U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended June 30, 2005
Commission
File Number: 000-31979
Array
BioPharma Inc.
(Exact Name of Registrant
as Specified in Its Charter)
|
Delaware
|
|
84-1460811
|
|
(State of Incorporation)
|
|
(I.R.S. Employer Identification No.)
|
3200 Walnut Street, Boulder,
Colorado 80301
(Address of principal
executive offices)
(303)
381-6600
(Registrant’s telephone
number, including area code)
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered
pursuant to Section 12(g) of the Act:
Common
Stock, Par Value $.001 Per Share
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
ý
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
ý
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes
ý
No
o
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
ý
The aggregate market value of voting stock held by non-affiliates of
the registrant as of December 31, 2004 was $320,073,862 (For this computation,
the registrant has excluded the market value of all shares of its common stock
reported as beneficially owned by executive officers and directors of the
registrant; such exclusion shall not be deemed to constitute an admission that any
such person is an “affiliate” of the registrant.)
Number of shares
outstanding of the registrant’s class of common stock as of August 31,
2005: 38,493,721.
Documents
incorporated by reference:
Portions of the registrant’s definitive Proxy
Statement to be filed with the Securities and Exchange Commission on Form 14A
for the 2005 Annual Meeting of Stockholders – Part III
FORWARD-LOOKING
STATEMENTS
This annual report filed
on Form 10-K and other documents we file with the Securities and Exchange
Commission contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that involve significant risks
and uncertainties. In addition, we may make forward-looking statements in our
press releases or in other oral or written communications with the public. These
statements do not relate to historical matters and reflect our current expectations
concerning future events. Therefore our actual results could differ materially
from those anticipated in these forward-looking statements as a result of many
factors. These factors include, but are not limited to, our ability to achieve
and maintain profitability, the extent to which the pharmaceutical and
biotechnology industries are willing to in-license drug candidates for their
product pipelines and to collaborate with and fund third parties on their drug
discovery activities, our ability to out-license our proprietary candidates on
favorable terms, our ability to continue to fund and successfully progress
internal research efforts and to create effective, commercially viable drugs,
risks associated with our dependence on our collaborators for the clinical
development and commercialization of our out-licensed drug candidates, the
ability of our collaborators and of Array to meet objectives, including
clinical trials, tied to milestones and royalties, our ability to attract and
retain experienced scientists and management, and the risk factors set forth
below under the caption “Risk Factors.” We are providing this information as of
the date of this report. We undertake no duty to update any forward-looking
statements to reflect the occurrence of events or circumstances after the date
of such statements or of anticipated or unanticipated events that alter any
assumptions underlying such statements.
PART
I
Item 1.
Business
OUR BUSINESS
Array BioPharma Inc. is a
biopharmaceutical company focused on the discovery, development and
commercialization of targeted small molecule drugs to treat debilitating and
life-threatening diseases. Our
proprietary drug development pipeline is primarily focused on the treatment of
cancer and inflammatory disease and includes clinical candidates that are
designed to regulate therapeutically important targets. In addition, leading pharmaceutical and
biotechnology companies collaborate with Array to discover and develop drug
candidates across a broad range of therapeutic areas.
There is tremendous
opportunity in creating drugs for debilitating and life-threatening diseases,
especially in cancer and inflammation.
The medical community is seeking targeted therapies that more
effectively treat disease with improved safety profiles. We believe the future of medicine will be to
genetically characterize patients and treat them with these targeted
therapies. This approach may result in a
greater number of marketed drugs aimed at a smaller subset of patients. The resulting market for personalized
medicine is potentially subscale for a major pharmaceutical company, but highly
valuable to Array.
The worldwide market for
targeted cancer drugs is expected to grow from $7 billion in 2004 to $30
billion in 2009, reaching over 50% of total cancer drug sales. The market for inflammatory disease is even
larger and could account for a quarter of all drug sales in the future. Inflammation is an extremely broad area and
covers a number of diseases, including rheumatoid arthritis (RA), asthma,
congestive heart failure (CHF), COPD, atopic dermatitis and liver
fibrosis. Our research benefits from the
evolving scientific understanding of how modulating specific targets can
potentially treat both cancer and inflammatory disease. As a result, a drug designed to treat one
disease may also be useful in treating the other.
We have identified
multiple drug candidates for these diseases in our own proprietary programs and
in collaborations with other drug companies. To date, we have advanced four
programs that are wholly owned by Array including: ErbB-2/EGFR (cancer), in
which the lead compound, ARRY-334543, is expected to begin a Phase I clinical
trial in the fall of 2005; MEK (inflammation), in which the lead compound is in
regulated safety assessment testing; and p38 (inflammation) and ErbB-2
(cancer), each of which is in preclinical development. In addition, we have out-licensed proprietary
cancer programs to AstraZeneca
PLC (ARRY-142886: AZD6244), which is currently in Phase Ib
clinical trials, and to Genentech, Inc., which involves two early stage
programs.
3
We have built our drug
development pipeline, and our discovery and development capabilities, primarily
through cash flow from collaborations and through sales of our equity
securities. Through June 30, 2005,
we have recognized $156 million in research funding, and we have generated
$18 million in up-front payments and $6 million in milestone payments
from our collaborators and out-licensing partners. Under our existing
collaboration agreements, we have the potential to earn over $190 million
in additional milestone payments if we achieve all of the drug discovery
objectives under these agreements, as well as royalties on any resulting product
sales from 14 different programs. In December 2004, we raised approximately $67
million in a follow-on public offering of our common stock.
Over
the past year, we executed our strategy through the following accomplishments.
Advancing Research Programs
•
Advanced
ARRY-142886 (AZD6244), a novel MEK
inhibitor for cancer, into a Phase Ib clinical trial, entitling Array to a
second milestone payment from AstraZeneca PLC.
•
Filed an IND
application, now in effect, with the FDA for ARRY-334543, a potent, orally
active, dual inhibitor of ErbB-2 and EGFR, and continued evaluation of
selective ErbB-2 inhibitors in preclinical models of human cancer.
•
Initiated
regulated safety assessment of our lead MEK inhibitor for inflammatory disease.
•
Continued
testing our lead p38 inhibitor for inflammatory disease in advanced efficacy
and tolerability models.
•
Created
promising lead compounds in several early discovery programs aimed at
therapeutically important targets and anticipate advancing select programs into
lead optimization in fiscal 2006.
Growing Collaborative Research
•
Commenced or expanded drug discovery
collaborations with Genentech, InterMune and QLT that include research
funding and potential milestones and royalties.
•
Received a $1
million research milestone payment under our collaboration with Amgen.
Strengthening
Financial Position
•
Completed an
offering of 9.2 million shares of common stock, including the over-allotment
option, at $7.75 per share, resulting in net proceeds of approximately $67 million.
•
Achieved record
revenue of over $45 million for the year, increasing more than 30% over the
prior year, as a result of new and expanding collaborations and recognizing
up-front and milestone payments.
•
Ended fiscal
2005 with $93 million in cash and marketable securities.
These
achievements continue to drive Array toward our goal of building the industry’s
premier biopharmaceutical company.
Proprietary Research and Development
Our proprietary research focuses on biologic
regulatory pathways that have been identified as important for the treatment of
human disease based on human clinical, preclinical or genetic data. We seek to
create first-in-class drugs against important therapeutic targets within these
pathways to treat patients with debilitating or life-threatening conditions,
primarily for the treatment of cancer and inflammatory disease. In addition, we
identify opportunities to improve upon existing therapies or drugs in clinical
development by creating drug candidates with superior, or best-in-class, drug
characteristics (including efficacy, tolerability or dosing) to provide safer,
more effective drugs.
We have advanced four programs that are wholly owned
by Array, which include:
•
ErbB-2/EGFR (cancer): an IND application was filed for the lead compound,
ARRY-334543, with the FDA and became effective in July 2005;
•
MEK
(inflammation): the lead compound is in regulated safety assessment testing;
•
p38
(inflammation): synthesis of the lead compound is being scaled up for regulated
safety assessment testing; and
•
ErbB-2
(cancer): the lead compound is in
advanced preclinical development.
4
In addition, we have out-licensed our MEK for cancer
program, including our compound ARRY-142886 (AZD6244), to AstraZeneca and two
cancer programs to Genentech. Our agreements with AstraZeneca and Genentech
each provide for up-front payments, research funding, success-based milestone
payments and royalties on product sales.
We have invested approximately $58 million in our proprietary
research from our inception through June 30, 2005, and we have received
$24 million in up-front payments and milestones resulting from this proprietary
research for a net investment of $34 million.
We plan to initiate a Phase I
clinical trial on our ErbB-2/EGFR dual inhibitor,
ARRY-334543
, a drug that we believe holds promise
for treating breast, lung and other types of cancer. We plan to advance our MEK
inhibitor, ARRY-142886, through a Phase Ib clinical trial and, given positive
results, our partner, AstraZeneca, is expected to begin a Phase II clinical
trial. In 2006, we anticipate filing two
additional IND applications and initiating clinical trials under them. And, we will enhance our clinical and
regulatory capabilities to provide further support for our proprietary
programs. We are also evaluating
or developing compounds against over a dozen targets for new drug research and
development in cancer and inflammatory disease as well as other therapeutic
areas.
Our Drug Development Pipeline
The following pipeline chart shows our five most
advanced programs in the areas of cancer and inflammatory disease and their
stage in the drug discovery process.
Our Drug Discovery Efforts
Cancer Programs
Despite
a wide range of available cancer therapies, patient responses remain limited
and variable. As a result, oncologists
experiment with combination therapies and drug dosing regimens tailored for
individual tumor types and specific patients.
Targeted therapies offer a more specific approach than first generation,
cytotoxic chemotherapy drugs by regulating discrete aspects of cellular
function affecting cancer cells to a greater extent than normal cells,
providing an improved side effect profile and potentially increased efficacy. We believe certain cancers will eventually
become a chronic disease, treated with a combination of targeted
therapies. Array is building a pipeline
of products to meet these new regimens.
According
to the American Cancer Society, 3.2 million people in the U.S. are afflicted
with cancer. Each year, 1.4 million new
patients are diagnosed, including prostate, 230,000; breast, 225,000; lung,
190,000; colon, 150,000; melanoma, 66,000; pancreas, 32,000; and multiple myeloma,
16,000. Worldwide, the cancer drug
market is expected to grow from $22 billion in 2004 to $56 billion in
2009. Array’s cancer programs focus on
molecular targeted therapies, which represented 30% of the cancer drug market
in 2004 and is expected to increase to more than 50% of the market by 2009.
ARRY-142886 (AZD6244)/MEK for
Oncology
ARRY-142886 is a novel, selective, non-ATP-competitive
inhibitor of MEK (MAP-erk kinase) 1 / 2 that has demonstrated nanomolar
activity against isolated MEK enzyme and in numerous cancer cell lines. MEK, as
part
5
of the ras/raf/MEK/erk pathway, regulates cell
proliferation, survival, migration and differentiation and is a critical enzyme
in this biologic pathway. Oral administration of ARRY-142886 has demonstrated
tumor suppressive or regressive activity in multiple preclinical models of
human cancer, including melanoma, pancreatic, colon, lung and breast cancer
models. We believe our MEK inhibitor’s advantages over current therapies may
include the ability to target certain cancers with over-activation of MEK or
activating pathway mutations, improved efficacy linked to novel mechanism and,
because it is an oral agent, ease of use.
In December 2003, we entered into an out-licensing and
collaboration agreement with AstraZeneca to develop our MEK program solely in
the field of oncology. Under the agreement, AstraZeneca acquired exclusive
worldwide rights to our clinical development candidate, ARRY-142886, and
certain second-generation compounds we develop during the collaboration for
oncology indications. We retain the rights to all non-oncology therapeutic
indications for MEK compounds not selected by AstraZeneca for development.
Under the agreement, we received an up-front payment of $10 million and a payment
of $4 million upon initiation of Phase I clinical testing for ARRY-142886. The
agreement also provides for research funding, potential additional development
milestone payments of over $81 million and royalties on product sales.
We are collaborating with AstraZeneca on process
research for this compound and are manufacturing clinical dosage forms for the Phase
I clinical trial. In addition, we are responsible for creating a select number
of second-generation MEK compounds, from which AstraZeneca will have the option
to select a certain number of compounds for inclusion under the license.
Research funding for this second-generation program will end in October 2005.
We will perform process research and cGMP manufacturing of Phase I clinical
materials for the additional compounds AstraZeneca selects, and we are funding
and managing the current Phase I clinical trial. AstraZeneca is responsible for
all other aspects of clinical development and commercialization for ARRY-142886
and other compounds it licenses. AstraZeneca is providing funding to us for all
activities that we perform under the agreement other than the Phase I clinical
trial.
We initiated Phase I clinical testing of ARRY-142886
in June 2004. The trial was designed to
evaluate tolerability and pharmacokinetics of ARRY-142886 following oral
administration to patients with advanced cancer. In addition, the trial examined patients for
indications of therapeutic activity as well as pharmacodynamic and tumor biomarkers. At the 2005 American Society of Clinical
Oncology (ASCO) annual meeting, we presented clinical data demonstrating a
direct correlation between blood levels of ARRY-142886 and the inhibition of
pERK, a downstream biomarker that indicates the ability of our drug to inhibit
its target in patients. We initiated a
Phase Ib clinical trial in August 2005 with an expanded number of patients at
the maximal doses found to be tolerated in the Phase Ia trial to evaluate
specific genetic markers and biomarkers, as well as the drug’s tolerability and
efficacy.
ErbB-2 /
EGFR Inhibitors.
Receptor kinase targets are proteins that interact
with certain growth factors found to stimulate aberrant growth, prolong
survival and promote differentiation of many tumors. ErbB-2 is a receptor
kinase target that has been found to be over-expressed in human breast and
other cancers. Herceptin
Ò
is an IV-dosed protein therapeutic currently on the market that modulates
ErbB-2. Recently, Herceptin has shown promising therapeutic benefits in an
expanded patient population, including post-surgery breast cancer patients
being treated chronically or patients with chemotherapy-induced ErbB-2
over-expression. We believe these results suggest a high potential value in an
orally active drug that can be conveniently dosed for extended periods of
time. EGFR is also a receptor kinase
target that has been found to be over-expressed in numerous human cancers,
including breast, lung, pancreatic, head and neck cancers. Erbitux
Ô
,
an IV-dosed protein therapeutic, and Tarceva
Ò
,
a small molecule inhibitor, are drugs currently on the market that modulate
EGFR. According to scientific
literature, the concurrent inhibition of both ErbB-2 and EGFR may provide
enhanced efficacy in cancer treatment.
Currently, there is no single drug on the market that inhibits both
ErbB-2 and EGFR.
We have identified ARRY-334543, a novel, orally active
dual inhibitor of ErbB-2 and EGFR. The
compound behaves as a reversible ATP-competitive inhibitor with nanomolar
potency both
in vitro
and in
cell-based proliferation assays.
Selectivity against a panel of kinases has been demonstrated
in vitro
.
In preclinical models, ARRY-334543 demonstrated significant dose related
tumor growth inhibition when administered orally. ARRY-334543 has demonstrated enhanced efficacy
in certain preclinical models when compared to Herceptin, Tarceva or Iressa
Ò
and, based on our knowledge, has shown equivalent or improved efficacy relative
to the most clinically advanced competitor compound.
6
Based on potency, selectivity and efficacy data, we
nominated ARRY-334543 as a clinical candidate.
During fiscal 2005, we completed the regulated safety assessment testing
and filed an IND application with the FDA in June 2005, which became effective
in July 2005. We anticipate initiating a
Phase I clinical trial in both the United States and Canada in the fall of
2005.
ErbB-2
Inhibitors.
We have invented orally active, small molecule,
selective ErbB-2 inhibitors which have shown potency and efficacy in
preclinical models of human cancer. We
continue to create and evaluate select compounds to identify the most promising
clinical candidate to move into regulated safety assessment testing. Our ErbB-2 inhibitors’ are designed to
improve efficacy linked to tissue penetration, ease of use and cost
effectiveness.
Inflammation Programs
Inflammation
is a natural biologic response to injury or infectious attack to the human
body. Unregulated inflammation results
in a broad range of conditions, most of which are classified by the tissue or
organ where the inflammation occurs.
These conditions include rheumatoid arthritis (RA) in the joint,
psoriasis in the skin, COPD in the lung, fibrotic disease in the liver and
kidney, Crohn’s disease in the intestine, CHF in the heart and arteriosclerosis
in the arteries, among others.
Currently, some of the most effective treatments for these diseases are
injectable protein therapeutics, which have significant cost and patient
compliance issues. IV-dosed protein
therapeutics currently on the market — Enbrel
Ò
, Remicade
Ò
, Humira
Ò
and Kineret
Ò
— bind to and/or
modulate the activity of the inflammatory cytokines TNF-
a
or IL-1 and are
utilized for the treatment of RA, psoriasis and Crohn’s disease. We believe
there is a great opportunity to create orally active drugs to treat many of
these often-chronic diseases. Array is developing drugs that modulate important
biological targets in key intracellular pathways that control inflammation,
potentially providing the ability to treat multiple diseases with a single oral
agent.
In the future, the market
for inflammatory disease could account for a quarter of all drug sales. The worldwide RA therapy market alone is
expected to more than double in size, from $7 billion in 2004 to more than $17
billion in 2009. Additionally, COPD, the
fourth largest killer worldwide, provides an enormous opportunity due to the
current lack of effective treatments.
MEK for
Inflammation Inhibitors.
MEK is a kinase target that has been demonstrated to
have a role in the biosynthesis and function of TNF-
a
and IL-1. Our scientists have discovered
MEK inhibitors that selectively interfere with these processes. We have also advanced one MEK inhibitor,
ARRY-142886, into clinical development for the treatment of cancer. Based on our experience with the safety
profile of MEK inhibitors, we believe inhibition of MEK will have utility in
chronic diseases driven by IL-1 and TNF-
a
. Our lead MEK for inflammation inhibitor has
been shown to be efficacious, potent, selective and well-tolerated in
preclinical models of human arthritis and COPD.
We believe this compound may provide broad therapeutic benefits in the
treatment of inflammatory and chronic degenerative diseases. We initiated regulated safety assessment on
this compound in June 2005.
p38
a
Inhibitors.
p38
a
is a MAP kinase target that has been found to regulate the production and
function of numerous pro-inflammatory cytokines, in particular, TNF-
a
,
IL-6 and IL-1. IV-dosed protein
therapeutics currently on the market — Enbrel, Remicade, Humira and Kineret — bind to and/or modulate the
activity of TNF-
a
or IL-1.
Our lead orally active, small molecule p38 inhibitor is efficacious and
well tolerated in preclinical models of human arthritis. We are currently scaling up the synthesis of
this molecule, and plan to initiate regulated safety assessment testing in the
fall of 2005.
Collaborative Research and
Development
We have research collaborations with leading
pharmaceutical and biotechnology companies that include design, creation and
optimization of drug candidates, preclinical testing and process research and
development, across a broad range of therapeutic areas and focus on targets
outside of our proprietary research programs. These collaborations provide
research funding and, in a number of our current agreements, up-front fees,
milestone
7
payments upon
achievement of certain drug discovery objectives and/or royalties based upon
sales of products commercialized by our collaborators as a result of these
agreements. Our collaborators, where we
are receiving research funding or have the potential for future milestones or
royalties, include Amgen, AstraZeneca, Elan, Eli Lilly and Company, Genentech,
Hoffman-La Roche Inc., ICOS Corporation, InterMune, Inc., Japan Tobacco Inc.,
Procter & Gamble Pharmaceuticals, QLT Inc. and Takeda Pharmaceutical
Company, Ltd. Today, these collaborations include 14 programs ongoing in our
laboratories for screening, lead generation, lead optimization or preclinical
research. In addition, we have delivered lead compounds on 13 programs to
our collaborators for further lead optimization, clinical candidates on 12
programs for preclinical development.
Below are summaries of two of our most significant
collaboration programs.
Genentech—Oncology Collaboration
Programs
We entered into a licensing and collaboration
agreement with Genentech in December 2003 to develop small molecule drugs
against multiple therapeutic targets in the field of oncology. We initiated
this collaboration with Genentech to advance two of our proprietary oncology
programs into clinical development. These programs include small molecule leads
we developed along with additional, related intellectual property. Under the
agreement, Genentech has made an up-front payment to us, is providing research
funding and has agreed to pay us potential development milestone payments and
royalties on any resulting product sales. Genentech is responsible for clinical
development and commercialization of the resulting products.
In April 2005, we
announced an expansion of the collaboration agreement with Genentech to develop
clinical candidates directed against a cancer target, generated by
Genentech. Under the expanded agreement,
Array is receiving additional research funding, as well as potential research
and development milestone payments and product royalties based on the success
of the new program. Genentech will have
the sole responsibility for clinical development and commercialization of the
resulting products. Research funding
under these agreements with Genentech ends January 31, 2006, but may be
extended at Genentech’s option.
InterMune – Hepatitis C Virus
Collaboration Programs
Array and InterMune
scientists have collaborated since 2002 to discover novel small molecule
inhibitors of the Hepatitis C Virus (HCV) NS3/4 protease. During fiscal 2005,
this collaboration was extended and expanded.
Under the terms of the agreement, InterMune will fund drug discovery,
preclinical testing, process development and cGMP manufacturing conducted by
Array and will provide milestone payments to Array based on the selection and
progress of clinical drug candidates, as well as royalties on net sales of
products derived from the collaboration. As a result of Array’s research
progress, we received our first milestone payment from InterMune in June 2004.
Compounds from the
program were designed using computational modeling techniques and optimized to
achieve superior efficacy and targeted tissue penetration. Preclinical plasma
pharmacokinetic analysis following intravenous and oral administration was then
used in conjunction with other
in vitro
assays and stability studies to choose optimal development candidates.
Preclinical data was presented in November 2004 at the 55th Annual Meeting of
the American Association for the Study of Liver Diseases (AASLD).
We also commenced a
second drug discovery collaboration with InterMune in April 2005 to create
small molecule drugs focused on hepatitis.
InterMune will fund drug discovery research conducted by Array based on
the number of Array scientists working on the research phase of the agreement
and will be responsible for all further development and commercialization.
Array will be entitled to receive milestone payments based on the selection and
progress of clinical drug candidates, as well as royalties on net sales of
products derived from the collaborative efforts. Research funding under these agreements with
InterMune ends June 30, 2006, but may be extended at InterMune’s option.
Array’s Research and Development
Technologies and Expertise
Our scientists use the Array Discovery Platform, an
integrated suite of drug discovery technologies, to create drug candidates and
conduct preclinical and clinical development. A critical capability within the
Array Discovery Platform is our proprietary computational software, which
enables our scientists to share information across the Company, analyze
databases of existing drugs, generate novel predictive databases and design
novel drugs with
8
potential
competitive advantages over current therapies. We use
in vitro
and
in vivo
predictive pharmacodynamic and pharmacokinetic
models to select compounds for potential development. Early in the drug
discovery process, our scientists engineer into a drug candidate desirable drug
characteristics, such as improved potency, specificity and dosing regimen and
reduced side effect profile. The resulting compounds are tested for safety,
efficacy and metabolism to select the most promising clinical candidates. We
believe our drug discovery approach can significantly improve on the industry’s
existing clinical attrition rates through our use of:
•
Proprietary chemoinformatic
databases that relate chemical structure to compound development potential;
•
Multiple lead
generation strategies including high throughput screening of our lead
generation library of up to 400,000 compounds, virtual screening and
proprietary
de novo
design software;
•
State-of-the-art
protein x-ray crystallography, structural databases and computational modeling;
•
An extensive
battery of
in vivo
and
in vitro
metabolic and safety drug profiling assays; and
•
A company-wide
electronic laboratory notebook that enables our scientists to collect, analyze
and share information across the organization.
Our
Strategy
We are building a fully
integrated, commercial-stage biopharmaceutical company inventing, developing
and marketing safe and effective drugs to treat patients with debilitating and
life-threatening diseases. We intend to
accomplish this through the following strategies:
•
Filling our clinical pipeline with targeted
small molecule drugs — primarily for the treatment of cancer and inflammatory
disease — which demonstrate a competitive advantage over existing therapies.
•
Commercializing drugs for debilitating and
life-threatening diseases requiring a small, therapeutically directed
sales force.
•
Partnering select drug candidates requiring
broad distribution for late-stage codevelopment and commercialization
and pursuing additional partnering opportunities based on geography,
therapeutic indication or route of administration.
•
Evaluating
opportunities to advance our pipeline by in-licensing later-stage clinical
programs.
•
Inventing drug candidates in collaboration
with leading pharmaceutical and biotechnology companies, where we receive
research funding and potential milestones and royalties.
Competitors
The pharmaceutical and biotechnology industries are
characterized by rapid and continuous technological innovation. We compete with
companies worldwide that are engaged in the research and discovery, licensing,
development and commercialization of drug candidates, including Arqule Inc.;
Cytokinetics Inc; deCODE genetics Inc; Exelixis Inc; Incyte Corporation;
Theravance, Inc.; and Vertex Pharmaceuticals Incorporated. Some of our
competitors have a broader range of capabilities and have greater access to
financial, technical, scientific, regulatory, business development, recruiting
and other resources than we do. Their access to greater resources may allow
them to develop processes or products that are more effective, safer or less
costly, or gain greater market acceptance, than products we develop or for
which they obtain FDA approval more rapidly than we do. We anticipate that we
will face increased competition in the future as new companies enter the market
and advanced technologies become available.
Research and Development Expenses
Research and development
expenses consist of costs associated with our proprietary drug programs for
salaries and benefits of scientific personnel, consulting and outsourced
services, laboratory supplies, allocated facilities costs and depreciation.
Research and development expenses were $22.9 million for the year ended June
30, 2005, compared to $15.9 million for fiscal 2004 and $11.4 million for
fiscal 2003.
9
Government
regulation
Biopharmaceutical companies are subject to substantial
regulation by governmental agencies in the United States and other countries.
Virtually all pharmaceutical products are subject to rigorous preclinical and
clinical testing and other approval procedures by the FDA and by foreign
regulatory agencies. Before a drug product is approved by the FDA for
commercial marketing, three phases of human clinical trials are usually
conducted to test the safety and effectiveness of the product. Phase I clinical trials most typically
involve testing the drug on a small number of healthy volunteers to assess the
safety profile of the drug at different dosage levels. Phase II clinical trials, which also enroll a
relatively small number of volunteers, are designed to further evaluate the
drug’s safety profile and to provide preliminary data as to the drug’s
effectiveness in humans. Phase III
clinical trials consist of larger, well-controlled studies that may involve
several hundred volunteers representing the drug’s targeted population. During any of these phases, the clinical
trial can be placed on “clinical hold,” or temporarily or permanently stopped
for a variety of reasons, principally for safety concerns.
The approval process is time-consuming and expensive,
and there are no assurances that approval will be granted on a timely basis, or
at all. Even if regulatory approvals are granted, a marketed product is subject
to continual review under federal and state laws and regulations. Post-marketing requirements include reporting
adverse events, recordkeeping, compliance with current good manufacturing
practices (cGMP), and marketing requirements.
If drug candidates we develop, including ARRY-142886,
are approved for commercial marketing by the FDA, they would be subject to the
provisions of the Drug Price Competition and Patent Term Restoration Act of
1984 known as the “Hatch-Waxman Act.”
The Hatch-Waxman Act provides companies with marketing exclusivity for
new chemical entities and allows companies to apply to extend patent protection
for up to five additional years. It also provides a means for approving generic
versions of a drug product once the marketing exclusivity period has ended and
all relevant patents have expired (or have been successfully challenged and
defeated). The period of exclusive
marketing may be shortened, however, by a successful patent challenge.
All facilities and manufacturing processes used in the
production of Active Pharmaceutical Ingredients for clinical use in the United
States must be operated in conformity with cGMP as established by the FDA. We
have a cGMP manufacturing facility, which allows us to produce cGMP compliant
compounds. In our facility, we have the capacity to produce Active
Pharmaceutical Ingredients for Phase I clinical testing. We have validated this
capability for compliance with FDA regulations and began our first cGMP
manufacturing campaign in the second half of calendar 2002. Our cGMP facility
is subject to periodic regulatory inspections to ensure compliance with cGMP
requirements. We could also be required to comply with specific requirements or
specifications of our collaborators, which may be more stringent than
regulatory requirements. If we fail to comply with applicable regulations,
the FDA could require us to cease ongoing research or disqualify the data
submitted to regulatory authorities. A finding that we had materially violated
cGMP requirements could result in additional regulatory sanctions and, in
severe cases, could result in a mandated closing of our cGMP facility, which would
materially and adversely affect our business, financial condition and results
of operations.
In the course of our business, we handle, store and
dispose of chemicals and biological samples. We are subject to various federal,
state and local laws and regulations relating to the use, manufacture, storage,
handling and disposal of hazardous materials and waste products. These
environmental laws generally impose liability regardless of the negligence or
fault of a party and may expose us to liability for the conduct of, or
conditions caused by, others. We have not incurred, and do not expect to incur,
material costs to comply with these laws and regulations.
Most health care providers, including research
institutions from whom we or our collaborators obtain patient information, are
subject to privacy rules under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA).
Although we are not directly regulated by these privacy regulations, we
could face substantial criminal penalties if we knowingly receive individually
identifiable health information from a health care provider that has not
satisfied HIPPA’s disclosure standards. In addition, certain state privacy laws
and genetic testing laws may apply directly to our operations and/or those of our
collaborators and may impose restrictions on the use and dissemination of
individuals’ health information.
10
We are subject to other
regulations, including regulations under the Occupational Safety and Health
Act, regulations promulgated by the United States Department of Agriculture,
and regulations under other federal, state and local laws.
Intellectual
property
Our success will depend in part on our ability to
protect our proprietary software, potential drug candidates and other
intellectual property rights. To establish and protect our proprietary
technologies and products, we rely on a combination of patent, copyright,
trademark and trade secret laws, as well as confidentiality provisions in our contracts
with collaborators.
We attempt to protect our trade secrets by entering
into confidentiality agreements with third parties, employees and consultants.
Our employees also sign agreements requiring that they assign to us their
interests in inventions, original expressions and any corresponding patents and
copyrights arising from their work for us. However, it is possible that these
agreements may be breached, invalidated or rendered unenforceable, and if so,
we may not have an adequate remedy available. Despite the measures we have
taken to protect our intellectual property, parties to our agreements may
breach the confidentiality provisions or infringe or misappropriate our
patents, copyrights, trademarks, trade secrets and other proprietary rights. In
addition, third parties may independently discover or invent competing
technologies or reverse-engineer our trade secrets or other technology.
We have also implemented a patent strategy designed to
protect technology, inventions and improvements to inventions that are
commercially important to our business. We currently have seven issued United
States patents and numerous patent applications on file with the United States
Patent and Trademark Office and around the world. The source code for our proprietary
software programs is protected both as a trade secret and as a copyrighted
work.
United States patents issued from applications filed
on or after June 8, 1995, have a term of 20 years from the
application filing date or earlier claimed priority. All of our patent
applications were filed after June 8, 1995. Patents in most other
countries have a term of 20 years from the date of filing of the patent
application. Because the time from filing patent applications to issuance of
patents is often several years, this process may result in a period of patent
protection significantly shorter than 20 years, which may adversely affect
our ability to exclude competitors from our markets. Our success will depend in
part upon our ability to develop proprietary products and technologies and to
obtain patent coverage for these products and technologies. We intend to
continue to file patent applications covering newly developed products and
technologies. We may not, however, commercialize the technology underlying any
or all of our existing or future patent applications.
Patents provide some degree of protection for our
proprietary technology. However, the pursuit and assertion of patent rights,
particularly in areas like pharmaceuticals and biotechnology, involve complex
legal and factual determinations and, therefore, are characterized by some
uncertainty. In addition, the laws governing patentability and the scope of
patent coverage continue to evolve, particularly in biotechnology. As a result,
patents may not be issued from any of our patent applications or from
applications licensed to us. The scope of any of our patents, if issued, may
not be sufficiently broad to offer meaningful protection. In addition, our
patents or patents licensed to us, if they are issued, may be successfully
challenged, invalidated, circumvented or rendered unenforceable so that our
patent rights might not create an effective competitive barrier. Moreover, the
laws of some foreign countries may not protect our proprietary rights to the
same extent as do the laws of the United States. Any patents issued to us or
our strategic partners may not provide a legal basis for establishing an
exclusive market for our products or provide us with any competitive
advantages. Moreover, the patents held by others may adversely affect our
ability to do business or to continue to use our technologies freely. In view
of these factors, our intellectual property positions bear some degree of
uncertainty.
Employees
As of June 30, 2005, we had 269 full-time employees,
including 204 scientists, of whom 109 have Ph.D.’s and 86 have experience at
large pharmaceutical or biotechnology companies. None of our employees are
covered by collective bargaining agreements, and we consider our employee
relations to be good.
11
Our
corporate information
Founded in 1998, we are headquartered in Boulder,
Colorado with 269 employees, including 204 scientists housed in 160,000 square
feet of state-of-the-art laboratory facilities. We became a public company in
November 2000, and our stock is listed on the Nasdaq National Market under
the symbol “ARRY.” The mailing address and telephone number of our principal
executive offices are 3200 Walnut Street, Boulder, Colorado 80301,
(303) 381-6600.
Available information
The annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports, that
we file with or furnish to the SEC are available on our web site free of charge
as soon as reasonably practicable following the filing or furnishing of these
reports with the SEC. Our web site can
be found at www.arraybiopharma.com. Information on our web site does not
constitute any part of this Annual Report on Form 10-K.
12
RISK FACTORS
In addition to the other factors
discussed elsewhere in this report and in other reports we file with the SEC,
the following factors could cause actual results or events to differ materially
from those contained in any forward-looking statements made by us or on our
behalf. In addition, other risks and
uncertainties not presently known to us or that we currently deem immaterial
may impair our business operations. If
any of the following risks or such other risks occur, it could adversely affect
our business, operating results and financial condition, as well as cause the
value of our common stock to decline.
RISKS RELATED TO OUR
BUSINESS
We have a history of losses and may
not achieve or sustain profitability.
We are at an early stage of executing our business
plan, and we have a limited history of developing and out-licensing our
proprietary drug candidates and offering our drug discovery capabilities. We
have incurred significant operating and net losses and negative cash flows from
operations since our inception. As of June 30, 2005, we had an accumulated
deficit of $94.0 million. We had net losses of $23.2 million,
$26.0 million and $20.0 million for the fiscal years ended June 30,
2005, 2004 and 2003, respectively. We expect to incur additional losses and
negative cash flows in the future, and these losses may continue or increase
due in part to anticipated increases in expenses for research and development,
expansion of our scientific capabilities, acquisitions of complementary
technologies or in-licensed drug candidates and possible reductions in revenue
from drug discovery collaborations. We may not be able to achieve or maintain
profitability. Moreover, if we do achieve profitability, the level of any profitability
cannot be predicted and may vary significantly.
Much of our current revenue is non-recurring in nature
and unpredictable as to timing and amount. While several of our out-license and
collaboration agreements provide for royalties on product sales, given that
none of our drug candidates have been approved for commercial sale, that our
drug candidates are at early stages of development and that drug development
entails a high risk of failure, we do not expect to receive any royalty revenue
for several years, if at all. For the same reasons, we may never realize much
of the milestone revenue provided for in our out-license and collaboration
agreements. In addition, we have been devoting more resources to drug discovery
and our proprietary drug programs. As a result, we expect that revenue from the
sale of our research tools and services will continue to decline as a
percentage of total revenue and that our research and development and other
expenses will continue to increase.
Our drug candidates are at early
stages of development, and we may not successfully develop a drug candidate
that becomes a commercially viable drug.
The drug discovery and development process is highly
uncertain, and we have not developed, and may never develop, a drug candidate
that ultimately leads to a commercially viable drug. All of our drug candidates
are in the early stages of development, and we do not have any drugs approved
for commercial sale. Before a drug product is approved by the FDA for
commercial marketing, it is tested for safety and effectiveness in clinical
trials that can take up to six years or longer. At any time, a clinical trial
can be placed on “clinical hold”, or temporarily or permanently stopped for a
variety of reasons, principally for safety concerns. Only one of our
candidates, ARRY-142886, is in a clinical trial, a Phase I that began in June
2004, and a second candidate, ARRY-334543, is expected to enter a Phase I trial
in the fall of 2005. Candidates that
appear promising in pre-clinical or clinical trials may fail to become marketed
drugs for a number of reasons, including:
•
the failure to
achieve clinical trial results that indicate a candidate is effective in
treating a specified condition or illness in humans;
•
the presence of
harmful side effects;
•
the failure to
obtain FDA or other regulatory approval;
•
the lack of
commercial viability of the drug;
13
•
the failure to acquire, on reasonable
terms, intellectual property rights necessary for commercialization; and
•
the existence of
therapeutics that are more effective or economical to produce.
At any time, we or our collaborators may decide to
discontinue the development of a drug candidate or not to commercialize a
candidate. Even if one of our drug candidates receives regulatory approval for
marketing, physicians or consumers may not find that its effectiveness, ease of
use, side effect profile, cost or other factors make it effective in treating
disease or more beneficial than or preferable to other drugs on the market.
Additionally, health insurance plans or maintenance organizations may choose
not to include the drug on their formulary list for reimbursement. As a result,
the drug may not be used or may be used only for restricted applications.
Our business depends on the extent to
which the pharmaceutical and biotechnology industries in-license drug
candidates to fill their product pipelines and collaborate with other companies
for one or more aspects of their drug discovery process.
We are highly dependent on pharmaceutical and
biotechnology companies continuing to in-license drug candidates to fill their
clinical development pipelines and to collaborate with outside companies to
obtain drug discovery expertise, and on their willingness to spend significant
funds on research and development. Our capabilities include aspects of the drug
discovery process that pharmaceutical and biotechnology companies have
traditionally performed internally. The willingness of these companies to in-license
drug candidates and to expand or continue drug discovery collaborations to
enhance their research and development process is based on several factors that
are beyond our control. These include their ability to hire and retain
qualified scientists, the resources available for entering into drug discovery
collaborations and the spending priorities among various types of research
activities. Any of these factors could cause our revenue to decline. In
addition, our ability to convince these companies to in-license our drug
candidates or programs or to use our drug discovery capabilities, rather than
develop them internally, will depend on many factors, including our ability to:
•
discover
competitive drug candidates targeting large market opportunities;
•
develop and
implement drug discovery technologies that will result in the identification of
higher-quality drug candidates;
•
attract and
retain experienced, high caliber scientists;
•
achieve timely,
high quality results at an acceptable cost; and
•
design, create
and manufacture our chemical compounds in quantities, at purity levels and at
costs that are acceptable to our collaborators.
The importance of these factors varies depending on
the company and type of discovery program, and although we believe we currently
address many of these factors, we may be unable to meet any or all of them in
the future. Even if we are able to address these factors, these companies may
still decide to perform these activities internally, acquire companies to fill
their product pipelines or retain other companies that provide drug research
and development expertise similar to ours.
We may
not be successful in entering into additional out-license agreements on
favorable terms.
We are committing significant resources to create our
own proprietary drug candidates. In fiscal 2005, we increased our investment in
proprietary research to $22.9 million, compared to $15.9 million and
$11.4 million for fiscal years 2004 and 2003, respectively. Our proprietary drug
discovery programs are in their early stage of development and are unproven. To
date, we have entered into three out-licensing agreements for the
co-development and commercialization of our drug candidates. Although we have
expended, and continue to expend, resources on internal research and
development for our proprietary programs and for our collaborators, we may not
be successful in creating valuable proprietary drug candidates that would
enable us to form additional collaborations with favorable terms that include
up-front, milestone, royalty and/or license payments. If we are unsuccessful in
establishing favorable out-licensing collaborations in the future, we may
undertake and fund further development,
14
clinical trials,
manufacturing and marketing activities solely at our expense. As a result, our
requirements for capital, which may not be available on favorable terms, could
increase significantly, or we may be required to substantially reduce our
development efforts, which would delay the commercialization of our drug
candidates.
We may not out-license our
proprietary programs at the most appropriate time to maximize the total value
or return of these programs to us.
A critical aspect of our business strategy is to
out-license drug candidates for late-stage co-development and commercialization
to obtain the highest possible value while also evaluating earlier
out-licensing opportunities to maximize our risk-adjusted return on our
investment in proprietary research. Because the costs and risk of failure of
bringing a drug to market are high, the value of out-licensing a drug candidate
generally increases as it successfully progresses through clinical trials.
Array may choose or be forced to out-license a drug candidate or program at a
point in the research and development process that does not provide as great a
value or return than what might have been obtained if we had further developed
the candidate or program internally. Likewise, we may decline, or be unable to
obtain favorable, early out-licensing opportunities in programs that do not
result in a commercially viable drug, which could leave the resulting program
with little or no value even though significant resources were invested in its
development.
Our collaborators have substantial
control and discretion over the timing and the continued development and
marketing of drug candidates we create.
Our collaborators have significant discretion in
determining the efforts and amount of resources that they dedicate to our
collaborations. Our collaborators may determine not to proceed with clinical
development or commercialization of a particular drug candidate for a number of
reasons that are beyond our control, even under circumstances where we might
have continued such a program. In addition, our ability to generate milestone
payments and royalties from our collaborators depends on our collaborators’
abilities to establish the safety and efficacy of our drug candidates, obtain
regulatory approvals and achieve market acceptance of products developed from
our drug candidates. We also depend on our collaborators to manufacture
clinical scale quantities of some of our drug candidates and would depend on
them in the future for commercial scale manufacture, distribution and direct
sales. Our collaborators may not be successful in manufacturing our drug
candidates on a commercial scale or in successfully commercializing them.
We face additional risks in connection with our
collaborations, including the following:
•
our
collaborators may develop and commercialize, either alone or with others,
products and services that are similar to or competitive with the products that
are the subject of the collaboration with us;
•
our
collaborators may underfund or not commit sufficient resources to the testing,
marketing, distribution or other development of our drug candidates;
•
our
collaborators may not properly maintain or defend our intellectual property
rights or they may utilize our proprietary information in such a way as to
invite litigation that could jeopardize or potentially invalidate our
proprietary information or expose us to potential liability;
•
our
collaborators may encounter conflicts of interest, changes in business strategy
or other business issues which could adversely affect their willingness or
ability to fulfill their obligations to us (for example, pharmaceutical and
biotechnology companies historically have re-evaluated their priorities
following mergers and consolidations, which have been common in recent years in
these industries); and
•
disputes may
arise between us and our collaborators delaying or terminating the research,
development or commercialization of our drug candidates, resulting in
significant litigation or arbitration that could be time-consuming and
expensive, or causing collaborators to act in their own self-interest and not
in the interest of our stockholders.
15
The sale
and manufacture of drug candidates that we develop with our collaborators or on
our own may not receive regulatory approval.
The development
and commercialization of drug candidates for our collaborators and our own
internal drug discovery efforts are subject to regulation. Pharmaceutical
products require lengthy and costly testing in animals and humans and
regulatory approval by governmental agencies prior to commercialization. It
takes several years to complete testing, and failure can occur at any stage of
testing. Results attained in preclinical testing and early clinical trials for
any of our drug candidates may not be indicative of results that are obtained
in later studies, and significant setbacks in advanced clinical trials may
arise, even after promising results in earlier studies. Clinical trials may not
demonstrate sufficient safety and efficacy to obtain the requisite regulatory
approvals or result in marketable products. Based on results at any stage of
testing, we or our collaborators may decide to repeat or redesign a trial or
discontinue development of a drug candidate.
Approval of a drug candidate as safe and effective for
use in humans is never certain, and regulatory agencies may delay or deny
approval of drug candidates for commercialization. These agencies may also
delay or deny approval based on additional government regulation or
administrative action or on changes in regulatory policy during the period of
clinical trials in humans and regulatory review. Similar delays and denials may
be encountered in foreign countries. None of our collaborators have obtained
regulatory approval to manufacture and sell drug candidates owned by us or
identified or developed under an agreement with us. If we or our collaborators
cannot obtain this approval, we will not realize milestone or royalty payments
based on commercialization goals for these drug candidates.
Even if our drug candidates obtain
regulatory approval, we and our collaborators will be subject to ongoing
government regulation.
Even if regulatory authorities approve any of our drug
candidates, the manufacture, marketing and sale of these drugs will be subject
to strict and ongoing regulation. Compliance with this regulation consumes
substantial financial and management resources and may expose us and our
collaborators to the potential for other adverse circumstances. For example,
approval for a drug may be conditioned on costly post-marketing follow-up
studies. Based on these studies, if a regulatory authority does not believe
that the drug demonstrates a clinical benefit to patients, it could limit the
indications for which a drug may be sold or revoke the drug’s marketing
approval. In addition, identification of certain side effects after a drug is
on the market may result in the subsequent withdrawal of approval,
reformulation of a drug, additional preclinical and clinical trials and changes
in labeling. Any of these events could delay or prevent us from generating
revenue from the commercialization of these drugs and cause us to incur
significant additional costs.
In addition, the marketing of these drugs by us or our
collaborators will be regulated by federal and state laws pertaining to health
care “fraud and abuse,” such as the federal anti-kickback law prohibiting
bribes, kickbacks or other remuneration for the order or recommendation of
items or services reimbursed by federal health care programs. Many states have
similar laws applicable to items or services reimbursed by commercial insurers.
Violations of fraud and abuse laws can result in fines and/or imprisonment.
If our drug candidates do not gain
market acceptance, we may be unable to generate significant revenue.
Even if our drug candidates are approved for sale,
they may not be successful in the marketplace. Market acceptance of any of our
drug candidates will depend on a number of factors including:
•
demonstration of
clinical effectiveness and safety;
•
the potential
advantages of our drug candidates over alternative treatments;
•
the availability
of adequate third-party reimbursement; and
•
the
effectiveness of marketing and distribution methods for the products.
16
If our drug candidates do not gain market acceptance
among physicians, patients and others in the medical community, our ability to
generate meaningful revenues from our drug candidates would be limited.
If we need but are unable to obtain
additional funding to support our operations, we could experience a reduction
in our ability to expand or be forced to reduce our operations.
We have historically financed our operations in
substantial part through the sale of our securities and revenue from our
collaborators. We used $17.2 million in our operating activities in fiscal 2005
while we generated $5.5 million from our operating activities for the
fiscal 2004 and used $17.6 million for fiscal 2003. Although we anticipate
that we will use more cash in our operating activities in future periods, we
believe that our existing cash, cash equivalents and marketable securities and
anticipated cash flow from existing out-license and collaboration agreements
will be sufficient to support our current operating plan for at least the next
12 months. However, our current operating plan could change as a result of
many factors, and we could require additional funding sooner than anticipated.
To the extent that the cash from our future operating
activities is insufficient to meet our future capital requirements, we will
have to raise additional funds to continue our proprietary research and
development. We may not be able to raise funds on favorable terms, if at all.
To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the issuance of those securities would result in
dilution to our stockholders. In June 2005, we obtained a credit facility providing
for a $10 million term loan, which we were advanced in June 2005, and a $5
million equipment line and $2 million revolving line of credit to support
standby letters of credit. A portion of
our cash flow will be dedicated to the payment of principal and interest on
such indebtedness, which could render us more vulnerable to competitive
pressures and economic downturns and imposes some restrictions on our
operations. If we are unable to obtain additional funds if and when needed, we
may be required to curtail operations significantly or to obtain funds through
other arrangements on unattractive terms.
We have limited clinical development
and commercialization experience.
One of our business strategies is to develop select
drug candidates through later stage clinical trials before out-licensing them
to a pharmaceutical or biotechnology partner for further clinical development
and commercialization. To date, we have filed two IND and initiated one Phase I
clinical trial, and we have not yet conducted a Phase II or later stage
clinical trial, nor commercialized a drug. We have limited experience
conducting clinical trials and obtaining regulatory approvals, and we may not
be successful in some or all of these activities. We may be required to expend
significant amounts to recruit and retain high quality personnel with clinical
development or commercialization experience or be forced to rely on third-party
clinical investigators, clinical research or marketing organizations, which
could subject us to costs and delays that are outside our control.
Our research and development
capabilities may not produce viable drug candidates.
We have entered into several research and development
collaborations under which we provide drug discovery services to identify drug
candidates for our collaborators using the Array Discovery Platform. We also
seek to identify and develop drug candidates for our proprietary programs. It
is uncertain whether we will be able to provide drug discovery more efficiently
or create high quality drug candidates that are suitable for our or our
collaborators’ purposes. Our ability to create viable drug candidates depends
on many factors, including the implementation of appropriate technologies, the
development of effective new research tools and the performance and
decision-making capabilities of our scientists. Our information-driven
technology platform, which we believe allows our scientists to make better
decisions, may not enable our scientists to make correct decisions or develop
viable drug candidates.
If our drug discovery and development
programs do not progress as anticipated, our revenue and stock price could be
negatively impacted.
We estimate the timing of a variety of preclinical,
clinical, regulatory and other milestones for planning purposes, including when
a drug candidate is expected to enter clinical trials, when a clinical trial
will be completed or when an application for regulatory approval will be filed.
Some of our estimates are included in this report. We base our estimates on
facts that are currently known to us and on a variety of assumptions, many of
which are beyond our control. Delays may be caused by regulatory or patent
issues, interim or final results of on-going clinical trials, scheduling
conflicts with participating clinics and the rate of patient enrollment in
clinical trials. If we or our
17
collaborators do
not achieve milestones when anticipated, we may not achieve our planned
revenue, and our stock price could decline.
We may not
realize anticipated benefits from future acquisitions.
As part of our business
strategy, we may in the future make acquisitions of, or significant investments
in, businesses with complementary products, services and/or technologies.
Acquisitions involve numerous risks, including, but not limited to:
•
difficulties and
increased costs in connection with integration of the personnel, operations,
technologies and products of acquired companies;
•
diversion of
management’s attention from other operational matters;
•
the potential
loss of key employees;
•
the potential
loss of key collaborators;
•
lack of synergy,
or the inability to realize expected synergies, resulting from the acquisition;
and
•
acquired
intangible assets becoming impaired as a result of technological advancements
or worse-than-expected performance of the acquired company.
Mergers and acquisitions
are inherently risky and involve significant investments in time and resources
to effectively manage these risks and integrate an acquired business. Even with
these investments in time and resources, an acquisition may not produce the
revenues, earnings or business synergies we anticipate. An acquisition that
fails to meet our expectations could materially and adversely affect our
business, financial condition and results of operations.
Because we rely on a small number of
collaborators for a significant portion of our revenue, if one or more of our
major collaborators terminates or reduces the scope of their agreement with us,
our revenue may significantly decrease.
A relatively small number of collaborators account for
a significant portion of our revenue. Genentech, AstraZeneca and InterMune
accounted for 28%, 27% and 10%, respectively, or our total revenue in fiscal
2005, and AstraZeneca, Genentech and Eli Lilly accounted for 18%, 13% and 12%,
respectively, of our total revenue for the fiscal 2004. The majority of our
research funding from Eli Lilly ended in March 2005 and the research
funding from AstraZeneca ends between October and December 2005. We expect that
revenue from a limited number of collaborators, including Genentech,
AstraZeneca and InterMune, will account for a large portion of our revenue in
future quarters. In general, our collaborators may terminate their contracts
with us upon 30 to 90 days’ notice for a number of reasons or, in some
cases, for no reason. In addition, some of our major collaborators can
determine the amount of products delivered and research or development
performed under these agreements. As a result, if any one of our major
collaborators cancels, declines to renew or reduces the scope of its contract
with us, our revenue may decrease.
We may
not be able to recruit and retain the experienced scientists and management we
need to compete in the drug research and development industry.
We have 269
employees as of June 30, 2005, and our future success depends upon our ability
to attract, retain and motivate highly skilled scientists and management. Our
ability to achieve our business strategies, including progressing drug
candidates through later stage development or commercialization, attracting new
collaborators and retaining, renewing and expanding existing collaborations,
depends on our ability to hire and retain high caliber scientists and other
qualified experts. We compete with
pharmaceutical and biotechnology companies, contract research companies and
academic and research institutions to recruit personnel. We may not be
successful in attracting new scientists or management or in retaining or
motivating our existing personnel.
Our future success also depends on the personal
efforts and abilities of the principal members of our senior management and
scientific staff to provide strategic direction, manage our operations and
maintain a cohesive and stable environment. In particular, we rely on the
services of Robert E. Conway, our Chief Executive Officer; Dr. Kevin
Koch, our President and Chief Scientific Officer; Dr. David L. Snitman,
our Chief Operating Officer and Vice President, Business Development;
Dr. Anthony D. Piscopio, our Vice President, Chemistry and Director
of
18
Process Chemistry;
R. Michael Carruthers, our Chief Financial Officer; and John R.
Moore, our Vice President and General Counsel. We have employment agreements
with all of the above personnel that are terminable upon 30 days’ prior
notice. If we cannot attract and retain qualified scientists and management, we
will not be able to continue to provide or expand our drug discovery offerings.
We may not be able to meet the
delivery and performance requirements set forth in our collaboration
agreements.
In order to maintain our current collaborative
relationships and to meet the performance and delivery requirements in our agreements,
we must be able to provide drug discovery capabilities at appropriate levels,
with acceptable quality and at an acceptable cost. Our ability to deliver the
drug discovery capabilities we offer to our collaborators is limited by many
factors, including the difficulty of the chemistry and biology, the lack of
predictability in the scientific process and having adequate scientific
expertise. The inability to meet our existing or future contractual commitments
may result in delayed or lost revenue, loss of collaborators or failure to
expand our existing relationships.
Our quarterly operating results could
fluctuate significantly.
Entering into out-licensing or drug discovery
collaborations typically involves significant technical evaluation and/or commitment
of capital by our collaborators. Accordingly, negotiation can be lengthy and is
subject to a number of significant risks, including collaborators’ budgetary
constraints and internal acceptance reviews. In addition, a significant portion
of our revenue is attributable to up-front payments and milestones that are
non-recurring. Further, some of our
collaborators can influence when we deliver products and perform services under
their contracts with us. Due to these factors, our operating results could
fluctuate significantly from quarter to quarter. In addition, we may experience
significant fluctuations in quarterly operating results due to factors such as
general and industry-specific economic conditions that may affect the research
and development expenditures of pharmaceutical and biotechnology companies.
Due to the possibility of fluctuations in our revenue
and expenses, we believe that quarter-to-quarter comparisons of our operating
results are not a good indication of our future performance. Our operating
results in some quarters may not meet the expectations of stock market analysts
and investors. If we do not meet analysts’ and/or investors’ expectations, our
stock price could decline.
We expect that revenue from our
research tools will decline as a percentage of our total revenue in the future
as we focus more resources on our proprietary research programs.
We expect that revenue from our research tools, such
as Optimer
â
building
blocks, Lead Generation Libraries and custom synthesis, will decline as a
percentage of our total revenue in the future as we focus greater resources on
drug discovery programs. We also face greater competition for these tools and
services, particularly from foreign chemistry service providers that have made
progress in recent years in obtaining significant contracts to provide customer
designed custom screening library compounds to major pharmaceutical companies
due to significantly lower cost structures. As a result of this competition,
our collaborators may decide to fulfill some or all of their needs through
other providers or internally. In light of these changes in market conditions
and our expectation that future revenue for our Lead Generation Libraries and
Optimer building blocks will decline, we reduced the carrying values for our
inventories. We increased the inventory reserves during fiscal 2004 and fiscal
2003, resulting in non-cash charges of $5.6 million and $4.1 million,
respectively. We perform periodic reviews and, when required, write down our
inventories for non-marketability when the cost of inventory exceeds the
estimated market value based upon assumptions about future demand and market
conditions. If future market conditions are less favorable than projected, we
may determine that further increases in our inventory reserves are necessary.
As of June 30, 2005 we had $533,000 and $1.6 million in inventory, net of
reserves, related to our Optimer building blocks and fine chemical or reagent
supplies, respectively.
Our cGMP and pharmacology facilities
and practices may fail to comply with government regulations.
All facilities and manufacturing processes used in the
production of Active Pharmaceutical Ingredients for clinical use in the United
States must be operated in conformity with current Good Manufacturing Practices
(cGMP), as established by the FDA. We operate a clinical-scale manufacturing
facility that we believe conforms
19
with cGMP
requirements. This facility and our cGMP practices are subject to periodic
regulatory inspections to ensure compliance with cGMP requirements. In
addition, we could be required to comply with specific requirements of our
collaborators, which may exceed FDA requirements. Failure on our part to comply
with applicable regulations and specific requirements of our collaborators
could result in the termination of ongoing research or the disqualification of
data for submission to regulatory authorities. Material violations of cGMP
requirements could result in regulatory sanctions and, in severe cases, could
result in a mandated closing of our cGMP facility.
In addition, our pharmacology facility may be subject
to the United States Department of Agriculture (USDA) regulations for certain
animal species. Failure on our part to comply with applicable regulations and
specific requirements of our collaborators could result in the termination of
ongoing pharmacology research. Material violations of USDA requirements could
result in additional regulatory sanctions and, in severe cases, could result in
a mandated closing of our pharmacology facility for certain species.
Our development, testing and
manufacture of drug candidates may expose us to product liability lawsuits.
We develop, test and manufacture drug candidates that
are generally intended for use in humans. Our drug discovery activities that
result in the future manufacture and sale of drugs by our collaborators expose
us to the risk of liability for personal injury or death to persons using these
drugs. We may be required to pay substantial damages or incur legal costs in
connection with defending any of these product liability claims, or we may not
receive revenue from expected royalty or milestone payments if the
commercialization of a drug is limited or ceases as a result of such claims. We
have product liability insurance that contains customary exclusions and
provides coverage up to $3.0 million per occurrence and in the aggregate,
which we believe is customary in our industry. However, our product liability insurance
does not cover every type of product liability claim that we may face or loss
we may incur, and may not adequately compensate us for the entire amount of
covered claims or losses or for the harm to our business reputation. We may be
unable to acquire or maintain additional or maintain our current insurance
policies at acceptable costs or at all.
If our use of chemical and hazardous
materials violates applicable laws or regulations or causes personal injury we
may be liable for damages.
Our drug discovery activities, including the analysis
and synthesis of chemical compounds, involve the controlled use of chemicals,
including flammable, combustible, toxic and radioactive materials that are
potentially hazardous. Our use, storage, handling and disposal of these
materials is subject to federal, state and local laws and regulations,
including the Resource Conservation and Recovery Act, the Occupational Safety
and Health Act and local fire codes, and regulations promulgated by the
Department of Transportation, the Drug Enforcement Agency, the Department of
Energy, the Colorado Department of Public Health and Environment, and the
Colorado Department of Human Services, Alcohol and Drug Abuse Division. We may
incur significant costs to comply with these laws and regulations in the
future. In addition, we cannot completely eliminate the risk of accidental
contamination or injury from these materials, which could result in material
unanticipated expenses, such as substantial fines or penalties, remediation
costs or damages, or the loss of a permit or other authorization to operate or
engage in our business. Those expenses could exceed our net worth and limit our
ability to raise additional capital.
Our operations could be interrupted
by damage to our specialized laboratory facilities.
Our operations are dependent upon the continued use of
our highly specialized laboratories and equipment in Boulder and Longmont,
Colorado. Catastrophic events, including fires or explosions, could damage our
laboratories, equipment, scientific data, work in progress or inventories of
chemical compounds and may materially interrupt our business. We employ safety
precautions in our laboratory activities in order to reduce the likelihood of
the occurrence of these catastrophic events; however, we cannot eliminate the
chance that such an event will occur. The availability of laboratory space in
these locations is limited, and rebuilding our facilities could be time
consuming and result in substantial delays in fulfilling our agreements with
our collaborators. We maintain business interruption insurance in the amount of
$18.0 million to cover continuing expenses and lost revenue caused by such
occurrences. However, this insurance does not compensate us for the loss of
opportunity and potential harm to customer relations that our inability to meet
our collaborators’ needs in a timely manner could create.
20
RISKS RELATED TO OUR
INDUSTRY
The
concentration of the pharmaceutical and biotechnology industry and any further
consolidation could reduce the number of our potential collaborators.
There are a
limited number of pharmaceutical and biotechnology companies, and these
companies represent a significant portion of the market for our capabilities.
The number of our potential collaborators could decline even further through
consolidation among these companies. If the number of our potential
collaborators declines even further, they may be able to negotiate greater
rights to the intellectual property they license from us, price discounts or
other terms that are unfavorable to us.
Capital market conditions may reduce
our biotechnology collaborators’ ability to fund research.
Traditionally, many unprofitable biotechnology
companies have funded their research and development expenditures through
raising capital in the equity markets. Declines and uncertainties in these
markets have severely restricted raising new capital at times in the past and
have affected these companies’ ability to continue to expand or fund existing
research and development efforts. If our current or future biotechnology
collaborators are unable to raise sufficient capital to fund research and
development expenditures, we may not be able to expand or maintain current
revenue.
Health care reform and cost control
initiatives by third-party payors could reduce the prices that can be charged
for drugs, which could limit the commercial success of our drug candidates.
The commercial success of our drug candidates will
depend significantly on the availability of reimbursement to the patient from
third party payors, such as the government and private insurance plans. In the
United States, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 adds prescription drug benefit to Medicare beginning in 2006 and
added a voluntary drug discount card program for Medicare beneficiaries
otherwise without prescription drug coverage. However, future legislation may
limit the prices that can be charged for drugs we develop and may limit our
commercial opportunity and reduce any associated revenue and profits. For
example, federal laws require drug manufacturers to pay specified rebates for
medicines reimbursed by Medicaid and to provide discounts for out-patient
medicines purchased by certain public health service entities and “disproportionate
share” hospitals and for purchases by some federal governmental departments
such as the Department of Veterans Affairs and the Department of Defense. In
some countries other than the United States, pricing and profitability of
prescription pharmaceuticals and biopharmaceuticals are subject to government
control. Also, we expect managed care will continue to put pressure on the
pricing of pharmaceutical and biopharmaceutical products. Cost control
initiatives could decrease the price that we, or any potential collaborators
receive for any of our future products, which could adversely affect our
profitability. These initiatives may also have the effect of reducing the
resources that pharmaceutical and biotechnology companies can devote to
in-licensing drug candidates and the research and development of new drugs,
which could reduce our resulting revenue.
We or our collaborators may not
obtain favorable reimbursement rates for our drug candidates.
Third party payors, such as government and private
insurance plans, frequently require companies to provide rebates and
predetermined discounts from list prices and are increasingly challenging the
prices charged for pharmaceuticals and other medical products. Our products may
not be considered cost-effective, and reimbursement to the patient may not be
available or be sufficient to allow the sale of our products on a competitive
basis. We, or our collaborators may not be able to negotiate favorable reimbursement
rates for our products. If we, or our collaborators fail to obtain an adequate
level of reimbursement for our products by third-party payors, sales of the
drugs would be adversely affected or there may be no commercially viable market
for the products.
The drug research and development
industry has a history of patent and other intellectual property litigation,
and we may be involved in costly intellectual property lawsuits.
The drug research and development industry has a
history of patent and other intellectual property litigation, and we believe
these lawsuits are likely to continue. Legal proceedings relating to
intellectual property would be expensive, take significant time and divert
management’s attention from other business concerns. Because we produce drug
candidates for a broad range of therapeutic areas and provide many different
capabilities in this
21
industry, we face
potential patent infringement suits by companies that control patents for
similar drug candidates or capabilities or other suits alleging infringement of
their intellectual property rights. There could be issued patents of which we
are not aware that our products infringe or patents that we believe we do not
infringe that we are ultimately found to infringe. Moreover, patent
applications are in many cases maintained in secrecy until patents are issued.
The publication of discoveries in the scientific or patent literature
frequently occurs substantially later than the date on which the underlying
discoveries were made and patent applications were filed. Because patent
applications can take many years to issue, there may be currently pending
applications of which we are unaware that may later result in issued patents
that we infringe with our products. In addition, technology created under our
research and development collaborations may infringe the intellectual property
rights of third parties, in which case we may not receive milestone or royalty
revenue from those collaborations.
If we do not prevail in an infringement lawsuit
brought against us, we might have to pay substantial damages, including triple
damages, and we could be required to stop the infringing activity or obtain a
license to use the patented technology or redesign our products so as not to
infringe the patent. We may not be able to enter into licensing arrangements at
a reasonable cost or effectively redesign our products. Any inability to secure
licenses or alternative technology could delay the introduction of our products
or prevent us from manufacturing or selling products.
The intellectual property rights we
rely on to protect our proprietary drug candidates and the technology
underlying our tools and techniques may be inadequate to prevent third parties
from using our technology or developing competing capabilities or to protect
our interests in our proprietary drug candidates.
Our success will depend in part on our ability to
protect patents and maintain the secrecy of proprietary processes and other
technologies we develop for the testing and synthesis of chemical compounds in
the drug discovery process. In addition, one of our business strategies is to
develop our own proprietary drug candidates and enter into collaborations with
pharmaceutical and biotechnology companies for the development of these drug
candidates. In order to protect our rights to our proprietary drug candidates,
we must obtain and maintain the intellectual property rights to such drug
candidates. We currently have seven issued United States patents and numerous
patent applications on file with the United States Patent and Trademark Office
and around the world.
Any patents that we may own or license now or in the
future may not afford meaningful protection for our drug candidates or our
technology and tools. In order to protect or enforce our intellectual property
rights, we may have to initiate legal proceedings against third parties. Our
efforts to enforce and maintain our intellectual property rights may not be
successful and may result in substantial costs and diversion of management
time. In addition, other companies may challenge our patents and, as a result,
these patents could be narrowed, invalidated or rendered unenforceable, or we
may be forced to stop using the technology covered by these patents or to
license the technology from third parties. In addition, current and future
patent applications on which we depend may not result in the issuance of
patents in the United States or foreign countries. Even if our rights are valid,
enforceable and broad in scope, competitors may develop drug candidates or
other products based on similar research or technology that is not covered by
our patents.
Patent applications relating to or affecting our
business may have been filed by a number of pharmaceutical and
biopharmaceutical companies and academic institutions. A number of the
technologies in these applications or patents may conflict with our
technologies, patents or patent applications, which could reduce the scope of
patent protection we could otherwise obtain. We could also become involved in
interference proceedings in connection with one or more of our patents or
patent applications to determine priority of inventions. We cannot be certain
that we are the first creator of inventions covered by pending patent
applications, or that we were the first to file patent applications for any
such inventions.
Drug candidates we develop that are approved for
commercial marketing by the FDA would be subject to the provisions of the Drug
Price Competition and Patent Term Restoration Act of 1984, known as the “Hatch-Waxman
Act.” The Hatch-Waxman Act provides companies with marketing exclusivity for
varying time periods during which generic versions of a drug may not be
marketed and allows companies to apply to extend patent protection for up to
five additional years. It also provides a means for approving generic versions
of a drug once the marketing exclusivity period has ended and all relevant
patents have expired. The period of exclusive marketing, however, may be
shortened if a patent is successfully challenged and defeated, which could
reduce the amount of royalties we receive on the product.
22
Agreements we have with our
employees, consultants and collaborators may not afford adequate protection for
our trade secrets, confidential information and other proprietary information.
In addition to patent protection, we also rely on
copyright and trademark protection, trade secrets, know-how, continuing
technological innovation and licensing opportunities. In an effort to maintain
the confidentiality and ownership of our trade secrets and proprietary
information, we require our employees, consultants and advisors to execute
confidentiality and proprietary information agreements. However, these
agreements may not provide us with adequate protection against improper use or
disclosure of confidential information and there may not be adequate remedies
in the event of unauthorized use or disclosure. Furthermore, we may from time
to time hire scientific personnel formerly employed by other companies involved
in one or more areas similar to the activities we conduct. In some situations,
our confidentiality and proprietary information agreements may conflict with,
or be subject to, the rights of third parties with whom our employees,
consultants or advisors have prior employment or consulting relationships.
Although we require our employees and consultants to maintain the
confidentiality of all proprietary information of their previous employers,
these individuals, or we, may be subject to allegations of trade secret
misappropriation or other similar claims as a result of their prior
affiliations. Finally, others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets. Our failure or inability to protect our proprietary information and
techniques may inhibit or limit our ability to compete effectively, or exclude
certain competitors from the market.
The drug research and development
industry is highly competitive, and we compete with some companies that offer a
broader range of capabilities and have better access to resources than we do.
The pharmaceutical and biotechnology industries are
characterized by rapid and continuous technological innovation. We compete with
companies worldwide that are engaged in the research and discovery, licensing,
development and commercialization of drug candidates, including Arena
Pharmaceuticals Inc; Arqule; Cytokinetics Inc; deCODE genetics Inc; Exelixis
Inc; Incyte Corporation; Theravance, Inc.; and Vertex Pharmaceuticals
Incorporated. Some of our competitors have a broader range of capabilities and
have greater access to financial, technical, scientific, regulatory, business
development, recruiting and other resources than we do. Their access to greater
resources may allow them to develop processes or products that are more
effective, safer or less costly, or gain greater market acceptance, than products
we develop or for which they obtain FDA approval more rapidly than we do. We
anticipate that we will face increased competition in the future as new
companies enter the market and advanced technologies become available.
We face potential liability related
to the privacy of health information we obtain from research institutions.
Most health care providers, including research
institutions from whom we or our collaborators obtain patient information, are
subject to privacy regulations promulgated under the Health Insurance
Portability and Accountability Act of 1996, or HIPAA. Although we are not
directly regulated by HIPAA, we could face substantial criminal penalties if we
knowingly receive individually identifiable health information from a health care
provider or research institution that has not satisfied HIPPA’s disclosure
standards. In addition, certain state privacy laws and genetic testing laws may
apply directly to our operations and/or those of our collaborators and may
impose restrictions on our use and dissemination of individuals’ health
information. Moreover, patients about whom we or our collaborators obtain
information, as well as the providers who share this information with us, may
have contractual rights that limit our ability to use and disclose the
information. Claims that we have violated individuals’ privacy rights or
breached our contractual obligations, even if we are not found liable, could be
expensive and time-consuming to defend and could result in adverse publicity
that could harm our business.
23
RISKS RELATED TO OUR STOCK
Our officers and
directors have significant control over us and their interests may differ from
those of our stockholders.
At June 30, 2005, our directors and officers
beneficially owned or controlled approximately 14% of our common stock.
Individually and in the aggregate, these stockholders significantly influence
our management, affairs and all matters requiring stockholder approval. These
stockholders may vote their shares in a way with which other stockholders do
not agree. In particular, this concentration of ownership may have the effect
of delaying, deferring or preventing an acquisition of us or entrenching
management and may adversely affect the market price of our common stock.
Because
our stock price may be volatile, our stock price could experience substantial
declines.
The market price of our common stock has historically
experienced and may continue to experience volatility. The high and low closing
bids for our common stock were $9.73 and $5.66 respectively in fiscal 2005 and
$11.61 and $3.10 respectively in fiscal 2004. Our quarterly operating results,
the success or failure of our internal drug discovery efforts, changes in
general conditions in the economy or the financial markets and other
developments affecting our collaborators, our competitors or us could cause the
market price of our common stock to fluctuate substantially. This volatility
and market declines over the past several years have affected the market prices
of securities issued by many companies, often for reasons unrelated to their
operating performance, and may adversely affect the price of our common stock.
In the past, securities class action litigation has often been instituted
following periods of volatility in the market price of a company’s securities.
A securities class action suit against us could result in potential
liabilities, substantial costs and the diversion of management’s attention and
resources, regardless of whether we win or lose.
Because
we do not intend to pay dividends, stockholders will benefit from an investment
in our common stock only if it appreciates in value.
We have never declared or paid any cash dividends on
our common stock and are restricted in our ability to do so under our current
credit agreement. We currently intend to retain our future earnings, if any, to
finance the expansion of our business and do not expect to pay any cash
dividends in the foreseeable future. As a result, the success of an investment
in our common stock will depend entirely upon any future appreciation. There is
no guarantee that our common stock will appreciate in value or even maintain
the price at which stockholders have purchased their shares.
The ability of our stockholders to control our
policies and effect a change of control of our company is limited, which may
not be in the best interests of our stockholders.
There are provisions in our certificate of
incorporation and bylaws that may discourage a third party from making a
proposal to acquire us, even if some of our stockholders might consider the
proposal to be in their best interests. These include the following provisions
in our certificate of incorporation:
•
Our certificate of incorporation provides for three classes of directors
with the term of office of one class expiring each year, commonly referred to
as a “staggered board.” By preventing stockholders from voting on the election
of more than one class of directors at any annual meeting of stockholders, this
provision may have the effect of keeping the current members of our board of
directors in control for a longer period of time than stockholders may desire.
•
Our certificate of incorporation authorizes our board of directors to
issue shares of preferred stock without stockholder approval and to establish
the preferences and rights of any preferred stock issued, which would allow the
board to issue one or more classes or series of preferred stock that could
discourage or delay a tender offer or change in control.
24
In addition,
our board of directors approved a Rights Agreement on August 2, 2001,
which could prevent or deter a potential unsolicited takeover of us by causing
substantial dilution of an acquirer of 15% or more of our outstanding common
stock. We are also subject to the business combination provisions of
Section 203 of the Delaware General Corporation Law, which, in general,
imposes restrictions upon acquirers of 15% or more of our stock. As a result,
it is difficult for a third party to acquire control of us without the approval
of the board of directors and, therefore, mergers and acquisitions of us that
our stockholders may consider in their best interests may not occur.
Item 2.
Properties
We are
headquartered in Boulder, Colorado, where we lease approximately 144,000 square
feet of office and laboratory space under a lease that expires April 1,
2008. We have options to extend the entire Boulder lease for three additional
terms for up to 18 years. We also lease two connected buildings of approximately
75,000 total square feet of laboratory space in Longmont, Colorado under two
leases that expire on March 31, 2008. The March 31, 2008
terms will automatically extend to May
31, 2013, unless the landlord is unable to provide certain expansion space to
us and we choose to maintain the March 31, 2008 expiration date. We have
options to extend the leases for three additional consecutive terms of five
years each. We also have the option to expand the Longmont leased space by up
to an additional 80,000 square feet in adjacent buildings. In addition, we have
the right to purchase each of the leased buildings in Longmont, including the
expansion space.
Item 3.
Legal
Proceedings
We may be
involved, from time to time, in various claims and legal proceedings arising in
the ordinary course of our business. We are not currently a party to any such
claims or proceedings that, if decided adversely to us, would either
individually or in the aggregate have a material adverse effect on our
business, financial condition or results of operations.
Item 4.
Submission of Matters to a Vote of Security
Holders
No matters
were submitted to a vote of our security holders, through solicitation of
proxies or otherwise, during the fourth quarter of the year ended June 30,
2005.
25
PART
II
Item
5.
Market for the Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The following table sets forth, for the periods indicated, the range of
the high and low closing bid for Array’s common stock.
|
|
|
High
|
|
Low
|
|
|
Fiscal
Year Ended June 30, 2005
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
8.29
|
|
$
|
5.66
|
|
|
Second
Quarter
|
|
9.73
|
|
6.66
|
|
|
Third
Quarter
|
|
9.50
|
|
6.80
|
|
|
Fourth
Quarter
|
|
7.06
|
|
5.67
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended June 30, 2004
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
6.36
|
|
$
|
3.10
|
|
|
Second
Quarter
|
|
6.07
|
|
4.60
|
|
|
Third
Quarter
|
|
9.34
|
|
5.95
|
|
|
Fourth
Quarter
|
|
11.61
|
|
7.95
|
|
As of August 31, 2005, there were approximately 100 holders of record
of our common stock. This does not include the number of persons whose stock is
in nominee or “street name” accounts through brokers.
Dividend
Policy
We have never declared or paid any cash dividends on our common stock
and we do not intend to pay any cash dividends in the foreseeable future. In
addition, the terms of our loan agreement restrict our ability to pay cash
dividends to our stockholders. We currently intend to retain all available
funds and any future earnings for use in the operations of our business and to
fund future growth.
26
Item 6.
Selected
Financial Data
The following selected financial data is derived from our audited
financial statements. These historical results do not necessarily indicate
future results. When you read this data, it is important that you also read our
financial statements and related notes, as well as the section “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
appearing elsewhere in this Annual Report on Form 10-K.
|
|
|
Fiscal Years Ended June 30,
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
(in thousands, except per share data)
|
|
|
Statements
of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue
|
|
$
|
34,343
|
|
$
|
28,186
|
|
$
|
33,633
|
|
$
|
33,854
|
|
$
|
16,364
|
|
|
License and milestone revenue
|
|
11,162
|
|
6,645
|
|
1,492
|
|
1,235
|
|
642
|
|
|
Total revenue
|
|
45,505
|
|
34,831
|
|
35,125
|
|
35,089
|
|
17,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (1)
|
|
38,048
|
|
37,257
|
|
35,136
|
|
28,759
|
|
19,694
|
|
|
Research and development for proprietary
drug discovery
|
|
22,871
|
|
15,905
|
|
11,395
|
|
5,542
|
|
1,587
|
|
|
Selling, general and administrative
expenses
|
|
9,372
|
|
8,016
|
|
8,901
|
|
6,918
|
|
7,671
|
|
|
Total operating expenses
|
|
70,291
|
|
61,178
|
|
55,432
|
|
41,219
|
|
28,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(24,786
|
)
|
(26,347
|
)
|
(20,307
|
)
|
(6,130
|
)
|
(11,946
|
)
|
|
Interest expense including loss from early
extinguishment of debt
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(812
|
)
|
|
Interest
income
|
|
1,542
|
|
381
|
|
787
|
|
1,483
|
|
2,092
|
|
|
Other expense
- loss on investment
|
|
—
|
|
—
|
|
(500
|
)
|
—
|
|
—
|
|
|
Net loss
|
|
(23,244
|
)
|
(25,966
|
)
|
(20,020
|
)
|
(4,647
|
)
|
(10,666
|
)
|
|
Deemed dividend related to beneficial
conversion feature of preferred stock
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,000
|
)
|
|
Net loss
applicable to common stockholders
|
|
$
|
(23,244
|
)
|
$
|
(25,966
|
)
|
$
|
(20,020
|
)
|
$
|
(4,647
|
)
|
$
|
(15,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
applicable to common stockholders
|
|
$
|
(0.68
|
)
|
$
|
(0.91
|
)
|
$
|
(0.72
|
)
|
$
|
(0.19
|
)
|
$
|
(1.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used to compute per share
data
|
|
34,043
|
|
28,511
|
|
27,830
|
|
24,920
|
|
15,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, restricted cash and
marketable securities
|
|
$
|
92,706
|
|
$
|
37,446
|
|
$
|
34,130
|
|
$
|
59,598
|
|
$
|
47,712
|
|
|
Property,
plant and equipment, gross
|
|
61,517
|
|
57,557
|
|
53,939
|
|
44,365
|
|
21,458
|
|
|
Working
capital
|
|
80,435
|
|
24,652
|
|
38,321
|
|
57,350
|
|
44,917
|
|
|
Total assets
|
|
127,952
|
|
77,764
|
|
83,830
|
|
107,915
|
|
70,950
|
|
|
Long term
debt
|
|
10,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total
stockholders’ equity
|
|
99,415
|
|
54,493
|
|
77,039
|
|
93,673
|
|
62,406
|
|
(1) Cost of revenue includes a
provision for excess inventory of $5.6 million and $4.1 million in fiscal year
2004 and 2003, respectively.
27
Item 7.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements about our
expectations related to realizing new revenue streams and obtaining future
collaboration agreements that include milestone and/or royalty payments, our
ability to realize such milestone and royalty payments under our existing or
any future agreements, the success of our internal proprietary drug discovery
activities, future research and development spending, our working capital
requirements and our future headcount requirements. These statements involve
significant risks and uncertainties, including those discussed below and those
described more fully under the caption “Risk Factors” above and in other
reports filed by Array BioPharma with the Securities and Exchange Commission.
The
following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and notes to those
statements included elsewhere in this report.
Overview
Array BioPharma is a biopharmaceutical company focused on the
discovery, development and commercialization of targeted small molecule drugs
to treat life threatening and debilitating diseases. Our proprietary drug development pipeline is
primarily focused on the treatment of cancer and inflammatory disease and includes
clinical candidates that are designed to regulate therapeutically important
targets. In addition, leading
pharmaceutical and biotechnology companies collaborate with Array to discover
and develop drug candidates across a broad range of therapeutic areas.
We have identified multiple drug candidates in our own proprietary
programs and in collaborations with other drug companies. We intend to progress
our proprietary drug programs internally through clinical testing and continue
to evaluate select programs for out-licensing opportunities with pharmaceutical
and biotechnology partners.
To date, we have advanced four programs we wholly own:
•
ErbB-2/EGFR
(cancer), in which the lead compound, ARRY-334543, is expected to begin a Phase
I clinical trial in the fall of 2005;
•
MEK
(inflammation), in which the lead compound is in regulated safety assessment
testing; and
•
p38
(inflammation) and ErbB-2 (cancer), which have compounds in preclinical
development.
In addition, we have out-licensed proprietary cancer programs to
AstraZeneca
PLC
(ARRY-142886), which is currently in Phase Ib clinical trials, and Genentech,
Inc., which involves two early stage programs.
We have built our drug development pipeline, and our discovery and
development capabilities, primarily through cash flow from collaborations and
through sales of our equity securities.
Through June 30, 2005, we have recognized $156 million in
research funding, and we have generated $18 million in up-front payments
and $6 million in milestone payments from our collaborators and
out-licensing partners. Under our existing collaboration agreements, we have
the potential to earn over $190 million in additional milestone payments
if we achieve all of the drug discovery objectives under these agreements, as
well as royalties on any resulting product sales from 14 different programs. In
December 2004, we raised approximately $67 million in a follow-on public
offering of our common stock.
We have
incurred net losses since inception and expect to incur losses in the near
future as we continue to invest in our proprietary drug discovery programs. As
of June 30, 2005, we had an accumulated deficit of $94.0 million.
Revenue
.
We generate revenue through the out-licensing
of select proprietary drug discovery programs for license and up-front fees,
research funding, based on the number of full-time equivalents contractually
assigned to the program, and research and development milestone payments. We
also have the potential to generate revenue from royalties on future product
sales. Four programs have been out-licensed to date, and we have received
up-front license fees of $18 million in total from AstraZeneca, Genentech and
Amgen Inc.
We also generate revenue through collaborations aimed at inventing drug
candidates for our collaborators. We receive research funding or collaboration
revenue based on the number of full-time equivalent employees
28
contractually assigned to a
program, plus related research expenses. Under certain of these agreements, we
are entitled to receive additional payments based on the achievement of
research milestones, drug development milestones and/or royalties based on
sales of products created as a result of these collaborations.
We sell our Optimer building blocks, which are the starting materials
used to create more complex chemical compounds in the drug discovery process,
on a per-compound basis without any restrictions on use. In addition, we have
licensed our Lead Generation Libraries, which are a collection of structurally
related chemical compounds that may have the potential of becoming drug
candidates, on a non-exclusive basis to our collaborators for their internal
research purposes. We are no longer developing new Lead Generation Libraries
other than for our proprietary research. Under our existing agreements, we
retain all other rights to the compounds, which permits us to license the same
compounds to other collaborators. Some of our existing Lead Generation Library
agreements allow our collaborators to obtain exclusive rights to commercialize
particular compounds upon the payment of additional fees. For the fiscal years
2005, 2004, and 2003, Lead Generation Library revenue represented 4%, 10% and
12%, respectively, of total revenue. During the second quarter of fiscal 2005,
we sold compounds representing the remaining net book value of Lead Generation
Library inventory to a single major biotechnology company. Future revenue from
any sales of compounds in our Lead Generation Library is not expected to be
significant.
We report revenue for lead generation and
lead optimization research, custom synthesis and process research, the
development and sale of chemical compounds and the co-development of
proprietary drug candidates we out-license, as collaboration revenue. License
and milestone revenue is combined and reported separately from collaboration
revenue.
Revenue recognition.
We recognize revenue from fees under our collaboration agreements on a monthly
basis as work is performed. Per-compound revenue is recognized as compounds are
shipped. Revenue from license fees and up-front fees are non refundable and are
recognized on a straight-line basis over the expected period of the related
research program. Payments received in advance of performance are recorded as
advance payments from collaborators until the revenue is earned. Milestone
payments are non refundable and are recognized as revenue over the expected
period of the related research program. A portion of any milestone payment is recognized
at the date the milestone is achieved which is determined using the applicable
percentage of the research term that has elapsed at the date the milestone is
achieved. Any balance is recognized ratably over the remaining research term.
Revenue recognition related to license fees, up-front payments and milestone
payments could be accelerated in the event of early termination of programs.
Customer concentration.
Our top 20
collaborators contributed over 98% of our total revenue for fiscal 2005 and our
top three collaborators, Genentech, AstraZeneca and InterMune, Inc., accounted
for 28%, 27% and 10%, respectively, of our total revenue. During fiscal 2004,
AstraZeneca, Genentech and Eli Lilly and Company accounted for 18%, 13% and
12%, respectively, of our total revenue. In general, our collaborators may
terminate their collaboration agreements with us on 30 to 90 days’ prior
notice.
Cost of revenue.
Cost of revenue consists
mainly of compensation, associated fringe benefits and other collaboration-related
costs, including research and development conducted for our collaborators,
supplies, small tools, facilities, depreciation, recruiting and relocation and
other direct and indirect chemical handling and laboratory support costs. Fine
chemicals consumed as well as any required inventory reserve adjustments are
also recorded as cost of revenue. We review the level and value of our chemical
inventories periodically and, when required, write down the carrying cost of
our inventories for non-marketability to estimated net realizable value through
an appropriate reserve.
Research and development expenses for
proprietary drug discovery.
Research and
development expenses for proprietary drug discovery consists of all costs
associated with our proprietary drug development pipeline, including salaries
and benefits, consulting and outsourced services, laboratory supplies, and
allocated facility costs and depreciation. When an internal proprietary program
is out-licensed, all subsequent costs of the out-licensed program are reported
as cost of revenue.
Selling, general and administrative expenses.
Selling, general and administrative expenses consist mainly of compensation and
associated fringe benefits not included in cost of revenue or research and
development expenses and include other management, business development,
accounting, information technology and administration costs, including patent
prosecution, recruiting and relocation, consulting and professional services,
travel and meals,
29
advertising, sales commissions,
facilities, depreciation and other office expenses. In addition, termination
related costs of approximately $541,000 associated with a reduction in
workforce completed in March 2003 were recorded as selling, general and
administrative expenses during fiscal year 2003.
Business development.
We currently license or sell our compounds and enter into collaborations
directly with pharmaceutical and biotechnology companies through opportunities
identified by our business development group, senior management, scientists and
customer referrals. In addition, we license or sell our compounds and
collaborations in Japan through an agent. International revenue represented 40%
of our total revenue during fiscal year 2005, up from 33% for fiscal year 2004.
Our international revenue is primarily attributable to both European and
Japanese collaborations and increased in fiscal 2005 over the prior year due to
the collaboration and out-licensing agreement with AstraZeneca that we
initiated in December 2003. All of our collaboration agreements and purchase
orders are denominated in United States dollars.
Future outlook
.
We plan to increase our investment in proprietary research to broaden our
product pipeline and advance drugs further in clinical development. Array will
consider commercializing select programs with appropriate market
characteristics while continuing to evaluate out-licensing opportunities to
maximize their risk-adjusted return. As part of these efforts, we expect near
term selling, general and administrative costs to rise in connection with
increased patent and other intellectual property related costs incurred to
protect and enforce our intellectual property rights in our proprietary
programs. As we devote more scientists
to our proprietary research, we expect fewer scientists will be
assigned to revenue generating collaborations. In addition, we will
recognize approximately $833,000 each month in revenue through November 2005 from
previously received up-front and milestone payments from out-licensed
proprietary programs. Because of our strategy to retain other proprietary
programs later in clinical development before out-licensing them or
commercializing them ourselves, it is unlikely that this revenue will be
replaced in 2006. Our statements about future events in this paragraph
are subject to many risks and uncertainties, including many that are
beyond our control. These risks are described more fully under the caption
“Risk Factors” included herein and in other reports filed by Array BioPharma
with the Securities and Exchange Commission.
Deferred
Stock Compensation
We recorded compensation expense related to stock option grants of
approximately $154,000, $2.0 million and $1.9 million in fiscal years 2005,
2004 and 2003, respectively. The compensation expense related to stock option
grants is charged to cost of revenue, research and development expenses, and
selling, general and administrative expenses, based on the functional
responsibility of the associated employee. As of June 30, 2005, we had no
remaining deferred stock compensation.
Results
of Operations
Fiscal Years Ended June 30, 2005, 2004 and
2003:
Revenue
|
|
|
Years Ended June 30,
|
|
% increase (decrease)
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
2004 to 2005
|
|
2003 to 2004
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Collaboration
revenue
|
|
$
|
34,343
|
|
$
|
28,186
|
|
$
|
33,633
|
|
22
|
%
|
(16
|
)%
|
|
License and
milestone revenue
|
|
11,162
|
|
6,645
|
|
1,492
|
|
68
|
%
|
345
|
%
|
|
Total revenue
|
|
$
|
45,505
|
|
$
|
34,831
|
|
$
|
35,125
|
|
31
|
%
|
(1
|
)%
|
Fiscal 2005 as compared to fiscal 2004
: Total
revenue for fiscal 2005 grew 31% from 2004 with improvements in both
collaboration revenue, which increased $6.2 million, and license and milestone
revenue, which increased $4.5 million.
The improvement in collaboration revenue was the result of increased
revenue, totaling $14.6 million, from new or expanded collaborations with
Genentech, AstraZeneca, InterMune, Takeda Pharmaceutical Company, Elan
Pharmaceuticals, Inc., and Roche Palo Alto LLC.
This increase was partially offset by expired research programs with
ICOS Corporation, Japan Tobacco Inc., and GenPath Pharmaceuticals, which had
resulted in a total
30
of $4.4 million in revenue
during fiscal 2004. Further offsetting
the increase in collaboration revenue were the declines in revenue from custom
libraries of $3.1 million and Lead Generation Libraries of $1.4 million, each
declining primarily due to continued increasing competition from foreign
chemistry service providers.
The up-front license fee and Phase I milestone payment for ARRY-142886
that we received from AstraZeneca in the latter half of fiscal 2004, together
with the up-front license fee that we received from Genentech in the same half
of the fiscal 2004, aggregating $20 million, caused the majority of the
increase to license and milestone revenue.
Revenues associated with these arrangements were recognized over the
full year of fiscal 2005, compared to recognition during only part of the year
in fiscal 2004. A $1 million milestone payment received from Amgen in fiscal
2005 also contributed to the increased license and milestone revenue.
Fiscal 2004 as compared to fiscal 2003
: Total
revenue for fiscal 2004 and 2003 remained relatively flat. Increased revenue
from up-front license fees and milestone payments largely offset the decline in
collaboration revenue. Partial recognition of up-front license fees from
AstraZeneca and Genentech and a Phase I milestone payment for ARRY-142886 from
AstraZeneca, totaling $20 million in the aggregate, represented the majority of
the increase to license and milestone revenue. Decreased collaboration revenue
from expired programs with ICOS, Amgen, Merck and Co., Inc., and Vertex
Pharmaceuticals Incorporated of $11.5 million in total was partially offset by
revenue from new collaborations with Genentech, AstraZeneca and GenPath of $6.8
million in total. In addition, collaboration revenue from our Lead Generation
Libraries and Optimer building blocks declined $1.4 million in fiscal 2004
compared to 2003, primarily due to increased competition from foreign chemistry
service providers.
Cost of Revenue
|
|
|
Years Ended June 30,
|
|
% increase (decrease)
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
2004 to 2005
|
|
2003 to 2004
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Cost of
revenue
|
|
$
|
38,048
|
|
$
|
31,641
|
|
$
|
31,036
|
|
20
|
%
|
2
|
%
|
|
Provision
for excess inventory
|
|
—
|
|
5,616
|
|
4,100
|
|
(100
|
)%
|
37
|
%
|
|
Total cost of revenue
|
|
$
|
38,048
|
|
$
|
37,257
|
|
$
|
35,136
|
|
2
|
%
|
6
|
%
|
Fiscal 2005 as compared to fiscal 2004:
The
increased cost of revenue for fiscal 2005 of 20% over 2004 is largely the
result of supporting the 22% increase in collaboration revenue. Improvements in cost of revenue as a
percentage of collaboration revenue of 111% in fiscal 2005 compared to 112% in
fiscal 2004 is the result of slightly improved average pricing from
collaborations and the reduction in the custom library business. Cost of
revenue includes $1.2 million for accrued bonuses, which was offset by a
decrease in stock compensation expense of $1.4 million.
Fiscal 2004 as compared to fiscal 2003:
The
increased cost of revenue for fiscal 2004 was primarily related to increased
costs associated with staffing various collaborations, including increased
scientific salaries and benefits and to a lesser extent, increased utility
charges. We also experienced slightly lower average pricing received from
collaborations than in the prior year.
Also during
2004, we had a lower percentage of our total revenue generated from licensing
of chemical compounds from Lead Generation Libraries and sales of Optimer
building blocks.
Due to the evolution of our business model to focus primarily on our
proprietary drug discovery efforts, we do not expect that Lead Generation
Libraries will be a significant source of revenues in future periods, and no
new Lead Generation Libraries will be produced other than for our own
proprietary research. Consequently, we reviewed the inventory levels and
carrying values for Lead Generation Libraries, Optimer building blocks and fine
chemicals during the third quarter of fiscal 2004. Based on this review and on
an analysis of expected future sales and industry standards relating to net
carrying values, we determined that there was an excess level of Lead
Generation Library and Optimer building block inventory. We also determined
that our inventory of fine chemicals used as the starting materials for Lead
Generation Libraries exceeded anticipated usage. Accordingly, we increased the
reserves for these inventories, which resulted in a non-cash charge for excess
inventory of $5.6 million in the third quarter of fiscal 2004.
31
During the fourth quarter of fiscal year 2003, we increased our
inventory reserves for Lead Generation Libraries by $4.1 million. The reserves were increased in light of
difficult market conditions and resulting declines in Lead Generation Library
revenue experienced during the second half of fiscal 2003.
Research and Development
Expenses for Proprietary Drug Discovery
Our research and development expenses for proprietary drug discovery
include costs associated with our proprietary drug programs for scientific
personnel, supplies, equipment, consultants, sponsored research, allocated
facility costs, costs related to preclinical and clinical trials, and stock-based
compensation. We manage our proprietary programs based on scientific data and
achievement of research plan goals. Our
scientists record their time to specific projects when possible. However, many activities simultaneously
benefit multiple projects and cannot be readily attributed to a specific
project. Accordingly, the accurate
assignment of time and costs to a specific project is difficult and may not
give a true indication of the actual costs of a particular project. As a
result, we do not report costs on a program basis. The following table shows our research and
development expenses by categories of costs for the periods presented:
|
|
|
Years Ended June 30,
|
|
% increase
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
2004 to 2005
|
|
2003 to 2004
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Salaries and
benefits
|
|
$
|
8,035
|
|
$
|
7,523
|
|
$
|
5,552
|
|
7
|
%
|
36
|
%
|
|
Consulting
and outsourced services
|
|
4,998
|
|
1,584
|
|
592
|
|
216
|
%
|
168
|
%
|
|
Laboratory
supplies
|
|
3,739
|
|
2,601
|
|
1,976
|
|
44
|
%
|
32
|
%
|
|
Facilities
and depreciation
|
|
5,795
|
|
3,974
|
|
3,122
|
|
46
|
%
|
27
|
%
|
|
Other
|
|
303
|
|
223
|
|
153
|
|
36
|
%
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses for
proprietary drug discovery
|
|
$
|
22,871
|
|
$
|
15,905
|
|
$
|
11,395
|
|
44
|
%
|
40
|
%
|
Fiscal 2005 as compared to fiscal 2004
:
Research and development expenses for proprietary drug discovery increased 44%
over the prior fiscal year relating to accrued bonuses, increased laboratory
supplies, facilities’ costs and depreciation related to our expanded
facilities, and increased pharmacology studies supporting our expanded efforts
to advance proprietary compounds into regulated safety testing. The most
significant increase in costs came from outsourced pharmacology studies to
support the advancement of our ErB2/EGFR, P38, Mek for inflammation, and other
programs. As a result, total consulting
and outsourced services costs, including pharmacology studies, increased to
$5.0 million in 2005, from $1.6 million in 2004. We expect that proprietary
research and development spending will continue to increase as we focus more
resources on our proprietary drug discovery programs and advance our programs
potentially through clinical development. For fiscal year 2005, we expensed
approximately $820,000 related to accrued cash bonuses that were paid
subsequent to June 2005.
Fiscal 2004 as compared to fiscal 2003
:
Research and development expenses for proprietary drug discovery increased 40%
related to our expanded efforts to advance compounds into regulated safety
testing. In addition, a number of new programs were initiated during the year,
and the lead compound in our MEK for cancer program advanced through regulated
safety assessment. Supporting these efforts were additional scientists and
increased outsourced and internally generated pharmacology studies.
The scope and magnitude of future research and development expenses are
difficult to predict given the number of studies that will need to be conducted
for any of our potential products, as well as our limited capital resources. In
general, biopharmaceutical development involves a series of steps – beginning
with identification of a potential target and including, among others, proof of
concept in animals and Phase I, II and III clinical studies in humans – each of
which is typically more expensive than the previous step. Therefore, we expect
our research and development costs to increase as we progress our programs
through development.
The successful development and commercialization of drugs resulting
from our proprietary programs is highly uncertain and subject to a number of
risks that are beyond our control. The duration and cost of discovery,
preclinical, nonclinical and clinical trials may vary significantly based on
the type, complexity and novelty of a product and are difficult to predict. The
FDA and comparable agencies in foreign countries impose substantial
32
requirements on the
introduction of therapeutic pharmaceutical products, typically requiring
lengthy and detailed laboratory and clinical testing procedures, sampling
activities and other costly and time-consuming procedures. Data obtained from
preclinical, nonclinical and clinical activities at any step in the testing
process may be adverse and lead to discontinuation or redirection of
development activity or be susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. Accurate and meaningful estimates
of the ultimate costs to bring our drug candidates to market are not available.
Given the uncertainties related to development, we are currently unable to
reliably estimate when, if ever, our drug candidates will generate revenue and
net cash inflows.
Status of Significant Proprietary Programs
The following table summarizes the status of
our most advanced drug candidates.
|
Drug Target
|
|
Indication
|
|
Development Status
|
|
MEK
|
|
Cancer
|
|
ARRY-142886 (AZD6244) Beginning Phase Ib clinical trials
|
|
|
|
|
|
|
|
ErbB-2/EGFR
|
|
Cancer
|
|
Beginning
Phase I clinical trials in the fall of 2005
|
|
|
|
|
|
|
|
MEK
|
|
Inflammation
|
|
Regulated
safety assessment
|
|
|
|
|
|
|
|
P38
|
|
Inflammation
|
|
Pre-clinical
development
|
|
|
|
|
|
|
|
ErbB-2
|
|
Cancer
|
|
Pre-clinical
development
|
Clinical timelines, likelihood of success and
total completion costs vary significantly for each drug candidate and are
difficult to estimate. We estimate that it takes 10 to 15 years or
possibly longer, to discover, develop and bring to market a new pharmaceutical
product in the United States as outlined in the following table:
|
Phase:
|
|
Objective:
|
|
Estimated
Duration:
|
|
Discovery
|
|
Lead
identification and target validation
|
|
2 to 4 years
|
|
Preclinical
|
|
Initial
toxicology for preliminary identification of risks for humans; gather early
pharmacokinetic data
|
|
1 to 2 years
|
|
Phase I
|
|
Evaluate
safety in humans; study how the drug works, metabolizes and interacts with
other drugs
|
|
1 to 2 years
|
|
Phase II
|
|
Establish
effectiveness of the drug and its optimal dosage; continue safety evaluation
|
|
2 to 4 years
|
|
Phase III
|
|
Confirm
efficacy, dosage regime and safety profile of the drug; submit New Drug
Application
|
|
2 to 4 years
|
|
FDA approval
|
|
Approval by
the FDA to sell and market the drug under approved labeling
|
|
6 months to 2 years
|
Animal and other nonclinical studies typically
are conducted during each phase of human clinical studies.
We anticipate that we will make determinations as to which research programs
to pursue and how much funding to direct to each program on an ongoing basis in
response to the scientific and clinical success of each drug candidate. The
lengthy process of seeking regulatory approvals, and subsequent compliance with
applicable regulations, require the expenditure of substantial resources. Any
failure by us to obtain, or any delay in obtaining, regulatory approvals could
cause our research and development expenditures to increase and, in turn, have
a material adverse effect on our results of operations.
33
Selling, General and
Administrative Expenses
|
|
|
Years Ended June 30,
|
|
% increase (decrease)
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
2004 to 2005
|
|
2003 to 2004
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Selling, general
and administrative expenses
|
|
$
|
9,372
|
|
$
|
8,016
|
|
$
|
8,902
|
|
17
|
%
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005 as compared to fiscal 2004
: The
increase in selling, general and administrative expenses was primarily related
to increased patents and patent application costs related to our expanding
proprietary drug development programs of approximately $420,000 and, to a
lesser degree, increased compliance costs of approximately $303,000 related to
Section 404 of the Sarbanes-Oxley Act. The remaining increase was attributable
to increases in compensation and benefit related expenses. Selling, general and
administrative expenses include approximately $680,000 for accrued bonuses,
which was partially offset by a decrease in stock compensation expense of
approximately $447,000. We expect patent related costs to continue to increase
in the near term and the Sarbanes-Oxley Act compliance costs to decrease due to
first year implementation expenses that are not expected to recur.
Fiscal 2004 as compared to fiscal 2003:
The decrease in selling, general and
administrative expenses was attributable to a March 2003 workforce
reduction whereby we reduced our workforce by 31 employees in order to reduce
costs and match our headcount resources with the near-term demand for our
collaboration programs. This reduction resulted in a fiscal 2003 charge to
selling, general and administrative expenses of approximately $541,000 for
termination-related costs consisting primarily of severance payments and
out-placement services for affected employees. The remaining year over year
decrease was attributable to cost savings associated with the elimination of
certain administrative positions that were affected by this reduction in
workforce.
Compensation Related to Option
Grants
|
|
|
Years Ended June 30,
|
|
% increase (decrease)
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
2004 to 2005
|
|
2003 to 2004
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Compensation
related to option grants
|
|
$
|
151
|
|
$
|
1,977
|
|
$
|
1,883
|
|
(92
|
)%
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005 as compared to fiscal 2004
: During
the first quarter of fiscal 2005, we recorded approximately $151,000 of stock
compensation expense, representing the final amortization of deferred stock
compensation related to the vesting of stock options that were granted prior to
our initial public offering of common stock in November 2000.
Fiscal 2004 as compared to fiscal 2003:
Compensation expense relates to certain stock
options that were granted prior to the November 2000 initial public offering.
This non-cash charge was recognized on a straight-line basis over the vesting
periods of the related options, which was generally four years.
Net Interest Income
|
|
|
Years Ended June 30,
|
|
% increase (decrease)
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
2004 to 2005
|
|
2003 to 2004
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Net interest
income
|
|
$
|
1,542
|
|
$
|
381
|
|
$
|
787
|
|
305
|
%
|
(52
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005 as compared to fiscal 2004
: The
increase in interest income in fiscal 2005 compared to fiscal 2004 is due to
higher investment interest rates earned on a higher average marketable
securities balance. Our marketable securities balance increased significantly
during the year due to the follow-on public offering completed in December
2004.
Fiscal 2004 as compared to fiscal 2003
: The
decrease in interest income in fiscal 2004 compared to fiscal 2003 was due to
lower investment interest rates earned on a lower average marketable securities
balance.
34
Other
Other Expense – Loss on investment.
In March
2002, we entered into a drug discovery collaboration agreement with Aptus
Genomics, Inc. to create small molecule therapeutics against select G-Protein
Coupled Receptor (GPCR) targets. Array worked exclusively with Aptus on a
select number of GPCR targets and provided Aptus access to its Lead Generation
Libraries in exchange for $500,000 of common stock in Aptus. During fiscal
2003, the value of Aptus common stock decreased significantly. We determined
this reduction in value to be other-than-temporary and as a result, wrote off
our investment.
Income taxes.
There was no income tax expense
for the fiscal years ended June 30, 2005, 2004 or 2003. At June 30, 2005, we had federal and Colorado income tax net operating
loss carryforwards for income tax purposes of $79.0 million, which will expire
beginning in 2018 and continuing through 2025. We have provided a 100%
valuation allowance against the related deferred tax assets, as based on
available evidence, it is more likely than not that the deferred tax asset will
not be realized.
Liquidity
and Capital Resources
|
|
|
As of June 30,
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
(in thousands)
|
|
|
Cash, cash equivalents, restricted cash and
marketable securities
|
|
$
|
92,706
|
|
$
|
37,446
|
|
$
|
34,130
|
|
|
Increase (decrease) in net operating assets
and liabilities, excluding cash, cash equivalents and marketable securities
|
|
2,726
|
|
(21,029
|
)
|
7,569
|
|
|
Purchases of
property, plant and equipment
|
|
5,682
|
|
3,627
|
|
9,570
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow
provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
(17,178
|
)
|
5,499
|
|
(17,585
|
)
|
|
Investing activities
|
|
(55,043
|
)
|
(4,190
|
)
|
4,090
|
|
|
Financing activities
|
|
78,151
|
|
1,609
|
|
1,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005 as compared to fiscal 2004
: We
have historically funded our operations through cash received from our
collaborations and the issuance of equity securities. As of June 30, 2005,
cash, cash equivalents, restricted cash and marketable securities totaled $92.7
million compared with $37.4 million at June 30, 2004. This
increase was primarily attributable to the net proceeds received from our
common stock offering in December 2004, resulting in net proceeds of $66.6
million.
Net cash used in operating activities for fiscal year 2005 was $17.2
million, compared to net cash provided by operating activities of $5.5 million
for fiscal 2004. During fiscal year 2005, our net loss of $23.2 million was
reduced by noncash charges of $8.8 million, primarily associated with
depreciation and deferred rent expense. For the fiscal year 2005, our net
operating assets and liabilities, excluding cash and marketable securities,
increased by $2.7 million. This was due to decreases in advance payment
balances of $10.6 million from collaborators, which was partially offset by
decreased inventory balances of $1.9 million and increased accrued
compensation, accounts payable and other liabilities totaling $5.3 million. The combined balance of advance payments from
collaborators decreased by $10.6 million during fiscal year 2005 due to the
recognition of revenue from previously received up-front license and milestone
payments. The decrease in inventory balances resulted from a significant sale
of Lead Generation Library chemical compounds that occurred in the second
quarter of fiscal 2005. Accrued compensation and benefits increased primarily
from reserving for a planned cash employee bonus program for the year.
During fiscal year 2005, we invested $5.7 million in laboratory
equipment, primarily for our process research, biology and cGMP manufacturing
operations, as well as in various computer hardware and software.
Purchases of marketable securities used $121.7 million of cash while proceeds
from the sale and maturity of marketable securities provided $73.0 million of
cash. Approximately $726,000 of cash became restricted during the year in
support of outstanding standby letters of credit related to our facilities
leases that increased in a like amount. Financing
35
activities provided $78.2
million of cash consisting of $66.6 million in net proceeds from our public
common stock offering, $10.0 million for proceeds received from the issuance of
long term debt and $1.6 million of cash resulting from the exercise of stock
options under our stock option plan and purchases of stock under our employee
stock purchase plan.
Fiscal 2004 as compared to fiscal 2003
: As of
June 30, 2004, cash, cash equivalents, restricted cash and marketable
securities totaled $37.4
million
compared to $34.1 million at June 30, 2003. Net cash provided by operating
activities was $5.5 million for fiscal year 2004, compared to net cash used in
operating activities of $17.6 million for fiscal 2003. During fiscal year 2004,
our net loss of $26.0 million was reduced by noncash charges of $16.1 million
associated with depreciation, compensation related to stock option grants,
deferred rent and a provision for excess inventory. For the fiscal year 2004,
our net operating assets and liabilities, excluding cash and marketable
securities, decreased by $21.0 million primarily due to a $16.2 million
increase in advance payments from collaborators and a $5.0 million decrease in
inventories. Advance payments from collaborators primarily increased due to the
receipt of up-front license and milestone payments totaling $20.8 million for
fiscal 2004. We recognized $6.6 million of these up-front license and milestone
payments as revenue during 2004, and recorded the remaining amounts as advance
payments from collaborators. Inventories decreased by $5.0 million due to the
increased inventory reserves for Lead Generation Libraries, Optimer building
blocks and certain fine chemicals used as the starting materials for Lead
Generation Libraries.
During fiscal year 2004, we invested $3.6 million in capital equipment
and leasehold improvements primarily associated with equipping and commencing
operations in our new pharmacology and drug metabolism facilities. Financing
activities provided $1.6 million of cash resulting from the exercise of stock
options under our stock option plan and purchases of stock under our employee
stock purchase plan.
Our future capital requirements will depend
on a number of factors, including the rate at which we invest in proprietary
research, the growth of our collaboration business and the amount of
collaboration research funding we receive, the timing of milestone and royalty
payments, if any, from our collaboration and out-licensed programs, our capital
spending on new facilities and equipment, expenses associated with unforeseen
litigation, regulatory changes, competition, technological developments,
general economic conditions and the extent to which we acquire or invest in
other businesses, products and technologies.
In addition,
our future capital requirements may be impacted if we do not receive potential
milestone or royalty payments under our existing or future collaboration
agreements. Our ability to realize these
payments is subject to a number of risks, many of which are beyond our control
and include the following: the drug development process is risky and highly
uncertain, and we or our collaborators may not be successful in commercializing
drug candidates we create; our collaborators have substantial control and
discretion over the timing and continued development and marketing of drug
candidates we create; the sale and manufacture of drug candidates we develop
may not obtain regulatory approval; and, if regulatory approval is received,
drugs we develop will remain subject to regulation or may not gain market
acceptance, which could delay or prevent us from generating milestone or
royalty revenue from the commercialization of these drugs.
We believe that our existing cash, cash equivalents and marketable
securities and anticipated cash flow from existing collaboration agreements
will be sufficient to support our current operating plan for at least the next
12 months. This estimate of our future capital requirements is a forward-looking
statement that is based on assumptions that may prove to be wrong and that
involve substantial risks and uncertainties. Our actual future capital
requirements could vary as a result of a number of factors, including:
•
the progress of our research activities;
•
the availability of resources for revenue
generating collaborations as we devote more resources to our proprietary
programs;
•
our ability to enter into agreements to
out-license and co-develop our proprietary drug candidates, and the timing of
those agreements in each candidate’s development stage;
•
the number and scope of our research programs;
•
the progress of our preclinical and clinical
development activities;
•
the progress of the development efforts of our
collaborators;
•
our ability to establish and maintain current and
new collaboration agreements;
•
the ability of our collaborators to fund research
and development programs;
36
•
the costs involved in enforcing patent claims and
other intellectual property rights;
•
the decision to
stay in our current facilities, or to consolidate operations in an existing or
new location;
•
the costs and timing of regulatory approvals; and
•
the costs of establishing clinical development,
business development and distribution or commercialization capabilities.
Until we
can generate sufficient levels of cash from our operations, which we do not
expect to achieve in the foreseeable future, we expect to continue to utilize
our existing cash and marketable securities resources that were primarily
generated from the proceeds of our equity offerings. In addition, we may
finance future cash needs through the sale of equity securities, strategic
collaboration agreements and debt financing. We cannot assure that we will be
successful in obtaining new or in retaining existing out-license or
collaboration agreements, in securing agreements for the co-development of our
proprietary drug candidates, or in receiving milestone and/or royalty payments
under those agreements, that our existing cash and marketable securities
resources will be adequate or that additional financing will be available when
needed or that, if available, this financing will be obtained on terms
favorable to us or our stockholders. Insufficient funds may require us to
delay, scale back or eliminate some or all of our research or development
programs or to relinquish greater or all rights to product candidates at an
earlier stage of development or on less favorable terms than we would otherwise
choose, or may adversely affect our ability to operate as a going concern. If
we raise additional funds by issuing equity securities, substantial dilution to
existing stockholders may result.
Obligations and Commitments
The following table shows our contractual
obligations and commitments as of June 30, 2005.
|
|
|
Payments due by period
|
|
|
|
|
(in thousands)
|
|
|
|
|
Less than
1 year
|
|
1-3 years
|
|
4-5 years
|
|
After 5
years
|
|
Total
|
|
|
Operating lease obligations
|
|
$
|
4,920
|
|
$
|
9,090
|
|
$
|
1,603
|
|
$
|
7,353
|
|
$
|
22,966
|
|
|
Purchase obligations
|
|
4,738
|
|
238
|
|
—
|
|
—
|
|
4,976
|
|
|
Debt obligations
|
|
450
|
|
900
|
|
10,900
|
|
—
|
|
12,250
|
|
|
Total obligations
|
|
$
|
10,108
|
|
$
|
10,228
|
|
$
|
12,503
|
|
$
|
7,353
|
|
$
|
40,192
|
|
We are obligated under noncancelable
operating leases for our facilities and certain equipment. Original lease terms
for our facilities range from five to eight years with renewal options and
generally require us to pay a proportionate share of real estate taxes,
insurance, common area and other operating costs. Equipment leases generally
range from three to five years.
Due to the high cost to replace and the
limited availability of laboratory facilities, we concluded that the exercise
of a portion of our lease term options for at least 15 years was reasonably
assured. During the last quarter of
fiscal 2005, we reassessed our facility requirements, and began to consider the
possibility of consolidating operations in one of our existing locations, or a
new location. While we have not yet made
a final determination whether to consolidate operations at one location, it is
no longer reasonably assured that we will remain in our Boulder, Colorado
location beyond the initial lease term, which ends in March 2008. We have not
changed our determination that it is reasonably assured that we will exercise
certain of our lease extensions and lease our other facility, located in
Longmont, Colorado, for at least another 13 years. Therefore, we have included
in our operating lease obligations reflected in the table above the cash to be
paid for our facility leases for the remaining reasonably assured lease terms
of three years for our Boulder facility and 13 years for our Longmont facility.
The portion of operating lease obligations that is related to optional
extension periods for our Longmont facility is $4.8 million and is included
within the “after 5 years” column above.
At June 30, 2005, we had
restricted cash of $2.0 million as a compensating balance to support
outstanding standby letters of credit that were issued during the prior fiscal years
in relation to our facilities leases.
37
Critical Accounting Policies
We believe critical accounting policies are
essential to the understanding of our results of operations and require our
management to make significant judgments in preparing the financial statements
included in this report. Management has made estimates and assumptions based on
these policies. We do not believe that materially different amounts would be
reported if different assumptions were used. However, the application of these
policies involves judgments and assumptions as to future events and, as a
result, actual results could differ. The impact and any associated risks
related to these policies on our business operations is discussed throughout
Management’s Discussion and Analysis of Financial Condition and Results of
Operations where such policies affect our reported and expected financial
results.
Revenue Recognition
We believe our revenue
recognition policy is significant because the amount and timing of revenue is a
key component of our results of operations. We follow the guidance of Staff
Accounting Bulletin No. 104, which requires that a series of criteria be met in
order to recognize revenue related to the performance of services or the
shipment of products. If these criteria are not met, the associated revenue is
deferred until the criteria are met. We recognize revenue when (a) persuasive
evidence of an arrangement exists, (b) products are delivered or services are rendered,
(c) the sales price is fixed or determinable and (d) collectibility is assured.
Most of our revenue is derived from
designing, creating, optimizing and evaluating drug candidates for our
collaborators. The majority of our collaboration revenue consists of fees
received based on contracted annual rates for full time equivalent employees
working on a project. Our collaboration agreements also include license and
up-front fees, milestone payments upon achievement of specified research or
development goals and royalties on sales of resulting products. A small portion
of our revenue comes from development and fixed fee revenue and from sales of
compounds on a per-compound basis.
Our collaboration agreements typically call
for a specific level of resources as measured by the number of full time
equivalent employees working a defined number of hours per year at a stated
price under the agreement. We recognize revenue under our collaboration
agreements on a monthly basis for fees paid to us based on hours worked. We
recognize revenue from sales of Lead Generation Library and Optimer building
block compounds as the compounds are shipped, as these agreements are priced on
a per-compound basis and title and risk of loss passes upon shipment to our
customers.
Revenue from license fees and up-front fees is non refundable and is
recognized on a straight-line basis over the expected period of the related
research program. Milestone payments are non refundable and are recognized as
revenue over the expected period of the related research program. A portion of
any milestone payment is recognized at the date the milestone is achieved which
is determined using the applicable percentage of the research term that has
elapsed at the date the milestone is achieved. Any balance is recognized
ratably over the remaining research term. Revenue recognition related to
license fees, up-front payments and milestone payments could be accelerated in
the event of early termination of programs.
In general, contract provisions include predetermined
payment schedules or the submission of appropriate billing detail. Payments
received in advance of performance are recorded as advance payments from
collaborators until the revenue is earned.
We report revenue for lead generation and
lead optimization research, custom synthesis and process research, the
development and sale of chemical compounds and the co-development of
proprietary drug candidates we out-license, as collaboration revenue. License
and milestone revenue is combined and reported separately from collaboration
revenue.
Recent Accounting Pronouncements
For a summary of recent accounting pronouncements, see Note 2: “Summary
of Significant Accounting Policies – Recent Accounting Pronouncements” under
Notes to Financial Statements included in Item 8 “Financial Statements and
Supplementary Data” of this Form 10-K.
38
Item 7A.
Quantitative
and Qualitative Disclosures about Market Risk
Interest rate risk
. Our interest income is sensitive to
changes in the general level of United States interest rates, particularly
since a significant portion of our investments are and will be in short-term
marketable securities. Due to the nature and short-term maturities of our
short-term investments, we have concluded that there is no material market risk
exposure. Based on outstanding investment balances at June 30, 2005, a change
of 100 basis points in interest rates would result in a $924,000 change in our
annual interest income.
We are also impacted by
adverse changes in interest rates relating to variable-rate borrowings under
our credit facility used for working capital purposes. We pay interest on
advances under our loan agreement at one of three variable rates, which are
adjusted periodically for changes in the underlying prevailing rate. Changes in
prevailing interest rates will not affect the fair market value of our debt,
but would impact future results of operations and cash flows. At June 30, 2005,
we had $10 million of long-term debt outstanding and the interest rate on our
term loan was 4.5%. This rate is adjusted based on changes in the bank’s
prime lending rate. Assuming constant debt levels, a change of 100 basis points
in our interest rate would result in a $100,000 change in our annual interest
expense.
Foreign currency rate
fluctuations.
All
of our collaboration agreements and purchase orders are denominated in United
States dollars. Therefore, we are not exposed to changes in foreign currency
exchange rates.
Inflation
. We do not believe that inflation has
had a material impact on our business or operating results during the periods
presented.
39
Item 8.
Financial
Statements and Supplementary Data
INDEX TO FINANCIAL
STATEMENTS
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
Array BioPharma Inc.:
We have audited the accompanying balance sheet of Array BioPharma Inc.
as of June 30, 2005, and the related statements of operations, stockholders’
equity and comprehensive loss, and cash flows for the year then ended. In
connection with our audit of the financial statements, we also have audited
financial statement schedule II for the year ended June 30, 2005. These financial statements and financial
statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 2005, and the results of its operations and its cash flows for the
year then ended, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the
related financial statement schedule for the year ended June 30, 2005, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of Array
BioPharma Inc.’s internal control over financial reporting as of June 30, 2005,
based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated
September 12, 2005 expressed an
unqualified opinion on management’s assessment of, and the effective operation
of, internal control over financial reporting.
Boulder, Colorado
September 12, 2005
41
REPORT OF
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
Array BioPharma Inc.
We have audited the accompanying balance sheets of Array BioPharma,
Inc. as of June 30, 2004 and 2003, and the related statements of operations,
shareholders’ equity, and cash flows for each of the three years in the period
ended June 30, 2004. Our audits also
included financial statement schedule II. These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company’s internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Array BioPharma,
Inc. at June 30, 2004 and 2003, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 30,
2004, in conformity with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Denver, Colorado
July 29, 2004
42
ARRAY BIOPHARMA INC.
BALANCE SHEETS
|
|
|
As of June 30,
|
|
|
|
|
2005
|
|
2004
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,429,526
|
|
$
|
6,499,589
|
|
|
Marketable securities
|
|
78,296,782
|
|
29,693,301
|
|
|
Restricted cash - current
|
|
1,979,678
|
|
—
|
|
|
Accounts receivable, net
|
|
679,609
|
|
1,080,330
|
|
|
Inventories, net
|
|
2,153,486
|
|
4,030,681
|
|
|
Prepaid expenses and other
|
|
1,025,871
|
|
1,315,786
|
|
|
Total current assets
|
|
96,564,952
|
|
42,619,687
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
31,306,452
|
|
33,810,952
|
|
|
|
|
|
|
|
|
|
Restricted
cash - long term
|
|
—
|
|
1,253,223
|
|
|
Other assets
|
|
80,246
|
|
80,246
|
|
|
Total assets
|
|
$
|
127,951,650
|
|
$
|
77,764,108
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,708,656
|
|
$
|
2,408,718
|
|
|
Advance payments from collaborators -
current
|
|
6,698,292
|
|
14,108,118
|
|
|
Accrued compensation and benefits
|
|
4,320,755
|
|
1,048,909
|
|
|
Deferred rent - current
|
|
341,555
|
|
—
|
|
|
Other current liabilities
|
|
1,061,080
|
|
402,090
|
|
|
Total current liabilities
|
|
16,130,338
|
|
17,967,835
|
|
|
|
|
|
|
|
|
|
Long term
liabilities
|
|
|
|
|
|
|
Advance
payments from collaborators - long term
|
|
937,500
|
|
4,166,665
|
|
|
Deferred
rent and other liabilities
|
|
1,354,533
|
|
1,136,188
|
|
|
Long term
debt
|
|
10,000,000
|
|
—
|
|
|
Other long
term liabilities
|
|
113,933
|
|
—
|
|
|
Total long term liabilities
|
|
12,405,966
|
|
5,302,853
|
|
|
Total liabilities
|
|
28,536,304
|
|
23,270,688
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
Preferred stock, $0.001 par value;
10,000,000 shares authorized, no shares issued or outstanding
|
|
—
|
|
—
|
|
|
Common stock, $0.001 par value; 60,000,000
shares authorized; 38,466,804 and 28,871,979 shares issued and outstanding at
June 30, 2005 and 2004, respectively
|
|
38,467
|
|
28,872
|
|
|
Additional paid-in capital
|
|
193,696,156
|
|
125,555,122
|
|
|
Accumulated deficit
|
|
(94,040,179
|
)
|
(70,796,155
|
)
|
|
Accumulated other comprehensive loss
|
|
(279,098
|
)
|
(143,415
|
)
|
|
Deferred stock-based compensation
|
|
—
|
|
(151,004
|
)
|
|
Total stockholders’ equity
|
|
99,415,346
|
|
54,493,420
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
127,951,650
|
|
$
|
77,764,108
|
|
See accompanying notes.
43
ARRAY BIOPHARMA INC.
STATEMENTS
OF OPERATIONS
|
|
|
Years Ended June 30,
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Collaboration revenue
|
|
$
|
34,343,022
|
|
$
|
28,185,609
|
|
$
|
33,633,601
|
|
|
License and milestone revenue
|
|
11,162,494
|
|
6,645,381
|
|
1,491,812
|
|
|
Total revenue
|
|
45,505,516
|
|
34,830,990
|
|
35,125,413
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
Cost of revenue (1)
|
|
38,048,077
|
|
37,256,852
|
|
35,136,097
|
|
|
Research and development for proprietary drug
discovery
|
|
22,870,777
|
|
15,905,107
|
|
11,394,941
|
|
|
Selling, general and administrative
expenses
|
|
9,372,457
|
|
8,015,746
|
|
8,901,853
|
|
|
Total operating expenses
|
|
70,291,311
|
|
61,177,705
|
|
55,432,891
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(24,785,795
|
)
|
(26,346,715
|
)
|
(20,307,478
|
)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
1,541,771
|
|
380,855
|
|
787,087
|
|
|
Other
expense -loss on investment
|
|
—
|
|
—
|
|
(500,000
|
)
|
|
Net loss
|
|
$
|
(23,244,024
|
)
|
$
|
(25,965,860
|
)
|
$
|
(20,020,391
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted net loss per share
|
|
$
|
(0.68
|
)
|
$
|
(0.91
|
)
|
$
|
(0.72
|
)
|
|
|
|
|
|
|
|
|
|
|
Number of
shares used to compute per share data
|
|
34,042,826
|
|
28,511,457
|
|
27,829,527
|
|
(1) Cost of revenue includes a provision for excess inventory of $5.6
million and $4.1 million in fiscal 2004 and 2003, respectively.
See accompanying notes.
44
ARRAY BIOPHARMA INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Receivable
for
|
|
Other
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Paid-In
|
|
Accumulated
|
|
Common
Stock -
|
|
Comprehensive
|
|
Deferred
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Related
Party
|
|
Income
(Loss)
|
|
Compensation
|
|
Total
|
|
|
Balance at June
30, 2002
|
|
27,520,780
|
|
$
|
27,520
|
|
$
|
123,274,749
|
|
$
|
(24,809,904
|
)
|
$
|
(155,625
|
)
|
$
|
33,300
|
|
$
|
(4,697,015
|
)
|
$
|
93,673,025
|
|
|
Issuance of
common stock under stock option and employee stock purchase plans
|
|
700,300
|
|
701
|
|
1,358,880
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,359,581
|
|
|
Interest accrued
on notes receivable
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,558
|
)
|
—
|
|
—
|
|
(1,558
|
)
|
|
Repayment of
notes receivable
|
|
—
|
|
—
|
|
—
|
|
—
|
|
157,183
|
|
—
|
|
—
|
|
157,183
|
|
|
Compensation
related to stock option grants
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,882,771
|
|
1,882,771
|
|
|
Reversal of prior
year deferred stock compensation for terminated employees
|
|
—
|
|
—
|
|
(582,970
|
)
|
—
|
|
—
|
|
—
|
|
582,970
|
|
—
|
|
|
Net loss
|
|
—
|
|
—
|
|
—
|
|
(20,020,391
|
)
|
—
|
|
—
|
|
—
|
|
(20,020,391
|
)
|
|
Change in
unrealized loss on marketable securities
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(11,444
|
)
|
—
|
|
(11,444
|
)
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,031,835
|
)
|
|
Balance at June
30, 2003
|
|
28,221,080
|
|
28,221
|
|
124,050,659
|
|
(44,830,295
|
)
|
—
|
|
21,856
|
|
(2,231,274
|
)
|
77,039,167
|
|
|
Issuance of
common stock under stock option and employee stock purchase plans
|
|
650,899
|
|
651
|
|
1,608,075
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,608,726
|
|
|
Compensation
related to stock option grants
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,976,658
|
|
1,976,658
|
|
|
Reversal of prior
year deferred stock compensation for terminated employees
|
|
—
|
|
—
|
|
(103,612
|
)
|
—
|
|
—
|
|
—
|
|
103,612
|
|
—
|
|
|
Net loss
|
|
—
|
|
—
|
|
—
|
|
(25,965,860
|
)
|
—
|
|
—
|
|
—
|
|
(25,965,860
|
)
|
|
Change in
unrealized loss on marketable securities
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(165,271
|
)
|
—
|
|
(165,271
|
)
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,131,131
|
)
|
|
Balance at June
30, 2004
|
|
28,871,979
|
|
28,872
|
|
125,555,122
|
|
(70,796,155
|
)
|
—
|
|
(143,415
|
)
|
(151,004
|
)
|
54,493,420
|
|
|
Issuance of
common stock for cash-public offering, net of offering costs of $4,724,853
|
|
9,200,000
|
|
9,200
|
|
66,565,947
|
|
—
|
|
—
|
|
—
|
|
—
|
|
66,575,147
|
|
|
Issuance of
common stock under stock option and employee stock purchase plans
|
|
394,825
|
|
395
|
|
1,575,087
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,575,482
|
|
|
Compensation
related to stock option grants
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
151,004
|
|
151,004
|
|
|
Net loss
|
|
—
|
|
—
|
|
—
|
|
(23,244,024
|
)
|
—
|
|
—
|
|
—
|
|
(23,244,024
|
)
|
|
Change in
unrealized loss on marketable securities
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(135,683
|
)
|
—
|
|
(135,683
|
)
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,379,707
|
)
|
|
Balance at June
30, 2005
|
|
38,466,804
|
|
$
|
38,467
|
|
$
|
193,696,156
|
|
$
|
(94,040,179
|
)
|
$
|
—
|
|
$
|
(279,098
|
)
|
$
|
—
|
|
$
|
99,415,346
|
|
See accompanying notes.
45
ARRAY BIOPHARMA INC.
STATEMENTS
OF CASH FLOWS
|
|
|
Years Ended June 30,
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,244,024
|
)
|
$
|
(25,965,860
|
)
|
$
|
(20,020,391
|
)
|
|
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
8,028,447
|
|
7,996,750
|
|
7,177,177
|
|
|
Deferred rent
|
|
559,900
|
|
461,838
|
|
446,339
|
|
|
Compensation related to stock option grants
|
|
151,004
|
|
1,976,658
|
|
1,882,771
|
|
|
Provision for excess inventory
|
|
—
|
|
5,616,424
|
|
4,100,000
|
|
|
Loss on investment
|
|
—
|
|
—
|
|
500,000
|
|
|
Loss on equipment and software disposals
|
|
53,144
|
|
—
|
|
—
|
|
|
Accrued interest on notes receivable for
common stock
|
|
—
|
|
—
|
|
(1,558
|
)
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
400,721
|
|
563,416
|
|
848,003
|
|
|
Inventories
|
|
1,877,195
|
|
(582,557
|
)
|
(4,694,885
|
)
|
|
Prepaid expenses and other
|
|
289,915
|
|
(585,107
|
)
|
74,565
|
|
|
Accounts payable
|
|
1,299,938
|
|
(114,153
|
)
|
(3,846,670
|
)
|
|
Advance payments from collaborators
|
|
(10,638,991
|
)
|
16,172,437
|
|
(3,795,121
|
)
|
|
Accrued compensation and benefits
|
|
3,271,846
|
|
(5,870
|
)
|
(47,623
|
)
|
|
Other current liabilities
|
|
658,990
|
|
(34,750
|
)
|
(207,699
|
)
|
|
Other long term liabilities
|
|
113,933
|
|
—
|
|
—
|
|
|
Net cash provided by (used in) operating
activities
|
|
(17,177,982
|
)
|
5,499,226
|
|
(17,585,092
|
)
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Purchases of
property, plant and equipment
|
|
(5,681,941
|
)
|
(3,627,018
|
)
|
(9,569,799
|
)
|
|
Sales of
property, plant and equipment
|
|
104,850
|
|
—
|
|
—
|
|
|
Purchases of
marketable securities
|
|
(121,689,164
|
)
|
(250,192,325
|
)
|
(234,788,434
|
)
|
|
Proceeds
from sale and maturity of marketable securities
|
|
72,950,000
|
|
249,750,000
|
|
248,441,280
|
|
|
Increase in
restricted cash
|
|
(726,455
|
)
|
(120,911
|
)
|
(175,193
|
)
|
|
Reduction in
other long-term assets
|
|
—
|
|
—
|
|
182,270
|
|
|
Net cash provided by (used in) investing
activities
|
|
(55,042,710
|
)
|
(4,190,254
|
)
|
4,090,124
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock, net of issuance costs
|
|
66,575,147
|
|
—
|
|
—
|
|
|
Proceeds from exercise of stock options and shares issued under the
employee stock purchase plan
|
|
1,575,482
|
|
1,608,726
|
|
1,359,581
|
|
|
Proceeds
from the issuance of long term debt
|
|
10,000,000
|
|
—
|
|
—
|
|
|
Proceeds
from repayment of notes receivable
|
|
—
|
|
—
|
|
157,183
|
|
|
Net cash provided by financing activities
|
|
78,150,629
|
|
1,608,726
|
|
1,516,764
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
5,929,937
|
|
2,917,698
|
|
(11,978,204
|
)
|
|
Cash and
cash equivalents, beginning of year
|
|
6,499,589
|
|
3,581,891
|
|
15,560,095
|
|
|
Cash and
cash equivalents, end of year
|
|
$
|
12,429,526
|
|
$
|
6,499,589
|
|
$
|
3,581,891
|
|
See accompanying notes.
46
ARRAY BIOPHARMA INC.
NOTES TO FINANCIAL STATEMENTS
1.
Business Operations
Array BioPharma Inc. (the “Company”) is a biopharmaceutical company
focused on the discovery, development and commercialization of targeted small
molecule drugs to treat life threatening and debilitating diseases. The Company’s proprietary drug development
pipeline is primarily focused on the treatment of cancer and inflammatory disease
and includes clinical candidates that are designed to regulate therapeutically
important targets. In addition, leading
pharmaceutical and biotechnology companies collaborate with the Company to
discover and develop drug candidates across a broad range of therapeutic areas.
2.
Summary of Significant Accounting Policies
Cash Equivalents and
Marketable Securities
Cash equivalents consist of short-term, highly liquid financial
instruments that are readily convertible to cash and have maturities of three
months or less from the date of purchase and may consist of money market funds,
taxable commercial paper, U.S. government agency obligations and corporate
notes and bonds with high credit quality. Marketable securities consist of
similar financial instruments with maturities of greater than three months.
At June 30, 2005 and 2004, management designated marketable securities
held by the Company as available-for-sale securities for purposes of Statement
of Financial Accounting Standards No. 115,
Accounting for Certain
Investments in Debt and Equity Securities.
Securities
available-for-sale are carried at fair value, with unrealized gains and losses
reported as a component of stockholders’ equity until their disposition. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in investment income. Realized gains and losses and declines in value
judged to be other-than-temporary on securities available-for-sale are included
in investment income. Interest on securities available-for-sale are included in
investment income. The cost of securities sold is based on the specific
identification method.
Fair Value of
Financial Instruments
At June 30, 2005 and 2004, the Company’s financial instruments
consisted of cash, cash equivalents, marketable securities, accounts
receivable, accounts payable and debt. Marketable securities recorded as
available-for-sale are recorded at their estimated fair value. The carrying
amounts of all other instruments approximate fair value. See Note 3 for a
discussion of the fair value of the Company’s marketable securities. See Note 5
for a discussion of long-term debt.
Accounts Receivable
and Allowance for Doubtful Accounts
The Company evaluates the collectibility of its accounts receivable
based on a combination of factors. In circumstances when the Company is aware
of a specific customer’s potential inability to meet its financial obligation,
the Company records a specific reserve for bad debt against amounts due. For
all other instances, the Company reviews the historical collections experience
for its customers in determining if an allowance for doubtful accounts is
deemed necessary. As of June 30, 2005 and 2004, the allowance for doubtful
accounts was $57,000 and $54,550, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents, accounts
receivable and investments in marketable securities. The Company maintains its
cash balances in the form of bank demand deposits. Cash equivalents and
restricted cash consist of money market funds. Marketable securities consist of
auction rate securities and federal agency mortgage-backed securities. All
cash, cash equivalents, restricted cash and marketable securities are
maintained with financial institutions that management believes are
creditworthy. Accounts receivable are typically unsecured and are concentrated
in the pharmaceutical
47
and biotechnology industries.
Accordingly, the Company may be exposed to credit risk generally associated
with pharmaceutical and biotechnology companies.
Inventories
Inventories consist of individual chemical compounds in the form of
Optimer building blocks available-for-sale and commercially available fine
chemicals used in the Company’s proprietary drug discovery programs and
research collaborations. Inventories are stated at the lower of cost or market,
cost being determined under the first-in, first-out method. The Company designs
and produces the chemical compounds comprising its Optimer building blocks and
capitalizes costs into inventory only after technological feasibility has been
established. The Company reviews the level and value of its chemical
inventories periodically and, when required, writes down the carrying cost for
non-marketability to estimated net realizable value through an appropriate
reserve.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Repairs and
maintenance are charged to operations as incurred, and significant expenditures
for additions and improvements are capitalized. Depreciation and amortization
of equipment is computed using the straight-line method based on the following
estimated useful lives:
|
Type of
Property and Equipment
|
|
Estimated
Useful Life
|
|
Computer
hardware and software
|
|
3 years
|
|
Laboratory
and analytical equipment
|
|
5 years
|
|
Furniture
and fixtures
|
|
7 years
|
|
Leasehold
improvements
|
|
See below
|
Leasehold improvements were amortized over
seven years prior to fiscal year 2002. During 2002, the Company entered into a
new building lease and modified an existing one, and in this process obtained
options for extending all significant building leases up to, and beyond, 15
years. Due to the high cost to replace and the limited availability of
laboratory facilities, the Company concluded that the exercise of a portion of
its option to extend its lease terms to at least 15 years was reasonably
assured. During the last quarter of
fiscal 2005, the Company reassessed its facility requirements, and began to
consider the possibility of consolidating operations in one of its existing
locations, or a new location. While the
Company has not yet made a final determination whether to consolidate
operations at one location, it is no longer reasonably assured that it will
remain in the Boulder, Colorado location beyond the initial lease term, which
ends in March 2008. Therefore, as of June 2005, the Company began amortizing
its Boulder leasehold improvements over the remaining 34 months of the initial
lease term resulting in an additional expense of approximately $141,000 for
fiscal year 2005. The Company has not changed its determination that it is
reasonably assured that it will exercise its lease extensions and lease its
other facility, located in Longmont, Colorado for at least 13 more years.
Therefore, the Company will continue to amortize its Longmont leasehold
improvements through May 2018.
Software Development Costs
The Company uses software it develops for capturing, searching and
presenting data. The Company capitalizes
direct, payroll-related software development costs for time incurred during the
software development stage where the computer software project is intended to
create a new system or add identifiable functionality to an existing system.
All other costs, including time incurred for preliminary project planning,
training, implementation or ongoing maintenance, are expensed in the period
incurred. Total capitalized costs were approximately $506,000, $351,000 and
$430,000 for fiscal years 2005, 2004 and 2003, respectively, and are being
amortized on a straight-line basis over a period of three years.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when events or changes in
circumstances indicate the book value of the assets may not be recoverable.
Recoverability is measured by comparison of the assets’ book value to future
48
net undiscounted cash flows the
assets are expected to generate. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the book
value of the assets exceed the projected discounted future net cash flows
arising from the assets.
Deferred Rent
The Company’s facilities leases
provide for annual rent increases over the term of the leases. The Company recognizes the average annual
rent expense over the lease term. As a result,
the amount of rent expense will exceed the Company’s actual cash rent payments
during the early part of the lease term. The Company records deferred rent
equal to the difference between the actual cash payments and the amount
recognized as rent expense on a straight-line basis for the Company’s
facilities leases. Rent expense is recognized ratably over the life of the
lease for the Company’s Boulder facility, which expires in March 2008, and over
the life of the lease and one of the optional extension periods, which expires
in May 2018, for its Longmont facility. See
“
Property, Plant and Equipment”
description above.
Bonus Program
The Company’s bonus program covers substantially all employees. Bonuses
are determined based on the achievement of Company-wide goals and other performance
measures approved by the Board of Directors. Bonus accruals are estimated based
on various factors, including target bonus percentages per level of employee
and probability of achieving goals upon which bonuses are based. The Company
periodically reviews the progress made towards the goals under the bonus
programs and adjusts the accrual accordingly. As of June 30, 2005, accrued
compensation and benefits included $2.7 million for accrued bonus payments that
were paid subsequent to June 2005. For the years ended June 30, 2004 and 2003,
the Company did not pay cash bonuses but instead granted its employees
incentive stock options for 472,000 and 814,000 shares of common stock,
respectively, that did not result in any corresponding compensation expense.
Revenue Recognition
Most of the Company’s revenue is derived from
designing, creating, optimizing and evaluating drug candidates for its
collaborators. The majority of collaboration revenue consists of fees received
based on contracted annual rates for full time equivalent employees working on
a project. The Company’s collaboration agreements also include license and
up-front fees, milestone payments upon achievement of specified research or
development goals and royalties on sales of resulting products. A small portion
of the Company’s revenue comes from development and fixed fee revenue and from
sales of compounds on a per-compound basis.
Collaboration agreements typically call for a
specific level of resources as measured by the number of full time equivalent
employees working a defined number of hours per year at a stated price under
the agreement. The Company recognizes revenue under its collaboration
agreements on a monthly basis for fees paid to the Company based on hours
worked. The Company recognizes revenue from sales of Lead Generation Library
and Optimer building block compounds as the compounds are shipped, as these
agreements are priced on a per-compound basis and title and risk of loss passes
upon shipment to the Company’s customers.
Revenue from license fees and up-front fees is non refundable and is
recognized on a straight-line basis over the expected period of the related
research program. Milestone payments are non refundable and are recognized as
revenue over the expected period of the related research program. A portion of
any milestone payment is recognized at the date the milestone is achieved which
is determined using the applicable percentage of the research term that has
elapsed at the date the milestone is achieved. Any balance is recognized
ratably over the remaining research term. Revenue recognition related to
license fees, up-front payments and milestone payments could be accelerated in
the event of early termination of programs.
In general, contract provisions include
predetermined payment schedules or the submission of appropriate billing
detail. Payments received in advance of performance are recorded as advance
payments from collaborators until the revenue is earned.
The Company reports revenue for lead
generation and lead optimization research, custom synthesis and process
research, the development and sale of chemical compounds and the co-development
of proprietary drug candidates it
49
out-licenses,
as collaboration revenue. License and milestone revenue is combined and
reported separately from collaboration revenue.
Segment and Geographic Information
All operations of the Company are considered
to be in one operating segment and, accordingly, no segment disclosures have
been presented. The physical location of the Company’s property, plant and
equipment is within the United States. The following table details revenue from
customers by geographic area based on the country in which collaborators are
located or the destination of where compounds from the Company’s inventories
are shipped.
|
|
|
Years Ended June 30,
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
29,162,359
|
|
$
|
23,799,660
|
|
$
|
30,339,113
|
|
|
Europe
|
|
12,680,730
|
|
6,483,833
|
|
946,494
|
|
|
Japan and
Asia-Pacific
|
|
3,662,427
|
|
4,547,497
|
|
3,839,806
|
|
|
Total revenue
|
|
$
|
45,505,516
|
|
$
|
34,830,990
|
|
$
|
35,125,413
|
|
Approximately 97% and 94% of the revenue generated from sales to Europe
during the years ended June 30, 2005 and June 30, 2004, respectively, related
to the Company’s collaboration and licensing agreement with AstraZeneca AB,
located in Sweden. For the years ended June 30, 2004 and June 30, 2003, sales
to Japan exceeded 10% of the Company’s revenue. No other individual
international country exceeded 10% of the Company’s revenue for the periods
presented.
During fiscal year 2005, revenue from three of the Company’s customers
represented approximately 28%, 27% and 10% of total revenue. During fiscal year 2004, revenue from three
of the Company’s customers represented approximately 18%, 13% and 12% of total
revenue. During fiscal year 2003, revenue from three of the Company’s customers
represented approximately 21%, 15% and 12% of total revenue.
Shipping and Handling Costs
Costs incurred for shipping and handling of
products are included in cost of revenue. Amounts billed to customers for
shipping and handling are reported within collaboration revenue.
Cost of Revenue
The Company’s out-licensing and collaboration agreements provide for
research funding based on the number of full time equivalent employees
contractually assigned to a program. The Company does not bear any risk of the
failure of the contracted research and development activities and the payments
are not contingent based on the success or failure of these activities.
Accordingly, the Company expenses these costs when incurred.
Research and Development Costs
Research and
development costs are expensed as incurred.
Advertising and Promotion Expenses
Advertising and promotion costs are expensed as incurred. The amount
charged against operations for the years ended June 30, 2005, 2004 and 2003 was
approximately $71,000, $47,000 and $149,000, respectively.
Patents and Patent Application Costs
Patents and patent application costs are expensed as incurred as
selling, general and administrative expenses.
50
Accounting for Stock-Based Compensation
The Company currently accounts for its stock-based compensation
arrangements under the provisions of Accounting Principles Board Opinion No.
25,
Accounting for Stock Issued to Employees
(“APB 25”), and its related interpretations. Under the provisions of APB 25, no
compensation expense is recognized when stock options are granted with exercise
prices equal to or greater than market value on the date of grant.
The Company follows the disclosure requirements of the Financial
Accounting Standards Board (“FASB”) Statement No. 148,
Accounting
for Stock-Based Compensation — Transition and Disclosure
(“SFAS
148”), which amends the disclosure provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation
(“SFAS 123”), and
Accounting Principles Board Opinion No. 28,
Interim
Financial Reporting.
SFAS 148 requires disclosure of the method of
accounting used for stock-based compensation and the effects of this method on
reported net income (loss) and earnings (loss) per share for annual and interim
financial statements. The following table illustrates the effect on net loss
and net loss per share assuming the estimated fair value of the options granted
is amortized to expense over the option-vesting period as required by SFAS 123.
|
|
|
Years Ended June 30,
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, as
reported
|
|
$
|
(23,244,024
|
)
|
$
|
(25,965,860
|
)
|
$
|
(20,020,391
|
)
|
|
Add: Stock-based employee compensation
expense included in reported net loss
|
|
151,004
|
|
1,976,658
|
|
1,882,771
|
|
|
|
|
|
|
|
|
|
|
|
Less: Total stock-based employee
compensation expense determined under fair value based methods for all
options granted
|
|
(7,222,225
|
)
|
(7,723,166
|
)
|
(8,487,330
|
)
|
|
Pro forma
net loss
|
|
$
|
(30,315,245
|
)
|
$
|
(31,712,368
|
)
|
$
|
(26,624,950
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
|
|
|
|
|
|
Basic and diluted - as reported
|
|
$
|
(0.68
|
)
|
$
|
(0.91
|
)
|
$
|
(0.72
|
)
|
|
Basic and diluted - pro forma
|
|
$
|
(0.89
|
)
|
$
|
(1.11
|
)
|
$
|
(0.96
|
)
|
|
|
|
|
|
|
|
|
|
|
Number of
shares used to compute per share data
|
|
34,042,826
|
|
28,511,457
|
|
27,829,527
|
|
The Company uses the Black-Scholes option pricing model under SFAS 123
and used the following assumptions for its Stock Option and Incentive Plan and
Employee Stock Purchase Plan. The Black-Scholes option-pricing model requires
the input of highly subjective assumptions. Because the Company’s employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management’s opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
|
|
|
Risk-Free
Interest Rate
|
|
Dividend
Yield
|
|
Volatility
Factor
|
|
Option
Life in
Years
|
|
Calculated
Fair Value of
Options Granted
|
|
|
Fiscal Year
2005
|
|
3.70
|
%
|
0
|
%
|
75.5
|
%
|
5
|
|
$
|
4.92
|
|
|
Fiscal Year
2004
|
|
3.77
|
%
|
0
|
%
|
81.6
|
%
|
5
|
|
$
|
5.07
|
|
|
Fiscal Year
2003
|
|
2.41
|
%
|
0
|
%
|
90.0
|
%
|
5
|
|
$
|
5.08
|
|
51
Comprehensive Loss
The Company discloses, in addition to net
loss, comprehensive income (loss) and its components including unrealized gains
and losses on investments in debt and equity securities. The Company has
disclosed comprehensive loss in its statements of stockholders’ equity and
comprehensive loss.
Net Loss Per Share
Basic and diluted net loss per share has been computed by dividing net
loss for the period by the weighted average number of common shares outstanding
during the period. The Company has excluded the effects of outstanding stock
options from the calculation of diluted net loss per share because all such
securities are anti-dilutive for all periods presented. The number of common
share equivalents relating to these stock options excluded from the diluted
loss per share calculations for the years ended June 30, 2005, 2004 and 2003
were 465,792 shares, 623,365 shares and 576,687 shares, respectively.
Use of Management’s Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications have been made to
the prior year’s amounts to conform to the current year’s presentation. These
reclassifications had no impact on the reported results of operations.
Recent Accounting Pronouncements
In December 2004, the FASB issued Statement No. 123R,
Share-Based Payment – an amendment of FASB Statement
No. 123 and 95
(“SFAS 123R”). SFAS 123R addresses the accounting for
transactions in which a company receives employee services in exchange for
(a) equity instruments of the company or (b) liabilities that are
based on the fair value of the company’s equity instruments or that may be
settled by the issuance of such equity instruments. SFAS 123R eliminates
accounting for share-based compensation transactions using APB 25 and
requires instead that such transactions be accounted for using a fair-value
based method, thereby requiring companies to recognize an expense for
compensation cost related to share-based payment arrangements, including stock
options and employee stock purchase plans. This statement is required to be
adopted by the Company on July 1, 2005, which is the beginning of its fiscal
year 2006. The cumulative effect of adoption applied on a modified prospective
basis would be measured and recognized on July 1, 2005. In March 2005,
Staff Accounting Bulletin No. 107 (“SAB 107”) was issued permitting registrants
to choose from different valuation models to estimate the fair value of share
options, and also providing guidance on developing assumptions used in
implementing SFAS 123R. The Company is currently evaluating these option
valuation methodologies and assumptions in light of SFAS 123R and SAB 107
related to its employee stock option and employee stock purchase plans and
expects that the adoption of SFAS 123R will have a material impact on the
Company’s future results of operations and earnings per share. Current
estimates of option values using the Black-Scholes method reflected in Note 2
above may not be indicative of results from valuation methodologies ultimately
adopted by the Company in compliance with SFAS 123R.
In November 2004, the FASB issued Statement No. 151,
Inventory Costs – an amendment of ARB No. 43, Chapter
4
(“SFAS 151”). SFAS 151 amends the guidance of ARB No. 43, Chapter
4, “Inventory Pricing”, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB No. 43, Chapter 4, previously stated, “…under some
circumstances, items such as idle facility expense, excessive spoilage, double
freight, and handling costs may be so abnormal to require treatment as a
current period charge…” SFAS 151 requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of “so
abnormal”. In addition, this statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. The provisions of SFAS 151 will be effective for
inventory costs during the fiscal years beginning after June 15, 2005. The
Company does not believe that the adoption of this statement will have a
material impact on its financial condition or results of operations.
52
In December 2004, the FASB issued Statement
No. 153,
Exchanges of Nonmonetary assets –
an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions
(“SFAS
153”)
.
SFAS 153 eliminates the
exception from fair value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion No. 29, and replaces it
with an exception for exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of
the exchange. SFAS 153 is effective for the fiscal periods beginning after June
15, 2005. The Company does not believe that the adoption of this statement will
have a material impact on its financial condition or results of operations.
In May 2005, the FASB issued Statement No.
154,
Accounting Changes and Error
Corrections
(“SFAS 154”)
,
which
replaces APB Opinion No. 20,
Accounting Changes
,
and SFAS No. 3,
Reporting Accounting Changes
in Interim Financial Statements,
and changes the requirements for
the accounting for and reporting of a change in accounting principle. SFAS 154
applies to all voluntary changes in accounting principle and to changes
required by an accounting pronouncement when the pronouncement does not include
specific transition provisions. SFAS 154 requires retrospective application of
changes in accounting principle to prior periods’ financial statements unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. APB Opinion No. 20 previously required that
most voluntary changes in accounting principle be recognized by including the
cumulative effect of the change in net income for the period of the change in
accounting principle. SFAS 154 carries forward without change the guidance
contained in APB Opinion No. 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate.
SFAS 154 also carries forward the guidance in APB Opinion No. 20 requiring
justification of a change in accounting principle on the basis of
preferability. SFAS 154 is effective for accounting changes and correction of
errors made in fiscal periods beginning after December 15, 2005 with early
adoption permitted. The Company does not believe that the adoption of this
statement will have a material impact on its financial condition or results of
operations.
3. Cash, Cash Equivalents and Marketable
Securities
All cash, cash equivalents and marketable securities classified as
available-for-sale as of June 30, 2005 and 2004 consist of the following:
|
|
|
As of June 30,
|
|
|
|
|
2005
|
|
2004
|
|
|
Cash and
cash equivalents:
|
|
|
|
|
|
|
Cash
|
|
$
|
440,958
|
|
$
|
5,451,105
|
|
|
Money market fund
|
|
11,988,568
|
|
1,048,484
|
|
|
Total
|
|
$
|
12,429,526
|
|
$
|
6,499,589
|
|
|
|
|
|
|
|
|
|
Marketable
securities:
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
28,553,313
|
|
$
|
10,257,750
|
|
|
Federal agency mortgage-backed securities
|
|
49,743,469
|
|
19,435,551
|
|
|
Total
|
|
$
|
78,296,782
|
|
$
|
29,693,301
|
|
|
|
|
|
|
|
|
|
Restricted
cash (current and long term):
|
|
|
|
|
|
|
Money market fund
|
|
$
|
1,979,678
|
|
$
|
1,253,223
|
|
Unrealized losses on available-for-sale securities at June 30, 2005 and
June 30, 2004 were approximately $279,000 and $143,000, respectively. The
unrealized losses at both dates were related to the Company’s investment in
federal agency mortgage-backed securities. The fair values of these investments
at June 30, 2005 and June 30, 2004 were $49.2 million (excluding approximately
$523,000 of accrued interest) and $19.4 million, respectively, compared to the
Company’s original cost of $49.5 million and $19.5 million, respectively.
Because the decline in market value is attributable to changes in interest
rates and not credit quality, the Company does not consider these investments
to be other-than-temporarily impaired at June 30, 2005 and June 30, 2004.
53
At June 30, 2005 and June 30, 2004, the Company had restricted cash of
$2.0 million and $1.3 million, respectively, as a compensating balance to
support outstanding standby letters of credit. The standby letters of credit
were issued during the fiscal years of 2003 and 2002 and increased during
fiscal years 2005 and 2004 in relation to the Company’s facilities leases.
Debt securities at June 30, 2005 and 2004, by contractual maturity, are
shown below. Actual maturities may differ from contractual maturities because
issuers of the securities may have the right to prepay obligations.
|
|
|
As of June 30,
|
|
|
|
|
2005
|
|
2004
|
|
|
Marketable
securities:
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
56,147,883
|
|
$
|
10,257,750
|
|
|
Due after one year through two years
|
|
22,148,899
|
|
19,435,551
|
|
|
Total
|
|
$
|
78,296,782
|
|
$
|
29,693,301
|
|
The Company has included marketable
securities due after one year within current assets, as these investments are
available for use in current operating activities.
4.
Balance Sheet Components
|
|
|
As of June 30,
|
|
|
|
|
2005
|
|
2004
|
|
|
Inventories:
|
|
|
|
|
|
|
Fine chemicals
|
|
$
|
2,884,541
|
|
$
|
2,909,619
|
|
|
Optimer building blocks
|
|
2,186,260
|
|
2,363,133
|
|
|
Lead Generation Libraries
|
|
—
|
|
5,386,313
|
|
|
Total inventories at cost
|
|
5,070,801
|
|
10,659,065
|
|
|
Less reserves
|
|
(2,917,315
|
)
|
(6,628,384
|
)
|
|
Total inventories, net
|
|
$
|
2,153,486
|
|
$
|
4,030,681
|
|
During fiscal years 2004 and 2003, the Company recorded $5.6 million
and $4.1 million, respectively, of charges to cost of revenue associated with
increases in its inventory reserves for excess Lead Generation Library and
Optimer building block inventory. During the second quarter of fiscal year
2005, the Company received $1.4 million for the sale of compounds with a
carrying value of approximately $700,000 that represented the remaining net
book value of the Lead Generation Library inventory. Lead Generation Library
inventory with a cost of $4.4 million was applied against the previously
established reserves of the same amount during the second quarter of fiscal
year 2005, which had no impact on the
reported results of operations. The Company has not and does not
anticipate recognizing any revenue from sales or licensing of inventory that
has been written off.
|
|
|
As of June 30,
|
|
|
|
|
2005
|
|
2004
|
|
|
Property,
plant and equipment:
|
|
|
|
|
|
|
Laboratory and analytical equipment
|
|
$
|
28,483,646
|
|
$
|
24,786,661
|
|
|
Computer hardware and software
|
|
7,491,534
|
|
7,803,505
|
|
|
Furniture and fixtures
|
|
1,527,281
|
|
1,369,555
|
|
|
Leasehold improvements
|
|
23,826,346
|
|
23,018,334
|
|
|
Equipment and computer software in progress
|
|
188,168
|
|
578,460
|
|
|
Total property, plant and equipment, gross
|
|
61,516,975
|
|
57,556,515
|
|
|
Less accumulated depreciation and
amortization
|
|
(30,210,523
|
)
|
(23,745,563
|
)
|
|
Total property, plant and equipment, net
|
|
$
|
31,306,452
|
|
$
|
33,810,952
|
|
54
Depreciation and amortization expense was
$8.0 million, $8.0 million and $7.2 million for the years ended June 30, 2005,
2004 and 2003, respectively.
During fiscal year 2005, the Company disposed
of software with a net book value of approximately $30,000 that was no longer
being utilized. Additionally, laboratory and analytical equipment with a net
book value of approximately $128,000 was sold, resulting in a loss of
approximately $23,000.
5.
Debt
On June 28, 2005, the Company entered into a Loan and Security
Agreement (“Loan and Security Agreement”) with Comerica Bank (“Comerica” or
“Bank”). The terms of the Loan and Security Agreement provide for an interest
only term loan, interest only equipment advances and a revolving line of credit
secured by a security interest in the Company’s assets, other than intellectual
property. The full $10,000,000 term loan was advanced to the Company on June
30, 2005, and currently has an interest rate of 4.5% per annum and a maturity
date of June 28, 2010. The equipment advances in the amount of up to $5,000,000
are available to the Company from time to time through December 28, 2006 to
finance the purchase of equipment, capitalized software and tenant
improvements, with a maturity date of June 28, 2010. The revolving line of
credit in the amount of up to $2,000,000 is available to support the future
issuance of standby letters of credit until June 28, 2008. The outstanding
balances under the term loan, the equipment advances and the revolving line of
credit bear interest on a monthly basis at one of the following interest rates
elected by the Company from time to time:
•
A rate equal to
one and three-quarters percent (1.75%) below the Prime “Base Rate” as quoted by
Bank from time to time; or
•
A rate equal to
one percent (1.00%) above the Bank’s LIBOR rate, which rate shall remain in
effect during the relevant LIBOR period; or
•
A rate equal to
one and one quarter percent (1.25%) above the Bank’s Cost of Funds rate, which
rate shall remain in effect during the relevant Cost of Funds period.
Should the Company maintain less than $8,000,000 at the Bank at any
time during any interest rate period, the interest rate the Company pays will
be 0.50% higher than shown above.
After July 30, 2005 the Company is required to maintain a minimum
balance of $2,000,000 in an interest earning Comerica money market
account. If the Company’s total cash,
equivalents and marketable securities, including those invested at the Bank,
falls between $30,000,000 and $25,000,000, or below $25,000,000, the minimum required
balance maintained at the Bank increases to $8,500,000 and $17,000,000,
respectively. If the Company’s total cash, equivalents and marketable
securities, including those invested at the Bank, falls below $20,000,000, the
loans become due.
The Loan and Security Agreement contains representations and warranties
and affirmative and negative covenants that are customary for credit facilities
of this type. The Loan and Security Agreement could restrict the Company’s
ability to, among other things, sell certain assets, engage in a merger or
change in control transaction, incur debt, pay cash dividends and make
investments. The Loan and Security Agreement also contains events of default
that are customary for credit facilities of this type, including payment
defaults, covenant defaults, insolvency type defaults and events of default
relating to liens, judgments, material misrepresentations and the occurrence of
certain material adverse events.
The Company’s future minimum commitments by fiscal year using the
interest rate in effect as of June 30, 2005 are as follows:
|
|
|
Amount
|
|
|
2006 -
includes interest only
|
|
$
|
450,000
|
|
|
2007 -
includes interest only
|
|
450,000
|
|
|
2008 -
includes interest only
|
|
450,000
|
|
|
2009 -
includes interest only
|
|
450,000
|
|
|
2010 - includes
both principal and interest
|
|
10,450,000
|
|
|
Total minimum debt commitments
|
|
$
|
12,250,000
|
|
55
6.
Commitments -
Operating Leases and Purchase
Obligations
The Company leases facilities and equipment under various noncancelable
operating lease agreements. Rent expense under these agreements was $5.6
million, $4.3 million and $3.6 million for the years ended June 30, 2005, 2004
and 2003, respectively, including deferred rent expense of approximately $515,000,
$462,000, and $446,000, respectively. As of June 30, 2005, future minimum
rental commitments, by fiscal year and in the aggregate, for the Company’s
operating leases are as follows:
|
|
|
Amount
|
|
|
2006
|
|
$
|
4,920,055
|
|
|
2007
|
|
5,047,576
|
|
|
2008
|
|
4,042,331
|
|
|
2009
|
|
791,371
|
|
|
2010
|
|
812,487
|
|
|
Thereafter
|
|
7,352,675
|
|
|
Total minimum lease payments
|
|
$
|
22,966,495
|
|
The Company has options to extend the lease terms on all of its
existing facilities leases in Boulder and Longmont, Colorado. The Boulder
lease, expiring on March 31, 2008, offers options to renew the lease for three
additional terms for up to 18 years. On August 5, 2005, the Company amended its
two prior lease agreements for the Longmont facility, which extended the lease
terms under the prior leases to March 31, 2008. On August 5, 2006, the March
31, 2008 terms will automatically extend to May 31, 2013, unless the landlord
is unable to provide certain expansion space to the Company and the Company
chooses to maintain the March 31, 2008 expiration date. The Company also has options to extend these
leases for three additional consecutive terms of five years each.
During the last quarter of fiscal 2005, the Company reassessed its
facility requirements, and began to consider the possibility of consolidating
operations in one of their existing locations, or a new location. While the
Company has not yet made a final determination whether to consolidate
operations at one location, it is no longer reasonably assured that it will
remain in its Boulder location beyond the initial lease term, which ends in
March 2008. The Company has not changed its determination that it is reasonably
assured that it will exercise a portion of its lease extensions and lease its
Longmont facility for at least another 13 years. Therefore, the minimum lease
payments above only include the cost of the Boulder facility leases through
their original term of March 2008. Minimum lease payments for the Longmont
leases are calculated through May 2018. The portion of minimum lease payments related
to optional extension periods for the Longmont facility is $4.8 million
beginning June 2013.
At June 30, 2005, the Company had outstanding purchase obligations
totaling $5.0 million, primarily for outsourced pharmacology services and
laboratory equipment and supplies.
7.
Employee Savings Plan
The Company has a 401(k) plan that allows participants to contribute 1%
to 60% of their salary; subject to eligibility requirements and annual IRS
limits. The Company matches employee contributions on a discretionary basis as
determined by the Company’s Board of Directors. During fiscal year 2005, 2004
and 2003, the Company paid matching contributions of approximately $780,000,
$326,000 and $351,000, respectively. Company contributions are fully vested
after four years of employment.
56
8.
Stock Compensation Plans, Stock Warrants and Stockholder Rights Plan
Stock
Options
In September 2000, the Company’s Board of Directors approved the
Amended and Restated Stock Option and Incentive Plan (the “Plan”), which is the
successor equity incentive plan to the Company’s 1998 Stock Option Plan (the
“1998 Plan”), initially adopted by the Board of Directors in July 1998. Upon
the closing of the Company’s initial public offering, the Plan became effective
and no additional grants were made under the 1998 Plan. A total of 10,728,370
shares of common stock have been reserved for issuance under the Plan to
eligible employees, consultants and directors of the Company. Additional
authorized shares may be reserved on any given day in an amount equal to the
difference between: (i) 25% of the Company’s issued and outstanding shares of
common stock, on a fully diluted and as-converted basis and (ii) the number of
outstanding shares relating to awards under the Plan plus the number of shares
available for future grants of awards under the Plan on that date.
The Plan provides that this number will increase on January 1 of each
year from 2003 through 2006 by 250,000 shares, provided that this number
may not exceed the total number of shares reserved under the Plan. As of June
30, 2005, there were 3,399,173 shares available for future issuance under the
Plan.
The Plan provides for awards of both nonstatutory stock options and
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and other incentive awards and rights to
purchase shares of the Company’s common stock.
The Plan is administered by the Compensation Committee of the Board of Directors,
which has the authority to select the individuals to whom awards will be
granted and to determine whether and to what extent stock options and other
stock incentive awards are to be granted, the number of shares of common stock
to be covered by each award, the vesting schedule of stock options, generally
straight-line over a period of four years, and all other terms and conditions
of each award.
A summary of activity in the Plan is as follows:
|
|
|
Number of
Options
|
|
Weighted-
Average
Exercise
Price
|
|
|
Balance,
June 30, 2002
|
|
5,475,449
|
|
$
|
5.57
|
|
|
Granted
|
|
1,021,458
|
|
7.21
|
|
|
Exercised
|
|
428,159
|
|
0.51
|
|
|
Terminated or expired
|
|
353,171
|
|
6.99
|
|
|
Balance,
June 30, 2003
|
|
5,715,577
|
|
6.16
|
|
|
Granted
|
|
1,281,749
|
|
5.13
|
|
|
Exercised
|
|
410,034
|
|
1.75
|
|
|
Terminated or expired
|
|
308,455
|
|
7.04
|
|
|
Balance,
June 30, 2004
|
|
6,278,837
|
|
6.19
|
|
|
Granted
|
|
773,884
|
|
7.72
|
|
|
Exercised
|
|
214,920
|
|
2.49
|
|
|
Terminated or expired
|
|
203,260
|
|
7.20
|
|
|
Balance,
June 30, 2005
|
|
6,634,541
|
|
$
|
6.46
|
|
57
A summary of options outstanding as of June 30, 2005, is as follows:
|
|
|
Outstanding Options
|
|
Exercisable Options
|
|
|
Exercise
Price
|
|
Shares Under
Option
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
Currently
Exercisable
|
|
Weighted-
Average
Exercise
Price
|
|
|
$ 0.24
|
|
336,035
|
|
3.8
|
|
$
|
0.24
|
|
336,035
|
|
$
|
0.24
|
|
|
$0.25-$0.60
|
|
922,580
|
|
4.6
|
|
0.60
|
|
922,580
|
|
0.60
|
|
|
$0.61-$3.00
|
|
182,931
|
|
6.0
|
|
2.85
|
|
151,431
|
|
2.93
|
|
|
$3.01-$6.00
|
|
942,460
|
|
7.8
|
|
3.67
|
|
281,332
|
|
4.11
|
|
|
$6.01-$8.50
|
|
1,608,394
|
|
7.8
|
|
7.94
|
|
583,878
|
|
8.05
|
|
|
$8.51-$9.00
|
|
858,791
|
|
7.3
|
|
8.66
|
|
419,121
|
|
8.67
|
|
|
$9.01-$10.50
|
|
1,199,700
|
|
6.8
|
|
9.31
|
|
836,425
|
|
9.31
|
|
|
$10.51-$14.28
|
|
583,650
|
|
6.6
|
|
11.73
|
|
454,000
|
|
11.88
|
|
|
|
|
6,634,541
|
|
6.7
|
|
6.46
|
|
3,984,802
|
|
5.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Stock-Based Compensation
The Company had deferred stock-based compensation balances related to
certain stock options granted to employees prior to the Company’s November 2000
initial public offering. Stock compensation expense was recognized on a
straight-line basis over the vesting periods of the related options, which was
generally four years, except for options with performance-based vesting
provisions. The Company recognized stock compensation expense of approximately
$151,000, $2.0 million and $1.9 million for fiscal years 2005, 2004 and 2003,
respectively. As of June 30, 2005, the Company had no remaining deferred
stock-based compensation to be amortized in future periods.
Employee Stock Purchase Plan
During fiscal year 2001, the Company adopted an Employee Stock Purchase
Plan (the “Purchase Plan”), authorizing the issuance of 800,000 shares of its
common stock pursuant to purchase rights granted to eligible employees of the
Company. During fiscal 2003, stockholders approved an increase of 400,000
shares for a total of 1.2 million authorized shares for issuance under the
Plan. The Purchase Plan provides a means by which employees purchase common
stock of the Company through payroll deductions of up to 15% of their base
compensation. The Compensation Committee determines the length and duration of
the periods during which payroll deductions will be accumulated to purchase
shares of common stock. This period is known as the offering period. Within a
single offering period, the Company permits periodic purchases of stock, known
as purchase periods. Currently, offering periods are six-month periods. The
purchase periods are currently three-month periods. The Compensation Committee
may modify the duration of the offering periods and the purchase periods in the
future. At the end of each of four purchase periods during a calendar year, the
Company uses accumulated payroll deductions to purchase, on behalf of
participating employees, shares of common stock at a price equal to the lower
of 85% of the fair value of a share of common stock (i) at the beginning of the
offering period or (ii) at the end of the purchase period. The purchase periods
under the Purchase Plan end on March 31, June 30, September 30 and December 31
of each year. Generally, all employees, including executive officers, who work
at least 20 hours per week and five months per year, may participate in the
Purchase Plan. Employees who are deemed to own greater than 5% of the combined
voting power of all classes of stock of the Company are not eligible for
participation in the Purchase Plan. For the fiscal years 2005, 2004 and 2003,
total shares issued under the Purchase Plan were 179,905, 240,865, and 272,141,
respectively. As of June 30, 2005, there were 158,563 shares available for
future issuance under the Purchase Plan.
Stockholder Rights
Plan
In August 2001, the Company adopted a Stockholder Rights Plan designed
to ensure that the Company’s stockholders receive fair and equal treatment in
the event of an unsolicited attempt to take control of the Company and to deter
coercive or unfair tactics by potential acquirers. The Stockholder Rights Plan
imposes a significant
58
penalty upon any person or group
that acquires 15% or more of the Company’s outstanding common stock without the
approval of the Company’s Board of Directors. Under the Stockholder Rights
Plan, a dividend of one Preferred Stock Purchase Right was declared for each
common share held of record as of the close of business on August 27, 2001.
Each right entitles the holder to purchase 1/100
th
of a share of
Series A Junior Participating Preferred Stock for an exercise price of $70.00
per share. The rights generally will not become exercisable unless an acquiring
entity accumulates or initiates a tender offer to purchase 15% or more of the
Company’s common stock. In that event, each right will entitle the holder,
other than the unapproved acquirer and its affiliates, to purchase upon the payment
of the exercise price a number of shares of the Company’s common stock having a
value of two times the exercise price. If the Company is not the surviving
entity in a merger or stock exchange, or 50% or more of the Company’s assets or
earning power are sold in one or more related transactions, each right would
entitle the holder thereof to purchase for the exercise price a number of
shares of common stock of the acquiring company having a value of two times the
exercise price. The rights expire on August 2, 2011.
9.
Common Stock
On December 14, 2004, the Company completed a follow-on public offering
of 9,200,000 shares of its common stock, including 1,200,000 shares for the
exercise of the underwriters’ over-allotment option. The Company received net
proceeds of $66.6 million from this public offering, net of $4.7 million in
expenses and underwriters’ discount relating to the issuance and distribution
of the securities. The Company intends to use the net proceeds from the sale of
securities to fund its research and development efforts and for general
corporate purposes, including working capital. The Company may also use a
portion of the net proceeds to acquire or invest in complementary businesses,
technologies, drugs, drug candidates or other intellectual property, although
the Company has no present commitments or agreements to do so.
During fiscal year 2003, the Company received approximately $157,000
from a Company founder as full repayment of an outstanding note receivable
balance, including accrued interest. This payment was in connection with the
purchase by the founder of shares of the Company’s common stock in May 1998.
All previously issued notes receivable for common stock have been fully repaid
by the Company founders.
10.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
A reconciliation of the Company’s effective tax rate from the federal
statutory income tax rate is as follows:
|
|
|
Years Ended June 30,
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
Expected
federal income tax expense at statutory rate of 34%
|
|
34.0
|
%
|
34.0
|
%
|
34.0
|
%
|
|
Generation
of research and development tax credit
|
|
5.1
|
%
|
3.7
|
%
|
3.6
|
%
|
|
Non-deductible
expenses
|
|
0.1
|
%
|
(1.4
|
)%
|
(1.7
|
)%
|
|
State income
tax expense, net of federal benefit
|
|
3.1
|
%
|
2.9
|
%
|
2.9
|
%
|
|
Change in
valuation allowance
|
|
(42.3
|
)%
|
(39.2
|
)%
|
(38.8
|
)%
|
|
|
|
—
|
%
|
—
|
%
|
—
|
%
|
59
The components of the Company’s deferred tax assets and liabilities are
as follows:
|
|
|
|
As of June 30,
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
Deferred tax
assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
29,248,422
|
|
$
|
17,385,247
|
|
|
|
Research and development credit
carryforwards
|
|
3,921,333
|
|
2,728,800
|
|
|
|
Deferred revenue
|
|
2,354,584
|
|
5,249,571
|
|
|
|
Deferred rent
|
|
628,499
|
|
421,024
|
|
|
|
Inventory reserve
|
|
1,081,034
|
|
2,456,201
|
|
|
|
Other
|
|
346,063
|
|
293,109
|
|
|
|
|
|
37,579,935
|
|
28,533,952
|
|
|
|
Valuation
allowance
|
|
(37,132,765
|
)
|
(27,002,434
|
)
|
|
|
|
|
447,170
|
|
1,531,518
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
Depreciation of property, plant and
equipment
|
|
(447,170
|
)
|
(1,531,518
|
)
|
|
|
Net deferred
tax assets and liabilities
|
|
$
|
—
|
|
$
|
—
|
|
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize
the benefits of these deductible differences, net of the existing valuation
allowances at June 30, 2005. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
As of June 30, 2005 and 2004, approximately $1.8 million and $1.6
million, respectively, of net operating loss deferred tax assets relates to
disqualifying dispositions of employee stock options. In future periods, if the
Company determines that a valuation allowance is no longer necessary, the
portion related to disqualifying dispositions of employee stock options will
reverse against additional paid-in capital rather than be recognized as an
income tax benefit on the statement of operations.
At June 30, 2005, the Company has the following net operating loss and
tax credit carryforwards for income tax purposes:
|
Expiration date:
|
|
Net Operating
Losses
|
|
Research and
Development
Credits
|
|
|
2018
|
|
$
|
49,000
|
|
$
|
—
|
|
|
2019
|
|
4,468,000
|
|
135,000
|
|
|
2020
|
|
4,494,000
|
|
147,000
|
|
|
2021
|
|
5,560,000
|
|
287,000
|
|
|
2022
|
|
6,180,000
|
|
485,000
|
|
|
2023
|
|
17,328,000
|
|
715,000
|
|
|
2024
|
|
8,973,000
|
|
960,000
|
|
|
2025
|
|
31,879,000
|
|
1,192,000
|
|
|
|
|
$
|
78,931,000
|
|
$
|
3,921,000
|
|
The Tax Reform Act of 1986 contains provisions that limit the
utilization of net operating loss and tax credit carryforwards if there has
been a “change of ownership” as described in Section 382 of the Internal
Revenue Code. Such a change of ownership
may limit the Company’s utilization of its net operating loss and tax credit
carryforwards, and could be triggered by subsequent sales of securities by the
Company or its stockholders.
60
11.
Other Expense –
Loss on investment
In March 2002, the Company entered into a drug discovery collaboration
agreement with Aptus Genomics, Inc. to create small molecule therapeutics
against select G-Protein Coupled Receptor (GPCR) targets. The Company worked
exclusively with Aptus on a select number of GPCR targets and provided Aptus
access to its Lead Generation Libraries in exchange for $500,000 of common
stock in Aptus. During fiscal 2003, the value of Aptus common stock decreased
significantly. The Company determined this reduced value to be
other-than-temporary and as a result, wrote off its investment in the company.
12.
Restructuring –
Fiscal year 2003
In March 2003, the Company reduced its workforce in order to reduce
costs and match its headcount resources with the near-term demand for its
collaboration programs, which resulted in the termination of 31 employees
across all employee levels and business functions. This reduction resulted in a
charge to operations in fiscal 2003 for termination-related costs of
approximately $541,000. Such costs included severance packages and
out-placement services for affected employees and were included in selling,
general and administrative expenses in the statement of operations.
13.
Subsequent Events
Amendment to Lease Agreements.
On August 5,
2005, the Company entered into an Addendum #4 to it Longmont lease agreements.
The Amendment amends two existing Lease Agreements between the Company and its
Lessor, dated February 28, 2000 and February 11, 2002 (the “Prior
Lease Agreements”), for two buildings the Company occupies in Longmont,
Colorado. The Company currently leases approximately 75,000 square feet under
the Prior Leases. The Amendment provides
for monthly lease payments along with 3% annual increases.
The Prior Lease Agreements previously expired on May 31, 2005 and
March 31, 2008, respectively. The
Amendment extends the lease terms under the Prior Lease Agreements for both
buildings to March 31, 2008. On August
5, 2006, the March 31, 2008 terms will automatically extend to May 31, 2013,
unless the landlord is unable to provide certain expansion space to the Company
and the Company chooses to maintain the March 31, 2008 expiration date. The Company also has options to extend the
Prior Leases for three additional consecutive terms of five years each.
Under the Amendment, the Company has the option to expand its leased
space by up to an additional 80,000 square feet of space in adjacent
buildings. In addition, the Company has
the right to purchase each of the leased buildings, including the expansion
space.
61
14.
Selected Quarterly Financial Data (Unaudited)
The tables below summarize the
Company’s unaudited quarterly operating results for fiscal years 2005 and 2004.
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
|
FISCAL YEAR
2005
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
9,857,007
|
|
$
|
12,048,445
|
|
$
|
11,555,739
|
|
$
|
12,044,325
|
|
|
Cost of
revenue
|
|
8,793,127
|
|
9,464,030
|
|
9,572,711
|
|
10,218,209
|
|
|
Net loss
|
|
(5,615,328
|
)
|
(4,877,017
|
)
|
(6,234,606
|
)
|
(6,517,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted net loss per share
|
|
(0.19
|
)
|
(0.16
|
)
|
(0.16
|
)
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
2004
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
7,195,472
|
|
$
|
7,594,913
|
|
$
|
9,687,916
|
|
$
|
10,352,689
|
|
|
Cost of
revenue (1)
|
|
7,311,838
|
|
7,288,872
|
|
14,156,480
|
|
8,499,662
|
|
|
Net loss
|
|
(6,052,199
|
)
|
(6,376,670
|
)
|
(9,848,208
|
)
|
(3,688,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted net loss per share (2)
|
|
(0.21
|
)
|
(0.22
|
)
|
(0.34
|
)
|
(0.13
|
)
|
(1) Cost of revenue includes a
provision for excess inventory of $5.6 million for the third quarter of fiscal
year 2004.
(2) Net loss per share is
calculated independently for each of the quarters presented. Therefore, the sum
of the quarterly net loss per share will not necessarily equal the total for
the full fiscal year.
62
ARRAY BIOPHARMA INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 2005, 2004 AND 2003
|
|
|
Balance at
Beginning
of Period
|
|
Charged to
Cost and
Expenses
|
|
Deductions
Charged to
Reserves
|
|
Balance at
End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended June 30, 2005
|
|
$
|
54,550
|
|
$
|
2,450
|
|
$
|
—
|
|
$
|
57,000
|
|
|
Fiscal year ended June 30, 2004
|
|
26,500
|
|
28,050
|
|
—
|
|
54,550
|
|
|
Fiscal year ended June 30, 2003
|
|
25,000
|
|
1,500
|
|
—
|
|
26,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
reserve:
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended June 30, 2005
|
|
$
|
6,628,384
|
|
$
|
717,208
|
|
$
|
4,428,277
|
(3)
|
$
|
2,917,315
|
|
|
Fiscal year ended June 30, 2004
|
|
5,651,644
|
|
6,539,093
|
(1)
|
5,562,353
|
(2)
|
6,628,384
|
|
|
Fiscal year ended June 30, 2003
|
|
618,925
|
|
5,032,719
|
(1)
|
—
|
|
5,651,644
|
|
(1)
During fiscal years 2004 and 2003, the
Company recorded $5.6 million and $4.1 million, respectively, of charges to
cost of revenue associated with increases in its inventory reserves for excess
Lead Generation Library and Optimer building block inventory.
(2)
At June 30, 2004, fully reserved inventory of
$5.6 million was written off and applied to these established reserves.
(3)
During the
second quarter of fiscal year 2005, the Company received $1.4 million for the
sale of compounds with a carrying value of approximately $700,000 that
represented the remaining net book value of the Lead Generation Library
inventory. During this same period, Lead Generation Library inventory with a
cost of $4.4 million was applied against previously established reserves of the
same amount, which had no impact on
the reported results of operations. The Company has not and does not
anticipate recognizing any revenue from sales or licensing of inventory that
has been written off.
63
REPORT OF KPMG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
Array BioPharma Inc.:
We have audited management’s assessment, included in the accompanying
Management’s Report on Internal Control over Financial Reporting
that Array BioPharma Inc. maintained
effective internal control over financial reporting as of June 30, 2005, based
on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)
.
Array BioPharma Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Array BioPharma Inc.
maintained effective internal control over financial reporting as June 30,
2005, is fairly stated, in all material respects, based on
criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO)
.
Also, in our opinion, Array
BioPharma Inc. maintained, in all material respects, effective internal control
over financial reporting as of June 30, 2005, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the balance sheet of Array
BioPharma Inc. as of June 30, 2005, and the related statements of operations,
stockholders’ equity and comprehensive loss, and cash flows for the year then
ended, and our report dated September 12, 2005
expressed an unqualified
opinion on those financial statements.
Boulder, Colorado
September 12, 2005
64
Item 9.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
None - Not Applicable
Item 9A. Controls and Procedures
Effectiveness of Disclosure Controls and Procedures
We
carried out an evaluation required by the Exchange Act, under the supervision
and with the participation of our senior management, including our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based on this evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, are effective in timely alerting them to material information
required to be included in our periodic SEC reports.
Management’s Annual Report on Internal Control over
Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in
Internal Control— Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based
on management’s evaluation under the COSO framework of our internal control over
financial reporting, management concluded that our internal control over
financial reporting was effective as of June 30, 2005.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
KPMG
LLP, our independent registered public accounting firm, has issued an
attestation report on our management’s assessment of the effectiveness of our
internal control over financial reporting as of June 30, 2005, as stated in
their report, which appears at the end of Item 8 of this Annual Report on
Form 10-K.
Changes in Internal Control Over Financial Reporting
During
the fourth quarter of fiscal year 2005, management implemented certain controls
including implementing a compliance checklist and providing for a secondary
review of new leases to ensure that our leases are accounted for in accordance
with Statement of Financial Accounting Standards No. 13,
Accounting
for Leases
, and Financial Accounting Standards Board Technical
Bulletin No. 85-3,
Accounting for Operating
Leases with Scheduled Rent Increases
. The implementation of these
controls followed a change in our accounting of rent expense under our
facilities leases, which had previously not been in compliance with the
Technical Bulletin. Although we do not believe that the impact of this change
was material to any prior periods, we restated our prior financial statements
because correcting this error in a single quarter could have a material effect
on our results of operations for the fourth quarter of fiscal 2005.
Other than the change in controls described above, there have been no
changes in the Company’s internal control over financial reporting identified
in connection with the evaluation required by Rule 13a-15(d) of the Securities
Exchange Act of 1934, as amended that occurred during the Company’s last fiscal
quarter that have materially affected, or are reasonably likely to material
affect, the Company’s internal control over financial reporting.
Item 9B.
Other Information
Not applicable
65
PART III
Item
10.
Directors and Executive Officers of the
Registrant
The information required by this item is incorporated by reference from
the information under the captions “Proposal 1-Election of Directors,”
“Executive Officers” “Section 16(a) Beneficial Ownership Reporting Compliance”
contained in the Proxy Statement of Array BioPharma Inc. relating to the annual
meeting of stockholders to be held on October 26, 2005.
Code
of Ethics
We have adopted a Code of Business Conduct that applies to all of our directors,
officers and employees, including our principal executive officer, principal
financial officer and principal accounting officer. The Code of Business
Conduct is posted under the Investor Relations portion of our website at
www.arraybiopharma.com.
We intend to satisfy the disclosure requirement of Form 8-K regarding
amendments to or waivers from a provision of our Code of Business Conduct by
posting such information on our website at www.arraybiopharma.com and, to the
extent required by the Nasdaq Stock Market, by filing a current report on Form
8-K with the SEC, disclosing such information.
Item 11.
Executive
Compensation
The information required by this item is incorporated by reference from
the information under the caption “Executive Compensation” contained in the
Proxy Statement of Array BioPharma Inc. relating to the annual meeting of
stockholders to be held on October 26, 2005.
Item
12.
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference from
the information under the caption “Principal Stockholders” contained in the
Proxy Statement of Array BioPharma Inc. relating to the annual meeting of
stockholders to be held on October 26, 2005.
66
Securities
Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of June 30,
2005 about the shares of common stock that may be issued upon the exercise of
options, warrants and rights under our
existing equity compensation plans, which include the Amended and Restated
Array BioPharma Inc. Stock Option and Incentive Plan and the Array
BioPharma Inc. Employee Stock Purchase Plan.
|
Plan Category
|
|
(a)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
|
|
(b)
Weighted-
Average
exercise price
of outstanding
options,
warrants and
rights
|
|
(c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
excluding securities
reflected in
column (a)
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by stockholders:
|
|
|
|
|
|
|
|
|
Amended and Restated Array BioPharma Inc.
Stock Option and Incentive Plan (1)
|
|
6,634,541
|
|
$
|
6.46
|
|
3,399,173
|
|
|
Array BioPharma Inc. Employee Stock
Purchase Plan (2)
|
|
51,398
|
|
5.36
|
|
158,563
|
|
|
Equity
compensation plans not approved by stockholders
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
|
6,685,939
|
|
$
|
6.45
|
|
3,557,736
|
|
(1)
The
shares available for issuance under the Amended and Restated Array BioPharma
Inc. Stock Option and Incentive Plan (the “Plan”) is increased automatically by
an amount equal to the difference between (a) 25% of our issued and outstanding
shares of capital stock (on a fully diluted, as converted basis), and (b) the
sum of the shares relating to outstanding option grants plus the shares
available for future grants under the Plan.
(2)
The
number of securities to be issued under the Company’s Employee Stock Purchase
Plan relates to shares of common stock accrued during the three-month purchase
period ended June 30, 2005, but not issued to employees until July 2005.
Item
13.
Certain Relationships and Related
Transactions
The information required by this item is incorporated by reference from
the information under the caption “Certain Relationships and Transactions”
contained in the Proxy Statement of Array BioPharma Inc. relating to the annual
meeting of stockholders to be held on October 26, 2005.
Item
14.
Principal Accountant Fees and Services
The information required by this item is incorporated by reference from
the information under the caption “Fees Paid to Auditors” contained in the
Proxy Statement of Array BioPharma Inc. relating to the annual meeting of
stockholders to be held on October 26, 2005.
67
PART IV
Item
15.
Exhibits and Financial Statement
Schedules
(a) 1. FINANCIAL STATEMENTS
The financial statements are listed under Part II,
Item 8 of this report.
Index to Financial Statements
a)
Balance Sheets at
June 30, 2005 and 2004
b)
Statements of
Operations for each of the years in the three-year period ended June 30, 2005
c)
Statements of
Stockholders’ Equity and Comprehensive Income (Loss) for each of the years in
the three year period ended June 30, 2005
d)
Statements of Cash
Flows for each of the years in the three-year period ended June 30, 2005
e)
Notes to Financial
Statements
2.
FINANCIAL
STATEMENT SCHEDULES
The following financial schedule of Array BioPharma
Inc. is included under Part II, Item 8 of this report:
Schedule II – Valuation and Qualifying Accounts
Schedules other than those listed above have been
omitted because they are not required, are not applicable or the information is
included in the financial statements or notes thereto.
3.
EXHIBITS
Exhibits are
set forth in the “Exhibit Index” below.
(b)
EXHIBITS
— Registrant hereby files as part of this Annual Report Form 10-K the exhibits
listed on the “Exhibit Index” below.
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boulder, State of Colorado.
|
|
|
ARRAY BIOPHARMA
INC.
|
|
Dated:
September 13, 2005
|
|
|
|
|
|
|
|
|
|
By: /s/
Robert E. Conway
|
|
|
|
|
Robert E.
Conway
|
|
|
|
Chief Executive Officer
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
|
|
|
|
/s/ ROBERT
E. CONWAY
|
|
Chief
Executive Officer and
|
|
September
13, 2005
|
|
Robert E.
Conway
|
|
Director
(Principal Executive
|
|
|
|
|
|
Officer)
|
|
|
|
|
|
|
|
|
|
/s/ KYLE A.
LEFKOFF
|
|
Chairman of
the Board of
|
|
September
13, 2005
|
|
Kyle A.
Lefkoff
|
|
Directors
|
|
|
|
|
|
|
|
|
|
/s/ R.
MICHAEL CARRUTHERS
|
|
Chief
Financial Officer
|
|
September
13, 2005
|
|
R. Michael
Carruthers
|
|
(Principal
Financial and
|
|
|
|
|
|
Accounting
Officer)
|
|
|
|
|
|
|
|
|
|
/s/ FRANCIS
J. BULLOCK
|
|
Director
|
|
September
13, 2005
|
|
Francis J.
Bullock, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ MARVIN
H. CARUTHERS
|
|
Director
|
|
September
13, 2005
|
|
Marvin H.
Caruthers, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ KEVIN
KOCH
|
|
Director
|
|
September 13,
2005
|
|
Kevin Koch,
Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ DAVID L.
SNITMAN
|
|
Director
|
|
September
13, 2005
|
|
David L.
Snitman, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ GIL J.
VAN LUNSEN
|
|
Director
|
|
September
13, 2005
|
|
Gil J. Van
Lunsen
|
|
|
|
|
|
|
|
|
|
|
|
/s/ DOUGLAS
E. WILLIAMS
|
|
Director
|
|
September
13, 2005
|
|
Douglas E.
Williams, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ JOHN L.
ZABRISKIE
|
|
Director
|
|
September
13, 2005
|
|
John L.
Zabriskie, Ph.D.
|
|
|
|
|
69
EXHIBIT INDEX
|
Exhibit
No.
|
|
|
Description
|
|
3.1
|
(1)
|
|
Amended and
Restated Certificate of Incorporation of Array BioPharma Inc.
|
|
3.2
|
(1)
|
|
Amended and
Restated Bylaws of Array BioPharma Inc.
|
|
3.3
|
(5)
|
|
Certificate of Designation of the Series A
Junior Participating Preferred Stock
|
|
4.1
|
(1)
|
|
Specimen
certificate representing the common stock
|
|
10.1
|
(1)
|
|
1998 Stock
Option Plan effective July 1, 1998, as amended*
|
|
10.2
|
(10)
|
|
Amended and
Restated Array BioPharma Inc. Stock Option and Incentive Plan, as amended*
|
|
10.3
|
(10)
|
|
Array
BioPharma Inc. Employee Stock Purchase Plan, as amended*
|
|
10.4
|
(12)
|
|
Amendment to
Array BioPharma Inc. Employee Stock Purchase Plan*
|
|
10.5
|
(1)
|
|
Preferred and Common Stock Purchase
Agreement between Registrant and the parties whose signatures appear on the
signature pages thereto dated May 18, 1998
|
|
10.6
|
(1)
|
|
Amendment to Preferred and Common Stock
Purchase Agreement dated August 7, 1998
|
|
10.7
|
(1)
|
|
Series B Preferred Stock Purchase Agreement
between Registrant and the parties whose signatures appear on the signature
pages thereto dated November 16, 1999
|
|
10.8
|
(1)
|
|
Series C Preferred Stock Purchase Agreement
between Registrant and the parties whose signatures appear on the signature
pages thereto dated August 31, 2000
|
|
10.9
|
(1)
|
|
Lease
Agreement by and between Registrant, as Tenant, and Amgen Inc., as Landlord,
dated July 1998
|
|
10.10
|
(1)
|
|
First
Amendment to Lease Agreement by and between Registrant, as Tenant, and Amgen
Inc., as Landlord, dated April 1, 1999
|
|
10.11
|
(3)
|
|
Second
Amendment to Lease Agreement by and between Registrant, as Tenant, and Amgen
Inc., as Landlord, dated April 1, 2001
|
|
10.12
|
(3)
|
|
Option
Agreement by and between Registrant, as Subtenant, and Boulder Headquarters
LLC, as Landlord, dated April 1, 2001
|
|
10.13
|
(1)
|
|
Lease
Agreement by and between Registrant, as Tenant, and Pratt Land Limited
Liability Company, as Landlord, dated February 28, 2000
|
|
10.14
|
(7)
|
|
Lease Agreement by and between Registrant,
as Tenant, and Pratt Land Limited Liability Company, as Landlord, dated
February 11, 2002
|
|
10.15
|
(2)
|
|
Revised Employment Agreement by and between
Registrant and Robert E. Conway dated November 15, 2001*
|
|
10.16
|
(9)
|
|
Form of Employment Agreement dated
September 1, 2002 by and between Registrant and each of Laurence E. Burgess,
Jonathan A. Josey, Anthony D. Piscopio, David L. Snitman, Kevin Koch and R.
Michael Carruthers. *
|
|
10.17
|
(8)
|
|
Employment Agreement effective as of March
2002 between Registrant and John Moore*
|
|
10.18
|
(1)
|
|
Amended and Restated Investor Rights
Agreement between Registrant and the parties whose signatures appear on the
signature pages thereto dated November 16, 1999
|
|
10.19
|
(1)
|
|
Amendment No. 1 to Amended and Restated
Investor Rights Agreement between Registrant and the parties whose signatures
appear on the signature pages thereto dated August 31, 2000
|
|
10.20
|
(4)
|
|
Rights Agreement, dated August 2, 2001,
between the Registrant and Computershare Trust Company, Inc., as Rights Agent
|
|
10.21
|
(1)
|
|
Research Services Agreement between
Registrant and Eli Lilly and Company dated March 22, 2000, as amended
|
|
10.22
|
(1)
|
|
Array Library Screening Agreement between
Registrant and E.I. du Pont de Nemours and Company dated August 1, 2000
|
|
10.23
|
(1)
|
|
Diversity Library Screening Agreement
between Registrant and Tularik Inc. dated June 10, 1999, as amended
|
|
10.24
|
(6)
|
|
Research
Agreement between Registrant and Amgen Inc. dated as of November 1, 2001
|
|
10.25
|
(5)
|
|
Lead Generation Collaboration Agreement by
and between Registrant and Takeda Chemical Industries, Ltd., dated July 18,
2001
|
|
10.26
|
(11)
|
|
Collaboration and License Agreement by and
between Registrant and AstraZeneca AB, dated December 18, 2003
|
|
10.27
|
(11)
|
|
Collaboration and License Agreement by and
between Registrant and Genentech, Inc., dated December 22, 2003
|
70
|
10.28
|
(13)
|
|
Amended and
Restated Deferred Compensation Plan of Array BioPharma Inc. dated December
20, 2004*
|
|
10.29
|
|
|
Drug Discovery Collaboration Agreement by
and between Registrant and InterMune, Inc., dated September 10, 2002 along
with Amendment No. 1 dated May 8, 2003, Amendment No. 2 dated January 7, 2004,
Amendment No. 3 dated September 13, 2004, Amendment No. 4 dated December 7,
2004, Amendment No. 4A dated March 10, 2005 and Amendment No. 5 dated June
30, 2005**
|
|
10.30
|
|
|
Loan and
Security agreement by and between Registrant and Comerica Bank dated June 28,
2005
|
|
10.31
|
|
|
Addendum No.
4 to Lease Agreement by and between Registrant, as Tenant, and Circle Capital
Longmont LLC, as Landlord, dated August 5, 2005**
|
|
23.1
|
|
|
Consent of
KPMG LLP, Independent Registered Public Accounting Firm
|
|
23.2
|
|
|
Consent of Ernst
& Young LLP, Independent Registered Public Accounting Firm
|
|
31.1
|
|
|
Certification
of Robert E. Conway pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
|
|
Certification
of R. Michael Carruthers pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.0
|
|
|
Certifications
of Robert E. Conway and R. Michael Carruthers pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
(1)
|
Incorporated
herein by reference to the Registrant’s registration statement on Form S-1
(File No. 333-45922)
|
|
(2)
|
Incorporated
herein by reference to the Registrant’s registration statement on Form S-3
(File No. 333-76828)
|
|
(3)
|
Incorporated
herein by reference to the Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2001 (File No. 000-31979)
|
|
(4)
|
Incorporated
herein by reference to the Current Report on Form 8-K as of August 3,
2001(File No. 000-31979)
|
|
(5)
|
Incorporated
herein by reference to the Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2001 (File No. 000-31979)
|
|
(6)
|
Incorporated
herein by reference to the Current Report on Form 8-K/A as of February 6,
2002 (File No. 000-31979)
|
|
(7)
|
Incorporated
herein by reference to the Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2002 (File No. 000-31979)
|
|
(8)
|
Incorporated
herein by reference to the Annual Report on Form 10-K for the fiscal year
ended June 30, 2002 (File No. 000-31979)
|
|
(9)
|
Incorporated
herein by reference to the Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2002 (File No. 000-31979)
|
|
(10)
|
Incorporated
herein by reference to the Registrant’s definitive proxy statement on
Schedule 14A dated October 1, 2002, with respect to the annual meeting of
stockholders held on October 31, 2002
|
|
(11)
|
Incorporated
herein by reference to the Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 2003 (File No. 000-31979)
|
|
(12)
|
Incorporated
herein by reference to the Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2004 (File No. 000-31979)
|
|
(13)
|
Incorporated
herein by reference to the Current Report on Form 8-K as of December 20, 2004
(File No. 000-31979)
|
* Management contract or
compensatory plan.
**Confidential treatment of
redacted portions has been applied for.
71
Exhibit 10.29
[ * ] = 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.
Execution Copy
DRUG
DISCOVERY COLLABORATION AGREEMENT
This DRUG DISCOVERY
COLLABORATION AGREEMENT (the “Agreement”), effective as of September 13,
2002 (the “Effective Date”), is made by and between Array BioPharma Inc., a
Delaware corporation, having a principal place of business at 3200 Walnut
Street, Boulder, Colorado 80301 (“Array”), and InterMune, Inc., a Delaware
corporation, having a principal place of business at 3280 Bayshore Boulevard,
Brisbane, California 94005 (“InterMune”).
BACKGROUND
A.
InterMune
has experience and expertise in the biological components of drug discovery,
development and commercialization of therapeutics.
B.
Array
has developed novel and proprietary methods for the generation of compound
libraries, and has skills, expertise and experience in lead generation and
optimization to produce clinical candidates from drug discovery programs.
C.
InterMune
and Array desire to collaborate to identify orally active small molecule-based
therapeutics for modulating the Target (as defined below), with the goal of
developing compounds with desired activity and selectivity.
D.
InterMune
wishes to acquire an exclusive license to develop and commercialize Products
(as defined below), and Array wishes to grant to InterMune such license, on the
terms and conditions herein.
NOW, THEREFORE, for and
in consideration of the covenants, conditions and undertakings hereinafter set
forth, it is agreed by and between the Parties as follows:
ARTICLE 1
DEFINITIONS
As used herein, the
following terms will have the meanings set forth below:
1.1
“
Affiliate
”
shall mean any corporation or other entity, whether
de jure
or
de facto
,
which is directly or indirectly controlling, controlled by or under common
control of a Party hereto for so long as such control exists. For the purposes of this Section 1.2, “control”
shall mean the direct or indirect ownership of at least fifty percent (50%) of
the outstanding shares or other voting rights of the subject entity having the
power to vote on or direct the affairs of the
1
entity, or if not
meeting the preceding, the maximum voting right that may be held by the
particular Party under the laws of the country where such entity exists.
1.2
“
Agreement
Term
” shall mean the term of this Agreement, as determined in accordance
with Article 12.
1.3
“
Collaboration
Technology
” shall mean all Collaboration Patents and Collaboration
Know-How.
1.4
“
Collaboration
Patents
” shall mean all patents and patent applications anywhere in the
world claiming an invention first conceived and/or reduced to practice solely
or jointly by Array and/or InterMune personnel in the course of performing the
Research Collaboration, including without limitation any such invention
comprising a Hit Compound, Lead Compound or Product, or method of use or
process for the synthesis thereof or composition-of-matter containing such Hit
Compound, Lead Compound or Product. The
Collaboration Patents may include the following types of patent applications
and patents: divisionals, continuations,
continuations-in-part, reissues, reexaminations, renewals or extensions,
substitutions, confirmations, registrations and revalidations.
1.5
“
Collaboration
Know-How
” shall mean all Know-How made or developed solely or jointly by
Array and/or InterMune in the course of performing the Research Collaboration,
in each case, which is necessary or useful for the development, manufacture,
use, sale or other commercialization of any Hit Compound, Lead Compound or
Product. Collaboration Know-How does not
include patentable inventions claimed in the Collaboration Patents.
1.6
“
Consumer
Price Index
” or “CPI” means the Consumer Price Index, All Urban Consumers,
as published by the U.S. Bureau of Labor Statistics.
1.7
“
Control
”
shall mean, with respect to any patent application, patent or Know-How, the
ownership of, or possession of a license under, such patent application, patent
or Know-How, together with the right to grant a license to the other Party
thereunder as provided in this Agreement.
1.8
“
Field
”
shall mean the discovery, development and commercialization of chemical
entities for the therapeutic or prophylactic treatment of diseases and
conditions in humans, a mechanism of action of which chemical entities is to
modulate the activity of a Target.
1.9
“
FTE
”
shall mean a full-time person dedicated to the Research Collaboration, or in
the case of less than a full-time, dedicated person, a full-time equivalent
person year, based upon a total of one thousand eight hundred eighty (1,880)
hours per year of work in connection with the Research Collaboration.
2
1.10
“
JRC
”
or “
Joint Research Committee
” shall have the meaning set forth in Section 3.1.
1.11
“
Hit
Compound
” shall mean any chemical entity that meets the Hit Compound
Criteria.
1.12
“
Hit
Compound Criteria
” shall mean (i) those criteria set forth in the
Research Plan to be “Hit Compound Criteria,” and/or (ii) such other
criteria as are approved by the JRC and agreed in writing by the Parties. If
the Parties agree to any such other criteria, then their writing shall clearly
set forth whether such criteria are in addition to, or alternative to, such
criteria set forth in the Research Plan as of the Effective Date.
1.13
“
Know-How
”
shall mean ideas, inventions, data, instructions, processes, formulas, expert
opinions and other information (including, without limitation, biological,
chemical, pharmacological, toxicological, pharmaceutical, physical, analytical,
clinical, safety, manufacturing and quality control data and information).
1.14
“
Lead
Compound
” shall mean any chemical entity that meets the Lead Compound
Criteria.
1.15
“
Lead
Compound Criteria
” shall mean (i) those criteria set forth in the
Research Plan to be “Lead Compound Criteria,” and/or (ii) such other
criteria as are approved by the JRC and agreed in writing by the parties. If the Parties agree to any such other
criteria, then their writing shall clearly set forth whether such criteria are
in addition to, or alternative to, such criteria set forth in the Research Plan
as of the Effective Date.
1.16
“
NDA
”
shall mean a New Drug Application, as defined in the U.S. Food, Drug and
Cosmetic Act and the regulations promulgated thereunder, or any corresponding
foreign application, registration or certification.
1.17
“
Net
Sales
” shall mean
[ * ].
1.18
“
Party
”
or “
Parties
” shall mean, respectively, Array or InterMune individually,
or Array and InterMune collectively.
1.19
“
Phase
II
” shall mean the phase of human clinical trials for which the primary
endpoints include a determination of dose ranges and/or a preliminary
determination of efficacy in patients in the United States or a country other
than the United States. Phase II
specifically excludes that phase of human clinical trials commonly referred to
as “Phase I” clinical trials, which are solely intended to determine safety but
not definitive dosing and efficacy of a pharmaceutical.
3
1.20
“
Phase
III
” shall mean the phase of human clinical trials the principal purpose of
which are to establish safety and efficacy of one or more particular doses in
patients being studied, and which will (or are intended to) satisfy the
requirements of a pivotal trial for purposes of obtaining approval of a product
in a country by the health regulatory authority in such country to market such
product.
1.21
“
Preparatory
Know-How
” shall mean all Know-How made or developed by Array
[ * ]
that relates to the subject
matter of the Research Collaboration and/or to any Hit Compound, Lead Compound
or Product, to the extent Controlled by Array.
1.22
“
Preparatory
Patents
” shall mean all patent applications and patents anywhere in the
world claiming any invention conceived and/or reduced to practice by Array
[ * ]
that relates to the subject
matter of the Research Collaboration and/or to any Hit Compound, Lead Compound
or Product, in each case to the extent Controlled by Array.
1.23
“
Product
”
shall mean any diagnostic, therapeutic or prophylactic product incorporating as
an active ingredient a Hit Compound or a Lead Compound.
1.24
“
Research
Collaboration
” shall mean the research activities undertaken by the Parties
during the Research Term pursuant to Sections 2.1 to 2.3 below.
1.25
“
Research
Plan
” shall mean the written research plan that the Parties have agreed to
on or before the Effective Date. The
Research Plan may be amended from time to time by mutual agreement of the
Parties, and shall be updated as set forth in Section 2.2.2.
1.26
“
Research
Term
” shall mean the term of the Research Collaboration, as provided in Section 2.3
below.
1.27
“
Reserved
Target
” shall mean those targets identified in Exhibit A as “Reserved
Targets.”
1.28
“
Sublicensee
”
shall mean, with respect to a particular Product, a Third Party to whom
InterMune has granted a license or sublicense under the Collaboration
Technology to make and sell such Product.
As used in this Agreement, “Sublicensee” shall specifically exclude a
Third Party to whom InterMune has granted the right to distribute such Product,
provided
that the economics of
the distribution relationship involve payment of a transfer price by the
distributor, but not a royalty to InterMune calculated as a percentage of net
sales of the Product by the distributor.
1.29
“
Target(s)
”
shall mean (i) the target identified in Exhibit A as the “Target,”
and (ii) any Reserved Target selected in accordance with Section 2.2.1
below for use in the Research Collaboration.
4
1.30
“
Third
Party
” shall mean any person or entity other than Array and InterMune, and
their respective Affiliates.
1.31
“
Valid
Claim
” shall mean
[ * ]
.
ARTICLE 2
RESEARCH COLLABORATION
2.1
Goals
. The goal of the Research Collaboration is the
discovery and optimization of patentable compositions that are orally active
small molecule inhibitors in the Field pursuant to the Research Plan.
2.2
Conduct
of the Research Collaboration
.
Subject to the terms and conditions set forth herein, the Parties agree
to conduct research under the Research Collaboration, which shall be funded as
set forth in Article 5 below.
During the Research Term, Array and InterMune shall collaborate and each
use their commercially reasonable efforts to conduct their respective responsibilities
under the Research Collaboration in accordance with the Research Plan, within
the time frames contemplated therein. In
particular, Array shall devote the numbers of FTEs set forth for it to devote
in the Research Plan to carrying out the tasks assigned to Array at the times
set forth therein.
2.2.1
Target
Selection
. The initial subject of
the Research Collaboration shall be the Target identified in the Research Plan
as of the Effective Date. During the
Research Term, either Party may propose in writing that the Research
Collaboration be expanded to include research involving one of more Reserved
Target(s). Upon written consent of the other Party, each Reserved Target so
proposed shall cease to be a Reserved Target for purposes of this Agreement and
shall thereafter be deemed a Target.
2.2.2
Research
Plan
. The Research Collaboration
shall be carried out in accordance with the Research Plan. The Research Plan as it exists as of the
Effective Date establishes specific research objectives and the general
research tasks to be performed and resources to be provided by each Party. Promptly after the Effective Date, the
Parties shall meet and agree on the more specific tasks to be undertaken to
achieve such research objectives and general tasks, the specific anticipated
timelines for such specific tasks, and an FTE schedule setting forth how
many FTEs Array will devote to the performance of the tasks assigned to it in
each quarter of the Research Term.
Within thirty (30) days after the Effective Date, the JRC shall meet to
discuss and approve such an update to the Research Plan to cover such subject
matter. Thereafter, the Research Plan
shall be reviewed on an ongoing basis and may be amended by the Joint Research
Committee in accordance with Article 3, or by the Parties in accordance
with Section 4.4.
5
2.3
Term
and Termination of Research Collaboration
.
The Research Collaboration shall commence on the Effective Date and
shall end upon the first to occur of (i) two (2) years after the
Effective Date, (ii) the termination of this Agreement, or (iii) ninety
(90) days after written notice from InterMune that InterMune elects (in its
sole discretion) to early terminate the Research Collaboration, such notice to
be given no earlier than nine (9) months after the Effective Date (such
period beginning on the Effective Date and ending upon the earliest of (i), (ii) and
(iii), the “Research Term”). InterMune
shall have the right to extend the Research Term for up to an additional two (2) years. To exercise such right, InterMune shall
provide written notice to Array on or before the date ninety (90) days before
the second anniversary of the Effective Date.
2.4
Selection
of Candidates for Further Development
.
From time to time, either Party may suggest that the JRC consider a
particular Hit Compound or Lead Compound to be recommended to InterMune for
selection for further development. The
JRC’s recommendation is not binding on InterMune. The purpose of having the JRC make any such
recommendation is to foster collaboration and scientific exchange between the
Parties during the Research Term.
InterMune agrees to inform Array of any Hit Compounds and Lead Compounds
researched hereunder for which InterMune is undertaking any GLP toxicology
studies in the next report under Section 7.2 after such studies commence.
2.5
Records;
Inspection
.
(a)
Records
. Array and InterMune shall maintain records of
the Research Collaboration (or cause such records to be maintained) in
sufficient detail and in good scientific manner as will properly reflect all
work done and results achieved in the performance of the Research Collaboration
(including all data in the form required under any applicable governmental
regulations and as directed by the JRC).
(b)
Reports
and Information Exchange
. Each Party
shall keep the other Party, including the Joint Research Committee, informed as
to its progress under the Research Plan.
During the Research Term, Array and InterMune shall each provide the
other, at least once quarterly, a reasonably detailed written summary of
research activities and results in connection with the Research
Collaboration. In addition, if requested
in writing by InterMune, Array shall provide InterMune with copies of its
records required to be kept pursuant to Section 2.5(a), including without
limitation the relevant portions of laboratory notebooks of Array personnel
participating in the Research Collaboration.
2.6
Post
Research Collaboration Activities
.
For each Hit Compound, Lead Compound and Product, as between the
Parties, InterMune shall be responsible, at its sole expense, for conducting
all clinical development of such Lead Compound or Product following the
termination of the Research Term, and all commercialization of such Hit
Compound, Lead Compound or Product.
6
2.7
Exclusivity
.
2.7.1
General
. Except in performing pursuant to the Research
Collaboration, Array and its Affiliates shall not knowingly
[ * ]
, alone or with a Third
Party,
[ * ]
specifically directed to (i)
[ * ]
,
during the Research Term and for a period of
[ * ]
thereafter, (ii) or
[ * ]
,
during the Research Term. It is
understood and agreed that
[ * ]
shall not be deemed a violation of this Section 2.7.
2.7.2
Option
. During the Research Term, prior to Array or
any of its Affiliates entering into material or substantial negotiations with a
third party in connection with
[ * ]
,
other than a Target or a Reserved Target, or using
[ * ]
, Array will notify InterMune in writing of
such intent. Within thirty (30) days
after receipt of such notice, InterMune will notify Array in writing whether
InterMune is interested in pursuing such activities in collaboration with
Array, under terms equivalent to those contained in the Agreement. If so, InterMune and Array will negotiate in
good faith an agreement under which Array and InterMune would collaborate on
such compound discovery research. If the
parties have not agreed upon terms and conditions of such an agreement within
ninety (90) days after receipt of InterMune’s notice, or if InterMune does not
indicate its interest within such thirty (30) day period, then Array and its
Affiliates shall be free to pursue
[ * ]
that was the subject of Array’s notice to InterMune, alone or with a Third
Party, without further obligation to InterMune,
[ * ]
.
2.7.3
Change
of Control
. Notwithstanding the
provision of Sections 2.7.1 and 2.7.2, in the event of a Change of Control (as
defined below) of Array, the provisions of such Sections shall not apply to any
research or development program that a portion of the surviving entity that was
not Array (prior to the Change of Control) had ongoing as of immediately prior
to the date of such Change of Control.
For purposes of this Section 2.7, a “Change of Control” shall mean
the merger, consolidation, sale of substantially all of its assets or similar
transaction or series of transactions, as a result of which Array’s
shareholders before such transaction or series of transactions own less than
fifty percent (50%) of the total number of voting securities of the surviving
entity immediately after such transaction or series of transactions. For clarity, if as a result of any such Change
of Control, Array exists as a wholly owned subsidiary of a parent, then the
provisions of this Section 2.7 shall continue to apply to Array, but not
to such parent.
2.8
Existing
Library Compounds
. As of the
Effective Date, the Parties will focus upon new compound libraries created
pursuant to the Research Collaboration, and the Parties will not engage in high
throughput screening against pre-existing or separate compound libraries of
Array pursuant to the Research Collaboration.
7
ARTICLE 3
MANAGEMENT
3.1
Joint
Research Committee
. Promptly after
the Effective Date, InterMune and Array will establish a committee (the “Joint
Research Committee” or “JRC”) to oversee, review and recommend direction of the
Research Collaboration, and provide advice regarding prosecution of
jointly-owned patent applications directed to inventions within the
Collaboration Technology. The
responsibilities of the Joint Research Committee shall include, among other
things: (i) setting priorities and modifying the Research Plan; (ii) recommending
the number of FTEs to be provided for in the Research Plan; (iii) monitoring
and reporting research progress and ensuring open and frequent exchange between
the Parties regarding Research Collaboration activities; and (iv) recommending
Hit Compounds and Lead Compounds for selection by InterMune as candidates for
further development. The JRC (and any of
its subcommittees) shall have no authority to amend or waive compliance with
this Agreement. The JRC’s
decision-making shall be as set forth in Section 3.4.
3.2
Membership
. The JRC shall include two (2) representatives
of each of InterMune and Array. Each
Party’s members shall be selected by that Party. Array and InterMune may each replace its JRC
representatives at any time, upon written notice to the other Party. From time to time, the JRC may establish
subcommittees, to oversee particular projects or activities, and such
subcommittees will be constituted as the JRC agrees.
3.3
Meetings
. During the Research Term, the JRC shall meet
at least quarterly, or as agreed by the Parties, at such locations as the
Parties agree, and will otherwise communicate regularly by telephone,
electronic mail, facsimile and/or video conference. With the consent of the Parties, other
representatives of Array or InterMune may attend JRC meetings as nonvoting
observers. Each Party shall be
responsible for all of its own expenses associated with attendance of such
meetings. The first meeting of the JRC
shall occur within forty-five (45) days after the Effective Date.
3.4
Decision
Making
. Decisions of the JRC shall
be made by unanimous agreement. In the
event that unanimity is not achieved within the JRC, then, other than with
respect to setting criteria for Hit Compounds and Lead Compounds, InterMune
shall have the deciding vote;
provided,
however,
that notwithstanding the foregoing, Array shall not be
obligated, as a result of such a deciding vote by InterMune, to violate any
obligation or agreement it may have to or with any Third Party;
provided
that the obligation to or
agreement with the Third Party is not in conflict with this Agreement as
originally executed or the activities that would be required or contemplated of
Array under the Research Plan as it exists as of the Effective Date. Disputes among the JRC or the Parties as to
whether to change or add to the Hit Compound Criteria and/or the Lead Compound
Criteria shall be non-justiciable, and the Hit Compound Criteria and the Lead
Compound Criteria shall remain as they exist as of the Effective Date unless
the Parties otherwise agree in writing.
8
ARTICLE 4
LICENSES
4.1
Research
Licenses
.
4.1.1
Grant
from InterMune
. InterMune hereby
grants Array a worldwide, non-exclusive, non-transferable, non-sublicensable,
royalty-free, right and license, under InterMune’s interest in the
Collaboration Technology, solely to conduct the Research Collaboration during
the Research Term.
4.1.2
Grant
from Array
. Array hereby grants
InterMune a worldwide, non-exclusive, non-transferable, non-sublicensable,
royalty-free, right and license, under Array’s interest in the Collaboration
Technology and under the Preparatory Patents and the Preparatory Know-How,
solely to conduct the Research Collaboration during the Research Term.
4.2
Commercial
License
.
4.2.1
License
to Lead Compounds, Development Candidates and Corresponding Products
. Subject to the terms and conditions of this
Agreement, Array hereby grants to InterMune a worldwide, exclusive,
royalty-bearing right and license under Array’s interest in the Collaboration
Technology and under the Preparatory Patents, to research, develop, make, have
made, use, import, offer for sale and sell Hit Compounds, Lead Compounds and
Products worldwide.
4.2.2
Preparatory
Know-How
. Subject to the terms and
conditions of this Agreement, Array hereby grants to InterMune a worldwide,
non-exclusive, royalty-bearing right and license under the Preparatory Know-How
to research, develop, make, have made,
use, import, offer for sale and sell Hit Compounds, Lead Compounds and Products
worldwide.
4.2.3
Sublicenses
. Subject to the terms and conditions of this
Agreement, InterMune shall have the right to sublicense the rights granted in Section 4.2.1
above through one (1) or more tiers of sublicensees. Each sublicense granted by InterMune shall be
consistent with all the terms and conditions of this Agreement, and shall
automatically terminate with respect to the patents and know-how licensed
hereunder when this Agreement terminates.
InterMune shall remain responsible to Array for the compliance of each
such Sublicensee with this Agreement as applicable to such Sublicensee, and the
payment of any amounts due hereunder as a result of the activities of
Sublicensees.
4.2.4
Marketing
Rights
. InterMune shall have the
exclusive right to market, sell and distribute Products. In exercising such rights, InterMune may
select trademarks for such Products, and InterMune shall own all right, title
or interest in such trademarks (subject to any pre-existing rights of Array or
Third Parties).
4.3
License
to Array
. InterMune hereby grants to
Array a worldwide, non-exclusive, transferable, royalty-free right and license,
with the right to grant and authorize sublicenses,
9
under InterMune’s
interest in the Collaboration Technology, to exploit the same outside the scope
of Array’s exclusive license to InterMune pursuant to Section 4.2.
4.4
Third-Party
Licenses
. In the event that the
Parties agree to acquire additional technologies from a Third Party
specifically for use in the conduct of the Research Collaboration in the Field,
InterMune will be responsible for the payment of any amounts due to Third
Parties for the license of intellectual property which directly applies to any
Target, and the costs of negotiating, preparing and executing any such license,
unless the Parties otherwise mutually agree in writing. InterMune shall use its reasonable efforts to
negotiate in good faith and obtain all Third Party licenses that it agrees to
seek because they are necessary or useful for the conduct of the Research
Collaboration. If, during the Research
Term, InterMune is unable, despite such efforts, to obtain any license
necessary for the conduct of the Research Collaboration, and the Parties are
unable to agree to amend the Research Plan such that such license is no longer
necessary to the conduct of the Research Collaboration, then InterMune shall
have the right to terminate this Agreement upon thirty (30) days notice.
4.5
No
Implied Licenses
. Only the licenses
granted pursuant to the express terms of this Agreement shall be of any legal
force or effect. No other license or
rights shall be created by implication, estoppel or otherwise.
4.6
No
Products Other than Products
. Except
as otherwise agreed in writing or specifically provided in the terms of this
Agreement, neither InterMune nor its Affiliates nor Sublicensees shall,
directly or indirectly, commercialize any Hit Compound or Lead Compound itself
or the method of manufacture or use of which is claimed by the Collaboration
Patents or uses the Collaboration Know-How, other than as a Product in
accordance with this Agreement (i.e., any Products sold by InterMune, its
Affiliates and Sublicensees in exercise of the license granted InterMune in Section 4.2.1
shall be milestone and royalty-bearing to the extent set forth in this
Agreement).
ARTICLE 5
PAYMENTS
5.1
Research
Collaboration Funding
.
5.1.1
Research
Phase Payment Schedule
. InterMune agrees
to pay Array research funding for the conduct of the Research Collaboration
quarterly, in advance, in an amount equal to one quarter (1/4) of
[ * ]
FTEs (or, if lesser, the
number of Array FTEs scheduled in the Research Plan to be provided by Array in
the upcoming quarter), multiplied by the applicable Array FTE Rate (as defined
below in Section 5.1.2). The
initial quarterly payment shall be made on or before the date Array FTEs are
first deployed in accordance with the Research Plan, and subsequent payments
shall be made on or before the first day of each calendar quarter
thereafter. Such payments are
non-creditable and non-refundable, subject to the
10
remainder of this Section 5.1.1. Within thirty (30) days after the end of each
calendar quarter during which InterMune is funding Array FTEs devoted to the
Research Collaboration, Array shall notify InterMune in writing of the number
of FTEs Array actually devoted to the Research Collaboration during such
calendar quarter. If such actual FTEs
are less than the number of FTEs for which InterMune paid, then InterMune may
credit the overpayment against the next payment due Array under this Agreement. If no payment will be due Array within the
next three (3) months after Array was required to notify InterMune of such
actual FTEs, Array shall promptly refund the overpayment to InterMune. In addition, InterMune may audit Array’s FTE
records relating to the Research Collaboration, in the same manner and subject
to the same restrictions as those set forth for Array’s audits pursuant to Section 6.4,
and any discrepancies shall be trued-up as provided in the foregoing two (2) sentences. In no event shall InterMune be required to
fund a greater number of Array FTEs in any calendar quarter than one quarter
(1/4) of
[ * ]
FTEs, or,
if lesser, those provided in the Research Plan for Array to provide in such
quarter.
5.1.2
FTE
Rate
. The “Array FTE Rate” shall be
equal to
[ * ]
per FTE
per year. Effective after the first
anniversary of the Effective Date, the FTE Rate shall increase no more than
once annually by the percentage increase, if any, in the Consumer Price Index
for all Urban Consumers, as published by the U.S. Department of Labor, Bureau
of Statistics, since the Effective Date or the last adjustment hereunder,
whichever is later.
5.1.3
Non-FTE
Costs
. Non-FTE costs and research
requirements associated with performance of the Research Collaboration at Array
shall be borne by Array, except that Array shall not be required to incur any
extraordinary
[ * ]
costs without Array’s prior written consent.
Extraordinary
[ * ]
costs means material costs in excess of
[ * ]
.
5.1.4
PK
Outsourcing
. In the event that the
Parties agree, in the course of the Research Collaboration, to enter into one
or more agreements with a Third Party(ies) for the performance of
[ * ]
with respect to a
particular Hit Compound(s) and/or Lead Compound(s), the Parties shall be
responsible for the payment of the aggregate amounts due such Third Party(ies)
under such agreements as follows: (i) Array
shall be responsible for payment of
[ * ]
due during each of (1) the period commencing on the Effective Date and
ending on the first anniversary thereof, and (2) the following twelve (12)
months (unless the Research Term is earlier terminated); and (ii) InterMune
shall responsible for the payment of all additional amounts that are approved
in advance by InterMune. The Parties
anticipate that they will contract with Third Parties for
[ * ]
in each year of the
Research Term. The Parties will mutually
agree the specific studies to be conducted, and the specific Third Parties that
will conduct the studies. Array shall
not unreasonably withhold its agreement to particular such studies, or withhold
its consent to the Parties contracting for any such studies on the grounds of
the cost of the studies.
5.2
Development
Funding
. In addition to the funding
obligations set forth in Section 5.1, InterMune shall be responsible for
all costs and expenses for otherwise developing and
11
commercializing
the Products, including without limitation, preclinical development, clinical
development, premarketing and commercial activities. For clarity, this means that as between the
Parties, InterMune is responsible for the costs of activities in exercise of
the license granted it in Section 4.2.1.
5.3
Milestones
. InterMune shall pay to Array the following
amounts
[ * ]
following
the first achievement by Array or by InterMune or its Affiliates, Sublicensees
or other designees, as the case may be, of each of the following milestones
with respect any
[ * ]
or Product that itself, or the manufacture, use or sale of which is claimed by
a Valid Claim or that incorporates as its active ingredient a Hit Compound that
was identified as such pursuant to the Research Collaboration (a “Milestone
Product”).
|
Milestones
|
|
Payment Amount
|
|
|
|
|
|
|
|
1.[ * ]
|
|
$
|
[ * ]
|
|
|
|
|
|
|
|
2.[ * ]
|
|
$
|
[ * ]
|
|
|
|
|
|
|
|
3.[ * ]
|
|
$
|
[ * ]
|
|
|
|
|
|
|
|
4.[ * ]
|
|
$
|
[ * ]
|
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5.[ * ]
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$
|
[ * ]
|
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5.3.1
Milestone
payments
[ * ]
set forth
above shall each be payable
[ * ]
upon the achievement of the corresponding milestone event with a Milestone
Product
[ * ]
, and
[ * ]
upon the achievement of the
corresponding milestone event with a Milestone Product
[ * ]
. Milestone payment
[ * ]
set forth above shall be due
[ * ]
, and milestone payments
[ * ]
set forth above shall be
due
[ * ]
, regardless of
the number of additional times the corresponding milestone events are achieved with
one (1) or multiple
[ * ]
or Milestone Products.
5.3.2
In the
event that one or more milestone payments described above becomes due (a “Later
Milestone”) in relation to the achievement of a corresponding milestone event
with a Milestone Product
[ * ]
,
and one or more of the earlier-stage milestone payments has not been paid to
Array in relation to the achievement of a corresponding milestone event with a
Milestone Product
[ * ]
,
then all earlier-stage milestone payments in relation to the achievement of a
corresponding milestone event with a Milestone Product
[ * ]
that have not been paid
shall be paid together with the Later Milestone payment. Similarly, if a Later Milestone becomes due
in relation to the achievement of the corresponding milestone event with a
Milestone Product
[ * ]
,
then all earlier stage milestone payments in relation to the achievement of the
corresponding milestone events with a Milestone Product
[ * ]
shall be paid together with
such Later Milestone. For clarity, nothing in this Section 5.3.2 shall be
deemed to contradict the limits
12
set forth in Section 5.3.1
as to the number of times each milestone payment is available under this
Agreement.
5.3.3
For
purposes of this Section 5.3, a clinical trial shall be deemed initiated
upon the first dosing of the first patient in such trial.
5.4
Royalties
.
5.4.1
Products
. InterMune shall pay Array a running royalty
of
[ * ]
of Net Sales of
each Product during the time periods and in countries in which its manufacture,
use or sale of such Product is claimed by a Valid Claim. Such rate shall not be increased
if multiple Valid Claims claim the manufacture, use or sale of such
Product. Notwithstanding the foregoing,
if and when the only Valid Claim claiming such manufacture, use or sale is a
claim directed to a method of use or manufacture solely invented by
InterMune (an “InterMune Sole Non-composition Claim”), then no such running royalty shall be due. No running royalties shall be due hereunder
on the basis of the use of the Collaboration Know-How.
5.4.2
Royalty
Term
. InterMune’s obligation to pay
royalties to Array under this Section 5.4 shall continue for each Product
that itself or the method of manufacture or use of which is claimed by a Valid
Claim, on a country-by-country basis, until such time as there are no Valid
Claims (other than InterMune Sole Non-composition Claims) which but for the
licenses granted herein would be infringed by the manufacture, use or sale of
such Product in such country. Upon the
expiration of such term of royalties in any country with respect to any
Product, InterMune’s license under Section 4.2 with respect to such
Product in such country shall automatically become fully paid, nonexclusive and
perpetual.
5.4.3
Third
Party Royalties
. In the event that (i) it
becomes necessary or useful for InterMune to obtain a license under a valid,
issued patent of a Third Party, where such patent covers the composition,
methods of therapeutic use, or all practical methods of synthesis of a Product,
and such patent would be infringed, but for the existence of the Third-Party
license, by the discovery, research, development or sale of such Product, and (ii) InterMune
must pay such Third Party for such license a royalty on Net Sales of such
Product in a particular country, then InterMune may deduct
[ * ]
of the royalties reasonably
so paid to such Third Party against royalties due Array on Net Sales of such
Product;
provided
that the
royalties otherwise due to Array in any quarter will not be lower than
[ * ]
(the “Floor”) by operation
of an offset provided for in this Section 5.4.3. Amounts that InterMune is unable to deduct in
a particular calendar quarter due to the Floor may be carried forward and
deducted in future calendar quarters, subject always to the Floor in the future
calendar quarters.
5.4.4
Combination
Products
. If InterMune sells any Product in the form of a combination
product containing one or more active ingredients in addition to the active
ingredient that is a Lead Compound (which may be either combined in a single
formulation or
13
packaged as
separate formulations sold as a single package), Net Sales for such combination
product will be calculated by multiplying actual Net Sales of such combination
product by the fraction A/(A+B) where A is the invoice price of the Lead
Compound portion of the combination product if sold separately, and B is the
total invoice price of the other active ingredient or ingredients in the
combination, if sold separately. If, on
a country-by-country basis, the other active ingredient or ingredients in the
combination are not sold separately in said country, Net Sales for the purpose
of determining royalties due hereunder on the combination product shall be
calculated by multiplying actual Net Sales of such combination product by the
fraction A/C where A is the invoice price of the Lead Compound portion of the
combination product if sold separately, and C is the invoice price of the
combination product. If, on a
country-by-country basis, the Licensed Product is not sold separately in said
country, Net Sales for the purposes of determining royalties of the combination
product shall be determined by the Parties in good faith on the basis of the
fair market values of the different active ingredients of the combination
Product.
5.4.5
Compulsory
License
. If either Party learns that
a Third Party other than an InterMune Affiliate or Sublicensee has obtained a
compulsory license in any country under the Collaboration Patents, or
Identified Patents or Preparatory Patents exclusively licensed to InterMune
hereunder, to sell a Competitive Product (as defined below), then such Party
shall promptly notify the other Party of such occurrence. If the royalty rate payable to Array under
such compulsory license is less than the royalty rate otherwise applicable in
such country hereunder, then, in each calendar year in which the Competitive
Product is being sold in such country, and units of the Competitive Product
equal at least
[ * ]
of
the total combined units of such Competitive Product and the Product in the
particular country, sold in such calendar year, then the royalty rate set forth
in Section 5.4.1 shall be reduced, with respect to Net Sales in such
country, to the lower royalty rates applicable in such country pursuant to such
compulsory license. Any reduction in the
royalty due Array as a result of sales of such Competitive Product shall be
available to InterMune only with respect to Net Sales in those calendar years
and in those countries described by the foregoing sentence. For the purposes of this Section 5.4.5,
a “Competitive Product” shall mean any product the manufacture, use or sale of
which is claimed by any of the foregoing patents, and which competes with any
Product in the relevant country. If such
compulsory license is required to be granted by InterMune, then the amounts
received by InterMune pursuant to such compulsory license shall be deemed to be
Net Sales hereunder (in lieu of the sales pursuant to the compulsory license
being included in Net Sales).
5.4.6
Later
Claims
. If (a) InterMune was
not required to pay royalties on Net Sales of any Product during a time period
when and in a country where a pending claim that would have qualified as a
Valid Claim but for claiming a first priority to more than five (5) years
from the date pendency was determined (that was “Temporarily Disqualified”,
with derivative forms being interpreted accordingly), and that covers such
Product itself or the method of manufacture or use thereof in such country, and
(b) such claim later issues as an issued Valid Claim covering such Product
itself or the method of manufacture or use thereof in such country,
14
then (c) with
the next royalty report due pursuant to Section 6.1 after such issuance
(but no sooner than thirty (30) days after such issuance), InterMune shall
report and pay to Array the royalties that would have been due pursuant to Section 5.4.1
on Net Sales of such Product in such country but for the Temporary
Disqualification of such claim.
ARTICLE 6
PAYMENTS; BOOKS AND RECORDS
6.1
Royalty
Reports and Payments
. After the
first sale of a Product on which royalties are payable by InterMune or its
Affiliates or Sublicensees hereunder, InterMune shall make quarterly written
reports to Array within
[ * ]
after the end of each calendar quarter, stating in each such report, separately
for InterMune and each Affiliate and Sublicensee, the aggregate Net Sales, by
country, of each Product sold during the calendar quarter upon which a royalty
is payable under Section 5.4 above.
InterMune shall pay to Array royalties due at the rates specified in Section 5.4.
6.2
Payment
Method
. All payments due under this
Agreement shall be made from a bank located in the United States by bank wire
transfer in immediately available funds to a bank account designated by
Array. All payments hereunder shall be
made in U.S. dollars. In the event that
the due date of any payment subject to Article 5 hereof is a Saturday,
Sunday or national holiday, such payment may be paid on the following business
day. Any payments that are not paid on
the date such payments are due under this Agreement shall bear interest to the
extent permitted by applicable law at the prime rate as reported by the Chase
Manhattan Bank, New York, New York, on the date such payment is due, plus an
additional
[ * ]
,
calculated on the number of days such payment is delinquent.
6.3
Place
of Royalty Payment; Currency Conversion
.
If any currency conversion shall be required in connection with the
calculation of royalties hereunder, such conversion shall be made using the
selling exchange rate for conversion of the foreign currency into U.S. Dollars,
quoted for current transactions reported in
The Wall Street Journal
(U.S., Western Edition), averaged over all business days of the calendar
quarter to which such payment pertains.
6.4
Records;
Inspection
. InterMune and its
Affiliates and Sublicensees shall keep complete, true and accurate books of
account and records for the purpose of determining the royalty amounts payable
under this Agreement. Such books and
records shall be kept by such party for at least
[ * ]
following the end of the calendar quarter to
which they pertain. Such records will be
open for inspection during such
[ * ]
period by a public accounting firm to whom InterMune has no reasonable
objection, solely for the purpose of verifying royalty statements
hereunder. Such public accounting firm
shall be under written obligations of confidentiality and non-use no less
stringent than those set forth in Article 9. Such inspections may be made no more than
once each calendar year, at reasonable times and on reasonable notice. Inspections conducted under this Section 6.4
shall be at the expense of Array, unless a variation or error
15
producing an
increase exceeding
[ * ]
of the amount stated for the period covered by the inspection is established in
the course of any such inspection, whereupon all reasonable costs relating to
the inspection for such period and any unpaid amounts that are discovered will
be paid promptly by InterMune to Array together with interest thereon from the
date such payments were due at the lesser of the prime rate as reported by the
Chase Manhattan Bank, New York, New York, plus an additional
[ * ]
or the maximum rate
permitted by law.
6.5
Taxes
. Each Party shall bear and, except as
otherwise expressly provided in this Section 6.5, pay any and all taxes,
duties, levies, and other similar charges (and any related interest and
penalties), however designated, imposed on that party as a result of the
existence or operation of this Agreement.
If laws or regulations require that taxes be withheld, the paying Party
will (i) deduct those taxes from the remittable payment, (ii) timely
pay the taxes to the proper taxing authority, and (iii) send proof of
payment to the other Party within sixty (60) days following that payment.
ARTICLE 7
DUE DILIGENCE
7.1
Due
Diligence
. InterMune shall use
commercially reasonable efforts to develop and commercialize at least one (1) Product,
and to obtain the optimum commercial return for it in the major markets of the
world for it, consistent with high professional standards for the research,
development, commercialization, and marketing of pharmaceutical products of
similar commercial value potential and patent coverage;
provided, however
, that, and only if, at
least one (1) Lead Compound is identified pursuant to the Research
Collaboration. Such diligence obligation
shall be the sole diligence obligation of InterMune with respect to such
development and commercialization, express or implied, under this Agreement or
available in relation hereto at law or in equity. For the avoidance of doubt, the overriding
goal of the Research Collaboration is to identify Lead Compounds, one of the
criteria for which compounds is that the composition of matter of each (as
distinct from their methods of use and manufacture) be patentable. If no such Lead Compound is identified in the
Research Collaboration, then the Research Collaboration shall not have been
successful in the way that the Parties had anticipated when the Parties entered
into this Agreement and InterMune agreed to fund the Research Collaboration to
the extent provided for hereunder. It is
therefore the Parties’ intent that in such event, in recognition of InterMune’s
sponsorship of the Research Collaboration to the extent provided for hereunder: (a) InterMune shall be entitled to
retain its license pursuant to Section 4.2, and (b) InterMune shall
have no diligence obligation with respect to the subject matter of such
license.
7.2
Reports
. Until first commercial introduction of each
royalty-bearing Product by or on behalf of InterMune hereunder, InterMune shall
keep Array apprised of the status of the pre-clinical, clinical and commercial
development of such Product by annually providing Array with a written report
summarizing such activities with respect to the applicable Product (and the
16
Lead Compound from
which such Product is being developed) during the Agreement Term. The reports
described in this Section 7.2 shall contain sufficient information to
allow Array to monitor InterMune’s compliance with this Agreement, including
without limitation, InterMune’s obligations with respect to the payment of the
milestones set forth in Section 5.3. All reports and information provided
under this Section 7.2 shall be deemed Confidential Information of
InterMune. InterMune’s obligations
pursuant to this Section 7.2 are subject to Section 13.4 regarding
successors in interest to and Affiliates of Array.
ARTICLE 8
INTELLECTUAL PROPERTY
8.1
Disclosure
and Ownership of Inventions
.
8.1.1
Each Party
shall promptly disclose to the other any patentable inventions conceived or
first reduced to practice pursuant to the Research Collaboration by or on
behalf of such Party promptly after such conception or reduction to
practice. In addition, each Party shall
disclose to the other any Collaboration Know-How promptly after it is made or
developed.
8.1.2
Inventorship
of inventions that would be claimed by a Collaboration Patent shall be
determined in accordance with U.S. laws of inventorship. Solely invented such inventions, together
with the Collaboration Patents claiming such sole inventions, shall be solely
owned by the Party whose personnel made the invention. The Parties joint inventions that would be
claimed by Collaboration Patents, together with the Collaboration Patents
claiming them, shall be jointly owned by the Parties. Such joint ownership shall be in accordance
with the default rights enjoyed by co-inventors under U.S. patent law in the
absence of a written agreement to the contrary (throughout the world to the
maximum extent permitted by law), such that, without limitation and except as
restricted by the licenses granted in Sections 4.1 and 4.2, financial
commitments set forth in Article 5 and prosecution and enforcement
provisions set forth in this Article 8, each Party may practice the
subject matter of the jointly owned Collaboration Patents without a duty of
accounting to the Party.
8.1.3
Ownership
of Collaboration Know-How shall be determined in accordance with the laws of
the state of New York.
8.2
Patent
Prosecution
.
8.2.1
Collaboration
Technology
. InterMune shall have the
right,
[ * ]
, to (i) prepare,
file, prosecute and maintain Collaboration Patents directed to Hit Compounds,
Lead Compounds and/or Products; pharmaceutical compositions containing a Hit
Compound, Lead Compound, and/or a Product; and methods of making or using any
of the foregoing; and (ii) conduct any interferences, re-examinations,
reissues and oppositions relating thereto.
InterMune shall keep Array fully informed as to the status of such
patent matters, including without
17
limitation, by
providing Array the opportunity, as far in advance of filing dates as possible,
to fully review and comment on any documents which will be filed in any patent
office; reasonably considering Array’s comments thereon; and providing Array
copies of any substantive documents relating to the Collaboration Patents that
InterMune receives from patent offices promptly after receipt, including notice
of all interferences, reissues, re-examinations, oppositions or requests for
patent term extensions. InterMune may
elect, upon thirty (30) days prior
notice, to discontinue prosecution of any such patent applications
and/or not to file or conduct any further activities with respect to such
patent applications or patents. In the
event InterMune declines to file or, having filed, fails to further prosecute
or maintain any such patent applications or patents, or conduct any proceedings
including, but not limited to, interferences, re-examinations, reissues,
oppositions relating thereto, then Array shall have the right to prepare, file,
prosecute and maintain such patent applications and patents in such countries
as it deems appropriate, and conduct such proceedings, at its sole
expense. In such case, InterMune shall
promptly execute all necessary documents that may be required in order to
enable Array to file, prosecute and maintain such patent applications and to
conduct any such proceedings.
8.2.2
Preparatory
Patents
. Section 8.2.1 shall
apply
mutatis mutandis
to the
preparation, filing, prosecution and maintenance of solely those Preparatory
Patents that are directed primarily to Hit Compound(s) and/or Product(s)
themselves, or the method of manufacture or use of any of them (“Primary
Preparatory Patents”), as it does to that of Collaboration Patents, except to
the extent that Array cannot grant InterMune preparation, filing, prosecution
and/or maintenance rights due to rights granted to a Third Party by Array with
regard to any Primary Preparatory Patent prior to the Effective Date. Array will keep InterMune reasonably informed
of the preparation filing, prosecution and maintenance of the other Preparatory
Patents to the extent relevant to any Hit Compound, Lead Compound or
Product. It is understood and agreed
that InterMune’s rights under this Section 8.2.2 shall accrue with respect
to a particular patent or patent application at the time Array identifies such
patent or patent application as being a Preparatory Patent;
provided
that Array will make reasonable
efforts to timely identify the Preparatory Patents.
8.2.3
Other
Technology
. This Agreement does not
alter the Parties’ responsibilities with respect to patent applications and
patents that are not Collaboration Patents or Preparatory Patents. Accordingly, each Party shall be responsible,
at its own expense and in its sole discretion, for preparing, filing,
prosecuting and maintaining, in such countries as it deems appropriate, any and
all patent applications and patents (other than Collaboration Patents and
Preparatory Patents) directed to inventions owned or controlled by such Party
and conducting any interferences, re-examinations, reissues and oppositions
relating to such patent applications and patents.
8.2.4
Cooperation
. InterMune and Array shall each reasonably
cooperate with and assist the other at its own expense in connection with the
activities described in
18
Section 8.2.1,
at the other Party’s reasonable request, including without limitation by making
scientists and scientific records reasonably available to the prosecuting
Party.
8.2.5
Certain
Circumstances
. This Section 8.2
is subject to the provisions of Section 13.4 regarding successors in
interest to and Affiliates of Array.
8.3
Enforcement
and Defense
.
8.3.1
Notice
. Each Party shall promptly notify the other of
any knowledge it acquires of any potential infringement of the Collaboration
Patents and Preparatory Patents by a Third Party.
8.3.2
InterMune
. In the event that a Party believes a Third
Party is infringing any Collaboration Patent, InterMune shall have the first
right, but not the obligation, to take reasonable legal action to enforce such
Collaboration Patent and defend any declaratory judgment action relating to
such infringement, at its sole cost and expense. If, within six (6) months following
receipt of notice from Array of such infringement, InterMune fails to take such
action to halt a commercially significant infringement of a patent filed
pursuant to Section 8.2.1, Array shall, in its sole discretion, have the
right, at its sole expense, to take such action;
provided
that if such Collaboration Patent is solely owned
by InterMune, Array’s action shall be limited to the prevention of infringing
activities with products that are competitive with Products then being
commercialized by InterMune (the “Back-Up Right”). Prior to the Back-Up Right becoming effective
for a given Collaboration Patent, Array shall not notify any Third Party of
their alleged infringement of that Collaboration Patent without InterMune’s
advance written consent. The foregoing
in this Section 8.3.2 shall apply
mutatis
mutandis
to the enforcement of Primary Preparatory Patents (as
defined in Section 8.2.2), except to the extent that Array cannot grant
InterMune preparation, filing, prosecution and/or maintenance rights due to
rights granted to a Third Party by Array with regard to any Primary Preparatory
Patent prior to the Effective Date. In
addition, the foregoing regarding the Back-Up Right shall apply
mutatis mutandis
to permit InterMune to
enforce Preparatory Patents that are not Primary Preparatory Patents in the
same manner and subject to the same limitations as Array’s Back-Up Right with
respect to Collaboration Patents, including without limitation the requirement
not to notify infringers until the Back-Up Right becomes effective.
8.3.3
Cooperation;
Costs and Recoveries
. Each Party
agrees to render such reasonable assistance as the enforcing Party may request,
at the enforcing Party’s expense.
Amounts recovered from enforcing a Collaboration Patent or Preparatory
Patent, whether as payment in settlement or otherwise, shall first be used to
reimburse the Parties for their expenses in enforcing the patent (including
attorneys’ and experts’ fees), with the remainder, if any, to be divided as
follows:
19
(a)
if
InterMune prosecuted the action, then (i) Array shall be paid an amount
equal to (x) the proportion that the royalties that would have been due upon
sales of the infringing product if the infringing sales had been Net Sales of a
Product sold by InterMune bear to the total recovery multiplied by (y) such
remaining recovery, and (ii) the remaining portion of such remaining
recovery shall be paid to InterMune; and
(b)
if
Array prosecuted the action, then Array shall be paid twice the amount it would
have received under (a) had InterMune prosecuted the action, and InterMune
shall be paid the remaining portion of such remaining recovery.
Notwithstanding the
foregoing, if the patent that was enforced was a Preparatory Patent other than
a Primary Preparatory Patent (as defined in Section 8.2.2), the action was
prosecuted by Array, and the enforcement action extended to infringing
activities competitive with Array’s or Array’s other licensees’ products, then
the recovery shall be split between (i) an amount to be shared between
Array and its other licensees as they may agree amongst themselves, and (ii) an
amount to be shared between Array and InterMune in accordance with
8.3.3(b). The division between (i) and
(ii) shall be made based on the extent to which the infringement was
competitive with Array’s and its other licensees’ products, relative to the
extent to which it was competitive with Products.
ARTICLE 9
CONFIDENTIALITY
9.1
Confidential
Information
. Except as otherwise
expressly provided herein, the Parties agree that, for
[ * ]
, the receiving Party shall
not, except as expressly provided in this Article 9, disclose to any Third
Party or use for any purpose any Confidential Information furnished to it by
the disclosing Party hereto pursuant to this Agreement, or any results of the Research
Collaboration (“Results”). For purposes
of this Article 9, “Confidential Information” shall mean any information,
which if disclosed in tangible form is marked “confidential” or with other
similar designation to indicate its confidential or proprietary nature, or, if
disclosed orally, is indicated orally to be confidential or proprietary at the
time of such disclosure and is confirmed in writing as confidential or
proprietary within forty-five (45) days after such disclosure. The Results to the extent relating to Hit
Compounds and/or Lead Compounds shall be deemed to be the Confidential
Information of InterMune.
Notwithstanding the foregoing, Confidential Information shall not
include any information that can be established by the receiving Party by
competent proof that such information:
(a)
was
already known to the receiving Party at the time of disclosure;
(b)
was
generally available to the public or otherwise part of the public domain at the
time of its disclosure to the receiving Party;
20
(c)
became
generally available to the public or otherwise part of the public domain after
its disclosure and other than through any act or omission of the receiving
Party in breach of this Agreement;
(d)
was
independently developed by the receiving Party as demonstrated by documented
written evidence prepared contemporaneously with such independent development;
or
(e)
was
disclosed to the receiving Party, other than under an obligation of
confidentiality, by a Third Party who had no obligation to the disclosing Party
not to disclose such information to others.
9.2
Permitted
Use and Disclosures
. Each Party
hereto may use or disclose Confidential Information disclosed to it by the
other Party or Results to the extent such use or disclosure is reasonably
necessary and permitted in the exercise of the rights granted hereunder in
filing or prosecuting patent applications, prosecuting or defending litigation,
complying with applicable governmental laws, regulations or court order or
otherwise submitting information to tax or other governmental authorities,
conducting clinical trials, or making a permitted sublicense or otherwise
exercising license rights expressly granted by the other Party to it pursuant
to the terms of this Agreement;
provided
that
if a Party is required to make any such disclosure, other than pursuant to a
confidentiality agreement, it will give reasonable advance notice to the other
Party of such disclosure and, save to the extent inappropriate in the case of
patent applications, will use its reasonable efforts to secure confidential
treatment of such information in consultation with the other Party prior to its
disclosure (whether through protective orders or otherwise) and disclose only
the minimum necessary to comply with such requirements.
9.3
Termination
of Prior Agreement
. This Agreement
supersedes the Confidentiality Agreement between the Parties dated June 6,
2002. All information exchanged between
the Parties under that the Confidentiality Agreement shall be deemed
Confidential Information hereunder and shall be subject to the terms of this Article 9.
9.4
Nondisclosure
of Terms
. Each of the Parties hereto
agrees that it and its Affiliates shall not to disclose the material terms of
this Agreement to any Third Party without the prior written consent of the
other Party hereto, which consent shall not be unreasonably withheld, except to
such Party’s attorneys, advisors, investors and others on a need to know basis
under circumstances that reasonably ensure the confidentiality thereof, or to
the extent required by law.
Notwithstanding the foregoing, the Parties shall agree upon a press
release and timing to announce the execution of this Agreement, together with a
corresponding Q&A outline for use in responding to inquiries about the
Agreement. Thereafter, Array and
InterMune may each disclose to Third Parties the information contained in such
press release and Q&A without the need for further approval by the
other. In addition, InterMune and Array
may make public statements regarding the progress of the Research Collaboration
and the achievement of
21
milestones and
fees with respect thereto, following consultation and mutual agreement, the
consent of neither Party to be unreasonably withheld, subject to Section 9.5
as regards the results of the Research Collaboration.
Advance review and
consultation shall not be required to repeat information contained in a press
release that had itself been the subject of such procedures. Either Party may disclose the terms of this
Agreement to potential investors (other than investors through the public
markets) who are bound in writing by obligations of non-disclosure and non-use
of the terms of this Agreement at least as stringent as those contained in this
Article 9. The Parties acknowledge
that either or both of the Parties may be obligated to file a copy of this
Agreement with the U.S. Securities and Exchange Commission (the “SEC”), and
each Party shall be entitled to make such a required filing,
provided
that it requests confidential
treatment of the more sensitive terms hereof to the extent such confidential
treatment is reasonably available to the filing Party under the circumstances
then prevailing. In the event of any
such filing, the filing Party will provide the non-filing Party with an advance
copy of the Agreement marked to show provisions for which the filing Party
intends to seek confidential treatment and shall obtain such other Party’s written
consent to the set of provisions for which the filing Party will initially seek
confidential treatment, such consent not to be unreasonably withheld.
9.5
Publication
. Reasonably in advance of any oral or written
presentation, or written submission for publication of any manuscript, that
would disclose any patentable invention conceived or reduced to practice by
Array (solely or jointly with InterMune) pursuant to the Research Collaboration
for which invention a patent application has not been filed in any of the
United States, Japan, with the European Patent Office or pursuant to the Patent
Cooperation Treaty, the Party wishing to make such a publication shall notify
the other Party and the Parties will discuss filing patent applications
claiming such intention. In addition,
during the Agreement Term, Array shall not make any oral or written
presentation, or written submission for publication, of any data or information
produced pursuant to the Research Collaboration or otherwise relating to Collaboration
Products developed or commercialized by InterMune, its Affiliates or
Sublicensees without InterMune’s advance written consent, which InterMune shall
be entitled to withhold in InterMune’s sole discretion. Any publication of the results of the Research
Collaboration shall include an acknowledgment of the contributions of each
Party, to the extent consistent with customary scientific norms.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1
InterMune
. InterMune represents, warrants and covenants
(as applicable) on its own behalf and on behalf of its Affiliates that: (i) it has the legal power, authority
and right to enter into this Agreement and to perform all of its obligations
hereunder; (ii) this Agreement is a legal and valid obligation binding upon
it and enforceable in accordance with its terms; (iii) it has the full
right to enter into this Agreement, and to fully perform its obligations
hereunder; and (iv) it has not previously granted, and during the term of
this Agreement will not knowingly
22
make any
commitment or grant any rights which are in conflict in any way with the rights
and licenses granted herein.
10.2
Array
. Array represents, warrants and covenants (as
applicable) on its own behalf and on behalf of its Affiliates that: (i) it
has the legal right and power to extend the rights granted in this Agreement; (ii) this
Agreement is a legal and valid obligation binding upon it and enforceable in
accordance with its terms; (iii) it has the full right to enter into this
Agreement, and to fully perform its obligations hereunder; (iv) it has not
previously granted, and during the term of this Agreement will not knowingly
make any commitment or grant any rights which are in conflict in any way with
the rights and licenses granted herein and (v) other than as included in
the Preparatory Patents and Preparatory Know-How, as of the Effective Date,
Array and its Affiliates do not own or control any patent applications, patents
or inventions claiming or constituting any Target, Reserved Target, or a method
of manufacture or use of any of the foregoing, or specifically claiming a
chemical entity identified by screening against a Target or Reserved Target,
where identification by such screening is a limitation of the patent
claim. Array makes no representation or
warranty with respect to patents or other intellectual property rights of Third
Parties covering any Target or Reserved Target.
10.3
Disclaimer
. InterMune and Array specifically disclaim any
guarantee that the Research Collaboration will be successful, in whole or in
part. The failure of the Parties to
successfully develop Hit Compounds, Lead Compounds and/or Products will not
constitute a breach of any representation or warranty or other obligation under
this Agreement. EXCEPT AS OTHERWISE
EXPRESSLY SET FORTH IN THIS AGREEMENT, ARRAY AND INTERMUNE MAKE NO
REPRESENTATIONS AND EXTEND NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER
EXPRESS OR IMPLIED, WITH RESPECT TO THE COLLABORATION TECHNOLOGY, HIT
COMPOUNDS, LEAD COMPOUNDS, INFORMATION DISCLOSED HEREUNDER OR PRODUCTS
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, VALIDITY OF ANY COLLABORATION TECHNOLOGY, PATENTED OR
UNPATENTED, OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.
ARTICLE 11
INDEMNIFICATION
11.1
InterMune
. InterMune agrees to indemnify, defend and
hold Array and its Affiliates and their respective directors, officers,
employees, agents and their respective successors, heirs and assigns (the “Array
Indemnitees”) harmless from and against any losses, costs, damages, liabilities
or expense (including reasonable attorneys’ and professional fees and other
expenses of litigation) (collectively, “Liabilities”) arising, directly or
indirectly out of or in connection with Third-Party claims, suits, actions,
demands or judgments, relating to (i) the development manufacture, use,
sale or other distribution by or on behalf of InterMune, its
23
Affiliates or
Sublicensees or other designees of any Hit Compounds, Lead Compounds and
Products (including, without limitation, product liability and patent
infringement claims), (ii) InterMune’s conduct of the Research
Collaboration; and/or (iii) any breach by InterMune of the
representations, warranties and covenants made in Article 10 of this
Agreement, except, in each case, to the extent such Liabilities result from the
gross negligence or intentional misconduct of Array or are subject to
indemnification by Array under Section 11.2.
11.2
Array
. Array agrees to indemnify, defend and hold
InterMune and its Affiliates and their respective directors, officers,
employees, agents and their respective heirs and assigns (the “InterMune Indemnitees”)
harmless from and against any Liabilities arising, directly or indirectly out
of or in connection with Third Party claims, suits, actions, demands or
judgments, relating to (i) Array’s conduct of the Research Collaboration,
and/or (ii) any breach by Array of its representations, warranties and
covenants made in Article 10 of this Agreement, except, in each case, to
the extent such Liabilities result from the negligence or intentional
misconduct of InterMune or are subject to indemnification by InterMune under Section 11.1.
11.3
Indemnification
Procedure
. A Party that intends to
claim indemnification (the “Indemnitee”) under this Article 11 shall
promptly notify the other Party (the “Indemnitor”) in writing of any claim,
complaint, suit, proceeding or cause of action with respect to which the
Indemnitee intends to claim such indemnification (for purposes of this Section 11.3,
each a “Claim”), and the Indemnitor shall have sole control of the defense
and/or settlement thereof; provided that the Indemnitee shall have the right to
participate, at its own expense, with counsel of its own choosing in the
defense and/or settlement of such Claim.
The indemnification obligations of the Parties under this Article 11
shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the consent of the Indemnitor, which consent shall not be
withheld or delayed unreasonably. The
failure to deliver written notice to the Indemnitor within a reasonable time
after the commencement of any such Claim, if prejudicial to its ability to
defend such action, shall relieve such Indemnitor of any liability to the
Indemnitee under this Article 11, but the omission so to deliver written
notice to the Indemnitor shall not relieve the Indemnitor of any liability to
any Indemnitee otherwise than under this Article 11. The Indemnitee under this Article 11,
and its employees, at the Indemnitor’s request and expense, shall provide full
information and reasonable assistance to Indemnitor and its legal
representatives with respect to such Claims covered by this
indemnification. It is understood that
only InterMune may claim indemnity under this Article 11 (on its own
behalf or on behalf of a InterMune Indemnitee), and other InterMune Indemnitees
may not directly claim indemnity hereunder.
Likewise, it is understood that only Array may claim indemnity under
this Article 11 (on its own behalf or on behalf of an Array Indemnitee),
and other Array Indemnitees may not directly claim indemnity hereunder. If the Parties cannot agree as to the
application of Sections 11.1 and 11.2 to any particular Claim, then each Party
may conduct its own defense against same, and each reserves the right to claim
indemnity hereunder from the other Party upon resolution of the underlying
Claim.
24
ARTICLE 12
TERM AND TERMINATION
12.1
Term
. The term of this Agreement shall commence on
the Effective Date, and shall continue in full force and effect on a
country-by-country and Product-by-Product basis until InterMune and its
Sublicensees have no remaining royalty payment obligations in a country, unless
terminated earlier as provided in Section 4.4 or this Article 12. In accordance with Section 5.4.2, upon
expiration of this Agreement with respect to a particular Product in a
particular country, InterMune shall have a fully paid, non-exclusive and
perpetual license under the Collaboration Technology in such country for such
Product.
12.2
Termination
for Breach
. Either Party to this
Agreement may terminate the Research Collaboration and this Agreement in the
event the other Party hereto shall have materially breached this Agreement, and
such breach shall have continued for sixty (60) days after written notice
thereof was provided to the breaching Party by the non-breaching Party. Any termination shall become effective at the
end of such sixty (60) day period unless the breaching Party (or any other
Party on its behalf) has cured any such breach or default prior to the
expiration of the sixty (60) day period (or, in the case of a breach incapable
of cure within such period, provided a written plan to cure such breach as soon
as reasonably practicable, together with an undertaking to carry out such
plan);
provided, however
, in the
case of a failure to pay any amount due hereunder, such default may be the
basis of termination thirty (30) days following the date that notice of such
default was provided to the breaching Party;
provided
that the unpaid amount is not in dispute.
If one Party alleges material breach and the other Party disputes
whether such a breach has occurred, then this Agreement shall not terminate
pursuant to this Section 12.2 until and unless such dispute is resolved
and a material breach is determined to have occurred.
12.3
Termination
for Insolvency
. If voluntary or
involuntary proceedings by or against a Party are instituted in bankruptcy
under any insolvency law, or a receiver or custodian is appointed for such
Party, or proceedings are instituted by or against such Party for corporate
reorganization, dissolution, liquidation or winding-up of such Party, which
proceedings, if involuntary, shall not have been dismissed within sixty (60)
days after the date of filing, or if such Party makes an assignment for the benefit
of creditors, or substantially all of the assets of such Party are seized or
attached and not released within sixty (60) days thereafter, the other Party
may immediately terminate the Research Collaboration and/or this Agreement,
effective upon notice of such termination.
12.4
Permissive
Termination
. After the first
anniversary of the Effective Date, InterMune shall have the right to terminate
this Agreement upon
[ * ]
written notice to Array.
25
12.5
Effect
of Breach or Termination
.
12.5.1
Accrued
Rights and Obligations
. Termination
of this Agreement for any reason shall not release either Party hereto from any
liability which, at the time of such termination, has already accrued to the
other Party or which is attributable to a period prior to such termination nor
preclude either Party from pursuing any rights and remedies it may have
hereunder or at law or in equity with respect to any breach of this Agreement.
12.5.2
Return of
Materials
. Upon any termination of
this Agreement, InterMune and Array shall promptly return to the other all
Confidential Information (including, without limitation, all Know-How that is
Confidential Information) received from the other Party, except one copy of
which may be retained for archival purposes.
12.5.3
Survival
Sections
.
[ * ]
of this Agreement shall survive the expiration
or termination of this Agreement for any reason. In the event of termination by InterMune
under Section 12.2 or 12.3,
[ * ]
shall survive such termination in addition to the above-referenced
[ * ]
; InterMune shall have
[ * ]
to enforce the
Collaboration Patents and Primary Preparatory Patents (as defined in 8.2.2)
licensed to InterMune hereunder against infringing products that would be competitive
with Products; and
[ * ]
shall survive until
[ * ]
.
ARTICLE 13
MISCELLANEOUS
13.1
Governing
Laws
. This Agreement and any dispute
arising from the construction, performance or breach hereof shall be governed
by and construed, and enforced in accordance with, the laws of the state of New
York,
without reference to
conflicts of laws principles. Any such
dispute, if not resolved informally between the Parties, shall be resolved by
submission to a court of competent subject matter jurisdiction located within
the federal district division in which the Party that is the defendant in the
suit as initially filed is located (for InterMune, the San Francisco division
of the Northern District of the State of California, and for Array, the Boulder
division of the District for the State of Colorado) Each Party hereby consents
to the jurisdiction and venue of all courts located within the appropriate
district in accordance with the foregoing sentence and waives all defenses such
Party may have to the jurisdiction and venue of such courts, including without
limitation the defense of
forum non
conveniens
or that such a court may not assert personal jurisdiction
over such Party.
13.2
Waiver
. It is agreed that no waiver by either Party
hereto of any breach or default of any of the covenants or agreements herein
set forth shall be deemed a waiver as to any subsequent and/or similar breach
or default.
13.3
Assignment
. This Agreement shall not be assignable by
either Party to any Third Party hereto without the written consent of the other
Party hereto. Notwithstanding the
26
foregoing, either
Party may assign this Agreement, without such consent, to an entity that
acquires all or substantially all of the business or assets of such Party to
which this Agreement pertains, whether by merger, reorganization, acquisition,
sale, or otherwise;
provided, however,
that
within thirty (30) days of such an assignment, the assignee shall agree in
writing to be bound by the terms and conditions of this Agreement. This Agreement shall be binding upon and
accrue to the benefit any permitted assignee, and any such assignee shall agree
to perform the obligations of the assignor.
13.4
Certain
Companies
. If any entity having any
research or development program relating to
[ * ]
(“Competing Program”) succeeds in interest hereunder to Array (the “Competitor”),
then (a) InterMune shall thereafter not be required to make the reports
that would otherwise be required pursuant to Section 7.2; (b) the
entity that was Array immediately prior to such succession in interest (“Original
Array”) shall not disclose any patent-related information (including without
limitation draft filings) received from InterMune pursuant to Section 8.2
to the Competitor, including without limitation by involvement of Original
Array personnel with any Competing Program; (c) the rights to review and
provide comments regarding patent prosecution, to have such comments considered
by InterMune, and the back-up prosecution rights provided for in Section 8.2.1
may be exercised only by personnel of Original Array not involved in any way
with any Competing Program, and shall not otherwise inure to the Competitor; (d) Original
Array shall maintain sufficient capacity and resources to fulfill its
obligations under the Research Collaboration for the remainder of the Research
Term, if any; (e) Original Array shall not disclose non-public
Collaboration Technology to the Competitor for use in research, development or
commercialization activities directed to a Target or chemical entities active
against such Target (or during the Research Term, directed to a Reserved Target
or chemical entities active against such Reserved Target), including without
limitation by allowing personnel having had access to any Collaboration
Technology to have any involvement in any Competing Program; and (f) Preparatory
Patents and Preparatory Know-How shall not include any intellectual property or
subject matter that, prior to the succession in interest, was held or
controlled by the Assignee. The
foregoing in this Section 13.4, except for clause (a), shall apply
mutatis mutandis
to any situation in which
a Competitor becomes an Affiliate of Array, as it does to a Competitor’s
succession in interest hereunder to Array.
This Section 13.4 shall not be deemed to limit Article 9.
13.5
Independent
Contractors
. The relationship of the
Parties hereto is that of independent contractors. The Parties hereto are not deemed to be
agents, partners or joint venturers of the others for any purpose as a result
of this Agreement or the transactions contemplated thereby.
13.6
Compliance
with Laws
. In exercising their
rights under this license, the Parties shall fully comply in all material
respects with the requirements of any and all applicable laws, regulations, rules and
orders of any governmental body having jurisdiction over the exercise of
27
rights under this
license including, without limitation, those applicable to the discovery,
development, manufacture, distribution, import and export and sale of Products
pursuant to this Agreement.
13.7
Patent
Marking
. InterMune agrees to mark
and have its Affiliates and Sublicensees mark all Products sold pursuant to
this Agreement in accordance with the applicable statute or regulations
relating to patent marking in the country or countries of manufacture and sale
thereof, to the extent commercially reasonable for it to do so.
13.8
Notices
. All notices, requests and other communications
hereunder shall be in writing and shall be personally delivered or by
registered or certified mail, return receipt requested, postage prepaid, in
each case to the respective address specified below, or such other address as
may be specified in writing to the other Parties hereto and shall be deemed to
have been given upon receipt:
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If to InterMune:
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InterMune, Inc.
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3280 Bayshore
Boulevard
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Brisbane,
California 94005
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Attention:
General Counsel
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Facsimile:
(408) 508-0006
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If to Array:
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Array BioPharma
Corporation
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3200 Walnut
Street
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Boulder, CO
80301
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Attention: Chief
Operating Officer
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Facsimile: (303)
381-6697
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With a copy to:
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Array BioPharma
Corporation
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3200 Walnut
Street
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Boulder, CO
80301
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Attention:
General Counsel
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Facsimile: (303)
381-6639
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13.9
Severability
. Each Party hereby agrees that it does not
intend to violate any public policy, statutory or common laws, rules,
regulations, treaty or decision of any government agency or executive body
thereof of any country or community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the Parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that
it can be reasonably assumed that the Parties would have entered into this
Agreement with such valid provisions. In
case such valid provisions cannot be agreed upon, the invalidity of one or
several provisions of its Agreement shall not affect the validity of this
Agreement as a whole, unless the invalid
28
provisions are of
such essential importance to this Agreement that it is to be reasonably assumed
that the Parties would not have entered into this Agreement without the invalid
provisions.
13.10
Advice of
Counsel
. Array and InterMune have
each consulted counsel of their choice regarding this Agreement, and each
acknowledges and agrees that this Agreement shall not be deemed to have been
drafted by one Party or another and will be construed accordingly.
13.11
Performance
Warranty
. Each Party hereby warrants
and guarantees the performance of any and all rights and obligations of this
Agreement by its Affiliates and Sublicensees.
13.12
Force
Majeure
. Neither Party shall lose
any rights hereunder or be liable to the other Party for damages or losses
(except for payment obligations) on account of failure of performance by the
defaulting Party if the failure is occasioned by war, strike, fire, Act of God,
act of terrorism, earthquake, flood, lockout, embargo, governmental acts or
orders or restrictions, failure of suppliers, or any other reason where failure
to perform is beyond the reasonable control and not caused by the negligence,
intentional conduct or misconduct of the non-performing Party and such Party
has exerted all reasonable efforts to avoid or remedy such force majeure;
provided, however, that in no event shall a Party be required to settle any
labor dispute or disturbance.
13.13
Complete
Agreement
. This Agreement with its
Exhibits, constitutes the entire agreement, both written and oral, between the
Parties with respect to the subject matter hereof, and all prior agreements
respecting the subject matter hereof, either written or oral, express or
implied, shall be abrogated, canceled, and are null and void and of no
effect. No amendment or change hereof or
addition hereto shall be effective or binding on either of the Parties hereto
unless reduced to writing and executed by the respective duly authorized
representatives of Array and InterMune.
13.14
Consultation
. If an unresolved dispute arises out of or
relates to this Agreement, or the breach thereof, either Party may refer such
dispute to the Chief Executive Officer of InterMune and the Chief Executive
Officer of Array, who shall meet in person or by telephone within forty-five
(45) days after such referral to attempt in good faith to resolve such dispute.
13.15
Headings
. The captions to the several Sections hereof
are not a part of this Agreement, but are included merely for convenience of
reference and shall not affect its meaning or interpretation.
13.16
Counterparts
. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same agreement.
29
IN WITNESS WHEREOF, the
Parties hereto have caused this Agreement to be duly executed by their
authorized representatives and delivered in duplicate originals as of the
Effective Date.
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INTERMUNE, INC.
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ARRAY BIOPHARMA,
INC.
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By:
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By:
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Name:
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Name:
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Title:
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Title:
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30
EXHIBIT A
TARGETS
Reserved
Targets
1.
[ * ]
2.
[ * ]
3.
[ * ]
4.
[ * ]
Target
1.
[ * ]
31
[ * ] = 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.
CONFIDENTIAL
VIA FAX AND FEDERAL EXPRESS
May 8, 2003
Patrice Lee
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301
RE:
Amendment No. 1 to the Drug Discovery Collaboration Agreement
Dear Ms. Lee:
As you know, InterMune, Inc. (“InterMune”) and Array BioPharma, Inc.
(“Array”) are parties to that certain Drug Discovery Collaboration Agreement
dated September 13, 2002 (the “Agreement”). Because InterMune now wishes to transfer to
Array, and Array wishes to accept, the materials described on Exhibit A hereto
(the “Materials”), the parties hereby agree to add a new Section 9.6 to
the Agreement as follows:
“9.6
Transfer of Materials.
(a) Array shall use the
Materials solely to perform its obligations under the Agreement. Array will not sell, transfer, disclose or
otherwise provide access to the Materials, or any method or process relating
thereto or any material that could not have been made but for access to the
foregoing, to any person or entity without the prior express written consent of
InterMune. Ownership of the Materials
will remain solely and exclusively with InterMune, and Array will not acquire
any right, title or interest in or to the Materials.
(b) Array acknowledges
that the Materials may have biological and/or chemical properties that are
unpredictable and unknown at the time of transfer, that they are to be used
with caution and prudence and that they are not to be used for testing in or
treatment of humans.
(c) Array will, at
InterMune’s written directions, return or dispose of any unused portions of the
Material. Any such disposal will conform
to prescribed federal, state and local guidelines.
(d) THE MATERIALS ARE
SUPPLIED WITH NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR THAT THEY ARE FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY BY WAY OF
INFRINGEMENT OR THE LIKE. INTERMUNE
MAKES NO REPRESENTATIONS THAT THE USE OF THE MATERIALS WILL NOT INFRINGE ANY
PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTIES.
(e) This Section 9.6
will survive any expiration or termination of the Agreement.
Except as set forth above, all terms and conditions of the Agreement
will remain in full force and effect.
Any capitalized term used herein and not otherwise defined will have the
same meaning as set forth in the Agreement.
Please acknowledge your agreement to the above by having an authorized
Array representative countersigning both enclosed copies of this letter where
indicated below, and returning one original to the attention of Corina Hughes,
Manager, Legal Affairs, at InterMune. We
would be happy to proceed based on receipt of a facsimile copy while awaiting
the original.
Sincerely,
Stephen N. Rosenfield
Executive Vice President of Legal Affairs
Acknowledged
and Agreed:
ARRAY BIOPHARMA, INC.
General Counsel, Array
BioPharma
Chief Operating
Officer, Array BioPharma
2
[ * ] = 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.
CONFIDENTIAL
VIA FAX AND FEDERAL EXPRESS
January 7, 2004
David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301
RE:
Amendment No. 2 to the
Drug Discovery Collaboration Agreement (“Amendment No. 2”)
Dear Dr. Snitman:
As you know, InterMune, Inc. (“
InterMune
”) and Array
BioPharma, Inc. (“
Array
”) are parties to that certain Drug
Discovery Collaboration Agreement dated September 13, 2002, as amended May 8,
2003 (the “
Agreement
”). The
parties agree that the Agreement is hereby amended as follows, effective as of
the date of this Amendment No. 2 (“
Amendment Effective Date
”):
1.
The
[
*
]
is hereby removed as a
[
*
]
of the Agreement solely for the purpose of Array entering into an
[
*
]
arrangement with a third party (the “
Third
Party
”) for
[
*
]
,
and subject to the terms of this Amendment No. 2. Accordingly:
(a)
InterMune hereby waives its option to
[
*
]
under Section 2.7.2 of the Agreement
solely with respect to such arrangement with the Third Party.
(b)
If such arrangement with the Third Party has
not been concluded within three (3) months from the Amendment Effective
Date as evidenced by an executed written agreement, then
[
*
]
automatically will be reinstated as a
[
*
]
of the Agreement, and all of InterMune’s
rights and Array’s obligations under the Agreement with respect to
[
*
]
will be reinstated in full. InterMune agrees that Array does not need to
provide InterMune
with
a copy of such written agreement, so long as InterMune receives by three (3) months
from the Amendment Effective Date a written certification, in the form attached
as Exhibit A hereto, from an authorized officer of Array that a written
agreement for such
[
*
]
arrangement has been executed. Any
material misrepresentation set forth in such certification will be deemed a
material breach of this Amendment No. 2.
(c)
If such arrangement is concluded with the
Third Party, but the
[
*
]
thereafter revert to Array for any reason, then
[
*
]
automatically will be reinstated as a
[
*
]
of the Agreement, and all of InterMune’s
rights and Array’s obligations under the Agreement with respect to
[
*
]
will be reinstated in full. Array will give InterMune prompt written
notice of any such reversion.
(d)
Nothing in this Amendment No. 2 will be
deemed to:
(i)
grant to Array any further right, title or
interest in or to any intellectual property (including, without limitation, any
patent rights) Controlled by InterMune other than as expressly stated in
Sections 4.1.1 and 4.3 of the Agreement;
(ii)
permit Array to use any Hit Compound, Lead Compound or Product for any
purpose other than the Research Collaboration conducted in accordance with the
Agreement; nor
(iii)
permit Array to grant to any third party any right, title or interest
in or to any Hit Compound, Lead Compound or Product.
2.
In consideration for InterMune’s agreement as
set forth in Section 1 above, and irrespective of the outcome of the
negotiations or arrangement between Array and the Third Party:
(a)
(i) During
the Research Term, Array shall provide, at its sole cost and expense,
[
*
]
additional FTEs to conduct the Research
Collaboration. Such additional FTEs will
bring the present number of FTEs conducting the Research Collaboration from
[
*
]
to
[
*
]
. Each such individual shall have the
appropriate skills, training, experience and ability to perform his or her
responsibilities under the Research Plan.
(ii) If Array fails to provide such
additional FTEs as described in subsection (a)(i) above, then in
addition to any other remedies available to InterMune at law or equity,
InterMune shall be entitled to offset the costs of such additional FTEs (based
on the Array FTE Rate, as defined in Section 5.1.2 of the Agreement)
against any amounts due to Array
under
the Agreement, including, without limitation, any milestone and/or royalty
payments.
(b)
Except for purposes of the Research
Collaboration conducted in accordance with the Agreement, Array shall not
develop (either pre-clinically or clinically), use, import, make, have made,
sell or offer for sale any Hit Compound, Lead Compound or Product, including,
without limitation, in conjunction with any other compound or product.
(c)
Array shall not enable (including without
limitation through the grant of a license or covenant) any Array Affiliate or
Third Party to develop (either pre-clinically or clinically), use, import,
make, have made, sell or offer for sale any Hit Compound, Lead Compound or
Product, including, without limitation, in conjunction with any other compound
or product.
3.
If Array materially breaches this Amendment
Number 2, then InterMune will be entitled to seek any and all remedies
available at law and or equity. Without
limiting the generality of the foregoing, in the event of any such material
breach: (i)
[
*
]
automatically will be reinstated as a
[
*
]
of the Agreement; and (ii) all of
InterMune’s rights and Array’s obligations under the Agreement with respect to
[
*
]
will be reinstated in full.
Except as set forth above, all terms and conditions of the Agreement
will remain in full force and effect.
Any capitalized term used herein and not otherwise defined will have the
same meaning as set forth in the Agreement.
Please acknowledge your agreement to the above by having an authorized
Array representative countersign both enclosed copies of this Amendment No. 2
where indicated below, and returning one original to the attention of Gloria
Lopez, Contracts Administrator, at InterMune.
We would be happy to proceed based on receipt of a facsimile copy while
awaiting the original.
Sincerely,
Larry Blatt
Vice President of Biopharmacology Research
Acknowledged
and Agreed:
ARRAY BIOPHARMA, INC.
|
cc:
|
|
Paul Resnick, InterMune
|
|
|
|
General Counsel, Array
BioPharma
|
EXHIBIT A
ARRAY BIOPHARMA, INC.
OFFICER’S CERTIFICATE
The
undersigned, ,
hereby certifies that
{he/she}
is
the duly elected or appointed
{Title}
of ARRAY BIOPHARMA, INC., a Delaware corporation (the “Company”), and acting in
such capacity hereby certifies that:
(a) As of
{Date}
, the Company entered into a written
agreement with a third party (the “Third Party Agreement”) setting forth the
terms of an
[
*
]
arrangement regarding the
[
*
]
,
which agreement is effective and binding on the Company.
(b) The Third Party
Agreement does not conflict with any obligation of the Company under the Drug
Discovery Collaboration Agreement between the Company and InterMune, Inc.
(“InterMune”) dated September 13, 2002, as amended (the “Agreement”).
(c) The Company will
promptly notify InterMune in writing upon any termination of the Third Party
Agreement or of any reversion of
[
*
]
to the Company.
(d) Any material
misrepresentation set forth in this Certificate will be deemed a material
breach of the Agreement, and InterMune will be entitled to seek any and all
remedies available at law and or equity.
All capitalized terms used and not otherwise defined in this
Certificate shall have the same meanings as in the Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand as of the day
of , 2004.
[ * ] = 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.
CONFIDENTIAL
VIA FAX AND FEDERAL EXPRESS
September 10, 2004
David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301
RE:
Amendment No. 3 to the
Drug Discovery Collaboration Agreement (“
Amendment No. 3
”)
Dear Dr. Snitman:
As you know, InterMune, Inc. (“
InterMune
”) and Array
BioPharma, Inc. (“
Array
”) are parties to that certain Drug
Discovery Collaboration Agreement dated September 13, 2002, as amended May 8,
2003 and January 7, 2004 (the “
Agreement
”).
The parties to the Agreement hereby agree, effective as of the date of
this Amendment No. 3 (“
Amendment Effective Date
”), that:
1.
Section 2.3 of the Agreement is amended
in its entirety to read as follows:
“2.3
Term and Termination of Research
Collaboration
. The Research
Collaboration shall commence on the Effective Date and shall end upon the first
to occur of (i) June 30, 2005, (ii) the termination of this
Agreement, or (iii)
[ * ]
after written notice from InterMune that InterMune elects (in its sole
discretion) to early terminate the Research Collaboration (such period
beginning on the Effective Date and ending upon the earliest of (i), (ii) and
(iii), the “
Research Term
”).
InterMune shall have the right to extend the Research Term for
additional six-month periods after June 30, 2005 on the same terms and
conditions as previously conducted. To
exercise such right, InterMune shall
provide
written notice to Array on or before the date ninety (90) days before the end
of any such six-month period.”
2.
The Joint Research Committee shall work
together to produce a new
Exhibit A
Research Plan pursuant to Article 3
of the Agreement as soon as practicable after the execution of this Amendment No. 3.
Except as set forth above, all terms and conditions of the Agreement
will remain in full force and effect.
Any capitalized term used herein and not otherwise defined will have the
same meaning as set forth in the Agreement.
Please acknowledge your agreement to the above by having an authorized
Array representative countersign both enclosed copies of this Amendment No. 3
where indicated below, and returning one original to the attention of Gloria
Lopez, Senior Contracts Administrator, at InterMune. We would be happy to proceed based on receipt
of a facsimile copy while awaiting the original.
Sincerely,
Tom Kassberg
Senior Vice President, Business Development
Acknowledged
and Agreed:
ARRAY BIOPHARMA, INC.
2
[ * ] = 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.
VIA FAX AND FEDERAL EXPRESS
December 7, 2004
David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301
RE:
Amendment No. 4 to the Drug Discovery Collaboration Agreement
Dear Dr. Snitman:
As you know, InterMune, Inc. (“
InterMune
”) and Array
BioPharma Inc. (“
Array
”) are parties to that certain Drug Discovery
Collaboration Agreement dated September 13, 2002, as amended May 8,
2003, January 7, 2004 and September 10, 2004 (collectively, the “
Agreement
”). The parties agree that the Agreement is
hereby amended as follows, effective as of the date of this letter (“
Amendment
Effective Date
”):
1.
The first sentence of Section 5.1.1 of
the Agreement is hereby amended in its entirety to read as follows:
“InterMune
agrees to pay Array research funding for the conduct of the Research
Collaboration quarterly, in advance, in an amount equal to one quarter (1/4) of
[ * ]
(or, if lesser,
the number of Array FTEs scheduled in the Research Plan to be provided by Array
in the upcoming quarter), multiplied by the applicable Array FTE Rate (as
defined below in Section 5.1.2).”
2.
The last sentence of Section 5.1.1 of
the Agreement is hereby amended in its entirety to read as follows:
“In
no event shall InterMune be required to fund a greater number of Array FTEs in
any calendar quarter than one quarter (1/4) of
[ * ]
, or, if lesser, those provided in the Research
Plan for Array to provide in such quarter.”
3.
Array hereby acknowledges that (a) it
devoted
[ * ]
to the
conduct of the Research Collaboration during November 2004, and (b) it
will devote
[ * ]
to the
conduct of the Research Collaboration during December 2004. The Joint
Research
Committee shall amend the Research Plan to reflect such number of FTEs. Upon execution of this Amendment No. 4,
InterMune shall pay to Array an amount equal to
[ * ]
of the current FTE rate to fund such FTEs
during such period.
4.
The Agreement is hereby amended to insert a
new Section 4.2.1, and, as a result, the old sections 4.2.1, 4.2.2, 4.2.3
and 4.2.4 are hereby renumbered to be new Sections 4.2.2, 4.2.3, 4.2.4 and
4.2.5:
“4.2.1
Immediately upon receipt by Array of a cash payment of
[ * ]
with respect to a
particular Lead Compound, Array shall
[ * ]
. It is understood and agreed that the
provisions of this Section 4.2.1 shall not apply to any
[ * ]
, nor shall such provisions
affect InterMune’s license under Section 4.2.2. Array hereby acknowledges the prior payment
of a cash payment of
[ * ]
with respect to
[ * ]
,
and shall immediately following the Amendment Effective Date
[ * ]
.”
5.
Section 4.3 of the Agreement is hereby
amended in its entirety to read as follows:
“Subject
to the terms and conditions of this Agreement, including, without limitation,
the limitation on Array’s rights hereunder set forth in the last sentence of
this Section 4.3, InterMune hereby grants to Array a worldwide,
non-exclusive, transferable, royalty-free right and license, with the right to
grant and authorize sublicenses, under InterMune’s interest in the
Collaboration Technology, to exploit the same other than in the research, development,
making, having made, using, importing, offering for sale or selling Hit
Compounds, Lead Compounds or Products worldwide. To the extent that any Collaboration
Technology included in the license granted to Array under this Section 4.3
comprises a claim of a patent or patent application, the subject matter of
which was invented solely by Array personnel, Array’s license under such patent
claim(s) to exploit the same other than in the research, development, making,
having made, using, importing, offering for sale or selling Hit Compounds, Lead
Compounds or Products worldwide shall be exclusive. Notwithstanding the foregoing, Array’s
license under this Section 4.3 shall not include any right to make, have
made, use or sell any chemical entity, the composition of matter of which is
claimed in a Collaboration Patent assigned by Array to InterMune pursuant to Section 4.2.1
above.”
6.
Section 4.6 of the Agreement is hereby
amended by adding, in the parenthetical, following the words “in exercise of
the” the following phrase: “intellectual
property rights assigned or” and replacing “4.2.1” with “4.2.”
2
7.
Section 5.2 of the Agreement is hereby
amended by replacing the last sentence with the following:
“For
clarity, this means that as between the Parties, InterMune is responsible for
the costs of activities in exercise of its rights under Section 4.2.”
8.
Section 5.4.3 of the Agreement is hereby
amended by adding the following as the last sentence:
“
[ * ]
”
9.
Section 8.1.2 of the Agreement is hereby
amended by replacing the last sentence with the following:
“Such
joint ownership shall be in accordance with the default rights enjoyed by
co-inventors under U.S. patent law in the absence of a written agreement to the
contrary (throughout the world to the maximum extent permitted by law), such
that, without limitation and except as restricted by the assignment provisions
of Section 4.2, licenses granted in Sections 4.1 and 4.2, financial
commitments set forth in Article 5 and prosecution and enforcement
provisions set forth in this Article 8, each Party may practice the
subject matter of the jointly owned Collaboration Patents without a duty of
accounting to the Party.”
10.
The Agreement is amended by including a new Section 8.1.4
of the Agreement:
“8.1.4.
Array shall, and shall cause its employees and agents to, promptly execute all
papers and instruments as are necessary (i) to fully effect the assignment
of ownership of Collaboration Patents provided for in Section 4.1.2, and (ii)
to enable InterMune to record any such assignment in any country.”
11.
Section 8.2.1 of the Agreement is hereby
amended by adding the following sentence at the end thereof:
“InterMune
shall use reasonable efforts to prosecute the Collaboration Patents so that
there will be claims specifically directed to the making, having made, use and
sale of compositions of matter, including, without limitation, Hit Compounds,
Lead Compounds and Products, and (as appropriate based on the disclosure) other
claims in separate Collaboration Patents specifically directed to areas
included within Array’s license set forth in Section 4.3, such as, for
example, by the filing of divisional patent applications.”
12.
Section 8.2.1 of the Agreement is hereby
amended by adding the following sentence as the third sentence of such Section:
3
“Notwithstanding
the foregoing, following assignment of a Collaboration Patent pursuant to Section 4.2.1,
InterMune shall only be required to keep Array fully informed as to patent
matters relating to claims contained in any such Collaboration Patent as to
which Array has license rights under Section 4.3.”
13.
The Agreement is hereby amended to include
the following Section 8.3.3:
“8.3.3
Array
.
In the event that a Party believes a Third Party is infringing any
Collaboration Patent right included within the license granted Array pursuant
to Section 4.3 above, Array shall have the right, but not the obligation,
to take reasonable legal action to enforce such Collaboration Patent and defend
any declaratory judgment action relating to such infringement, at its sole cost
and expense. Array shall keep InterMune
reasonably informed of the progress of any such enforcement action as it
relates to such Collaboration Patent, and Array shall not enter into any
settlement or other agreement or make any other admission that relates to the
validity or enforceability of any such Collaboration Patent owned or Controlled
by InterMune without the prior written consent of InterMune, which consent
shall not be unreasonably withheld. Any
amount recovered by Array in an action brought pursuant to this Section 8.3.3
shall be retained by Array. To the
extent that InterMune has to be joined in any legal action pursuant to this Section 8.3.3,
InterMune shall be entitled to employ counsel of its choosing and to
reimbursement by Array for reasonable attorneys’ fees and expenses incurred in
connection with such activities.”
14.
Section 8.3.3 of the Agreement is hereby
renumbered to be new Section 8.3.4, and is hereby amended by adding, at
the end of the third line thereof, after the phrase “Collaboration Patent or
Preparatory Patent”, the following phrase:
“pursuant to Section 8.3.2”.
15.
Section 12.2 of the Agreement is hereby
amended by adding the following sentence at the end thereof:
Any
such dispute related to payment obligations or alleged breaches thereof shall
be resolved by binding arbitration in accordance with Section 13.12.
16.
Section 12.4 of the Agreement is hereby
deleted in its entirety.
17.
Section 12.5.3 of the Agreement is
hereby amended in its entirety to read as follows:
“12.5.3 Survival Sections.
[ * ]
of this Agreement shall survive the expiration or termination of this Agreement
for any reason. In the event of
termination by InterMune under Section 12.2 or 12.3,
[ * ]
shall survive such
termination in addition to the above-referenced
[ * ]
; InterMune shall have the
[ * ]
right to
4
enforce
the Collaboration Patents and Primary Preparatory Patents (as defined in Section 8.2.2)
assigned or licensed to InterMune hereunder against infringing products that
would be competitive with Products; and
[ * ]
shall survive until
[ * ]
.
In the event of termination by Array under Section 12.2 or 12.3,
[ * ]
shall survive such
termination in addition to the above-referenced Articles and Sections; and
InterMune shall immediately grant to Array a worldwide, non-exclusive, fully
paid-up license under InterMune’s interest in the Collaboration Patents
previously assigned to InterMune pursuant to Section 4.1.2 to research,
develop, make, have made, use, import, offer for sale and sell Hit Compounds,
Lead Compounds and Products; provided that, to the extent that any such
assigned Collaboration Patent was invented solely by Array personnel, Array’s
license under such Collaboration Patent shall be exclusive. InterMune shall ensure that any licenses of
Collaboration Patents granted by InterMune or its Affiliates to third parties
are made subject to Array’s license grant-back rights set forth in this Section 12.5.3.”
18.
The Agreement is hereby amended to include
the following Section 13.12 and, as a result, the old sections 13.12,
13.13, 13.14, 13.15 and 13.16 are hereby renumbered to be new Sections 13.13,
13.14, 13.15, 13.16 and 13.17:
“13.12 Short-Form Arbitration
. If
the Parties do not agree upon a payment dispute under Section 12.2, then
such matters in issue shall be determined by binding arbitration conducted
pursuant to this Section 13.12 by one (1) arbitrator. In such arbitration, the arbitrator shall be
a mutually acceptable, independent, conflict-free individual not affiliated
with either Party, with scientific, technical and regulatory experience with
respect to development of pharmaceutical products. If the Parties are unable to agree on an
arbitrator, the arbitrator shall be an independent expert meeting the criteria
set forth in the immediately preceding sentence selected by the American
Arbitration Association within seven (7) days of being approached by a
Party. Within fifteen (15) days of
designation of the expert hereunder, each Party shall prepare and submit to the
expert and to the other Party a written statement setting forth its position
with respect to the substance of the dispute.
Each Party shall have an additional ten (10) days from receipt of
the other Party’s submission to submit a written response thereto. The expert shall have the right to meet with
the Parties, either alone or together, as necessary to make a
determination. The arbitration shall
take place in the county in which the executive offices of the Party which is
alleged to be in breach are situated.
The expert shall select one of the Party’s positions as his decision,
and shall not have authority to render any substantive decision other than to
so select the position of either InterMune or Array. The costs of such arbitration (including
without limitation, the costs of the expert) shall be shared equally by the
Parties, and each Party shall bear its own expenses in connection with such
arbitration. Any such arbitration shall
to the greatest extent possible, be concluded within sixty (60) days after
designation of the expert hereunder.”
5
19.
Section 13.15 of the Agreement is hereby
amended by adding the following phrase at the beginning thereof:
“Except
as set forth in Sections 12.2 and 13.12 of this Agreement,”
Except as set forth above, all terms and conditions of the Agreement
will remain in full force and effect.
Any capitalized term used herein and not otherwise defined will have the
same meaning as set forth in the Agreement.
In consideration of the current
[ * ]
of Collaboration Patents described in Section 4 above, and the amendment
to the rights of InterMune set forth in this Amendment No. 4, InterMune
shall pay to Array a
[ * ]
within
[ * ]
of the
Amendment Effective Date. In addition,
InterMune agrees to pay to Array
[ * ]
as a cash payment pursuant to Section 4.2.1 of the Agreement with respect
to
[ * ]
. Following receipt of such payment, Array
shall immediately effectuate
[ * ]
. Array acknowledges its continuing obligation
to
[ * ]
Collaboration
Patents as set forth in Section 4.2.1 of the Agreement.
Please acknowledge your agreement to the above by having an authorized
Array representative countersign both enclosed copies of this Amendment No. 4
where indicated below, and returning one original to the attention of Gloria
Lopez. Contracts Administrator, at InterMune.
We would be happy to proceed based on receipt of a facsimile copy while
awaiting the original.
Sincerely,
Larry Blatt
Vice President of Biopharmacology Research
Acknowledged
and Agreed:
ARRAY BIOPHARMA, INC.
6
|
cc:
|
|
Paul Resnick, InterMune
|
|
|
|
General Counsel, Array BioPharma
|
7
[ * ] = 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.
CONFIDENTIAL
VIA FAX AND FEDERAL EXPRESS
March 10, 2005
David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301
RE: Drug Discovery Collaboration Agreement
Dear Dave
As you know, InterMune, Inc. (“
InterMune
”) and Array
BioPharma Inc. (“
Array
”) are parties to that certain Drug Discovery
Collaboration Agreement dated September 13, 2002, as amended May 8,
2003, January 7, 2004, September 10, 2004 and December 7, 2004
(collectively, the “
Agreement
”).
Any capitalized term used herein and not otherwise defined will have the
same meaning as set forth in the Agreement.
Pursuant to Section 4.2.1 of the Agreement, InterMune has the
right to make a cash payment to Array of
[ * ]
with respect to a Lead Compound in return for Array’s
[ * ]
to InterMune of any Collaboration
Patent which contains a Valid Claim covering the composition of matter of such
Lead Compound (and any Product containing such Lead Compound). As of the date hereof, in return for the
appropriate payments made by InterMune to Array, Array has already
[ * ]
to InterMune certain
Collaboration Patents with respect to Lead Compounds
[ * ]
and
[ * ]
pursuant to the Agreement.
InterMune desires to obtain the
[ * ]
,
notwithstanding the fact that
[ * ]
.
Accordingly, InterMune and Array hereby agree as follows:
1.
InterMune shall pay to Array
[ * ]
in cash; and
2.
Following Array’s receipt of such cash
payment and in the spirit of Section 4.2.1 of the Agreement, Array shall
immediately (i) effectuate the
[ * ]
to InterMune of
[ * ]
which claims the composition of matter of
chemical
compounds, one of which shall be
[ * ]
in accordance with the Agreement within
[ * ]
after the date of this Agreement, and (ii) have the continuing obligation
to
[ * ]
to InterMune
any Collaboration Patent containing a Valid Claim covering the composition of
matter of such Lead Compound (and any Product containing such Lead Compound) in
accordance with the Agreement. In the
event InterMune
[ * ]
,
InterMune shall, at Array’s request,
[ * ]
to Array
[ * ]
to
InterMune under this letter agreement.
Except as set forth above, all terms and conditions of the Agreement
will remain in full force and effect.
Please acknowledge your agreement to the above by having an authorized
Array representative countersign both enclosed copies of this letter agreement
where indicated below, and returning one original to the attention of Gloria
Lopez. Contracts Administrator, at InterMune.
We would be happy to proceed based on receipt of a facsimile copy while
awaiting the original.
Sincerely,
Larry Blatt
Vice President of
Biopharmacology Research
Acknowledged and Agreed:
ARRAY
BIOPHARMA INC.
2
cc: General Counsel, Array BioPharma
3
[ * ] = 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.
June 30, 2005
VIA FAX AND
FEDERAL EXPRESS
David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301
RE:
Amendment No. 5 to the Drug
Discovery Collaboration Agreement
Dear Dr. Snitman:
As
you know, InterMune, Inc. (“
InterMune
”) and Array BioPharma Inc. (“
Array
”)
are parties to that certain Drug Discovery Collaboration Agreement dated September 13,
2002, as amended May 8, 2003, January 7, 2004, September 10,
2004 and December 7, 2004 (collectively, and as further amended pursuant
to this letter, the “
Agreement
”).
The parties agree that the Agreement is hereby amended as follows,
effective as of the date of this letter (“
Amendment Effective Date
”):
1.
Section 1.24
of the Agreement is hereby amended in its entirety to read as follows:
“1.24
Research Collaboration
shall mean
the research (including pre-clinical toxicology), manufacturing process and
scale-up activities as well as manufacture of GLP/GMP lots of designated Lead
Compounds undertaken by the Parties during the Research Term pursuant to
Sections 2.1 to 2.3 below.”
2.
Section 2.3 of the Agreement is hereby
amended in its entirety to read as follows:
“2.3
Term and Termination of Research
Collaboration
. The Research
Collaboration shall commence on the Effective Date and shall end upon the first
to occur of (i) June 30, 2006, (ii) the termination of this
Agreement, or (iii)
[
*
]
after written notice from InterMune that
InterMune elects (in its sole discretion) to early terminate the Research
Collaboration (such period beginning on the Effective Date and ending
upon
the earliest of (i), (ii) and (iii), the “Research Term”). InterMune shall have the right to extend the
Research Term for up to an additional twelve (12)-month period after June 30,
2006 on the same terms and conditions as previously conducted (except as
otherwise set forth in this Agreement).
To exercise such right, InterMune shall provide written notice to Array
on or before March 31, 2006.”
3.
A new last sentence is hereby added to Section 2.5(b) of
the Agreement as follows:
“Finally,
at least once quarterly, and within sixty (60) days of the end of the Research
Term, Array shall provide to InterMune a reasonably detailed written summary of
manufacture process and scale-up activities performed by and information
generated by Array under the Research Collaboration, including, without
limitation, those reports or other information specifically identified in the
Research Plan.”
4.
The first sentence of Section 5.1.1 of
the Agreement is hereby amended in its entirety to read as follows:
“InterMune
agrees to pay Array funding for the conduct of the Research Collaboration
quarterly, in advance, in an amount equal to one quarter (1/4) of the Allocated
Array FTEs (or, if less, the number of Array FTEs described in this Section 5.1.1
or otherwise scheduled in the Research Plan to be provided by Array in the
upcoming quarter), multiplied by the applicable Array FTE Rate (as defined
below in Section 5.1.2). The
Allocated Array FTEs shall be as follows:
(a)
[
*
]
Array FTEs devoted to
[
*
]
for the period of time set forth below in this Section 5.1.1
(or such other number scheduled in the Research Plan) (the “Discovery FTEs”); (b)
[
*
]
Array FTEs devoted to
[
*
]
for the period of time set forth below in
this Section 5.1.1 (or such other number scheduled in the Research Plan)
(the “Manufacture FTEs”); and (c)
[
*
]
Array FTEs devoted to
[
*
]
for the period of time set forth below in this Section 5.1.1
(or such other number scheduled in the Research Plan) (the “Research FTEs”).”
5.
The last sentence of Section 5.1.1 of
the Agreement is hereby amended in its entirety to read as follows:
2
“In
no event shall InterMune be required to fund a greater number of Array FTEs in
any calendar quarter than one quarter (1/4) of the Allocated Array FTEs for
such calendar quarter, or, if lesser, those provided in the Research Plan for
Array to provide in such calendar quarter.”
6.
A new last sentence is hereby added to Section 5.1.1
of the Agreement as follows:
“The
Discovery FTEs shall be funded by InterMune beginning July 1, 2005 through
June 30, 2006, with an option exercisable by InterMune to extend such
funding by extending the Research Term as set forth in Section 2.3 of this
Agreement. The Manufacture FTEs shall be
funded by InterMune beginning July 1, 2005 until delivery of the GLP/GMP
lots of Lead Compounds, including the second GMP campaign contemplated for formulation
and bridging pharmacokinetic studies.
The Research FTEs shall be funded by InterMune beginning July 1,
2005 through December 31, 2005, with an option exercisable by InterMune to
extend such funding for an additional six (6)-month period.”
7.
Section 5.1.2 of the Agreement is hereby
amended in its entirety to read as follows:
“5.1.2
FTE Rate
. The “Array FTE Rate” shall be equal to
[
*
]
per FTE per year.
Effective after the first anniversary of the Amendment Effective Date,
the FTE Rate shall increase no more than once annually by the percentage
increase, if any, in the Consumer Price Index for all Urban Consumers, as
published by the U.S. Department of Labor, Bureau of Statistics, since the
Effective Date or the last adjustment hereunder, whichever is later.”
8.
Section 5.1.3 of the Agreement is hereby
amended in its entirety to read as follows:
“5.1.3
Non-FTE Costs
. Non-FTE costs and research requirements
associated with performance of the Research Collaboration at Array shall be
borne by Array, except that (a) Array shall not be required to incur any
extraordinary
[
*
]
costs without Array’s prior written
consent, (b) Array may bill InterMune for materials used in the course of
manufacture and
3
analytic
activities and of process research at a rate of
[
*
]
and (c) Array may bill InterMune no more frequently than once per calendar
quarter for reasonable costs incurred by Array in connection with the permitted
outsourcing of activities by Array as provided in the Research Plan at a rate
of
[
*
]
.
Extraordinary chemical or screening costs means material costs in excess
of
[
*
]
.
InterMune shall pay any invoices received pursuant to Section 5.1.3(b) within
[
*
]
of receipt.”
9.
A new Section 5.1.5 is hereby added to
the Agreement as follows:
“
[
*
]
”
Except
as set forth above, all terms and conditions of the Agreement will remain in
full force and effect. Any capitalized
term used herein and not otherwise defined will have the same meaning as set
forth in the Agreement.
[Remainder of This Page Intentionally Left Blank]
4
Please
acknowledge your agreement to the above by having an authorized Array
representative countersign both enclosed copies of this Amendment No. 5
where indicated below, and returning one original to the attention of Robin
Steele, General Counsel, at InterMune.
We would be happy to proceed based on receipt of a facsimile copy while
awaiting for the original.
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Sincerely,
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Lawrence M. Blatt
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Senior Vice
President—Preclinical and
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Applied Research
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cc:
Robin Steele, Esq., InterMune, Inc.
General Counsel, Array
BioPharm, Inc.
* * *
* * *
* *
AGREED TO AND ACCEPTED:
ARRAY
BIOPHARMA, INC.
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By:
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Print
Name:
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Title:
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Exhibit 10.30
This
LOAN AND SECURITY AGREEMENT is entered into as of June 28, 2005, by and
between COMERICA BANK (“Bank”) and ARRAY BIOPHARMA, INC. (“Borrower”).
RECITALS
Borrower
wishes to obtain credit from time to time from Bank, and Bank desires to extend
credit to Borrower. This Agreement sets
forth the terms on which Bank will advance credit to Borrower, and Borrower
will repay the amounts owing to Bank.
AGREEMENT
The
parties agree as follows:
1.
DEFINITIONS
AND CONSTRUCTION
.
1.1
Definitions
.
As used in this Agreement, the following
terms shall have the following definitions:
“Accounts”
means all presently existing and hereafter arising accounts, contract rights
for the receipt of money, payment intangibles, and all other forms of
obligations owing to Borrower arising out of the sale or lease of goods
(including, without limitation, the licensing of software and other technology)
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor.
“Account
Control Agreement” means an executed account control agreement in favor of Bank
covering an account or accounts of Borrower held at another financial
institution, in form and substance acceptable to Bank and Borrower; provided,
that any Account Control Agreement will be structured such that Collateral will
not be classified as restricted cash for financial reporting purposes.
“Advance”
or “Advances” means a cash advance or cash advances under the Revolving Line.
“Affiliate”
means, with respect to any Person, any Person that owns or controls directly or
indirectly such Person, any Person that controls or is controlled by or is
under common control with such Person, and each of such Person’s senior
executive officers, directors, and partners.
“Bank
Expenses” means all: reasonable costs or
expenses (including reasonable attorneys’ fees and expenses, whether generated
in-house or by outside counsel) incurred in connection with the preparation,
negotiation, administration, and enforcement of the Loan Documents; reasonable
Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses
(whether generated in-house or by outside counsel) incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of
appeal), incurred before, during and after an Insolvency Proceeding commenced
by or against Borrower, whether or not suit is brought.
“Borrower
State” means Delaware, the state under whose laws Borrower is organized.
“Borrower’s
Books” means all of Borrower’s books and records including: ledgers; records concerning Borrower’s assets
or liabilities, the Collateral, business operations or financial condition; and
those portions of computer programs, or tape files, and the equipment,
containing such information.
“Business
Day” means any day that is not a Saturday, Sunday, or other day on which banks
in the State of California are authorized or required to close.
“Cash”
means unrestricted cash and cash equivalents.
“Change
in Control” shall mean a transaction in which any “person” or “group” (within
the meaning of Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of a
sufficient number of shares of all classes of stock then outstanding of
Borrower ordinarily entitled to vote in the election of directors, empowering
such “person” or “group” to elect a majority of the Board of Directors of Borrower,
who did not have such power before such transaction.
“Chief
Executive Office State” means Colorado, where Borrower’s chief executive office
is located.
“Closing
Date” means the date of this Agreement.
“Code”
means the California Uniform Commercial Code, as amended or supplemented from
time to time.
“Collateral”
means the property described on Exhibit A attached hereto and all
Negotiable Collateral to the extent not described on Exhibit A, except to
the extent any such property (i) is nonassignable by its terms without the
consent of another party (but only to the extent such prohibition on transfer
is enforceable under applicable law, including, without limitation, Sections
9406 and 9408 of the Code), or (ii) the granting of a security interest
therein is contrary to applicable law, provided that upon the cessation of any
such restriction or prohibition, such property shall automatically become part
of the Collateral; provided that in no case shall the definition of “Collateral”
exclude any Accounts, proceeds of the disposition of any property, or general
intangibles consisting of rights to payment therefor.
“Collateral
State” means the state or states where the Collateral is located, which is
Colorado.
“Contingent
Obligation” means, as applied to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit,
corporate credit cards, or merchant services issued for the account of that
Person; and (iii) all obligations arising under any interest rate,
currency or commodity swap agreement, interest rate cap agreement, interest
rate collar agreement, or other agreement or arrangement designated to protect
a Person against fluctuation in interest rates, currency exchange rates or
commodity prices; provided, however, that the term “Contingent Obligation”
shall not include endorsements for collection or deposit in the ordinary course
of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
“Credit
Extension” means each Advance, Equipment Advance, the Term Loan or any other
extension of credit by Bank to or for the benefit of Borrower hereunder.
“Environmental
Laws” means all laws, rules, regulations, orders and the like issued by any
federal state, local foreign or other governmental or quasi-governmental
authority or any agency pertaining to the environment or to any hazardous
materials or wastes, toxic substances, flammable, explosive or radioactive
materials, asbestos or other similar materials.
“Equipment”
means all present and future machinery, equipment, tenant improvements,
furniture, fixtures, vehicles, tools, parts and attachments in which Borrower
has any interest.
“Equipment
Advance(s)” means a cash advance or cash advances under the Equipment Line.
2
“Equipment
Line” means a Credit Extension of up to Five Million Dollars ($5,000,000).
“Equipment
Maturity Date” means June 28, 2010.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder.
“Event
of Default” has the meaning assigned in Article 8.
“GAAP”
means generally accepted accounting principles, consistently applied, as in
effect from time to time.
“Indebtedness”
means (a) all indebtedness for borrowed money or the deferred purchase
price of property or services, including without limitation reimbursement and
other obligations with respect to surety bonds and letters of credit, (b) all
obligations evidenced by notes, bonds, debentures or similar instruments, (c) all
capital lease obligations, and (d) all Contingent Obligations.
“Insolvency
Proceeding” means any proceeding commenced by or against any Person or entity
under any provision of the United States Bankruptcy Code, as amended, or under
any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, formal or informal moratoria, compositions, extension generally
with its creditors, or proceedings seeking reorganization, arrangement, or
other relief.
“Inventory”
means all present and future inventory in which Borrower has any interest.
“Investment”
means any beneficial ownership of (including stock, partnership or limited
liability company interest other securities) any Person, or any loan, advance
or capital contribution to any Person.
“IRC”
means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
“Letter
of Credit” means a commercial or standby letter of credit or similar
undertaking issued by Bank at Borrower’s request in accordance with Section 2.1(b)(iii).
“Letter
of Credit Sublimit” means a sublimit for Letters of Credit under the Revolving
Line not to exceed Two Million Dollars ($2,000,000)
“Lien”
means any mortgage, lien, deed of trust, charge, pledge, security interest or
other encumbrance.
“Loan
Documents” means, collectively, this Agreement, any note or notes executed by
Borrower, and any other document, instrument or agreement entered into in
connection with this Agreement, all as amended or extended from time to time.
“Material
Adverse Effect” means a material adverse effect on (i) the business
operations, condition (financial or otherwise) or prospects of Borrower and its
Subsidiaries taken as a whole, (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents, (iii) Borrower’s
interest in, or the value, perfection or priority of Bank’s security interest
in the Collateral.
“Negotiable
Collateral” means all of Borrower’s present and future letters of credit of
which it is a beneficiary, drafts, instruments (including promissory notes),
securities (other than treasury stock of Borrower), documents of title, and
chattel paper.
“Obligations”
means all debt, principal, interest, Bank Expenses and other amounts owed to
Bank by Borrower pursuant to this Agreement or any other agreement, whether
absolute or contingent, due or to become due, now existing or hereafter
arising, including any interest that accrues after the commencement of an
3
Insolvency Proceeding and including any debt,
liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
“Periodic
Payments” means all installments or similar recurring payments that Borrower
may now or hereafter become obligated to pay to Bank pursuant to the terms and
provisions of this Agreement.
“Permitted
Indebtedness” means:
(a)
Indebtedness
of Borrower in favor of Bank arising under this Agreement or any other Loan
Document;
(b)
Indebtedness
existing on the Closing Date and disclosed in the Schedule;
(c)
Indebtedness
of Borrower secured by a lien described in clause (c) of the defined term “Permitted
Liens;” provided such Indebtedness does not exceed the lesser of the cost or
fair market value of the equipment financed with such Indebtedness;
(d)
Subordinated
Debt;
(e)
Indebtedness
to trade creditors incurred in the ordinary course of business; and
(f)
Extensions,
refinancings and renewals of any items of Permitted Indebtedness, provided that
the principal amount is not increased or the terms modified to impose more
burdensome terms upon Borrower or its Subsidiary, as the case may be.
“Permitted
Investment” means:
(a)
Investments
existing on the Closing Date disclosed in the Schedule; and
(b)
Investments
allowed under the Borrower’s investment policy as approved by Borrower’s Audit
Committee and/or Board of Directors from time to time, including (i) Marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or any agency or any State thereof maturing within one (1) year
from the date of acquisition thereof, (ii) commercial paper maturing no
more than one (1) year from the date of creation thereof and currently
having rating of at least A-2 or P-2 from either Standard & Poor’s
Corporation or Moody’s Investors Service, (iii) certificates of deposit
from Bank or another financial institution maturing no more than one year from
the date of investment therein, and (iv) money market accounts from Bank
or another financial institution;
(c)
Repurchases
of stock from former employees or directors of Borrower under the terms of
applicable repurchase agreements;
(d)
Investments
accepted in connection with Permitted Transfers;
(e)
Investments
of Subsidiaries in or to other Subsidiaries or Borrower and Investments by
Borrower in Subsidiaries;
(f)
Investments
consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plan agreements approved by Borrower’s Board of Directors;
(g)
Investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent
obligations of, and other disputes with, customers or suppliers arising in the
ordinary course of Borrower’s business;
4
(h)
Investments
consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary
course of business, provided that this subparagraph (h) shall not apply to
Investments of Borrower in any Subsidiary; and
(i)
Joint
ventures or strategic alliances in the ordinary course of Borrower’s business.
“Permitted
Liens” means the following:
(a)
Any
Liens existing on the Closing Date and disclosed in the Schedule (excluding
Liens to be satisfied with the proceeds of the Advances) or arising under this
Agreement or the other Loan Documents;
(b)
Liens
for taxes, fees, assessments or other governmental charges or levies, either
not delinquent or being contested in good faith by appropriate proceedings and
for which Borrower maintains adequate reserves, provided the same have no
priority over any of Bank’s security interests;
(c)
Liens
(i) upon or in any Equipment (other than Equipment financed by an
Equipment Advance) acquired or held by Borrower or any of its Subsidiaries to
secure the purchase price of such Equipment or indebtedness incurred solely for
the purpose of financing the acquisition or lease of such Equipment, or (ii) existing
on such Equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the
proceeds of such Equipment;
(d)
Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through
(c) above, provided that any extension, renewal or replacement Lien shall
be limited to the property encumbered by the existing Lien and the principal
amount of the indebtedness being extended, renewed or refinanced does not
increase;
(e)
Liens
arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Sections 8.5 or 8.9; and
(f)
Liens
in favor of other financial institutions arising in connection with Borrower’s
deposit accounts held at such institutions to secured standard fees for deposit
services charged by, but not financing made available by such institutions,
provided that Bank has a perfected security interest in the amounts held in
such deposit accounts.
“Permitted Transfer” means the conveyance, sale,
lease, transfer or disposition by Borrower or any Subsidiary of:
(a)
Inventory
in the ordinary course of business;
(b)
licenses
and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business;
(c)
worn-out,
unused or obsolete Equipment not financed with the proceeds of Equipment
Advances; or
(d)
other
assets of Borrower or its Subsidiaries that do not constitute Collateral (other
than expenditures of cash in the ordinary course of Borrower’s business).
“Person”
means any individual, sole proprietorship, partnership, limited liability
company, joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, firm, joint stock
company, estate, entity or governmental agency.
5
“Prime
Rate” means the variable rate of interest, per annum, most recently announced
by Bank, as its “prime rate,” whether or not such announced rate is the lowest
rate available from Bank.
“Responsible
Officer” means each of the Chief Executive Officer, the Chief Operating
Officer, the Chief Financial Officer and the Controller of Borrower.
“Revolving
Line” means a Credit Extension of up to Two Million Dollars ($2,000,000)
(inclusive of any amounts outstanding under the Letter of Credit Sublimit).
“Revolving
Maturity Date” means June 28, 2008.
“Schedule”
means the schedule of exceptions attached hereto and approved by Bank, if
any.
“SOS
Reports” means the official reports from the Secretaries of State of each
Collateral State, Chief Executive Office State and the Borrower State and other
applicable federal, state or local government offices identifying all current
security interests filed in the Collateral and Liens of record as of the date
of such report.
“Subordinated
Debt” means any debt incurred by Borrower that is subordinated in writing to
the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and
identified as being such by Borrower and Bank).
“Subsidiary”
means any corporation, partnership or limited liability company or joint
venture in which (i) any general partnership interest or (ii) more
than fifty percent (50%) of the stock, limited liability company interest or
joint venture of which by the terms thereof has the ordinary voting power to
elect the Board of Directors, managers or trustees of the entity, at the time
as of which any determination is being made, is owned by Borrower, either
directly or through an Affiliate.
“Term
Loan” has the meaning set forth in Section 2.1(d).
“Term
Loan Maturity Date” means June 28, 2010.
1.2
Accounting
Terms
. Any accounting term not
specifically defined herein shall be construed in accordance with GAAP and all
calculations shall be made in accordance with GAAP. The term “financial statements” shall include
the accompanying notes and schedules.
2.
LOAN
AND TERMS OF PAYMENT
.
2.1
Credit
Extensions
.
(a)
Promise
to Pay
. Borrower promises to pay to
Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower, together
with interest on the unpaid principal amount of such Credit Extensions at rates
in accordance with the terms hereof.
(b)
Advances
Under Revolving Line
.
(i)
Amount
. Subject to and upon the terms and conditions
of this Agreement (1) Borrower may request Advances in an aggregate
outstanding amount not to exceed the Revolving Line, less any amounts
outstanding under the Letter of Credit Sublimit, and (2) amounts borrowed
pursuant to this Section 2.1(b) may be repaid and reborrowed at any
time prior to the Revolving Maturity Date, at which time all Advances under this
Section 2.1(b) shall be immediately due and payable. Borrower may prepay any Advances without
penalty or premium.
6
(ii)
Form of
Request
. Whenever Borrower desires
an Advance, Borrower will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. Pacific time (1:00 p.m. Pacific time for wire
transfers), on the Business Day that the Advance is to be made. Each such notification shall be promptly
confirmed by a Payment/Advance Form in substantially the form of Exhibit B
hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Bank’s discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be a
Responsible Officer or a designee thereof, and Borrower shall indemnify and
hold Bank harmless for any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of
Advances made under this Section 2.1(b) to Borrower’s deposit
account.
(iii)
Letter
of Credit Sublimit
. Subject to the availability under the Revolving Line,
and in reliance on the representations and warranties of Borrower set forth
herein, at any time and from time to time from the date hereof through the
Business Day immediately prior to the Revolving Maturity Date, Bank shall issue
for the account of Borrower such Letters of Credit as Borrower may request by
delivering to Bank a duly executed letter of credit application on Bank’s
standard form; provided, however, that the outstanding and undrawn amounts
under all such Letters of Credit (i) shall not at any time exceed the
Letter of Credit Sublimit, and (ii) shall be deemed to constitute Advances
for the purpose of calculating availability under the Revolving Line. Any drawn but unreimbursed amounts under any
Letters of Credit shall be charged as Advances against the Revolving Line. All
Letters of Credit shall be in form and substance acceptable to Bank in its sole
reasonable discretion and shall be subject to the terms and conditions of Bank’s
form application and letter of credit agreement. Borrower will pay any standard issuance and
other fees that Bank notifies Borrower it will charge for issuing and
processing Letters of Credit, not to exceed 0.50% annually.
(iv)
Collateralization
of Obligations Extending Beyond Maturity
.
If Borrower has not secured to Bank’s satisfaction its obligations with
respect to any Letters of Credit by the Revolving Maturity Date, then,
effective as of such date, the balance in any deposit accounts held by Bank and
the certificates of deposit or time deposit accounts issued by Bank in Borrower’s
name (and any interest paid thereon or proceeds thereof, including any amounts
payable upon the maturity or liquidation of such certificates or accounts),
shall automatically secure such obligations to the extent of the then
continuing or outstanding and undrawn Letters of Credit. Borrower authorizes Bank to hold such
balances in pledge and to decline to honor any drafts thereon or any requests
by Borrower or any other Person to pay or otherwise transfer any part of such
balances for so long as the Letters of Credit are outstanding or continue.
(c)
Equipment
Advances
.
(i)
Subject
to and upon the terms and conditions of this Agreement, Bank agrees to make
Equipment Advances to Borrower. Borrower
may request Equipment Advances at any time from the date hereof through December 28,
2006. The aggregate outstanding amount
of the Equipment Advances shall not exceed the Equipment Line. Each Equipment Advance shall not exceed one
hundred percent (100%) of the invoice amount of equipment, capitalized software
and tenant improvements (which Borrower shall, in any case, have purchased
within 90 days of the date of the corresponding Equipment Advance or after April 1,
2005 in the case of Equipment, capitalized software and/or tenant improvements
not present at Borrower at the time of Bank’s appraisal), excluding taxes,
shipping, warranty charges, freight discounts and installation expense. Equipment Advances for capitalized software
and tenant improvements shall not exceed ten percent (10%) of the Equipment
Line.
(ii)
Interest
shall accrue from the date Borrower receives each Equipment Advance at the rate
specified in Section 2.3 (a), and shall be payable in accordance with Section 2.3(c). Any Equipment Advances that are outstanding
on the Equipment Maturity Date shall be payable in a single payment of
principal, plus all accrued interest, on the Equipment Maturity Date, at which
time all amounts due in connection with Equipment Advances made under this Section 2.1(c) shall
be immediately due and payable.
Equipment Advances, once repaid, may not be reborrowed. Borrower may prepay any Equipment Advances
without penalty or premium.
7
(iii)
When
Borrower desires to obtain an Equipment Advance, Borrower shall notify Bank
(which notice shall be irrevocable) by facsimile transmission to be received no
later than 3:00 p.m. Pacific time three (3) Business Days before the
day on which the Equipment Advance is to be made. Such notice shall be substantially in the
form of Exhibit B. The notice shall
be signed by a Responsible Officer or its designee and include a copy of the
invoice for any Equipment to be financed.
(d)
Term
Loan
.
(i)
Subject
to and upon the terms and conditions of this Agreement, on the Closing Date or
as soon thereafter as is practical, Bank shall make one term loan to Borrower
in an aggregate amount not to exceed Ten Million Dollars ($10,000,000) (the “Term
Loan”), which amount shall be used to refinance existing fixed assets and to
support working capital requirements.
(ii)
Interest
shall accrue from the date Borrower receives the funds under the Term Loan is
made at the rate specified in Section 2.3(a), and shall be payable monthly
on the first day of each month commencing on the first day of the first month
after the Term Loan is made. The Term
Loan shall be repaid in a single payment of principal plus accrued but unpaid
interest on the Term Loan Maturity Date, at which time all amounts owing under
this Section 2.1(d) shall be immediately due and payable. The Term Loan, once repaid, may not be
reborrowed. Borrower may prepay the Term
Loan without penalty or premium.
(iii)
When
Borrower desires to obtain the Term Loan, Borrower shall notify Bank (which
notice shall be irrevocable) by facsimile transmission to be received no later
than 3:00 p.m. Pacific time three (3) Business Days before the day on
which the Term Loan is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be signed by a Responsible
Officer or its designee.
2.2
Intentionally
Omitted.
2.3
Interest
Rates, Payments, and Calculations
.
(a)
Interest
Rates
. Except as set forth in Section 2.3(b),
the Advances, the Equipment Advances and the Term Loan shall bear interest, on
the outstanding daily balance thereof, as set forth in the LIBOR/Cost of Funds
Addendum to Loan & Security Agreement attached as Exhibit D
hereto.
(b)
Late
Fee; Default Rate
. If any payment is
not made within ten (10) days after the date such payment is due, Borrower
shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of
the amount of such unpaid amount or (ii) the maximum amount permitted to
be charged under applicable law.
(c)
Payments
. Interest hereunder shall be due and payable
on the first calendar day of each month during the term hereof. Bank shall, at its option, charge such
interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s
deposit accounts or against the Revolving Line, in which case those amounts
shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d)
Computation
. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased, effective as of the day the Prime Rate is changed, by
an amount equal to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
2.4
Crediting
Payments
. Prior to the occurrence of
an Event of Default, Bank shall credit a wire transfer of funds, check or other
item of payment to such deposit account or Obligation as Borrower specifies
except that to the extent Borrower uses the Advances to purchase Collateral,
Borrower’s repayment of the Advances shall apply on a “first-in-first-out”
basis so that the portion of the Advances used to purchase a particular item of
Collateral shall be paid in the chronological order the Borrower purchased the
Collateral. After the occurrence of an
8
Event of Default, Bank shall
have the right, in its sole discretion, to immediately apply any wire transfer
of funds, check, or other item of payment to reduce Obligations, but such
applications of funds shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such
check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00
noon Pacific time shall be deemed to have been received by Bank as of the
opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5
Bank
Expenses
. On the Closing Date,
Borrower shall pay to Bank, Bank Expenses incurred through the Closing Date
(not to exceed $5,000) and, after the Closing Date, all Bank Expenses as and
when they become due provided that Bank provides Borrower with written notice
thereof.
2.6
Term
. This Agreement shall become effective on the
Closing Date and, subject to Section 13.7, shall continue in full force
and effect for so long as any Obligations remain outstanding or Bank has any
obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall
have the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.
3.
CONDITIONS
OF LOANS
.
3.1
Conditions
Precedent to Initial Credit Extension
.
The obligation of Bank to make the initial Credit Extension is subject
to the condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a)
this
Agreement;
(b)
an
officer’s certificate of Borrower with respect to incumbency and resolutions
authorizing the execution and delivery of this Agreement;
(c)
UCC
National Form Financing Statement;
(d)
current
SOS Reports indicating that except for Permitted Liens, there are no other
security interests or Liens of record in the Collateral;
(e)
a
deposit account control agreement with respect to Borrower’s investment account
held at Lehman Brothers (the “Lehman Account”).
(f)
securities
and/or deposit account control agreements with respect to any accounts
permitted hereunder to be maintained outside Bank;
(g)
a
Lessor’s Acknowledgment and Subordination for Borrower’s Boulder location;
(h)
a
Lessor’s Acknowledgment and Subordination for Borrower’s Longmont location;
(i)
agreement
to provide insurance;
(j)
payment
of the fees and Bank Expenses then due specified in Section 2.5 hereof;
(k)
current
financial statements, including audited statements for Borrower’s most recently
ended fiscal year, together with an unqualified opinion, company prepared
consolidated and consolidating balance sheets and income statements for the
most recently ended month in accordance with Section 6.2, and such other
updated financial information as Bank may reasonably request;
9
(l)
current
Compliance Certificate in accordance with Section 6.2; and
(m)
such
other documents or certificates, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.
3.2
Conditions
Precedent to all Credit Extensions
.
The obligation of Bank to make each Credit Extension, including the
initial Credit Extension, is further subject to the following conditions:
(a)
timely
receipt by Bank of the Payment/Advance Form as provided in Section 2.1;
and
(b)
the
representations and warranties contained in Section 5 shall be true and
correct in all material respects on and as of the date of such Payment/Advance Form and
on the effective date of each Credit Extension as though made at and as of each
such date, and no Event of Default shall have occurred and be continuing, or
would exist after giving effect to such Credit Extension (provided, however,
that those representations and warranties expressly referring to another date
shall be true, correct and complete in all material respects as of such
date). The making of each Credit
Extension shall be deemed to be a representation and warranty by Borrower on
the date of such Credit Extension as to the accuracy of the facts referred to
in this Section 3.2.
4.
CREATION
OF SECURITY INTEREST
.
4.1
Grant
of Security Interest
. Borrower
grants and pledges to Bank a continuing security interest in the Collateral to
secure prompt repayment of any and all Obligations and in order to secure
prompt performance by Borrower of each of its covenants and duties under the
Loan Documents. Except as set forth in
the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in later-acquired Collateral. Notwithstanding any termination, Bank’s Lien
on the Collateral shall remain in effect for so long as any Obligations are
outstanding.
4.2
Perfection
of Security Interest
. Borrower
authorizes Bank to file at any time financing statements, continuation
statements, and amendments thereto that (i) either specifically describe
the Collateral or describe the Collateral as all assets of Borrower of the kind
pledged hereunder, and (ii) contain any other information required by the
Code for the sufficiency of filing office acceptance of any financing
statement, continuation statement, or amendment, including whether Borrower is
an organization, the type of organization and any organizational identification
number issued to Borrower, if applicable.
Any such financing statements may be signed by Bank on behalf of
Borrower, as provided in the Code, and may be filed at any time in any
jurisdiction whether or not Revised Article 9 of the Code is then in
effect in that jurisdiction. Borrower
shall from time to time endorse and deliver to Bank, at the request of Bank,
all Negotiable Collateral and other documents that Bank may reasonably request,
in form satisfactory to Bank, if necessary to perfect and continue perfected
Bank’s security interests in the Collateral and in order to fully consummate
all of the transactions contemplated under the Loan Documents. Borrower shall have possession of the Collateral,
except where expressly otherwise provided in this Agreement or where Bank is
required to perfect its security interest by possession in addition to the
filing of a financing statement. Where
Collateral is in possession of a third party bailee, Borrower shall take such
steps as Bank reasonably requests for Bank to (i) obtain an
acknowledgment, in form and substance satisfactory to Bank, of the bailee that
the bailee holds such Collateral for the benefit of Bank, (ii) obtain “control”
of any Collateral consisting of investment property, deposit accounts,
letter-of-credit rights or electronic chattel paper (as such items and the term
“control” are defined in Revised Article 9 of the Code) by causing the
securities intermediary or depositary institution or issuing bank to execute a
control agreement in form and substance satisfactory to Bank. Borrower will not create any chattel paper
without placing a legend on the chattel paper acceptable to Bank indicating that
Bank has a security interest in the chattel paper. Borrower from time to time may deposit with
Bank specific cash collateral to secure specific Obligations; Borrower
authorizes Bank to hold such specific balances in pledge and to decline to
honor any drafts thereon or any request by Borrower or any other Person to pay
or otherwise transfer any part of such balances for so long as the specific
Obligations are outstanding.
4.3
Right
to Inspect
. Bank (through any of its
officers, employees, or agents) shall have the right, upon reasonable prior
notice, from time to time during Borrower’s usual business hours but no more
than twice a year (unless an Event of Default has occurred and is continuing),
to inspect Borrower’s Books and to make copies
10
thereof and to check, test, and
appraise the Collateral in order to verify Borrower’s financial condition or
the amount, condition of, or any other matter relating to, the Collateral.
5.
REPRESENTATIONS
AND WARRANTIES
.
Borrower
represents and warrants as follows:
5.1
Due
Organization and Qualification
.
Borrower and each Subsidiary is duly existing under the laws of the
state in which it is organized and qualified and licensed to do business in any
state in which the conduct of its business or its ownership of property
requires that it be so qualified, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Effect.
5.2
Due
Authorization; No Conflict
. The
execution, delivery, and performance of the Loan Documents are within Borrower’s
powers, have been duly authorized, and are not in conflict with nor constitute
a breach of any provision contained in Borrower’s Certificate of Incorporation
or Bylaws, nor will they constitute an event of default under any material agreement
by which Borrower is bound. Borrower is
not in default under any agreement by which it is bound, except to the extent
such default could not reasonably be expected to cause a Material Adverse
Effect.
5.3
Collateral
. Borrower has rights in or the power to
transfer the Collateral, and its title to the Collateral is free and clear of
Liens, adverse claims, and restrictions on transfer or pledge except for
Permitted Liens. Except as set forth on
the Schedule, all Collateral is located solely in the Collateral States. All Inventory is in all material respects of
good and merchantable quality, except for Inventory for which adequate reserves
have been made. Except as set forth in
the Schedule, none of the Collateral is maintained or invested with a Person
other than Bank or Bank’s Affiliates.
5.4
Name;
Location of Chief Executive Office
.
Except as disclosed in the Schedule, Borrower has not done business
under any name other than that specified on the signature page hereof, and
its exact legal name is as set forth in the first paragraph of this
Agreement. The chief executive office of
Borrower is located in the Chief Executive Office State at the address
indicated in Section 10 hereof.
5.5
Litigation
. Except as set forth in the Schedule, there are
no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative
agency in which a likely adverse decision could reasonably be expected to have
a Material Adverse Effect.
5.6
No
Material Adverse Change in Financial Statements
. All consolidated and consolidating financial
statements related to Borrower and any Subsidiary that are delivered by
Borrower to Bank fairly present in all material respects Borrower’s
consolidated and consolidating financial condition as of the date thereof and
Borrower’s consolidated and consolidating results of operations for the period
then ended. There has not been a
material adverse change in the consolidated or in the consolidating financial
condition of Borrower since the date of the most recent of such financial
statements submitted to Bank.
5.7
Solvency,
Payment of Debts
. Borrower is able
to pay its debts (including trade debts) as they mature; the fair saleable
value of Borrower’s assets (including goodwill minus disposition costs) exceeds
the fair value of its liabilities; and Borrower is not left with unreasonably
small capital after the transactions contemplated by this Agreement.
5.8
Compliance
with Laws and Regulations
. Borrower
and each Subsidiary have met the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower’s
failure to comply with ERISA that is reasonably likely to result in Borrower’s
incurring any liability that could have a Material Adverse Effect. Borrower is not an “investment company” or a
company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940. Borrower
is not engaged principally, or as one of the important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulations T and U of the Board of Governors of
the Federal Reserve System). Borrower
has complied in all material respects with all the
11
provisions of the Federal Fair
Labor Standards Act. Borrower is in
compliance with all environmental laws, regulations and ordinances except where
the failure to comply is not reasonably likely to have a Material Adverse
Effect. Borrower has not violated any
statutes, laws, ordinances or rules applicable to it, the violation of
which could reasonably be expected to have a Material Adverse Effect. Borrower and each Subsidiary have filed or
caused to be filed all tax returns required to be filed, and have paid, or have
made adequate provision for the payment of, all taxes reflected therein except
those being contested in good faith with adequate reserves under GAAP or where
the failure to file such returns or pay such taxes could not reasonably be
expected to have a Material Adverse Effect.
5.9
Subsidiaries
. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.10
Government
Consents
. Borrower and each
Subsidiary have obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all governmental
authorities that are necessary for the continued operation of Borrower’s
business as currently conducted, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Effect.
5.11
Inbound
Licenses
. Except as disclosed on the
Schedule, Borrower is not a party to, nor is bound by, any license or other
agreement that prohibits or otherwise restricts Borrower from granting a
security interest in Borrower’s interest in any Collateral.
5.12
Full
Disclosure
. No representation,
warranty or other statement made by Borrower in any certificate or written
statement furnished to Bank taken together with all such certificates and
written statements furnished to Bank contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained in such certificates or statements not misleading it being
recognized by Bank that the projections and forecasts provided by Borrower in
good faith and based upon reasonable assumptions are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections and forecasts may differ from the projected or forecasted results.
6.
AFFIRMATIVE
COVENANTS
.
Borrower
covenants and agrees that, until payment in full of all outstanding
Obligations, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, Borrower shall do all of the following:
6.1
Good
Standing and Government Compliance
.
Borrower shall maintain its and each of its Subsidiaries’ corporate
existence and good standing in the state or other location of each such entity’s
organization, shall maintain qualification and good standing in each other
jurisdiction in which the failure to so qualify could have a Material Adverse
Effect, and shall furnish to Bank the organizational identification number
issued to Borrower by the authorities of the state in which Borrower is
organized, if applicable. Borrower shall
meet, and shall cause each Subsidiary to meet, the minimum funding requirements
of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply in all material
respects with all applicable Environmental Laws, and maintain all material
permits, licenses and approvals required thereunder where the failure to do so
could have a Material Adverse Effect.
Borrower shall comply, and shall cause each Subsidiary to comply, with
all statutes, laws, ordinances and government rules and regulations to
which it is subject, and shall maintain, and shall cause each of its
Subsidiaries to maintain, in force all licenses, approvals and agreements, the
loss of which or failure to comply with which could reasonably be expected to
have a Material Adverse Effect.
6.2
Financial
Statements, Reports, Certificates
.
Borrower shall deliver the following to Bank: (i) as soon as
available, but in any event within twenty (20) days after the end of each
calendar month, a company prepared consolidated and consolidating balance sheet
and income statement covering Borrower’s operations during such period, in a
form reasonably acceptable to Bank and certified by a Responsible Officer; (ii) copies
of all statements, reports and notices sent or made available generally by
Borrower to its security holders or to any holders of Subordinated Debt and all
reports on Forms 10-K and 10-Q filed with the Securities and Exchange
Commission within five (5) days of filing; (iii) promptly upon
receipt of notice thereof, a report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of Five Million Dollars ($5,000,000) or more; (iv) promptly
upon receipt, each management letter
12
prepared by Borrower’s
independent certified public accounting firm regarding Borrower’s management
control systems; and (v) such budgets as Bank may reasonably request from
time to time.
(a)
Within
twenty (20) days after the last day of each month and within five (5) days
after the Securities and Exchange Commission’s standard filing date for 10-Qs,
Borrower shall deliver to Bank a Compliance Certificate certified as of the
last day of the applicable month and signed by a Responsible Officer in
substantially the form of
Exhibit C
hereto.
(b)
Within
five (5) days after the last day of each month, Borrower shall provide
Bank with a cash balance certificate certifying Borrower’s total Cash held at
Bank and at other financial institutions subject to Account Control Agreements
and Borrower shall provide Bank with a means of real-time access to Borrower’s
Accounts held outside of Bank which amounts Bank may confirm at any time. Such means of real-time access to Borrower’s
Accounts shall be satisfactory to Bank in its sole reasonable discretion.
(c)
As
soon as possible and in any event within three (3) calendar days after
becoming aware of the occurrence or existence of an Event of Default hereunder,
a written statement of a Responsible Officer setting forth details of the Event
of Default, and the action which Borrower has taken or proposes to take with respect
thereto.
(d)
Bank
shall have a right from time to time hereafter to appraise Borrower’s fixed
assets at Bank’s expense, provided that such audits will be conducted no more
often than once every two (2) years unless an Event of Default has
occurred and is continuing.
Borrower may deliver to
Bank on an electronic basis any certificates, reports or information required
pursuant to this Section 6.2, and Bank shall be entitled to rely on the
information contained in the electronic files, provided that Bank in good faith
believes that the files were delivered by a Responsible Officer. If Borrower delivers this information
electronically, it shall also deliver to Bank by U.S. Mail, reputable overnight
courier service, hand delivery, facsimile or .pdf file within five (5) Business
Days of submission of the unsigned electronic copy the certification of monthly
financial statements and the Compliance Certificate, each bearing the physical
signature of the Responsible Officer.
6.3
Inventory;
Returns
. Borrower shall keep all
Inventory in good and merchantable condition except for Inventory for which
adequate reserves have been made.
Returns and allowances, if any, as between Borrower and its account
debtors shall be on the same basis and in accordance with the usual customary
practices of Borrower, as they exist on the Closing Date. Borrower shall promptly notify Bank of all
returns and recoveries and of all disputes and claims involving more than One
Million Dollars ($1,000,000).
6.4
Taxes
. Borrower shall make, and cause each Subsidiary to make, due and timely
payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, including, but not limited
to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state
disability, and will execute and deliver to Bank, on demand, proof satisfactory
to Bank indicating that Borrower or a Subsidiary has made such payments or
deposits and any appropriate certificates attesting to the payment or deposit
thereof; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by
GAAP) by Borrower.
6.5
Insurance
.
(a)
Borrower,
at its expense, shall keep the Collateral, as applicable, insured against loss
or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower’s business is
conducted on the date hereof. Borrower
shall also maintain liability and other insurance in amounts and of a type that
are customary to businesses similar to Borrower’s.
13
(b)
All
such policies of insurance shall be in such form, with such companies, and in
such amounts as are reasonably satisfactory to Bank. All policies of property insurance shall
contain a lender’s loss payable endorsement, in a form reasonably satisfactory
to Bank, showing Bank as an additional loss payee, and all liability insurance
policies shall show the Bank as an additional insured and shall specify that
the insurer must give at least 20 days notice to Bank before canceling its
policy for any reason. Upon Bank’s
request, Borrower shall deliver to Bank certified copies of the policies of
insurance and evidence of all premium payments.
If no Event of Default has occurred and is continuing, proceeds payable
under any casualty policy will, at Borrower’s option, be payable to Borrower to
replace the property subject to the claim, provided that any such replacement
property shall be deemed Collateral in which Bank has been granted a first
priority security interest. If an Event
of Default has occurred and is continuing, all proceeds payable under any such
policy shall, at Bank’s option, be payable to Bank to be applied on account of
the Obligations.
6.6
Minimum
Cash at Bank
. Borrower shall at all
times, measured on a daily basis, (A) maintain a balance of unrestricted
Cash at Bank of not less than: (i) Beginning on the date thirty (30) days
after the Closing Date, Two Million Dollars ($2,000,000) if Borrower’s total
Cash at Bank plus Cash covered by Account Control Agreements is not less than
Thirty Million Dollars ($30,000,000), (ii) At all times after the Closing
Date, Eight Million Five Hundred Thousand Dollars ($8,500,000) if Borrower’s
total Cash at Bank plus Cash covered by Account Control Agreements is at least
Twenty Five Million Dollars ($25,000,000) but less than Thirty Million Dollars
($30,000,000) and (iii) At all times after the Closing Date, Seventeen
Million Dollars ($17,000,000) if Borrower’s total Cash at Bank plus Cash
covered by Account Control Agreements is less than Twenty Five Million Dollars
($25,000,000) and (B) maintain a balance of Cash at Bank plus Cash covered
by Account Control Agreements of not less than Twenty Million Dollars
($20,000,000). Notwithstanding the
foregoing, if Borrower fails to comply with any of the provisions of this Section 6.7
at any time, Borrower shall have two (2) Business Days from the date of
such failure to deposit additional funds in accounts at Bank or other accounts
covered by Account Control Agreements so that Borrower is in compliance with
this Section 6.7.
6.7
Creation/Acquisition
of Subsidiaries
. In the event
Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower and
such Subsidiary shall promptly notify Bank of the creation or acquisition of
such new Subsidiary and take all such action as may be reasonably required by
Bank to cause such Subsidiary to guarantee the Obligations of Borrower under
the Loan Documents and grant a continuing pledge and security interest in and
to the collateral of such Subsidiary (substantially as described on Exhibit A
hereto).
6.8
Further
Assurances
. At any time and from
time to time Borrower shall execute and deliver such further instruments and
take such further action as may reasonably be requested by Bank to effect the
purposes of this Agreement.
7.
NEGATIVE
COVENANTS
.
Borrower
covenants and agrees that, so long as any credit hereunder shall be available
and until the outstanding Obligations are paid in full or for so long as Bank
may have any commitment to make any Credit Extensions, Borrower will not do any
of the following without Bank’s prior written consent, which shall not be
unreasonably withheld or delayed:
7.1
Dispositions
. Convey, sell, lease, license, transfer or
otherwise dispose of (collectively, to “Transfer”) all or any part of the
Collateral.
7.2
Change
in Name, Location, Executive Office, or Executive Management; Change in
Business; Change in Fiscal Year; Change in Control
. Change its name or the Borrower State or
relocate its chief executive office without thirty(30) days prior written
notification to Bank; replace its chief executive officer or chief financial
officer without thirty (30) days prior written notification to Bank; engage in
any business, or permit any of its Subsidiaries to engage in any business,
other than or reasonably related or incidental to the businesses currently
engaged in by Borrower; change its fiscal year end; suffer or permit a Change
in Control.
7.3
Mergers
or Acquisitions
. Merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with or
into any other business organization (other than mergers or consolidations of a
Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any
of its Subsidiaries to acquire, all or
14
substantially all of the
capital stock or property of another Person except where (i) no Event of
Default has occurred, is continuing or would exist after giving effect to such
transactions, (ii) such transactions do not result in a Change in Control,
and (iii) Borrower is the surviving entity.
7.4
Indebtedness
. Create, incur, assume, guarantee or be or
remain liable with respect to any Indebtedness other than Permitted
Indebtedness or take any actions which impose on Borrower an obligation to
prepay any Indebtedness, except Indebtedness to Bank.
7.5
Encumbrances
. Create, incur, assume or allow any Lien with
respect to any of the Collateral, or assign or otherwise convey any right to
receive income, including the sale of any Accounts except for Permitted Liens.
7.6
Distributions
. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock, except that Borrower may (i) repurchase the stock of
former employees pursuant to stock repurchase agreements as long as an Event of
Default does not exist prior to such repurchase or would not exist after giving
effect to such repurchase, and (ii) repurchase the stock of former
employees pursuant to stock repurchase agreements by the cancellation of
indebtedness owed by such former employees to Borrower regardless of whether an
Event of Default exists.
7.7
Investments
. Directly or indirectly acquire or own, or
make any Investment in or to any Person other than Permitted Investments or
suffer or permit any Subsidiary to be a party to, or be bound by, an agreement
that restricts such Subsidiary from paying dividends or otherwise distributing
property to Borrower.
7.8
Transactions
with Affiliates
. Directly or
indirectly enter into or permit to exist any material transaction with any
Affiliate of Borrower except for transactions upon fair and reasonable terms
that are no less favorable to Borrower than would be obtained in an arm’s
length transaction with a non-affiliated Person.
7.9
Subordinated
Debt
. Make any payment in respect of
any Subordinated Debt, or permit any of its Subsidiaries to make any such
payment, except in compliance with the terms of such Subordinated Debt, or
amend any provision affecting Bank’s rights contained in any documentation
relating to the Subordinated Debt without Bank’s prior written consent.
7.10
Inventory
and Equipment
. Store the Inventory
or the Equipment with a bailee, warehouseman, or similar third party unless the
third party has been notified of Bank’s security interest and Bank (a) has
received an acknowledgment from the third party that it is holding or will hold
the Inventory or Equipment for Bank’s benefit or (b) is in possession of
the warehouse receipt, where negotiable, covering such Inventory or
Equipment. Except for Inventory sold in
the ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory and Equipment only at the
location set forth in Section 10 and such other locations of which
Borrower gives Bank prior written notice and as to which Bank files a financing
statement, or takes other action, where needed to perfect its security
interest.
7.11
No
Investment Company; Margin Regulation
.
Become or be controlled by an “investment company,” within the meaning
of the Investment Company Act of 1940, or become principally engaged in, or
undertake as one of its important activities, the business of extending credit
for the purpose of purchasing or carrying margin stock, or use the proceeds of
any Credit Extension for such purpose.
8.
EVENTS
OF DEFAULT
.
Any
one or more of the following events shall constitute an Event of Default by
Borrower under this Agreement:
8.1
Payment
Default
. If Borrower fails to pay
any of the Obligations when due;
15
8.2
Covenant
Default
.
(a)
If
Borrower fails to perform any obligation under Article 6 or violates any
of the covenants contained in Article 7 of this Agreement; or
(b)
If
Borrower fails or neglects to perform or observe any other material term,
provision, condition, covenant contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and
Bank and as to any default under such other term, provision, condition or
covenant that can be cured, has failed to cure such default within ten (10) days
after Borrower receives notice thereof or any officer of Borrower becomes aware
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is
likely to be cured within a reasonable time, then Borrower shall have an
additional reasonable period (which shall not in any case exceed thirty (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to have cured such default shall not be deemed an Event of Default
but no Credit Extensions will be made;
8.3
Defective
Perfection
. If Bank shall receive at
any time following the Closing Date an SOS Report indicating that except for
Permitted Liens, Bank’s security interest in the Collateral is not prior to all
other security interests or Liens of record reflected in such SOS Report;
8.4
Material
Adverse Effect
. If there occurs any
circumstance or circumstances that could have a Material Adverse Effect;
8.5
Attachment
. If any material portion of The Collateral is
attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrance upon any material portion
of The Collateral, or if a notice of lien, levy, or assessment is filed of
record with respect to any of The Collateral by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower
(provided that no Credit Extensions will be made during such cure period);
8.6
Insolvency
. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within thirty (30)
days (provided that no Credit Extensions will be made prior to the dismissal of
such Insolvency Proceeding);
8.7
Other
Agreements
. If there is a default or
other failure to perform in any agreement to which Borrower is a party with a
third party or parties resulting in a right by such third party or parties,
whether or not exercised that could have a Material Adverse Effect;
8.8
Subordinated
Debt
. If Borrower makes any payment
on account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank;
8.9
Judgments
. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least One Million
Dollars ($1,000,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed (for example, pending an appeal) for a period of ten (10) days
(provided that no Credit Extensions will be made prior to the satisfaction or
stay of such judgment); or
8.10
Misrepresentations
. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set
forth herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or
any other Loan Document.
16
9.
BANK’S
RIGHTS AND REMEDIES
.
9.1
Rights
and Remedies
. Upon the occurrence
and during the continuance of an Event of Default, Bank may, at its election,
without notice of its election and without demand, do any one or more of the
following, all of which are authorized by Borrower:
(a)
Upon
written notice to Borrower, declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default described
in Section 8.6, all Obligations shall become immediately due and payable without
any action by Bank);
(b)
Demand
that Borrower (i) deposit cash with
Bank in an amount equal to the amount of any Letters of Credit remaining
undrawn, as collateral security for the repayment of any future drawings under
such Letters of Credit, and (ii) pay in advance all Letter of Credit fees
scheduled to be paid or payable over the remaining term of the Letters of
Credit, and Borrower shall promptly deposit and pay such amounts;
(c)
Cease
advancing money or extending credit to or for the benefit of Borrower under
this Agreement or under any other agreement between Borrower and Bank;
(d)
Settle
or adjust disputes and claims directly with account debtors for amounts, upon
terms and in whatever order that Bank reasonably considers advisable;
(e)
Make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if
Bank so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank’s determination
appears to be prior or superior to its security interest and to pay all
expenses incurred in connection therewith.
With respect to any of Borrower’s owned premises, Borrower hereby grants
Bank a license to enter into possession of such premises and to occupy the
same, without charge, in order to exercise any of Bank’s rights or remedies
provided herein, at law, in equity, or otherwise;
(f)
Set
off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Bank, and (ii) indebtedness at any time owing to or for
the credit or the account of Borrower held by Bank;
(g)
Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell (in the manner provided for herein) the Collateral.
(h)
Sell
the Collateral at either a public or private sale to a third party, or both, by
way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower’s premises) as Bank determines is
commercially reasonable, and apply any proceeds to the Obligations in whatever
manner or order Bank deems appropriate.
Bank may sell the Collateral without giving any warranties as to the
Collateral. Bank may specifically
disclaim any warranties of title or the like.
This procedure will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral.
If Bank sells any of the Collateral upon credit, Borrower will be
credited only with payments actually made by the purchaser, received by Bank,
and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the
Collateral, Bank may resell the Collateral and Borrower shall be credited with
the proceeds of the sale;
(i)
Bank
may credit bid and purchase at any public sale;
(j)
Apply
for the appointment of a receiver, trustee, liquidator or conservator of the
Collateral, without notice and without regard to the adequacy of the security
for the Obligations and without regard to the solvency of Borrower, any
guarantor or any other Person liable for any of the Obligations; and
17
(k)
Any
deficiency that exists after disposition of the Collateral as provided above
will be paid immediately by Borrower.
Bank
may comply with any applicable state or federal law requirements in connection
with a disposition of the Collateral and compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the
Collateral.
9.2
Power
of Attorney
. Effective only upon the
occurrence and during the continuance of an Event of Default, Borrower hereby
irrevocably appoints Bank (and any of Bank’s designated officers, or employees)
as Borrower’s true and lawful attorney to:
(a) send requests for verification of Accounts or notify account
debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s
name on any checks or other forms of payment or security that may come into
Bank’s possession; (c) sign Borrower’s name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust
all claims under and decisions with respect to Borrower’s policies of insurance
that relate to Collateral; (f) settle and adjust disputes and claims
respecting the accounts directly with account debtors, for amounts and upon
terms which Bank determines to be reasonable; and (g) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in clause (g) above,
regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower’s
attorney in fact, and each and every one of Bank’s rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank’s obligation to provide Credit Extensions
hereunder is terminated.
9.3
Accounts
Collection
. At any time after the
occurrence and during the continuance of an Event of Default, Bank may notify
any Person owing funds to Borrower of Bank’s security interest in such funds
and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank’s trustee, and immediately deliver such payments
to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.
9.4
Bank
Expenses
. If Borrower fails to pay
any amounts or furnish any required proof of payment due to third persons or
entities, as required under the terms of this Agreement, then Bank may do any
or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part
thereof; (b) set up such reserves under the Revolving Line as Bank
reasonably deems necessary to protect Bank from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type
discussed in Section 6.5 of this Agreement, and take any action with
respect to such policies as Bank deems prudent.
Any amounts so paid or deposited by Bank shall, upon written notice to
Borrower, constitute Bank Expenses, shall be immediately due and payable, and
shall bear interest at the then applicable rate hereinabove provided, and shall
be secured by the Collateral. Any
payments made by Bank shall not constitute an agreement by Bank to make similar
payments in the future or a waiver by Bank of any Event of Default under this
Agreement.
9.5
Bank’s
Liability for Collateral
. Bank has
no obligation to clean up or otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of
the Collateral shall be borne by Borrower unless such loss damage or
destruction is caused by Bank’s negligence or willful misconduct.
9.6
No
Obligation to Pursue Others
. Bank
has no obligation to attempt to satisfy the Obligations by collecting them from
any other Person liable for them and Bank may release, modify or waive any
collateral provided by any other Person to secure any of the Obligations, all
without affecting Bank’s rights against Borrower. Borrower waives any right it may have to
require Bank to pursue any other Person for any of the Obligations.
9.7
Remedies
Cumulative
. Bank’s rights and
remedies under this Agreement, the Loan Documents, and all other agreements
shall be cumulative. Bank shall have all
other rights and remedies not inconsistent herewith as provided under the Code,
by law, or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of
any Event of Default on Borrower’s part shall be deemed a continuing
waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank
18
shall be effective unless made
in a written document signed on behalf of Bank and then shall be effective only
in the specific instance and for the specific purpose for which it was
given. Borrower expressly agrees that
this Section may not be waived or modified by Bank by course of
performance, conduct, estoppel or otherwise.
9.8
Demand;
Protest
. Except as otherwise
provided in this Agreement, Borrower waives demand, protest, notice of protest,
notice of default or dishonor and any other notices relating to the Obligations
(except for notices of payment and nonpayment).
10.
NOTICES
.
Unless
otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by
telefacsimile to Borrower or to Bank, as the case may be, at its addresses set
forth below:
|
If to
Borrower:
|
|
ARRAY
BIOPHARMA, INC.
|
|
|
|
3200 Walnut
Street
|
|
|
|
Boulder, CO
80301
|
|
|
|
Attn: Chief
Financial Officer
|
|
|
|
FAX: (303)
381-6697
|
|
|
|
|
|
With a copy
to:
|
|
ARRAY
BIOPHARMA, INC.
|
|
|
|
3200 Walnut
Street
|
|
|
|
Boulder, CO
80301
|
|
|
|
Attn:
General Counsel
|
|
|
|
FAX: (303)
386-1290
|
|
|
|
|
|
If to Bank:
|
|
Comerica
Bank
|
|
|
|
2321
Rosecrans Ave., Suite 5000
|
|
|
|
El Segundo,
CA 90245
|
|
|
|
Attn:
Manager
|
|
|
|
FAX: (310)
297-2290
|
|
|
|
|
|
with a copy
to:
|
|
Comerica
Bank
|
|
|
|
10500 NE 8th
Street, Ste 1905
|
|
|
|
Bellevue, WA
98004
|
|
|
|
Attn: Jeff
Roberts – Vice President
|
|
|
|
FAX: (425)
452-2510
|
The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11.
CHOICE
OF LAW AND VENUE; JURY TRIAL WAIVER
.
This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of California, without regard to principles of conflicts of
law. Each of Borrower and Bank hereby
submits to the exclusive jurisdiction of the state and Federal courts located
in the County of Santa Clara, State of California. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE
WAIVED. EACH OF THEM, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE
TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS
(WHETHER ORAL
19
OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE
BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.
12.
REFERENCE
PROVISION
.
The
parties prefer that any dispute between them be resolved in litigation subject
to a Jury Trial Waiver as set forth in Section 11 of this Agreement, but
the availability of that process is in doubt because of the opinion of the
California Court of Appeal in
Grafton
Partners LP v. Superior Court
, 9 Cal.Rptr.3d 511. This Reference Provision will be applicable
until the California Supreme Court completes its review of that case, and will
continue to be applicable if either that court or a California Court of Appeal
publishes a decision holding that a pre-dispute Jury Trial Waiver provision
similar to that contained in the Loan Documents is invalid or
unenforceable. Delay in requesting
appointment of a referee pending review of any such decision, or participation
in litigation pending review, will not be deemed a waiver of this Reference
Provision.
12.1
Mechanics
.
(a)
Other
than (i) nonjudicial foreclosure of security interests in real or personal
property, (ii) the appointment of a
receiver or (iii) the exercise of other provisional remedies (any of which
may be initiated pursuant to applicable law), any controversy, dispute or claim
(each, a “Claim”) between the parties arising out of or relating to this
Agreement or any other document, instrument or agreement between the Bank and
the undersigned (collectively in this Section, the “Loan Documents”), will be
resolved by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil
Procedure (“CCP”), or their successor sections, which shall constitute the
exclusive remedy for the resolution of any Claim, including whether the Claim
is subject to the reference proceeding.
Except as otherwise provided in the Loan Documents, venue for the
reference proceeding will be in the Superior Court or Federal District Court in
the County or District where venue is otherwise appropriate under applicable
law (the “Court”).
(b)
The
referee shall be a retired Judge or Justice selected by mutual written
agreement of the parties. If the parties
do not agree, the referee shall be selected by the Presiding Judge of the Court
(or his or her representative). A
request for appointment of a referee may be heard on an
ex parte
or expedited basis, and the
parties agree that irreparable harm would result if ex parte relief is not
granted. The referee shall be appointed
to sit with all the powers provided by law.
Each party shall have one peremptory challenge pursuant to CCP
§170.6. Pending appointment of the
referee, the Court has power to issue temporary or provisional remedies.
(c)
The
parties agree that time is of the essence in conducting the reference
proceedings. Accordingly, the referee
shall be requested to (a) set the matter for a status and trial-setting
conference within fifteen (15) days after the date of selection of the referee,
(b) if practicable, try all issues of law or fact within ninety (90) days
after the date of the conference and (c) report a statement of decision
within twenty (20) days after the matter has been submitted for decision. Any decision rendered by the referee will be
final, binding and conclusive, and judgment shall be entered pursuant to CCP
§644.
(d)
The
referee will have power to expand or limit the amount and duration of
discovery. The referee may set or
extend discovery deadlines or cutoffs for good cause, including a party’s
failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered, no party shall be
entitled to “priority” in conducting discovery, depositions may be taken by
either party upon seven (7) days written notice, and all other discovery
shall be responded to within fifteen (15) days after service. All disputes relating to discovery which
cannot be resolved by the parties shall be submitted to the referee whose
decision shall be final and binding.
12.2
Procedures
. Except as expressly set forth in this
Agreement, the referee shall determine the manner in which the reference
proceeding is conducted including the time and place of hearings, the order of
presentation of evidence, and all other questions that arise with respect to
the course of the reference proceeding.
All proceedings and hearings conducted before the referee, except for
trial, shall be conducted without a court reporter, except that when any party
so requests, a court reporter will be used at any hearing conducted before the
referee, and the referee will be provided a courtesy copy of the
transcript. The party making such a
request shall
20
have the obligation to arrange
for and pay the court reporter. Subject
to the referee’s power to award costs to the prevailing party, the parties will
equally share the cost of the referee and the court reporter at trial.
12.3
Application
of Law
. The referee shall be
required to determine all issues in accordance with existing case law and the
statutory laws of the State of California.
The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, provide all temporary or provisional
remedies, enter equitable orders that will be binding on the parties and rule on
any motion which would be authorized in a trial, including without limitation
motions for summary judgment or summary adjudication . The referee shall issue a decision at the
close of the reference proceeding which disposes of all claims of the parties
that are the subject of the reference.
The referee’s decision shall be entered by the Court as a judgment or an
order in the same manner as if the action had been tried by the Court. The parties reserve the right to appeal from
the final judgment or order or from any appealable decision or order entered by
the referee. The parties reserve the
right to findings of fact, conclusions of laws, a written statement of
decision, and the right to move for a new trial or a different judgment, which
new trial, if granted, is also to be a reference proceeding under this
provision.
12.4
Repeal
. If the enabling legislation which provides
for appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by reference
procedure will be resolved and determined by arbitration. The arbitration will be conducted by a
retired judge or Justice, in accordance with the California Arbitration Act
§1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set
forth above shall apply to any such arbitration proceeding.
12.5
THE
PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE
PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY, AND THAT THEY ARE IN
EFFECT WAIVING THEIR RIGHT TO TRIAL BY JURY IN AGREEING TO THIS REFERENCE
PROVISION. AFTER CONSULTING (OR HAVING
HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY
KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS
REFERENCE PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT OF
OR IS RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS.
13.
GENERAL
PROVISIONS
.
13.1
Successors
and Assigns
. This Agreement shall
bind and inure to the benefit of the respective successors and permitted
assigns of each of the parties and shall bind all Persons who become bound as a
debtor to this Agreement; provided, however, that neither this Agreement nor
any rights hereunder may be assigned by Borrower without Bank’s prior written
consent, which consent may be granted or withheld in Bank’s sole
discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank’s
obligations, rights and benefits hereunder.
13.2
Indemnification
. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities claimed or asserted by any other party in connection with the
transactions contemplated by this Agreement; and (b) all losses or Bank
Expenses in any way suffered, incurred, or paid by Bank, its officers,
employees and agents as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under this
Agreement, or otherwise (including without limitation reasonable attorneys’
fees and expenses), except for losses caused by Bank’s gross negligence or
willful misconduct.
13.3
Time
of Essence
. Time is of the essence
for the performance of all obligations set forth in this Agreement.
13.4
Severability
of Provisions
. Each provision of
this Agreement shall be severable from every other provision of this Agreement
for the purpose of determining the legal enforceability of any specific
provision.
21
13.5
Amendments
in Writing, Integration
. All
amendments to or terminations of this Agreement or the other Loan Documents
must be in writing. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement and the
other Loan Documents, if any, are merged into this Agreement and the Loan
Documents.
13.6
Counterparts
. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.
13.7
Survival
. All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding or Bank has any obligation to make any Credit
Extension to Borrower. The obligations
of Borrower to indemnify Bank with respect to the expenses, damages, losses,
costs and liabilities described in Section 13.2 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Bank have run.
22
IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be executed as of the
date first above written.
|
|
ARRAY
BIOPHARMA, INC.
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By:
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/s/ R.
Michael Carruthers
|
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Title:
|
CFO
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COMERICA
BANK
|
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By:
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Title:
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[
Signature Page to
Loan and Security Agreement
]
|
DEBTOR
|
ARRAY
BIOPHARMA, INC.
|
|
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|
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SECURED
PARTY:
|
COMERICA
BANK
|
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All
personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
(a)
all
accounts (including health-care-insurance receivables), cash, deposit accounts,
documents (including negotiable documents), equipment (including all accessions
and additions thereto), fixed assets, payment intangibles, goods (including
fixtures), inventory (i.e. all goods held for sale or lease or to be furnished
under a contract of service, and including returns and repossessions),
investment property (including securities and securities entitlements), letter
of credit rights, money, and the content of all of Debtor’s books and records
with respect to any of the foregoing, and that portion of the content of all
the computers and equipment containing said books and records;
(b)
any
and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment. All terms above have the meanings given to
them in the California Uniform Commercial Code, as amended or supplemented from
time to time, including revised Division 9 of the Uniform Commercial
Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35,
operative July 1, 2001.
The
Collateral shall not include any copyrights, patents, trademarks, servicemarks
and applications therefor, now owned or hereafter acquired, or any claims for
damages by way of any past, present and future infringement of any of the
foregoing (collectively, the “Intellectual Property”); provided, however, that
the Collateral shall include all accounts and general intangibles that consist
of rights to payment and proceeds from the sale, licensing or disposition of
all or any part, or rights in, the foregoing (the “Rights to Payment”).
EXHIBIT B
TECHNOLOGY & LIFE SCIENCES
DIVISION
LOAN ANALYSIS
LOAN ADVANCE/PAYDOWN REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS [3:00* P.M.,
Pacific Time/ 3:30 P.M. Eastern Time]
DEADLINE FOR EQUIPMENT ADVANCES IS [3:00 P.M.,
Pacific Time/ 3:30 P.M. Eastern Time ]**
DEADLINE FOR WIRE TRANSFERS IS [1:30 P.M.,
Pacific Time/ 3:30 P.M. Eastern Time]
[*At month end and the day before a holiday, the cut
off time is 1:30 P.M., Pacific Time]
**Subject to 3 day advance notice.
|
To: Loan Analysis
|
DATE:
|
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TIME:
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FAX #: (650) 846-6840
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FROM:
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ARRAY BIOPHARMA, INC.
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TELEPHONE REQUEST (For
Bank Use Only):
|
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Borrower’s Name
|
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FROM:
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The following person is
authorized to request the loan payment
|
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Authorized Signer’s
Name
|
transfer/loan advance
on the designated account and is known to me.
|
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FROM:
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Authorized Signer’s
Name
|
Authorized
Request & Phone #
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PHONE #:
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Received by
(Bank) & Phone #
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FROM ACCOUNT#:
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(please include Note
number, if applicable)
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TO ACCOUNT #:
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Authorized Signature
(Bank)
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(please include Note
number, if applicable)
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REQUESTED TRANSACTION TYPE
|
REQUESTED DOLLAR AMOUNT
|
For Bank Use Only
|
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PRINCIPAL INCREASE*
(ADVANCE)
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$
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Date Rec’d:
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PRINCIPAL PAYMENT
(ONLY)
|
$
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Time:
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Comp. Status:
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YES
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NO
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OTHER INSTRUCTIONS:
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Status Date:
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Time:
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Approval:
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All
representations and warranties of Borrower stated in the Loan Agreement are
true, correct and complete in all material respects as of the date of the
telephone request for and advance confirmed by this Borrowing Certificate,
including without limitation the representation that Borrower has paid for and
owns the equipment financed by the Bank; provided, however, that those
representations and warranties the date expressly referring to another date
shall be true, correct and complete in all material respects as of such date.
|
*IS THERE A WIRE REQUEST TIED TO THIS LOAN
ADVANCE? (PLEASE CIRCLE ONE
|
YES
|
NO
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If YES, the Outgoing
Wire Transfer Instructions must be completed below.
|
|
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OUTGOING WIRE TRANSFER INSTRUCTIONS
|
Fed Reference Number
|
Bank Transfer Number
|
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The items marked with an asterisk (*) are required
to be completed.
|
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*Beneficiary Name
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*Beneficiary Account
Number
|
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*Beneficiary Address
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Currency Type
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US DOLLARS ONLY
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*ABA Routing Number (9
Digits)
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*Receiving Institution
Name
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*Receiving Institution
Address
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*Wire Account
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$
|
EXHIBIT C
COMPLIANCE
CERTIFICATE
|
TO:
|
COMERICA
BANK
|
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FROM:
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ARRAY
BIOPHARMA, INC.
|
The
undersigned authorized officer of ARRAY BIOPHARMA, INC. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending
with all required covenants except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are true and
correct as of the date hereof. Attached
herewith are the required documents supporting the above certification. The Officer further certifies that these are
prepared in accordance with Generally Accepted Accounting Principles (GAAP) and
are consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
Please indicate
compliance status by circling Yes/No under “Complies” column.
|
Reporting Covenant
|
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Required
|
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Complies
|
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Monthly
financial statements
|
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Monthly
within 20 days
|
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Yes
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No
|
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Annual (CPA
Audited)
|
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Within 5
days of SEC 10-K filing requirements
|
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Yes
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No
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10K and 10Q
|
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Within 5
days of filing
|
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Yes
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No
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Cash Balance
Certificate
|
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Monthly
within 5 days plus daily real time monitoring
|
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Yes
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No
|
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Compliance
Cert.
|
|
Monthly
within 20 days AND w/in 5 days of SEC 10-Q filing requirements
|
|
Yes
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No
|
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A/R Audit
|
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Initial and
Semi-Annual
|
|
Yes
|
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No
|
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Financial Covenant
|
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Required
|
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Actual
|
|
Complies
|
|
|
|
|
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|
|
|
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Measured on
a Daily Basis:
|
|
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|
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Minimum unrestricted Cash at Bank:
|
|
|
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|
|
|
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If total Cash is at least $30,000,000
|
|
$
|
2,000,000
|
|
$
|
|
|
Yes
|
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No
|
|
|
If total Cash is less than $30,000,000 but
|
|
|
|
|
|
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|
|
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|
greater than $25,000,000
|
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$
|
8,500,000
|
|
$
|
|
|
Yes
|
|
No
|
|
|
If total Cash is less than $25,000,000
|
|
$
|
17,000,000
|
|
$
|
|
|
Yes
|
|
No
|
|
|
Minimum total Cash
|
|
$
|
20,000,000
|
|
$
|
|
|
Yes
|
|
No
|
|
|
Comments Regarding
Exceptions:
See Attached.
|
|
BANK USE ONLY
|
|
|
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Received by:
|
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Sincerely,
|
|
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AUTHORIZED SIGNER
|
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Date:
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Verified:
|
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SIGNATURE
|
|
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AUTHORIZED SIGNER
|
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|
Date:
|
|
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|
|
TITLE
|
|
|
|
|
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Compliance Status
|
Yes
|
No
|
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|
|
DATE
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SCHEDULE OF EXCEPTIONS
Permitted
Indebtedness
(Section 1.1)
•
Letter of
Credit #00336085 issued by Bank One in favor of Amgen: $1,873,245.82
•
Letter of
Credit #00336083 issued by Bank One in favor of Pratt: $54,432.00
•
Letter of
Credit #00336083 issued by Bank One in favor of Pratt: $52,000.00
Permitted
Investments
(Section 1.1)
•
JP Morgan
Chase Checking Account (has a Money Market overnight sweep attached to it)
•
JP Morgan
Chase Liquidity Account (Money Market
Collateral account for current L/C’s)
•
Lehman
Brothers
•
Reliance
Trust Deferred Compensation Plan
•
Deutsche
Bank Alex Brown Clearing account for employee stock option transactions
Permitted
Liens
(Section
1.1)
2003
Chevy Van (Model CUTA) financed through GMAC, 60 mths 0% interest,
effective4/03
Prior Names
(Section 5.5)
None.
Litigation
(Section 5.6)
None.
Inbound
Licenses
(Section 5.12)
None.
Corporation
Resolutions and Incumbency Certification
Authority
to Procure Loans
I
certify that I am the duly elected and qualified Secretary of ARRAY BIOPHARMA,
INC.; that the following is a true and correct copy of resolutions duly adopted
by the Board of Directors of the Corporation in accordance with its bylaws and
applicable statutes.
Copy of Resolutions:
Be it
Resolved, That:
1.
Any
one (1) of the following
(insert titles only) of the Corporation are/is authorized, for, on behalf of,
and in the name of the Corporation to:
(a)
Negotiate
and procure loans, letters of credit and other credit or financial
accommodations from Comerica Bank (“Bank”), a Michigan banking corporation,
including, without limitation, that certain Loan and Security Agreement dated
as of June , 2005, as may subsequently be amended from
time to time.
(b)
Discount
with the Bank, commercial or other business paper belonging to the Corporation
made or drawn by or upon third parties, without limit as to amount;
(c)
Purchase,
sell, exchange, assign, endorse for transfer and/or deliver certificates and/or
instruments representing stocks, bonds, evidences of Indebtedness or other
securities owned by the Corporation, whether or not registered in the name of
the Corporation;
(d)
Give
security for any liabilities of the Corporation to the Bank by grant, security
interest, assignment, lien, deed of trust or mortgage upon any real or personal
property, tangible or intangible of the Corporation; and
(e)
Execute
and deliver in form and content as may be required by the Bank any and all
notes, evidences of Indebtedness, applications for letters of credit,
guaranties, subordination agreements, loan and security agreements, financing
statements, assignments, liens, deeds of trust, mortgages, trust receipts and
other agreements, instruments or documents to carry out the purposes of these
Resolutions, any or all of which may relate to all or to substantially all of
the Corporation’s property and assets.
2.
Said
Bank be and it is authorized and directed to pay the proceeds of any such loans
or discounts as directed by the persons so authorized to sign, whether so
payable to the order of any of said persons in their individual capacities or
not, and whether such proceeds are deposited to the individual credit of any of
said persons or not;
3.
Any
and all agreements, instruments and documents previously executed and acts and
things previously done to carry out the purposes of these Resolutions are
ratified, confirmed and approved as the act or acts of the Corporation.
4.
These
Resolutions shall continue in force, and the Bank may consider the holders of
said offices and their signatures to be and continue to be as set forth in a
certified copy of these Resolutions delivered to the Bank, until notice to the
contrary in writing is duly served on the Bank (such notice to have no effect
on any action previously taken by the Bank in reliance on these Resolutions).
5.
Any
person, corporation or other legal entity dealing with the Bank may rely upon a
certificate signed by an officer of the Bank to effect that these Resolutions
and any agreement, instrument or document executed pursuant to them are still
in full force and effect and binding upon the Corporation.
1
6.
The
Bank may consider the holders of the offices of the Corporation and their
signatures, respectively, to be and continue to be as set forth in the
Certificate of the Secretary of the Corporation until notice to the contrary in
writing is duly served on the Bank.
I
further certify that the above Resolutions are in full force and effect as of
the date of this Certificate; that these Resolutions and any borrowings or
financial accommodations under these Resolutions have been properly noted in
the corporate books and records, and have not been rescinded, annulled, revoked
or modified; that neither the foregoing Resolutions nor any actions to be taken
pursuant to them are or will be in contravention of any provision of the
articles of incorporation or bylaws of the Corporation or of any agreement,
indenture or other instrument to which the Corporation is a party or by which
it is bound; and that neither the articles of incorporation nor bylaws of the
Corporation nor any agreement, indenture or other instrument to which the
Corporation is a party or by which it is bound require the vote or consent of
shareholders of the Corporation to authorize any act, matter or thing described
in the foregoing Resolutions.
I
further certify that the following named persons have been duly elected to the
offices set opposite their respective names, that they continue to hold these
offices at the present time, and that the signatures which appear below are the
genuine, original signatures of each respectively:
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS
BELOW)
|
NAME
(Type or Print)
|
|
TITLE
|
|
SIGNATURE
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
In
Witness Whereof, I have affixed my name as Secretary and have caused the
corporate seal (where available) of said Corporation to be affixed on June ,
2005.
|
The
Above Statements are Correct.
|
|
|
|
SIGNATURE
OF OFFICER OR DIRECTOR OR, IF NONE. A SHAREHOLDER OTHER THAN SECRETARY WHEN
SECRETARY IS AUTHORIZED TO SIGN ALONE.
|
Failure to
complete the above when the Secretary is authorized to sign alone shall
constitute a certification by the Secretary that the Secretary is the sole
Shareholder, Director and Officer of the Corporation.
2
ATTN: ARRAY
BIOPHARMA, INC.
USA PATRIOT ACT
NOTICE
OF
CUSTOMER IDENTIFICATION
IMPORTANT
INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
To help the government fight the
funding of terrorism and money laundering activities, Federal law requires all
financial institutions to obtain, verify, and record information that
identifies each person who opens an account.
WHAT THIS MEANS FOR YOU: when you open an account, we will ask your
name, address, date of birth, and other information that will allow us to
identify you. We may also ask to see
your driver’s license or other identifying documents.
COMERICA BANK
Member FDIC
ITEMIZATION OF
AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(Revolver)
|
Name(s): ARRAY BIOPHARMA, INC.
|
Date: June 28, 2005
|
|
|
|
|
$10,000,000.00
|
|
credited
to deposit account No.
when Advances are requested or disbursed to Borrower by cashiers check or by
wire transfer
|
|
|
|
Amounts
paid to others on your behalf:
|
|
|
|
|
$0
|
|
to
Comerica Bank for Loan Fee
|
|
|
|
|
|
|
|
$0
|
|
to
Comerica Bank for Document Fee
|
|
|
|
|
|
|
|
$0
|
|
to
Comerica Bank for accounts receivable audit (estimate)
|
|
|
|
|
|
|
|
$0
|
|
to
Bank counsel fees and expenses
|
|
|
|
|
|
|
|
$0
|
|
to
|
|
|
|
|
|
|
|
|
|
$0
|
|
to
|
|
|
|
|
|
|
|
|
|
$10,000,000.00
|
|
TOTAL
(AMOUNT FINANCED)
|
|
|
|
|
|
|
|
|
Upon
consummation of this transaction, this document will also serve as the
authorization for Comerica Bank to disburse the loan proceeds as stated above.
|
/s/ R. Michael
Carruthers
|
|
|
|
Signature
|
|
Signature
|
COMERICA BANK
Member FDIC
ITEMIZATION OF
AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(Term Loan)
|
Name(s): ARRAY BIOPHARMA, INC.
|
Date: June 28, 2005
|
|
|
|
|
$10,000,000.00
|
|
credited
to deposit account No.
when Advances are requested or disbursed to Borrower by cashiers check or by
wire transfer
|
|
|
|
|
|
Amounts
paid to others on your behalf:
|
|
|
|
|
$0
|
|
to
Comerica Bank for Loan Fee
|
|
|
|
|
|
|
|
$0
|
|
to
Comerica Bank for Document Fee
|
|
|
|
|
|
|
|
$0
|
|
to
Comerica Bank for accounts receivable audit (estimate)
|
|
|
|
|
|
|
|
$0
|
|
to
Bank counsel fees and expenses
|
|
|
|
|
|
|
|
$0
|
|
to
|
|
|
|
|
|
|
|
|
|
$0
|
|
to
|
|
|
|
|
|
|
|
|
|
$10,000,000.00
|
|
TOTAL
(AMOUNT FINANCED)
|
|
|
|
|
|
|
|
|
Upon
consummation of this transaction, this document will also serve as the
authorization for Comerica Bank to disburse the loan proceeds as stated above.
|
/s/
R. Michael Carruthers
|
|
|
|
Signature
|
|
Signature
|
AGREEMENT TO
PROVIDE INSURANCE
|
TO:
|
|
COMERICA BANK
|
|
Date: June 28, 2005
|
|
|
|
Attn: Deni M. Snider, MC 4770
|
|
|
|
|
|
75 E. Trimble Road
|
|
|
|
|
|
San Jose, CA 95131
|
|
Borrower: ARRAY BIOPHARMA, INC.
|
In
consideration of a loan in the amount of $17,000,000, secured by all tangible
personal property including inventory and equipment.
I/We
agree to obtain adequate insurance coverage to remain in force during the term
of the loan.
I/We
also agree to advise the below named agent to add Comerica Bank as lender’s
loss payable on the new or existing insurance policy, and to furnish Bank at
above address with a copy of said policy/endorsements and any subsequent
renewal policies.
I/We
understand that the policy must contain:
1.
Fire
and extended coverage in an amount sufficient to cover:
(a)
The
amount of the loan, OR
(b)
All
existing encumbrances, whichever is greater,
But
not in excess of the replacement value of the improvements on the real
property.
2.
Lender’s
“Loss Payable” Endorsement Form 438 BFU in favor of Comerica Bank, or any
other form acceptable to Bank.
INSURANCE
INFORMATION
|
Insurance
Co./Agent
|
Telephone
No.:
|
Agent’s
Address:
|
|
Signature of Obligor:
|
/s/ R. Michael Carruthers
|
|
|
|
|
|
|
Signature of Obligor:
|
|
|
|
|
|
|
FOR BANK USE ONLY
|
|
|
|
INSURANCE
VERIFICATION: Date:
|
|
|
|
Person
Spoken to:
|
|
|
|
Policy
Number:
|
|
|
|
Effective
From:
|
|
To:
|
|
|
|
Verified
by:
|
|
|
|
|
|
|
|
|
|
COMERICA
BANK
|
|
|
|
Member FDIC
|
|
AUTOMATIC DEBIT
AUTHORIZATION
|
|
To:
|
Comerica
Bank
|
|
|
|
Re:
|
Loan #
|
|
|
|
|
|
You are hereby
authorized and instructed to charge account No.
in the name of ARRAY BIOPHARMA, INC.
|
|
for principal, interest
and other payments due on above referenced loan as set forth below and credit
the loan referenced above.
|
|
|
|
|
ý
Debit
each interest payment as it becomes due according to the terms of the Loan
and Security Agreement and any renewals or amendments thereof.
|
|
|
|
|
|
ý
Debit
each principal payment as it becomes due according to the terms of the Loan
and Security Agreement and any renewals or amendments thereof.
|
|
|
|
|
|
ý
Debit
each payment for Bank Expenses as it becomes due according to the terms of
the Loan and Security Agreement and any renewals or amendments thereof.
|
|
|
|
|
This Authorization is
to remain in full force and effect until revoked in writing.
|
|
|
|
|
|
|
|
|
Borrower
Signature
|
Date
|
|
|
|
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/s/
R. Michael Carruthers
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June 28,
2005
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June ,
2005
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COMERICA
BANK
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Member FDIC
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AUTOMATIC DEBIT
AUTHORIZATION
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To:
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Comerica
Bank
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Re:
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Loan #
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You are hereby
authorized and instructed to charge account No.
in the name of ARRAY BIOPHARMA, INC.
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for principal, interest
and other payments due on above referenced loan as set forth below and credit
the loan referenced above.
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ý
Debit
each interest payment as it becomes due according to the terms of the Loan
and Security Agreement and any renewals or amendments thereof.
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ý
Debit
each principal payment as it becomes due according to the terms of the Loan
and Security Agreement and any renewals or amendments thereof.
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ý
Debit
each payment for Bank Expenses as it becomes due according to the terms of
the Loan and Security Agreement and any renewals or amendments thereof.
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This Authorization is
to remain in full force and effect until revoked in writing.
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Borrower
Signature
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Date
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/s/
R. Michael Carruthers
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June 28,
2005
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June ,
2005
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COMERICA BANK
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COMERICA BANK
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CLIENT AUTHORIZATION
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Fax (425)
452-2510
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General
Authorization
I
hereby authorize Comerica Bank to use my company name, logo, and information
relating to our banking relationship in its marketing and advertising campaigns
which is intended for Comerica Bank’s customers, prospects and shareholders.
Comerica
Bank will forward any advertising or article including client for prior
review and approval.
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/s/
R. Michael Carruthers
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Signature
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R. Michael Carruthers
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CFO
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Printed Name
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Title
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Array BioPharma Inc.
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Company
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3200 Walnut St.
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Mailing Address
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Boulder, CO 80301
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City, State, Zip Code
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Phone Number
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Fax Number
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E-Mail
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June 28, 2005
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DEBTOR
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ARRAY BIOPHARMA,
INC.
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SECURED PARTY:
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COMERICA BANK
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EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO UCC NATIONAL FORM FINANCING STATEMENT
All
personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
(a)
all
accounts (including health-care-insurance receivables), cash, deposit accounts,
documents (including negotiable documents), equipment (including all accessions
and additions thereto), fixed assets, payment intangibles, goods (including
fixtures), inventory (i.e. all goods held for sale or lease or to be furnished
under a contract of service, and including returns and repossessions),
investment property (including securities and securities entitlements), letter
of credit rights, money, and the content of all of Debtor’s books and records with
respect to any of the foregoing, and that portion of the content of all the
computers and equipment containing said books and records;
(b)
any
and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment. All terms above have the meanings given to
them in the California Uniform Commercial Code, as amended or supplemented from
time to time, including revised Division 9 of the Uniform Commercial
Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35,
operative July 1, 2001.
The
Collateral shall not include any copyrights, patents, trademarks, servicemarks
and applications therefor, now owned or hereafter acquired, or any claims for
damages by way of any past, present and future infringement of any of the
foregoing (collectively, the “Intellectual Property”); provided, however, that
the Collateral shall include all accounts and general intangibles that consist
of rights to payment and proceeds from the sale, licensing or disposition of
all or any part, or rights in, the foregoing (the “Rights to Payment”).
Exhibit 10.31
[ * ] = 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.
ADDENDUM #4 TO LEASE AGREEMENT
THIS
ADDENDUM #4 TO LEASE AGREEMENT, dated as of September 13,
2005, is entered into by and between CIRCLE CAPITAL LONGMONT LLC, a
Delaware limited liability company (“Landlord”) and ARRAY BIOPHARMA, INC., a
Delaware corporation (“Tenant”).
Recitals
:
A.
Landlord’s predecessor in interest and Tenant entered into a written lease
agreement, dated February 28, 2000,
as amended by Addendum to Lease Agreement #1 dated May 24, 2001 (“Addendum
#1), Addendum to Lease Agreement #2, dated February 11, 2002, and Addendum
to Lease Agreement dated November 30, 2004 (collectively, the “Lease”),
pertaining to Suites A & B of the Building located at 2620 Trade
Centre Avenue which Premises consist of approximately 43,200 rentable square
feet of space (the “Premises”). (Initially capitalized terms not
otherwise defined herein have the same meaning as in the Lease.)
B.
Landlord and Tenant are also parties to a
lease for space in the building located at 2600 Trade Centre Avenue (the “2600
Lease”).
C.
Landlord and Tenant desire to amend the Lease
in the manner and form hereinafter set forth.
NOW,
THEREFORE, for good and valuable consideration, Landlord and Tenant hereby
agree as follows:
1.
Extension Term.
The term of the Lease is extended to expire March 31, 2008 (the “Expiration
Date”), subject to the terms of the Lease as herein specifically amended. Unless Tenant exercises its option (a) under
Section 10.C(2)b below to maintain the Expiration Date as March 31,
2008, then on the first anniversary after mutual execution of this Lease, the
term of the Lease shall automatically extend to expire May 31, 2013, which
date shall thereafter be deemed the Expiration Date (the period from June 1,
2005 through the Expiration Date is sometimes referred to as the “Extended
Term.”).
2.
Base Rental.
Notwithstanding anything to the contrary contained in the Lease,
commencing June 1, 2005, Tenant shall pay, in the manner set forth in the
Lease, monthly Base Rental for the Premises, calculated on the basis of the
annual per square foot rate set forth below, as follows:
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Monthly
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Annual Per
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Period
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Base Rental
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Sq. Ft. Rate
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6/1/2005 –
5/31/2006
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$
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36,000.00
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$
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10.00
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6/1/2006 –
5/31/2007
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$
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37,080.00
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$
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10.30
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6/1/2007 –
5/31/2008
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$
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38,196.00
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$
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10.61
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6/1/2008 –
5/31/2009
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$
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39,348.00
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$
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10.93
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6/1/2009 –
5/31/2010
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$
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40,536.00
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$
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11.26
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6/1/2010 –
5/31/2011
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$
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41,724.00
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$
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11.59
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6/1/2011 –
5/31/2012
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$
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42,984.00
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$
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11.94
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6/1/2012 –
5/31/2013
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$
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44,280.00
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$
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12.30
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3.
Additional Rent.
During the Extended Term, in addition to Base
Rent set forth above, Tenant shall pay all other amounts payable under the
Lease; provided, however, Section 4.2 of the Lease, Escalation of Base
Rental, shall not be applicable during the Extended Term. Tenant’s payment obligations under the Lease
shall
[ * ] = 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.
include (without limitation) the payment of
additional rent under Sections 4.3 (including a management fee), 4.4, 5, and
18.1.
4.
Improvement Allowances.
Landlord has no obligation to improve or remodel
the Premises and Tenant accepts the Premises in their “as is” condition on June 1,
2005 for the Extended Term.
Notwithstanding the foregoing, Landlord agrees to make the following
payments to Tenant: (i) within 30 days following the delivery of this
Addendum, mutually executed, Landlord will pay Tenant
[
*
]
as a reimbursement to Tenant for existing improvements in the Premises (the “First
Allowance”); and (ii) promptly after June 1, 2010, Landlord will pay
Tenant
[
*
]
(the “Second Allowance”) as a reimbursement
to Tenant for existing improvements in the Premises; provided that, if Tenant
exercises its option under Section 10.C(2) below to maintain the
Expiration Date as March 31, 2008, the Second Allowance will no longer be
applicable. If there is an uncured event
of default by Tenant at the time Landlord is obligated to pay the respective
allowance, Landlord shall have the right to withhold payment of the respective
allowance until such event of default is cured.
Any amounts expended by Tenant in excess of the allowances shall be at
Tenant’s sole cost and expense. Any
alterations and improvements to the Premises by Tenant are subject to the terms
of the Lease, including obtaining Landlord’s prior consent if required by the
terms of the Lease.
5.
Security
. During the term of the Lease as extended,
Landlord shall hold the deposit in accordance with Section 4.6 of the
Lease.
6.
Maintenance.
Landlord agrees during the term of this Lease
that Landlord’s obligations under Section 4.3 of the Lease shall include
painting and other changes to the exterior of the Building in which the
Premises are located and maintenance and replacement of the landscaping for the
Building in accordance with the standards and a general plan for improvement of
the overall 41 building development in Longmont, Colorado owned by Landlord
(the “Park”), as adopted by Landlord from time to time.
7.
Signage.
Tenant shall have the right to seek approval for the maximum permitted
signage under existing laws, codes, regulations and covenants and Landlord
shall use reasonable efforts to support any such application for approval, at
Tenant’s sole cost and expense, provided, however, that such signage meets
Landlord’s specifications, including any covenants or declarations pertaining
to the Building. All costs associated
with installation, maintenance, operation, and removal will be at Tenant’s cost
and expense.
8.
Security and Improvements.
Tenant shall have the right to seek approval for the installation and
construction of a security gate, fence, additional building connections and
conversion of buildings that are part of the Premises for biotech research and
Landlord shall use reasonable efforts to support any such application for
approval, subject to Landlord’s approval of the form of any such improvements
in accordance with Section 10 of the Lease, such approval not to be
unreasonably withheld. All costs
associated with installation, maintenance and operation of the aforementioned
capital improvements shall be at Tenant’s sole cost and expense. Any prior requirements for Tenant to restore
the Premises upon termination of the Lease are no longer operative. Tenant shall, at Landlord’s option, remove
all furniture, fixtures and equipment (“FF&E”), including but not limited
to, Tenant’s air handling systems, and any repairs associated with the removal
of such FF&E and to repair any roof penetrations or other damage due to
such FF&E, upon the Expiration Date or earlier termination of this Lease.
9.
Extension Option.
Any
options under the Lease to extend the Term or renew the Lease are no longer
available to Tenant; provided, however, Landlord hereby grants Tenant an option
(the “Option”) to extend the term of the Lease for three additional consecutive
terms of five years each (the “Option Terms”).
The Option Terms apply only to the Premises, and are subject to the
following terms and conditions:
A.
Tenant shall deliver written notice of its
interest in exercising the Option (“Tenant’s Notice”) to Landlord not less than
180 days prior to the expiration of the then-existing Lease term. If the Landlord does not receive the Tenant’s
Notice to exercise the Option in advance of the 180 days prior to expiration,
Landlord will give final notice to Tenant of expiration of the Option, and
Tenant shall have 15 days from the final notice to provide Tenant’s
Notice. Not later than thirty (30) days
after receiving Tenant’s Notice, Landlord will notify Tenant
2
[ * ] = 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.
of the Base Rental applicable during the Option
Term in accordance with subparagraph E below (“Landlord’s Notice”).
B.
Tenant has either (i) 15 days after
receipt of Landlord’s Notice, or (ii) in the event of a dispute over
computation of the applicable Base Rental during the Option Term, 15 days after
the conclusion of an arbitration proceeding as set forth in subparagraph D
below, to exercise the Option by delivering notice of exercise to
Landlord. If Tenant timely exercises the
Option, the Term will be deemed extended on the terms of this Section and
the parties will execute an amendment evidencing the extension.
C.
Unless Landlord is timely notified by Tenant
in accordance with subparagraphs A and B above, it will be conclusively deemed
that Tenant has not exercised the Option and the Lease will expire in
accordance with its terms on the Expiration Date.
D.
Tenant’s rights pursuant to this Paragraph
are personal to Tenant and may not be assigned.
Tenant’s right to exercise the Option is conditioned on no Event of
Default existing at the time of exercise or at the time of commencement of the
Option Term under this Lease or under the 2600 Lease.
E.
The Option granted hereunder will be upon the
terms of the Lease, except that the Base Rental during the Option Term will be
[
*
]
of the fair market rate at which space in comparable flex/office buildings in
Longmont as if such space were available for leasing “as-is” without regard to
improvements performed by Tenant for a lease term paralleling the Option Term,
but in no event will the Base Rental be less than the Rent in effect
immediately prior to commencement of the Option Term. If the Parties do not agree upon the
Base Rental for the Option Term, then such matters in issue shall be determined
by binding arbitration conducted in Boulder in accordance with the commercial
arbitration rules of the American Arbitration Association. Such arbitration shall be conducted as a “baseball”
style arbitration, so that the only decision of the arbitration shall be to
adopt the proposed Base Rental of either Landlord or Tenant. The arbitration shall be held before a single
arbitrator, who shall be an independent expert in the Colorado commercial real
estate industry mutually acceptable to the Parties. If the Parties are unable to agree on an
arbitrator, the arbitrator shall be an independent expert as described in the
preceding sentence selected by the chief executive of the Denver office of the
American Arbitration Association. The
decision rendered by the arbitrator shall be written, final and non
-
appealable and may be entered in any court of competent
jurisdiction. The costs of any
arbitration, including administrative fees and fees of the arbitrators, shall
be shared equally by the Parties, unless otherwise determined by the
arbitrator. Each Party shall bear the
cost of its own attorneys’ and expert fees; provided that the arbitrator may in
his discretion award to the prevailing Party the costs and expenses incurred by
the prevailing Party in connection with the arbitration proceeding. THE PARTIES AND ARBITRATOR SHALL USE ALL
DILIGENT EFFORTS TO COMPLETE ANY ARBITRATION OF A CLAIM OR DISPUTE DESCRIBED IN
THIS SECTION 8(E) WITHIN THIRTY (30) DAYS OF APPOINTMENT OF THE
ARBITRATOR.
F.
After exercise, or failure to exercise the
Option, Tenant shall have no further rights to extend the Term.
10.
Expansion Option.
Landlord hereby grants to Tenant an option to lease additional space
(the “Expansion Option”) in the buildings located at
[
*
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(the “Option Space”), which collectively comprise a total of 82,296 rentable
square feet, on the following basis:
A.
Tenant shall give written notice to Landlord
of its election to exercise the Expansion Option (“Tenant’s Expansion Notice”)
on or before the
[
*
]
day after mutual execution of this
Lease. If Tenant does not timely give
notice to Landlord it will be conclusively presumed Tenant waives its right to
exercise the Expansion Option and Tenant shall have no further rights to the
Option Space under this Expansion Option and this Expansion Option shall
thereupon automatically be of no further force and effect.
B.
Tenant’s Expansion Notice shall identify the
portion of the Option Space to be leased subject to the following requirements:
(i) Tenant must lease the entirety of the rentable area in a respective
building;
3
[ * ] = 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.
and (ii) Tenant must identify the space
in the order of the buildings listed above (i.e. any election must include
[
*
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first, then
[
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, and last
[
*
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).
C.
Tenant acknowledges that portions of the
Option Space are subject to leases with third parties and may continue to be
subject to the rights of such third parties at the time of delivery of Tenant’s
Expansion Notice. Following receipt of
Tenant’s Expansion Notice, Landlord shall use commercially reasonable efforts
to reach terms for relocation of tenants having rights to the Option Space, as
is necessary to permit Landlord to lease such space to Tenant; for purposes of
this provision, Landlord’s efforts shall be deemed commercially reasonable if
Landlord offers terms consistent with the current terms approved by Landlord’s
lender and investors for leasing of such relocation space at the time as
reflected in the current leasing proforma or leasing guidelines for such
property, as dated ,
plus an amount attributable to moving costs, lost time or other such costs
reasonably requested by tenants (without being obligated to fund such costs in
excess of the amount attributable to such costs that will be secured by the
Letter of Credit applicable to such relocated tenant under Section 10.D(4) below). Not later than
[
*
]
following receipt of Tenant’s Expansion Notice, Landlord shall inform Tenant in
writing as to which of the Option Space buildings, in accordance with Tenant’s
Expansion Notice, can be made available for lease by Tenant. The Option Space so identified shall
hereinafter be referred to as the “Expansion Premises.”
(1)
If the Expansion Premises include all of the
space identified in Tenant’s Expansion Notice, then the Expansion Option shall
be deemed exercised with respect to the Expansion Premises.
(2)
If the Expansion Premises do not include all
of the space identified in Tenant’s Expansion Notice, then not later than 150
days following receipt of Landlord’s identification of the Expansion Premises,
Tenant shall give written notice to Landlord either (i) of its election to
exercise the Expansion Option for the premises identified as the Expansion
Premises, (ii) of its intention to exercise the Expansion Option with
respect to different buildings within the Option Space by submitting a new
Tenant’s Expansion Notice, or (iii) that it declines to exercise the
Expansion Option with respect to any of the Option Space.
a.
In the event Tenant provides notice (ii) in
subparagraph (2) above, Tenant shall have the one-time option to purchase
any building identified in Tenant’s Expansion Notice that is not included in
the Expansion Premises upon the terms and conditions as specified under Section 12
below. These terms and conditions are to
include, but not be limited to, the identified time frames and pricing as
specified under Section 12.B.
Tenant’s exercise of the purchase option set forth in this subparagraph
shall be separate, and in addition to, the purchase option described in Section 12
below.
b.
In the event Tenant provides notice (iii) in
subparagraph (2) above, Tenant shall have (a) the right to maintain
the Expiration Date of the Lease and the 2600 Lease at March 31, 2008, and
(b) during the term of the Lease, the option to terminate the Lease, and
all obligations as set forth thereunder, by providing Landlord with one hundred
eighty (180) days written notice to terminate.
If Tenant exercises option (b) under this Section 10.C(2)b,
Tenant shall reimburse Landlord the unamortized First Allowance and the
commission paid by Landlord to Tenant’s Broker (as set forth on Exhibit B),
determined by amortizing such costs on a straight-line basis over the Extended
Term.
(3)
Except as otherwise set forth in this
Addendum, including the right of refusal set forth in Section 11, Tenant
shall have no further rights with respect to Option Space buildings that are
not included in Tenant’s Expansion Notice or which Landlord confirms are not
available, as provided in this subsection.
D.
Upon Tenant’s timely exercise of the
Expansion Option, the Expansion Premises shall be deemed leased and Landlord
and Tenant shall enter into a separate lease for each building in which the
Expansion Premises are located, evidencing such leasing on the terms and conditions
of this Lease, except as follows:
(1)
The term of the lease or leases shall be for
a period of 65 whole calendar months commencing on January 1, 2008.
4
[ * ] = 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.
(2)
Upon commencement, Tenant’s Base Rental on
the Expansion Premises shall be in the amount of
[
*
]
per rentable square foot, payable monthly in accordance with the Lease, and
commencing on the first anniversary date of each lease, and annually
thereafter, the Base Rental payable by Tenant shall be increased by
[
*
]
.
(3)
Landlord shall provide an improvements
allowance of
[
*
]
per rentable square foot of the Expansion
Premises payable upon Landlord’s written receipt of evidence indicating that
such tenant improvements have been made to the Expansion Premises by
Tenant. Any portion of the improvements
allowance not used within 12 months after the commencement date of the
respective lease shall be forfeited. All
improvements shall be subject to Landlord’s prior approval as set forth in the
Lease.
(4)
Not more than thirty days following Landlord’s
notice to Tenant identifying actual costs incurred by Landlord associated with
the relocation of existing tenants within the Expansion Premises, Tenant shall
deliver to Landlord a clean, unconditional, irrevocable letter of credit from a
lending institution reasonably acceptable to Landlord in the form attached
hereto as Exhibit A or other form approved by Landlord (the “Letter of
Credit”) in an amount not to exceed
[
*
]
to be made available as financial assurance for
the performance of Tenant’s obligations under the respective lease on the
following terms and conditions:
(a)
The Letter of Credit, or a renewal or
substitute therefor approved by Landlord, shall be kept in effect until Tenant
takes occupancy of the Expansion Premises and commences paying Base Rent in
accordance with the terms of each respective lease (the “LC Termination Date”). The Letter of Credit shall be in an amount
equal to Landlord’s actual expenditures for relocating the current tenants of
the Expansion Premises with respect to the applicable Expansion Space. If the Letter of Credit would otherwise
expire prior to the LC Termination Date, Tenant shall deliver to Landlord an
extension or renewal of the Letter of Credit, or a substitute Letter of Credit
in the same form as Exhibit A or other form approved by Landlord, no later
than 30 days prior to the expiration date of such Letter of Credit, from a
lending institution subject to Landlord’s approval; such extension, renewal or
substitute Letter of Credit shall be effective no later than 10 days prior to
the expiration of, and in an amount equivalent to, the existing Letter of
Credit. If an event of default (as
defined in the default section of the applicable lease), Landlord may
present the Letter of Credit (or the renewal, extension or substitute) for
payment one or more times up to the entire amount of the Letter of Credit, with
amounts received to be held and applied by Landlord in accordance with
subparagraph B below. If Tenant fails to
timely provide Landlord with an extension, renewal or substitute Letter of
Credit, as required hereunder, such failure shall automatically and without
notice be deemed an Event of Default under the Lease and Landlord shall have a
right to present the Letter of Credit in accordance with the foregoing
provision. If the Letter of Credit has
not been presented for payment on or before the LC Termination Date, Landlord
shall return the Letter of Credit to the issuer within 30 days after the LC
Termination Date. If Landlord transfers
its interest under the Lease, Landlord shall have the right to transfer the
Letter of Credit or substitute to the transferee (and Landlord shall pay any
costs or fees charged by the issuer to permit such transfer), and if the Letter
of Credit has been transferred, Tenant shall look solely to such transferee for
the return of the Letter of Credit (or substitute). If there is a Mortgagee, Tenant shall execute
such documents as the Mortgagee may reasonably require to secure the Mortgagee’s
interest in the letter of Credit and proceeds, subject to this Section.
Landlord shall give written notice to Tenant of transfer of Landlord’s interest
resulting in transfer of the Letter of Credit.
Landlord shall deliver the then-current effective Letter of Credit to
the issuer marked for cancellation upon receipt of any conforming renewal or
substitute Letter of Credit provided in accordance with this Section and
cooperate with the issuing bank to effect the release of such then-current
effective Letter of Credit as soon as the renewal or substitute Letter of
Credit is in effect pursuant to its terms.
Landlord agrees to pay all fees charged by the lending institution
issuing the Letter of Credit (or any reduction, renewal, extension, or
substitute therefor).
5
[ * ] = 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.
(b)
If an event of default occurs or the
respective lease is terminated, Landlord may use, apply or retain all or any
portion of the amounts received under the Letter of Credit, if any, for the
payment of any rent or other charge in default or for the payment of any other
sum to which Landlord may become obligated by reason of Tenant’s event of
default, or to compensate Landlord for any loss or damage which Landlord may
suffer thereby in accordance with the Tenant default provisions of the
respective lease. Neither the Letter of
Credit nor the amounts received under the Letter of Credit shall be deemed a
security deposit under the respective lease.
E.
Landlord shall make the Expansion Premises
freely and exclusively available to Tenant on or before April 1, 2007 for
purposes of Tenant completing alterations.
Landlord acknowledges that Tenant may alter the Expansion Premises to
accommodate biology and pharmacology activities, and Landlord does not object to
alteration of the Expansion Premises to accommodate such activities. During the period from the date Landlord
makes the Expansion Premises available until January 1, 2008, Tenant shall
have a right to occupy the Premises solely for the purposes of completing such
alterations in accordance with the terms of the Lease and such occupancy shall
be subject to all terms and provisions of the Lease except for the payment of
Base Rent, additional rent and other monies.
F.
Unless expressly waived by Landlord, Tenant’s
right to exercise the Expansion Option is conditioned on: no event of default existing under this Lease
or under the 2600 Lease at the time of exercise or as of date the Expansion
Premises is delivered by Landlord.
11.
Right of Refusal.
Landlord grants Tenant a right of refusal (the “Right of Refusal”) to
lease any Option Space not leased by Tenant as Expansion Premises under Section 10
above (the “Right of Refusal Space”), that Landlord desires to lease to a third
party, subject to existing rights of other tenants and Landlord’s option to
extend or renew any existing leases, as hereafter provided, on the following
basis:
A.
Tenant has 5 business days after being
notified by Landlord of Landlord’s desire to lease the Right of Refusal Space (“Landlord’s
Notice”) within which to notify Landlord of its election to exercise its Right
of Refusal as to such space. Tenant’s
Right of Refusal is subordinate to all rights of extension, expansion, or first
offer or refusal as to the Right of Refusal Space in favor of other tenants in
the Building in place as of the date of this Lease. The availability of space
and Landlord’s desire to lease the same shall be at all times determined in
Landlord’s sole discretion. Tenant must
take all of the Right of Refusal Space offered by Landlord (the “Offered Space”)
and may not elect to lease only a portion thereof.
B.
If Tenant does not timely notify Landlord, it
will be conclusively presumed that Tenant has waived its Right of Refusal to
the Offered Space, Landlord shall be free to lease the Offered Space to anyone
whom it desires and Tenant will have no further rights to the Offered Space
until such time the Offered Space shall again become available for leasing in
accordance with this Right of Refusal and Landlord desires to again re-offer
such space for lease by third parties.
C.
Right of Refusal Space will be offered to
Tenant upon the terms and conditions, including the rental rate, at which
Landlord would offer to lease the Offered Space to third parties in an arm’s
length transaction. Such terms and
conditions will include, among other things, lease term, tenant improvement
allowance, rent escalations and operating expense pass-throughs. Upon exercise
of the Right of Refusal, the Offered Space will be deemed leased and Tenant
will accept such space in its “as is” condition without any remodeling or
fix-up work performed by Landlord, except as may be provided in Landlord’s
Notice. After exercise of the Right of Refusal, the parties will execute
either, at Landlord’s option, an amendment to the Lease evidencing the addition
of such space or a new lease for the Offered Space.
D.
Tenant’s right to exercise the Right of
Refusal is conditioned on: no Event of
Default existing at the time it exercises the Right of Refusal or on the date
that Tenant’s occupancy of the Offered Space is scheduled to commence.
6
[ * ] = 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.
E.
All notifications contemplated by this
Paragraph, whether from Tenant to Landlord, or from Landlord to Tenant, must be
in writing and given in the manner provided in the Lease.
12.
Options to Purchase.
Landlord hereby grants to Tenant the option to purchase: (i) the
Premises and the premises under the 2600 Lease (collectively the “Initial
Premises”), and (ii) at Tenant’s election, any building representing that
portion of the Option Space included within Tenant’s initial Expansion Notice,
all property represented under this option being hereinafter collectively
referred to as the “Option Property”, subject to the following conditions:
A.
Tenant’s right to purchase, in addition to
the Initial Premises, only a portion of the buildings representing the portion
of the Option Space included within Tenant’s initial Expansion Notice shall be
conditioned upon Tenant electing to purchase those buildings
[
*
]
. By way of example, if tenant were to lease,
pursuant to their Expansion Option, the two buildings located at
[
*
]
,
and
[
*
]
, Tenant would be required to purchase the
building located at
[
*
]
in order to purchase the building at
[
*
]
. However, notwithstanding the foregoing and as
a continuation to this example, Tenant would not be required to purchase the
building at
[
*
]
.
B.
Tenant shall have three options to purchase
in accordance with the following schedule:
(1)
At a purchase price of
[
*
]
per rentable square foot (“Purchase Option 1”) by written notice to Landlord
given not later than March 31, 2007.
Closing shall occur on a date mutually agreed to by Landlord and Tenant
within 60 days following delivery of Tenant’s notice.
(2)
At a purchase price of
[
*
]
per rentable square foot with a Closing on or before July 1, 2007 (“Purchase
Option 2”) by written notice to Landlord given not later than April 1,
2007.
(3)
At a purchase price of
[
*
]
per rentable square foot with a Closing on or before July 1, 2008 (“Purchase
Option 3”) by written notice to Landlord given not later than April 1,
2008.
C.
Upon exercise by Tenant of a purchase option,
the following provisions shall govern the closing and transfer of the respective
properties (the properties as to which the respective purchase option is
exercised are hereinafter referred to as the “Option Property”):
(1)
The closing and transfer (the “Closing”) shall be conducted through an
escrow with First American Title Insurance Company (or its successor or another
title company designated by Landlord) (“Escrow Agent”) on the applicable date
of Closing as provided in subsection C above (“Closing Date”). Tenant shall deliver the applicable purchase
price (subject to applicable prorations) to Escrow Agent, in escrow, on the
Closing Date, along with all other documents reasonably required by Escrow
Agent. Landlord shall deliver at Closing a special warranty deed conveying fee
simple title to the Option Property free and clear of all liens and
encumbrances, except deeds of trust which Landlord will pay off at the time of
Closing and except (i) a pro rata share of real property taxes and
assessments for the calendar year of the Closing and subsequent years; (ii) any
taxes, assessments, fees or charges by reason of the inclusion of the Option
Property in any statutory district of record; (iii) covenants, as amended
and supplemented, of record; (iv) utility, landscape and drainage
easements of record; (v) any covenants contained in the applicable
subdivision plat; (vi) applicable zoning and building code laws and
regulations; (vii) liens and
encumbrances created by, through or under Tenant; (viii) all matters that
would be disclosed by a survey of the Option Property; and (viii) the lease
with Tenant for the applicable building.
(2)
At Closing the following shall govern prorations and expenses: (i) Landlord
shall have the right to receive the base rent, as adjusted, and all amounts of
additional rent attributable to the period prior to the Closing Date and
Landlord shall have no obligations arising thereafter under the respective
leases (including, without limitation, the obligation to pay allowances
otherwise required to be paid under the Lease, the 2600 Lease, or any lease
covering the Expansion Premises); (ii) Landlord shall provide Tenant with
Landlord’s most recent survey of the Option Property (if any) and Tenant shall
pay for fifty percent (50%) of all costs of any survey
7
[ * ] = 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.
and any updates desired by Tenant in
conjunction with such purchase, as well as all recording fees that may be
applicable to such transfer, (iii) a title commitment shall be issued by
Escrow Agent, committing the Escrow Agent to insure title under a then-current
standard owner’s title insurance policy and Tenant shall pay fifty percent
(50%) of the costs of the owner’s policy of title insurance and shall cause the
Escrow Agent to issue the title policy promptly after Closing; (iv) Landlord
and Tenant shall each pay one half of an title company closing fee and each
party shall pay its respective share of other closing costs and all other items
required to be paid at Closing, except as otherwise provided herein.
(3)
Landlord and Tenant shall each have the right of specific performance
and additional actual damages in the event of a default by the other in the
fail to timely close under the provisions of this Section 12. In no event shall Landlord or Tenant have a
right to terminate the respective lease as a result of such default.
(4)
At Closing Tenant will pay Landlord, in addition to the purchase price
specified above, an additional amount equal to the unamortized component of any
tenant improvements or lease commission costs incurred by Landlord for leasing
the respective Option Property under each respective lease, determined by
amortizing such costs on a straight-line basis beginning upon mutual execution
of this Addendum with respect to the Initial Premises and beginning with the
date that Tenant commences to pay base rent under the respective lease for any
other buildings. In addition to the foregoing, a t Closing Purchaser shall
receive a credit equal to 3% of the applicable purchase price. This credit representing the co-operative
broker’s commission that Landlord would have otherwise have been obligated to
pay to a purchaser’s broker in connection with such purchase (it being
understood that Landlord shall have no obligation to pay a commission to a
broker representing Tenant in such purchase transaction).
(5)
It shall be a condition for the benefit of Landlord that there have
been no material events of default which have not been remedied by Tenant at
the time of Tenant’s notice to Landlord as provided in subparagraphs A, B or C
above, as applicable, and at the Closing Date.
(6)
Except for the warranties of title set forth in the special warranty
deed, the sale of the Option Property to Tenant shall be on an “as is” basis,
it being understood that Tenant will have had an opportunity to investigate the
Option Property and all matters relevant to its acquisition, development,
usage, operation or marketability, including (without limitation) environmental
assessments of the Option Property, at Tenant’s sole expense, including but not
limited to, the collection and analysis of soils, surface water and groundwater
samples. At Closing Purchaser, Tenant,
as purchaser, for itself and, on behalf of its officers, directors,
shareholders, employees, heirs, successors, assigns, parents, subsidiaries,
affiliates, and agents representatives (hereinafter referred to as “Releasing
Parties”) unconditionally releases Landlord, its officers, directors,
shareholders, employees, heirs, successors, assigns, parents, subsidiaries,
affiliates, agents, and representatives from and against any and all liability
to the Releasing Parties, both known and unknown, past, present and future, for
any damages, costs, expenses or other liability to the Releasing Parties
arising out of any violation of environmental requirements, environmental laws
or governmental regulations, or the presence of regulated substances, hazardous
materials or hazardous substances on, under, about or migrating to or from the
Property, whether occurring before, during or after Tenant’s acquisition of the
Option Property (the “Condition of the Property”). This release shall survive the Closing and
remain in effect indefinitely. Tenant,
as purchaser, shall indemnify, defend with counsel reasonably acceptable to
Landlord, and hold Landlord harmless from any and all claims of any kind or
nature (including, without limitation, diminution in value), demands,
liabilities, liens, losses, damages, costs and expenses (including, without
limitation, fines, forfeitures, attorneys’ fees, disbursements and court and/or
administrative costs) asserted against Landlord or the Option Property arising
out of or resulting from the Condition of the Property.
D.
Any option to purchase provided in this
Paragraph is personal to Tenant and is not assignable or transferable except to
an affiliate of Tenant that is assigned all of Tenant’s interests under the
Lease and all of the leases applicable to the Option Property, or at Closing to
an entity which intends to obtain title of the Option Property to permit Tenant’s
long term leasing and/or renovation of the Option Property.
8
[ * ] = 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.
E.
Tenant shall have an option to exercise the
Option to Purchase only one time during the Term of the Lease and upon Tenant’s
exercise of any Purchase Options to any of the Option Property, Tenant shall
have no further rights to any remaining Purchase Options and such remaining
Purchase Options shall be deemed void and of no force and effect. If Tenant fails to timely exercise a Purchase
Option, it will be conclusively deemed that Tenant has waived the Purchase
Option.
F.
If Landlord transfers its interest under this
Lease, the 2600 Lease or any lease with respect to Expansion Premises to
separate landlords, each successor landlord will be bound by the terms of this
Purchase Option as to the respective property under the respective lease.
13.
Additional Extension
. To
the extent that the applicable purchase option granted in accordance with Section 12
hereof has not been exercised by March 31, 2007, April 1, 2007, or April 1,
2008, respectively, the term of this Lease for the Premises and the terms of
the 2600 Lease and any leases for Expansion Premises shall be automatically
extended for one additional year (so that the scheduled expiration date shall
be extended for one additional year on each of such dates) upon the terms of
the respective lease, except that (i) the base rental during each
respective one year extension term will be equal to the base rental being paid
immediately prior thereto increased by an amount equal to
[
*
]
of the base rental in effect for the previous year, and (ii) Landlord
shall fund an additional improvements allowance to the Expansion Premises for
each additional one year extension equal to
[
*
]
per rentable square foot of the Expansion Premises as reimbursement for
previous tenant improvements to the Expansion Premises.
14.
Cross Default.
An event of default by Tenant under this Lease shall be deemed an event
of default under the 2600 Lease and any lease for the Expansion Premises; and
an event of default by Tenant under the 2600 Lease or under any lease for the
Expansion Premises shall be deemed is an event of default under this Lease.
15.
Broker Indemnity.
Tenant hereby represents and warrants to Landlord that it has not
engaged any broker in connection with the negotiation and/or execution of this
Addendum except CRESA Partners (“Tenant’s Broker”) and Circle Capital Property
Management, who represented Landlord.
Tenant has no knowledge of any other broker’s involvement in this
transaction. Tenant will indemnify
Landlord against any claim or expense (including, without limitation, attorneys’
fees) paid or incurred by Landlord as a result of any claim for commissions or
fees by any broker, finder, or agent, other than Tenant’s Broker, whether or
not meritorious, employed by Tenant or claiming by, through or under
Tenant. Tenant acknowledges that
Landlord is not liable for any representations by Tenant’s Broker regarding the
Premises, the Building, the Expansion Premises, the Park or this Addendum.
16.
Non-Disclosure.
The terms of the Lease, including this Addendum, are intended to be
confidential and neither Tenant, Landlord, nor their respective agents or
employees will disclose the material terms and provisions of the Lease without
the written consent of Landlord. Each
party acknowledges that disclosure of such terms may materially adversely
affect the other party and that the non-disclosing party may not have an
adequate remedy at law, specifically with regard to Landlord’s ability to
negotiate with third parties as may be necessary under Section 10 of this
Addendum. This provision shall not restrict Tenant from disclosing such terms
and provisions to its attorneys, accountants, lenders or any proposed purchaser
or lender or as otherwise required in performing its obligations under the
Lease or enforcing the terms and provisions of the Lease, or as required by law
(e.g., in SEC filings).
17.
Conflicts.
If there is any conflict between the terms of
this Addendum and the terms of the Lease, the terms of this Addendum shall
govern. The Lease as hereby amended is
in full force and effect, is hereby ratified and affirmed by the parties, and
is binding upon the parties in accordance with its terms.
18.
Time of Essence.
Time is of the essence herein.
9
[ * ] = 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.
IN
WITNESS WHEREOF, the parties have executed this Addendum as of the day and year
first above written and is effective upon delivery of a fully executed copy to
Tenant.
|
LANDLORD:
|
CIRCLE
CAPITAL LONGMONT LLC
|
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By:
|
Circle Capital Property Management LLC, Authorized Agent
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By
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Terry Fitzpatrick, Manager
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TENANT:
|
ARRAY
BIOPHARMA, INC., a Delaware corporation
|
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By
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Title
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10
[ * ] = 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 A
FORM OF LETTER OF CREDIT
, 200
CIRCLE CAPITAL LONGMONT LLC
4600 South Ulster Street, Suite 590
Denver, CO
80237
RE: Letter of Credit No.
Gentlemen:
We
hereby issue in your favor, at the request and for the account of ARRAY
BIOPHARMA, INC., a Delaware corporation, our irrevocable Letter of Credit in
the amount of $
which is available against presentation of your sight draft. The draft must be
accompanied by:
1.
This Letter of Credit No. ;
and
2.
A notarized certification signed as [“Authorized
Signatory”] on behalf of ARRAY BIOPHARMA, INC., a Delaware corporation, as ,
or an officer (or partner, if such entity is a partnership or member if a
limited liability company) of its transferee or assignee, stating essentially
as follows:
“The
undersigned Beneficiary is the owner of the property described in the Office
Lease dated
by and between CIRCLE CAPITAL LONGMONT LLC, a Delaware limited liability company,
as Landlord, and ARRAY BIOPHARMA, INC., a Delaware corporation, as Tenant (the “Lease”). The amount requested by the draft
accompanying this statement is the amount to which Beneficiary is entitled
under the terms of the Lease as a result of an event of default under the Lease
and Beneficiary requests payment of the enclosed draft under the enclosed
Letter of Credit.”
This
Letter of Credit shall be subject to the Special Conditions set forth on Exhibit 1,
such exhibit being considered a part hereof and incorporated herein by
reference.
We
hereby agree that all drafts drawn under and in compliance with the terms of
this credit shall meet with honor upon presentation and delivery of documents
on or before 5:00 p.m., Denver time, [DATE] (the
“Expiry Date”), as specified to the drawee. This Letter of Credit may be
presented one or more times; partial drawings are allowed. It is a condition of
this Letter of Credit that the Expiry Date shall be automatically extended for
periods of at least one year from the initial Expiry Date and each future
Expiry Date unless, at least 60 days prior to the relevant expiration date, we
notify you, by certified mail, return receipt requested, that we elect not to
extend this Letter of Credit for any additional period.
[BANK]
11
[ * ] = 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 1
To
Letter of Credit No.
The
Letter of Credit shall be governed by the following Special Conditions:
1.
This Letter of Credit is subject to the
International Standby Practices 1998, International Chamber of Commerce
Publication No. 590.
2.
Issuer agrees that it may not defer honor
beyond the close of the first banking day after presentment of a sight draft
drawn hereunder and accompanying documents.
3.
This Letter of Credit shall be transferable
and assignable, without charge, to any person or entity who is the successor or
assignee of Beneficiary’s interest under the Lease entered into on or about ,
between CIRCLE CAPITAL LONGMONT LLC, a Delaware limited liability company, and
ARRAY BIOPHARMA, INC., a Delaware corporation.
Such transfer shall be accomplished by providing [BANK]
with the appropriate transfer form and the original letter of credit for
endorsement; provided, however, that such transfer shall not be subject to the
approval of [BANK] .
12
[ * ] = 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 B
FIRST ALLOWANCE AND TENANT’S BROKER COMMISSION
First
Allowance =
[
*
]
CRESA
Lease Commission =
[
*
]
13