease
is the sole interest of Tenant in the Premises and/or the land at which the
Premises are situated, and such other matters pertaining to this Lease as may be
reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or
prospective purchaser of the Premises or any interest therein. Landlord agrees
from time to time, within ten (10) days after request of Tenant, to deliver to
Tenant, or Tenant's designee, an estoppel certificate stating that this Lease is
in full force and effect, that this Lease has not been modified (or stating all
modifications, written or oral, to this Lease), to Landlord's knowledge the date
to which Rent has been paid, the unexpired portion of this Lease, that to
Landlord's knowledge there are no current defaults by Landlord or Tenant under
this Lease (or specifying any such defaults), that the leasehold estate granted
by this Lease is the sole interest of Tenant in the Premises and/or the land at
which the Premises are situated. Failure by Tenant to execute and deliver such
certificate shall constitute an acceptance of the Premises and acknowledgment by
Tenant that the statements included are true and correct without exception.
Tenant agrees that if Tenant fails to execute and deliver such certificate
within such ten (10) day period, Landlord may execute and deliver such
certificate on Tenant's behalf and that such certificate shall be binding on
Tenant. Landlord and Tenant intend that any statement delivered pursuant to this
Paragraph may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Premises or any interest therein. The parties agree
that Tenant's obligation to furnish such estoppel certificates in a timely
fashion is a material inducement for Landlord's execution of this Lease, and
shall be an event of default (without any cure period that might be provided
under Paragraph 26.A(3) of this Lease) if Tenant fails to fully comply or makes
any material misstatement in any such certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a security
deposit as stated in the Basic Lease Information (the "SECURITY DEPOSIT"), which
sum shall be held and owned by Landlord, without obligation to pay interest, as
security for the performance of Tenant's covenants and obligations under this
Lease. The Security Deposit is not an advance rental deposit or a measure of
damages incurred by Landlord in case of Tenant's default. Upon the occurrence of
any event of default by Tenant, Landlord may from time to time, without
prejudice to any other remedy provided herein or by law, use such fund as a
credit to the extent necessary to credit against any arrears of Rent or other
payments due to Landlord hereunder, and any other damage, injury, expense or
liability caused by such event of default, and Tenant shall pay to Landlord, on
demand, the amount so applied in order to restore the Security Deposit to its
original amount. Although the Security Deposit shall be deemed the property of
Landlord, any remaining balance of such deposit shall be returned by Landlord to
Tenant at such time after termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled, reduced by such amounts as may
be required by Landlord to remedy defaults on the part of Tenant in the payment
of Rent or other obligations of Tenant under this Lease, to repair damage to the
Premises caused by Tenant or any Tenant's Parties and to clean the Premises.
Landlord may use and commingle the Security Deposit with other funds of
Landlord.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease are not personal obligations of Landlord or of the
individual or other partners of Landlord or its or their partners, directors,
officers, or shareholders, and Tenant agrees to look solely to Landlord's
interest in the Premises for the recovery of any amount from Landlord, and shall
not look to other assets of Landlord nor seek recourse against the assets of the
individual or other partners of Landlord or its or their partners, directors,
officers or shareholders. Any lien obtained to enforce any such judgment and any
levy of execution thereon shall be subject and subordinate to any lien, mortgage
or deed of trust on the Premises. Under no circumstances shall Tenant have the
right to offset against or recoup Rent or other payments due and to become due
to Landlord hereunder except as expressly provided in Paragraph 23.B. below,
which Rent and
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other payments shall be absolutely due and payable hereunder in accordance with
the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. Tenant shall not assign or pledge this Lease or sublet the
Premises or any part thereof, whether voluntarily or by operation of law, or
permit the use or occupancy of the Premises or any part thereof by anyone other
than Tenant, or suffer or permit any such assignment, pledge, subleasing or
occupancy, without Landlord's prior written consent which consent shall not be
unreasonably withheld, delayed or conditioned except as provided herein. If
Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant
shall give Landlord written notice (the "TRANSFER NOTICE") (except when no such
notice is required under Section 21.A(3) below) at least thirty (30) days prior
to the anticipated effective date of the proposed assignment or sublease, which
shall contain all of the information reasonably requested by Landlord. Landlord
shall then have a period of fifteen (15) days following receipt of the Transfer
Notice to notify Tenant in writing that Landlord elects to consent to the
proposed assignment or sublease, subject, however, to Landlord's prior written
consent of the proposed assignee or subtenant and of any related documents or
agreements associated with the assignment or sublease. Consent to any assignment
or subletting shall not constitute consent to any subsequent transaction to
which this Paragraph 21 applies.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other
instances in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord and
Tenant acknowledge that it shall be reasonable for Landlord to
withhold Landlord's consent in the following instances: if the
proposed assignee does not agree to be bound by and assume the
obligations of Tenant under this Lease in form and substance
satisfactory to Landlord; the use of the Premises by such
proposed assignee or subtenant would not be a Permitted Use; the
proposed assignee or subtenant is not of sound financial
condition as determined by Landlord in Landlord's reasonable
discretion; the proposed assignee or subtenant is a governmental
agency; the proposed assignee or subtenant is a person with whom
Landlord is negotiating to lease space in the Premises or is a
present tenant of the Premises; the assignment or subletting
would entail any Alterations which would lessen the value of the
leasehold improvements in the Premises or use of any Hazardous
Materials or other noxious use; or Tenant is in default beyond
any applicable cure period of any obligation of Tenant under
this Lease, or Tenant has defaulted under this Lease on three
(3) or more occasions during any twelve (12) months preceding
the date that Tenant shall request consent. Failure by or
refusal of Landlord to consent to a proposed assignee or
subtenant shall not cause a termination of this Lease. At the
option of Landlord, a surrender and termination of this Lease
shall operate as an assignment to Landlord of some or all
subleases or subtenancies. Landlord shall exercise this option
by giving notice of that assignment to such subtenants on or
before the effective date of the surrender and termination. In
connection with each request for assignment or subletting,
Tenant shall pay to Landlord Landlord's standard fee for
approving such requests which shall not exceed Two Hundred Fifty
Dollars ($250), as well as all reasonable costs incurred by
Landlord or any mortgagee or ground lessor in approving each
such request and effecting any such transfer, including, without
limitation, reasonable attorneys' fees.
(3) Tenant shall be permitted to transfer to an Affiliate (as
defined below) without the consent of Landlord so long as the
following conditions are met: (a) unless such notice is
prohibited by law in which case no prior notice shall be
required, at least ten (10) business days before any such
assignment of sublease, Landlord receives written notice of such
assignment or sublease (as well as any documents or information
reasonably requested by Landlord regarding the proposed intended
transfer and the transferee); (b) Tenant is not then and has not
been in default under this Lease after notice and expiration of
any applicable cure period; (c) if the transfer is an assignment
or any other transfer to an Affiliate other than a sublease, the
intended assignee assumes in writing all of Tenant's obligations
under this Lease relating to the Premises in form satisfactory
to Landlord or, if the
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transfer is a sublease, the intended sublessee accepts the
sublease in form reasonably satisfactory to Landlord; (d) the
use of the Premises by the intended transferee would be a
Permitted Use; and (e) the intended transferee has a tangible
net worth, as evidenced by financial statements delivered to
Landlord and certified by an independent certified public
accountant in accordance with generally accepted accounting
principles that are consistently applied, of at least equal to
the net worth of Tenant at the time of the proposed transfer. No
transfer to an Affiliate in accordance with this subparagraph
shall relieve Tenant name herein of any obligation under this
Lease or alter the primary liability of Tenant named herein for
the payment of Rent or for the performance of any other
obligation to be performed by Tenant. An "AFFILIATE" means any
entity that (i) controls, is controlled by, or is under common
control with Tenant, (ii) results from the transfer of all or
substantially all of Tenant's assets or stocks, or (iii) results
from the merger or consolidation of Tenant with another entity.
"CONTROL" means the direct or indirect ownership of more than
fifty percent (50%) of the voting securities of an entity or
possession of the right to vote more than fifty percent (50%) of
the voting interest in the ordinary direction of the entity's
affairs. Without limiting the effect of Section 21C, below,
notwithstanding anything to the contrary contained herein,
Tenant shall have a one (1) time right during the initial Term
of this Lease to a transfer by sale or assignment of the
interest of Tenant to a publicly held company ("Public
Company"), provided that the transferee shall have a tangible
net worth, as evidenced by financial statements delivered to
Landlord and certified by an independent certified public
accountant in accordance with generally accepted accounting
principles that are consistently applied, of at least equal to
the net worth of Tenant at the time of the proposed transfer.
B. BONUS RENT. Any Rent or other consideration realized by Tenant under any such
sublease or assignment in excess of the Rent payable hereunder, shall be divided
and paid, fifty percent (50%) to Tenant, fifty percent (50%) to Landlord after
amortization over the balance of the Term of the following actual and reasonable
costs incurred by Tenant: (i) brokerage commission, (ii) legal fees, (iii)
additional improvements for the subtenant or assignee and (iv) a portion of the
unamortized cost of the Initial Tenant Improvements paid for by Tenant and
listed on EXHIBIT C which for purposes of calculating bonus rent, shall be an
amount equal to the total cost of the Initial Tenant Improvements amortized at a
simple interest rate of ten percent (10%) per annum. Within thirty (30) days
after substantial completion of the Initial Tenant Improvements, Landlord and
Tenant shall execute an agreement setting forth the actual cost of such Initial
Tenant Improvements. Notwithstanding the foregoing, Tenant shall be entitled to
retain any Rent or other consideration realized by Tenant (in excess of the Rent
payable hereunder) under its sublease with Comparative dated as of February 1,
1999 (the "COMPARATIVE SUBLEASE"). Landlord hereby approves the Comparative
Sublease. In any subletting or assignment undertaken by Tenant, Tenant shall
diligently seek to obtain the maximum rental amount available in the marketplace
for comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by
sale, assignment, bequest, inheritance, operation of law or other disposition
(including such a transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings) resulting in a change in the
present control of such corporation or any of its parent corporations by the
person or persons owning a majority of said corporate shares, shall constitute
an assignment for purposes of this Lease. Notwithstanding anything to the
contrary in this Lease, the transfer of outstanding capital stock or other
listed equity interests, or the purchase of outstanding capital stock or other
listed equity interests, or the purchase of equity interests issued in an
initial public offering of stock, through the "over-the-counter" market or any
recognized national or international securities exchange shall not constitute an
assignment for purposes of this Lease.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests of
said entity and/or a change in the identity of the persons responsible for the
general credit obligations of said entity shall constitute an assignment for all
purposes of this Lease.
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E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise,
shall relieve Tenant of any obligation under this Lease or alter the primary
liability of the Tenant named herein for the payment of Rent or for the
performance of any other obligations to be performed by Tenant, including
obligations contained in Paragraph 25 with respect to any assignee or subtenant.
Landlord may collect rent or other amounts or any portion thereof from any
assignee, subtenant, or other occupant of the Premises, permitted or otherwise,
and apply the net rent collected to the Rent payable hereunder, but no such
collection shall be deemed to be a waiver of this Paragraph 21, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of the obligations of Tenant under
this Lease. Any assignment or subletting which conflicts with the provisions
hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to enter
into this Lease and to perform all of Landlord's obligations hereunder and that
all persons signing this Lease on its behalf are authorized to do. Tenant and
the person or persons, if any, signing on behalf of Tenant, jointly and
severally represent and warrant that Tenant has full right and authority to
enter into this Lease, and to perform all of Tenant's obligations hereunder, and
that all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. CONDEMNATION AND RIGHTS TO TERMINATE. If the whole or any substantial part of
the Premises should be taken or condemned for any public use under any
Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the Permitted
Use of the Premises, either party shall have the right to terminate this Lease
at its option. If any material portion of the Premises is taken or condemned for
any public use under any Regulation, or by right of eminent domain, or by
private purchase in lieu thereof, Landlord may terminate this Lease at its
option. Notwithstanding anything contained in this Paragraph 23.A to the
contrary, in the event Landlord elects to terminate the Lease, Landlord shall
provide written notice to Tenant of Landlord's intention to terminate the Lease,
and, within ten (10) days after receipt of such written notice from Landlord,
Tenant may elect to keep the Lease in full force and effect by delivering
written notice thereof (the "ELECTION NOTICE") in which case (i) Tenant shall
pay all costs and expenses necessary to restore the Premises and to enable
Tenant to use the Premises in accordance with the terms and conditions of this
Lease; (ii) Tenant shall continue to pay Rent for the remainder of the Term and
all other monetary sums due under this Lease without abatement; and (iii)
Landlord shall receive a credit for all sums received or to be received by
Tenant from the condemning authority except to the extent specifically provided
in Paragraph 23.B to the contrary. In the event Landlord does not deliver
written notice to Tenant of Landlord's intention to terminate the Lease as
provided herein, (i) Tenant shall continue to pay Rent for the remainder of the
Term and all other monetary sums due under this Lease without abatement and (ii)
Landlord shall receive a credit for all sums received or to be received by
Tenant from the condemning authority except to the extent specifically provided
in Paragraph 23.B to the contrary. Notwithstanding anything to the contrary
contained in this Paragraph, if the temporary use or occupancy of any part of
the Premises shall be taken or appropriated under power of eminent domain during
the Term, this Lease shall be and remain unaffected by such taking or
appropriation and Tenant shall continue to pay in full all Rent payable
hereunder by Tenant during the Term; in the event of any such temporary
appropriation or taking, Tenant shall be entitled to receive that portion of any
award which represents compensation for the use of or occupancy of the Premises
during the Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration of the Premises and the use and
occupancy of the Premises.
B. AWARD. Landlord shall be entitled to (and Tenant shall assign to Landlord)
any and all payment, income, rent, award or any interest therein whatsoever
which may be paid or made in connection with such taking or conveyance and
Tenant shall have no claim against Landlord or otherwise for any sums paid by
virtue of such proceedings, whether or not attributable to the value of any
unexpired portion of this Lease, except as expressly provided in this Lease.
Notwithstanding the foregoing, any compensation specifically and separately
awarded Tenant for Tenant's personal property and trade fixtures, Initial Tenant
Improvements and relocation costs, shall be and remain the property of Tenant.
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C. WAIVER OF CCP SECTION 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises should be damaged or destroyed by fire, tornado, or
other casualty (collectively, "CASUALTY"), Tenant shall give immediate written
notice thereof to Landlord.
B. REBUILD AND REPAIR. If the Premises should be damaged by Casualty in whole or
in part, then Landlord may elect, in its sole and absolute discretion, to
rebuild or repair the Premises by delivering written notice to Tenant of its
election within thirty (30) days after Landlord's receipt of notice of the
damage or destruction. Upon such election, Landlord shall proceed to rebuild and
repair the Premises diligently and to substantially the same condition as the
Premises existed at the time of the Casualty with such modifications and
alterations as mutually agreed upon by Landlord and Tenant in their respective
reasonable discretion. Notwithstanding the above, in the event Landlord elects
to rebuild or repair the Premises as provided herein, Landlord shall not be
required to rebuild, repair or replace any part of any Alterations (including
without limitation, the Initial Tenant Improvements) which may have been placed,
on or about the Premises by Tenant and Tenant shall continue to pay Base Rent
and Additional Rent under this Lease, with no right to rent abatement unless and
to the extent any proceeds of rental interruption insurance are paid. If
Landlord elects not to rebuild or repair the Premises, in its sole and absolute
discretion, then Landlord shall notify Tenant by delivering written notice of
such election within thirty (30) days after Landlord's receipt of notice of the
damage or destruction and Landlord shall retain all proceeds of Landlord's
Property Insurance. Within ten (10) days after receipt of Landlord's written
notice, Tenant, at Tenant's sole cost and expense, may elect by delivering
written notice to Landlord to proceed to rebuild and repair the Premises
diligently to substantially the same condition as the Premises existed at the
time of the Casualty, with such modifications and alterations as mutually agreed
upon by Landlord and Tenant in their respective reasonable discretion. Upon such
election by Tenant to repair or rebuild the Premises, Tenant shall deposit such
amount required to rebuild or repair the Premises as reasonably determined by
Landlord with a bank selected by Tenant and approved by Landlord as security for
the performance of Tenant's obligations under this Section 24.B. Notwithstanding
the foregoing, if the Premises should be damaged by Casualty and Tenant elects
to rebuild and repair the Premises, then (i) Tenant shall continue to pay Rent
under this Lease, with no right to rent abatement, unless and to the extent any
proceeds of rental interruption insurance are paid, (ii) Landlord shall keep any
and all insurance proceeds received by Landlord, under any insurance policies
maintained by Landlord's Property Insurance, as a result of such Casualty, and
shall have no obligation to contribute any of such proceeds to the rebuilding or
repairing of the Premises. In the event that Landlord does not elect to rebuild
or repair the Premises and/or Tenant does not elect to rebuild or repair the
Premises, then either party may terminate this Lease upon ten (10) days advance
written notice to the other party and Tenant shall retain all proceeds of
Tenant's Property Insurance. Notwithstanding anything contrary contained in this
Lease, immediately following the repair or rebuilding of the Premises, Landlord
shall be the owner of the Premises and any part that is rebuilt or repaired,
regardless of which party pays for the costs of rebuilding or repairing.
C. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the
Premises or any portion thereof is damaged by Casualty resulting from the fault,
negligence, or breach of this Lease by Tenant or any of Tenant's Parties, Base
Rent and Additional Rent shall not be diminished during the repair of such
damage except and to the extent of proceeds are paid through rental interruption
insurance and Tenant shall be liable to Landlord for the cost and expense of the
repair and restoration of the Premises caused thereby.
D. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, except
if Tenant elects to rebuild or repair the Premises pursuant to Section 24.B
above, if the Premises is damaged or destroyed and are not fully covered by the
insurance proceeds received by Landlord or if the holder of any indebtedness
secured by a mortgage or deed of trust covering the Premises requires that the
insurance proceeds from Landlord's Property Insurance be applied to such
indebtedness, then in either case Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within thirty
(30) days after the date of notice to Landlord that said damage or destruction
is not fully covered by insurance or such
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requirement is made by any such holder, as the case may be, whereupon this Lease
shall terminate.
E. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the
event of damage or destruction to the Premises. As a material inducement to
Landlord entering into this Lease, Tenant hereby waives any rights it may have
under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of California with
respect to any destruction of the Premises, Landlord's obligation for
tenantability of the Premises and Tenant's right to make repairs and deduct the
expenses of such repairs, or under any similar law, statute or ordinance now or
hereafter in effect.
F. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of the
Premises, under no circumstances shall Landlord be required to repair any injury
or damage to, or make any repairs to or replacements of, Tenant's personal
property or Initial Tenant Improvements.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over, Tenant
shall be unlawfully and illegally in possession of the Premises, whether or not
Landlord accepts any rent from Tenant or any other person while Tenant remains
in possession of the Premises without Landlord's written consent. If Tenant
shall retain possession of the Premises or any portion thereof without
Landlord's consent following the expiration of this Lease or sooner termination
for any reason, then Tenant shall pay to Landlord for each day of such retention
one hundred seventy five percent (175%) of the amount of daily rental as of the
last month prior to the date of expiration or earlier termination. Tenant shall
also indemnify, defend, protect and hold Landlord harmless from any loss,
liability or cost, including consequential and incidental damages and reasonable
attorneys' fees, incurred by Landlord resulting from delay by Tenant in
surrendering the Premises, including, without limitation, any claims made by the
succeeding tenant founded on such delay. Acceptance of Rent by Landlord
following expiration or earlier termination of this Lease, or following demand
by Landlord for possession of the Premises, shall not constitute a renewal of
this Lease, and nothing contained in this Paragraph 25 shall waive Landlord's
right of reentry or any other right. Additionally, if upon expiration or earlier
termination of this Lease, or following demand by Landlord for possession of the
Premises, Tenant has not fulfilled its obligation with respect to repairs and
cleanup of the Premises or any other Tenant obligations as set forth in this
Lease, then Landlord shall have the right to perform any such obligations as it
deems necessary at Tenant's sole cost and expense, and any time required by
Landlord to complete such obligations shall be considered a period of holding
over and the terms of this Paragraph 25 shall apply. The provisions of this
Paragraph 25 shall survive any expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
event of default on the part of Tenant:
(1) ABANDONMENT. Abandonment of the Premises for a continuous period in
excess of five (5) days. Tenant waives any right to notice Tenant may
have under Section 1951.3 of the Civil Code of the State of California,
the terms of this Paragraph 26.A. being deemed such notice to Tenant as
required by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other amount within three (3) days after the Rent or such other amount
is due and payable hereunder, as to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A. and Paragraphs 8, 18
and 38, such failure continuing for fifteen (15) days after written
notice of such failure, as to which time is of the essence; provided,
however, Tenant shall not be deemed to be in default if the nature of
such failure is of a type that cannot reasonably be cured within such
fifteen (15) day period and Tenant commences to cure within fifteen (15)
days and diligently prosecutes such cure to completion but in no event
shall such period to cure exceed ninety (90) days after written notice
of such failure to perform by Tenant (except as provided in Paragraph 30
below); Provided, however, that so long as Tenant is diligently pursuing
such cure and there is no
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decrease in the value of the Premises as a result of such default, the
Landlord in its reasonable discretion may extend the cure period as
Landlord deems appropriate.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit
of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of sixty
(60) days. If under applicable law, the trustee in bankruptcy or Tenant
has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such
time period as may be permitted by the bankruptcy court having
jurisdiction, cure all defaults of Tenant hereunder outstanding as of
the date of the affirmance of this Lease and provide to Landlord such
adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or the Premises, if such
appointment remains undismissed or undischarged for a period of thirty
(30) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of thirty (30) days after the levy thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to
pay its debts as they become due.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of default,
Landlord shall have the right to give a written termination notice to
Tenant, and on the date specified in such notice, Tenant's right to
possession shall terminate, and this Lease shall terminate unless on or
before such date all Rent in arrears and all costs and expenses incurred
by or on behalf of Landlord hereunder shall have been paid by Tenant and
all other events of default of this Lease by Tenant at the time existing
shall have been fully remedied to the satisfaction of Landlord. At any
time after such termination, Landlord may recover possession of the
Premises or any part thereof and expel and remove therefrom Tenant and
any other person occupying the same, including any subtenant or
subtenants notwithstanding Landlord's consent to any sublease, by any
lawful means, and again repossess and enjoy the Premises without
prejudice to any of the remedies that Landlord may have under this
Lease, or at law or equity by any reason of Tenant's default or of such
termination. Landlord hereby reserves the right, but shall not have the
obligation, to recognize the continued possession of any subtenant. The
delivery or surrender to Landlord by or on behalf of Tenant of keys,
entry codes, or other means to bypass security at the Premises shall not
terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may have
occurred, this Lease shall continue in effect for so long as Landlord
does not terminate Tenant's right to possession under Paragraph 26.B.(1)
hereof, and Landlord may enforce all of Landlord's rights and remedies
under this Lease and at law or in equity, including without limitation,
the right to recover Rent as it becomes due, and Landlord, without
terminating this Lease, may exercise all of the rights and remedies of a
landlord under Section 1951.4 of the Civil Code of the State of
California or any successor code section. Acts of maintenance,
preservation or efforts to lease the Premises or the appointment of a
receiver under application of Landlord to protect Landlord's interest
under this Lease or other entry by Landlord upon the Premises shall not
constitute an election to terminate Tenant's right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for ten (10) days after
such occurrence or such default occurs more than three (3) times in any
twelve (12) month period, Landlord may require that Tenant increase the
Security Deposit to the amount of three (3) times the current month's
Rent at the time of the most recent default.
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C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; and
(4) any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth at
the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right
without notice or demand to add to the amount of any payment required to be made
by Tenant hereunder, and which is not paid and received by Landlord on or before
the first day of each calendar month, an amount equal to six percent (6%) of the
delinquency for each month or portion thereof that the delinquency remains
outstanding to compensate Landlord for the loss of the use of the amount not
paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
extremely difficult and impracticable to compute and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any late
charges or failure to claim the same shall not constitute a waiver of other late
charges or any other remedies available to Landlord.
E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at
the lesser of eighteen percent (18%) per annum or the maximum interest rate
allowed by law ("APPLICABLE INTEREST RATE") from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of the
parties are cumulative and not alternative, to the extent permitted by law and
except as otherwise provided herein.
27. LIENS
A. Tenant shall at all times keep the Premises free from liens arising out of or
related to work or services performed, materials or supplies furnished or
obligations incurred by or on behalf of Tenant or in connection with work made,
suffered or done by or on behalf of Tenant in or on the Premises.
Notwithstanding the foregoing, the Tenant shall have the right to encumber its
leasehold interest hereunder and its interest in the Tenant's Initial Tenant
Improvements and/or Alterations with a first prior security interest in the
leasehold interest including, without limitation, the Alterations constructed
thereon, so long as any financing or encumbering by Tenant of Tenant's Initial
Tenant Improvements and/or Alterations shall be subject to the terms and
conditions of this Lease and to the rights of any mortgagee of Landlord,
Tenant's lender shall have executed Landlord's Disclaimer and Consent
substantially in the form of EXHIBIT F attached hereto and made a part hereof,
and at the expiration or earlier termination of this Lease any Initial Tenant
Improvements or Alterations remaining on the Premises are free and clear of any
liens. If Tenant shall not, within ten (10) days following the imposition of any
such lien, cause the same to be released of record by payment or posting of a
proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause the same to be
released by such means as Landlord shall deem proper, including payment of the
claim giving rise to such lien. All sums paid by Landlord on behalf of Tenant
and all expenses incurred by Landlord in connection therefor shall be payable to
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Landlord by Tenant on demand with interest at the Applicable Interest Rate as
Additional Rent. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Premises and any
other party having an interest therein, from mechanics' and materialmen's liens,
and Tenant shall give Landlord not less than ten (10) business days prior
written notice of the commencement of any work in the Premises which could
lawfully give rise to a claim for mechanics' or materialmen's liens to permit
Landlord to post and record a timely notice of non-responsibility, as Landlord
may elect to proceed or as the law may from time to time provide, for which
purpose, if Landlord shall so determine, Landlord may enter the Premises. Tenant
shall not remove any such notice posted by Landlord without Landlord's consent,
and in any event not before completion of the work which could lawfully give
rise to a claim for mechanics' or materialmen's liens.
28. [INTENTIONALLY DELETED]
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Premises or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed after the
passing of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant
with respect to the failure to perform any of the obligations of "Landlord," to
the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Premises.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the terms of
this Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent. If Tenant shall fail to pay any sum of money,
other than Base Rent, required to be paid by Tenant hereunder or shall fail to
perform any other act on Tenant's part to be performed hereunder, including
Tenant's obligations under Paragraph 11 hereof, and such failure shall continue
for fifteen (15) days after notice thereof by Landlord, in addition to the other
rights and remedies of Landlord, Landlord may make any such payment and perform
any such act on Tenant's part; provided, however, in the event that Tenant's
failure to perform relates to regulations pertaining to Tenant's Permitted Use
and Tenant is diligently pursuing the cure of such failure, notwithstanding the
provisions of Paragraph 26.B to the contrary, Landlord shall not be entitled to
perform Tenant's obligations if and only to the extent that the performance by
Landlord would materially and adversely affect Tenant's rights to cure such
failure and such failure by Tenant continues for less than ninety (90) days. In
the case of an emergency, no prior notification by Landlord shall be required.
Landlord may take such actions without any obligation and without releasing
Tenant from any of Tenant's obligations. All sums so paid by Landlord and all
incidental costs incurred by Landlord and interest thereon at the Applicable
Interest Rate, from the date of payment by Landlord, shall be paid to Landlord
on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or
condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
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covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws, ordinances,
regulations and other requirements with reference to sending, mailing, or
delivery of any notice or the making of any payment by Landlord or Tenant to the
other shall be deemed to be complied with when and if the following steps are
taken:
A. RENT. All Rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at Landlord's Remittance Address set
forth in the Basic Lease Information, or at such other address as Landlord may
specify from time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay Rent and any other amounts to Landlord under the
terms of this Lease shall not be deemed satisfied until such Rent and other
amounts have been actually received by Landlord.
B. Other. All notices, demands, consents and approvals which may or are required
to be given by either party to the other hereunder shall be in writing and
either personally delivered, sent by commercial overnight courier, mailed,
certified or registered, postage prepaid or sent by facsimile with confirmed
receipt (and with an original sent by commercial overnight courier), and in each
case addressed to the party to be notified at the Notice Address for such party
as specified in the Basic Lease Information or to such other place as the party
to be notified may from time to time designate by at least fifteen (15) days
notice to the notifying party. Notices shall be deemed served upon receipt or
refusal to accept delivery. Tenant appoints as its agent to receive the service
of all default notices and notice of commencement of unlawful detainer
proceedings the person in charge of or apparently in charge of occupying the
Premises at the time, and, if there is no such person, then such service may be
made by attaching the same on the main entrance of the Premises.
C. Required Notices. Tenant shall immediately notify Landlord in writing of any
notice of a violation or a potential or alleged violation of any Regulation that
relates to the Premises, or of any inquiry, investigation, enforcement or other
action that is instituted or threatened by any governmental or regulatory agency
against Tenant or any other occupant of the Premises, or any claim that is
instituted or threatened by any third party that relates to the Premises.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred at trial, appeal or review. In any action which Landlord or
Tenant brings to enforce its respective rights hereunder, the unsuccessful party
shall pay all costs incurred by the prevailing party including reasonable
attorneys' fees, to be fixed by the court, and said costs and attorneys' fees
shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord or
as otherwise permitted hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible by any
prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts
of God, inability to obtain services, labor, or materials or reasonable
substitutes for those items, government actions, civil commotions, fire or other
casualty, or other causes beyond the reasonable control of the party obligated
to perform, performance by that party for a period equal to the period of that
prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent,
however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Subject to the provisions of Paragraph 12, Tenant shall, upon expiration or
sooner termination of this Lease, surrender the Premises to Landlord in the same
condition as existed on the date
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Tenant originally took possession thereof, including, but not limited to, all
interior walls cleaned, all holes in walls repaired, all carpets cleaned, all
HVAC equipment in operating order and in good repair, and all floors cleaned,
and free of any Tenant-introduced marking or painting, all to the reasonable
satisfaction of Landlord. Tenant shall remove all of its debris from the
Premises. At or before the time of surrender, Tenant shall (i) comply with the
terms of Paragraph 12 hereof with respect to Alterations to the Premises and all
other matters addressed in such Paragraph, and (ii) obtain regulatory approvals
required for closure or cessation of the operations of Tenant and any subtenant.
If the Premises are not so surrendered at the expiration or sooner termination
of this Lease, the provisions of Paragraph 25 hereof shall apply. All keys to
the Premises or any part thereof shall be surrendered to Landlord upon
expiration or sooner termination of the Term. Tenant shall give written notice
to Landlord at least thirty (30) days prior to vacating the Premises and shall
meet with Landlord for a joint inspection of the Premises at the time of
vacating, but nothing contained herein shall be construed as an extension of the
Term or as a consent by Landlord to any holding over by Tenant. In the event of
Tenant's failure to give such notice or participate in such joint inspection,
Landlord's inspection at or after Tenant's vacating the Premises shall
conclusively be deemed correct for purposes of determining Tenant's
responsibility for repairs and restoration. Any delay caused by Tenant's failure
to carry out its obligations under this Paragraph 36 beyond the term hereof,
shall constitute unlawful and illegal possession of Premises under Paragraph 25
hereof.
37. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of
the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
E. MODIFICATION. This Lease may not be modified except by a written instrument
signed by the parties hereto. Tenant and Landlord accept the area of the
Premises as specified in the Basic Lease Information as the approximate area of
the Premises for all purposes under this Lease, and acknowledge and agree that
no other definition of the area (rentable, usable or otherwise) of the Premises
shall apply. Neither Landlord nor Tenant shall be entitled to a recalculation of
the square footage of the Premises, rentable, usable or otherwise, and no
recalculation, if made, irrespective of its purpose, shall reduce Tenant's
obligations under this Lease in any manner, including, without limitation, the
amount of Base Rent payable by Tenant or Tenant's Proportionate Share of the
Premises.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum
hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not constitute
an option or offer to lease and this Lease is not effective otherwise until
execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the
total Rent due nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies. All offers by
or on behalf of Tenant of accord and satisfaction are hereby rejected in
advance.
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J. EASEMENTS. Landlord may grant easements on the Premises and dedicate for
public use portions of the Premises without Tenant's consent; provided that no
such grant or dedication shall materially interfere with Tenant's Permitted Use
of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps and plats necessary to
effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this
Lease has been agreed to by both the parties, that both Landlord and Tenant have
consulted with attorneys with respect to the terms of this Lease and that no
presumption shall be created against Landlord because Landlord drafted this
Lease. Except as otherwise specifically set forth in this Lease, with respect to
any consent, determination or estimation of Landlord required or allowed in this
Lease or requested of Landlord, Landlord's consent, determination or estimation
shall be given or made solely by Landlord in Landlord's good faith opinion,
whether or not objectively reasonable. If Landlord fails to respond to any
request for its consent within the time period, if any, specified in this Lease,
Landlord shall be deemed to have disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference and
made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air
or view by any structure which may be erected on lands adjacent to or in the
vicinity of the Premises shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and Tenant
and nothing herein is intended to create any third party benefit.
O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the observance
and performance of all of the other covenants, terms and conditions on Tenant's
part to be observed and performed, Tenant shall peaceably and quietly hold and
enjoy the Premises for the term hereby demised without hindrance or interruption
by Landlord or any other person or persons lawfully or equitably claiming by,
through or under Landlord, subject, nevertheless, to all of the other terms and
conditions of this Lease. Landlord shall not be liable for any hindrance,
interruption, interference or disturbance by other third persons, nor shall
Tenant be released from any obligations under this Lease because of such
hindrance, interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts, each
of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant hereunder
for any fractional month shall be prorated based on a month of thirty (30) days.
As used herein, the term "fiscal year" shall mean the calendar year or such
other fiscal year as Landlord may deem appropriate.
38. ADDITIONAL PROVISIONS
A. OPTION TO EXTEND.
(1) Subject to the terms and conditions of this Section 38.A, Tenant
shall have one (1) option to extend the Term of this Lease with respect
to all of the Premises for a period of seven (7) years commencing on the
expiration date of the Term (the "Extension Period"). The option to
extend is sometimes referred to herein as the "Option to Extend".
(a) The Option to Extend shall be exercised, if at all, by
written notice of exercise given to Landlord by Tenant
not earlier than August 30, 2017 and not later than
October 31, 2017 (the "Expiration Date"). In the event
that Tenant fails to deliver such exercise notice to
Landlord as provided herein, the Option to Extend shall
be null and void and of no further force or effect.
(b) Anything herein to the contrary notwithstanding, if
Tenant is in default of any monetary obligation
hereunder (without regard to any notice or cure period)
or is in default of any material non-monetary obligation
hereunder following the
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expiration of any applicable notice and cure period,
either at the time Tenant exercises the Option to Extend
or on the commencement date of the Extension Period,
then Landlord shall have, in addition to all of
Landlord's other rights and remedies provided in this
Lease, the right to terminate the Option to Extend upon
written notice to Tenant.
(2) In the event the Option to Extend is exercised in a timely fashion,
this Lease shall be extended for an additional seven (7) years upon all
of the terms and conditions of this Lease, provided that (i) Tenant
shall not receive any tenant improvement allowance or other allowance,
(ii) Tenant shall take the Premises in its AS-IS condition, (iii) the
Rent for such Extension Period shall be adjusted to equal the "Fair
Market Rent" for the Premises and (iv) Tenant shall have no further
options to extend the Term of this Lease. For purposes hereof, "Fair
Market Rent" shall mean the prevailing gross rental rate per annum per
square foot as of the commencement date of the Extension Period,
including, without limitation, base rent, additional rent and all other
monetary payments (including base rent increases and step-ups) agreed to
be paid by new tenants generally for first-class fully improved research
and development space with ancillary office space in a condition
(including the state of build out) and location comparable to the
Premises in comparable first-class buildings in the City of Santa Clara
for seven (7) year terms, pursuant to new leases entered into by such
other tenants, and considering any rental abatement and any other
similar concessions granted in connection with new leases for such
comparable space (and other similar items). For purposes of this Section
38.A, "fully improved research and development space with ancillary
office space" shall mean such facilities which are improved with
research and development space with ancillary office space comparable to
those in existence in the Premises on the date of this Lease.
(3) Within thirty (30) days after receipt of Tenant's written notice of
its to exercise the Option to Extend, Landlord shall notify Tenant in
writing of Landlord's proposed Fair Market Rent for the term of the
Extension Period, based on the provisions of Section 2 above. Within
thirty (30) days after receipt of such notice from Landlord, Tenant
shall have the right either to (i) accept Landlord's statement of Fair
Market Rent as the Fair Market Rent for the Extension Period, or (ii)
elect to arbitrate Landlord's estimate of Fair Market Rent, such
arbitration to be conducted pursuant to the provisions hereof. Failure
on the part of Tenant to require arbitration of Fair Market Rent within
thirty (30) such day period shall constitute acceptance of the Fair
Market Rent for the Extension Period, as proposed by Landlord. If Tenant
elects arbitration, the arbitration shall be concluded within ninety
(90) days after the date of Tenant's election. To the extent that
arbitration has not been completed prior to the expiration of the Term
of the Lease, Tenant shall pay Fair Market Rent in an amount equal to
the rate proposed by Landlord, and the Fair Market Rent shall be
adjusted, if necessary, once the Fair Market Rent is ultimately
determined by arbitration. Should the monthly installments of Fair
Market Rent as adjusted for the period following the completion of such
arbitration exceed the amount previously paid by Tenant for such period,
Tenant shall pay the entire difference to Landlord within thirty (30)
days following delivery of written demand. Should the monthly
installments of Fair Market Rent as adjusted following completion of
such arbitration be less than the amount previously paid by Tenant for
such period, Landlord shall credit such difference against the next
installment(s) of Fair Market Rent coming due. Upon determination of the
Fair Market Rent for the Extension Period (whether by mutual agreement
or by arbitration), the parties shall enter into an amendment to this
Lease memorializing such determination.
(4) In the event of arbitration, the judgment or the award rendered in
any such arbitration may be entered in any court having jurisdiction and
shall be final and binding between the parties. The arbitration shall be
conducted and determined in the City and County of Santa Clara in
accordance with the then prevailing rules of the American Arbitration
Association or its successor for arbitration of commercial disputes
except to the extent that the procedures mandated by said rules shall be
modified as follows:
(a) Tenant shall make demand for arbitration in writing
within thirty (30) days after service of Landlord's
determination of Fair Market Rent given under Section 3
above, specifying therein the name and address of the
person to act as the arbitrator on its behalf. The
arbitrator shall be a leasing agent with at least ten
(10) years experience and otherwise familiar with the
Fair Market Rent of first-
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<PAGE> 33
class fully improved research and development and office
space in the City of Santa Clara who would qualify as an
expert witness over objection to give opinion testimony
addressed to the issue in a court of competent
jurisdiction. Failure on the part of Tenant to make a
proper demand in a timely manner for such arbitration
shall constitute a waiver of the right thereto. Within
fifteen (15) days after the service of the demand for
arbitration, Landlord shall give notice to Tenant,
specifying the name and address of the person designated
by Landlord to act as arbitrator on its behalf who shall
be similarly qualified. If Landlord fails to notify
Tenant of the appointment of its arbitrator, within or
by the time above specified, then the arbitrator
appointed by Tenant shall be the arbitrator to determine
the issue.
(b) In the event that two (2) arbitrators are chosen
pursuant to Section 4(a) above, the arbitrators so
chosen shall, within fifteen (15) days after the second
arbitrator is appointed, appoint a third arbitrator, who
shall be a competent and impartial person with
qualifications similar to those required of the first
two (2) arbitrators pursuant to Section 4(a). In the
event the two (2) arbitrators are unable to agree upon
such appointment within ten (10) days after expiration
of said fifteen (15) day period, the third arbitrator
shall be selected by the parties themselves, if they can
agree thereon, within a further period of fifteen (15)
days. If the parties do not so agree, then either party,
on behalf of both, may request appointment of such a
qualified person by the then Chief Judge of the United
States District Court having jurisdiction over the City
and County of Santa Clara, acting in his private and not
in his official capacity, and the other party shall not
raise any question as to such Judge's full power and
jurisdiction to entertain the application for and make
the appointment. The third arbitrator shall decide the
dispute if it has not previously been resolved by
following the procedure set forth below.
(c) Where the determination of Fair Market Rent cannot
be resolved by settlement between the parties during the
course of arbitration, the issue shall be resolved by
the third arbitrator in accordance with the following
procedure. The arbitrator selected by each of the
parties shall state in writing his or her determination
of the Fair Market Rent supported by the reasons
therefor with counterpart copies to each party. The
arbitrators shall arrange for a simultaneous exchange of
such proposed resolutions. The role of the third
arbitrator shall be to select which of the two proposed
resolutions most closely approximates his or her
determination of Fair Market Rent. The third arbitrator
shall have no right to propose a middle ground or any
modification of either of the two proposed resolutions.
The resolution he or she chooses as most closely
approximating his or her determination shall constitute
the decision of the arbitrators and be final and binding
upon the parties.
(d) In the event of a failure, refusal or inability of
any arbitrator to act, his or her successor shall be
appointed by him, but in the case of the third
arbitrator, his or her successor shall be appointed in
the same manner as provided for appointment of the third
arbitrator. The arbitrators shall decide the issue
within fifteen (15) days after the appointment of the
third arbitrator. Any decision in which the arbitrator
appointed by Landlord and the arbitrator appointed by
Tenant concur shall be binding and conclusive upon the
parties. Each party shall pay the fee and expenses of
its respective arbitrator and both shall share the fee
and expenses of the third arbitrator. The attorneys'
fees and expenses of counsel for the respective parties
and of witnesses shall be paid by the respective party
engaging such counsel or calling such witnesses.
(e) The third arbitrator shall have the right to consult
experts and competent authorities to obtain factual
information or evidence pertaining to a determination of
Fair Market Rent, but any such consultation shall be
made in the presence of both parties with full right on
their part to cross-examine. The third arbitrator shall
render his or her decision in writing with counterpart
copies to each party. The third arbitrator shall have no
power to modify the provisions of this Lease.
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<PAGE> 34
(f) The Option to Extend granted to Tenant pursuant to
this Section 38.A shall be personal to Aviron and shall
not be assigned, transferred or otherwise conveyed by
Aviron, provided, that Aviron shall be entitled to
assign, transfer or otherwise convey the Option to
Extend and the Lease to an Affiliate or a Public Company
to the extent provided and subject to the terms and
conditions of Section 21.A.3. Except as provided in the
previous sentence, in the event Aviron attempts to or
assigns, transfers or otherwise conveys the Option to
Extend granted hereunder or the Lease or attempts any of
the foregoing, the Option to Extend granted herein and
the Lease shall automatically terminate.
B. LETTER OF CREDIT.
1. DELIVERY OF LETTER OF CREDIT. In lieu of depositing a security
deposit with Landlord, Tenant shall, on execution of this Lease,
deliver to Landlord and cause to be in effect during the Lease
Term an unconditional, irrevocable letter of credit ("LOC") in
the amount specified for the Security Deposit in the Basic Lease
Information, as it may be increased as provided in this Lease
(the "LOC Amount") which LOC shall renew automatically from year
to year. The LOC shall be in a form reasonably acceptable to
Landlord and shall be issued by an LOC bank selected by Tenant
and acceptable to Landlord. An LOC bank is a bank that accepts
deposits, maintains accounts, has a local office that will
negotiate a letter of credit, and the deposits of which are
insured by the Federal Deposit Insurance Corporation. Tenant
shall pay all expenses, points, or fees incurred by Tenant in
obtaining the LOC. The LOC shall not be mortgaged, assigned or
encumbered in any manner whatsoever by Tenant without the prior
written consent of Landlord. Tenant acknowledges that Landlord
has the right to transfer or mortgage its interest in the
Premises, the Building and in this Lease and Tenant agrees that
in the event of any such transfer or mortgage, Landlord shall
have the right to transfer or assign the LOC and/or the LOC
Security Deposit (as defined below) to the transferee or
mortgagee, and in the event of such transfer, Tenant shall look
solely to such transferee or mortgagee for the return of the LOC
and/or the LOC Security Deposit.
2. REPLACEMENT OF LETTER OF CREDIT. Tenant may, from time to time,
replace any existing LOC with a new LOC if the new LOC (a)
becomes effective prior to the expiration of the LOC that it
replaces; (b) is in the required LOC amount; (c) is issued by an
LOC bank reasonably acceptable to Landlord; and (d) otherwise
complies with the requirements of this Paragraph 38.B.
3. LANDLORD'S RIGHT TO DRAW ON LETTER OF CREDIT. Landlord shall
hold the LOC as security for the performance of Tenant's
obligations under this Lease. If, after notice and failure to
cure within any applicable period provided in this Lease, Tenant
defaults on any provision of this Lease, Landlord may, without
prejudice to any other remedy it has, draw on that portion of
the LOC necessary to (a) pay Rent or other sum in default; (b)
pay or reimburse Landlord for any amount that Landlord may spend
or become obligated to spend in exercising Landlord's rights
under Paragraph 30; and/or (c) compensate Landlord for any
expense, loss, or damage that Landlord may suffer because of
Tenant's default. If Tenant fails to renew or replace the LOC
prior to its expiration, Landlord may, without prejudice to any
other remedy it has, draw on the entire amount of the LOC.
4. LOC SECURITY DEPOSIT. Any amount of the LOC that is drawn on by
Landlord but not applied by Landlord shall be held by Landlord
as a security deposit (the "LOC SECURITY DEPOSIT") in accordance
with Paragraph 19 of this Lease.
5. RESTORATION OF LETTER OF CREDIT AND LOC SECURITY DEPOSIT. If
Landlord draws on any portion of the LOC and/or applies all or
any portion of such draw, Tenant shall, within five (5) business
days after demand by Landlord, either (a) deposit cash with
Landlord in an amount that, when added to the amount remaining
under the LOC and the amount of any LOC Security Deposit, shall
equal the LOC Amount then required under this Paragraph 38.B; or
(b) reinstate the LOC to the full LOC Amount.
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<PAGE> 35
C. OPTION TO PURCHASE.
(1) Landlord hereby grants to Tenant an option to purchase the Premises
(the "First Option to Purchase") pursuant to the terms and conditions of
this Section 38.C and the Purchase Agreement attached hereto as EXHIBIT
E. The First Option to Purchase shall be exercisable at any time from
the Term Commencement Date until September 30, 2000 (the "First Option
Term") and subject to the requirements contained herein. The First
Option to Purchase may be exercised by: (a) delivering written notice to
Landlord (the "First Option Exercise Notice") not later than ninety (90)
days prior to the proposed Closing Date (as defined in the Purchase
Agreement) but in any event not later than September 30, 2000 and not
earlier than one hundred twenty (120) days prior to the proposed Closing
Date and in accordance with the notice provisions contained in the Basic
Lease Information, (b) delivering a copy of the Purchase Agreement
executed by Tenant, and (c) depositing the sum of Five Hundred Thousand
Dollars ($500,000) with the Title Company (as defined in the Purchase
Agreement) and held in accordance with the terms and conditions of the
Purchase Agreement. The First Option Exercise Notice shall affirmatively
state that the Tenant exercises the First Option to Purchase without
condition or qualification. Subject to the terms and conditions of the
Purchase Agreement, in the event Tenant exercises the First Option to
Purchase, in no event shall the Closing Date be later than January 31,
2001.
(2) In the event Tenant does not exercise the First Option to Purchase
as set forth herein, Landlord hereby grants to Tenant an option to
purchase the Premises (the "Second Option to Purchase," together with
the First Option to Purchase hereinafter referred to collectively as the
"Option to Purchase") pursuant to the terms and conditions of this
Section 38.C. and the Purchase Agreement attached hereto as EXHIBIT E.
The Second Option to Purchase shall be exercisable from April 1, 2018 to
May 31, 2018 (the "Second Option Term") and subject to the requirements
contained herein. The Second Option to Purchase may only be exercised
by: (a) delivering written notice to Landlord (the "Second Option
Exercise Notice") not later than May 31, 2018 and not earlier than April
1, 2018 and in accordance with the notice provisions contained in the
Basic Lease Information, (b) delivering a copy of the Purchase Agreement
executed by Tenant, and (c) depositing the sum of Five Hundred Thousand
Dollars ($500,000) with the Title Company (as defined in the Purchase
Agreement) and held in accordance with the terms and conditions of the
Purchase Agreement; provided, however, prior to delivering the Second
Option Exercise Notice, Tenant shall have first exercised the Option to
Extend pursuant to the terms and conditions of Section 38.A. above. The
Second Option Exercise Notice shall affirmatively state that the Tenant
exercises the Second Option to Purchase without condition or
qualification. Subject to the terms and conditions of the Purchase
Agreement, in the event Tenant exercises the Second Option to Purchase,
the Closing Date shall be January 31, 2019.
(3) The purchase price (the "Purchase Price") for the First Option to
Purchase or the Second Option to Purchase, as applicable, shall be equal
to the "Fair Market Value" for the Premises at the time Tenant delivers
the First Option Exercise Notice or the Second Option Exercise Notice,
as applicable. For purposes hereof, "Fair Market Value" shall mean the
amount that a third party independent buyer would pay for the Premises
and the amount that a third party independent seller would accept for
the Premises under no compulsion to buy or sell, respectively, and
taking into account all circumstances of the Premises, including, but
not limited to, the physical, economic and other market conditions of
the Premises, and purchase price for first-class space in a condition
(including the state of build out) and location comparable to the
Premises in comparable first-class "biotech" buildings in the San Mateo,
Santa Clara, Alameda and San Francisco counties. In addition, for
purposes of determining "Fair Market Value", the appraisers shall be
instructed to appraise the Premises on the basis that it is an income
producing property. For purposes of the appraisal, the appraisers shall
be instructed to assume that this Lease will remain in effect during the
entire Term (and the Term as extended pursuant to the Option to Extend
in the case of the Second Option to Purchase); that Tenant will pay when
due all Base Rent (calculated pursuant to Section 38.A above in the case
of the Second Option to Purchase), Additional Rent and all other sums
due hereunder (including, without limitation, all adjustments thereto
provided for hereunder); and that the Tenant will comply with the terms
of the Lease during the Term hereof (and
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<PAGE> 36
the Term as extended pursuant to the Option to Extend in the case of the
Second Option to Purchase).
(a) On or before the date that is fifteen (15) days after
receipt of the First Option Exercise Notice or Second Option
Exercise Notice, as applicable, Landlord shall notify Tenant in
writing of Landlord's proposed Purchase Price, based on the
provisions of Section 3 above. Within fifteen (15) days after
receipt of such notice from Landlord, Tenant shall have the
right either to (i) accept Landlord's statement of Purchase
Price as the Purchase Price for the Premises, or (ii) elect to
arbitrate the Fair Market Value of the Premises, such
arbitration to be conducted pursuant to the provisions hereof.
Failure on the part of Tenant to require arbitration of Fair
Market Value within such fifteen (15) day period shall
constitute acceptance of the Purchase Price for the Premises, as
proposed by Landlord. If Tenant elects arbitration, the
arbitration shall be concluded as expeditiously as possible but
in any event within sixty (60) days after the date of Tenant's
election. To the extent that arbitration has not been completed
as provided herein, Tenant shall pay the Purchase Price proposed
by Landlord, and the Purchase Price shall be adjusted, if
necessary, pursuant to a provision in the Purchase Agreement
which shall survive the Closing Date, once the Fair Market Value
is ultimately determined by arbitration. Should the Purchase
Price as determined by arbitration exceed the Purchase Price
previously paid by Tenant, Tenant shall pay the entire
difference to Landlord within thirty (30) days following
delivery of written demand. Should the Purchase Price as
determined by arbitration be less than the Purchase Price
previously paid by Tenant, Landlord shall pay the entire
difference to Tenant within thirty (30) days following delivery
of written demand. Upon determination of the Purchase Agreement
(whether by mutual agreement or by arbitration), the parties
shall incorporate the Purchase Price into the Purchase
Agreement.
(b) In the event of arbitration, the judgement or award rendered
in any such arbitration may be entered in any court having
jurisdiction and shall be final and binding between the parties.
The arbitration shall be conducted and determined in the City
and County of Santa Clara in accordance with the then prevailing
rules of the American Arbitration Association or its successor
for arbitration of commercial disputes except to the extent that
the procedures mandated by said rules shall be modified as
follows:
(c) Tenant shall make demand for arbitration in writing within
fifteen (15) days after service of Landlord's delivery of notice
of the Purchase Price, specifying therein the name and address
of the person to act as the arbitrator on its behalf. The
arbitrator shall be a MAI appraiser with at least ten (10) years
experience and otherwise familiar with the Fair Market Values of
first-class buildings in a condition (including the state of
build out) and location comparable to the Premises in comparable
first-class "biotech" buildings in the San Mateo, Santa Clara,
Alameda and San Francisco counties who would qualify as an
expert witness over objection to give opinion testimony
addressed to the issue in a court of competent jurisdiction.
Failure on the part of Tenant to make a proper demand in a
timely manner for such arbitration shall constitute a waiver of
the right thereto. Within fifteen (15) days after the service of
the demand for arbitration, Landlord shall give notice to
Tenant, specifying the name and address of the person designated
by Landlord to act as arbitrator on its behalf who shall be
similarly qualified. If Landlord fails to notify Tenant of the
appointment of its arbitrator, within or by the time above
specified, then the arbitrator appointed by Tenant shall be the
arbitrator to determine the issue.
(d) In the event that two (2) arbitrators are chosen pursuant to
Section 4(a) above, the arbitrators so chosen shall, within
fifteen (15) days after the second arbitrator is appointed,
appoint a third arbitrator, who shall be a competent and
impartial person with qualifications similar to those required
of the first two (2) arbitrators pursuant to Section 4(a). In
the event the two (2) arbitrators are unable to agree upon such
appointment within ten (10) days after expiration of said
fifteen (15) day period, the third arbitrator shall be selected
by the parties themselves, if they can agree thereon, within a
further period of five (5) days. If
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<PAGE> 37
the parties do not so agree, then either party, on behalf of
both, may request appointment of such a qualified person by the
then Chief Judge of the United States District Court having
jurisdiction over the City and County of Santa Clara, acting in
his private and not in his official capacity, and the other
party shall not raise any question as to such Judge's full power
and jurisdiction to entertain the application for and make the
appointment. The third arbitrator shall decide the dispute if it
has not previously been resolved by following the procedure set
forth below.
(e) Where the determination of Fair Market Value cannot be
resolved by settlement between the parties during the course of
arbitration, the issue shall be resolved by the third arbitrator
in accordance with the following procedure. The arbitrator
selected by each of the parties shall state in writing his or
her determination of the Fair Market Value supported by the
reasons therefor with counterpart copies to each party. The
arbitrators shall arrange for a simultaneous exchange of such
proposed resolutions. The role of the third arbitrator shall be
to select which of the two proposed resolutions most closely
approximates his or her determination of Fair Market Value. The
third arbitrator shall have no right to propose a middle ground
or any modification of either of the two proposed resolutions.
The resolution he or she chooses as most closely approximating
his or her determination shall constitute the decision of the
arbitrators and be final and binding upon the parties.
(f) In the event of a failure, refusal or inability of any
arbitrator to act, his or her successor shall be appointed by
him, but in the case of the third arbitrator, his or her
successor shall be appointed in the same manner as provided for
appointment of the third arbitrator. The arbitrators shall
decide the issue within ten (10) days after the appointment of
the third arbitrator. Any decision in which the arbitrator
appointed by Landlord and the arbitrator appointed by Tenant
concur shall be binding and conclusive upon the parties. Each
party shall pay the fee and expenses of its respective
arbitrator and both shall share the fee and expenses of the
third arbitrator. The attorneys' fees and expenses of counsel
for the respective parties and of witnesses shall be paid by the
respective party engaging such counsel or calling such
witnesses.
(g) The third arbitrator shall have the right to consult experts
and competent authorities to obtain factual information or
evidence pertaining to a determination of Fair Market Value, but
any such consultation shall be made in the presence of both
parties with full right on their part to cross-examine. The
third arbitrator shall render his or her decision in writing
with counterpart copies to each party. The third arbitrator
shall have no power to modify the provisions of this Lease.
(4) So long as all conditions to the exercise of the Option to Purchase
are satisfied or are waived in writing by Landlord, Tenant may exercise
the Option to Purchase in accordance with this Section 38.C and in no
other manner. In the event that Tenant fails to deliver the First Option
Exercise Notice or the Second Option Exercise Notice to Landlord as
provided herein, the First Option Exercise Notice or the Second Option
Exercise Notice, as applicable, shall be null and void and of no further
force or effect.
(5) Anything herein to the contrary notwithstanding, if Tenant is in
default of any monetary obligation hereunder (without regard to any
notice or cure period) or is in default of any material non-monetary
obligation hereunder following the expiration of any applicable notice
and cure period, either at the time Tenant exercises the Option to
Purchase or on the Closing Date, then Landlord shall have, in addition
to all of Landlord's other rights and remedies provided in this Lease,
the right to terminate the First Option to Purchase, or the Second
Option to Purchase, as applicable, upon written notice to Tenant. Any
inspection or testing of the Premises by Tenant shall be conducted in
accordance with the Purchase Agreement.
(6) The First Option to Purchase and the Second Option to Purchase
granted to Tenant pursuant to this Section 38.C shall be personal to
Aviron and shall not be assigned, transferred or otherwise conveyed by
Aviron; provided, that Aviron shall be entitled to assign, transfer or
otherwise convey the First Option to Purchase or the Second Option to
Purchase, as applicable, or assign the Lease to an Affiliate or a Public
32
<PAGE> 38
Company to the extent provided and subject to the terms and conditions
of Section 21.A.3. Except as provided in the previous sentence, in the
event Aviron attempts to or assigns, transfers or otherwise conveys the
First Option to Purchase and/or the Second Option to Purchase granted
hereunder or assign the Lease or attempts any of the foregoing, both the
First Option to Purchase and the Second Option to Purchase granted
herein and the Lease shall automatically terminate.
(7) Landlord and tenant agree that Tenant's failure to perform as
required in this Section 38.C may result in substantial losses to
Landlord, including, but not limited to, the loss of prospective tenants
and/or purchasers of the Premises. As a consequence thereof, Landlord
and Tenant agree that time is truly of the essence of each of the
provisions of this Section 38.C and the Purchase Agreement.
(8) On the Closing Date, this Lease shall automatically terminate, Rent
and other charges owing to Landlord, if any, shall be prorated as of the
Closing Date and neither Landlord nor Tenant shall have any further
obligations hereunder except as specifically provided herein to the
contrary.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ [Signature Illegible]
--------------------------------
Its: Regional Senior Vice President
--------------------------------
Date: February 5, 1999
TENANT
Aviron,
a Delaware corporation
By: Fred Kurland
-------------------------------------
Its: Senior Vice President and Chief
Financial Officer
-------------------------------------
Date: February 5, 1999
33
<PAGE> 39
EXHIBIT A
SITE PLAN, PROPERTY DESCRIPTION
All of that real property situated in the City of Santa Clara, County of Santa
Clara, State of California, described as follows:
Parcel B, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on October 10, 1979
in Book 450 of Maps, page(s) 56. ARB No. 104-4-42.08.
<PAGE> 1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
EXHIBIT 10.26
FIRST AMENDMENT TO THE INFLUENZA VACCINE COLLABORATION AND
LICENSE AND DISTRIBUTION AGREEMENT
This FIRST AMENDMENT TO THE INFLUENZA VACCINE COLLABORATION AND LICENSE AND
DISTRIBUTION AGREEMENT (the "Amendment") is made this _7th_ day of _____June__,
1999, by and between CSL LIMITED, A.C.N. 051 588 348 whose head office is
situated at 45 Poplar Road, Parkville in the State of Victoria, 3052, Australia
(hereinafter, "CSL Limited") and its Affiliates in the Territory (hereinafter,
collectively referred to as "CSL"), and AVIRON of 297 North Bernardo Avenue,
Mountain View, in the State of California 94043, U.S.A. (hereinafter referred to
as "Aviron"), each of which may be hereinafter referred to together as "the
Parties" or each individually as a "Party".
RECITALS
WHEREAS, Aviron and CSL have entered into that certain Influenza Vaccine
Collaboration and License and Distribution Agreement dated June 19, 1998 (the
"Agreement") regarding the clinical development and commercialization of
Aviron's proprietary intranasally delivered cold adapted influenza vaccine in
[*] formulation in certain territories; and
WHEREAS, the Parties now desire to expand the scope of the Agreement to include
such vaccine in [*] formulation;
NOW, THEREFORE, the Parties hereby agree as follows:
1. Section 1.3 of the Agreement is hereby amended as follows:
"Aviron Product" means (a) Aviron's live, intranasally delivered, cold
adapted influenza vaccine in a [*] formulation that, during the dating period
established by the FDA, [*]; and (b) the [*].
2. Section 1.6 of the Agreement is hereby amended as follows:
"Bridging Studies" means:
(a) those certain "bridging studies" required to be conducted to obtain
Regulatory Approval in the Territory for the [*] Aviron Product by demonstrating
[*], in order to [*] for the [*]; and
(b) those certain "bridging studies" required to be conducted to obtain
Regulatory Approval in the Territory for the [*] by demonstrating its [*], in
order to [*] for the [*].
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE, 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
1
<PAGE> 2
3. Section 1.15 of the Agreement is hereby amended as follows:
"Development and Regulatory Costs" means the costs incurred by either Party
or for its account specifically identifiable to the development of the Aviron
Product for Regulatory Approval in the Territory and shall consist of (a) [*]
costs associated with the conduct of the [*]; (b) Cost of Goods Shipped of any
Aviron Product [*]; and (c) direct labor and materials and out-of-pocket costs
associated with the [*] in the Territory as specified in the Development Plan
and approved by the Steering Committee, and all calculated in accordance with
reasonable cost accounting methods, consistently applied by the Party performing
the work.
4. Section 1.19 of the Agreement is hereby amended as follows:
"[*] Aviron Product" means Aviron's live, intranasally delivered, cold
adapted influenza vaccine in a formulation which, during the dating period
established by the FDA, [*], as further described in the PLA.
5. Section 1.20 of the Agreement is hereby amended as follows:
"[*] CSL Product" means any influenza vaccine (whether live or killed)
product [*], but specifically excluding the [*] Aviron Product.
6. Section 1.25 of the Agreement is hereby amended as follows:
"Market Launch" means the first to occur of (a) the first commercial sale
of the [*] Aviron Product in the Territory by CSL or its Affiliate, or (b) the
first commercial sale of the [*] Aviron Product in the Territory by CSL or its
Affiliate.
7. The following provision is hereby inserted as Section 4.8 of the Agreement:
4.8 Development of Aviron Product outside of Territory. Notwithstanding
any other provision of this Agreement, the Steering Committee shall have [*] of
the Aviron Product outside of the Territory.
8. The following provision is hereby inserted as Section 4.9 of the Agreement:
4.9 Failure to Obtain Regulatory Approval. In the event that CSL has not
obtained Regulatory Approval for the [*] Aviron Product in the Territory within
the [*] following the date that the [*] Aviron Product is approved for
commercial sale in the United States by the FDA, Aviron shall have the right to
[*] with respect to the [*] Aviron Product upon [*] written notice.
9. Section 6.1(a) of the Agreement is hereby amended as follows:
Supply by Aviron. It is Aviron's intention to supply, or cause to be
supplied, finished Aviron Product to CSL for sale in the Territory. Any such
supply shall be pursuant to a separate supply agreement. Such supply agreement
will contain standard industry terms, including without limitation provisions
regarding forecasts, ordering, delivery and acceptance. Aviron
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE, 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 3
Product provided to CSL pursuant to such supply agreement will be invoiced to
CSL at Aviron's [*], which [*] shall not be [*]. Such agreement will also
provide that:
(i) Aviron shall in good faith attempt to meet CSL's Aviron Product
requirements, provided that in the event that [*], Aviron reserves the right
to [*];
(ii) Aviron shall [*] to supply [*] Aviron Product to CSL to the
extent that such supply would prevent [*] and/or meeting its obligations under
an [*] with [*] Aviron Product for [*] the Territory;
(iii) Aviron shall not be held liable for [*];
(iv) such Aviron Product shall be manufactured in accordance with the
specifications approved by the TGA and in compliance with Good Manufacturing
Practices; and
(v) following the earlier of (A) the [*] of the date that the [*]
Aviron Product receives approval from the FDA for commercial sale in the United
States, or (B) the expiration or termination of [*] as of the Effective Date
between [*] relating to the [*] Aviron Product, as such [*] (it being understood
that [*] shall have no obligation to [*] may at its election and upon [*] prior
written notice, [*] Aviron Product to [*] under this Agreement, provided that in
such event, [*] shall be deemed to have [*] under the [*] Aviron Product for [*]
in the Territory during the term of this Agreement.
10. The following provision is hereby inserted as Section 6.2 to the Agreement:
6.2 [*]. To the extent that doing so is consistent with [*] to its [*] may
become a [*] for the [*] Aviron Product.
11. Section 18.1 of the Agreement is hereby amended as follows:
Term of Agreement.
(a) Initial Term. This Agreement shall expire upon the sixth
anniversary of the date of the first commercial sale of the Liquid Aviron
Product in the Territory by CSL or its Affiliate, provided that (i) if there has
been no such commercial sale of the [*] Aviron Product within six (6) years of
the Effective Date, then this Agreement shall expire upon the sixth anniversary
of the date of the first commercial sale of the [*] Aviron Product in the
Territory by CSL or its Affiliate, and (ii) if there has been no such commercial
sale of either the [*] Aviron Product or the [*] Aviron Product within six (6)
years of the Effective Date, then this Agreement shall expire upon the sixth
anniversary of the Effective Date (each such expiration, the "Initial Term").
(b) Renewal. In the event one of the following events (each, a
"Triggering Event") has occurred:
(i) CSL and its Affiliate has sold in the Territory at least [*]
of the Aviron Product (whether the [*] Aviron Product or the [*] Aviron Product)
in
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE, 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 4
the aggregate in [*] years from the first commercial sale of the [*] Aviron
Product in the Territory by CSL or its Affiliate; or
(ii) CSL has obtained [*] for the [*] Aviron Product in Australia
for [*] any time prior to the expiration of the Initial Term; or
(iii) CSL has obtained [*] for the [*] Aviron Product in
Australia for [*] any time prior to the expiration of the Initial Term;
then CSL shall have the right, upon thirty (30) days written notice to
Aviron (but in no event after the termination or expiration of the Initial Term,
except with Aviron's prior written consent), to renew the term of this Agreement
for an additional six (6) years, subject to Aviron's right to terminate during
such additional term, as provided in Section 18.2(d). It is understood by the
Parties that such renewal shall occur no more than once and shall be on the same
terms and conditions as herein contained. In the event that none of the
Triggering Events have occurred prior to expiration of the Initial Term, this
Agreement shall terminate, unless otherwise agreed upon by the Parties.
12. The following provisions are hereby inserted as Sections 10.2(n) and
10.2(o) of the Agreement:
(n) Section 3.5 (United States government "march-in" rights);
(o) Section 8.5 ([*]).
13. The following provisions of Section 1.1 of the Option Agreement, which is
attached and incorporated into the Agreement as Schedule 7.7 thereof, are hereby
amended as follows:
Acceptance Period means the period commencing on the first of (i) the date
[*], or (ii) the date [*], and ending at 4 p.m. (Melbourne time) on the date
five (5) years after the date of commencement of the Acceptance Period.
Application Period means the period commencing on the date [*], and ending
at 4 p.m. (Melbourne time) on the date five (5) years after the date of
commencement of the Application Period.
Relevant Condition Precedent means:
(a) In the case of the Option referred to in Clause 2.1(a), the occurrence
of the event which causes [*];
(b) In the case of the Option referred to in Clause 2.1(b), the occurrence
of the event which causes [*]; and
(c) In the case of the Option referred to in Clause 2.1(c), the occurrence
of the event which causes the Third Period to commence.
Third Period means the period commencing on the first to occur of:
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE, 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 5
(a) the date CSL first [*]; or
(b) the date that [*];
and ending at 4 p.m. (Melbourne time) on the date [ * ] after the date of
commencement of the Third Period.
14. All capitalized words used in this Amendment shall have the meanings
ascribed to them in the Agreement, unless otherwise indicated.
15. Except as explicitly set forth in this Amendment, all other terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed
by the respective duly authorized officers as of the date first written above.
CSL LIMITED, A.C.N. AVIRON
By: /s/ Stan McLiesh By: /s/ Carol A. Olson
----------------------------------- -----------------------------------
Printed Name: Stan McLiesh Printed Name: Carol A. Olson
------------------------- -------------------------
Title: General Manager Pharmaceuticals Title: Senior Vice President
-------------------------------- --------------------------------
/s/ P. Turvey
- --------------------------------------
Peter Turvey (date)
Company Secretary
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE, 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 6
420703 v2/PA
90m702!.DOC
072699/1648
420703 v3/PA
90m703!.DOC
072699/1648
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE, 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 1
EXHIBIT 10.27
EXECUTION COPY
THE INDEBTEDNESS CREATED PURSUANT TO THIS LOAN AND SECURITY AGREEMENT IS
"DESIGNATED SENIOR INDEBTEDNESS" AS THAT TERM IS DEFINED IN THE INDENTURE, DATED
AS OF MARCH 15, 1998, BETWEEN AVIRON AND MARINE MIDLAND BANK WITH RESPECT TO THE
5 3/4% CONVERTIBLE SUBORDINATED NOTES OF AVIRON DUE 2005
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT dated as of June 23, 1999, is
made by AVIRON (the "Borrower"), a Delaware corporation having its principal
place of business and chief executive office at 297 North Bernardo Avenue,
Mountain View, California 94043, in favor of Transamerica Business Credit
Corporation, a Delaware corporation (the "Lender"), having its principal office
at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, and an office at 76 Batterson Park Road, Farmington, Connecticut
06032-2571.
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Lender make loans to
it; and
WHEREAS, the Lender has agreed to make such loans on the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce
the Lender to make such loans, the Borrower hereby agrees with the Lender as
follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings, and shall be equally applicable to both the singular and plural forms
of the terms defined:
"Affiliate" shall mean as to any Person, any other Person who
directly or indirectly controls, is under common control with, is controlled by
or is a director or officer of such Person. As used in this definition,
"control" (including its correlative meanings, "controlled by" and "under common
control with") means possession, directly or indirectly, of the power to direct
or cause the direction of management or policies (whether through ownership of
voting securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person who owns directly or
indirectly ten percent (10%) or more of the securities having ordinary voting
power for the election of the members of the board of
<PAGE> 2
directors or other governing body of a corporation or ten percent (10%) or more
of the partnership or other ownership interests of any other Person (other than
as a limited partner of such other Person) will be deemed to control such
corporation, partnership or other Person.
"Agreement" shall mean this Loan and Security Agreement, as
amended, supplemented, or otherwise modified from time to time.
"American Home Products Corporation" shall mean American Home
Products Corporation, a Delaware corporation.
"Applicable Law" shall mean the laws of the State of Illinois (or
any other jurisdiction whose laws are mandatorily applicable notwithstanding the
parties' choice of Illinois law) or, with respect to laws limiting the rates of
interest charges on loans, the laws of the United States of America, whichever
laws allow the greater interest to be charged thereon, as such laws now exist or
may be changed or amended or come into effect in the future.
"Business Day" shall mean any day other than a Saturday, Sunday,
or public holiday or the equivalent for banks in Chicago, Illinois.
"Cash Equivalents" shall mean (i) securities issued, guaranteed
or insured by the United States or any of its agencies; (ii) certificates of
deposit maturing no more than one (1) year from the date of investment issued by
(x) the Lender or its Affiliates; (y) any U.S. federal or state chartered
commercial bank of recognized standing which has capital and unimpaired surplus
in excess of $500,000,000; or (z) any bank or its holding company that has a
short-term commercial paper rating of at least A-1 or the equivalent by Standard
& Poor's Ratings Services or at least P-1 or the equivalent by Moody's Investors
Service, Inc.; (iii) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within two (2) years from the date of acquisition thereof; (iv)
corporate commercial paper, corporate notes and bonds, bankers acceptances,
certificates of deposit and repurchase agreements which, if Short Term, have a
minimum credit rating of A-1 or P-1 or, if Long Term, have a minimum credit
rating of A by Standard & Poor's Ratings Services or the equivalent by Moody's
Investors Service, Inc., provided that the investments referred to in this
clause shall mature no more than two (2) years from the date of purchase by the
Borrower and no single investment shall be in an amount greater than $7,500,000
unless such investment is issued by the United States Government or any of its
agencies or is a repurchase agreement collateralized by same or is an approved
money market fund; (v) non-diversified short duration mutual funds with an
average
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<PAGE> 3
credit rating of at least A- by Standard & Poor's Ratings Services or the
equivalent by Moody's Investors Service, Inc. and a duration not to exceed one
and one-half (1.5) years; (vi) investments in money market funds registered
under the Investment Company Act of 1940, which have net assets of at least
$500,000,000 and at least eighty-five percent (85%) of whose assets consist of
securities and other obligations of the type described in clauses (i) through
(v) above; and (vii) other instruments, commercial paper or investments
acceptable to the Lender in its sole discretion.
"Cash Covenant" shall have the meaning specified in Section 7.
"Cash Covenant Default" shall have the meaning specified in
Section 9(n).
"Code" shall have the meaning specified in Section 10(a)(viii).
"Collateral" shall have the meaning specified in Section 2.
"Effective Date" shall mean the date on which all of the
conditions specified in Section 3.3 shall have been satisfied.
"Equipment" shall have the meaning specified in Section 2.
"Event of Default" shall mean any event specified in Section 9.
"Financial Statements" shall have the meaning specified in
Section 6.1.
"First Loan" shall have the meaning specified in Section 3.1.
"First Note" shall mean the promissory note, substantially in the
form of Exhibit A, as amended, supplemented or otherwise modified from time to
time.
"Fourth Note" shall mean the promissory note, substantially in
the form of Exhibit D, as amended, supplemented or otherwise modified from time
to time.
"GAAP" shall mean generally accepted accounting principles in the
United States of America, as in effect from time to time.
"Governing Documents" shall mean the Borrower's
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<PAGE> 4
certificate of incorporation and bylaws, or similar organizational documents of
the Borrower.
"Indebtedness" shall mean, with respect to any Person, as of the
date of determination thereof (without duplication), (i) all obligations of such
Person for borrowed money of any kind or nature, including funded and unfunded
debt, and Swaps regardless of whether the same is evidenced by any note,
debenture, bond or other instrument, (ii) all obligations of such Person to pay
the deferred purchase price of property or services (other than current trade
accounts payable under normal trade terms and which arise in the ordinary course
of business), (iii) all obligations of such Person to acquire or for the
acquisition or use of any fixed asset, including capitalized lease obligations
(other than, in any such case, any portion thereof representing interest or
deemed interest or payments in respect of taxes, insurance, maintenance or
service), or improvements which are payable over a period longer than one year,
regardless of the term thereof or the Person or Persons to whom the same are
payable, (iv) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right to be secured by) a Lien on any asset of
such Person whether or not the Indebtedness is assumed by such Person, provided
that for the purpose of determining the amount of Indebtedness of the type
described in this clause (iv), if recourse with respect to such Indebtedness is
limited to the assets of such Person, then the amount of Indebtedness shall be
limited to the fair market value of such assets, (v) all Indebtedness of others
to the extent guaranteed by such Person and (vi) all obligations of such Person
in respect of letters of credit, bankers acceptances or similar instruments
issued or accepted by banks or other financial institutions for the account of
such Person.
"Intellectual Property" shall have the meaning specified in
Section 2.
"Letter of Credit" shall have the meaning specified in Section
9(n).
"Lien" shall mean any lien, claim, charge, encumbrance, pledge,
security interest, assignment, hypothecation, deed of trust, mortgage, lease,
conditional sale, retention of title or other preferential arrangement having
substantially the same economic effect as any of the foregoing, whether
voluntary or imposed by law.
"Loan Documents" shall mean, collectively, this Agreement, the
Notes and all other documents, agreements, certificates, instruments, and
opinions executed and delivered in connection herewith and therewith, as the
same may be amended, supplemented or otherwise modified from time to time.
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<PAGE> 5
"Loans" shall mean the First Loan and the Subsequent Loans.
"Long Term" shall mean maturing at any time after the date that
is the one-year anniversary from the date of issuance.
"Material Adverse Change" shall mean, with respect to any Person,
a material adverse change in the business, prospects, operations, results of
operations, assets, liabilities, or condition (financial or otherwise) of such
Person taken as a whole.
"Material Adverse Effect" shall mean, with respect to any Person,
a material adverse effect on the business, prospects, operations, results of
operations, assets, liabilities, or condition (financial or otherwise) of such
Person taken as a whole.
"Notes" shall mean the First Note, the Second Note, the Third
Note and the Fourth Note.
"Obligations" shall mean all indebtedness, obligations, and
liabilities of the Borrower under the Loan Documents, whether on account of
principal, interest, rent, finance charges, indemnities, fees (including,
without limitation, attorneys' fees, remarketing fees, origination fees,
collection fees, and all other professionals' fees), costs, expenses, taxes, or
otherwise.
"Permitted Indebtedness" shall mean (a) Indebtedness of the
Borrower in favor of the Lender, (b) Indebtedness secured by any Permitted
Liens, (c) Subordinated Indebtedness, (d) Swaps which are not speculative and
which hedge pre-existing risks and (e) extensions, refinancings, modifications,
amendments and restatements of any of the items of Permitted Indebtedness above,
but only to the extent such extensions, refinancings, modifications, amendments
or restatements (other than under clause (a)) do not increase the Indebtedness
of the Borrower.
"Permitted Liens" shall mean (a) Liens for taxes, assessments,
and other governmental charges or levies or the claims or demands of landlords,
carriers, warehousemen, mechanics, laborers, materialmen, and other like Persons
arising by operation of law in the ordinary course of business for sums which
are not yet due and payable, or Liens which are being contested in good faith by
appropriate proceedings diligently conducted and with respect to which adequate
reserves are maintained to the extent required by GAAP; (b) deposits, pledges or
Liens to secure the payment of workmen's compensation, unemployment insurance,
or other social security benefits or obligations, public or statutory
obligations, surety or appeal
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<PAGE> 6
bonds, bid or performance bonds, or other obligations of a like nature incurred
in the ordinary course of business; (c) licenses, leases, restrictions, or
covenants for or on the use of Equipment or Intellectual Property which do not
materially impair either the use of such Equipment or Intellectual Property in
the operation of the business of the Borrower or the value thereof; (d)
attachment or judgment Liens that do not constitute an Event of Default; (e)
Liens in favor of the Lender; (f) Liens on Equipment leased by the Borrower or
any of its subsidiaries pursuant to an operating or capital lease in the
ordinary course of business (including proceeds thereof and accessions thereto)
incurred solely for the purpose of financing the lease of such Equipment; (g)
easements, reservations, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances affecting real
property not constituting a Material Adverse Effect; (h) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payments of
customs duties in connection with the importation of goods; (i) Liens
constituting rights of setoff of a customary nature or banker's or securities
intermediaries' Liens with respect to amounts on deposit or investment deposits,
whether arising by operation of law or by contract, in connection with
arrangements entered into with banks in the ordinary course of business; (j)
earn-out and royalty obligations existing on the date hereof or entered into in
connection with an acquisition permitted by Section 5.14; (k) Liens (i) on
assets acquired by the Borrower or its subsidiaries after the date of this
Agreement which Liens existed prior to such acquisition or (ii) on assets
acquired or held by the Borrower or its subsidiaries to secure the purchase
price of such assets or Indebtedness incurred solely for the purpose of
financing the acquisition of such assets, provided that (A) each such Lien shall
attach only to the property to be acquired; (B) such Liens shall be created
substantially simultaneously with the acquisition of such assets; (C) a
description of the assets so acquired is furnished to the Lender; and (D) the
principal amount of the Indebtedness secured by such Liens shall at no time
exceed $5,000,000 in the aggregate; (l) Liens in favor of American Home Products
Corporation to secure Subordinated Indebtedness; and (m) Liens securing loans up
to $38,000,000 to the Borrower on terms satisfactory to the Lender in its sole
discretion to be used to finance the construction by the Borrower of a bulk
manufacturing facility at which the Borrower's "FluMist" product will be
manufactured and personal property and leasehold improvements to be situated
therein; provided, however, that in no event shall any Lien securing assets of
the type specified in the last sentence of Section 2 be deemed to be a
"Permitted Lien."
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party, or government (including any division,
agency, or
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<PAGE> 7
department thereof), and the successors, heirs, and assigns of each.
"Receivables" shall have the meaning specified in Section 2(iii).
"Second Note" shall mean the promissory note, substantially in
the form of Exhibit B, as amended, supplemented or otherwise modified from time
to time.
"Short Term" shall mean maturing at any time on or before the
date that is the one-year anniversary from the date of issuance.
"Solvent" shall mean, with respect to any Person, that as of the
date as to which such Person's solvency is measured:
(a) the fair saleable value of its assets is in excess of
the total amount of its liabilities (including contingent
liabilities as valued in accordance with GAAP) as they become
absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
"Subordinated Indebtedness" shall mean the convertible
subordinated Indebtedness issued by the Borrower under the Trust Indenture dated
March 5, 1998, by and between the Borrower and Marine Midland Bank, as Trustee,
and any Indebtedness of the Borrower (other than Indebtedness owed to Affiliates
of the Borrower) which is subordinated to the Obligations on terms and under
documentation in form and substance satisfactory to the Lender in its sole
discretion.
"Subsequent Loans" shall have the meaning specified in Section
3.1.
"Swaps" shall mean, with respect to any Person, payment
obligations with respect to interest rate swaps, currency swaps and similar
obligations obligating such Person to make payments, whether periodically or
upon the happening of a contingency. For the purposes of this Agreement, the
amount of the obligation under any Swap shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such Swap had terminated at the end of
such fiscal quarter, and in making such determination, if any agreement relating
to such Swap provides for the netting of amounts payable by and to such Person
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<PAGE> 8
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"Taxes" shall have the meaning specified in Section 5.5.
"Third Note" shall mean the promissory note, substantially in the
form of Exhibit C, as amended, supplemented or otherwise modified from time to
time.
SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. The
Borrower hereby assigns and grants to the Lender a continuing general lien on,
and security interest in, all the Borrower's right, title, and interest in and
to the collateral described in the next sentence (the "Collateral") to secure
the payment and performance of all the Obligations. The Collateral consists of
(i) all present and future machinery, equipment,
furniture, fixtures, leasehold improvements, conveyors, tools,
materials, storage and handling equipment, hydraulic presses,
cutting equipment, computer equipment and hardware, including
central processing units, terminals, drives, memory units,
printers, keyboards, screens, peripherals and input or output
devices, molds, dies, stamps, and other equipment of every kind
and nature and wherever situated now or hereafter owned and held
for use by the Borrower or in which the Borrower may have any
interest as lessee (to the extent of such interest), together
with all additions and accessions thereto, all replacements and
all accessories and parts therefor, all manuals, blueprints,
know-how, warranties and records in connection therewith
(including, without limitation, any computer software, whether on
tape, disc, card, strip or cartridge or in any other form) and
all rights against suppliers, warrantors, manufacturers, and
sellers or others in connection therewith, together with all
substitutes for any of the foregoing (collectively, "Equipment");
(ii) all present and future goods intended for sale,
lease or other disposition by the Borrower including, without
limitation, all raw materials, work in process, systems,
accessories, spare parts, finished goods and other retail
inventory, goods in the possession of outside processors or other
third parties, consigned goods (to the extent of the consignee's
interest therein), materials, parts and supplies of any kind,
nature or description which are
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<PAGE> 9
or might be used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of any such goods,
all documents of title or documents representing the same and all
records, files and writings (including, without limitation, any
computer software, whether on tape, disc, card, strip or
cartridge or in any other form) with respect thereto;
(iii) all of the Borrower's present and future accounts
(including rights to receive payments for goods sold or services
rendered arising out of the sale or delivery of personal property
or work done or labor performed), contract rights, agreements,
understandings, open purchase and sale orders, promissory notes,
chattel paper, documents, tax refunds, rights to receive tax
refunds, bonds, certificates, insurance policies, insurance
proceeds, licenses, rights to receive fees, royalties and other
payments under license agreements, permits, franchise rights,
authorizations, customer and supplier lists, rights of
indemnification, contribution and subrogation, leases, computer
tapes, programs, discs and software, computer service contracts,
deposits, causes of action, choses in action, judgments, designs,
blueprints, quotations and bids, plans, specifications, sales
literature, all other general intangibles, claims against third
parties of every kind or nature, investment securities, notes,
drafts, acceptances, letters of credit and rights to receive
payments under letters of credit, deposit accounts, book
accounts, prepaid expenses, credits and reserves and all forms of
obligations whatsoever owing, instruments, documents of title,
leasehold rights, including in any goods, books, ledgers, files
(including credit and project files) and records (including tax
records) with respect to any collateral or security, together
with all right, title, security and guaranties with respect
thereto, including any right of stoppage in transit
(collectively, "Receivables"); and
(iv) all proceeds of the foregoing.
Notwithstanding the foregoing, "Collateral" shall not include patents, patent
applications, copyrights (registered and unregistered), trademarks, trade names,
service marks, names, logos, goodwill, trade secrets, know-how and royalties for
any of the foregoing (collectively, "Intellectual Property"). Notwithstanding
anything to the contrary, the grant of a security interest as provided in this
Agreement shall not extend to, and the term "Collateral" shall not include, any
accounts, general intangibles, instruments or chattel paper of the Borrower
(whether owned or held as licensee or lessee, or otherwise), to
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<PAGE> 10
the extent that (i) such accounts, general intangibles, instruments, or chattel
paper are not assignable as a matter of law or under the terms of the license,
lease or other agreement applicable thereto (but solely to the extent that any
such restriction shall be effective under Applicable Law), without the consent
of the Person to whose benefit such restrictions exist and (ii) such consent has
not been obtained; provided, however, that the foregoing grant of security
interest shall extend to, and the term "Collateral" shall include, (A) any and
all proceeds of any general intangibles, accounts, instruments or chattel paper
which are otherwise excluded to the extent that the assignment or encumbrance of
such proceeds is not so restricted, including under Section 9-318 of the Code,
and (B) upon obtaining the consent of any such licensor, lessor or other
applicable party's consent with respect to any such otherwise excluded general
intangibles, accounts, instruments or chattel paper, and all proceeds thereof
that might otherwise have been excluded from such grant of a security interest
and the term "Collateral."
SECTION 3. THE LOANS.
SECTION 3.1. BORROWING. The Loans shall be in an aggregate
amount not greater than $10,000,000 available for borrowing, upon the
satisfaction of the conditions in Section 3.3 of this Agreement, in up to four,
but no less than two, installments (the first of which being referred to herein
as the "First Loan" and the remaining installments being referred to herein as
the "Subsequent Loans"), each of which shall be in an amount of not less than
$2,500,000 and shall be made on or before December 31, 1999. Notwithstanding
anything herein to the contrary, the Lender shall be obligated to make the Loans
only after the Lender, in its sole discretion, determines that the applicable
conditions for borrowing contained in Section 3.3 are satisfied.
SECTION 3.2. APPLICATION OF PROCEEDS. The Borrower shall
not directly or indirectly use any proceeds of the Loan other than to finance
the purchase or lease of Equipment.
SECTION 3.3. CONDITIONS TO LOANS. The obligation of the
Lender to make the Loans is subject to the following conditions:
(a) In the case of the First Loan, the Lender's receipt of
the following, each dated the date of the making of the Loan or as of an earlier
date acceptable to the Lender, in form and substance satisfactory to the Lender
and its counsel:
(i) completed requests for information (Form UCC-11)
listing all effective Uniform Commercial Code financing
statements naming the Borrower as debtor and all tax lien,
judgment, and litigation searches for the
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<PAGE> 11
Borrower as the Lender shall deem necessary or desirable,
in each case with results satisfactory to the Lender;
(ii) Uniform Commercial Code financing statements (Form
UCC-1) duly executed by the Borrower (naming the Lender as
secured party and the Borrower as debtor and in form acceptable
for filing in all jurisdictions that the Lender deems necessary
or desirable to perfect the security interests granted to it
hereunder) and, if applicable, termination statements or other
releases duly filed in all jurisdictions that the Lender deems
necessary or desirable to perfect and protect the priority of
the security interests granted to it hereunder;
(iii) the First Note, duly executed by the Borrower;
(iv) certificates of insurance required under Section 5.4
together with loss payee endorsements for all such policies
naming the Lender as lender loss payee and as an additional
insured;
(v) copies of the Governing Documents of the Borrower and
a copy of the resolutions of the Board of Directors of the
Borrower (or a unanimous consent of directors in lieu thereof)
authorizing the execution, delivery, and performance of this
Agreement, the other Loan Documents, and the transactions
contemplated hereby and thereby, attached to which is a
certificate of the Secretary or an Assistant Secretary of the
Borrower certifying (A) that such copies of the Governing
Documents and resolutions are true, complete, and accurate, have
not been amended or modified since the date of such
certification and are in full force and effect and (B) the
incumbency, names, and true signatures of the officers of the
Borrower authorized to sign the Loan Documents to which it is a
party;
(vi) a certified copy of a certificate of the Secretary of
State of the state of Delaware, dated a recent date, listing the
certificate of incorporation of the Borrower and each amendment
thereto on file in such official's office and certifying that
(A) such amendments are the only amendments to such certificate
of incorporation on file in that office, (B) the Borrower has
paid all franchise taxes to the date of such certificate and (C)
the Borrower is in good standing in that jurisdiction;
(vii) a certified copy of a certificate of the
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Secretary of State of California, dated a recent date,
certifying that the Borrower is in good standing in that
jurisdiction;
(viii) the opinion of counsel for the Borrower covering
such matters incident to the transactions contemplated by this
Agreement as the Lender may reasonably require;
(ix) a copy of the Borrower's Statement on Form 10-Q for
its fiscal quarter ended March 31, 1999 filed with the United
States Securities and Exchange Commission; and
(x) such other agreements and instruments as the Lender
reasonably deems necessary in connection with the transactions
contemplated hereby.
(b) In the case of a Subsequent Loan, the Lender's receipt
of the Second Note, the Third Note or the Fourth Note, as the case may be, duly
executed by the Borrower.
(c) There shall be no pending or, to the knowledge of the
Borrower after due inquiry, threatened litigation, proceeding, inquiry, or other
action (i) seeking an injunction or other restraining order, damages, or other
relief with respect to the transactions contemplated by this Agreement or the
other Loan Documents or (ii) which affects or could reasonably be expected to
affect the business, prospects, operations, assets, liabilities, or condition
(financial or otherwise) of the Borrower, except, in the case of clause (ii),
where such litigation, proceeding, inquiry, or other action could not reasonably
be expected to have a Material Adverse Effect in the judgment of the Lender.
(d) The Borrower shall have paid to the Lender all fees
and expenses required to be paid by it to the Lender as of such date as
specified in the commitment letter agreement dated May 7, 1999 between the
Borrower and the Lender.
(e) All representations and warranties of the Borrower
contained in this Agreement and the other Loan Documents shall be true and
correct on and as of the date of the making of the applicable Loan; provided,
however, that those representations and warranties expressly referring to
another date shall be true and correct in all material respects as of such date.
(f) No Event of Default or event which with the giving of
notice or the passage of time, or both, would constitute an Event of Default
shall be continuing or would result from the making of the applicable Loan.
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(g) the Lender shall have conducted and completed due
diligence to its satisfaction with respect to the Borrower's marketing and
development arrangement with American Home Products Corporation for the
Borrower's "FluMist" product.
SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
SECTION 4.1. GOOD STANDING; QUALIFIED TO DO BUSINESS; NO
TRADE NAMES. The Borrower (a) is duly organized, validly existing, and in good
standing under the laws of the State of Delaware, (b) has the power and
authority to own its properties and assets and to transact the businesses in
which it is presently, or proposes to be, engaged, and (c) is duly qualified and
authorized to do business and is in good standing in every jurisdiction in which
the failure to be so qualified could reasonably be expected to have a Material
Adverse Effect on (i) the Borrower, (ii) the Borrower's ability to perform its
obligations under the Loan Documents or (iii) the rights of the Lender
hereunder. The Borrower does not use, and has not used during the past five
years, any trade or other fictional name.
SECTION 4.2. DUE EXECUTION, ETC. The execution, delivery,
and performance by the Borrower of each of the Loan Documents to which it is a
party are within the powers of the Borrower, do not contravene the Governing
Documents and do not (a) violate any law or regulation, or any order or decree
of any court or governmental authority, (b) conflict with or result in a breach
of, or constitute a default under, any material indenture, mortgage or deed of
trust, or any material lease, agreement or other instrument binding on the
Borrower or any of its properties or (c) require the consent of, authorization
by, approval of, notice to or filing or registration with any Person. This
Agreement is, and each of the other Loan Documents to which the Borrower is or
will be a party, when delivered will be, the legal, valid, and binding
obligation of the Borrower enforceable against the Borrower in accordance with
their respective terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and except as such enforceability may
be limited by general principles of equity, whether considered in a suit in law
or in equity).
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SECTION 4.3. SOLVENCY; NO LIENS. The Borrower is Solvent
and will be Solvent upon the completion of all transactions contemplated to
occur hereunder (including, without limitation, the making of the Loans); the
security interests granted herein constitute and shall at all times constitute
the only Liens on the Collateral (other than Permitted Liens, of which those
specified in clauses (a), (f), (g), (h), (i) and (k) of the definition of
"Permitted Liens" may have priority over the Lender's Liens); and the Borrower
is, or will be at the time additional Collateral is acquired by it, the absolute
owner of the Collateral with full right to pledge, sell, consign, transfer, and
create a security interest therein, free and clear of any and all claims or
Liens in favor of any other Person other than Permitted Liens.
SECTION 4.4. NO JUDGMENTS, LITIGATION. Except as set forth
on Schedule 4.4, no judgments are outstanding against the Borrower nor is there
now pending or, to the best of the Borrower's knowledge, threatened any
litigation, contested claim, or governmental proceeding by or against the
Borrower.
SECTION 4.5. NO DEFAULTS. The Borrower is not in default
and has not received a notice of default under any material contract, lease, or
commitment to which it is a party or by which it is bound. The Borrower knows of
no dispute regarding any contract, lease, or commitment which could have a
Material Adverse Effect on the Borrower.
SECTION 4.6. COLLATERAL LOCATIONS. On the date hereof, (i)
except as set forth on Schedule 4.6, each item of the Collateral consisting of
goods is located at the address of the Borrower specified in the introductory
paragraph of this Agreement and (ii) the principal place of business and chief
executive office of the Borrower and the office where the Borrower keeps its
records is the address of the Borrower specified in the introductory paragraph
of this Agreement. None of the Collateral is evidenced by promissory notes or
other instruments.
SECTION 4.7. NO EVENTS OF DEFAULT. No Event of Default has
occurred and is continuing nor has any event occurred which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default.
SECTION 4.8. NO LIMITATION ON LENDER'S RIGHTS. None of the
Collateral is subject to contractual obligations that may restrict or inhibit
the Lender's rights or ability to sell or otherwise dispose of the Collateral or
any part thereof after an Event of Default.
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SECTION 4.9. PERFECTION AND PRIORITY OF SECURITY INTEREST.
This Agreement creates a valid and, upon completion of all required filings of
financing statements and similar registrations and except with respect to
deposit accounts and investment property, perfected first priority and exclusive
security interest in the Collateral (other than Permitted Liens), securing the
payment of all the Obligations. There is no contractual or other restriction
applicable to the granting by the Borrower of the Liens hereunder.
SECTION 4.10. ACCURACY AND COMPLETENESS OF INFORMATION.
All data, reports and information heretofore, contemporaneously or hereafter
furnished by or on behalf of the Borrower in writing to the Lender or for
purposes of or in connection with this Agreement or any other Loan Document, or
any transaction contemplated hereby or thereby, are or will be true and accurate
in all material respects on the date as of which such data, reports and
information are dated or certified and not incomplete by omitting to state any
material fact necessary to make such data, reports and information not
misleading at such time. There are no facts now known to the Borrower which
individually or in the aggregate would reasonably be expected to have a Material
Adverse Effect on the Borrower and which have not been specified herein, in the
Financial Statements, or in any certificate, opinion, or other written statement
previously furnished by the Borrower to the Lender.
SECTION 5. COVENANTS OF THE BORROWER.
SECTION 5.1. EXISTENCE, ETC. The Borrower will: (a) retain
its existence and its current yearly accounting cycle, (b) maintain in full
force and effect all licenses, bonds, franchises, leases, trademarks, patents,
contracts and other rights necessary or desirable in the commercially reasonable
judgment of the Lender to the conduct of its business, (c) continue in, and
limit its operations to, the same general lines of business as those presently
conducted by it and (d) comply with all applicable laws and regulations of any
federal, state or local governmental authority except where any noncompliance
with respect to such laws and regulations could not reasonably be expected to
have a Material Adverse Effect.
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SECTION 5.2. NOTICE TO THE LENDER. As soon as possible,
and in any event within five Business Days after the Borrower learns of the
following, the Borrower will give written notice to the Lender of (a) any
proceeding instituted or threatened to be instituted by or against the Borrower
in any federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign) involving a sum, together
with the sum involved in all other similar proceedings, in excess of $500,000 in
the aggregate, (b) any contract that is terminated or amended and which has had
or could reasonably be expected to have a Material Adverse Effect on the
Borrower, (c) the occurrence of any Material Adverse Change with respect to the
Borrower and (d) the occurrence of any Event of Default or event or condition
which, with notice or lapse of time, or both, would constitute an Event of
Default, together with a statement of the action which the Borrower has taken or
proposes to take with respect thereto.
SECTION 5.3. MAINTENANCE OF BOOKS AND RECORDS. The
Borrower will maintain books and records pertaining to the Collateral in such
detail, form, and scope as the Lender shall require in its commercially
reasonable judgment. The Borrower agrees that the Lender or its agents may enter
upon the Borrower's premises at any time and from time to time during normal
business hours and upon reasonable notice, and at any time on and after the
occurrence of an Event of Default (without notice), for the purpose of
inspecting the Collateral and any and all records pertaining thereto.
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SECTION 5.4. INSURANCE. The Borrower will maintain
insurance on the Collateral under such policies of insurance, with such
insurance companies, in such amounts, and covering such risks as are at all
times satisfactory to the Lender. All such policies shall be made payable to the
Lender, in case of loss, under a standard non-contributory "lender" or "secured
party" clause and are to contain such other provisions as the Lender may
reasonably require to protect the Lender's interests in the Collateral and to
any payments to be made under such policies. Certificates of insurance policies
are to be delivered to the Lender, premium prepaid, with the loss payable
endorsement in the Lender's favor, and shall provide for not less than thirty
days' prior written notice to the Lender of any alteration or cancellation of
coverage. If the Borrower fails to maintain such insurance, the Lender may
arrange for (at the Borrower's expense and without any responsibility on the
Lender's part for) obtaining the insurance. During the continuance of an Event
of Default, the Lender shall have the sole right, in the name of the Lender or
the Borrower, to file claims under any insurance policies, to receive and give
acquittance for any payments that may be payable thereunder, and to execute any
endorsements, receipts, releases, assignments, reassignments, or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.
SECTION 5.5. TAXES. The Borrower will pay, when due, all
taxes, assessments, claims and other charges ("Taxes") lawfully levied or
assessed against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by the
Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof, and if any Lien shall be claimed therefor, then,
without notice to the Borrower, the Lender may pay such Taxes on the Borrower's
behalf, and the amount thereof shall be included in the Obligations.
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SECTION 5.6. BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS;
FEES ON COLLATERAL. The Borrower will defend the Collateral against all claims
and demands of all Persons at any time claiming the same or any interest
therein. The Borrower will not permit any notice creating or otherwise relating
to Liens on the Collateral or any portion thereof to exist or be on file in any
public office other than Permitted Liens. The Borrower shall promptly pay, when
payable, all transportation, storage, and warehousing charges and license fees,
registration fees, assessments, charges, permit fees, and taxes (municipal,
state and federal) which may now or hereafter be imposed upon the ownership,
leasing, renting, possession, sale or use of the Collateral, excluding, however,
(i) all taxes on or measured by the Lender's income and (ii) all charges, fees,
taxes and assessments that are being diligently contested in good faith by the
Borrower for which a reserve has been taken in accordance with GAAP.
SECTION 5.7. NO CHANGE OF LOCATION, STRUCTURE OR IDENTITY.
The Borrower will not (a) change the location of its chief executive office or
establish any place of business other than those specified herein or (b) move or
permit the movement of any item of Collateral from such location if, after
giving effect thereto, the aggregate value of the Collateral not at such
locations would exceed $250,000, except that the Borrower may change its chief
executive office and move or permit the movement of any item of Collateral to
other locations within the United States provided that the Borrower has
delivered to the Lender (i) prior written notice thereof and (ii) duly executed
financing statements and other agreements and instruments (all in form and
substance satisfactory to the Lender) necessary or, in the opinion of the
Lender, desirable to perfect and maintain in favor of the Lender a first
priority security interest in such Collateral.
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SECTION 5.8. FURTHER ASSURANCES. The Borrower will,
promptly upon request by the Lender, execute and deliver or use its best efforts
to obtain any document reasonably required by the Lender (including, without
limitation, warehouseman or processor disclaimers, mortgagee waivers, landlord
disclaimers, or subordination agreements with respect to the Obligations under
the Loan Documents and the Collateral), give any notices, execute and file any
financing statements, intellectual property assignments, mortgages, or other
documents (all in form and substance satisfactory to the Lender), mark any
chattel paper or deliver any chattel paper or instruments to the Lender, and
take any other actions that are necessary or, in the reasonable opinion of the
Lender, desirable to perfect or continue the perfection and the first priority
of the Lender's security interest in the Collateral, to protect the Collateral
against the rights, claims, or interests of any Person (other than Permitted
Liens), or to effect the purposes of this Agreement. The Borrower hereby
authorizes the Lender to file one or more financing or continuation statements,
intellectual property assignments and amendments thereto, relating to all or any
part of the Collateral without the signature of the Borrower where permitted by
law. A carbon, photographic, or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. To the extent
required under this Agreement, the Borrower will pay all reasonable costs
incurred in connection with any of the foregoing.
SECTION 5.9. NO DISPOSITION OF COLLATERAL. The Borrower
will not in any way hypothecate or create or permit to exist any Lien on any of
the Collateral, except for the Lien and security interest granted hereby and
Permitted Liens, and the Borrower will not sell, transfer, assign, pledge,
collaterally assign, exchange, or otherwise dispose of any of the Collateral
other than (i) sales of inventory in the ordinary course of the Borrower's
business, (ii) non-exclusive licenses and similar arrangements for the use of
the property of the Borrower or its subsidiaries in the ordinary course of
business, or (iii) used, worn-out or obsolete equipment. In the event the
Collateral, or any part thereof, is sold, transferred, assigned, exchanged, or
otherwise disposed of in violation of these provisions, the security interest of
the Lender shall continue in such Collateral or part thereof notwithstanding
such sale, transfer, assignment, exchange, or other disposition, and the
Borrower will hold the proceeds thereof in a separate account for the benefit of
the Lender. Following such a sale, the Borrower will transfer such proceeds to
the Lender in kind.
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SECTION 5.10. NO LIMITATION ON LENDER'S RIGHTS. The
Borrower will not enter into any contractual obligations (other than Permitted
Liens) which may restrict or inhibit the Lender's rights or ability to sell or
otherwise dispose of the Collateral or any part thereof.
SECTION 5.11. PROTECTION OF COLLATERAL. The Lender shall
have the right at any time to make any payments and do any other acts the Lender
deems necessary to protect its security interests in the Collateral, including,
without limitation, the rights to satisfy, purchase, contest, or compromise any
Lien (other than Permitted Liens) which, in the judgment of the Lender, appears
to be prior to or superior to the security interests granted hereunder, and
appear in, and defend any action or proceeding purporting to affect its security
interests in, or the value of, any of the Collateral. The Borrower hereby agrees
to reimburse the Lender for all payments made and expenses reasonably incurred
in accordance with the terms of this Agreement including fees, expenses, and
disbursements of attorneys and paralegals (including the allocated costs of
in-house counsel) acting for the Lender, including any of the foregoing payments
under, or acts taken to protect its security interests in, any of the
Collateral, which amounts shall be secured under this Agreement, and agrees that
it shall be bound by any payment reasonably made or act reasonably taken by the
Lender hereunder absent the Lender's gross negligence or willful misconduct. The
Lender shall have no obligation to make any of the foregoing payments or perform
any of the foregoing acts. The powers conferred on the Lender hereunder are (i)
solely to protect its interest in the Collateral, (ii) do not extend beyond such
interest and (iii) shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession, the
accounting for money actually received by it hereunder and the obligations of
the Lender under Section 11.8(b), the Lender shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
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SECTION 5.12. DELIVERY OF ITEMS. The Borrower will (a)
promptly (but in no event later than five Business Days) after its receipt
thereof, deliver to the Lender any documents or certificates of title issued
with respect to any property included in the Collateral, and any promissory
notes in excess of $250,000, letters of credit or instruments related to or
otherwise in connection with any property included in the Collateral, which in
any such case come into the possession of the Borrower, or shall cause the
issuer thereof to deliver any of the same directly to the Lender, in each case
with any necessary endorsements in favor of the Lender and (b) deliver to the
Lender as soon as available copies of any and all press releases and other
similar communications issued by the Borrower.
SECTION 5.13. SOLVENCY. The Borrower shall be and remain
Solvent at all times.
SECTION 5.14. FUNDAMENTAL CHANGES. The Borrower will not
(a) amend or modify its name, unless the Borrower delivers to the Lender thirty
days prior to any such proposed amendment or modification written notice of such
amendment or modification and within ten days before such amendment or
modification delivers executed Uniform Commercial Code financing statements (in
form and substance satisfactory to the Lender) or (b) merge or consolidate with
any other entity or make any material change in its capital structure (other
than the Borrower's issuance of equity capital or Subordinated Indebtedness),
provided that such merger or consolidation may be made as long as the Borrower
is the surviving entity and an Event of Default does not exist before and would
not exist after giving effect to such transaction, and provided, further, that
any subsidiary of the Borrower may merge into the Borrower or another
wholly-owned subsidiary of the Borrower.
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SECTION 5.15. INDEBTEDNESS. The Borrower will not incur or
suffer to exist any Indebtedness other than Permitted Indebtedness.
SECTION 5.16. CERTAIN INTELLECTUAL PROPERTY.
(i) The Borrower will not in any way hypothecate or create
or permit to exist any Lien on any of the Intellectual Property,
and the Borrower will not sell, transfer, assign, pledge,
collaterally assign, exchange, or otherwise dispose of any of
the Intellectual Property. Notwithstanding the foregoing, the
Borrower may in the ordinary course of its business (A) grant
licenses with respect to any of the Intellectual Property, (B)
amend existing license agreements under which the Borrower is
licensee or licensor and (C) assign any of the Intellectual
Property, provided that no such license may be granted or
assignment made to secure Indebtedness of the Borrower to any
Person other than the Lender.
(ii) The Borrower agrees that, should it obtain an
ownership interest in (x) any material patent or (y) any
exclusive rights as a licensee under a material patent license,
(A) the provisions of Section 5.16(i) shall automatically apply
thereto and (B) with respect to any ownership interest in any
such patent or patent license that the Borrower should obtain,
it shall give notice thereof to the Lender in writing, promptly
after obtaining such ownership interest.
(iii) The Borrower agrees to take all necessary steps
including, without limitation, in the United States Patent and
Trademark Office or in any court, to (A) maintain each of its
patents and patent licenses and (B) pursue each of its patent
applications, now or hereafter owned or submitted by it,
including, without limitation, the filing of divisional,
continuation, continuation-in-part and substitute applications,
the filing of applications for reissue, renewal or extensions,
the payment of maintenance fees, and the participation in
interference, reexamination, opposition or infringement and
misappropriation proceedings, except in each case to the extent
reasonably necessary to further the economic interest of the
Borrower. Except to the extent reasonably necessary to further
its best economic interests, the Borrower agrees to take
corresponding steps with respect to each new or acquired patent,
patent application, or any rights obtained under any patent
license, in each case, to
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which it is now or later becomes entitled. Any expenses incurred
in connection with such activities shall be borne by the
Borrower.
(iv) The Borrower shall take all commercially reasonable
additional steps not set forth in subsections (i) and (ii)
hereof which the Lender requests to preserve and protect the
Borrower's material patents and patent licenses.
(v) The Borrower shall not abandon any patent or any
pending patent application without the written consent of the
Lender, except, in each case in which the Borrower has
reasonably determined that any of the foregoing is not of
material economic value to the Borrower.
(vi) In the event that the Borrower becomes aware that any
of its material patents has been infringed or misappropriated by
a third party, the Borrower shall notify the Lender promptly in
writing, in reasonable detail, and shall take such actions as
are reasonably appropriate under the circumstances to protect
such patent including, without limitation, suing for damages or
for an injunction against such infringement or misappropriation.
Any expense incurred in connection with such activities shall be
borne by the Borrower. The Borrower will advise the Lender
promptly in writing, in reasonable detail, of any material
adverse determination or the institution of any proceeding
(including, without limitation, the institution of any
proceeding in the United States Patent and Trademark Office or
any court) regarding any of its material patents.
SECTION 5.17. ADDITIONAL REQUIREMENTS. The Borrower will
take all such further actions and execute all such further documents and
instruments as the Lender may reasonably request.
SECTION 6. FINANCIAL STATEMENTS. Until the payment and
satisfaction in full of all Obligations, the Borrower shall deliver to the
Lender the following financial information:
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. As soon as
available, but not later than 120 days after the end of each fiscal year of the
Borrower and its consolidated subsidiaries, the consolidated balance sheet,
income statement, and statements of cash flows and shareholders' equity for the
Borrower and its consolidated subsidiaries (the "Financial Statements") for such
year, reported on by independent certified public accountants without an adverse
qualification; and
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SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as
available, but not later than forty-five days after the end of each of the first
three fiscal quarters in any fiscal year of the Borrower and its consolidated
subsidiaries, the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Borrower that such
Financial Statements have been prepared in accordance with GAAP and are fairly
stated in all material respects.
SECTION 7. CASH COVENANT. Until termination of the Lender's
obligations to make any Loan under this Agreement and payment and satisfaction
in full of all Obligations, the Borrower shall at all times maintain verifiable
cash balances (other than cash securing any Letter of Credit) in its bank
accounts and Cash Equivalents which are free and clear of all Liens of at least
$20,000,000 in the aggregate (the "Cash Covenant").
SECTION 8. LIMITED RELEASE. In the event that the Borrower enters
into a definitive agreement with a third party lender to finance the acquisition
or construction by the Borrower of a bulk manufacturing facility, the Lender
shall release its Liens on personal property purchased for use in and to be
located at such facility and leasehold improvements to such facility, but only
to the extent the purchase of such Equipment has not been financed by the Lender
and only if such third party lender shall have made a written request to the
Lender to release such Liens in accordance with Section 11.1.
SECTION 9. EVENTS OF DEFAULT. The occurrence of any of the
following events shall constitute an Event of Default hereunder:
(a) failure of the Borrower to pay any of the obligations
required to be paid by the Borrower under or in connection with the Notes, this
Agreement or any other Loan Document when due, whether at stated maturity, by
acceleration or otherwise;
(b) any representation or warranty made or deemed made by
the Borrower under or in connection with any Loan Document or any Financial
Statement shall prove to have been incorrect in any material respect when made;
(c) failure of the Borrower to perform or observe (i) any
of the terms, covenants or agreements contained in Sections 5.2, 5.4, 5.7, 5.9,
5.10, 5.14, 5.15, 5.17, 6.1 or 6.2 or (ii) any other term, covenant, or
agreement contained in any Loan Document (other than the other Events of Default
specified in this Section) that has not been cured within fifteen days after
such failure occurs;
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(d) any provision of any Loan Document to which the
Borrower is a party shall for any reason cease to be valid and binding on the
Borrower, or the Borrower shall so state;
(e) dissolution, liquidation, winding up or cessation of
the Borrower's business, failure of the Borrower generally to pay its debts as
they mature, admission in writing by the Borrower of its inability generally to
pay its debts as they mature, or calling of a meeting of the Borrower's
creditors for purposes of compromising any of the Borrower's debts;
(f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceeding under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
forty-five days following the commencement thereof, or any action by the
Borrower is taken authorizing any such proceeding;
(g) an assignment for the benefit of creditors is made by
the Borrower, whether voluntary or involuntary, the appointment of a trustee,
custodian, receiver, or similar official for the Borrower or for any substantial
property of the Borrower, and in the case of any such involuntary appointment,
such appointment remains undismissed or unstayed for forty-five days following
the commencement thereof, or any action by the Borrower authorizing any such
proceeding;
(h) the Borrower shall default in (i) the payment of
principal or interest on indebtedness of $250,000 or in the aggregate at any one
time (other than the Obligations), beyond the period of grace, if any, provided
in the instrument or agreement under which such indebtedness was created; or
(ii) the observance or performance of any other agreement or condition relating
to any such indebtedness or contained in any instrument or agreement relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders of such indebtedness to cause, with the giving of notice if required,
such indebtedness to become due prior to its stated maturity;
-25-
<PAGE> 26
(i) the Borrower suffers and sustains a Material Adverse
Change;
(j) any tax Lien, other than a Permitted Lien, is filed of
record against the Borrower and is not bonded or discharged within thirty
Business Days;
(k) one or more judgments in excess of $250,000 in the
aggregate are entered against the Borrower and such judgments shall not be
stayed, vacated, bonded, or discharged within sixty days;
(l) any material covenant, agreement, or obligation, as
determined in the good faith business judgment of the Lender, made by the
Borrower and contained in or evidenced by any of the Loan Documents shall cease
to be enforceable, or shall be determined to be unenforceable, in accordance
with its terms; the Borrower shall deny or disaffirm any of the Obligations or
any Liens granted in connection therewith; or any Liens granted on any of the
Collateral in favor of the Lender shall be determined to be void, voidable, or
invalid, or shall not be given the priority contemplated by this Agreement;
(m) this Agreement shall for any reason (other than
pursuant to the terms hereof) cease to create a valid and perfected senior lien
on the Collateral, subject only to the Liens specified in the definition of
"Permitted Liens," purported to be covered hereby;
(n) the Borrower shall fail to be in compliance with the
Cash Covenant at any time (a "Cash Covenant Default") and (ii) deliver to the
Lender within five days of a Cash Covenant Default an irrevocable standby letter
of credit (the "Letter of Credit"), from a bank or other financial institution,
and on terms and conditions, in each case satisfactory to the Lender in its sole
discretion, in an amount equal to the then unpaid portion of the Obligations
naming the Lender as beneficiary;
(o) the Letter of Credit required to be delivered to the
Lender under Section 9(n) shall cease to be valid and enforceable in accordance
with its terms for any reason; or
(p) there occurs a change in ownership of an aggregate of
more than 35% of any equity interests of the Borrower having voting rights in
any transaction or related series of transactions (other than in connection with
any offering of equity securities by the Borrower) or any of such interests
becomes subject to any contractual, judicial or statutory Lien.
-26-
<PAGE> 27
SECTION 10. REMEDIES.
(a) If any Event of Default shall have occurred and be
continuing, the Lender may, without prejudice to any of its other rights under
any Loan Document or Applicable Law:
(i) declare all Obligations under the Loan Documents to be
immediately due and payable (except with respect to any Event of
Default set forth in Section 9(f), in which case all Obligations
under the Loan Documents shall automatically become immediately
due and payable without necessity of any declaration) without
presentment, representation, demand of payment, or protest,
which are hereby expressly waived;
(ii) take possession of the Collateral and, for that
purpose may enter, with the aid and assistance of any person or
persons and subject to applicable law, any premises where the
Collateral or any part thereof is, or may be placed, and remove
the same;
(iii) remove for copying all documents, instruments, files
and records (including the copying of any computer records)
relating to the Borrower's Receivables, or use (at the expense
of the Borrower) such supplies or space of the Borrower at the
Borrower's places of business necessary to administer and
collect the Borrower's Receivables;
(iv) terminate its obligation, if any, to give additional
(or to continue) financial accommodations of any kind to the
Borrower;
(v) accelerate or extend the time of payment, compromise,
issue credits, or bring suit on the Borrower's Receivables (in
the name of the Borrower or the Lender) and otherwise administer
and collect such Receivables;
(vi) sell, assign and deliver the Borrower's Receivables
with or without advertisement, at public or private sale, for
cash, on credit or otherwise, subject to applicable law;
(vii) use all computer software programs, data bases,
processes, trademarks, tradenames and materials used by the
Borrower in connection with its businesses or in connection with
the Collateral (with respect to which the Lender shall have a
limited license therefor); and
-27-
<PAGE> 28
(viii) exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein (or in any
other Loan Document) or otherwise available to it, all the
rights and remedies of a secured party under the applicable
Uniform Commercial Code (the "Code") whether or not the Code
applies to the affected Collateral and also may (i) require the
Borrower to, and the Borrower hereby agrees that it will at its
expense and upon request of the Lender forthwith, assemble all
or part of the Collateral as directed by the Lender and make it
available to the Lender at a place to be designated by the
Lender that is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral or
any part thereof in one or more parcels at public or private
sale, at any of the Lender's offices or elsewhere, for cash, on
credit, or for future delivery, and upon such other terms as the
Lender may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at
least five Business Days' notice to the Borrower of the time and
place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The
Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to
which it was so adjourned.
(b) All cash proceeds received by the Lender in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in part by
the Lender against, all or any part of the Obligations in such order as the
Lender shall elect. Any surplus of such cash or cash proceeds held by the Lender
and remaining after the full and final payment of all the Obligations shall be
paid over to the Borrower or to such other Person to which the Lender may be
required under Applicable Law, or directed by a court of competent jurisdiction,
to make payment of such surplus.
-28-
<PAGE> 29
SECTION 11. MISCELLANEOUS PROVISIONS.
SECTION 11.1. NOTICES. Except as otherwise provided
herein, all notices, approvals, consents, correspondence or other communications
required or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mail,
postage prepaid, if to the Lender, then to Technology Finance Division, 76
Batterson Park Road, Farmington, Connecticut 06032-2571, Attention: Legal
Department, with a copy to the Lender at Riverway II, West Office Tower, 9399
West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department, and if
to the Borrower, then to Aviron, 297 North Bernardo Avenue, Mountain View,
California 94043, Attention: Chief Financial Officer, or such other address as
shall be designated by the Borrower or the Lender to the other party in
accordance herewith. All such notices and communications shall be effective when
received or when delivery is refused.
SECTION 11.2. CONFIDENTIALITY. Neither the Borrower nor
any of its agents shall use or refer to the Lender or to any Affiliate of the
Lender in any disclosure (including, without limitation, press releases and
financial statements) made in connection with the Loan Documents or any of the
transactions contemplated thereunder without the prior written consent of the
Lender.
SECTION 11.3. HEADINGS. The headings in this Agreement are
for purposes of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
SECTION 11.4. ASSIGNMENTS. The Borrower shall not have the
right to assign the Notes or this Agreement or any interest therein. The Lender
may assign its rights and delegate its obligations under the Notes, this
Agreement or any other Loan Document.
SECTION 11.5. AMENDMENTS, WAIVERS, AND CONSENTS. Any
amendment or waiver of any provision of this Agreement and any consent to any
departure by the Borrower from any provision of this Agreement shall be
effective only by a writing signed by the Lender and the Borrower and shall bind
and benefit the Borrower and the Lender and their respective successors and
assigns.
-29-
<PAGE> 30
SECTION 11.6. BORROWER REMAINS LIABLE. Anything herein to
the contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Lender of any of the rights hereunder shall not release the Borrower from any of
its duties or obligations under the contracts and agreements included in the
Collateral and (c) the Lender shall not have any obligation or liability under
the contracts and agreements included in the Collateral by reason of this
Agreement, nor shall the Lender be obligated to perform any of the obligations
or duties of the Borrower thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder.
SECTION 11.7. INTERPRETATION OF AGREEMENT. Time is of the
essence in each provision of this Agreement of which time is an element. All
terms not defined herein or in the Notes shall have the meaning set forth in the
Code, except where the context otherwise requires. To the extent a term or
provision of this Agreement conflicts with any term or provision of the Notes,
this Agreement shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance rendered
under this Agreement shall not be relevant in determining the meaning of this
Agreement even though the accepting or acquiescing party had knowledge of the
nature of the performance and opportunity for objection.
SECTION 11.8. CONTINUING SECURITY INTEREST.
(a) This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the final payment in full of the Obligations, (ii) be binding upon the Borrower
and its successors and assigns and (iii) inure, together with the rights and
remedies of the Lender hereunder, to the benefit of the Lender and its
successors, transferees, and assigns.
(b) Upon the final payment in full of the Obligations, the
security interest provided herein shall terminate with respect to all Collateral
and the Lender shall at the expense of the Borrower return to the Borrower all
Collateral then held by the Lender, if any, and at the expense of the Borrower
shall execute, in form for filing, termination statements of the security
interest herein granted or any other documents reasonably requested by the
Borrower to evidence such termination, and thereafter, no party shall have any
further right or obligation hereunder except for the obligations of the Borrower
under Section 11.10.
-30-
<PAGE> 31
SECTION 11.9. REINSTATEMENT. To the extent permitted by
law, this Agreement and the rights and powers granted to the Lender hereunder
and under the Loan Documents shall continue to be effective or be reinstated if
at any time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
SECTION 11.10. SURVIVAL OF PROVISIONS. All
representations, warranties, and covenants of the Borrower contained herein
shall survive the execution and delivery of this Agreement, and shall terminate
only upon the full and final payment and performance by the Borrower of the
Obligations.
SECTION 11.11. INDEMNIFICATION. The Borrower agrees to
indemnify and hold harmless the Lender and its directors, officers, agents,
employees and counsel from and against any and all costs, expenses, claims or
liability incurred by the Lender or such other Person hereunder and under any
other Loan Document or in connection herewith or therewith, unless such claim or
liability shall be due to willful misconduct or gross negligence on the part of
the Lender or such other Person.
SECTION 11.12. COUNTERPARTS; TELECOPIED SIGNATURES. This
Agreement may be executed in counterparts, each of which when so executed and
delivered shall be an original, but both of which shall together constitute one
and the same instrument. Each of this Agreement and the other Loan Documents may
be executed and delivered by telecopier or other facsimile transmission all with
the same force and effect as if the same was a fully executed and delivered
original manual counterpart.
SECTION 11.13. SEVERABILITY. In case any provision in or
obligation under this Agreement, the Notes or any other Loan Document shall be
invalid, illegal, or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
-31-
<PAGE> 32
SECTION 11.14. DELAYS; PARTIAL EXERCISE OF REMEDIES. No
delay or omission of the Lender to exercise any right or remedy hereunder,
whether before or after the occurrence of any Event of Default, shall impair any
such right or shall operate as a waiver thereof or as a waiver of any such Event
of Default. No single or partial exercise by the Lender of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
SECTION 11.15. ENTIRE AGREEMENT. The Borrower and the
Lender agree that this Agreement and the other Loan Documents are the complete
and exclusive statement and agreement between the parties with respect to the
subject matter hereof, superseding all proposals and prior agreements, oral or
written, and all other communications between the parties with respect to the
subject matter hereof.
SECTION 11.16. SETOFF. In addition to and not in
limitation of all rights of offset that the Lender may have under Applicable
Law, and whether or not the Lender has made any demand or the Obligations of the
Borrower have matured, the Lender shall have the right to appropriate and apply
to the payment of the Obligations all deposits and other obligations then or
thereafter owing by the Lender to or for the credit or the account of the
Borrower.
SECTION 11.17. WAIVER OF JURY TRIAL. THE BORROWER AND THE
LENDER IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 11.18. GOVERNING LAW. THE VALIDITY,
INTERPRETATION, AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SECTION 11.19. VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF
THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING, (A) ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE
TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS AND (B) THE RIGHT TO INTERPOSE
-32-
<PAGE> 33
ANY NONCOMPULSORY SETOFF, COUNTERCLAIM OR CROSS-CLAIM. THE BORROWER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS FOR IT SPECIFIED
IN SECTION 11.1. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION, SUBJECT IN
EACH INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO RIGHTS AND REMEDIES.
-33-
<PAGE> 34
IN WITNESS WHEREOF, the undersigned Borrower has caused this
Agreement to be duly executed and delivered by its proper and duly authorized
officer as of the date first set forth above.
AVIRON
By: /s/ FRED KURLAND
-------------------------------
Fred Kurland
Senior Vice President and
Chief Financial Officer
By: /s/ J. LEIGHTON READ
-------------------------------
Name: J. Leighton Read
Title: Chairman of the Board and
Chief Executive Officer
Accepted as of the
22nd day of June, 1999
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ GARY P. MORO
-------------------------------
Name: Gary P. Moro
Title: Vice President
-34-
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 16,196
<SECURITIES> 54,870
<RECEIVABLES> 2,810
<ALLOWANCES> 0
<INVENTORY> 956
<CURRENT-ASSETS> 67,330
<PP&E> 30,563
<DEPRECIATION> 7,120
<TOTAL-ASSETS> 106,297
<CURRENT-LIABILITIES> 11,996
<BONDS> 100,000
0
0
<COMMON> 16
<OTHER-SE> (7,469)
<TOTAL-LIABILITY-AND-EQUITY> 106,297
<SALES> 0
<TOTAL-REVENUES> 2,944
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,062
<INCOME-PRETAX> (15,120)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,120)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,120)
<EPS-BASIC> (0.96)
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