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EXHIBIT 10.1
ECONOMIC DEVELOPMENT AGREEMENT
BETWEEN
THE STATE OF TEXAS
AND
THE TEXAS A&M UNIVERSITY SYSTEM
AND
LEXICON GENETICS INCORPORATED
JULY 15, 2005
THIS AGREEMENT ("Agreement") is by and
among the State of Texas (the "State"),
acting by and through the Office of
Economic Development and Tourism, a division
within the Office of the Governor
("OOGEDT"), Texas A&M University System
("TAMUS") and Lexicon Genetics Incorporated
("Lexicon"). The State, TAMUS, and
Lexicon are hereinafter referred to either
individually as the "party," or
collectively as the "parties." The
Effective Date of this Agreement is July 15,
2005.
RECITALS
WHEREAS, Texas' low taxes, budgetary
discipline, reasonable regulations and
educated workforce continue to make the
state a top location for businesses
looking to expand or relocate; and
WHEREAS, the State desires to become a
world leader in genomics and
biotechnology; and
WHEREAS, TAMUS and Lexicon are known for
research and development expertise and
Lexicon is particularly known for its gene
knockout technology and expertise;
and
WHEREAS, gene knockout technology provides
a means to systematically identify
the physiological functions of genes,
offering the promise of discovering new
and more-effective ways to prevent and
treat human and veterinary disease; and
WHEREAS, Lexicon employs more than 600
people in the State and had annual
revenues in 2004 of approximately $62
million; and
WHEREAS, TAMUS is a Texas public
institution of higher education; and
WHEREAS, TAMUS and Lexicon have proposed a
unique public-private collaboration
for human and veterinary medical research
that would be endowed with two (2)
complete copies of a library consisting of
three hundred fifty thousand
(350,000) knockout mouse embryonic stem
cell clones (the "OmniBank II Library")
housed at two facilities, one being located
in Houston and one being located in
College Station; and
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WHEREAS, TAMUS and Lexicon have proposed
that such collaboration be implemented
through the Texas Institute for Genomic
Medicine ("TIGM"), a Texas non-profit
corporation formed for such purpose;
and
WHEREAS, it is in the State's interest to
expand and improve the research and
development capability of its public
institutions of higher education, including
by facilitating the concentration of
expertise in particular areas of scientific
research to enable the development of a
platform for recruiting additional
researchers and to obtain related funding
from other sources; and
WHEREAS, the new facilities and programs
related to TIGM are estimated to create
at least 5,000 new full-time jobs for
Texans, with an ultimate average annual
payroll of more than $450 million; and
WHEREAS, Article III, Section 52-A of the
Texas Constitution expressly
authorizes the State to use public funds
for the public purposes of development
and diversification of the economy of the
State, the elimination of unemployment
or underemployment in the State, or the
development of commerce in the State;
and
WHEREAS, SB 1771 of the 78th Texas
Legislature established the Texas Enterprise
Fund ("TEF") to be used with the express
written approval of the Governor,
Lieutenant Governor, and Speaker of the
House of Representatives for economic
development, infrastructure development,
community development, job training
programs, and business incentives, and HB 7
of the 78th Texas Legislature
appropriated $295 million from the Texas
Economic Stabilization Fund to the TEF
for the 2004-2005 biennium; and
WHEREAS, the State values Lexicon as a
distinguished and important corporate
citizen, and wishes to receive a commitment
that Lexicon will expand its
presence and payroll in Texas and provide
the intellectual property resources to
enable TAMUS and Lexicon to establish TIGM,
and Lexicon wishes to provide such
commitment; and
WHEREAS, TAMUS is willing to undertake
commitments related to constructing and
renovating facilities for TIGM and
supporting the operations of TIGM to carry
out its planned research and development
activities, as well as to the creation
of new jobs in the State; and
WHEREAS, the Governor, Lieutenant Governor,
and Speaker have each approved a
grant from the TEF to TAMUS and Lexicon, as
evidenced in the letter attached as
Exhibit A hereto; and
WHEREAS, to ensure that the benefits the
State provides under this Agreement are
utilized in a manner consistent with
Article III, Section 52-a of the Texas
Constitution, and other laws, TAMUS and
Lexicon have agreed to comply with
certain conditions and deliver certain
performance, including achieving
measurable job creation and retention
commitments, in exchange for receiving
these benefits; and
WHEREAS, the parties desire to have such
proposals set forth in a valid, binding
and enforceable agreement; and
WHEREAS, the State believes it is in the
best public interest to enter into this
Agreement for the reasons set forth
above;
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AGREEMENTS
NOW, THEREFORE, in consideration of the
mutual promises herein, the parties
agree as follows:
1. STATE OF TEXAS
COMMITMENT
a. GRANT
OF FUNDS FROM THE TEXAS ENTERPRISE FUND TO TAMUS. The State
shall
pay cash from the Texas Enterprise Fund to
TAMUS in the amount of Fifteen
Million Dollars ($15,000,000) as soon as
practicable following the execution of
this Agreement (but no later than thirty
(30) days after the Effective Date
provided that all necessary documents for
disbursement of the funds have been
provided to the State as required), of
which (i) Ten Million Dollars
($10,000,000) shall be used by TAMUS to
build a facility in College Station to
house one copy of the OmniBank II Library
and (ii) Five Million Dollars
($5,000,000) shall be used by TAMUS to
renovate existing space at the Institute
of Biosciences and Technology ("IBT") at
the Health Science Center in Houston to
house the other copy of the OmniBank II
Library, in each case in accordance with
this Agreement.
b. GRANT
OF FUNDS FROM THE TEXAS ENTERPRISE FUND TO LEXICON. The State
shall pay cash from the Texas Enterprise
Fund to Lexicon in the amount of
Thirty-Five Million Dollars ($35,000,000)
as soon as practicable following the
execution of this Agreement (but no later
than thirty (30) days after the
Effective Date provided that all necessary
documents for disbursement of the
funds have been provided to the State as
required), including (i) Thirty Million
Dollars ($30,000,000) for the generation
and delivery of the OmniBank II Library
and related intellectual property licenses
and (ii) Five Million Dollars
($5,000,000) for the acquisition of
bioinformatics software and related
intellectual property licenses, in each
case in accordance with this Agreement.
2. TAMUS AND LEXICON
FUNDING CONDITIONS
TAMUS and Lexicon must meet all of the
following "Funding Conditions" or will be
subject to liquidated damages and/or
repayment in accordance with this
Agreement. The Funding Conditions are as
follows:
a.
ESTABLISHMENT OF THE TEXAS INSTITUTE FOR GENOMIC MEDICINE. TAMUS
and
Lexicon shall establish TIGM, the initial
members of which shall be TAMUS
(participating through Texas A&M
University and the Texas A&M Health Science
Center) and Lexicon. TAMUS and Lexicon
shall provide the State with sufficient
evidence to confirm TIGM's formation.
b.
AGREEMENTS BETWEEN LEXICON AND TAMUS. TAMUS and Lexicon have
entered
into, and shall perform their obligations
under, agreements with respect to the
matters described in attached Exhibit B.
TAMUS and Lexicon shall certify in
writing to the State that the Agreements
have been entered into and materially
and substantially comply with the terms as
set forth in Exhibit B.
It is understood that this Agreement does not grant the State,
apart
from TAMUS, any right to acquire
intellectual property transferred to or
developed by TIGM.
c.
SECURITY. TAMUS shall provide the state with sufficient evidence
that
the State has been provided security for
its investment by a pledge of the lease
payments and other revenue from TIGM to
TAMUS.
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d. JOB
TARGETS. TAMUS and Lexicon shall be responsible to the State
for
creating, in the aggregate, at least Five
Thousand ("5,000") new Employment
Positions in Texas by December 31, 2015,
and TAMUS shall be responsible to the
State for maintaining such new Employment
Positions in Texas from December 31,
2015 to December 31, 2027. Each of TAMUS
and Lexicon shall be responsible for
the respective portions of such aggregate
commitment set forth below (such
portion representing the party's respective
"Job Target") in accordance with the
following schedule:
(1) 94 jobs by
December 31, 2006 (TAMUS portion 45; Lexicon
portion 49),
(2) 198 jobs by
December 31, 2007 (TAMUS portion 73; Lexicon
portion 125),
(3) 357 jobs by
December 31, 2008 (TAMUS portion 148; Lexicon
portion 209),
(4) 581 jobs by
December 31, 2009 (TAMUS portion 280; Lexicon
portion 301),
(5) 894 jobs by
December 31, 2010 (TAMUS portion 492; Lexicon
portion 402),
(6) 1,345 jobs
by December 31, 2011 (TAMUS portion 832; Lexicon
portion 513),
(7) 1,801 jobs
by December 31, 2012 (TAMUS portion 1,166; Lexicon
portion 635),
(8) 2,562 jobs
by December 31, 2013 (TAMUS portion 1,657; Lexicon
portion 905),
(9) 3,573 jobs
by December 31, 2014 (TAMUS portion 2,345; Lexicon
portion 1,228), and
(10) 5,000 jobs by
December 31, 2015 (TAMUS portion 3,384; Lexicon
portion 1,616).
For the purposes of this Agreement,
"Employment Positions" shall be defined as
jobs meeting all of the following
criteria:
(i) New
full-time or full-time equivalent employment positions in
Texas,
(ii) With an average
annual gross compensation (not including
benefits) of at least $60,000, which shall be adjusted for
inflation but not to exceed 3% per year, such adjustment to
occur first for the compensation standard applicable to 2007,
and
(iii) Which may include (A) in the case of Lexicon's portion of
the
commitment, positions with Lexicon and its affiliates in which
Lexicon has a 50% or higher ownership interest, and (B) in the
case of TAMUS's portion of the commitment, positions with
TIGM, positions with TIGM members, positions with employers in
the biotechnology or pharmaceutical industries, and other
positions for which TIGM or TIGM members are significantly
responsible for creating through efforts specifically targeted
at attracting or creating biotechnology and pharmaceutical
industry-related positions to Texas, in each case without
duplication. For clarity, from and after December 31, 2015 (or
earlier, if Lexicon has already satisfied its Job Target
commitment in full), positions with Lexicon and its affiliates
in which Lexicon has a 50% or higher ownership interest shall
be included for purposes of TAMUS's commitment to the State to
create and maintain new Employment Positions over the
remaining term of the contract.
e. ANNUAL COMPLIANCE VERIFICATION. By January 31 of each year
during
the term of this Agreement, beginning in
January 2007 and continuing every year
thereafter through January 2028, for TAMUS,
and January 2016, for Lexicon, each
of TAMUS and Lexicon, as applicable, must
deliver to OOGEDT a compliance
verification signed by a duly authorized
representative of the reporting party
that shall certify the number of and
generally describe the Employment Positions
existing as of December 31 of the year
preceding (an "Annual Compliance
Verification"). There will be a total of
twenty-two (22) Annual Compliance
Verifications due, covering jobs created
and maintained in years 2006 through
2027. TAMUS and/or Lexicon may, at its
option, deliver an Annual Compliance
Verification in January 2006 with respect
to Surplus
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Job Credits, if any, attributable to any
new Employment Positions created in
2005. All Annual Compliance Verifications
shall be in a form reasonably
satisfactory to OOGEDT and shall provide
appropriate back-up data for the
Employment Position numbers provided.
3. LIQUIDATED DAMAGES
a. JOB
TARGET. As set forth in Section 2.d above, annually during the
term
of this Agreement, through January 2028,
TAMUS and, through January 2015,
Lexicon must deliver to OOGEDT an Annual
Compliance Verification demonstrating
that their respective Job Targets have been
met for the year just ended. The
consequences to TAMUS or Lexicon of
satisfying, failing to satisfy or exceeding
its respective Job Target are as
follows:
i. COMPLIANCE WITH JOB TARGET. If an Annual Compliance
Verification
demonstrates that the applicable party's
Job Target has been met for the year
just ended, then such party will be deemed
to have met its obligations for such
preceding year and no damages shall be
due.
ii. FAILURE TO MEET JOB TARGET. If an Annual Compliance
Verification
that demonstrates that such party's Job
Target has not been met for the year
just ended, then OOGEDT may require the
responsible party to pay liquidated
damages in the amount of Two Thousand Four
Hundred Fifteen Dollars ($2,415) per
job for every Employment Position by which
it is short that year. It is
understood that as a state agency, TAMUS
may not, and does not, guarantee the
obligations of Lexicon. Nor does Lexicon
guarantee the obligations of TAMUS.
Neither party shall have any obligation for
any shortfalls in the Job Target
obligations of the other party, and each
party shall be responsible solely for
its own payment obligations to the
State.
iii. EXCEEDING JOB TARGET. If an Annual Compliance Verification
demonstrates that such party's Job Target
has been exceeded for the year just
ended, such party will be deemed to have
exceeded its Job Target obligations and
will receive a "Surplus Job Credit" for
each extra Employment Position generated
and maintained above its Job Target for
that year. For purposes of the
foregoing, all Employment Positions created
in 2005 will be considered Surplus
Job Credits. TAMUS and Lexicon may utilize
their respective earned Surplus Job
Credits in any following year as
follows:
A. such party may expend a Surplus Job Credit in lieu of
paying liquidated damages in the amount of $2,415 per job (for
example, if a party owes liquidated damages in the amount of
$241,500 for 100 Employment Positions lacking in a particular
year,
it may discharge this amount by expending 100 Surplus Job Credits
it
has earned in prior years); or
B. such party may apply their respective Surplus Job Credits
toward meeting their remaining Job Target for future years,
such
that if TAMUS and Lexicon accumulate enough Surplus Job Credits
they
will be deemed to have fulfilled all of its obligations under
the
Agreement, and will be released from the Agreement early (for
example, if TAMUS and Lexicon accumulated at least 5,000 unused
Surplus Job Credits by December 31, 2026, then TAMUS may apply
these
Surplus Job Credits forward to fulfill its Job Target for 2027,
and
may thereby fulfill its obligations and be released from the
Agreement one year early).
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b. OFFSETS
FOR EXTERNAL FUNDING. One of the State's primary objectives
under this Agreement is to support the
development of TIGM as a national center
of excellence in genomic medicine, which
will require TIGM to successfully
compete for available funding from sources
other than the State. Generating such
funding directly benefits the State. In
light of these benefits, and without
affecting TAMUS and Lexicon's expectation
and intention of satisfying their
respective Job Target commitments set forth
in Section 2.d. above, TAMUS and
Lexicon will be entitled to an offset
against liabilities, if any, that they may
incur for liquidated damages under Section
3.a. above, calculated as set forth
below, on account of funds received by TIGM
and, to the extent related to
research using materials obtained from
TIGM, by TIGM members directly or
indirectly from funding sources other than
the State, including, without
limitation, all such funds received under
grants and contracts from the National
Institutes of Health, other federal
government agencies, research institutes,
foundations, and companies in the
biotechnology and pharmaceutical industries.
The parties will collectively be entitled
to an offset equivalent to the
liquidated damages liability associated
with the creation or maintenance of
5,000 jobs for one year for each $25
million of such funding. A maximum of $300
million of such external funding may be
applied. The offset shall be allocated
between Lexicon and TAMUS as follows:
i. One-half of such offset (e.g., for each $25 million in such
funding, an amount
equivalent to the liquidated damages liability associated
with the creation or
maintenance of 2,500 jobs for one year) will be applied
to reduce the amount of
TAMUS's potential liquidated damages liability for
shortfalls in achieving or
maintaining its portion of the Job Target
commitment.
ii. The other one-half of such offset will be applied to reduce
the
amount of Lexicon's
potential liquidated damages liability for shortfalls in
achieving or maintaining its
portion of the Job Target commitment.
Lexicon and TAMUS will be entitled to
proportional credit for funding amounts
less than those set forth above. In any
event, TAMUS agrees to be responsible
for 5,000 jobs by December 31, 2016,
and
