DNDN » Topics » 11. COMMITMENTS AND CONTINGENCIES

This excerpt taken from the DNDN 10-K filed Mar 15, 2006.

11.    COMMITMENTS AND CONTINGENCIES

 

We have a Bioprocessing Services Agreement with Diosynth dated May 16, 2001, as amended, which provides for the scale-up to commercial manufacturing quantities of the antigen used in Provenge. On October 29, 2004, we entered into an amendment to that agreement by which Diosynth agreed to perform studies to verify the manufacturing process for the antigen and manufacture the antigen at commercial scale to validate the manufacturing process. The total contract price payable by us for this work is $18.4 million. If we terminate the agreement without cause, or if Diosynth were to terminate in the event of our default, we would be obligated to pay Diosynth a cancellation fee equal to a portion of the remaining uninvoiced contract amount. As of December 31, 2005, this amount would not exceed $3.2 million. On December 22, 2005, we entered into a supply agreement with Diosynth covering the production of the antigen to be used in connection with Provenge. Our first binding order to Diosynth for commercial scale quantities of the antigen was placed to commence production in January 2007. This order is noncancelable and obligates us to pay Diosynth $25.1 million over the next 20 months.

 

We also have commitments with two clinical manufacturing vendors of approximately $3.9 million as of December 31, 2005.

 

The majority of our operating lease payments relate to our three leases in Seattle, Washington, which collectively cover our principal corporate offices in Seattle, and our commercial manufacturing lease in Hanover, New Jersey. The three leases in Seattle began in 1998, 2001 and 2004 and expire in 2008 and 2009; and the Lease on the Facility began in 2005 and the initial term expires in October 2012.

 

In August 2005, we leased the Facility and, in accordance with EITF Issue 97-10, we are deemed the owner of the Facility during the construction period; therefore, we have capitalized approximately $8.6 million, which represents the estimated fair value of the building, and recorded a lease obligation of approximately $8.6 million as

 

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DENDREON CORPORATION

 

NOTES TO FINANCIAL STATEMENTS—(Continued)

 

the Facility Lease Obligation. Accordingly, the lease payments are allocated to the building and land based on their estimated relative fair values. The portion of the Lease related to land is treated as an operating lease. The payment schedule below reflects the initial 7 year term of the Lease and a 10 year renewal period. See Notes 4 and 7 for a further description of the Lease.

 

Future minimum lease payments under noncancelable operating leases and future minimum rentals to be received under noncancelable subleases at December 31, 2005, were as follows:

 

(in thousands)


  

Operating

Leases


  

Noncancelable

Subleases


Year ending December 31:

             

2006

   $ 4,032    $ 282

2007

     3,062      —  

2008

     3,092      —  

2009

     623      —  

2010

     202      —  

Thereafter

     2,774      —  
    

  

Total minimum lease payments

   $ 13,785    $ 282
    

  

 

Rent expense for the years ended December 31, 2005, 2004 and 2003 was $5.5 million, $7.9 million and $5.3 million, respectively, which is net of sublease rental income of $646,000, $721,000 and $731,000, respectively.

 

This excerpt taken from the DNDN 10-K filed Mar 16, 2005.

11.    COMMITMENTS AND CONTINGENCIES

 

We have a Bioprocessing Services Agreement with Diosynth RTP, Inc., dated May 16, 2001, as amended, which provides for the scale-up to commercial manufacturing quantities of the antigen used in Provenge. On October 29, 2004, we and Diosynth entered into an amendment to that agreement by which Diosynth will perform studies to verify the manufacturing process for the antigen and will manufacture the antigen at commercial scale to validate the manufacturing process. The total contract price payable by us for this work is $18.0 million. If we terminate the agreement without cause, or if Diosynth were to terminate in the event of our default, we would be obligated to pay Diosynth a cancellation fee equal to a portion of the remaining uninvoiced contract amount, which would not exceed $5.1 million as of December 31, 2004.

 

We have various other purchase commitments for lab supplies and services of approximately $755,000 as of December 31, 2004. We also have various commitments for manufacturing of approximately $1.4 million as of December 31, 2004.

 

We lease a facility in Seattle, Washington under a non-cancelable operating lease that expires December 2008. The lease term is ten years and we have the option to extend the lease term for two five-year periods with the same terms and conditions except for rent, which adjusts to market rate. The lessor has also provided us a tenant improvement allowance of $3.5 million, which will be repaid monthly as an addition to the base rent expense over the term of the lease, with interest at 12.5% per year. In November 2001, we entered into a lease agreement for another facility in Seattle, Washington, under a non-cancelable operating lease that expires December 2008. The lease term is eight years, and we have the option to extend the lease term for two five-year periods, with the same terms and conditions except for rent, which adjusts to market rate. The lessor has provided us a tenant improvement allowance of $237,000. We also lease a facility in Mountain View, California under a lease that expires June 2006. We have subleased a portion of this facility under a lease expiring June 2006. In September 2004, we entered into a lease agreement for another facility in Seattle, Washington, under a non-cancelable operating lease that expires September 2009. The lease term is five years, and we have the option to extend the lease term for two five-year periods, with the same terms and conditions except for rent, which adjusts to market rate. The lessor provided us a tenant improvement allowance of $297,000 which was fully consumed as of December 31, 2004.

 

Rent expense for the years ended December 31, 2004, 2003 and 2002 was $7.9 million, $5.3 million and $5.1 million, respectively, which is net of sublease rental income of $721,000, $731,000 and $370,000, respectively.

 

Future minimum lease payments under noncancelable operating leases and future minimum rentals to be received under noncancelable subleases at December 31, 2004, were as follows:

 

(in thousands)


  

Operating

Leases


  

Noncancelable

Subleases


Year ending December 31:

             

2005

   $ 4,768    $ 552

2006

     3,796      263

2007

     2,819      —  

2008

     2,841      —  

2009

     428      —  
    

  

Total minimum lease payments

   $ 14,652    $ 815
    

  

 

On June 16, 2004, our Board of Directors adopted a Change of Control Executive Severance Plan providing severance benefits for participants in the event that their employment terminates involuntarily without cause or

 

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Table of Contents

DENDREON CORPORATION

 

NOTES TO FINANCIAL STATEMENTS—(Continued)

 

for good reason within twelve months after a change of control of us. The benefits include accelerated vesting of stock options and payments for salary replacement of 100% to 200% of base salary, depending upon position, 100% of the maximum target bonus for the position, and outplacement assistance. For accounting purposes, the change in accelerated vesting of stock options on a change in control is considered a stock option modification with a new measurement date. No compensation expense is recorded until we can reasonably estimate the number of options that will benefit from this modification, which would be the date the change in control becomes known. Once the number of options to benefit from this modification are known, we will record compensation based on the remeasured intrinsic value on the date of modification (June 16, 2004). The Compensation Committee of the Board designated members of our management team at the Vice President level and above as eligible participants.

 

EXCERPTS ON THIS PAGE:

10-K
Mar 15, 2006
10-K
Mar 16, 2005
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