PDLI » Topics » 14. COMMITMENTS AND CONTINGENCIES

These excerpts taken from the PDLI 10-K filed Mar 2, 2009.

14. COMMITMENTS AND CONTINGENCIES

Operating Leases

We are party to leased facilities under agreements that have expiration dates between 2009 and 2021. We also have leased certain office equipment under operating leases. Rental expense under these arrangements totaled $7.0 million, $10.7 million and $6.1 million for the years ended December 31, 2008, 2007 and 2006, respectively, of which approximately $6.8 million, $10.5 million and $6.0 million is classified as discontinued operations. As of December 31, 2008, we occupied one leased facility in Incline Village, Nevada, which has a term of 18 months and for which the rent is approximately $0.2 million per year.

In connection with the sale of our former Manufacturing Assets in March 2008, located in Minnesota, Genmab assumed our former lease obligations in Minnesota for all but one facility, for which the lease agreement expired in February 2009. Such lease commitment was approximately $0.1 million as of December 31, 2008.

In July 2006, we entered into two leases (the Leases) and a sublease (the Sublease) for the facilities in Redwood City, California, which formerly served as our headquarters. Pursuant to amendments to the Leases entered into in connection with the Spin-Off (the Lease Amendments), Facet was added as a co-tenant under the Leases. As a co-tenant, Facet is bound by all of the terms and conditions of the Leases. PDL and Facet are jointly and severally liable for all obligations under the Leases, including the payment of rental obligations. However, we also entered into a Co-Tenancy Agreement with Facet in connection with the Spin-Off and the Lease Amendments pursuant to which we assigned to Facet all rights under the Leases, including, but not limited to, the right to amend the leases, extend the lease term, or terminate the leases, and Facet assumed all of our obligations under the Leases. In the event that Facet amends the Leases to extend beyond the original expiration date, PDL shall have no liability for any obligations that accrue under the Leases with respect to the period after the original expiration date. Pursuant to the Co-Tenancy Agreement, we also relinquished any right or option to regain possession, use or occupancy of these facilities. Facet agreed to indemnify us for all matters associated with the Leases attributable to the period after the Spin-Off. In addition, in connection with the Spin-Off, the Sublease was assigned by PDL to Facet. As of December 31, 2008, future payments for the leases under which Facet is required to make the lease payments, but for which PDL would be liable in the event that Facet defaults through December 2021, was approximately $140.3 million. PDL would also be responsible for lease related payments including utilities, property taxes, and common area maintenance, which may be as much as the actual lease payments. We recorded a liability of $10.7 million on our Consolidated Balance Sheet as of December 31, 2008 for the estimated fair value of this guarantee.

Lease Financing Obligation

As discussed above, in July 2006, we entered into the Leases and the Sublease for the Redwood City, California facilities. We took possession of these buildings during the fourth quarter of 2006, constructed leasehold improvements for both buildings, and completed our move into the buildings by the end of 2007. The larger of the two buildings, the Administration Building, served as general office space, while the other served as laboratory space for our former biotechnology operations (the Lab Building).

We incurred significant leasehold improvement costs for the Lab Building, which had not previously been occupied or improved for occupancy. Due to our involvement in and assumed risk during the construction period, as well as the nature of the leasehold improvements for the Lab Building, we were required under Emerging Issues Task Force No. 97-10, “The Effect of Lessee Involvement in Asset Construction,” to reflect the lease of the Lab Building in our financial statements as if we had purchased the building. Therefore, we recorded the fair value of the building and a corresponding long-term financing liability. At December 31, 2007, our financing liability for the Lab Building was approximately $26.9 million. We transferred this liability to Facet in connection with Spin-Off in December 2008.

 

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Contingencies

As permitted under Delaware law, pursuant to the terms of our bylaws, we have agreed to indemnify our officers and directors and, pursuant to the terms of indemnification agreements we have entered into, we have agreed to indemnify our executive officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving as an officer or director of the Company. While the maximum amount of potential future indemnification is unlimited, we have a director and officer insurance policy that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements and bylaw provisions is minimal, and accordingly, we have not recorded the fair value liability associated with these agreements as of December 31, 2008 and 2007.

14. COMMITMENTS AND CONTINGENCIES

STYLE="margin-top:6px;margin-bottom:0px">Operating Leases

We are party to leased facilities
under agreements that have expiration dates between 2009 and 2021. We also have leased certain office equipment under operating leases. Rental expense under these arrangements totaled $7.0 million, $10.7 million and $6.1 million for the
years ended December 31, 2008, 2007 and 2006, respectively, of which approximately $6.8 million, $10.5 million and $6.0 million is classified as discontinued operations. As of December 31, 2008, we occupied one leased facility in Incline
Village, Nevada, which has a term of 18 months and for which the rent is approximately $0.2 million per year.

In connection with the sale
of our former Manufacturing Assets in March 2008, located in Minnesota, Genmab assumed our former lease obligations in Minnesota for all but one facility, for which the lease agreement expired in February 2009. Such lease commitment was
approximately $0.1 million as of December 31, 2008.

In July 2006, we entered into two leases (the Leases) and a sublease (the
Sublease) for the facilities in Redwood City, California, which formerly served as our headquarters. Pursuant to amendments to the Leases entered into in connection with the Spin-Off (the Lease Amendments), Facet was added as a co-tenant under
the Leases. As a co-tenant, Facet is bound by all of the terms and conditions of the Leases. PDL and Facet are jointly and severally liable for all obligations under the Leases, including the payment of rental obligations. However, we
also entered into a Co-Tenancy Agreement with Facet in connection with the Spin-Off and the Lease Amendments pursuant to which we assigned to Facet all rights under the Leases, including, but not limited to, the right to amend the leases, extend the
lease term, or terminate the leases, and Facet assumed all of our obligations under the Leases. In the event that Facet amends the Leases to extend beyond the original expiration date, PDL shall have no liability for any obligations that accrue
under the Leases with respect to the period after the original expiration date. Pursuant to the Co-Tenancy Agreement, we also relinquished any right or option to regain possession, use or occupancy of these facilities. Facet agreed to indemnify us
for all matters associated with the Leases attributable to the period after the Spin-Off. In addition, in connection with the Spin-Off, the Sublease was assigned by PDL to Facet. As of December 31, 2008, future payments for the leases under
which Facet is required to make the lease payments, but for which PDL would be liable in the event that Facet defaults through December 2021, was approximately $140.3 million. PDL would also be responsible for lease related payments including
utilities, property taxes, and common area maintenance, which may be as much as the actual lease payments. We recorded a liability of $10.7 million on our Consolidated Balance Sheet as of December 31, 2008 for the estimated fair value of this
guarantee.

Lease Financing Obligation

SIZE="2">As discussed above, in July 2006, we entered into the Leases and the Sublease for the Redwood City, California facilities. We took possession of these buildings during the fourth quarter of 2006, constructed leasehold improvements for both
buildings, and completed our move into the buildings by the end of 2007. The larger of the two buildings, the Administration Building, served as general office space, while the other served as laboratory space for our former biotechnology operations
(the Lab Building).

We incurred significant leasehold improvement costs for the Lab Building, which had not previously been occupied or
improved for occupancy. Due to our involvement in and assumed risk during the construction period, as well as the nature of the leasehold improvements for the Lab Building, we were required under Emerging Issues Task Force No. 97-10, “The
Effect of Lessee Involvement in Asset Construction,” to reflect the lease of the Lab Building in our financial statements as if we had purchased the building. Therefore, we recorded the fair value of the building and a corresponding long-term
financing liability. At December 31, 2007, our financing liability for the Lab Building was approximately $26.9 million. We transferred this liability to Facet in connection with Spin-Off in December 2008.

STYLE="margin-top:0px;margin-bottom:0px"> 


57








Contingencies

SIZE="2">As permitted under Delaware law, pursuant to the terms of our bylaws, we have agreed to indemnify our officers and directors and, pursuant to the terms of indemnification agreements we have entered into, we have agreed to indemnify our
executive officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving as an officer or director of the Company. While the maximum amount of potential future indemnification is
unlimited, we have a director and officer insurance policy that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements and bylaw provisions is minimal, and
accordingly, we have not recorded the fair value liability associated with these agreements as of December 31, 2008 and 2007.

EXCERPTS ON THIS PAGE:

10-K (2 sections)
Mar 2, 2009
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