Rick Scott

GOVERNOR

DE~

Cissy Proctor
EXECUTIVE DIRECTOR

FLORIDA DEPARTMENT ef
ECONOMIC OPPORTUNITY

October 28, 2016

Sanford Burnham Prebys Medical Discovery Institute, Inc.
f /k/ a Burnham Institute for Medical Research
10901 North Torrey Pines Road
La Jolla, California 9203 7
Attn: Chief Operating Officer
Attn: Vice President, Business Development
Sanford Burnham Prebys Medical Discovery Institute, Inc.
f /k/ a Burnham Institute for Medical Research
6400 Sanger Road
Orlando, FL 32827
Attn: Mike Dollar

RE:

NOTICE OF MATERIAL DEFAULT AND DEMAND FOR $77.6 MILLION IN

DAMAGES

Dear Chief Operating Officer and Vice President:

By this letter, the Florida Department of Economic Opportunity ("DEO") provides written notice
to Sanford Burnham Prebys Medical Discovery Institute, Inc., f/k/ a Burnham Institute for Medical
Research, Inc. ("Sanford Burnham") that Sanford Burnham is in material default of that certain
"Innovation Incentive Funding Agreement between the Office of Tourism, Trade, and Economic
Development and Burnham Institute for Medical Research" dated October 31, 2006, as amended
(the "Agreement").
The Innovation Incentive Program was created in 2006 within the Office of Tourism, Trade, and
Economic Development to ensure that sufficient resources were available to allow the state to
respond expeditiously to extraordinary economic opportunities.
Section 288.1089, F.S., details requirements for a research and development project, such as the one
for Sanford Burnham:

Serve as a catalyst for an emerging or evolving technology cluster;

Demonstrate a plan for significant higher education collaboration;

Provide the state, at a minimum, a break-even return on investment within a 20 year period;
and

Be provided with a one-to-one match from the local community.

On August 17, 2006, the Legislative Budget Commission approved the release of $155,272,000 from
the economic development trust fund for Sanford Burnham. In contrast to today's projects that
Florida Department of Economic Opportunity I Caldwell Building I 107 E. Madison Street I Tallahassee, FL 32399
850.245.7105 I www.FloridaJobs.org
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An equal opportunity employer/program. Auxiliary aids and service are available upon request to individuals with disabilities.
All voice telephone numbers on this document may be reached by persons using TTY/TTD equipment via the Florida Relay
Service at 711 .

Notice of Material Default and Demand for $77.6 Million in Damages

October 28, 2016
Page 2 of 3

require significant return on investment prior to the release of state funds, which policy was
established by Governor Scott, the Sanford Burnham project released funds in the good faith belief
that our partner would carry out their legal obligations under the agreement. Unfortunately, Sanford
Burnham has assumed the posture that it will leave Florida prior to satisfying its contractual
obligations.
For these reasons, DEO hereby exercises its option and right to declare Sanford Burnham to be in
material default of terms of the Agreement that include, but are not necessarily limited to, the
following: pursuant to paragraph 11.3(b)(ii), Sanford Burnham's total number of Jobs created in
Florida as of the end of each of the three annual Report Periods spanning from July 1, 2013, to June
30, 2016, was less than the total number of Jobs, measured in the aggregate, that Sanford Burnham
was scheduled to have created in Florida as of the end of each such Report Period, as set forth in
Sanford Burnham's Business Plan.
DEO also hereby formally demands that Sanford Burnham make a commitment to DEO, in
writing, to remain in Florida for the next year, pursuant to paragraph 11.1 G) of the Agreement and
remain in Florida for the 20 years contemplated in the Agreement. This written commitment is
necessary because Sanford Burnham has verbally indicated to DEO that it intends in the coming
months to cease its Florida operations, leave the state, and consolidate all of its operations in its
California campus. Please provide written assurance of Sanford Burnham's intent to remam m
Florida for the next year by close of business on Friday, October 28, 2016.
Sanford Burnham's intent to exit Florida constitutes an anticipatory repudiation of Sanford
Burnham's obligations to continue to operate in Florida for 20 years, under the agreement and
pursuant to s. 288.1089, Florida Statutes. Sanford Burnham's decision to depart from Florida
almost 10 years before the Agreement ends, violates the fundamental intentions and agreement of
the parties. The indisputable intent of the parties was that Sanford Burnham operate in Florida for
at least 20 years. Sanford Burnham's intent also violates the mandatory requirement of paragraph
11.3(b)(iv) of the Agreement that Sanford Burnham would create 303 jobs. Therefore, to avoid the
time and expense of potentially protracted litigation, DEO formally demands that Sanford Burnham
refund the State of Florida 50% of the monies provided to Sanford Burnham under the Agreement
($77,636,000) by November 15, 2016, representing half of the money pledged in the Agreement, if
Sanford Burnham does not honor its agreement to remain in Florida for the full 20 years.
Additionally, given Sanford Burnham's intent to leave the State of Florida, and because the
Agreement requires that monies and equipment be used only for Sanford Burnham's Florida
operations (see paragraphs 3.2, 3.3, and 8.17), DEO hereby demands return of any unspent funds
provided to Sanford Burnham under the Agreement, and of all equipment.
Be assured that the State of Florida will thoroughly investigate and prosecute all available claims
against Sanford Burnham. We would anticipate that discovery would concentrate on developing a
detailed record of the facts as to whether Sanford Burnham acted honestly and in good faith in
inducing the State of Florida to provide monies under the Agreement, and in making Sanford
Burnham's decision to depart from Florida. Attention would also be given to whether Sanford
Burnham or any related entities, including their officers and directors, interfered with the
Agreement, or negligently mismanaged the affairs of Sanford Burnham, at the State of Florida's
expense.

Notice of Material Default and Demand for $77.6 Million in Damages

October 28, 2016
Page 3 of 3

DEO reserves all rights, remedies, and privileges available to it, and the State of Florida.
Sincerely,

Karl Blischke, Director

Division of Strategic Business Development
Department of Economic Opportunity

[DLA,IPER

DLA Piper LLP (US)

4365 Executive Drive, Suite 1100
San Diego, California 92121-2133
www.dlapiper.com

Knox Bell
knox.bell@dlapiper.com
T 858.677.1426
F 858.638.5026

October 31, 2016

Karl Blischke, Director

State of Florida
Department of Economic Opportunity
107 E. Madison Street
Tallahassee, FL 32399
Re:

Via email: Karl.Blischke@deo.myflorida.com

Sanford Burnham Prebys Medical Discovery Institute, at Lake Nona/Your Letter dated
October 28, 2016

Dear Mr. Blischke:

As legal counsel for Sanford Burnham Prebys Medical Discovery Institute, a California nonprofit public
benefit corporation ("SBP"), I have been furnished a copy of your October 28 letter to SBP concerning the
SBP Lake Nona campus and the 2006 Incentive Funding Agreement with the State of Florida (the
"Agreement"). In due course, SBP will give a formal response to the various allegations and claims set
forth in your letter; but prior to that I would like to furnish some information to you , and ask you a few
questions, as set forth below in this letter. I suggest that you furnish a copy of this letter to your legal
counsel regarding any of the legal matters.
1.

SBP Operations at Lake Nona:

(a)
SBP is very proud of what SBP has accomplished at Lake Nona over the past
decade, in partnership with the State of Florida, Orange County, the City of Orlando, and the Lake Nona
Land Company ("LNLC"), University of Central Florida, Florida Hospital, local donors, and others. The
SBP Lake Nona facility and operation have served as a primary catalyst for Medical City at Lake Nona, a
dynamic, prosperous, and successful cluster that has created 5,000 new jobs. More broadly, the
investment in SBP at Lake Nona and efforts by SBP Lake Nona faculty and employees have helped to
seed a culture of life science innovation in Central Florida that has a positive regional impact. SBP at
Lake Nona facility created 262 new jobs for the site by June 30, 2015.
(b)
Unfortunately, the SBP Lake Nona operations have also suffered substantial
annual operating financial losses over the past years. The financial world for independent nonprofit
medical research institutions (such as SBP) has become much more challenging during the last several
years, largely as a result of a reduction of NIH funding and the recession that started in 2008.
(c)
As you know, these changing economic conditions prompted SBP to do some
long-range sustainability analysis and an eventual proposed transaction for SBP to make a gift transfer to
the University of Florida ("UF") for all of SBP's assets at Lake Nona. UF was very enthusiastic in favor of
accepting such assets, which would expand UF's presence and research operations in the Orlando
region, preserve jobs, operate in a financially sustainable manner, and instantly enhance UF's standing
as a research university. For the past ten months, UF and SBP diligently worked toward accomplishing
such a gift transfer of assets, with enthusiastic support from the leadership of UF, Orange County, the
City of Orlando, and LNLC . Additionally, the governor's office and your DEO office extensively studied the
proposed gift transfer, resulting in no objections and a "neutral" position to allow the transaction to
proceed. We were also told that the leadership of both the house and senate for the Florida State
legislature and the legal counsel for UF concluded that no State legislative approval was needed for the

[oLlPER
October 31, 2016
Page Two

transaction to proceed. With this background , SBP was very surprised to learn in late October that UF
changed its position and decided to not proceed with the previously negotiated gift of assets transaction.
(d)
As a result of the big change in plans as described in item 1(c), SBP necessarily
has to rethink its near-term and long-term plans for the SBP Lake Nona research facility and operations.
Such planning is in process and will continue; but the immediate action/decision is that SBP will continue
to operate the Lake Nona campus on an "as is" basis while SBP explores other possibilities for a viable
plan for the continued operations at Lake Nona. SBP will have discussions with all of the stakeholders to
explore possible plans and alternatives. If DEO or the Governor's office has any helpful suggestions,
SBP will welcome hearing them . In the meantime, it is business as usual for the SBP Lake Nona
operations and facility.
In your letter, you state that DEO has heard verbally that "SBP intends in the
(e)
coming months to cease its Florida operation, and leave the state ... ". Such a statement is not correct, as
described above in item 1(d). Can you please share with me who said this, and when? I suspect that
whatever might have been said was somehow misunderstood from what was intended.
2.

Alleged Default and Remedies:

(a)
It is beyond the scope of this preliminary letter to respond in detail to the various
allegations in your letter about default and remedies; and such formal response will come later in due
course. In the meantime, I would like to point out my reading of a few of the provisions in the Agreement,
and ask if you (or your legal counsel) concur or if you (or your legal counsel) somehow read the
provisions differently.
(b)
The Agreement states the explicit remedies for a material default; which
remedies therefore are the exclusive remedies if there is a default. For example, Section 11.6 says that
the Article 11 remedies are the sanctions that OTTED (DEO) may impose; and these remedies are not
intended to be punitive. See also Section 11.3(a) and (b}, and Section 13.17. Your letter alleges that
SBP has ceased operations (which is not true); and you ask for a return of $77 .6 M of the monies that
were spent many years ago in accordance with the terms of the Agreement to conduct research at the
SBP Lake Nona facility. However, Section 11.4(c) expressly states the type of remedies that can be
imposed if there is a cessation of operations; namely a repayment of the incentive monies advanced from
the state that "have not yet been used, less reasonable wind down costs". In light of these expressed
exclusive remedies, what is the basis for your request for SBP to repay $77.6M?
(c)
Regarding the topic of jobs creation as referenced in your letter, that topic is
covered by Section 8.11 of the Agreement, which states in pertinent part "SBP shall use reasonable best
efforts to create 303 jobs" by October 31, 2016. As you know, when this provision was written in 2006,
there were zero jobs, and both the State and SBP were hopeful that the new venture in Lake Nona could
be developed into a successful operation that would eventually hit the target of creating 303 new jobs
within 10 years. There can be no doubt that SBP has fulfilled its contractual obligation "to use reasonable
best efforts" to create 303 jobs, even though SBP has not yet been successful in actually creating the
hoped for target number of 303. To be clear, the Agreement does not create any obligation on SBP to in
fact create 303 jobs or otherwise to be subject to some dollar damages or penalty; but rather only if the
target 303 jobs are not created, then the State can declare a default and recover any monies that have

rDLA,IPER
October 31, 2016
Page Three

not yet been spent, less wind down costs. Does the DEO have some different understanding or
interpretation of the terms of the Agreement for this topic?

In your letter, you ask for a return of the equipment that was purchased with the
(d)
State incentive funds. I do not find any provision in the Agreement that calls for such return. Please
explain to me the basis for this request. FYI, SBP is aware that such equipment is not to be removed
from the State; and SBP intends to continue to fully comply with that provision.
3.

Closing:

I hope that the information above will be helpful to you concerning this matter. I will appreciate any
information you can furnish in response to my questions above. If you (or your legal counsel) would like
to have a phone discussion concerning any of these matters, I am available.
Sincerely,

Knox Bell
Senior Counsel

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