<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
PATHOGENESIS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 91-1542150
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
201 ELLIOTT AVENUE WEST
SEATTLE, WASHINGTON 98119
(206) 467-8100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
WILBUR H. GANTZ
PRESIDENT AND CHIEF EXECUTIVE OFFICER
201 ELLIOTT AVENUE WEST
SEATTLE, WASHINGTON 98119
(206) 467-8100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN H. KAY, ESQ. DENNIS N. BERMAN, ESQ.
Squadron, Ellenoff, Plesent & Sonnenschein Nath & Rosenthal
Sheinfeld, LLP 1221 Avenue of the Americas
551 Fifth Avenue New York, New York 10020
New York, New York 10176 (212) 768-6700
(212) 661-6500
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.001 per share..................... $68,425,000 $20,734.85
</TABLE>
(1) Based on the average of the high and low prices reported on the Nasdaq
National Market on February 19, 1997, in accordance with Rule 457(c) of the
Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 25, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
2,000,000 SHARES
[LOGO]
[LOGO]
COMMON STOCK
ALL OF THE 2,000,000 SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE (THE
"COMMON STOCK"), OFFERED HEREBY ARE BEING SOLD BY PATHOGENESIS CORPORATION
("PATHOGENESIS" OR THE "COMPANY"). THE COMMON STOCK IS TRADED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "PGNS." ON FEBRUARY 21, 1997 THE LAST REPORTED
SALE PRICE OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET WAS $30.75 PER
SHARE. SEE "PRICE RANGE OF COMMON STOCK."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS IN PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS
PUBLIC DISCOUNT (1) TO COMPANY (2)
<S> <C> <C> <C>
PER SHARE..................... $ $ $
TOTAL (3)..................... $ $ $
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $450,000 .
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
300,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS,
IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO
PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL TOTAL $ AND
THE PROCEEDS TO COMPANY WILL TOTAL $ . SEE "UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT , 1997.
-------------------
MONTGOMERY SECURITIES
PRUDENTIAL SECURITIES INCORPORATED
HAMBRECHT & QUIST
, 1997
<PAGE>
[PICTURE OF CHILD USING NEBULIZER TO INHALE TOBI (TOBRAMYCIN FOR INHALATION)]
TOBI-TM- (Tobramycin for Inhalation)
<TABLE>
<CAPTION>
Indications Status
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
Cystic Fibrosis RESULTS OF U.S. PHASE III CLINICAL TRIALS ANNOUNCED IN JANUARY 1997;
INTEND TO FILE NDA IN SECOND QUARTER OF 1997.
EUROPEAN STUDIES INTENDED TO COMMENCE IN 1997.
Bronchiectasis U.S. PHASE II CLINICAL TRIALS INTENDED TO COMMENCE IN 1997.
Tuberculosis U.S. PHASE II CLINICAL TRIALS INTENDED TO COMMENCE IN 1997.
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
SEE "UNDERWRITING."
TOBI-TM- and RAM-TM- and the Company's name are trademarks of the Company.
This prospectus also includes brand names or trademarks of companies other than
PathoGenesis.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS, INCLUDING INFORMATION UNDER "RISK FACTORS." UNLESS OTHERWISE
INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED.
THE COMPANY
PathoGenesis Corporation ("PathoGenesis" or the "Company") develops novel
drugs to treat serious, chronic human infectious diseases where there is a
significant need for improved therapy. In January 1997, PathoGenesis announced
results from its two pivotal Phase III clinical trials of its lead drug
candidate, TOBI-TM- (tobramycin for inhalation), for treatment of chronic
PSEUDOMONAS AERUGINOSA lung infections in people with cystic fibrosis. The
trials, which were completed in October 1996, included data from a total of 468
patients in 69 cystic fibrosis care centers in the United States.
TOBI improved lung function in the two pivotal trials, resulting in an
improvement of more than 11% compared with placebo by the end of the six-month
study period. The mean number of hospitalization days across both studies
declined 36% to 5.2 days for the TOBI group versus 8.2 days for the placebo
group. Observed bacterial counts in the sputum (phlegm) of patients taking TOBI
declined, while observed bacterial counts increased in the placebo group. Over
the six-month study period, the difference in observed bacterial density between
the two groups was 10-fold. The foregoing data were statistically significant
when analyzed on an "intent to treat" basis.
Reported adverse events were comparable between the groups taking TOBI and
the placebo. In TOBI patients, the presence of pseudomonal bacteria potentially
resistant to levels of tobramycin in the lungs achieved by aerosol
administration was low: 4.0% at the beginning and 5.4% at the end of the trials.
Based on the results of these trials, the Company intends to file a New Drug
Application ("NDA") for TOBI in cystic fibrosis patients with the United States
Food and Drug Administration ("FDA") in the second quarter of 1997. The FDA has
agreed to an expedited review of such NDA, which may accelerate the application
review process.
TOBI is a stable, premixed, proprietary formulation of the antibiotic
tobramycin for delivery by inhalation using a nebulizer. Tobramycin, a
broad-spectrum antibiotic, has been administered intravenously to cystic
fibrosis patients with lung infections for more than 20 years. However, its use
has been limited to patients hospitalized for acute flare-ups of their chronic
lung infections primarily because severe kidney damage or hearing loss can
result from extended intravenous treatment. Conversely, delivery by inhalation
permits application of much higher concentrations than intravenous
administration, since the drug is deposited directly to the site of infection in
the lungs with little absorption into the bloodstream. TOBI is designed to
expand the use of tobramycin beyond short-term hospitalizations to long-term,
home administration to suppress the life-threatening pseudomonal lung infections
that are common in cystic fibrosis patients. PathoGenesis has received a U.S.
formulation patent for TOBI and an Orphan Drug designation from the FDA for
inhaled tobramycin to treat pulmonary infections in people with cystic fibrosis.
The Company believes that the market opportunity for TOBI is significant and
growing. There are approximately 30,000 cystic fibrosis patients in the United
States, according to the Cystic Fibrosis Foundation, and a comparable number in
Europe. Pseudomonal bacteria infect the lungs of approximately 60% of all
patients with the disease, according to data gathered during 1995 by the Cystic
Fibrosis Foundation.
Based on the potential efficacy of delivering a high concentration of
tobramycin directly to the site of infection in the lungs, the Company also
intends to conduct clinical trials of TOBI in patients suffering from other
bacterial lung infections, including bronchiectasis (a form of severe chronic
bronchitis) and
3
<PAGE>
tuberculosis. Bronchiectasis afflicts approximately 100,000 patients in the
United States. In addition, there are approximately 25,000 new cases of
tuberculosis diagnosed annually in the United States. The Company intends to
commence Phase II clinical trials for TOBI in patients with bronchiectasis as
well as in patients with tuberculosis during 1997.
The Company's second drug candidate, PA-1648, a derivative of the antibiotic
rifampin, is being developed for the treatment of tuberculosis. The efficacy of
current therapies for tuberculosis is limited due to drug toxicity, the
emergence of drug-resistant strains and the need to ensure patient compliance
with multiple drug regimens over extended treatment periods. Animal studies
indicate that PA-1648 is more active against tuberculosis than any of the drugs
currently approved for clinical use. PathoGenesis completed Phase I clinical
trials for PA-1648 during 1996. The Company intends to commence Phase II
clinical trials in tuberculosis patients during 1997.
While the Company currently expects to file an NDA for TOBI in cystic
fibrosis patients in the second quarter of 1997 and the FDA has agreed to an
expedited review, there can be no assurance as to the timing of such filing or
the outcome or timing of the FDA's review of such filing. Additionally, there
can be no assurance that TOBI, if approved by the FDA, will achieve market
acceptance. Furthermore, no assurance can be given that the results of any of
the anticipated additional clinical trials to be conducted by the Company will
be consistent with results obtained in the clinical trials for TOBI in cystic
fibrosis patients or that such trials will be completed within anticipated time
frames, if at all.
The Company is a Delaware corporation organized in December 1991. The
Company's principal executive offices are located at 201 Elliott Avenue West,
Seattle, Washington 98119, and its telephone number is (206) 467-8100.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered......................... 2,000,000 shares
Common Stock Outstanding after the
Offering................................... 15,932,322 shares (1)
Use of Proceeds.............................. Launch costs, including sales and marketing,
of TOBI for cystic fibrosis, clinical
testing, research and development and general
corporate purposes, including working capital
and capital expenditures. See "Use of
Proceeds."
Nasdaq National Market symbol................ PGNS
</TABLE>
- ------------------------
(1) Excludes as of January 31, 1997: (i) 1,686,450 shares of Common Stock
issuable upon the exercise of outstanding options to purchase shares of
Common Stock at a weighted average exercise price of approximately $15.40
per share; (ii) 111,660 shares of Common Stock reserved for issuance under
outstanding warrants at an average exercise price of $13.79; and (iii)
1,946,811 shares of Common Stock underlying options available for future
grants under the Company's stock option plans. See "Management--Stock Option
Plans" and "Description of Capital Stock."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 10,
1991
(INCORPORATION)
YEARS ENDED DECEMBER 31, THROUGH
---------------------------------------------- DECEMBER 31
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue--grants and royalties............................ $ 440 $ -- $ -- $ -- $ --
Operating expenses:
Research and development............................... 20,673 15,668 12,789 8,213 758
General and administrative............................. 4,241 3,609 3,215 3,615 2,698
---------- ---------- ---------- ---------- -------
Total operating expenses............................. 24,914 19,277 16,004 11,828 3,456
Net loss................................................. $ (21,264) $ (18,024) $ (14,762) $ (10,805) $ (2,930)
Net loss per common share................................ $ (1.66) $ (2.20) $ (1.95) $ (1.77) $ (0.87)
Weighted average common shares outstanding............... 12,829 8,210 7,585 6,111 3,367
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(1)
--------- --------------
BALANCE SHEET DATA:
Cash, cash equivalents and investment securities..................................... $ 60,688 $ 118,355
Total current assets................................................................. 61,809 119,477
Total assets......................................................................... 69,999 127,666
Total current liabilities............................................................ 2,974 2,974
Long-term liability.................................................................. 98 98
Total stockholders' equity........................................................... 66,926 124,594
</TABLE>
- ------------------------
(1) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $30.75 per share
and the application of the estimated net proceeds therefrom (after deducting
underwriting discounts and commissions and estimated offering expenses
payable by the Company). See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ALL SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES OR OTHER FACTORS
WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IN ADDITION TO
STATEMENTS WHICH EXPLICITLY DESCRIBE SUCH RISKS AND UNCERTAINTIES, INVESTORS ARE
URGED TO CONSIDER STATEMENTS LABELED WITH THE TERMS "BELIEVES," "BELIEF,"
"EXPECTS," "PLANS," "ANTICIPATES," OR "INTENDS" TO BE UNCERTAIN AND
FORWARD-LOOKING. AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN
THIS PROSPECTUS, IN CONNECTION WITH AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY. ALL CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ
AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY
APPEAR IN THIS PROSPECTUS.
EARLY STAGE OF DEVELOPMENT; CONTINUING OPERATING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company is in a development stage and currently has no sources of
operating revenues from any of its drug candidates and has limited sources of
revenue from grants and royalties. The Company has incurred net operating losses
since its inception in December 1991. At December 31, 1996, the Company had a
deficit accumulated during the development stage of $67,785,433. Such losses
have resulted principally from costs incurred in research and development and
clinical trials and from general and administrative costs associated with the
Company's operations. The Company expects that operating losses will continue
and increase for at least the next year as its research and development,
clinical testing and marketing activities expand. The Company's ability to
achieve profitability will depend in part on its ability to obtain regulatory
approvals for its drug candidates and to develop the capability to manufacture
and market any approved products either by itself or in collaboration with third
parties. There can be no assurance if or when the Company will receive any
regulatory approvals required for the clinical development, commercial
manufacturing or marketing of its proposed products, or achieve profitability.
Accordingly, the extent of future losses and the time required to achieve
profitability are highly uncertain. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ABSENCE OF PRODUCTS
The Company does not currently have regulatory approval to market or
generate revenues from any of its drug candidates. The Company's drug
candidates, other than TOBI for cystic fibrosis, are not expected to be
commercially available for at least several years, and TOBI for cystic fibrosis
is not expected to be commercially available until at least 1998, if ever. The
Company's drug candidates require significant research and development and
laboratory testing, significant clinical testing and regulatory approval prior
to commercialization. Although the Company is currently seeking to identify
other drug candidates, to expand the number of drug candidates it has under
development and to expand the potential indications for which its drug
candidates under development may be used, there can be no assurance that it will
be successful in such development or expansion. See "Risk Factors--Government
Regulation; No Assurance of Regulatory Approvals" and "Business--Products Under
Development."
DEPENDENCE ON TOBI
The Company is dependent on its ability to obtain regulatory approvals of
TOBI for pseudomonal lung infections in cystic fibrosis patients and thus,
generate revenues while it continues the research, development and regulatory
approval processes for other drug candidates and potential uses of TOBI for
other indications. Although the Company completed its Phase III clinical trials
for TOBI in cystic fibrosis patients in October 1996, the Company must apply for
and obtain the approval of the FDA prior to commercially marketing TOBI in the
United States. While the Company currently expects to file an NDA for TOBI in
cystic fibrosis patients in the second quarter of 1997 and the FDA has agreed to
an expedited review, there can be no assurance as to the timing of such filing
or the outcome or timing of the FDA's
6
<PAGE>
review of such filing. Furthermore, there can be no assurance that TOBI for
cystic fibrosis, if approved by the FDA, will achieve market acceptance. The
Company has not yet commenced clinical trials of TOBI for any other indications.
No assurance can be given that the results of such trials, when commenced, will
be consistent with results obtained in the clinical trials for TOBI in cystic
fibrosis patients or that the Company will be successful in developing TOBI for
other indications. See "Risk Factors--Uncertainties Regarding Development of
Drug Candidates; Clinical Trials" and "Risk Factors--Government Regulation; No
Assurance of Regulatory Approvals."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
The production and marketing of the Company's products, as well as its
ongoing research and development activities, are subject to regulation by
governmental agencies, including the FDA in the United States and regulatory
authorities in other countries. Any potential therapeutic product developed by
the Company will be subject to rigorous preclinical and clinical testing and
approval pursuant to regulations administered by the FDA, comparable agencies in
other countries and, to a lesser extent, state regulatory authorities. The
approval process for the Company's drug candidates is likely to involve
significant expenditures. In October 1996, the Company completed its Phase III
clinical trials of its most advanced drug candidate, TOBI for cystic fibrosis.
The Company expects to file an NDA for TOBI for cystic fibrosis with the FDA in
the second quarter of 1997 and the FDA has agreed to an expedited review of such
NDA. No assurance can be made that the Company will be able to file its NDA in
the foregoing time frame, or at all, or that such filing will result in FDA
approval of TOBI for cystic fibrosis. Furthermore, the Company cannot predict
with any degree of certainty when it might be in a position to file any NDA with
respect to any other drug candidate or the length of time involved between the
filing of any NDA and obtaining any FDA approval, if at all. The cost to the
Company of conducting human clinical trials for any potential product can vary
dramatically based on a number of factors, including the order and timing of
clinical indications pursued and the extent of development and financial
support, if any, from corporate partners. The Company may have difficulty
obtaining sufficient patient populations, clinicians or support to conduct its
clinical trials as planned and may have to expend substantial additional funds
to obtain access to such resources, or delay or modify its plans significantly.
See "Business--Government Regulation and Product Testing."
The effect of government regulation may be to delay marketing of the
Company's proposed products for a considerable period of time, to impose costly
procedures upon the Company's activities and to furnish a competitive advantage
to other companies that compete with the Company. There can be no assurance that
FDA or other regulatory authority approval for any product candidates developed
by the Company will be granted on a timely basis or at all. Any delay in
obtaining or any failure to obtain such approvals would materially and adversely
affect the marketing of the Company's drug candidates and the Company's
business, financial position and results of operations. In addition, legislation
may be enacted in the future which might adversely affect the Company's ability
to develop, manufacture or market its drug candidates. Any FDA approvals that
may be granted will be subject to continual review, and later discovery of
previously unknown problems may result in withdrawal of products from marketing.
See "Business-- Government Regulation and Product Testing."
The Company intends, either on its own or in collaboration with others, to
market its products in major markets outside of the United States. There can be
no assurance that the Company will be successful in establishing marketing
relationships, conducting clinical testing in foreign countries or obtaining
required foreign regulatory approvals in a timely manner, if at all. To market
its products abroad, the Company must comply with numerous and varying foreign
regulatory requirements implemented by foreign health authorities, governing,
among other things, the design and conduct of clinical trials, pricing
regulations and marketing approval. The approval procedure may vary among
countries and can involve, for example, additional testing, and the time
required to obtain approval may differ from the time required to obtain FDA
approval. The foreign regulatory approval process includes all of the risks
associated with
7
<PAGE>
obtaining FDA approval. Approval by the FDA of any drug candidate does not
ensure approval by the regulatory agencies of other countries. See
"Business--Government Regulation and Product Testing."
UNCERTAIN ABILITY TO PROTECT PATENTS AND PROPRIETARY TECHNOLOGY AND INFORMATION
Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the pharmaceutical industry places considerable importance on
obtaining patent and trade secret protection for new technologies, products and
processes. The Company's ability to compete effectively depends on its success
in protecting its proprietary technology, both in the United States and abroad.
The patent positions of pharmaceutical firms generally are highly uncertain and
involve complex legal and factual questions. The Company intends to file
applications as appropriate for patents covering formulation, composition of
matter, or uses of its drug candidates, its proprietary processes and any gene
sequences that it discovers. The Company has 13 patent applications pending with
the United States Patent and Trademark Office ("PTO"), and the Company has been
issued three United States patents. The Company has filed, and intends to
continue to file, patent applications in certain foreign jurisdictions. There
can be no assurance that the PTO will grant the Company's pending patent
applications or that the Company will obtain any patents for which it applies.
No assurance can be given that patents issued to or licensed by or to the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide any competitive advantage.
The Company also relies on trade secrets, know-how and continuing
technological advancement to maintain its competitive position. Although the
Company has entered into confidentiality and invention agreements with its
employees and consultants, no assurance can be given that such agreements will
be honored or that the Company will be able to effectively protect its rights to
its unpatented trade secrets and know-how. Moreover, no assurance can be given
that others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to the Company's trade
secrets, know-how and proprietary technology.
In addition to protecting its trade secrets, know-how and proprietary
technology, the Company may be required to obtain licenses to patents or other
proprietary rights from third parties. No assurance can be given that any
licenses required under any patents or proprietary rights would be made
available on acceptable terms, if at all. If the Company does not obtain
required licenses, it could encounter delays in product development while it
attempts to design around blocking patents, or it could find that the
development, manufacture or sale of products requiring such licenses could be
foreclosed.
The Company may, from time to time, support and collaborate in research
conducted by universities and by governmental research organizations. There can
be no assurance that the Company will have or be able to acquire exclusive
rights to the inventions or technical information derived from such
collaborations or that disputes will not arise as to rights in derivative or
related research programs conducted by the Company or such collaborators. See
"Business--Licenses and Other Agreements."
In addition, the Company could incur substantial costs in defending any
patent infringement suits or in asserting any patent rights, including those
granted by third parties. The PTO could institute interference proceedings
against the Company in connection with one or more of the Company's patent
applications, and such proceedings could result in an adverse decision as to
priority of invention. The PTO could also institute reexamination proceedings
against the Company in connection with one or more of the Company's patents and
such proceedings could result in an adverse decision as to the validity or scope
of the patents. See "Business--Patents."
UNCERTAINTIES REGARDING DEVELOPMENT OF DRUG CANDIDATES; CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of any of the
Company's proposed products, such products will be subjected to extensive
preclinical and clinical testing to demonstrate their safety and efficacy in
humans. Results of initial preclinical and clinical testing of drug candidates
under development by the Company are not necessarily indicative of results that
will be obtained from
8
<PAGE>
subsequent or more extensive preclinical and clinical testing or long-term
efficacy studies. Adverse or inconclusive clinical trial results concerning any
of the Company's drug candidates could significantly delay the filing for
marketing approval for such drug candidate with the FDA or result in a filing
for a narrower indication. In such event, further studies would have to be
conducted with respect to the excluded indications to support any filing of a
supplemental application covering such indications. There can be no assurance
that the Company's research and development, preclinical testing, clinical
trials or long-term safety and efficacy studies will be successfully completed,
that regulatory approvals will be obtained or will be as broad as sought, that
the Company's drug candidates will be capable of being produced in commercial
quantities at reasonable costs or that any products, if introduced, will achieve
market acceptance. See "Business--Products Under Development."
The Company's drug candidates under development and future product
development efforts are subject to the risks of failure inherent in the
development of pharmaceutical products. These risks include the possibilities
that any or all of the Company's drug candidates will be found to be
ineffective, unsafe, toxic or otherwise fail to meet applicable regulatory
standards or receive necessary regulatory clearances; that the drug candidates,
if safe and effective, will be difficult to develop into commercially viable
products, to manufacture on a large scale or be uneconomical to market; or that
proprietary rights of third parties will preclude the Company from marketing
such drug candidates. There is, therefore, substantial risk that the Company's
product development efforts will not prove to be successful. Moreover, the
Company is seeking to develop new treatments for conditions that are also the
subject of research and development efforts by other companies and entities. The
Company's competitors may succeed in developing technologies or products that
are more effective or cost-effective than those of the Company. Rapid
technological changes or developments by others may result in the Company's drug
candidates becoming obsolete or noncompetitive. See "Risk Factors--Competition"
and "Business--Competition."
DEPENDENCE ON LICENSES; POTENTIAL NEED FOR ADDITIONAL PARTNERS OR COLLABORATORS
The Company has obtained, and intends to obtain in the future, licensed
rights to certain proprietary technologies from other entities, individuals and
research institutions to which it will be obligated to pay royalties and
milestone payments if it develops products based upon the licensed technology.
Furthermore, the Company's strategy for the research, development and
commercialization of its drug candidates and proprietary technologies may
require the Company to enter into various arrangements with corporate and
academic collaborators, licensors, licensees and others, and the Company may,
therefore, be dependent upon the subsequent success of these third parties in
performing their responsibilities. There can be no assurance that the Company
will be able to enter into collaborative, license or other arrangements that the
Company deems necessary or appropriate to develop and commercialize its drug
candidates or proprietary technologies, or that any or all of the contemplated
benefits from such collaborative, license or other arrangements will be
realized. Certain of the collaborative, license or other arrangements that the
Company may enter into in the future may place responsibility on the Company's
collaborative partners for preclinical testing and human clinical trials and for
the preparation and submission of applications for regulatory approval for
potential pharmaceutical or other products. Should any collaborative partner
fail to develop or commercialize successfully any drug candidate or proprietary
technology to which it has rights, the Company's business, financial position
and results of operations may be materially adversely affected. There can be no
assurance that collaborators will not pursue alternative technologies or drug
candidates either on their own or in collaboration with others, including the
Company's competitors, as a means for developing treatments for the diseases
sought to be addressed by the Company's programs. See "Business--Licenses and
Other Agreements."
UNCERTAINTY OF ORPHAN DRUG STATUS
In October 1994, the Company received an Orphan Drug designation from the
FDA for the use of tobramycin for inhalation in the treatment of pulmonary
infections in cystic fibrosis patients. The Orphan Drug designation will provide
the Company with a seven-year marketing exclusivity in the United States if
9
<PAGE>
the Company is the first FDA-approved applicant for the drug for the specified
indication. In October 1996, the Company completed its Phase III clinical trials
of TOBI for the treatment of chronic lung infections in cystic fibrosis
patients. While the Company is not aware of any other companies that have sought
Orphan Drug designation for this drug for this indication, there can be no
assurance that other companies will not seek such designation in the future.
Tobramycin is a generic drug currently FDA-approved for intravenous and
intrathecal (injection into spinal fluid) use. These formulations of tobramycin
can be modified by pharmacists, physicians or patients for inhalation use.
Although this practice is not an FDA-approved use, there are no assurances that
this practice would not continue and would not have a material adverse effect on
reimbursement levels, sales and market acceptance of TOBI. In addition, the
Company could incur substantial costs in asserting any rights to prevent such
uses it may have under the Orphan Drug Act.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; NEED FOR
REIMBURSEMENT
The future revenues and profitability of, and availability of capital for,
pharmaceutical companies such as the Company may be affected by the continuing
efforts of governmental and private third-party payors to contain or reduce the
costs of health care through various means. For example, in certain foreign
markets the pricing and profitability of prescription drugs is subject to
government control. There have been, and the Company expects there will continue
to be, a number of federal and state proposals to control the cost of drugs
through governmental regulation. It is uncertain what form any health care
reform legislation may take or what actions the federal, state and private
payors may take in response to the proposed reforms. The Company cannot predict
when any suggested reforms will be implemented, if ever, or the effect of any
implemented reform on the Company's business. There can be no assurance,
however, that any implemented reform will not have a material adverse effect on
the Company's business, financial position or results of operations.
The Company's ability to commercialize its products successfully may depend,
in part, on the extent to which reimbursement for the cost of such products and
related treatments will be available from government health administration
authorities, such as Medicare and Medicaid in the United States, private health
insurers and other organizations. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and there can be no
assurance that adequate third-party coverage will be available to enable the
Company to maintain price levels sufficient to realize an appropriate return on
its investment in product research and development. If adequate coverage and
reimbursement levels are not provided by government and third-party payors for
use of the Company's products, the market acceptance of those products would be
adversely affected.
LIMITED MARKETING AND NO SALES CAPABILITY
The Company has limited internal marketing and no sales resources and
personnel. In order to market TOBI, or any other products that it may develop,
the Company will have to substantially increase its marketing staff and
establish a sales force by hiring personnel with technical expertise. There can
be no assurance that the Company will be able to establish sales and
distribution capabilities or that the Company or its collaborators will be
successful in gaining market acceptance for any products that may be developed
by the Company. See "Risk Factors--Dependence on Licenses; Potential Need for
Additional Partners or Collaborators" and "Business--Marketing."
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that TOBI, or any other product developed by the
Company, will achieve market acceptance, if approved by the FDA. The degree of
market acceptance will depend upon a number of factors, including the receipt
and timing of regulatory approvals, and the establishment and demonstration in
the medical community of the clinical safety, efficacy and cost-effectiveness of
the Company's drug candidates and their advantages over existing technologies
and therapeutics. There can be no assurance that the Company will be able to
manufacture and market successfully its drug candidates even if they
10
<PAGE>
perform successfully in clinical applications. Furthermore, there is no
assurance that physicians or the medical community in general will accept and
utilize any therapeutic products that may be developed by the Company.
LIMITED MANUFACTURING CAPABILITIES; DEPENDENCE ON SUPPLIERS
The Company presently does not have the internal capability to manufacture
pharmaceutical products under the current Good Manufacturing Practices ("cGMP")
prescribed by the FDA. The Company has an agreement with an FDA-inspected
supplier of bulk powdered tobramycin and also purchases bulk powdered tobramycin
from another FDA-inspected supplier. Other contract manufacturers are used for
packaging of TOBI. No assurance can be made that the Company will be able to
obtain future supplies of TOBI on favorable terms, if at all. The Company
obtains bulk powdered PA-1648 from Kaneka Corporation ("Kaneka"). Pursuant to
the Company's license and supply agreements with Kaneka, Kaneka is supplying the
Company with PA-1648 for clinical development at no additional charge. The
Company has an agreement with Kaneka for the supply of commercial quantities of
such product at specified prices if and when the Company receives marketing
approval for PA-1648 from the FDA. Kaneka is currently the only known
manufacturer of the bulk powdered drug and the Company has no alternative supply
source. The Company believes that it has sufficient quantities of PA-1648 to
complete Phase II testing.
The Company's dependence upon third parties for the manufacture of its
proposed products may adversely affect the Company's profit margins and its
ability to develop and deliver its proposed products on a timely and competitive
basis. If for any reason the Company is unable to obtain sufficient quantities
of any materials required to produce its proposed products or the Company is
unable to obtain or retain third-party manufacturers on commercially acceptable
terms, it may not be able to commercialize its proposed products as planned. If
the Company should encounter delays or difficulties with contract manufacturers
in producing, packaging or distributing its proposed products, market
introduction and subsequent sales of such products would be adversely affected
and the Company may have to seek alternative sources of supply. No assurance can
be made that the Company will be able to enter into alternative supply
arrangements at commercially acceptable rates, if at all. No assurance can be
made that the manufacturers utilized by the Company will be able to provide the
Company with sufficient quantities of its products or that the products supplied
to the Company will meet the Company's specifications or delivery and other
requirements.
Moreover, contract manufacturers that the Company may use must adhere to
cGMP regulations enforced by the FDA through its facilities inspection program.
These facilities must pass a pre-approval plant inspection before the FDA will
issue a pre-market approval of the product. While the Company does not currently
intend to manufacture any pharmaceutical products itself, it may choose to do so
in the future. The Company has no experience in the manufacture of
pharmaceutical products for clinical trials or commercial purposes. Should the
Company decide to manufacture products itself, the Company would be subject to
the regulatory requirements described above, would be subject to similar risks
regarding delays or difficulties encountered in manufacturing any such
pharmaceutical products and would require substantial additional capital. In
addition, there can be no assurance that the Company will be able to manufacture
any such products successfully or in a cost-effective manner. See
"Business--Manufacturing" and "Business--Government Regulation and Product
Testing."
COMPETITION
There are many companies, both public and private, including well-known
pharmaceutical companies, chemical companies and specialized genetic engineering
companies, engaged in developing pharmaceuticals, including biotechnological
products, for human therapeutic applications. Many of these companies have
substantially greater financial, research and development, manufacturing,
marketing and human resources and experience than the Company and represent
significant competition for the Company. Such companies may succeed in
developing products that are more effective or less costly than any that may be
11
<PAGE>
developed by the Company and may also prove to be more successful than the
Company in manufacturing and marketing. See "Business--Competition."
TECHNOLOGICAL CHANGES AND UNCERTAINTY
The Company is engaged in the pharmaceutical business, which is
characterized by extensive research efforts and rapid technological progress.
New developments in molecular biology, medicinal pharmacology, recombinant DNA
technology and other fields of biology and pharmaceutical chemistry are expected
to continue at a rapid pace in both industry and academia. There can be no
assurance that research and discoveries by others will not render some or all of
the Company's programs or drug candidates non-competitive or obsolete.
The Company's business strategy is based, in part, upon the application of
the Company's technology platform, which encompasses various elements from the
fields of biotechnology and pharmaceutical chemistry, and the application of
these technologies to the discovery and development of pharmaceutical products.
This strategy is subject to the risks inherent in the development of new
products using new and emerging technologies and approaches. There can be no
assurance that unforeseen problems will not develop with these technologies or
applications, that the Company will be able to overcome technological challenges
it encounters in its research and development programs or that commercially
feasible products will ultimately be developed by the Company. See "Risk
Factors--Competition" and "Business-- Competition."
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company will require substantial funds for its research and development
programs, preclinical and clinical testing, operating expenses, regulatory
clearances and manufacturing and marketing programs. The Company's capital
requirements will depend on numerous factors, including the progress of its
research and development programs; the progress of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; competing technological and market developments;
changes and developments in the Company's existing collaborative, licensing and
other relationships and the terms of any new collaborative, licensing and other
arrangements that the Company may establish; and the development of
commercialization activities and arrangements. Moreover, the Company's fixed
commitments, including salaries and fees for current employees and consultants,
rent, payments under license agreements and other contractual commitments, are
substantial and are likely to increase as additional agreements are entered into
and additional personnel are retained. See "Business--Licenses and Other
Agreements," "Business--Patents," "Management" and "Notes to Financial
Statements." The Company believes that the net proceeds of this offering,
together with its available cash, cash equivalents, investment securities and
investment income, should be sufficient to meet its operating expenses and
capital expenditures through at least the next 24 months. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company may need to raise substantial additional capital to fund its
future operations. The Company may seek such additional funding through public
or private financings or collaborative, licensing and other arrangements with
corporate partners. If additional funds are raised by issuing equity securities,
further dilution to existing stockholders will result and future investors may
be granted rights superior to those of existing stockholders. There can be no
assurance, however, that additional financing will be available when needed, or
if available, will be available on acceptable or affordable terms. Insufficient
funds may prevent the Company from implementing its business strategy or may
require the Company to delay, scale back or eliminate certain of its research
and development programs or to license to third parties rights to commercialize
products or technologies that the Company would otherwise seek to develop
itself.
12
<PAGE>
DEPENDENCE ON QUALIFIED PERSONNEL
Because of the specialized scientific nature of the Company's business, the
Company is highly dependent upon its ability to attract and retain qualified
scientific, technical and managerial personnel. The loss of Wilbur H. Gantz,
Chief Executive Officer and President, A. Bruce Montgomery, M.D., Senior Vice
President, Research and Development, or Alan R. Meyer, Senior Vice President and
Chief Financial Officer, would be detrimental to the Company. The Company's
current employment agreements with Mr. Gantz and Dr. Montgomery expire by their
terms in March and May 1997, respectively. See "Management--Employment
Agreements." The Company does not maintain insurance on the lives of any of Mr.
Gantz, Mr. Meyer or Dr. Montgomery.
There is intense competition for qualified personnel in the pharmaceutical
field, and there can be no assurance that the Company will be able to continue
to attract and retain qualified personnel necessary for the development of its
business. The loss of the services of existing personnel as well as the failure
to recruit additional key scientific, technical and managerial personnel in a
timely manner would be detrimental to the Company's research and development
programs and to its business. In addition, the Company's anticipated growth and
expansion into areas and activities requiring additional expertise, such as
marketing, will require the addition of new management personnel. The failure to
attract and retain such personnel could adversely affect the Company's business.
See "Business--Human Resources," "Management" and "Certain Transactions."
ENVIRONMENTAL MATTERS AND HAZARDOUS MATERIALS
The Company's research and development processes involve the controlled use
of hazardous, infectious and radioactive materials. The Company is subject to
stringent federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. There can be
no assurance that the Company will not be required to incur significant costs to
comply with environmental laws, rules, regulations and policies, or that the
business, financial position or results of operations of the Company will not be
materially and adversely affected by current or future environmental laws,
rules, regulations and policies or by any releases or discharges of materials
which could be hazardous.
In its research activities, the Company utilizes radioactive and other
materials that could be hazardous to human health, safety or the environment.
These materials and various wastes resulting from their use are stored at the
Company's facility pending ultimate use and disposal. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with federal, state and local laws, rules, regulations and policies, the
risk of accidental injury or contamination from these materials cannot be
entirely eliminated. In the event of such an accident, the Company could be held
liable for any resulting damages, and any such liability could exceed the
Company's resources. The Company does not maintain a separate insurance policy
for these types of risks.
PRODUCT LIABILITY
The Company's business exposes it to potential product liability risks which
are inherent in the testing, manufacturing and marketing of human therapeutic
products. The Company maintains insurance against product liability and defense
costs in the amount of $5 million per occurrence and $5 million in the
aggregate. There can be no assurance that claims against the Company arising
with respect to products will be successfully defended, that the insurance
carried by the Company will be sufficient or that the Company will be able to
obtain additional, or maintain its current level of, product liability insurance
on acceptable terms. A successful claim against the Company in excess of the
Company's insurance coverage could have a material adverse effect on the
Company.
13
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has been, and is likely to be, highly
volatile as frequently occurs with publicly traded emerging growth companies and
biopharmaceutical companies. Factors such as results of clinical trials,
announcements of technological innovations or new products by the Company or its
competitors, government regulatory action affecting the Company's or its
competitors' drug candidates in both the United States and foreign countries,
developments or disputes concerning patent or proprietary rights and market
conditions for emerging growth and biopharmaceutical companies in general, as
well as period-to-period fluctuations in financial results, could have a
significant impact on the Company's business and the market price of the Common
Stock. See "Price Range of Common Stock."
CONCENTRATION OF OWNERSHIP
Upon the consummation of this offering, directors, officers and entities
affiliated with them, who in the aggregate currently own beneficially
approximately 9.3% of the outstanding shares of Common Stock (excluding
outstanding options and warrants to purchase shares of Common Stock), will own
beneficially in the aggregate approximately 8.1% of the outstanding shares of
Common Stock (8.0% if the Underwriters' over-allotment option is exercised in
full). Although, the Company's officers, directors and entities affiliated with
them do not presently have any agreements or understandings to act in concert,
any such agreements or understandings could make it difficult for others to
elect the entire Board of Directors and to control the disposition of any matter
submitted to a vote of the stockholders, including amendments to the Company's
Certificate of Incorporation, mergers, share exchanges, the sale of all or
substantially all of the Company's assets, going private transactions and other
fundamental transactions. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. See "Principal
Stockholders."
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE
In addition to its authorized shares of Common Stock, the Company's Amended
and Restated Certificate of Incorporation authorizes the issuance of up to
1,000,000 shares of preferred stock ("Preferred Stock"). No shares of Preferred
Stock of the Company are currently outstanding, and the Company has no present
intention to issue any shares of Preferred Stock. However, because the rights
and preferences of any series of Preferred Stock may be set by the Board of
Directors in its sole discretion, the rights and preferences of any such
Preferred Stock may be superior to those of the Common Stock and thus may
adversely affect the rights of the holders of Common Stock. See "Description of
Capital Stock-- Preferred Stock."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation, By-Laws, as amended, and Delaware law may make a change in
control of the Company more difficult to effect, even if a change in control
were in the stockholders' interest. These provisions include certain
super-majority vote requirements contained in the Company's Amended and Restated
Certificate of Incorporation and By-Laws, as amended. In addition, the Company's
Amended and Restated Certificate of Incorporation allows the Board of Directors
to determine the terms of Preferred Stock which may be issued by the Company
without approval of the holders of the Common Stock. The ability of the Company
to issue Preferred Stock in such manner could enable the Board of Directors to
prevent changes in the management and control of the Company. Under applicable
Delaware law, the Company's Board of Directors has the ability to adopt
additional anti-takeover measures either in response to a specific threat or in
furtherance of their general fiduciary duties. The Company's Board of Directors
may, from time to time, consider the adoption of such measures and may adopt
additional anti-takeover provisions in the future. The Board of Directors is
divided into three classes of directors elected for staggered three-year terms.
Such staggered terms may affect the ability of the holders of Common Stock to
effect a change in control of the Company. See "Description of Capital
Stock--Delaware Law and Certain Charter and By-Law Provisions."
14
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have a total of
15,932,322 shares of Common Stock outstanding (16,232,322 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares, the
2,000,000 shares of Common Stock offered hereby (2,300,000 shares if the
Underwriters' over-allotment option is exercised in full), the 3,000,000 shares
of Common Stock sold in the Company's initial public offering in November 1995
and the 2,875,000 shares of Common Stock sold in the Company's public offering
in April 1996 will be freely tradeable without restriction or registration under
the Securities Act of 1933 (the "Securities Act"), by persons other than
"affiliates" of the Company, as defined under the Securities Act. Of the
remaining 8,057,322 shares of Common Stock outstanding, 3,613,915 are
"restricted securities" as that term is defined by Rule 144 as promulgated under
the Securities Act.
Under Rule 144 (and subject to the conditions thereof), approximately
3,557,253 shares of the restricted securities are currently eligible for sale
and approximately 56,662 shares will become eligible for sale after March 1997.
The Company intends to obtain from the executive officers and directors of the
Company holding in the aggregate 1,052,925 shares of the restricted securities
agreements not to directly or indirectly, sell, offer to sell or otherwise
dispose of any such Common Stock or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock for a period of 90
days from the date of this Prospectus without the prior written consent of
Montgomery Securities. See "Shares Eligible for Future Sale" and "Underwriting."
As of January 31, 1997, options to purchase a total of 1,265,650 shares of
Common Stock pursuant to the Company's 1992 Stock Option Plan (the "1992 Plan")
were outstanding with a weighted average exercise price of $13.07 per share, of
which options to purchase 749,959 shares of Common Stock were exercisable.
Options to purchase 42,000 shares of Common Stock pursuant to the Company's 1996
Stock Option Plan (the "1996 Plan") were outstanding with a weighted average
exercise price at $17.62 per share, all of which options were exercisable. In
addition, subject to stockholder approval, options to purchase a total of
378,800 shares of Common Stock pursuant to the Company's 1997 Stock Option Plan
(the "1997 Plan") were outstanding with a weighted average exercise price of
$22.94 as of January 31, 1997. An additional 1,946,811 shares of Common Stock
were available for future option grants under the Company's stock option plans.
An aggregate of 467,124 shares subject to options held by executive officers and
directors of the Company are expected to be subject to lockup agreements. The
Company has also granted warrants to purchase Common Stock. As of January 31,
1997, warrants to purchase 111,660 shares of Common Stock were outstanding with
a weighted average exercise price of $13.79 per share. The Company has an
effective registration statement on Form S-8 under the Securities Act
registering shares of Common Stock subject to stock options granted under the
1992 Plan and the 1996 Plan. The Company intends to register shares of Common
Stock issuable pursuant to stock options granted under the 1997 Plan. See
"Management--Stock Option Plans" and "Underwriting."
Sales of substantial amounts of such shares in the public market, or the
perception that such sales could occur, could adversely affect the trading price
of the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Shares Eligible for
Future Sale" and "Description of Capital Stock."
NO DIVIDENDS
The Company has not declared or paid dividends on its Common Stock since its
inception and does not intend to declare or pay any dividends to its
stockholders in the foreseeable future. See "Dividend Policy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DILUTION
Upon completion of this offering, purchasers of Common Stock in this
offering will incur immediate and substantial dilution of $22.93 in the per
share net tangible book value of their Common Stock from the assumed public
offering price of $30.75 per share. See "Dilution."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby at an assumed public offering price of $30.75 per share are
estimated to be $57,667,500 ($66,385,125 if the Underwriters' over-allotment
option is exercised in full) after deducting the underwriting discount and
estimated offering expenses payable by the Company.
The Company anticipates that, combined with its existing resources, the net
proceeds of this offering will enable it to continue its development of novel
drugs to treat serious, chronic human infectious diseases where there is a
significant need for improved therapy. Specifically, the Company anticipates
spending portions of its resources over the next few years on the following: (i)
the Company's launch costs of TOBI for cystic fibrosis in the United States,
including the establishment of a dedicated sales force to market the Company's
proposed products; (ii) conducting additional clinical trials of its drug
candidates; (iii) preclinical development of drug candidates and expansion of
research and development programs; (iv) acquisition of drug candidates or
technologies complementary to the Company's business, should favorable
opportunities arise; and (v) other general corporate purposes, including working
capital and capital expenditures. The foregoing represents the Company's best
estimate of its use of the net proceeds from the sale of the shares of Common
Stock offered hereby based upon the current state of its business operations,
its current plans and current economic and industry conditions and is subject to
reallocation among the categories listed above or to new categories. Pending
such uses, the Company intends to invest the net proceeds of this offering in
government securities and investment-grade, interest-bearing securities,
primarily with expected maturities of one-and-one-half years or less.
The Company believes that the net proceeds of this offering, together with
its available cash, cash equivalents, investment securities and investment
income, should be sufficient to meet its capital requirements through at least
the next 24 months. This estimate is based on certain assumptions, which may not
hold true, and there can be no assurance that the proceeds of this offering,
together with its available cash, cash equivalents, investment securities and
investment income, will be sufficient to meet the Company's capital needs
through at least the next 24 months. The Company's cash requirements may vary
materially from those now planned because of future results of research and
development, results of preclinical and clinical testing, relationships with
strategic corporate partners, changes in direction and focus of the Company's
research and development programs, changes in the scale, timing or cost of any
future commercial production facilities, competitive and technological advances,
the FDA regulatory process, changes in the Company's marketing and distribution
strategy and other factors. See "Risk Factors-- Substantial Capital
Requirements."
16
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"PGNS." The following table sets forth, for the fiscal periods indicated, the
range of high and low closing prices per share of the Common Stock as reported
by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995:
Fourth Quarter (from November 21, 1995).................................. $ 11.00 $ 9.25
1996:
First Quarter............................................................ $ 17.50 $ 10.88
Second Quarter........................................................... 18.75 13.50
Third Quarter............................................................ 17.75 11.50
Fourth Quarter........................................................... 26.75 17.00
1997:
First Quarter (through February 21, 1997)................................ $ 32.50 $ 21.00
</TABLE>
As of January 31, 1997 there were approximately 370 holders of record of the
Common Stock; however, the Company believes the actual number of beneficial
holders is substantially greater. On February 21, 1997, the last reported sale
price for the Common Stock on the Nasdaq National Market was $30.75.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock
and does not anticipate declaring or paying cash dividends in the foreseeable
future. The Company expects that any earnings which it may realize will be
retained to finance the development and growth of its business.
17
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1996 and as adjusted to give effect to the sale of the 2,000,000
shares of Common Stock offered by the Company hereby at the assumed public
offering price of $30.75 per share and the application of the estimated net
proceeds of $57,667,500 therefrom (after deducting the underwriting discount and
estimated offering expenses payable by the Company). See "Use of Proceeds." This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
AS
ACTUAL ADJUSTED
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term liability................................................... $ 98 $ 98
---------- ----------
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized; none
issued and outstanding............................................ -- --
Common Stock, $.001 par value, 20,000,000 shares authorized;
13,930,760 shares issued and outstanding at December 31, 1996;
15,930,760 shares issued and outstanding, as adjusted(1).......... 14 16
Additional paid-in capital.......................................... 134,728 192,394
Unrealized loss on investment securities............................ (30) (30)
Deficit accumulated during the development stage.................... (67,786) (67,786)
---------- ----------
Total stockholders' equity........................................ 66,926 124,594
---------- ----------
Total capitalization............................................ $ 67,024 $ 124,692
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) Excludes as of December 31, 1996: (i) 1,266,775 shares of Common Stock
issuable upon the exercise of outstanding options to purchase shares of
Common Stock at a weighted average exercise price of approximately $12.90
per share; (ii) 111,660 shares of Common Stock reserved for issuance under
outstanding warrants at an average exercise price of $13.79; and (iii)
368,048 shares of Common Stock underlying options available for future
grants under the Company's stock option plans. See "Management--Stock Option
Plans" and "Description of Capital Stock."
18
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996, was
$66,926,214, or $4.80 per share of Common Stock. Net tangible book value per
share represents the amount of the Company's net tangible assets (tangible
assets of the Company less total liabilities), divided by the 13,930,760 shares
of Common Stock outstanding as of such date.
Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of the 2,000,000 shares of Common Stock
in the offering made hereunder and the pro forma net tangible book value per
share of Common Stock immediately after this offering. After giving effect to
the sale by the Company of 2,000,000 shares of Common Stock offered hereby at an
assumed offering price of $30.75 per share, the pro forma net tangible book
value of the Company as of December 31, 1996 would have been approximately
$124,593,714, or $7.82 per share (after deduction of the underwriting discount
and estimated offering expenses payable by the Company). This represents an
immediate increase in pro forma net tangible book value of $3.02 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $22.93 per share to purchasers of Common Stock in this offering.
<TABLE>
<S> <C> <C>
Public offering price per share.............................. $ 30.75
Net tangible book value per share before offering........ $ 4.80
Increase per share attributable to new investors......... 3.02
--------- ---------
Pro forma net tangible book value per share after offering... 7.82
---------
Net tangible book value dilution per share to new
investors.................................................. $ 22.93
---------
---------
</TABLE>
The above calculation excludes as of December 31, 1996: (i) 1,266,775 shares
of Common Stock issuable upon the exercise of outstanding options to purchase
shares of Common Stock at a weighted average exercise price of approximately
$12.90 per share; (ii) 111,660 shares of Common Stock reserved for issuance
under outstanding warrants at an average exercise price of $13.79; and (iii)
368,048 shares of Common Stock underlying options available for future grants
under the Company's stock option plans. See "Management--Stock Option Plans" and
"Description of Capital Stock."
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the period from December 10, 1991
(incorporation) through December 31, 1992 and each of the four years ended
December 31, 1993, 1994, 1995 and 1996 were derived from audited financial
statements of the Company. The data set forth below should be read in
conjunction with the financial statements, related notes and the other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 10,
1991
(INCORPORATION)
YEARS ENDED DECEMBER 31, THROUGH
------------------------------------------ DECEMBER 31,
1996 1995 1994 1993 1992
--------- --------- --------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue--grants and royalties............................ $ 440 $ -- $ -- $ -- $ --
--------- --------- --------- --------- -------
Operating expenses:
Research and development............................... 20,673 15,668 12,789 8,213 758
General and administrative............................. 4,241 3,609 3,215 3,615 2,698
--------- --------- --------- --------- -------
Total operating expenses................................. 24,914 19,277 16,004 11,828 3,456
--------- --------- --------- --------- -------
Operating loss........................................... (24,474) (19,277) (16,004) (11,828) (3,456)
--------- --------- --------- --------- -------
Other income (expense):
Investment income, net................................. 3,294 1,287 1,285 1,064 545
Other expense.......................................... (84) (34) (43) (41) (19)
--------- --------- --------- --------- -------
Net other income..................................... 3,210 1,253 1,242 1,023 526
--------- --------- --------- --------- -------
Net loss............................................. $ (21,264) $ (18,024) $ (14,762) $ (10,805) $ (2,930)
--------- --------- --------- --------- -------
--------- --------- --------- --------- -------
Net loss per common share................................ $(1.66) $(2.20) $(1.95) $(1.77) $(0.87 )
--------- --------- --------- --------- -------
--------- --------- --------- --------- -------
Weighted average common shares outstanding............... 12,829 8,210 7,585 6,111 3,367
--------- --------- --------- --------- -------
--------- --------- --------- --------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1995 1994 1993 1992
1996 1996 --------- --------- --------- ---------
-------------- ---------
AS ADJUSTED(1) ACTUAL
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and investment
securities.................................... $ 118,355 $ 60,688 $ 37,447 $ 25,994 $ 20,421 $ 38,458
Total current assets............................ 119,477 61,809 38,884 26,694 20,862 38,559
Total assets.................................... 127,666 69,999 46,963 36,086 30,301 41,992
Total current liabilities....................... 2,974 2,974 3,453 2,925 1,300 2,686
Long-term liability............................. 98 98 462 -- -- --
Total stockholders' equity...................... 124,594 66,926 43,048 33,161 29,001 39,306
</TABLE>
- ------------------------
(1) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $30.75 per share
and the application of the estimated net proceeds therefrom (after deducting
the underwriting discount and estimated offering expenses payable by the
Company). See "Use of Proceeds" and "Capitalization."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its incorporation in December 1991, the Company has been engaged in
research and development, clinical trials and administrative activities.
During 1992, the Company focused its efforts primarily on corporate
organization, recruiting key scientific and administrative staff, raising
capital through private sales of Common Stock and commencing the construction of
the Company's laboratory in Seattle, Washington. During 1992, the Company
received net proceeds of $42,340,034 from a private offering of Common Stock at
$10.00 per share (the "1992 Private Placement").
In March 1993, the Company completed construction of its laboratory and
commenced research and development operations. By the end of 1993, the Company
had recruited scientific research staff and had entered into a research
collaboration agreement with the Public Health Research Institute of New York
for the diagnosis and treatment of tuberculosis, a licensing agreement with
Kaneka for development of PA-1648 and a licensing and development agreement with
Baxter Healthcare Corporation for a monoclonal antibody targeted against
pseudomonal bacteria.
During 1994, the Company received net proceeds of $19,095,384 from a private
offering of Common Stock at $12.00 per share (the "1994 Private Placement").
During 1994, the Company entered into a license agreement with the Cystic
Fibrosis Foundation and Children's Hospital and Medical Center in Seattle to
obtain worldwide, exclusive rights to patents, research and technology relating
to the use of an aerosolized tobramycin solution or any other aerosolized
aminoglycoside solution for the treatment of bronchopulmonary infections.
During 1995, the Company commenced its Phase III clinical trials of TOBI in
cystic fibrosis patients and Phase I clinical trials of PA-1648. In November
1995, the Company completed an initial public offering of 3,000,000 shares of
Common Stock at $10.00 per share, resulting in net proceeds to the Company of
$27,095,726.
In April 1996, the Company completed a public offering of 2,875,000 shares
of Common Stock at $16.25 per share, resulting in net proceeds to the Company of
$43,505,340. In October 1996, the Company completed its Phase III clinical
trials of TOBI for the treatment of chronic pseudomonal lung infections in
patients with cystic fibrosis, the results of which were announced in January
1997. In addition, in December 1996, the Company completed its Phase I clinical
trials of PA-1648.
The Company has incurred losses since inception and had an accumulated
deficit through December 31, 1996 of $67,785,433. Such losses have resulted
principally from costs incurred in research and development and clinical trials
and from general and administrative costs associated with the Company's
operations. The Company expects that operating losses will continue and increase
for at least the next year as its research and development, clinical testing and
marketing activities expand.
To date, the Company has not marketed or generated revenues from the
commercialization of any of its drug candidates. The Company's current drug
candidates, other than TOBI for cystic fibrosis, are not expected to be
commercially available for at least several years, and TOBI for cystic fibrosis
is not expected to be available commercially until at least 1998, if ever.
The Company's results may vary significantly from period to period depending
on several factors, such as the timing of certain expenses and the progress of
the Company's research and development efforts.
21
<PAGE>
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenue from grants and royalties was $439,880 in 1996. The Company did not
have any revenue in 1995. Revenues in 1996 represented income received from a
two-year competitive grant from the FDA and royalties from sales of a
proprietary combinatorial chemistry system invented by the Company.
Research and development expense increased by $5,004,632 to $20,673,049 in
1996 from $15,668,417 in 1995. This increase was primarily due to increases in
clinical development activity. General and administrative expense increased by
$632,264 to $4,241,339 in 1996 from $3,609,075 in 1995. Such increase was due
primarily to an increase in costs related to operation as a public company, such
as personnel, investor relations and insurance. The Company expects total costs
and expenses to continue to increase in the future due principally to the
advancement of the Company's clinical development programs through various
phases of clinical trials and, if successful, the cost of commercializing its
first product.
Investment income, net increased by $2,006,325 to $3,293,782 in 1996 from
$1,287,457 in 1995. This increase was due to higher invested balances.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Research and development expense increased by $2,879,536 to $15,668,417 in
1995 from $12,788,881 in 1994. This increase was primarily due to increases in
clinical development activity. General and administrative expense increased by
$394,245 to $3,609,075 in 1995 from $3,214,830 in 1994. Such increase was due
primarily to an increase in compensation expense resulting from a new agreement
with the Company's former Chairman of the Board, which was partially offset by
the reversal in 1995 of a portion of the discretionary bonuses accrued in 1994,
but not awarded by the Board in 1995. Excluding these compensation-related
items, general and administrative expense would have increased by $196,987 to
$3,052,405 in 1995 from $2,855,418 in 1994. The Company expects total costs and
expenses to continue to increase in the future due principally to the
advancement of the Company's clinical development programs through various
phases of clinical trials and, if successful, the cost of commercializing its
first product.
Investment income, net increased marginally to $1,287,457 in 1995 from
$1,284,399 in 1994. Decreases in investment income relating to lower invested
balances were offset by higher effective interest rates earned on invested
funds.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily by the
issuance of equity securities with aggregate net proceeds of approximately
$135,000,000 and investment income of approximately $7,500,000.
The Company's combined cash, cash equivalents and investment securities
totaled $60,687,796 at December 31, 1996, an increase of $23,240,962 from the
balance at December 31, 1995. The primary uses of cash during 1996 were to
finance the Company's operations. Until such time as the Company can generate
sufficient levels of cash from operations, the Company will have to continue to
finance future cash needs through some or all of the sources previously used or
through other means. The Company does not expect to generate a positive internal
cash flow for at least the next two years due to the expected increase of
spending for research and development programs and the expected cost of
commercializing its first product. The Company may need to arrange additional
financing for the future operation of its business, including the
commercialization of its drug candidates currently under development. There can
be no assurances that such additional financing can be obtained and, if
obtained, at reasonable terms. However, the Company expects that the net
proceeds of this offering, together with its available cash, cash
22
<PAGE>
equivalents and investment securities and investment income, should be
sufficient to meet its operating expenses and capital requirements through at
least the next 24 months. See "Risk Factors--Substantial Capital Requirements"
and "Use of Proceeds."
From the Company's inception through December 31, 1996, the Company
purchased approximately $13,000,000 of property and equipment. The Company's
future capital requirements will depend on many factors, including the progress
of its research and development programs; the progress of preclinical and
clinical testing; the time and cost involved in obtaining regulatory approvals;
the cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights; competing technological and market
developments; changes and developments in the Company's existing collaborative,
licensing and other relationships and the terms of any new collaborative,
licensing and other arrangements that the Company may establish; the development
of commercialization activities and arrangements; and the purchase of additional
facilities and capital equipment.
The Company plans to continue its policy of investing excess funds in
government securities and investment grade, interest-bearing securities,
primarily with expected maturities of one-and-one-half years or less. The
Company does not invest in derivative financial instruments, as defined by SFAS
119, DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS.
At December 31, 1996, the Company had tax net operating loss carryforwards
of approximately $65,175,000 and research tax credits of approximately $747,000,
which will begin to expire in the year 2007. In conjunction with this offering,
the Company does not anticipate a change in ownership under Section 382 of the
Internal Revenue Code of 1986, as amended, that would result in limitations on
the use of the tax net operating losses, or tax credits. However, there can be
no assurance that future issuances of the Company's securities will not trigger
limitations under Section 382.
23
<PAGE>
BUSINESS
SUMMARY
PathoGenesis develops novel drugs to treat serious, chronic human infectious
diseases where there is a significant need for improved therapy. The Company's
lead drug candidate, TOBI-TM- (tobramycin for inhalation), is a stable,
premixed, proprietary formulation of the antibiotic tobramycin for delivery by
inhalation using a nebulizer. In January 1997, PathoGenesis announced results
from its two pivotal Phase III clinical trials of TOBI for treatment of chronic
PSEUDOMONAS AERUGINOSA lung infections in people with cystic fibrosis. The
Company intends to file an NDA for TOBI in cystic fibrosis patients with the FDA
in the second quarter of 1997. The FDA has agreed to an expedited review of such
NDA, which may accelerate the application review process. Based on the potential
efficacy of delivering a high concentration of tobramycin directly to the site
of infection in the lungs, the Company also intends to commence Phase II
clinical trials of TOBI in patients suffering from bronchiectasis (a form of
severe chronic bronchitis) and tuberculosis during 1997. The Company's second
drug candidate, PA-1648, a derivative of the antibiotic rifampin, is being
developed for the treatment of tuberculosis. The Company intends to commence
Phase II clinical trials of PA-1648 in tuberculosis patients during 1997. The
Company is also developing PA-824, a proprietary antibiotic, to treat
tuberculosis.
While the Company currently intends to file an NDA for TOBI in cystic
fibrosis patients in the second quarter of 1997 and the FDA has agreed to an
expedited review of such NDA, there can be no assurance as to the timing of such
filing or the outcome or timing of the FDA's review of such filing.
Additionally, there can be no assurance that TOBI, if approved by the FDA, will
achieve market acceptance. Furthermore, no assurance can be given that the
results of any of the anticipated additional clinical trials to be conducted by
the Company will be consistent with results obtained in the clinical trials for
TOBI in cystic fibrosis patients or that such trials will be completed within
anticipated time frames, if at all.
PRODUCTS UNDER DEVELOPMENT
The following table summarizes the indication, development status, estimated
length of therapy and approximate number of U.S. patients for the drug
candidates under development by the Company.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
DRUG ESTIMATED U.S.
INDICATION CANDIDATE DEVELOPMENT STATUS* LENGTH OF THERAPY PATIENTS
- ------------------------ --------- ------------------------ ----------------- ---------
<S> <C> <C> <C> <C>
Cystic fibrosis lung TOBI Phase III clinical 10-15 years 30,000
infections............ trials completed;
intended NDA filing in
second quarter of 1997
Bronchiectasis (a form TOBI Phase II clinical trials 5-10 years 100,000
of severe chronic intended to commence in
bronchitis)........... 1997
Tuberculosis (adjunct TOBI Phase II clinical trials Less than 1 month 25,000
therapy for patients intended to commence in
with contagious 1997
pulmonary
tuberculosis).........
Tuberculosis............ PA-1648 Phase II clinical trials 4-6 months 25,000
intended to commence in
1997
Tuberculosis............ PA-824 Preclinical development 4-6 months 25,000
</TABLE>
-------------------------------
* See "Business--Government Regulation and Product Testing" for a description
of the various phases of clinical testing.
<TABLE>
<S> <C> <C> <C> <C>
24
<PAGE>
TOBI FOR CYSTIC FIBROSIS LUNG INFECTIONS
TOBI is a stable, premixed, proprietary formulation of the antibiotic
tobramycin for delivery by inhalation. Intravenous tobramycin has been approved
for marketing for over 20 years. Tobramycin is a member of an antibiotic complex
called nebramycin, a fermentation product which was isolated in 1967 from
STREPTOMYCES TENEBRARIUS by scientists at Eli Lilly and Company. This
fermentation product was designated tobramycin, a water-soluble compound
belonging to the group of antibiotics called aminoglycosides. Like other
aminoglycosides, tobramycin inhibits bacterial protein synthesis and is most
active against gram-negative bacteria.
The Company is initially seeking to develop TOBI for the treatment of
chronic pseudomonal lung infections in cystic fibrosis patients. The Company
also intends to develop TOBI as a primary therapy for bronchiectasis, a form of
severe chronic bronchitis, and as an adjunct therapy for tuberculosis.
CYSTIC FIBROSIS
Cystic fibrosis is a genetic disease that occurs in one out of every 3,000
births in the United States and Europe. The genetic defect results in the
accumulation of thick, tenacious mucus in the lungs. Early in life, cystic
fibrosis patients typically have bacterial infections comparable to other
children. While the majority of these infections are treated effectively in
these patients, the accumulation of mucus in the lungs usually leads to
life-long infections predominantly with a bacterium known as PSEUDOMONAS
AERUGINOSA (P. AERUGINOSA).
Once established, persistent pseudomonal infection becomes the predominant
factor in the progression of the lung disease. The persistent local infection
causes a strong inflammatory response in the patient resulting in progressive
destruction of lung tissue. In addition, periodic flare-ups of pseudomonal
infection cause life-threatening episodes and hospitalization. Over a period of
decades, the persistent infection and acute flare-ups lead to death, occurring
at an average age of 30 years. Treatment of pseudomonal infection using TOBI
would be expected to begin at the first detection of pseudomonal bacteria and
then to continue throughout the patient's lifetime.
For over 20 years, intravenous delivery of tobramycin for short periods
(typically 10-14 days) has been available to treat acute flare-ups of
pseudomonal infection common in patients with cystic fibrosis. Compared to other
aminoglycosides, tobramycin is more active against P. AERUGINOSA by at least
two- to four-fold and is generally less toxic. However, high doses of
intravenous tobramycin are required in the blood, which increases the risk of
adverse side effects such as significant kidney damage and hearing loss.
Furthermore, P. AERUGINOSA is rarely permanently eradicated following therapy
for acute flare-ups. Thus, cystic fibrosis patients are subjected to frequent
periods of hospitalization for intravenous therapy with tobramycin. As the
cumulative systemic exposure increases, so does the risk of potential adverse
side effects. Intravenous therapy also increases the hardship on the patient
because it normally requires hospitalization, which increases treatment costs,
exposes the patient to potential hospital-acquired infections and disrupts
education and family life.
The Company believes that inhalation of TOBI will prove to be superior to
intravenous tobramycin therapy for cystic fibrosis patients, since on average
100-fold greater concentrations of the antibiotic can be delivered to the actual
site of infection by directly depositing the antibiotic on the airway lining.
The Company believes that such concentrations of TOBI should suppress the growth
of P. AERUGINOSA in the lungs of cystic fibrosis patients. Aerosol delivery
should also reduce the risk of toxicity because the airway lining restricts the
absorption of tobramycin into the bloodstream, thereby preventing tobramycin
from reaching toxic systemic levels. Thus, the improved safety profile of
tobramycin by inhalation may allow long-term therapy. See
"Business--PathoGenesis' Development of TOBI for Cystic Fibrosis."
The Company believes that the market opportunity for TOBI as a treatment for
chronic pseudomonal lung infections in cystic fibrosis patients is significant
and growing. There are approximately 30,000 cystic fibrosis patients in the
United States, according to the Cystic Fibrosis Foundation, and a comparable
number in Europe. Pseudomonal bacteria infect the lungs of approximately 60% of
all patients with the disease, according to data gathered during 1995 by the
Cystic Fibrosis Foundation. Infection with
25
<PAGE>
pseudomonal bacteria occurs increasingly as the patient ages, resulting in over
70% of cystic fibrosis patients above the age of 15 being infected.
HISTORICAL DEVELOPMENT OF INHALED TOBRAMYCIN FOR CYSTIC FIBROSIS
Inhaled tobramycin has been used experimentally by various clinical
investigators and physicians to treat pseudomonal infection in cystic fibrosis
patients for approximately 20 years. Various solutions of tobramycin for
inhalation have been formulated by pharmacists and physicians from commercially
available sources; however, the use of these formulations for inhalation has not
been approved by the FDA. Because physicians using inhaled tobramycin used
different formulations and reported conflicting results, the Cystic Fibrosis
Foundation financed a long-term program to develop a more complete understanding
of aerosol administration. In conjunction with this program, investigators at
Children's Hospital and Medical Center in Seattle found that not all nebulizers
(devices used to produce the aerosol) studied delivered the tobramycin to the
affected area of the lung. In addition, the doses used were frequently
insufficient. Higher doses are required in inhaled therapy than in intravenous
therapy, since inhaled therapy has to pass through the sputum (phlegm), which
partially binds and inactivates tobramycin. In a series of Phase I and Phase II
trials between 1983 and 1988, the Children's Hospital investigators arrived at a
safe and potentially therapeutic dosage, solution and nebulizer combination.
Subsequently, the investigators tested their method in a multi-center randomized
controlled trial. The results of this study were published in the NEW ENGLAND
JOURNAL OF MEDICINE ("NEJM") in June 1993. The study population consisted of 71
clinically stable cystic fibrosis patients who had persistent infection with P.
AERUGINOSA in their lung air passages. The study design was a cross-over, with
half the patients starting on inhaled tobramycin and the other half on a placebo
aerosol. After one month the groups were switched and the study continued for an
additional two months.
The goals of the multi-center study were to show that inhaled tobramycin
reduces pseudomonal bacteria in the lungs of cystic fibrosis patients, mitigates
the inflammatory response to the bacteria (the cause of progressive lung
destruction), improves lung function and demonstrates safety. The study was
successful in all four areas. While on inhaled tobramycin therapy, patients
maintained on average a 100-fold decrease in their pseudomonal bacteria counts.
One month after the cessation of treatment with inhaled tobramycin, the levels
of bacteria returned to the baseline prior to treatment. Inflammation, the cause
of progressive lung destruction in cystic fibrosis patients, was diminished
during therapy. This was measured by the white blood cell count that dropped on
average 15% during treatment. After one month, lung function compared to placebo
was on average 10% better in the inhaled tobramycin-treated group. Toxicities
associated with intravenous administration of tobramycin, such as significant
kidney damage or hearing loss, were not found.
The Company believes that these study results indicate that tobramycin for
inhalation could represent a significant advance in the care of patients with
cystic fibrosis. A cystic fibrosis patient's pulmonary function on average
declines two to three percent per year with the median age of death currently at
30 years. Thus, a 10% improvement in lung function typically represents a return
to what a cystic fibrosis patient's lung function was three to four years
earlier. In addition, since physical activity is largely determined by level of
lung function, exercise tolerance could improve in patients.
One concern with long-term administration of any antibiotic is the emergence
of drug-resistant bacteria. However, intravenous tobramycin therapy for acute
flare-ups of pseudomonal infection in cystic fibrosis patients is usually
efficacious even though resistant pseudomonal bacteria are frequently found. The
Company does not believe that resistant pseudomonal bacteria will significantly
limit the potential efficacy of TOBI for cystic fibrosis patients because on
average 100-fold greater concentrations of tobramycin can be delivered by
inhalation to affected areas of the lung, while limiting the concentration of
the antibiotic in the bloodstream.
The Company obtained exclusive worldwide licenses from each of the Cystic
Fibrosis Foundation and Children's Hospital and Medical Center in Seattle for
patents, research and technology relating to the use of an aerosol tobramycin
solution or any other aerosol aminoglycoside solution for the treatment of
26
<PAGE>
bronchopulmonary infections. See "Business--Licenses and Other Agreements." The
Company will submit the clinical data from the Cystic Fibrosis
Foundation-sponsored study in support of its anticipated NDA for TOBI for cystic
fibrosis.
PATHOGENESIS' DEVELOPMENT OF TOBI FOR CYSTIC FIBROSIS
In order to provide a more economical and convenient form of therapy, the
Company developed a number of modifications to the initial treatment protocol
published in the NEJM, including a new concentrated, preservative-free
formulation of tobramycin solution for inhalation in jet nebulizers. The Company
has also developed an easy-to-use, disposable plastic vial that contains
premixed tobramycin solution. These improvements have resulted in a substantial
reduction of set-up and treatment time. The new hand-held jet nebulizers are
commercially available, are powered by a portable air compressor, and are
convenient to use and to clean. In March 1996, the Company was awarded a
competitive $470,000 grant by the FDA Office of Orphan Products Development to
support its Phase III clinical trials of TOBI for the treatment of chronic lung
infections in cystic fibrosis patients.
In January 1997, PathoGenesis announced results from its two pivotal
double-blind, placebo-controlled Phase III clinical trials of TOBI in patients
with cystic fibrosis. A total of 468 patients in 69 cystic fibrosis care centers
in the United States completed the trials. Treatment with the drug or a placebo
was intermittent for six months, with patients on aerosolized treatment twice
daily for four weeks, then off therapy for four weeks. During the trials,
patients continued to be treated with standard therapies as symptoms warranted.
TOBI improved lung function, the primary end point of the study, in the two
pivotal trials, resulting in an improvement of more than 11% compared with
placebo by the end of the six-month study period. In addition, the mean number
of hospitalization days (the secondary end point) across both studies declined
36% to 5.2 days for the TOBI group versus 8.2 days for the placebo group.
Observed bacterial counts in the sputum of patients taking TOBI declined, while
observed bacterial counts increased in the placebo group. Over the six-month
study period, the difference in observed bacterial density between the two
groups was 10-fold. The foregoing data were statistically significant when
analyzed on an "intent to treat" basis.
Reported adverse events were comparable between the groups taking TOBI and
the placebo. In TOBI patients, the presence of pseudomonal bacteria potentially
resistant to levels of tobramycin in the lungs achieved by aerosol
administration was low: 4.0% at the beginning and 5.4% at the end of the trials.
All patients who completed the Phase III clinical trials were eligible for a
follow-on program, allowing them to receive TOBI treatment for another 12-month
period. More than 85% of the patients chose to participate. This program is
designed to allow PathoGenesis to gather longer-term safety and efficacy data,
and will be part of the NDA for TOBI for cystic fibrosis that the Company
intends to file with the FDA. PathoGenesis also completed a long-term (180-day)
animal toxicology study in 1996, which showed no safety problems at clinically
relevant doses.
The Company intends to file an NDA for TOBI in cystic fibrosis patients with
the FDA in the second quarter of 1997. In February 1997, the FDA notified the
Company that it has agreed to an expedited review of the Company's anticipated
NDA for TOBI for cystic fibrosis. The FDA has agreed that in order to facilitate
an expedited review, the Company may pre-submit chemistry, stability and other
non-clinical data as addenda to its previously filed IND application.
The Company is currently working with a nine-member advisory board comprised
of European clinicians to initiate open-label clinical trials of TOBI for cystic
fibrosis in 1997. The studies will be conducted in several European countries to
seek to validate TOBI's safety and efficacy given the differences in standard
therapy between the United States and Europe. For example, the trials would
evaluate nebulizers commonly in use in Europe, but not in use in the United
States. PathoGenesis expects to use this data to supplement its U.S. data on
TOBI in filings with European regulatory authorities expected in 1998.
There can be no assurances that the Company's planned drug development
efforts for TOBI, or any other compound, will be successful or completed within
anticipated time frames, or at all, or that
27
<PAGE>
regulatory approvals will be obtained. See "Risk Factors--Dependence on TOBI,"
"Risk Factors-- Absence of Products," "Risk Factors--Uncertainties Regarding
Development of Drug Candidates; Clinical Trials" and "Risk Factors--Government
Regulation; No Assurance of Regulatory Approvals."
ORPHAN DRUG DESIGNATION; PATENT FILINGS
In October 1994, the Company received an Orphan Drug designation from the
FDA for the use of tobramycin for inhalation in the treatment of pulmonary
infections in cystic fibrosis patients. The Orphan Drug designation provides the
Company with a seven-year marketing exclusivity in the United States if the
Company is the first FDA-approved applicant for the drug in the specified
indication. While the Company is not aware of any other companies that have
sought an Orphan Drug designation for tobramycin for inhalation for this
indication, there can be no assurance that other companies will not seek such a
designation in the future. In addition, in April 1996, the Company received a
United States patent on the TOBI formulation and has filed patent applications
in major foreign markets. See "Risk Factors-- Uncertain Ability to Protect
Patents and Proprietary Technology and Information" and "Risk Factors--
Uncertainty of Orphan Drug Status."
TOBI FOR BRONCHIECTASIS
Bronchiectasis is a lung disease in which previous bouts of viral or
bacterial infection have damaged the air passages and compromised the lungs'
normal defenses against airway infection. In bronchiectasis, persistent
bacterial infection is present in air passages of the lungs and causes
inflammation, which leads to progressive lung damage. The late-stage clinical
manifestations are similar to cystic fibrosis lung disease, except the age group
is usually older (in the age range of 50 to 70 years). There are approximately
100,000 people afflicted with bronchiectasis in the United States. These
patients are often diagnosed as having a form of severe chronic bronchitis and
require a significant number of hospitalizations to treat complications of the
condition.
Due to certain clinical similarities between cystic fibrosis and
bronchiectasis, the Company believes TOBI should suppress bacterial growth in
the lungs of bronchiectasis patients and thereby decrease inflammation and
progressive lung damage. The Company intends to commence Phase II clinical
trials of TOBI for bronchiectasis in 1997. The Company has prepared protocols
and selected clinical investigators for the proposed trials. The Company intends
to commence these trials upon receipt of all applicable regulatory and
independent institutional review board ("IRB") approvals. There can be no
assurance, however, that the Company will be successful in its efforts to
develop TOBI for this indication, or, that the Company's Phase II clinical
trials will be commenced or completed within the anticipated time frames, if at
all. See "Risk Factors--Absence of Products," "Risk Factors--Uncertainties
Regarding Development of Drug Candidates; Clinical Trials" and "Risk
Factors--Government Regulation; No Assurance of Regulatory Approvals."
TUBERCULOSIS DRUG DEVELOPMENT PROGRAM
For the past 25 years, there has been limited development of drugs to treat
tuberculosis, which ranks as one of the most serious infectious diseases
worldwide because of its highly contagious nature, worldwide prevalence and
increasing levels of drug resistance. For these reasons, as well as its
experience in respiratory infections, PathoGenesis has identified tuberculosis
as a target for three drug candidates: TOBI, PA-1648 and PA-824.
The goal of PathoGenesis' tuberculosis development program is to develop
drug candidates that can provide significant benefit to tuberculosis patients,
either as an adjunct (supplemental) therapy or as a replacement for one of the
four drugs in the current standard primary regimen of therapy (isoniazid,
rifampin, ethambutol and pyrazinamide). For example, the Company intends to
research whether TOBI can shorten the contagious period, reducing the risk that
tuberculosis patients might infect family members or medical personnel. The
Company believes PA-1648 may be a candidate to replace rifampin and may require
less frequent dosing. Additionally, in preclinical development, PA-824 has shown
action against multi-drug-resistant strains of tuberculosis and may be a
candidate to replace or supplement isoniazid.
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TUBERCULOSIS
A century after the discovery of MYCOBACTERIUM TUBERCULOSIS (M.
TUBERCULOSIS), the bacterium causing tuberculosis, this disease continues to be
one of the most serious infectious diseases outside of developed countries, with
over one billion people infected worldwide. The vast majority of these
infections are latent (inactive) cases, which may typically exist for decades
prior to activation and manifestation of lung disease. The worldwide infection
rate results in approximately eight million active tuberculosis cases annually
and over two million deaths per year.
In the United States, an average of 25,000 new cases of active tuberculosis
has been reported annually for the past five years. Active cases are increasing
due to the susceptibility of AIDS patients, who have a shortened or non-existent
latent phase, and to increased immigration from developing countries that have a
high prevalence of latent infection. The Centers for Disease Control and
Prevention ("CDC") estimate that over 10 million people in the United States
have latent infections.
Initial exposure to M. TUBERCULOSIS from an active case results in a latent
infection of the lung, which can usually be diagnosed using a tuberculosis skin
test. After a latent phase ranging from months to decades, the bacteria may
resume active growth. If untreated, the patient then typically develops
progressive tuberculosis pneumonia with loss of lung function, severe weight
loss and eventual death. Patients with active tuberculosis are extremely
infectious. Those in close contact with such patients are at risk of becoming
infected by exposure to airborne droplets produced from coughing. The most
effective way to control the spread of tuberculosis is through early
identification and thorough treatment of active cases.
For the past 25 years, there has been limited development of
anti-tuberculosis drugs. Patents on all four of the drugs in the current
standard regimen of therapy to treat tuberculosis have expired. Currently,
active tuberculosis is treated with a regimen of at least three different drugs
taken daily for a minimum of six months. Multi-drug therapy is used in order to
reduce the emergence of drug-resistant bacteria and shorten the treatment
duration. Failure to fully comply with this complicated, long-term therapy can
result in relapse. In addition, the therapy can be toxic, often causing side
effects including severe gastrointestinal upset and hepatitis. Overall the
mortality rate of drug-related adverse effects is approximately one in two
thousand. While studies have shown that current therapies are effective if the
patient adheres to and completes the treatment course, up to 30% of these
patients relapse due to non-compliance.
Partial or incomplete treatment of active tuberculosis is the primary cause
of the development of drug-resistant tuberculosis. Almost 20% of recent active
tuberculosis cases in New York City have shown resistance to two or more of the
components of the standard regimen of therapy. At present, the pharmaceutical
component of tuberculosis therapy is relatively inexpensive. However, a number
of cities have instituted, at a very high cost, directly observed therapy
programs in which administration of every oral dose is observed by a health care
worker. The growth of directly observed treatment procedures, while intended to
reduce non-compliance, has greatly increased the overall cost of therapy.
Consequently, the Company believes that a significant market opportunity exists
for a tuberculosis drug regimen which could decrease the frequency of
administration and shorten the course of multi-drug treatment. This could result
in improved compliance levels and diminished risk of relapse.
TOBI FOR TUBERCULOSIS
The increasing incidence of multi-drug-resistant strains of tuberculosis has
compromised the ability of the health care system to treat active cases in order
to prevent the transmission of the infection by coughing. In IN VITRO testing,
tuberculosis bacteria, including multi-drug-resistant strains, have been killed
by high concentrations of TOBI. The Company believes that TOBI therapy may
potentially be most useful in patients with multi-drug-resistant tuberculosis
who respond slowly to primary therapy and require expensive isolation until they
are no longer infectious. Generally, patients are contagious for a period of up
to two weeks.
The Company intends to commence Phase II clinical trials of TOBI in 1997 as
an adjunct therapy for patients with contagious pulmonary tuberculosis to
shorten the infectious period after systemic anti-
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tuberculosis therapy has been started. The Company believes that this adjunct
therapy may benefit the patient as well as prevent secondary transmission to
family members and health care workers.
In April 1996, the Company filed a provisional patent application with the
PTO for use of the TOBI formulation for the treatment of tuberculosis. There can
be no assurance that the Company will be successful in its efforts to develop
TOBI for this indication, or that the Company's Phase II clinical trials will be
commenced or completed within the anticipated time frames, if at all. See "Risk
Factors--Absence of Products," "Risk Factors--Uncertainties Regarding
Development of Drug Candidates; Clinical Trials" and "Risk Factors--Government
Regulation; No Assurance of Regulatory Approvals."
PA-1648
PA-1648 is one of the Company's drug candidates to be included in the
standard regimen of therapy for the treatment of tuberculosis. PA-1648 is a
novel derivative of the generic drug rifampin, one of the antibiotics in the
current standard regimen of therapy used to treat tuberculosis. PA-1648 was
synthesized, tested for anti-mycobacterial activity and patented in the United
States and major foreign markets by Kaneka under the name KRM-1648. Kaneka has
granted exclusive rights to the Company for the development, marketing and sale
of PA-1648 in the United States, Canada and Mexico.
More than 20 peer-reviewed articles have reported the IN VITRO and IN VIVO
(animal) efficacy of PA-1648 against both tuberculosis and disseminated
MYCOBACTERIUM AVIUM complex (MAC) infections, a tuberculosis-like disease
affecting AIDS patients. The Company has also conducted confirmatory IN VITRO
and IN VIVO studies. In preclinical studies, PA-1648 has demonstrated several
characteristics suggesting that it could be superior to rifampin for use in
treating tuberculosis and MAC. In IN VITRO studies, PA-1648 has been shown to be
(i) eight- to 80-fold more potent than rifampin against M. TUBERCULOSIS and MAC;
(ii) active against multiple strains of M. TUBERCULOSIS and MAC; and (iii)
potent against other intracellular pathogens, particularly chlamydia. PA-1648
has also shown efficacy in animal models of tuberculosis and disseminated MAC
infections that are generally believed to have been predictive of the clinical
efficacy of other antibiotics. With the advent of new therapies to treat HIV
infections, the incidence of MAC has declined significantly. Because of MAC's
declining frequency, the Company has decided to focus on the clinical
development of PA-1648 for tuberculosis and to conduct studies of PA-1648 to
treat MAC infections at a later date only if the market warrants further
development for this indication.
In December 1996, PathoGenesis completed a series of Phase I clinical trials
of PA-1648 in healthy volunteers. The Phase I data suggest that PA-1648 has a
longer half-life in humans than rifampin. The half-life for rifampin in humans
averages two to three hours, while the Company's Phase I results indicate
PA-1648 has an average half-life of at least 48 hours. In addition,
PathoGenesis' data indicates that the ratio of intracellular drug concentrations
to extracellular drug concentrations is much higher for PA-1648 compared with
other rifampins. PathoGenesis believes this may allow a 25 mg dose to be taken
once a week to treat rifampin-sensitive tuberculosis bacteria. Rifampin is
typically dosed at approximately 300 mg once a day.
PA-1648 and rifampin can produce flu-like symptoms and transient reductions
in white blood cell counts in some individuals. The Company believes that lower
dosage levels of PA-1648, such as 25 mg or 50 mg once a week, may be efficacious
and less likely to produce these side effects.
Based on its preclinical and human pharmacokinetic data, the Company
believes that PA-1648 may be a component of a more efficacious standard regimen
of therapy for the treatment of patients suffering from tuberculosis. Medical
compliance is a severe problem in the treatment of mycobacterial infection.
Failure to comply with or finish the usual six-month course of antibiotics for
tuberculosis is the principal reason for both development of drug-resistant
strains and relapse, with potential spread of resistant strains to uninfected
individuals by coughing. PA-1648 may potentially increase efficacy to allow
shorter overall treatment periods and offer a longer half-life so fewer
administrations would be needed.
The Company intends to commence Phase II clinical trials in 1997 for PA-1648
as a component of standard therapy for tuberculosis. The Company has prepared a
protocol to commence such trials in a facility in Brazil supervised by a United
States university, pending receipt of necessary governmental and
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IRB approvals. The Company expects to test whether PA-1648 will be safe and
effective when taken once a week and if it has the potential to reduce the
length of treatment from the standard six months. There can be no assurance that
the Company's planned drug development efforts for PA-1648, or any other drug
candidate, will be successful or completed within the anticipated time frames,
if at all, or that regulatory approvals will be obtained. See "Risk
Factors--Absence of Products," "Risk Factors--Uncertainties Regarding
Development of Drug Candidates; Clinical Trials" and "Risk Factors--Government
Regulation; No Assurance of Regulatory Approvals."
PA-824
PA-824, the Company's second candidate for primary anti-tuberculosis
treatment, is designed to replace or to supplement isoniazid. Isoniazid is
currently one of the four components of the standard regimen of therapy to treat
tuberculosis. PA-824 was developed by PathoGenesis, possesses a simple chemical
structure and is readily prepared in the laboratory. The Company has filed a
patent application in the United States and plans to file patent applications in
significant foreign markets for PA-824 and a series of related compounds
synthesized to date. PA-824 studies show IN VITRO activity against
non-drug-resistant and drug-resistant strains of tuberculosis. Furthermore, IN
VIVO studies indicate that PA-824 has activity against tuberculosis organisms in
the lung and spleen. The Company's IN VITRO studies indicate that PA-824 is
killing tuberculosis bacteria by mechanisms that appear to differ from those of
the current standard therapies, since PA-824 demonstrates activity on
multiple-drug-resistant strains. In addition, a novel formulation for PA-824 was
developed by the Company to improve the oral bioavailability of this drug
candidate. See "Risk Factors--Absence of Products," "Risk Factors--Uncertainties
Regarding Development of Drug Candidates; Clinical Trials" and "Risk
Factors--Government Regulation; No Assurance of Regulatory Approvals."
RESEARCH AND DEVELOPMENT
PathoGenesis has focused its research and development efforts on drug
candidates characterized by potentially unique therapeutic profiles and
accelerated development processes. The Company seeks to shorten drug discovery
and development processes through the integration of technical programs for drug
discovery and development with the Company's clinical and regulatory strategy.
The Company's three major technical programs are: (i) a molecular genetics
program for the discovery of new approaches to the treatment of pathogens; (ii)
a molecular microbiology program that focuses on the discovery of new approaches
to the treatment of pathogens and on developing "smart screens" using reporter
gene technology to facilitate the testing of drug candidates; and (iii) a
pharmaceutical chemistry program that uses combinatorial chemistry to create new
drug candidates. PathoGenesis also has internal capabilities in microbiology,
analytical chemistry and pharmacokinetics to support drug development. The
Company involves its clinical and regulatory personnel in the early stages of
the drug discovery and development processes to select drug candidates which the
Company believes can be developed on an accelerated basis due to their
significant interest to both physicians and regulators and outcomes that can be
readily measured in clinical trials. The Company intends to focus on developing
those drug candidates it believes it can best exploit through its own resources.
In other instances, the Company intends to sell, license, joint venture or
otherwise collaborate where such an approach is determined to be preferable.
</TABLE>
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MANUFACTURING
The Company does not currently intend to establish internal manufacturing
capabilities. Instead, the Company has contracted and intends to contract with
third parties for the production of compounds in bulk quantities and for the
subsequent manufacturing and packaging of products. The Company has an agreement
with an FDA-inspected supplier of bulk powdered tobramycin and also purchases
bulk powdered tobramycin from another FDA-inspected supplier. The Company has
used an FDA-inspected manufacturer to formulate and package TOBI utilizing a
form-fill-seal technology to manufacture and fill a plastic vial in a sterile
environment. The resulting vials have a snap-top access port for delivering TOBI
directly into a jet nebulizer. Another contract manufacturer has been used to
package the plastic vials in aluminum foil pouches. No assurance can be made
that the Company will be able to obtain future supplies of TOBI on favorable
terms, if and when it receives marketing approval from the FDA.
The Company intends to designate the Pari LC Plus Nebulizer, manufactured
and distributed in the United States by Pari Corporation of Germany, to deliver
TOBI. The Company intends to test other nebulizers for use with TOBI.
The Company obtains bulk powdered PA-1648 from Kaneka. Pursuant to the
Company's license and supply agreements with Kaneka, Kaneka is supplying the
Company with PA-1648 for clinical development at no additional charge. The
powdered drug is then formulated into single dose capsules at a contract
manufacturer. In addition, the Company and Kaneka are parties to a supply
agreement pursuant to which Kaneka is obligated to supply, and the Company is
obligated to purchase at specified prices, all bulk powdered drug if and when
the Company receives marketing approval of PA-1648 from the FDA. Such
obligations will remain for the duration of the license agreement. The Company
believes that it has obtained a sufficient supply of PA-1648 to complete Phase
II clinical testing. However, Kaneka is currently the only known manufacturer of
the bulk powdered drug. Should Kaneka be unable to satisfy the Company's needs,
the Company has the right to seek alternative supply sources. There can be no
assurance that the Company will be able to obtain sufficient quantities of
PA-1648 to satisfy its needs.
All contractors utilized by the Company have FDA-inspected facilities that
operate under cGMP. In the event the Company decides to establish a
manufacturing facility, the Company will require substantial additional funds,
will be required to hire and train significant additional personnel and comply
with the extensive cGMP regulations applicable to such a facility. See "Risk
Factors--Limited Manufacturing Capabilities; Dependence on Suppliers" and
"Business--Government Regulation and Product Testing."
MARKETING
The Company currently has limited internal marketing and no sales resources
and personnel. The Company intends to market TOBI for cystic fibrosis directly
to physicians, hospitals and cystic fibrosis treatment centers. Cystic fibrosis
represents a niche market, involving a small group of physicians or treating
institutions both in the United States and abroad. Currently, more than 65% of
cystic fibrosis patients in the United States are treated by institutions or
physicians associated with the 113 cystic fibrosis care centers sponsored by the
Cystic Fibrosis Foundation. Of those 113 cystic fibrosis centers, 69 centers
participated in the Company's Phase III clinical trials for TOBI. Consequently,
the Company intends to hire a sales force of 15 to 20 persons and believes that
this sales force will provide sufficient coverage for the United States. The
Company intends to take a similar approach with respect to marketing PA-1648 and
subsequent product candidates.
In addition, PathoGenesis intends to establish a European office in 1997 as
part of the process of registering TOBI for cystic fibrosis in the European
Union. PathoGenesis expects to file for approval of TOBI for cystic fibrosis
with European regulatory authorities in 1998, and, if and when it obtains such
approval, to market TOBI for cystic fibrosis directly in major European
countries. However, there can be no assurances that the Company's planned drug
development efforts for TOBI for cystic fibrosis, or any
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other compound, will be successful or completed within anticipated time frames,
or at all, or that regulatory approvals will be obtained.
LICENSES AND OTHER AGREEMENTS
The Company has entered into several key license agreements and research
collaboration arrangements. In addition to those mentioned below, the Company is
pursuing additional licensing agreements and collaborations.
PathoGenesis has licensed from the Cystic Fibrosis Foundation and Children's
Hospital and Medical Center in Seattle exclusive worldwide rights to patents,
research and technology relating to the use of an aerosolized tobramycin
solution or any other aerosolized aminoglycoside solution for the treatment of
bronchopulmonary infections. The Company has agreed under each of these
licensing agreements to make a substantial one-time payment to each licensor in
the event the Company receives marketing approval of TOBI or any other
aerosolized aminoglycoside from the FDA and to pay a royalty based on net sales.
The term of each licensing agreement continues until the expiration of any
patent rights under the license and may be terminated earlier upon a material
breach by either party.
The Company has licensed from Kaneka exclusive rights for the United States,
Canada and Mexico to develop, market and sell PA-1648 for use in the treatment
of tuberculosis, MAC and other infections. Pursuant to the license agreement,
the Company is responsible for the clinical development, regulatory affairs,
marketing and sales of PA-1648. The Company has agreed to pay Kaneka certain
clinical and regulatory milestone payments of substantial amounts. In addition,
the Company has agreed to pay Kaneka a royalty based upon net sales for 15 years
from the date of commercial production of PA-1648. After such 15-year period,
the license is fully paid and remains in effect as a non-exclusive license.
Kaneka has the option to convert this license to a non-exclusive license should
the Company fail to achieve certain milestones. In addition, the license may
terminate should the Company fail to achieve certain other milestones. As
partial consideration for this license, the Company paid $500,000 in cash and
issued 50,000 shares of Common Stock to Kaneka. In addition, in lieu of a cash
milestone payment, the Company issued Kaneka an additional 50,000 shares of
Common Stock in March 1995. Pursuant to a related supply agreement between the
Company and Kaneka, Kaneka is responsible for manufacturing the bulk powdered
PA-1648 in Japan for final dosage form preparation in the United States. To
date, the Company believes that Kaneka has supplied sufficient quantities of
PA-1648 to enable the Company to complete Phase II clinical testing. See
"Business--Manufacturing."
PathoGenesis is engaged in research and development collaborations and
licensing arrangements with various academic institutions and government and
commercial research groups. The Company has exclusive, worldwide license rights
from Cold Spring Harbor Laboratory for the use of RDA to discover pathogens in
infectious diseases. This license extends until the expiration of the patent
covered by the license. However, the license becomes non-exclusive commencing in
May 1997. The Company also intends to enter into a contract with the Cystic
Fibrosis Foundation and the University of Washington to sequence the P.
AERUGINOSA genome (DNA or genetic code) to assist in the drug discovery process.
In general, the Company's research and development agreements and licensing
arrangements with academic institutions and government research groups provide
for sponsorship of research and development by the Company in exchange for
exclusive, royalty-bearing licenses or rights of first refusal during the course
of the sponsored research. In general, the license agreements grant the Company
exclusive licenses in exchange for varying combinations of license fees,
milestone payments, royalties and minimum royalties. In addition, the license
agreements typically place commercialization obligations on the Company which,
if not satisfied, may result in the licensor having the right to render the
license non-exclusive or to terminate the agreement. Typically, the agreements
are terminable by either party for breach. See "Risk Factors-- Dependence on
Licenses; Potential Need for Additional Partners or Collaborators."
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In May 1996, PathoGenesis entered into a license and distribution agreement
with Bohdan Automation, Inc. Under this agreement, Bohdan manufactures and sells
the Rapid Analog Matrix ("RAM") Synthesizer, a proprietary combinatorial
chemistry system invented by Company scientists.
PATENTS
The Company's success will depend in part on its ability to develop
patentable products and technologies and obtain patent protections for its
products and technologies both in the United States and other countries.
PathoGenesis generally applies for patents for its proprietary compounds,
formulations or technologies.
In April 1996, the Company obtained a formulation patent for TOBI in the
United States. A corresponding international patent application was filed in
1995 under the Patent Cooperation Treaty designating Europe, Canada, Japan and
other countries.
The Company is the exclusive licensee in the United States and Canada of
rights under three issued patents relating to PA-1648. The Company has been
issued three United States patents and has 13 patent applications pending that
cover several different compounds. The Company has also filed patent
applications with respect to several product candidates in many other countries,
including Europe and Canada.
There can be no assurance that any of the Company's pending patent
applications will result in the issuance of patents or that competitors will not
successfully challenge the Company's patents, if issued, or circumvent the
Company's patent position. The failure of patents to issue on pending
applications could result in increased competition.
The patent positions of companies in the pharmaceutical industry are highly
uncertain, involve complex legal and factual questions and recently have been
the subject of much litigation. A significant number of patents have been
applied for by and issued to other companies in PathoGenesis' industry, and
other companies may have filed applications for, may have been issued patents or
may obtain, additional patents and proprietary rights relating to products
competitive with those of the Company.
In addition, the Company's drug candidates may give rise to claims that they
infringe on the products or proprietary rights of others. There can be no
assurance that any license required under any such patents or rights would be
made available on terms acceptable to the Company, if at all. If the Company
does not obtain such licenses, it may encounter delays in product market
introductions while it attempts to design around such patents, or may find that
the development, manufacture or sale of products requiring such licenses may be
precluded. See "Risk Factors--Uncertain Ability to Protect Patents and
Proprietary Technology and Information."
GOVERNMENT REGULATION AND PRODUCT TESTING
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the Company's ongoing research and product
development activities and in the manufacturing and marketing of the Company's
drug candidates. Virtually all the Company's products will require regulatory
approval by governmental agencies, principally the FDA, prior to
commercialization. In particular, therapeutic products for human use are subject
to rigorous preclinical and clinical testing and other approval procedures by
the FDA and similar health authorities in foreign countries. Various federal
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such products. The process of
obtaining these approvals and the subsequent compliance with appropriate federal
statutes and regulations require the expenditure of substantial resources. Any
failure by the Company or its collaborators, licensors or licensees to obtain,
or any delay in obtaining, regulatory approval could adversely affect the
marketing of products then being developed by the Company and its ability to
receive product or royalty revenues.
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Upon approval in the United States, a drug may only be marketed for the
approved indications in the approved dosage forms and dosages. The FDA also may
require post-marketing testing and surveillance to monitor safety and efficacy
history of the approved product and continued compliance with regulatory
requirements. The FDA also mandates that drugs be manufactured in conformity
with cGMP regulations. In complying with the cGMP regulations, manufacturers
must continue to expend time, money and effort in production, record keeping and
quality control to ensure that the product meets applicable specifications and
other requirements. The FDA periodically inspects drug manufacturing facilities
to ensure compliance with applicable cGMP requirements. Failure to comply
subjects the manufacturer to possible FDA action, such as suspension of
manufacturing, seizure of the product or voluntary recall of a product. Adverse
experiences with the product must be reported to the FDA. The FDA also may
require the submission of any batch of the product for inspection and may
restrict the release of any batch that does not comply with FDA regulations, or
may otherwise order the suspension of manufacture, a recall or seizure of the
product. Product approvals may be withdrawn if compliance with regulatory
requirements is not maintained or if problems concerning safety or efficacy of
the product occur following approval.
FULL CLINICAL TESTING REQUIREMENTS
The steps required before a new drug may be commercially distributed in the
United States, include: (i) conducting appropriate preclinical laboratory and
animal tests; (ii) submitting to the FDA an application for an IND which must be
approved before clinical trials may commence; (iii) conducting controlled human
clinical trials that establish the safety and efficacy of the drug product; (iv)
filing with the FDA an NDA; and (v) obtaining FDA approval of the NDA prior to
any commercial sale or shipment of the drug. In addition to obtaining FDA
approval for each indication to be treated with each product, each domestic drug
manufacturing establishment must register with the FDA, list its drug products
with the FDA, comply with cGMP requirements and be subject to inspection by the
FDA. Foreign manufacturing establishments distributing drugs in the United
States also must comply with cGMP requirements and list their products and are
subject to periodic inspection by the FDA or by local authorities under
agreement with the FDA.
With respect to any non-biological drug product with an active ingredient
not previously approved by the FDA, a prospective manufacturer must usually
submit a full NDA, including complete reports of preclinical, clinical and
laboratory studies, to prove that the product is safe and effective. A full NDA
may also need to be submitted for a drug product with a previously approved
active ingredient if studies are required to demonstrate safety and efficacy,
such as when the drug will be used to treat an indication for which the drug was
not previously approved, or where the method of drug delivery is changed. A
manufacturer intending to conduct clinical trials will usually first be required
to submit an IND to the FDA containing information relating to previously
conducted preclinical studies.
Preclinical testing includes formulation development, laboratory evaluation
of product chemistry and animal studies to assess the potential safety and
efficacy of the product formulation. Preclinical trials usually must be
conducted in accordance with the FDA regulations concerning Good Laboratory
Practices ("GLPs"). The results of the preclinical trials are submitted to the
FDA as part of the IND and are reviewed by the FDA prior to authorizing the
sponsor to conduct clinical trials in human subjects. Unless the FDA objects to
an IND, the IND will become effective 30 days following its receipt by the FDA.
There is no certainty that submission of an IND will result in FDA authorization
to commence clinical trials or that authorization of one phase of clinical
trials will result in authorization of other phases or that the performance of
any clinical trials will result in FDA approval. See "Risk Factors--Government
Regulation; No Assurance of Regulatory Approvals."
Clinical trials for newly marketed drugs typically are conducted in three
phases and are subject to detailed protocols. Clinical trials involve the
administration of the investigational drug product to human subjects. Each
protocol indicating how the clinical trial will be conducted must be submitted
for review to the FDA. The FDA's review of a study protocol does not necessarily
mean that, if the study is successful, it will constitute proof of efficacy or
safety. Further, each clinical trial must be conducted under the auspices
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of an IRB. The IRB considers, among other factors, ethical concerns and informed
consent requirements. The FDA or the IRB may require changes in a protocol both
prior to and after the commencement of a trial. There is no assurance that the
IRB or the FDA will permit a study to go forward or, once started, to be
completed. Clinical trials may be placed on hold at any time for a variety of
reasons, particularly if safety concerns exist.
The three phases of clinical trials are generally conducted sequentially,
but they may overlap. In Phase I, the initial introduction of the drug into
humans, the drug is tested for safety, side effects, dosage tolerance,
metabolism and clinical pharmacology. Phase II involves controlled tests in a
larger but still limited patient population to determine the efficacy of the
drug for specific indications, to determine optimal dosage and to identify
possible side effects and safety risks. Phase II testing for an indication
typically takes from one-and-one-half to two-and-one-half years to complete. If
preliminary evidence suggesting effectiveness has been obtained during Phase II
evaluations, expanded Phase III trials are undertaken to gather additional
information about effectiveness and safety that is needed to evaluate the
overall risk-benefit relationship of the drug and to provide an adequate basis
for product labeling. There can be no assurance that Phase I, Phase II or Phase
III testing will be completed successfully within any specified time period, if
at all, with respect to any of the Company's drug candidates.
Reports of results of the preclinical trials and clinical trials for
non-biological drugs are submitted to the FDA in the form of an NDA for approval
of marketing and commercial shipment. The NDA also includes information
pertaining to the preparation of drug substances, analytical methods, drug
product formulation, details on the manufacture of finished product and proposed
product packaging and labeling. Submission of an NDA does not assure FDA
approval for marketing. The application review process generally takes two to
three years to complete, although reviews of treatments for AIDS, cancer and
other serious diseases may be accelerated. The FDA may grant expedited review to
new drug applications for therapies intended to treat people with
life-threatening and severely debilitating illnesses, especially where no
satisfactory alternative therapy exists. The granting of an expedited review may
accelerate the application review process; however, there can be no assurance
that any approval will be granted on a timely basis, or at all. The approval
process may take substantially longer if, among other things, the FDA has
questions or concerns about the safety and/or efficacy of a product.
In general, the FDA requires at least two properly conducted, adequate and
well-controlled clinical trials demonstrating efficacy with sufficient levels of
statistical assurance. The FDA also may request long-term toxicity studies or
other studies relating to product safety or efficacy. For example, the FDA may
require additional clinical tests following NDA approval to confirm product
safety and efficacy (Phase IV clinical tests). Notwithstanding the submission of
such data, the FDA ultimately may decide that the application does not satisfy
its regulatory criteria for approval. The full NDA process for newly marketed
non-biological drugs takes a number of years and involves the expenditure of
substantial resources.
Phase III or other clinical studies may be conducted after, rather than
before, FDA approval under certain circumstances. For example, the FDA may
determine under its expedited or accelerated approval regulations that earlier
trials may establish an adequate basis for drug product approval, provided that
the sponsor agrees to conduct additional studies after approval to verify safety
and effectiveness. Treatment of patients with an experimental drug not in
clinical trials may also be allowed under a Treatment IND before general
marketing begins and pending FDA approval. Charging for an investigational drug
also may be allowed under a Treatment IND to recover certain costs of
development if various requirements are met. These cost-recovery, treatment and
expedited or accelerated approval regulations are limited, for example, to drug
products intended to treat AIDS, cancer or other serious or life-threatening
diseases and which provide either meaningful therapeutic benefit to patients
over existing treatments or that are for diseases for which no satisfactory
alternative therapy exists. There can be no assurances that any of the Company's
drug candidates will qualify for cost-recovery, expedited or accelerated
approvals or for treatment use.
36
<PAGE>
FOREIGN REGULATIONS
To market its products abroad, the Company is also subject to numerous and
varying foreign regulatory requirements, governing, among other things, the
design and conduct of human clinical trials, pricing regulations and marketing
approval. The approval procedure may vary among countries and can involve
additional testing, and the time required to obtain approval may differ from
that required to obtain FDA approval. At present, foreign marketing
authorizations are applied for at a national level, although within the EU
certain registration procedures are available to companies wishing to market a
product in more than one EU member country. If a regulatory authority is
satisfied that adequate evidence of safety, quality and efficacy has been
presented, marketing authorization is usually granted. The foreign regulatory
approval process includes all of the risks associated with obtaining FDA
approval. Approval by the FDA does not ensure approval by other countries.
OTHER REGULATIONS
The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
research work. The extent of government regulation which might result from
future legislation or administrative action cannot be accurately predicted.
COMPETITION
The Company competes with pharmaceutical companies and specialized
biotechnology firms that produce and market products in the United States,
Europe and elsewhere. Many pharmaceutical companies have focused their
development efforts in the therapeutics areas described herein and many
healthcare companies have existing supply arrangements with other pharmaceutical
companies.
The Company expects to encounter significant competition for the principal
products it plans to develop. Companies that complete clinical trials, obtain
required regulatory approvals and commence commercial sales of their products
before PathoGenesis may achieve a significant competitive advantage.
The use of antibiotics to treat pseudomonal, mycobacterial and other
bacterial infections is well established. The most commonly used intravenous
antibiotic is Nebcin-Registered Trademark- (Tobramycin Sulfate Injection, USP)
manufactured by Eli Lilly and Company. Medical therapies for patients with
cystic fibrosis include antibiotics, anti-inflammatory drugs, oral replacement
enzymes to maintain nutrition, physical therapy to the chest to loosen lung
secretions and mucolytics to clear pulmonary secretions such as
Pulmozyme-Registered Trademark- (dornase alpha) manufactured by Genentech, Inc.
The Company believes that these therapies are complementary with TOBI for the
treatment of chronic pseudomonal lung infections in cystic fibrosis patients.
However, the optimal combination may vary between patients. In addition, the
potential high cost of combination therapy may limit the use of TOBI in
conjunction with other therapies. Accordingly, there can be no assurance that
alternative formulations of tobramycin, other antibiotics or different
approaches to therapy will not prove to be more efficacious, safer or more
cost-effective than TOBI for the treatment of pseudomonal lung infections in
cystic fibrosis patients.
Antibiotic therapies are currently used to treat tuberculosis. The Company
believes that PA-1648 could be used in combination with certain existing
therapies as part of multi-drug therapy regimens and that TOBI could be used as
an adjunct therapy for patients with contagious pulmonary tuberculosis. However,
optimal combination therapies may vary between patients. Furthermore, there can
be no assurance that alternative antibiotics or other therapies will not prove
to be more efficacious, safer or more cost-effective than PA-1648 or TOBI.
37
<PAGE>
Significant levels of research in chemistry and biotechnology occur in
universities and other nonprofit research institutions. These entities have
become increasingly active in seeking patent protection and licensing revenues
for their research results. They also compete with the Company in recruiting
skilled scientific talent.
The Company believes that its ability to compete successfully will be based
on its ability to create and maintain scientifically advanced technology,
develop proprietary products, attract and retain scientific personnel, obtain
patent or other protection for its products, obtain required regulatory
approvals and manufacture and successfully market its products either alone or
through outside parties. Many of the Company's competitors have substantially
greater financial, research and development, manufacturing, marketing and human
resources than PathoGenesis.
HUMAN RESOURCES
As of January 31, 1997, PathoGenesis had 115 full-time employees, 90 of whom
are engaged in research and development activities at its laboratory facility in
Seattle, Washington. A significant number of the Company's management and
professional employees have had prior experience with pharmaceutical,
biotechnology or medical products companies. None of the Company's employees is
covered by collective bargaining agreements.
FACILITIES
The Company's principal facility consists of approximately 70,000 square
feet of leased laboratory and office space in Seattle, Washington. A portion of
this space has been subleased by the Company to a third party. The lease expires
in March 2003.
The Company also leases an administrative and marketing office of
approximately 4,500 square feet in Skokie, Illinois. This lease expires in
January 1999. A third leased laboratory and office in Annandale, New Jersey
consists of approximately 18,000 square feet and houses manufacturing support
and distribution support operations. The lease expires in December 2001. In
addition, PathoGenesis rents office space in New York City, which is subject to
an oral, month-to-month lease agreement between the Company and the lessor. See
"Certain Transactions."
LEGAL PROCEEDINGS
The Company has no material pending legal proceedings.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
person who is currently a Director and executive officer of the Company.
<TABLE>
<CAPTION>
YEAR TERM AS
NAME AGE POSITIONS DIRECTOR EXPIRES
- --------------------------------------- --- ------------------------------------------------- -----------------
<S> <C> <C> <C>
Wilbur H. Gantz(1)..................... 59 Chief Executive Officer, President and Director 1997
Alan R. Meyer.......................... 44 Senior Vice President, Chief Financial Officer, 1999
Treasurer, Assistant Secretary and Director
A. Bruce Montgomery, M.D............... 43 Senior Vice President, Research and Development
Marvin B. Tepper....................... 65 Secretary
Elizabeth M. Greetham.................. 47 Director 1999
Lawrence C. Hoff(2).................... 68 Director 1997
Edward J. Mathias(3)................... 55 Director 1997
Michael J. Montgomery(3)............... 42 Director 1999
Talat M. Othman(1)(2).................. 60 Director 1998
Eugene L. Step(1)(3)................... 68 Director 1998
Fred Wilpon(1)(2)(3)................... 60 Director, Chairman of the Board 1998
</TABLE>
- ------------------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit/Finance Committee.
WILBUR H. GANTZ is a founder of the Company and has been the Chief Executive
Officer, President and a Director of the Company since March 1992. Prior to
joining the Company, he was President of Baxter International Inc. ("Baxter").
Mr. Gantz joined Baxter in 1966 and held several positions including Vice
President of Europe, located in Brussels, Belgium, President of the
International Division, Executive Vice President and Chief Operating Officer. He
also served on the Board of Directors of Baxter. He was named President of
Baxter in 1987, which position he held until joining the Company. Mr. Gantz is a
director of the Gillette Company, W.W. Grainger, Inc. and Bank of Montreal.
ALAN R. MEYER has been a Senior Vice President, Treasurer and Assistant
Secretary of the Company since July 1995, Chief Financial Officer and a Director
of the Company since December 1992 and was a Vice President of the Company from
December 1992 to July 1995. From 1991 to 1992, Mr. Meyer was Vice President and
Chief Financial Officer of Oculon Corporation ("Oculon"), a biopharmaceutical
company. Prior to Oculon, he was Chief Financial Officer of HealthTech Services
Corporation, a medical device company, and Memtec America Corporation
("Memtec"), an industrial separations company. Before joining Memtec, Mr. Meyer
was employed by Baxter Healthcare Corporation and Arthur Andersen & Co.
A. BRUCE MONTGOMERY, M.D. has been a Senior Vice President, Research and
Development of the Company since July 1995 and was Vice President of Medical and
Regulatory Affairs of the Company from December 1993 to July 1995. From 1989 to
November 1993, Dr. Montgomery was Associate Director of Clinical Research at
Genentech, Inc. where he was involved in the clinical development of Pulmozyme,
an inhaled drug for cystic fibrosis patients. From 1988 to 1989 he was Assistant
Professor of Medicine, Director of the Medical Intensive Care Unit, Pulmonary
Disease Section, Department of Medicine, State University of New York, Stony
Brook, New York. Previously Dr. Montgomery was Assistant Professor of
39
<PAGE>
Medicine in Residence, University of California, San Francisco and
Cardiovascular Research Institute, Chest Service, San Francisco General
Hospital. He is a co-inventor on two use patents related to aerosolized
pentamidine, a drug for an AIDS-related infection. Dr. Montgomery is the brother
of Michael J. Montgomery, a Director of the Company.
MARVIN B. TEPPER has been Secretary of the Company since September 1992. He
has been Executive Vice President and General Counsel of Sterling Equities, Inc.
("Sterling Equities") since 1989. Previously, Mr. Tepper was a partner in the
law firm of Botein Hays & Sklar, New York, New York.
ELIZABETH M. GREETHAM has been a Director of the Company since November
1996. She is currently Portfolio Manager of Life Science L.P. Funds and handles
analytical responsibilities for all health care investments for the
institutional, mutual and high individual net worth accounts at Weiss, Peck &
Greer Investments, where she has been employed since 1990. Ms. Greetham also
serves as a director of various pharmaceutical companies, including Medco
Research Inc., Access Pharmaceutical, Guilford Pharmaceutical, ChiRex and
SangStat Medical Corporation. Ms. Greetham has a M.A. in Economics from
Edinburgh University.
LAWRENCE C. HOFF has been a Director of the Company since April 1992. He was
President of The Upjohn Company ("Upjohn") from 1984 through 1990, Chief
Operating Officer from 1987 through 1990 and a director from 1973 until Upjohn's
merger in 1995. Mr. Hoff is also a director of Medimmune Inc., Curative Health
Systems and Alpha Beta Technologies, Inc. He is a past Chairman of the
Pharmaceutical Manufacturers Association.
EDWARD J. MATHIAS has been a Director of the Company since November 1994. He
has been a Managing Director of The Carlyle Group, a Washington, D.C. merchant
banking firm, since January 1994. Previously, Mr. Mathias was with T. Rowe Price
Associates, Inc. where he served on its board of directors and was a member of
its Management Committee for over ten years. In addition, he is a director of
U.S. Office Products Company and SIRROM Capital.
MICHAEL J. MONTGOMERY has been a Director of the Company since July 1995. He
has been President and Chief Operating Officer of SEGA GAMEWORKS LLC since
September 1996. He was a senior executive at DreamWorks SKG involved with
financial matters from January 1995 to September 1996. He was Executive Vice
President and Chief Financial Officer of Euro Disney SCA from April 1993 to
August 1994, Vice President of The Walt Disney Company from 1989 to 1993 and
Treasurer from 1991 to 1993. Previously, Mr. Montgomery was employed by Atlantic
Richfield Company. Mr. Montgomery is the brother of Dr. Montgomery, Senior Vice
President, Research and Development, of the Company.
TALAT M. OTHMAN has been a Director of the Company since September 1992. He
has been Chairman and Chief Executive Officer of Grove Financial, Inc. since
September 1995. He was President of Dearborn Financial, Inc. from 1984 to August
1995 and Chairman and Chief Executive Officer from 1993 to August 1995. He is
also director for the Middle East Policy Council in Washington, D.C. and a
member of the Dean's Advisory Council, the Kennedy School of Government at
Harvard University. He was a director of Harken Energy Corporation and Hartmarx
Corporation. He was founding President of the Mid-America Arab Chamber of
Commerce as well as of the Midwest Chapter of the Forex Association of North
America. From 1985 to 1987, he served as President of the Arab Bankers
Association of North America.
EUGENE L. STEP has been a Director of the Company since April 1992. He was
Executive Vice President of Eli Lilly and Company ("Eli Lilly") from 1986 to
1992 and President of its Pharmaceutical Division from 1973 to 1992. He was also
a director and a member of the Executive Committee of Eli Lilly. Mr. Step is a
past Chairman of the Pharmaceutical Manufacturers Association and past President
of the International Pharmaceutical Manufacturers Association. Mr. Step is
currently a director of Medco Research Inc., CellGenesys Inc., Scios-Nova Inc.
and Guidant Corp.
40
<PAGE>
FRED WILPON has been a Director of the Company since January 1992 and
Chairman of the Board of Directors since May 1995. He is Co-Founder of and has
been Chairman of the Board of Sterling Equities for over 20 years, and the
President and Chief Executive Officer of the New York Mets baseball team for
over 10 years. Mr. Wilpon's business interests include real estate as well as
other businesses. In addition, Mr. Wilpon is a director of Bear, Stearns & Co.
Inc.
The Board of Directors is divided into three classes of Directors, each of
whom serves for a three-year period following the year of his or her election.
Each class consists, as nearly as practicable, of one-third of the total number
of Directors serving on the Board of Directors. Officers are elected for
one-year terms by the Board of Directors. See "Management--Employment
Agreements."
BOARD COMMITTEES AND COMPENSATION
The Board of Directors has designated an Audit/Finance Committee that
reviews the scope and results of the audit and other services performed by the
Company's independent accountants. The Audit/ Finance Committee currently
consists of Messrs. Mathias, Step (Chairman), Wilpon and M. Montgomery. The
Board of Directors has also designated a Compensation Committee that establishes
objectives for the Company's senior executive officers, sets the compensation of
Directors, executive officers and other employees of the Company and is charged
with the administration of the 1992 Plan and the 1997 Plan. The Compensation
Committee currently consists of Messrs. Hoff, Othman (Chairman) and Wilpon. The
Board of Directors also has an Executive Committee which has the authority to
take all actions that the Board of Directors may take, subject to certain
restrictions imposed by law. The Executive Committee currently consists of
Messrs. Gantz (Chairman), Othman, Step and Wilpon. The Directors do not receive
cash compensation for service on the Board of Directors or on any of its
Committees, but Directors may be reimbursed for certain expenses in connection
with attendance at Board and Committee meetings. During 1996, the Company's
non-employee Directors were granted fully vested options to purchase an
aggregate of 42,000 shares of Common Stock at a weighted average exercise price
of $17.62 per share under the 1996 Plan. In January 1997, the Company's
non-employee Directors were granted fully vested options to purchase an
aggregate of 44,000 shares of Common Stock at an exercise price of $22.25 per
share under the 1992 Plan. See "Management--Stock Option Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Company's fiscal year ended December 31, 1996, the Compensation
Committee of the Board of Directors consisted of Messrs. Hoff, Othman (Chairman)
and Wilpon. None of these individuals has ever served as an executive officer or
an employee of the Company. In addition, no executive officer of the Company has
ever served as (i) a member of the compensation committee or equivalent of
another entity, one of whose executive officers served on the Compensation
Committee, (ii) a director of another entity, one of whose executive officers
served on the Compensation Committee, or (iii) a member of the compensation
committee or equivalent of another entity, one of whose executive officers
served as a director of the Company.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or earned for the fiscal
years ended December 31, 1996, December 31, 1995 and December 31, 1994 for those
persons who were, at December 31, 1996, (i) the chief executive officer and (ii)
the two other most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers").
41
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER
--------------------- ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION
- ------------------------------------------------ --------- ---------- ---------- --------------------- -------------
<S> <C> <C> <C> <C> <C>
Wilbur H. Gantz................................. 1996 $ 290,690 $ 116,276 -- --
Chief Executive Officer and President 1995 279,510 -- -- --
1994 279,510 -- -- --
A. Bruce Montgomery, M.D. ...................... 1996 194,070 67,865 -- --
Senior Vice President, Research and 1995 183,057 63,665 -- --
Development 1994 170,000 24,000 -- $ 58,318(2)
Alan R. Meyer................................... 1996 180,000 63,000 -- --
Senior Vice President and Chief Financial 1995 168,667 58,800 -- --
Officer 1994 160,417 24,000 -- --
</TABLE>
- ------------------------
(1) Excludes items which are, in the aggregate, less than $50,000 or 10% of the
total annual salary and bonus.
(2) Represents amounts paid to Dr. Montgomery for moving expenses.
The following table sets forth certain information concerning options
granted to the Named Executive Officers during the fiscal year ended December
31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
PERCENT
OF POTENTIAL
TOTAL REALIZABLE
OPTIONS VALUE AT ASSUMED
GRANTED ANNUAL RATES OF
NUMBER OF TO STOCK PRICE
SECURITIES EMPLOYEES EXERCISE APPRECIATION FOR
UNDERLYING IN OR OPTION TERM
OPTIONS FISCAL BASE PRICE EXPIRATION ------------------------
NAME GRANTED(1) YEAR ($/SHARE) DATE 5% 10%
- ------------------------------------------------ ----------- --------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wilbur H. Gantz................................. 60,000 14% 16.25 1/24/06 $ 613,200 $ 1,553,900
A. Bruce Montgomery, M.D........................ 25,000 6% 16.25 1/24/06 255,500 647,500
Alan R. Meyer................................... 15,000 4% 16.25 1/24/06 153,300 388,500
</TABLE>
- ------------------------
(1) All options were granted at an exercise price equal to the fair market value
of the Common Stock on the date of grant.
42
<PAGE>
AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED
DECEMBER 31, 1996 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the number and
value of securities underlying exercisable and unexercisable stock options as of
the fiscal year ended December 31, 1996 by the Named Executive Officers. No
options were exercised by any of the Named Executive Officers during the fiscal
year ended December 31, 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------ -------------
Wilbur H. Gantz.......................................... 191,250 -- $ 1,734,695 $ --
A. Bruce Montgomery, M.D................................. 28,124 56,251 302,333 451,573
Alan R. Meyer............................................ 53,125 49,375 611,719 448,906
</TABLE>
- ------------------------
(1) These figures are based on a fair market value of the Common Stock at
December 31, 1996 of $21.75 per share, the closing price of the Common Stock
as reported on the Nasdaq National Market as of such date.
EMPLOYMENT AGREEMENTS
Wilbur H. Gantz entered into a five-year employment agreement with the
Company (the "Gantz Employment Agreement") which commenced in March 1992. Under
the terms of Mr. Gantz's employment agreement, Mr. Gantz is entitled to receive
an annual base salary and bonus (up to 60% of his annual base salary) as
determined by the Board of Directors. Mr. Gantz is also entitled to receive
benefits offered to the Company's employees generally. The Gantz Employment
Agreement provides that the employment of Mr. Gantz may be terminated by the
Company for "cause." "Cause" is defined as (i) willful and repeated failure by
Mr. Gantz to perform his duties under the Gantz Employment Agreement, which
failure is not remedied within 30 days after written notice from the Company;
(ii) conviction of Mr. Gantz for a felony; (iii) Mr. Gantz's dishonesty or
willfully engaging in conduct that is demonstrably and materially injurious to
the Company; or (iv) willful violation by Mr. Gantz of any provision of the
Gantz Employment Agreement which violation is not remedied within 30 days after
written notice from the Company. In addition, Mr. Gantz may terminate his
employment if (i) the Company substantially reduces his duties, position,
authority or responsibility under the Gantz Employment Agreement and does not
reinstate the same within 30 days or (ii) the Company breaches its obligations
with regard to Mr. Gantz's compensation, expenses and benefits. The agreement
also contains a provision prohibiting Mr. Gantz from competing with the Company
for a one-year period following termination of his employment.
In conjunction with the Gantz Employment Agreement, Mr. Gantz entered into a
Stock Subscription and Stock Repurchase Agreement (the "Stock Agreement")
pursuant to which he purchased 281,250 shares of Common Stock at $0.08 per
share.
A. Bruce Montgomery, M.D. has an employment agreement with the Company which
extends until May 1997. Under the terms of Dr. Montgomery's employment agreement
(the "Montgomery Employment Agreement"), Dr. Montgomery is entitled to receive
an annual base salary and bonus (up to 30% of his annual base salary) as
determined by the Board of Directors. Dr. Montgomery is also entitled to receive
benefits offered to the Company's employees generally. The Montgomery Employment
Agreement provides that the employment of Dr. Montgomery may be terminated by
the Company for "cause." "Cause" is defined as: (i) willful and repeated failure
by Dr. Montgomery to perform his duties under the
43
<PAGE>
Montgomery Employment Agreement, which failure is not remedied within 30 days
after written notice from the Company; (ii) conviction of Dr. Montgomery for a
felony; (iii) Dr. Montgomery's dishonesty or willfully engaging in conduct that
is demonstrably and materially injurious to the Company; or (iv) willful
violation by Dr. Montgomery of any provision of the Montgomery Employment
Agreement which violation is not remedied within 30 days after written notice
from the Company. The agreement also contains a provision prohibiting Dr.
Montgomery from competing with the Company for a one-year period following
termination of his employment.
STOCK OPTION PLANS
1992 STOCK OPTION PLAN
The 1992 Plan was approved by the Board of Directors and the stockholders in
February 1992.
The purpose of the 1992 Plan is to attract and retain key personnel. The
1992 Plan provides for the grant of options to acquire a maximum of 1,500,000
shares of the Common Stock. Of such shares, as of January 31, 1997, 1,265,650
shares were subject to outstanding options and 67,611 shares remained available
for grant. The weighted average exercise price at which options were issued
under the 1992 Plan is $13.07. The 1992 Plan permits the granting of qualified
incentive stock options ("ISOs") or nonqualified stock options ("NSOs"), at the
discretion of the administrator of the 1992 Plan (the "Plan Administrator"). The
Board of Directors has appointed the Compensation Committee of the Board, which
consists of Messrs. Hoff, Othman (Chairman) and Wilpon, as the Plan
Administrator. Subject to the terms of the 1992 Plan, the Plan Administrator
determines the terms and conditions of options granted under the 1992 Plan.
Options granted under the 1992 Plan are evidenced by written agreements which
contain such terms, conditions, limitations and restrictions as the Plan
Administrator deems advisable and which are not inconsistent with the 1992 Plan.
ISOs may be granted to individuals who, at the time of grant, are employees
of the Company or its affiliates. NSOs may be granted to Directors, employees,
consultants and other agents of the Company or its affiliates.
The 1992 Plan provides that the Plan Administrator must establish an
exercise price for ISOs that is not less than the fair market value per share of
the Common Stock at the date of grant and an exercise price for NSOs of not less
than 85% of such fair market value. Each ISO must expire within 10 years of the
date of grant. However, if ISOs are granted to persons owning more than 10% of
the voting stock of the Company, the 1992 Plan provides that the exercise price
may not be less than 110% of the fair market value per share at the date of
grant and that the term of such ISOs may not exceed five years. Unless otherwise
provided by the Plan Administrator, options granted under the 1992 Plan vest at
a rate of 25% per year over a four-year period.
An optionee whose relationship with the Company or any related corporation
ceases for any reason (other than termination for cause, death or total
disability, as such terms are defined in the 1992 Plan) may exercise options in
the three-month period following such cessation (unless such options terminate
or expire sooner by their terms), or in such longer period determined by the
Plan Administrator in the case of NSOs. Unexercised options granted under the
1992 Plan terminate upon a merger (other than a stock merger), reorganization or
liquidation of the Company; however, immediately prior to such a transaction,
optionees may exercise such options without regard to whether the vesting
requirements have been satisfied.
Options granted under the 1992 Plan convert into options to purchase shares
of another corporation involved in a stock merger with the Company, unless the
Company and such other corporation, in their sole discretion, determine that
such options terminate. Such converted options become fully vested without
regard to whether the vesting requirements in the option agreements for such
options have been satisfied, unless the Board of Directors determines otherwise.
44
<PAGE>
The option exercise price must be paid in full at the time the notice of
exercise of the option is delivered to the Company and must be tendered in cash,
by bank certified or cashier's check or by personal check. Options may also be
exercised in "cashless exercises" (delivery of such shares of stock of the
Company having a fair market value equal to the exercise price). Options are
nontransferable with certain exceptions. The Board of Directors has certain
rights to suspend, amend or terminate the 1992 Plan provided stockholder
approval is obtained.
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1996 Plan was approved by the Board of Directors in January 1996 and was
approved by the stockholders in July 1996.
The purpose of the 1996 Plan is to promote the interests of the Company and
its stockholders by increasing the proprietary and vested interest of
non-employee Directors in the growth and performance of the Company.
The 1996 Plan provides for awards of nonqualified options to Directors
("Eligible Directors") of the Company who are not employees of the Company or
its affiliates and who have not, within one year immediately preceding the
determination of such Director's eligibility, received any award under any other
plan of the Company or its affiliates that entitles the participants therein to
acquire stock, stock options or stock appreciation rights of the Company or its
affiliates (other than options granted prior to the effective date of the
Company's initial public offering or options granted under any other plan under
which participants' entitlements are governed by provisions meeting the
requirements of Rule 16b-3(c)(2)(ii) promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")). The options are exercisable in
whole or in part at all times during the period beginning on the date of grant
until the earlier of (i) 10 years from the date of grant and (ii) one year from
the date on which an optionee ceases to be an Eligible Director. The exercise
price per share of Common Stock shall be 100% of the fair market value per share
on the date the option is granted.
Pursuant to the 1996 Plan, in January 1996, each non-employee Director was
awarded an Annual Grant (as defined below). In addition, upon first election or
appointment to the Board, each newly elected Eligible Director will be granted
an option to purchase 10,000 shares of Common Stock (the "Initial Grant").
Immediately following each Annual Meeting of the Stockholders commencing with
the meeting following the close of fiscal year 1996, (i) the Eligible Director
serving as Chairman of the Board will be granted an option to purchase 8,000
shares of Common Stock as of the date of such meeting, (ii) each Eligible
Director serving on the Executive Committee of the Board, will be granted an
option to purchase 6,000 shares of Common Stock; and (iii) each remaining
Eligible Director, will be granted an option to purchase 4,000 shares of Common
Stock (each grant under (i), (ii) and (iii), an "Annual Grant"). No Director may
be awarded more than one Initial Grant and no Director may be awarded both an
Initial Grant and an Annual Grant in any 12-month period.
The maximum number of shares of Common Stock in respect of which awards may
be granted under the 1996 Plan is 300,000. Of such shares, as of January 31,
1997, 42,000 shares are subject to outstanding options at a weighted average
exercise price of $17.62 per share, and 258,000 shares remained available for
grant. Shares of Common Stock subject to awards that are forfeited, terminated,
cancelled or settled without the delivery of Common Stock will again be
available for awards. Also, shares tendered to the Company in satisfaction or
partial satisfaction of the exercise price of any award will increase the number
of shares available for awards to the extent permitted by Rule 16b-3 under the
Exchange Act. The shares of Common Stock to be delivered under the 1996 Plan
will be made available from the authorized but unissued shares of Common Stock
or from treasury shares.
The 1996 Plan is administered by the Board of Directors. Subject to the
provisions of the 1996 Plan, the Board is authorized to interpret the 1996 Plan,
to establish, amend and rescind any rules and regulations relating to it and to
make all other determinations necessary or advisable for its administration;
45
<PAGE>
provided, however, that the Board has no discretion with respect to the
selection of Directors to receive options, the number of shares of Common Stock
subject to any such options, the purchase price thereunder or the timing of
grants of options. The determinations of the Board in the administration of the
1996 Plan, as described herein, shall be final and conclusive.
The exercise price of options may be satisfied in cash or, unless otherwise
determined by the Board, by exchanging shares of Common Stock owned by the
optionee, or by a combination of cash and shares of Common Stock. The ability to
pay the option exercise price in shares of Common Stock would enable an optionee
to engage in a series of successive stock-for-stock exercises of an option and
thereby fully exercise an option with little or no cash investment. However, the
Board's current policy is to require any shares tendered in satisfaction of the
option exercise price to have been owned by the exercising optionee for at least
six months.
The options granted under the 1996 Plan may not be assigned or transferred,
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order.
No award may be granted under the 1996 Plan after the day following the
tenth Annual Meeting of Stockholders at which Directors are elected succeeding
the annual meeting at which the 1996 Plan was approved by stockholders.
The Company's Board of Directors has decided not to grant any additional
options under the 1996 Plan.
1997 STOCK OPTION PLAN
The Board of Directors adopted the 1997 Plan in January 1997 and the
stockholders will be asked to approve the 1997 Plan at the 1997 Annual Meeting
of Stockholders.
The purpose of the 1997 Plan is to attract and retain key personnel. The
1997 Plan provides for the grant of options to acquire a maximum of 2,000,000
shares of the Common Stock. Of such shares, as of January 31, 1997, 378,800
shares were subject to outstanding options and 1,621,200 shares remained
available for grant. The weighted average exercise price at which options were
issued under the 1997 Plan is $22.94. The 1997 Plan permits the granting of
qualified ISOs or NSOs, at the discretion of the administrator of the 1997 Plan
(the "Plan Administrator"). The Board of Directors has appointed the
Compensation Committee of the Board, which consists of Messrs. Hoff, Othman
(Chairman) and Wilpon, as the Plan Administrator. Subject to the terms of the
1997 Plan, the Plan Administrator determines the terms and conditions of options
granted under the 1997 Plan. Options granted under the 1997 Plan are evidenced
by written agreements which contain such terms, conditions, limitations and
restrictions as the Plan Administrator deems advisable and which are not
inconsistent with the 1997 Plan.
ISOs may be granted to individuals who, at the time of grant, are employees
of the Company or its affiliates. NSOs may be granted to Directors, employees,
consultants and other agents of the Company or its affiliates.
The 1997 Plan provides that the Plan Administrator must establish an
exercise price for ISOs that is not less than the fair market value per share of
the Common Stock at the date of grant and an exercise price for NSOs of not less
than 85% of such fair market value. Each ISO must expire within 10 years of the
date of grant. However, if ISOs are granted to persons owning more than 10% of
the voting stock of the Company, the 1997 Plan provides that the exercise price
may not be less than 110% of the fair market value per share at the date of
grant and that the term of such ISOs may not exceed five years. Unless otherwise
provided by the Plan Administrator, options granted under the 1997 Plan vest at
a rate of 25% per year over a four-year period.
An optionee whose relationship with the Company or any related corporation
ceases for any reason (other than termination for cause, death or total
disability, as such terms are defined in the 1997 Plan) may
46
<PAGE>
exercise options in the three-month period following such cessation (unless such
options terminate or expire sooner by their terms), or in such longer period
determined by the Plan Administrator in the case of NSOs. Unexercised options
granted under the 1997 Plan terminate upon a merger (other than a stock merger),
reorganization or liquidation of the Company; however, immediately prior to such
a transaction, optionees may exercise such options without regard to whether the
vesting requirements have been satisfied.
Options granted under the 1997 Plan convert into options to purchase shares
of another corporation involved in a stock merger with the Company, unless the
Company and such other corporation, in their sole discretion, determine that
such options terminate. Such converted options become fully vested without
regard to whether the vesting requirements in the option agreements for such
options have been satisfied, unless the Board of Directors determines otherwise.
The option exercise price must be paid in full at the time the notice of
exercise of the option is delivered to the Company and must be tendered in cash,
by bank certified or cashier's check or by personal check. Options may also be
exercised in "cashless exercises" (delivery of such shares of stock of the
Company having a fair market value equal to the exercise price). Unless
otherwise provided by the Plan Administrator, options are nontransferable. The
Board of Directors has certain rights to suspend, amend or terminate the 1997
Plan provided stockholder approval is obtained.
Pursuant to the 1997 Plan, subject to stockholder approval, in January 1997,
options for an aggregate of 175,000 shares of Common Stock were granted at
exercise prices ranging from $22.25 per share to $25.00 per share to the
executive officers of the Company including the following: Mr. Gantz (75,000
shares), Dr. Montgomery (80,000 shares) and Mr. Meyer (20,000 shares). These
options vest over a four-year period.
401(K) PROFIT SHARING PLAN & TRUST
In November 1993, the Company adopted a 401(k) Profit Sharing Plan & Trust
(the "401(k) Plan"), a tax-qualified plan covering all of its employees who are
at least 18 years of age and have completed three months of service with the
Company. Each employee may elect to reduce his or her current compensation by up
to 20%, subject to the statutory limit (a maximum of $9,500 in 1996) and have
the amount of the reduction contributed to the 401(k) Plan. The 401(k) Plan
provides that the Company may, as determined from time to time by the Board of
Directors, provide a matching contribution. In addition, the Company may
contribute an additional amount to the 401(k) Plan, as determined by the Board
of Directors, which will be allocated based on the proportion of the employee's
compensation for the plan year to the aggregate compensation for the plan year
for all eligible employees.
All employee contributions to the 401(k) Plan are fully vested at all times.
Upon termination of employment, a participant may elect a lump sum distribution
or, if his or her total amount in the 401(k) Plan is greater than $3,500, may
elect to receive benefits as retirement income.
As of the fiscal year ended December 31, 1996, the Company had made no
contributions to the 401(k) Plan.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of February 14, 1997, as adjusted to reflect
the sale by the Company of the Common Stock offered hereby, by (i) each person
or group who is known by the Company to own beneficially more than five percent
of the Common Stock, (ii) each of the Company's Directors, (iii) each of the
Named Executive Officers and (iv) all current executive officers and Directors
as a group.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
NUMBER OF SHARES ------------------------------
BENEFICIALLY AFTER
NAME AND ADDRESS OWNED(1) BEFORE OFFERING OFFERING
- ------------------------------------------------------------ -------------------- --------------- -------------
<S> <C> <C> <C>
The Capital Group Companies, Inc.(2)........................ 870,000 6.2% 5.5%
333 South Hope Street
Los Angeles, California 90071
Scudder Stevens & Clark, Inc.(3)............................ 787,900 5.7% 4.9%
345 Park Avenue
New York, New York 10154
T. Rowe Price Associates, Inc.(4)........................... 714,000 5.1% 4.5%
100 E. Pratt Street
Baltimore, Maryland 21202
Fred Wilpon(5).............................................. 703,500 5.0% 4.4%
c/o Sterling PathoGenesis Company
575 Fifth Avenue
New York, New York 10017
Wilbur H. Gantz(6).......................................... 544,525 3.9% 3.4%
c/o PathoGenesis Corporation
201 Elliott Avenue West
Seattle, Washington 98119
Elizabeth M. Greetham (7)................................... 256,000 1.8% 1.6%
c/o Weiss, Peck & Greer, LLC
1 New York Plaza
New York, New York 10004
Lawrence C. Hoff(8)......................................... 19,250 * *
12821 Marsh Landing
Palm Beach Gardens, Florida 33418
Edward J. Mathias(9)........................................ 14,250 * *
c/o The Carlyle Group
1001 Pennsylvania Avenue N.W.
Washington, D.C. 20004
Alan R. Meyer(10)........................................... 76,500 * *
c/o PathoGenesis Corporation
201 Elliott Avenue West
Seattle, Washington 98119
A. Bruce Montgomery, M.D.(11)............................... 45,024 * *
c/o PathoGenesis Corporation
201 Elliott Avenue West
Seattle, Washington 98119
Michael J. Montgomery(12)................................... 20,500 * *
c/o SEGA GAMEWORKS LLC
10 Universal City Plaza
Building 509
Universal City, California 91608
Talat Othman(13)............................................ 24,500 * *
c/o Grove Financial, Inc.
750 Lake Cook Road
Buffalo Grove, Illinois 60089
Eugene L. Step(14).......................................... 29,500 * *
741 Round Hill Road
Indianapolis, Indiana 46260
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
NUMBER OF SHARES ------------------------------
BENEFICIALLY AFTER
NAME AND ADDRESS OWNED(1) BEFORE OFFERING OFFERING
- ------------------------------------------------------------ -------------------- --------------- -------------
<S> <C> <C> <C>
Marvin B. Tepper(15)........................................ 697,250 5.0% 4.4%
c/o Sterling PathoGenesis Company
575 Fifth Avenue
New York, New York 10017
All Directors and Executive Officers as a group of 11
persons(5)(6)(7)(8)(9)(10)(11)
(12)(13)(14)(15).......................................... 1,762,049 12.2% 10.7%
</TABLE>
- ------------------------
* Less than 1.0%
(1) Unless otherwise indicated, the persons named in the table above have sole
voting and investment power with respect to all Common Stock beneficially
owned by them, subject to applicable community property laws.
(2) Based on Form 13-G filed on February 12, 1997.
(3) Based on Form 13-G filed on February 10, 1997.
(4) Based on Form 13-G filed on February 14, 1997.
(5) Represents: (i) 668,750 shares of Common Stock held by Sterling PathoGenesis
Company, of which Mr. Wilpon is managing partner and (ii) options to
purchase 34,750 shares of Common Stock.
(6) Includes: (i) 112,500 shares of Common Stock held by The Wilbur H. Gantz
1992 Irrevocable Children's Trust; (ii) 18,750 shares of Common Stock held
by The Wilbur H. Gantz 1992 Irrevocable GST Trust; (iii) 3,750 shares of
Common Stock held by The Wilbur H. Gantz Children's Graduate School Trust;
and (iv) options to purchase 191,250 shares of Common Stock. Mr. Gantz is
the trustee of the foregoing trusts and disclaims beneficial ownership of
the Common Stock held thereby. Includes 1,875 shares of Common Stock held by
Mr. Gantz's wife and 26,400 shares of Common Stock held by the Linda T.
Gantz Revocable Trust. Does not include 15,000 shares of Common Stock held
by certain relatives of Mr. Gantz. Mr. Gantz disclaims beneficial ownership
of the Common Stock held by his wife and relatives.
(7) Includes: (i) options to purchase 14,000 shares of Common Stock and (ii)
242,000 shares of Common Stock held by Weiss, Peck & Greer Investments. Ms.
Greetham handles all healthcare investments for the institutional, mutual
and high individual net worth accounts at Weiss, Peck & Greer Investments,
and may be deemed to have share voting and investment power in such shares
arising from her interest in the entity above. Ms. Greetham disclaims
beneficial ownership of such shares, except to the extent of her interest in
the entity referred to above.
(8) Represents: (i) 5,000 shares of Common Stock held by the Lawrence C. Hoff
Trust and (ii) options to purchase 14,250 shares of Common Stock.
(9) Includes options to purchase 14,250 shares of Common Stock. Does not include
176,042 shares of Common Stock and warrants to purchase 30,483 shares of
Common Stock held by The Carlyle Group. Mr. Mathias is a managing director
of The Carlyle Group. Mr. Mathias does not have or share voting or
investment power for the shares held by The Carlyle Group.
(10) Includes options to purchase 72,500 shares of Common Stock.
(11) Includes options to purchase 34,374 shares of Common Stock. Does not
include shares beneficially owned by Michael J. Montgomery.
(12) Includes options to purchase 14,250 shares of Common Stock. Does not
include shares beneficially owned by A. Bruce Montgomery.
(13) Includes options to purchase 24,500 shares of Common Stock.
(14) Includes options to purchase 24,500 shares of Common Stock.
(15) Represents: (i) 668,750 shares of Common Stock held by Sterling
PathoGenesis Company, of which Mr. Tepper is a partner and (ii) options to
purchase 28,500 shares of Common Stock.
49
<PAGE>
CERTAIN TRANSACTIONS
The Company rents office space in New York, New York from an affiliate of
Sterling PathoGenesis Company ("Sterling"), a founding stockholder of the
Company, pursuant to an oral lease, at an annual rental of $36,200. The Company
believes such annual rate to be comparable to a rate which could be obtained
from an independent third party. Messrs. Fred Wilpon and Marvin B. Tepper are
two of the partners of Sterling.
On June 6, 1995, the Company entered into a new employment agreement with
Dr. Robert Nowinski, former Chairman of the Board of the Company, which will
terminate on April 30, 1998. Pursuant to such agreement, Dr. Nowinski is
employed as the Chairman Emeritus of the Company and is obligated to provide the
Company with advice, assistance and consultation with regard to its scientific
programs and strategies, as well as its financing activities. Dr. Nowinski
receives annual compensation of $280,000. He is also entitled to the same
health, medical and dental insurance benefits that are generally made available
to all employees of the Company. The Company is obligated to provide Dr.
Nowinski with the full compensation and benefits which he otherwise would be
entitled to receive under his employment agreement regardless of whether or not
his services are utilized thereunder and regardless of whether or not his
employment is terminated prior to the expiration of such agreement, and
irrespective of the reason for any such termination. In addition, Dr. Nowinski
has the right to accelerate the payments due in the third year of his agreement
to April 30, 1997, with such payment amount discounted based on the present
value thereof. Dr. Nowinski has previously purchased 281,250 shares of Common
Stock at a price of $0.08 per share.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.001 per share, and 1,000,000 shares of Preferred Stock, $.01 par value
per share. An amendment to the Company's Amended and Restated Certificate of
Incorporation was approved by the Company's Board of Directors in January 1997.
The amendment would increase the authorized number of shares of Common Stock to
60,000,000 shares. The stockholders will be asked to approve such amendment at
the 1997 Annual Meeting of Stockholders. At January 31, 1997, there were
13,932,322 shares of Common Stock outstanding held by approximately 370
stockholders of record and no shares of Preferred Stock were outstanding;
however, the Company believes the actual number of beneficial holders of Common
Stock is substantially greater.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Subject to any preferential dividend rights granted to holders of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the Company, holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and any preferential payment to
holders of Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All the outstanding shares of
Common Stock are, and the Common Stock to be issued in this offering will be,
validly issued, fully paid and nonassessable.
At January 31, 1997, the Company had outstanding warrants to purchase 28,325
shares of Common Stock at an exercise price of $12.00 per share and 83,335
shares of Common Stock at an exercise price of $14.40 per share. The warrants
expire between 1998 and 2001. The warrants do not contain anti-dilution
provisions relating to issuances or sales of Common Stock at prices below the
exercise price or the then prevailing market price of the Common Stock. The
warrants may be exercised in whole or in part, and may be exercised in
"cashless" exercises. The warrants were issued to certain registered
representatives and
50
<PAGE>
broker-dealers, and certain consultants in connection with the 1992 Private
Placement, the 1994 Private Placement and certain consulting activities.
PREFERRED STOCK
The Company has an authorized class of undesignated Preferred Stock
consisting of 1,000,000 shares, $.01 par value per share. The Board of Directors
will be authorized, subject to any limitations prescribed by law, without
further stockholder approval, to issue from time to time up to 1,000,000 shares
of Preferred Stock, in one or more series. Each such series of Preferred Stock
shall have such number of shares, designations, preferences, voting powers,
qualifications and special or relative rights or privileges as shall be
determined by the Board of Directors, which may include, among others, dividend
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights.
The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. The Company
has no present plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) before such person
became an interested stockholder, the board of directors of the corporation
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person becomes an interested stockholder, the business
consummation is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock.
The Company's By-Laws, as amended (the "By-Laws") provide for the division
of the Board of Directors into three classes as nearly equal in size as possible
with staggered three-year terms. See "Management." Under the By-Laws, any
vacancy of the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may only be filled by voting of a
majority of the Directors then in office. The classification of the Board of
Directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The By-Laws provide that special meetings of the stockholders may only be
called by the Chairman of the Board of Directors, if any, the Chief Executive
Officer, the Secretary of the Company or a majority of
51
<PAGE>
the Board of Directors or by stockholders who own in the aggregate 66 2/3% of
the outstanding stock of all classes entitled to vote at such meeting. The
foregoing provisions could have the effect of delaying until the next
stockholders' meeting stockholder actions which are favored by the holders of a
majority of the outstanding voting securities of the Company.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or By-Laws,
unless a corporation's Certificate of Incorporation or By-Laws, as the case may
be, requires a greater percentage. The Amended and Restated Certificate of
Incorporation and By-Laws require the affirmative vote of the holders of at
least 66 2/3% of the shares of capital stock of the Company issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.
The Amended and Restated Certificate of Incorporation contains certain
provisions permitted under the General Corporation Law of Delaware relating to
the liability of directors. The provisions eliminate a Director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Amended and Restated Certificate of Incorporation contains
provisions to indemnify the Company's Directors and officers to the fullest
extent permitted by the General Corporation Law of Delaware. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank serves as transfer agent and registrar for the
shares of Common Stock.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have a total of
15,932,322 shares of Common Stock outstanding (16,232,322 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares, the
2,000,000 shares of Common Stock offered hereby (2,300,000 shares if the
Underwriters' over-allotment option is exercised in full), the 3,000,000 shares
of Common Stock sold in the Company's initial public offering in November 1995
and the 2,875,000 shares of Common Stock sold in the Company's public offering
in April 1996 will be freely tradeable without restriction or registration under
the Securities Act by persons other than "affiliates" of the Company, as defined
under the Securities Act. Of the remaining 8,057,322 shares of Common Stock
outstanding, 3,613,915 are "restricted securities" as that term is defined by
Rule 144 as promulgated under the Securities Act.
Under Rule 144 (and subject to the conditions thereof), approximately
3,557,253 shares of the restricted securities are currently eligible for sale
and approximately 56,662 shares will become eligible for sale after March 1997.
The Company intends to obtain from the executive officers and directors of the
Company holding in the aggregate 1,052,925 shares of the restricted securities
agreements not to directly or indirectly, sell, offer to sell or otherwise
dispose of any such Common Stock or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock for a period of 90
days from the date of this Prospectus without the prior written consent of
Montgomery Securities. See "Underwriting."
As of January 31, 1997, options to purchase a total of 1,265,650 shares of
Common Stock pursuant to the 1992 Plan were outstanding with a weighted average
exercise price of $13.07 per share, of which options to purchase 749,959 shares
of Common Stock were exercisable. Options to purchase 42,000 shares of Common
Stock pursuant to the 1996 Plan were outstanding with a weighted average
exercise price at $17.62 per share, all of which options were exercisable. In
addition, subject to stockholder approval, options to purchase a total of
378,800 shares of Common Stock pursuant to the 1997 Plan were outstanding with a
weighted average exercise price of $22.94 as of January 31, 1997. An additional
1,946,811 shares of Common Stock were available for future option grants under
the Company's stock option plans. An aggregate of 467,124 shares subject to
options held by executive officers and directors of the Company are expected to
be subject to lockup agreements. The Company has also granted warrants to
purchase Common Stock. As of January 31, 1997, warrants to purchase 111,660
shares of Common Stock were outstanding with a weighted average exercise price
of $13.79 per share. The Company has an effective registration statement on Form
S-8 under the Securities Act registering shares of Common Stock subject to stock
options granted under the 1992 Plan and the 1996 Plan. The Company intends to
register shares of Common Stock issuable pursuant to stock options granted under
the 1997 Plan. See "Management--Stock Option Plans" and "Underwriting."
Sales of substantial amounts of such shares in the public market, or the
perception that such sales could occur, could adversely affect the trading price
of the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Description of
Capital Stock."
53
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Prudential Securities Incorporated and Hambrecht & Quist LLC, have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement (the "Underwriting Agreement") among the Company and the
Underwriters, to purchase from the Company the number of shares of Common Stock
indicated below opposite their respective names at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriters to
pay for and accept delivery of the shares of Common Stock are subject to certain
conditions precedent, and that the Underwriters are committed to purchase all of
the shares if they purchase any of the shares.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Montgomery Securities............................................................
Prudential Securities Incorporated...............................................
Hambrecht & Quist LLC............................................................
Total........................................................................ 2,000,000
----------
----------
</TABLE>
The Company has been advised by the Underwriters that they propose initially
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per share
to certain other dealers. After the public offering, the offering price and
other selling terms may be changed by the Underwriters. The Common Stock is
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to a maximum of
300,000 additional shares of Common Stock at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
be committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with this offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Company intends to obtain from the executive officers and directors of
the Company, holding in the aggregate 1,052,925 shares of Common Stock and
options to purchase 467,124 shares of Common Stock, agreements not to directly
or indirectly offer, sell or otherwise dispose of any of such Common Stock or
any securities convertible into or exchangeable therefor for a period of 90 days
after the date of this Prospectus without the prior written consent of
Montgomery Securities. The Company has agreed that, for a period of 90 days
after the date of this Prospectus, it will not, without the prior written
consent of Montgomery Securities, issue, offer for sale, sell, transfer, grant
options to purchase or otherwise dispose of any shares of its Common Stock or
securities convertible into or exchangeable for its Common Stock or other equity
security, except pursuant to the Company's stock option plans.
54
<PAGE>
In connection with this offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market immediately prior to the commencement of sales in
this offering, in accordance with Rule 103 under Regulation M. Passive market
making consists of displaying bids on the Nasdaq National Market limited by the
bid prices of independent market makers for a security and making purchases of a
security which are limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified prior period and must be discontinued
when such limit is reached. Passive market making may stabilize the market price
of the Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York.
Howard M. Squadron, a partner in such firm, owns 3,125 shares of Common Stock.
Certain legal matters will be passed upon for the Underwriters by Sonnenschein
Nath & Rosenthal, New York, New York.
EXPERTS
The financial statements of PathoGenesis Corporation as of December 31, 1996
and 1995 and for the period December 10, 1991 (incorporation) through December
31, 1996, and for each of the years in the three-year period ended December 31,
1996, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby via the Electronic Data Gathering Analysis and
Retrieval system ("EDGAR") and may be found on the Commission's Web site at
http://www.sec.gov. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete, and, in each instance, if such contract or document is
filed as an exhibit to the Registration Statement, each such statement is
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Commission's principal office at 450 Fifth Street, N. W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from such office after payment of fees prescribed by the Commission.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files periodic reports, proxy statements, and
other information with the Commission. Such reports, proxy statements, and other
information can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at 7 World Trade Center, Suite 1300, New York, New York 10048; and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Electronic filings made via
EDGAR are publicly available through the Commission's Web site referenced above.
In addition, copies of such reports, proxy statements, and other information
concerning the Company may also be inspected and copied at the library of the
Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006, upon which
the Common Stock of the Company is included.
55
<PAGE>
PATHOGENESIS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE NO.
- -------------------------------------------------------------------------------------------------------- -------------
<S> <C>
Independent Auditors' Report............................................................................ F-2
Balance Sheets as of December 31, 1996 and 1995......................................................... F-3
Statements of Operations for the years ended December 31, 1996, 1995, 1994 and the period from December
10, 1991 (incorporation) through December 31, 1996.................................................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 and the period
from December 10, 1991 (incorporation) through December 31, 1996...................................... F-5
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 and the period from
December 10, 1991 (incorporation) through December 31, 1996........................................... F-6
Notes to Financial Statements........................................................................... F-7
</TABLE>
All financial statement schedules have been omitted since the information is
not required or because the information required is included in the financial
statements or the notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
PathoGenesis Corporation:
We have audited the accompanying balance sheets of PathoGenesis Corporation
(a development stage enterprise) as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1996 and for the period
from December 10, 1991 (incorporation) through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 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 PathoGenesis Corporation (a
development stage enterprise) as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1996 and for the period from December 10, 1991
(incorporation) through December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Seattle, Washington
January 17, 1997, except as to note 8 to the financial statements,
which is as of January 30, 1997
F-2
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 14,785,818 575,297
Investment securities......................................................... 45,901,978 36,871,537
Interest receivable........................................................... 298,437 765,216
Other current assets.......................................................... 823,092 671,711
-------------- -------------
Total current assets...................................................... 61,809,325 38,883,761
-------------- -------------
Restricted investment............................................................. 675,000 --
Property and equipment, at cost:
Leasehold improvements........................................................ 6,766,935 6,435,336
Furniture and equipment....................................................... 5,967,110 5,338,435
-------------- -------------
12,734,045 11,773,771
Less accumulated depreciation and amortization................................ 5,320,039 3,702,152
-------------- -------------
Net property and equipment................................................ 7,414,006 8,071,619
-------------- -------------
Other assets, net................................................................. 100,370 7,758
-------------- -------------
$ 69,998,701 46,963,138
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 812,259 1,635,711
Compensation and benefits..................................................... 774,258 859,462
Clinical development costs.................................................... 818,629 876,132
Other accrued expenses........................................................ 569,068 81,473
-------------- -------------
Total current liabilities................................................. 2,974,214 3,452,778
-------------- -------------
Long-term liability............................................................... 98,273 461,986
Commitments and subsequent events
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 1,000,000 shares; none issued and
outstanding................................................................. -- --
Common stock, $.001 par value. Authorized 20,000,000 shares; 13,930,760 shares
and 10,897,715 shares issued and outstanding at December 31, 1996 and 1995,
respectively................................................................ 13,931 10,898
Additional paid-in capital.................................................... 134,727,920 89,520,221
Unrealized gain (loss) on investment securities............................... (30,204) 38,458
Deficit accumulated during the development stage.............................. (67,785,433) (46,521,203)
-------------- -------------
Total stockholders' equity................................................ 66,926,214 43,048,374
-------------- -------------
$ 69,998,701 46,963,138
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 10,
1991
(INCORPORATION)
YEARS ENDED DECEMBER 31, THROUGH
-------------------------------------------- DECEMBER 31,
1996 1995 1994 1996
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue--grants and royalties...................... $ 439,880 -- -- 439,880
-------------- ------------- ------------- --------------
Operating expenses:
Research and development....................... 20,673,049 15,668,417 12,788,881 58,101,538
General and administrative..................... 4,241,339 3,609,075 3,214,830 17,377,525
-------------- ------------- ------------- --------------
Total operating expenses..................... 24,914,388 19,277,492 16,003,711 75,479,063
-------------- ------------- ------------- --------------
Operating loss............................... (24,474,508) (19,277,492) (16,003,711) (75,039,183)
-------------- ------------- ------------- --------------
Other income (expense):
Investment income, net......................... 3,293,782 1,287,457 1,284,399 7,475,047
Other expense.................................. (83,504) (33,888) (42,805) (221,297)
-------------- ------------- ------------- --------------
Net other income............................. 3,210,278 1,253,569 1,241,594 7,253,750
-------------- ------------- ------------- --------------
Net loss..................................... $ (21,264,230) (18,023,923) (14,762,117) (67,785,433)
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Net loss per common share.......................... $ (1.66) (2.20) (1.95)
-------------- ------------- -------------
-------------- ------------- -------------
Weighted average common shares outstanding......... 12,829,386 8,209,643 7,585,390
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF GAIN (LOSS)
COMMON PRICE ADDITIONAL ON
SHARES PER COMMON PAID-IN INVESTMENT
DATE DESCRIPTION OUTSTANDING SHARE STOCK CAPITAL SECURITIES
- ----------------------- ----------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
February to March 1992 Shares issued for cash............. 1,870,000 $ .08 1,870 147,730 --
June to December 1992 Shares issued for cash, net of
issue costs of $744,966.......... 4,308,500 10.00 4,309 42,335,725 --
November 1992 Repurchase of common stock through
forgiveness of note receivable... (25,000) 10.00 (25) (249,975) --
November 1992 Repurchase of common stock for
cash............................. (46,875) .08 (47) (3,703) --
Net loss for the period ended
December 31, 1992................ -- -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1992...... 6,106,625 6,107 42,229,777 --
October 1993 Shares issued in payment of license
fees............................. 50,000 10.00 50 499,950 --
Net loss for the year ended
December 31, 1993................ -- -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1993...... 6,156,625 6,157 42,729,727 --
March 1994 Shares issued for cash, net of
issue costs of $1,251,739........ 1,690,677 12.00 1,690 19,093,694 --
Unrealized loss on investment
securities....................... -- -- -- -- (172,809)
Net loss for the year ended
December 31, 1994................ -- -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1994...... 7,847,302 7,847 61,823,421 (172,809)
March 1995 Shares issued in payment of license
fees............................. 50,000 12.00 50 599,950 --
April to August 1995 Exercise of stock options for
cash............................. 413 10.00 1 4,124 --
November 22, 1995 Shares issued for cash, net of
issue costs of $2,904,274........ 3,000,000 10.00 3,000 27,092,726 --
Unrealized gain on investment
securities....................... -- -- -- -- 211,267
Net loss for the year ended
December 31, 1995................ -- -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1995...... 10,897,715 10,898 89,520,221 38,458
Redemption of fractional shares for
cash............................. (48) 12.00 -- (576) --
February 1996 Shares issued in payment of license
fees............................. 6,250 10.00 6 62,494 --
February 1996 Repurchase of common stock for
cash............................. (45,000) .08 (45) (3,555) --
May 1996 Shares issued for cash, net of
issue costs of $3,213,410........ 2,875,000 16.25 2,875 43,502,465 --
Exercise of options and warrants
for cash and cancellation of
warrants......................... 196,843 10.00-14.40 197 1,646,871 --
Unrealized loss on investment
securities....................... -- -- -- -- (68,662)
Net loss for the year ended
December 31, 1996................ -- -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1996...... 13,930,760 $ 13,931 134,727,920 (30,204)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
DATE STAGE EQUITY
- ----------------------- ----------- -----------
<S> <C> <C>
February to March 1992 -- 149,600
June to December 1992
-- 42,340,034
November 1992
-- (250,000)
November 1992
-- (3,750)
(2,930,285) (2,930,285)
----------- -----------
(2,930,285) 39,305,599
October 1993
-- 500,000
(10,804,878) (10,804,878)
----------- -----------
(13,735,163) 29,000,721
March 1994
-- 19,095,384
-- (172,809)
(14,762,117) (14,762,117)
----------- -----------
(28,497,280) 33,161,179
March 1995
-- 600,000
April to August 1995
-- 4,125
November 22, 1995
-- 27,095,726
-- 211,267
(18,023,923) (18,023,923)
----------- -----------
(46,521,203) 43,048,374
-- (576)
February 1996
-- 62,500
February 1996
-- (3,600)
May 1996
-- 43,505,340
-- 1,647,068
-- (68,662)
(21,264,230) (21,264,230)
----------- -----------
(67,785,433) 66,926,214
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 10,
1991
(INCORPORATION)
YEARS ENDED DECEMBER 31, THROUGH
------------------------------------------ DECEMBER 31,
1996 1995 1994 1996
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (21,264,230) (18,023,923) (14,762,117) (67,785,433)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................. 1,618,982 1,557,195 1,436,570 5,435,563
Amortization of investment premiums
(discounts)................................. (33,083) 110,855 190,181 339,267
Common stock issued in payment of license
fees........................................ 62,500 600,000 59,000 1,159,000
Loss on sale of property and equipment........ 315 62,859 -- 63,174
Changes in certain assets and liabilities:
Interest receivable......................... 466,779 (485,430) (120,647) (298,437)
Other current assets........................ (151,381) (251,102) (139,057) (823,092)
Other assets................................ (92,612) 40,926 195,373 (100,370)
Accounts payable............................ (823,452) 1,209,078 328,141 812,259
Compensation and benefits................... (85,204) 160,682 121,378 834,258
Clinical development costs.................. (57,503) (737,618) 1,613,750 818,629
Other accrued expenses...................... 487,595 (44,519) (69,666) 569,068
Long-term liability......................... (363,713) 461,986 -- 98,273
-------------- ------------ ------------ --------------
Net cash used in operating activities..... (20,235,007) (15,339,011) (11,147,094) (58,877,841)
-------------- ------------ ------------ --------------
Cash flows from investing activities:
Purchases of investment securities................ (116,498,821) (72,862,897) (30,753,408) (251,004,472)
Sales of investment securities.................... 106,757,801 59,211,912 20,393,561 204,058,023
Purchases of property and equipment............... (961,784) (448,350) (1,953,362) (13,012,843)
Proceeds from sale of property and equipment...... 100 40,000 -- 40,100
Issuance of note receivable....................... -- -- -- (250,000)
-------------- ------------ ------------ --------------
Net cash used in investing activities..... (10,702,704) (14,059,335) (12,313,209) (60,169,192)
-------------- ------------ ------------ --------------
Cash flows from financing activities:
Net proceeds from issuance of common stock........ 43,505,340 27,095,726 19,036,384 132,185,834
Repurchase of common stock........................ (4,176) -- -- (4,176)
Stock option and warrant exercises................ 1,647,068 4,125 -- 1,651,193
-------------- ------------ ------------ --------------
Net cash provided by financing
activities.............................. 45,148,232 27,099,851 19,036,384 133,832,851
-------------- ------------ ------------ --------------
Net increase (decrease) in cash and cash
equivalents............................. 14,210,521 (2,298,495) (4,423,919) 14,785,818
Cash and cash equivalents at beginning of period.... 575,297 2,873,792 7,297,711 --
-------------- ------------ ------------ --------------
Cash and cash equivalents at end of period.......... $ 14,785,818 575,297 2,873,792 14,785,818
-------------- ------------ ------------ --------------
-------------- ------------ ------------ --------------
Supplemental disclosure of noncash investing and
financing activities - repurchase of common stock
through forgiveness of note receivable............ $ -- -- -- 250,000
-------------- ------------ ------------ --------------
-------------- ------------ ------------ --------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF DEVELOPMENT STAGE ACTIVITIES
PathoGenesis Corporation (the Company) is a development stage, health care
company focused on developing drugs for the treatment of serious infectious
diseases where there is a significant need for improved therapy. The Company was
incorporated on December 10, 1991. Principal activities to date include
conducting human clinical trials, defining and conducting research programs,
entering into collaborative licensing agreements, raising capital, recruiting
scientific and management personnel, and construction of a research facility.
(B) DEPRECIATION AND AMORTIZATION
Furniture and equipment are depreciated using the straight-line method over
the assets' estimated useful lives of five to ten years. Leasehold improvements
are amortized using the straight-line method over the shorter of the assets'
estimated useful lives or the remaining term of the lease.
(C) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
(D) INCOME TAXES
Deferred income taxes are provided based on the estimated future tax effects
of temporary differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
that are 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.
(E) INVESTMENT SECURITIES
The Company's investment securities are classified as available-for-sale and
carried at market value, with unrealized gains and losses excluded from the
statement of operations and reported as a separate component of stockholders
equity. Realized gains and losses on the sales of investment securities are
determined on the specific identification method and included in investment
income, net.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has financial instruments other than investments consisting of
cash, accounts payable and a long-term liability. The Company has determined the
fair value of the above financial instruments
F-7
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
using available market information and appropriate valuation methodologies. The
fair value of the Company's financial instruments approximates their carrying
amount.
(G) CASH EQUIVALENTS
All investments with a maturity of three months or less at the date of
purchase are considered to be cash equivalents.
(H) NET LOSS PER SHARE
Net loss per common share is computed using the weighted average number of
common shares outstanding during the periods using the treasury stock method.
Net loss per common share does not include the effect of common share
equivalents, which include stock options and warrants, as their impact is
antidilutive.
(I) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) INVESTMENT SECURITIES
The following summarizes the Company's investment securities:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1996:
U.S. Treasury notes....................................... $ 10,641,041 3,823 (11,272) 10,633,592
Federal mortgage notes.................................... 6,719,925 7,430 (4,276) 6,723,079
Corporate obligations..................................... 28,571,216 48,441 (74,350) 28,545,307
-------------- ----------- ----------- ------------
$ 45,932,182 59,694 (89,898) 45,901,978
-------------- ----------- ----------- ------------
-------------- ----------- ----------- ------------
1995:
U.S. Treasury notes....................................... $ 19,609,492 44,743 -- 19,654,235
Federal mortgage notes.................................... 2,261,791 4,189 -- 2,265,980
Corporate obligations..................................... 13,547,425 25,322 -- 13,572,747
Foreign obligations....................................... 1,414,371 -- (35,796) 1,378,575
-------------- ----------- ----------- ------------
$ 36,833,079 74,254 (35,796) 36,871,537
-------------- ----------- ----------- ------------
-------------- ----------- ----------- ------------
</TABLE>
Amortized cost and market value of investment securities at December 31,
1996, by contractual maturity are shown below. Actual maturities may be
different than the contractual maturities because
F-8
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Contractual maturities are as follows:
<TABLE>
<CAPTION>
AMORTIZED
MATURITIES COST MARKET VALUE
- ----------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Due in one year or less.......................................... $ 15,290,665 15,278,842
Due between one year through five years.......................... 17,396,480 17,369,280
Due between five years through ten years......................... 9,560,809 9,572,170
Due after ten years.............................................. 3,684,228 3,681,686
------------- ------------
$ 45,932,182 45,901,978
------------- ------------
------------- ------------
</TABLE>
Investment income, net includes interest of $3,412,097, $1,308,127 and
$1,766,953 earned on investments and losses of $118,315, $20,669 and $325,902
realized upon the sale of investments for 1996, 1995 and 1994, respectively.
The Company does not invest in derivative financial instruments, as defined
by SFAS 119, DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS.
(3) LONG-TERM LIABILITY
In the second quarter of 1995, the Board of Directors reached an agreement
with the Company's former chairman of the board which obligated the Company to
pay $944,958 over three years which is included in 1995 general and
administrative expenses. The portion of this obligation payable within the next
year is included in current liabilities under compensation and benefits.
(4) STOCKHOLDERS' EQUITY
(A) COMMON AND PREFERRED STOCK
Effective October 17, 1995, the Company's stockholders approved a
one-for-eight reverse split of the Company's issued and outstanding common
stock, a change to the authorized number of shares of the Company's $.001 par
value common stock to 20,000,000 shares, and an authorization of 1,000,000
shares of preferred stock, par value $.01. The accompanying financial statements
and related notes to the financial statements have been restated to reflect
these changes for all periods presented.
(B) STOCK OPTION PLANS
The Company's 1992 Stock Option Plan (Stock Plan) has 1,500,000 shares of
common stock which have been authorized to be reserved for grants. At December
31, 1996, 110,048 shares remain available for future awards. Options granted
under this plan may be designated as qualified or nonqualified at the discretion
of the compensation committee of the Board of Directors.
Generally, options vest and may be exercised over a four-year period in
increments of 25% each year beginning one year from the date of grant; however,
options can vest upon granting. All options expire not later than ten years from
the date of grant. Qualified stock options are exercisable at not less than the
fair market value of the stock at the date of grant and nonqualified stock
options are exercisable at prices
F-9
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
determined at the discretion of the Board of Directors, but not less than 85% of
the fair market value of the stock at the date of grant.
In 1996, the Company adopted the 1996 Stock Option Plan for Non-Employee
Directors (Directors Plan), under which 300,000 shares of common stock are
reserved for grants. At December 31, 1996, 258,000 shares remain available for
future awards. Nonemployee directors are granted between 4,000 and 8,000 options
immediately following each Annual Stockholders Meeting. Options are exercisable
from the date of grant for a period of ten years or one year after termination
as a director. Options are granted at the fair market of the Company's common
stock on the date of grant.
A summary of stock options follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
DIRECTORS EXERCISE
STOCK PLAN PLAN PRICE
---------- ----------- -------------
<S> <C> <C> <C>
Balances at December 31, 1993............................................... 695,375 -- $ 10.00
Granted..................................................................... 132,500 -- 12.00
Canceled.................................................................... (30,813) -- 10.00
---------- -----------
Balances at December 31, 1994............................................... 797,062 -- 10.33
Granted..................................................................... 303,125 -- 12.00
Canceled.................................................................... (74,121) -- 10.00
Exercised................................................................... (413) -- 10.28
---------- -----------
Balances at December 31, 1995............................................... 1,025,653 -- 10.83
Granted..................................................................... 438,850 42,000 16.18
Canceled.................................................................... (69,941) -- 11.17
Exercised................................................................... (169,787) -- 10.11
---------- -----------
Balances at December 31, 1996............................................... 1,224,775 42,000 $ 12.90
---------- -----------
---------- -----------
</TABLE>
The weighted average fair value of options granted was $8.87 and $4.97 in
1996 and 1995, respectively.
An additional 44,000 shares of common stock were granted under the Stock
Plan to the Board of Directors in January 1997.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the Company's two
stock-based compensation plans been determined consistent with FASB Statement
No. 123, the Company's net loss and loss per share would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Net loss--as reported................................................................ $21,264,230 18,023,923
Net loss--pro forma.................................................................. 23,930,975 19,131,780
Loss per share--as reported.......................................................... 1.66 2.20
Loss per share--pro forma............................................................ 1.87 2.33
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Sholes option-pricing model with the following assumptions used for
grants in 1995 and 1996: dividend yield of 0.0% for
F-10
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
both years; expected volatility of 46% for 1995 and 57% to 67% for 1996;
risk-free interest rate of 5.46% to 7.15% for 1995 and 5.18% to 6.85% for 1996;
expected lives from three to six years for both years.
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
- ----------------- ----------- -------------- ----------- ----------- -----------
<C> <C> <S> <C> <C> <C>
$ 10.00 396,700 6.2 years $ 10.00 336,686 $ 10.00
12.00 416,975 8.2 years 12.00 250,085 12.00
13.75 to 14.75 141,150 9.5 years 14.51 -- --
16.13 to 16.75 268,550 9.2 years 16.25 101,000 16.25
22 43,400 9.9 years 22.00 20,000 22.00
----------- -----------
$ 10.00 to 22.00 1,266,775 8.0 years $ 12.90 707,771 $ 11.94
----------- -----------
----------- -----------
</TABLE>
(C) COMMON STOCK WARRANTS
As of December 31, 1996, the Company had outstanding warrants, with
expiration terms ranging from September 20, 1998 to February 6, 2001, to
purchase 111,660 shares of common stock which are fully exercisable at the
following per share prices:
<TABLE>
<CAPTION>
PER SHARE
SHARES PRICE
- -------------------------------------------------------------------- --------------
<S> <C>
28,325............................................................. $ 12.00
83,335.............................................................. 14.40
111,660............................................................. $12.00-14.40
</TABLE>
(5) INCOME TAXES
Federal income taxes reported by the Company differ from the amount computed
by applying the U.S. Federal income tax rate of 34% to pretax losses due to
limitations on utilizing net operating losses.
F-11
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(5) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Deferred tax assets:
Start-up costs deferred for tax purposes......................................... $ 5,817 29,087
Orphan Drug credit............................................................... 100,000 100,000
Deferred compensation............................................................ 116,080 333,247
License agreements............................................................... 446,068 484,427
Research and experimentation credit carryforwards................................ 747,456 633,961
Net operating loss carryforwards................................................. 22,159,516 14,663,765
Depreciation..................................................................... 310,432 95,204
Other............................................................................ 212,701 304,757
------------- ------------
Total gross deferred tax assets................................................ 24,098,070 16,644,448
Less valuation allowance......................................................... 24,098,070 16,644,448
------------- ------------
Net deferred tax assets........................................................ $ -- --
------------- ------------
------------- ------------
</TABLE>
The increases in the valuation allowance for deferred tax assets of
$7,453,622, $6,388,860 and $5,266,640 in 1996, 1995 and 1994, respectively, are
primarily attributable to increases in net operating loss carryforwards whose
utilization cannot reasonably be assured.
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $65,175,000 and research and experimentation credit carryforwards
of approximately $747,000, which are available to offset future Federal taxable
income and income taxes, respectively, if any, and expire beginning in 2007.
(6) COMMITMENTS
(A) LEASES
The Company leases various office and research facilities under
noncancelable operating leases which expire between 1998 and 2003. With respect
to one of the leases, the Company is required to maintain collateral on a letter
of credit in the amount of a $675,000 certificate of deposit which is recorded
as a restricted investment.
F-12
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
Minimum lease payments under noncancelable operating leases (with initial or
remaining lease terms in excess of one year) and related sublease income as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
LEASE PAYMENTS SUBLEASE INCOME
-------------- ---------------
<S> <C> <C>
1997............................................................................ $ 1,692,000 333,000
1998............................................................................ 1,810,000 333,000
1999............................................................................ 1,757,000 333,000
2000............................................................................ 1,757,000 333,000
2001............................................................................ 1,717,000 --
Thereafter...................................................................... 884,000 --
-------------- ---------------
$ 9,617,000 1,332,000
-------------- ---------------
-------------- ---------------
</TABLE>
Rent expense for operating leases was approximately $1,026,000, $746,000 and
$644,000 for 1996, 1995 and 1994, respectively, and $3,298,000 for the period
December 10, 1991 (incorporation) through December 31, 1996.
Included in rent expense are payments to a partnership in which a member of
the Board of Directors and an officer of the Company are partners of
approximately $36,200, $35,500 and $49,500 for 1996, 1995 and 1994,
respectively.
(B) EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has employment and consulting agreements with certain key
executives, research scientists and advisors. The terms of these agreements
range from two to five years, provide for discretionary bonuses, as determined
by the Company's Board of Directors and provide for annual increases in
compensation to be determined at the discretion of the Board of Directors.
Approximate minimum compensation payments due pursuant to these employment
and consulting agreements are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997............................................................................ $ 959,000
1998............................................................................ 517,000
1999............................................................................ 294,000
2000............................................................................ 151,000
------------
$ 1,921,000
------------
------------
</TABLE>
(7) COLLABORATION AGREEMENTS
In May 1996, the Company entered into a distribution agreement with Bohdan
Automation, Inc. (Bohdan), pursuant to which Bohdan has agreed to manufacture
and sell a proprietary combinatorial chemistry system invented by the Company.
Royalties of $238,000 were earned from this arrangement during 1996.
In 1994, the Company entered into a license agreement with two U.S.
institutions to obtain worldwide rights to a product currently in clinical
trials. A $1.5 million milestone payment will be payable by the Company if the
product receives approval for marketing by the FDA. The Company is responsible
for
F-13
<PAGE>
PATHOGENESIS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
clinical trials, sales, marketing, manufacturing and regulatory affairs related
to the product. The Company will pay a royalty on net product sales.
In 1993, the Company entered into a license agreement with a Japanese
company to obtain rights for North America to a product in preclinical trials.
The initial payment for these rights was $500,000 cash and 50,000 shares of
common stock. A second milestone payment of 50,000 shares of common stock was
paid in 1995 when the Investigational New Drug application was filed. Subsequent
payments will be made upon accomplishment of certain milestones. The Company is
responsible for clinical trials, sales, marketing and regulatory affairs related
to the product. The Japanese company is responsible for manufacturing the bulk
form of the product. The Company will pay a royalty on net product sales.
In 1993, the Company entered into a collaborative research agreement with a
research institution. The agreement calls for payments to the research
institution of up to $1.5 million over three years, not to exceed $500,000 in
any one year. In addition, the Company was committed to spend $1 million per
year in research and development to support this collaborative research. As of
December 31, 1996, the Company has fulfilled its obligation under this
commitment to the research institution.
In 1993, the Company entered into a license and manufacturing agreement with
a then significant shareholder to obtain worldwide rights to a product in
clinical trials. Under the agreement, the Company was to make certain fixed
payments to the licensor upon accomplishment of certain milestones. Initial
payment for these rights was $550,000 and the Company was responsible for
clinical trials, sales, marketing and regulatory affairs related to the product.
In 1994, the Company decided to cease development of this product and has
fulfilled its obligation under this agreement.
In 1993, the Company also entered into a development agreement with a then
significant shareholder pursuant to which the Company was assisted with its
research and development activities relating to a product currently in clinical
trials. The Company paid research and development fees of $923,100 related to
this agreement. The Company has entered into an additional development agreement
dated as of August 15, 1994 with this shareholder pursuant to which the Company
will continue to receive assistance in developing this product. As of December
31, 1996, the Company has paid $1,265,000 under this agreement.
(8) SUBSEQUENT EVENTS
On January 30, 1997, the Board of Directors adopted the 1997 Stock Option
Plan (1997 Plan) subject to stockholder approval. The 1997 Plan provides for the
grant of options to acquire a maximum of 2,000,000 shares of common stock of
which 378,000 shares were granted as of January 30, 1997. Additionally, the
Board of Directors approved an increase in the authorized number of shares of
common stock to 60,000,000 shares subject to stockholder approval.
F-14
<PAGE>
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES, OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY................................. 3
RISK FACTORS....................................... 6
USE OF PROCEEDS.................................... 16
PRICE RANGE OF COMMON STOCK........................ 17
DIVIDEND POLICY.................................... 17
CAPITALIZATION..................................... 18
DILUTION........................................... 19
SELECTED FINANCIAL DATA............................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............. 21
BUSINESS........................................... 24
MANAGEMENT......................................... 39
PRINCIPAL STOCKHOLDERS............................. 48
CERTAIN TRANSACTIONS............................... 50
DESCRIPTION OF CAPITAL STOCK....................... 50
SHARES ELIGIBLE FOR FUTURE SALE.................... 53
UNDERWRITING....................................... 54
LEGAL MATTERS...................................... 55
EXPERTS............................................ 55
AVAILABLE INFORMATION.............................. 55
INDEX TO FINANCIAL STATEMENTS...................... F-1
</TABLE>
2,000,000 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MONTGOMERY SECURITIES
PRUDENTIAL SECURITIES INCORPORATED
HAMBRECHT & QUIST
, 1997
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby (items
marked with an asterisk (*) represent estimated expenses):
<TABLE>
<S> <C>
SEC Registration Fee........................................... $20,734.85
Legal Fees and Expenses........................................ 100,000.00*
Blue Sky Fees (including counsel fees)......................... 5,000.00*
NASD Filing Fee................................................ 7,342.50
Nasdaq National Market Fee..................................... 17,500.00*
Accounting Fees and Expenses................................... 50,000.00*
Transfer Agent and Registrar Fees.............................. 5,000.00*
Printing and Engraving Expenses................................ 120,000.00*
Miscellaneous Expenses......................................... 124,422.65
Total...................................................... $450,000.00
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Delaware General Corporation Law, Section 102(b)(7), enables a corporation
in its original certificate of incorporation, or an amendment thereto validly
approved by stockholders, to eliminate or limit personal liability of members of
its Board of Directors for violations of a director's fiduciary duty of care.
However, the elimination or limitation shall not apply where there has been a
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct or a knowing violation of a law, the payment of a dividend or
approval of a stock repurchase which is deemed illegal or an improper personal
benefit is obtained. Article Eighth of the Company's Amended and Restated
Certificate of Incorporation includes the following language:
"No director of the Corporation shall be liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision does not eliminate the liability of the
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of Title 8 of the Delaware Code, or (iv) for any transaction from
which the director derived an improper personal benefit. For purposes of the
prior sentence, the term "damages" shall, to the extent permitted by law,
include without limitation, any judgment, fine, amount paid in settlement,
penalty, punitive damages, excise or other tax assessed with respect to an
employee benefit plan, or expense of any nature (including, without limitation,
counsel fees and disbursements). Each person who serves as a director of the
Corporation while this Article EIGHTH is in effect shall be deemed to be doing
so in reliance on the provisions of this Article EIGHTH, and neither the
amendment or repeal of this Article EIGHTH, nor the adoption of any provision of
this Certificate of Incorporation inconsistent with this Article EIGHTH, shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for, arising out of, based upon, or in connection
with any acts or omissions of such director occurring prior to such amendment,
repeal, or adoption of an inconsistent provision. The provisions of this Article
EIGHTH are cumulative and shall be in addition to and independent of any and all
other limitations on or eliminations of the liabilities of directors of the
Corporation, as such, whether such limitations or eliminations arise under or
are created
II-1
<PAGE>
by any law, rule, regulation, By-Law, agreement, vote of stockholders or
disinterested directors, or otherwise."
Additionally, Article Seventh of the Company's Amended and Restated
Certificate of Incorporation provides as follows:
"A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director, officer, employee, or
agent of the Corporation or any of its direct or indirect subsidiaries or is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of any other corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee, or agent or in
any other capacity while serving as a director, officer, employee, or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability, and loss (including attorneys' fees,
judgments, fines, excise or other taxes assessed with respect to an employee
benefit plan, penalties, and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith, and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators; provided, however, that, except as provided in
Paragraph C of this Article SEVENTH with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Paragraph A of this Article
SEVENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any proceeding for which such right to indemnification is
applicable in advance of its final disposition (hereinafter an "advancement of
expenses"); PROVIDED, HOWEVER, that, if the DGCL requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Article SEVENTH or otherwise.
C. The rights to indemnification and to the advancement of expenses
conferred in Paragraphs A and B of this Article SEVENTH shall be contract
rights. If a claim under Paragraph A or B of this Article SEVENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by an indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that the indemnitee has not met any applicable
standard for indemnification set forth in the DGCL, and (ii) any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that the indemnitee has not met any applicable standard for
indemnification set forth in the DGCL. Neither the
II-2
<PAGE>
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the DGCL, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article SEVENTH or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article SEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
Certificate of Incorporation, By-Law, agreement, vote of stockholders or
disinterested directors, or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee, or agent of the Corporation or another
corporation, partnership, joint venture, trust, or other enterprise against any
expense, liability, or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability, or loss under the
DGCL.
F. The Corporation's obligation, if any, to indemnify any person who was or
is serving as a director, officer, employee, or agent of any direct or indirect
subsidiary of the Corporation or, at the request of the Corporation, of any
other corporation or of a partnership, joint venture, trust, or other enterprise
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, or other enterprise.
G. Any repeal or modification of the foregoing provisions of this Article
SEVENTH shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
From February 1994 through March 1994, the Company sold 1,690,677 shares of
Common Stock in the 1994 Private Placement at a price of $12.00 per share. The
Company believes that each such issuance and sale was exempt from registration
pursuant to Section 4(2) of the Securities Act and Regulation D promulgated
thereunder. Warrants to purchase an aggregate of 100,514 shares of Common Stock
at an exercise price of $14.40 were also issued for nominal consideration to
certain brokers that assisted the Company in the sale of Common Stock in the
1994 Private Placement. The Company believes that each such issuance and sale
was exempt from registration pursuant to Section 4(2) of the Securities Act.
In each of November 1993 and March 1995, the Company issued 50,000 shares of
Common Stock to Kaneka Corporation pursuant to a license agreement. The Company
believes that each such issuance and sale was exempt from registration pursuant
to Section 4(2) of the Securities Act.
Since inception the Company has sold 775,833 shares of Common Stock to
certain employees and consultants of the Company. In addition, the Company has
issued options for the purchase of an aggregate of 1,265,650 shares of Common
Stock under its 1992 Plan, 171,762 shares of which have been exercised, options
for the purchase of an aggregate of 42,000 shares of Common Stock under its 1996
Plan and, subject to stockholder approval, options for the purchase of an
aggregate of 378,800 shares of Common Stock under its 1997 Plan. The Company
believes that each of the foregoing transactions was exempt from registration
under the Act pursuant to Sections 4(2) and/or 3(b) of the Securities Act.
II-3
<PAGE>
Each purchaser of the securities described above has represented that he or
she understands that the securities acquired may not be sold or otherwise
transferred absent registration under the Act or the availability of an
exemption from the registration requirements of the Act, and each certificate
evidencing the securities owned by each purchaser bears or will bear upon
issuance a legend to that effect.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement. (1)
3.1 Amended and Restated Certificate of Incorporation, as amended. (1)
3.2 Amended and Restated By-Laws. (1)
4.1 Form of Stock Certificate. (3)
4.2 1992 Stock Option Plan. (3)
4.3 1996 Non-Employee Director Plan. (6)
4.4 Form of 1997 Stock Option Plan. (1)
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP. (2)
10.1 Employment Agreement between the Company and Wilbur H. Gantz, dated March 23, 1992. (3)
10.2 Employment Agreement between the Company and Alan R. Meyer, dated October 12, 1992. (6)
10.3 Form of Employment Agreement between the Company and A. Bruce Montgomery, dated September 19, 1995.
(3)
10.4 Employment Agreement between the Company and Marc C. Wipperman, effective as of July 1, 1996. (1)
10.5 Agreement between the Company and Robert C. Nowinski, dated June 6, 1995. (3)
10.6 Consulting Agreement between the Company and Sidney Altman, dated March 10, 1992. (4)
10.7 Consulting Agreement between the Company and Stephen Benkovic, dated March 26,
1992. (3)
10.8 Consulting Agreement between the Company and Lucy Shapiro, dated as of August 1, 1995. (3)
10.9 Consulting Agreement between the Company and Michael Wigler, dated March 23, 1992 as amended, dated
May 13, 1994. (3)
10.10 Consulting Agreement between the Company and Arnold Smith, dated October 1, 1996. (1)
10.11 Licensing Agreement between the Company and Kaneka Corporation, dated October 25, 1993 and amendment
thereto, dated March 3, 1995. (3)(5)
10.12 Supply Agreement between the Company and Kaneka Corporation, dated as of October 25, 1993. (3)(5)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.13 Stock Purchase Agreement between the Company and Kaneka Corporation, dated October 25, 1993. (3)(5)
10.14 Development Agreement between the Company and Baxter Healthcare Corporation, dated December 1, 1993.
(3)(5)
10.15 Product Development Agreement between the Company and Baxter Healthcare Corporation, dated August 15,
1994. (3)(5)
10.16 License Agreement between the Company and Children's Hospital and Medical Center, dated January 1,
1994. (3)(5)
10.17 License Agreement between the Company and the Cystic Fibrosis Foundation, dated January 1, 1994.
(3)(5)
10.18 Agreement between the Company and Cold Spring Harbor Laboratory, dated as of March 11, 1993(3) and
amendments thereto, dated May 13, 1994(3) and December 8, 1995. (5)(6)
10.19 Stock Purchase Agreement between the Company and Cold Spring Harbor Laboratory, dated December 8,
1995. (5)(6)
10.20 Research Agreement between the Company and the Public Health Research Institute, dated February 26,
1993. (3)
10.21 Lease for laboratory in Seattle, Washington, between David A. Sabey and Sandra L. Sabey and the
Company, dated June 8, 1992, as amended by the Second Amendment, dated November 16, 1992 (3), and as
amended by the Third Amendment, dated August 1,
1996. (1)
10.22 Lease for principal executive office in Seattle, Washington, between PFC Holdings and the Company,
dated December 15, 1991, as amended May 26, 1992 and as further amended, effective as of February 23,
1995. (3)
10.23 Lease for the Skokie, Illinois facility, between The Equitable Life Assurance Society of the United
States and the Company, dated October 1992, as amended, dated March 31, 1995(3) and as amended, dated
April 30, 1996. (1)
10.24 Lease for Annandale, New Jersey facility, between Exxon Research and Engineering Company and the
Company, dated November 25, 1996. (1)
23.1 Consent of KPMG Peat Marwick LLP. (1)
23.2 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in the Opinion filed as Exhibit
5.1). (2)
24.1 Power of Attorney (included on the signature page hereof). (1)
27.1 Financial Data Schedule. (1)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) To be filed by Amendment.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-97070).
(4) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-2956).
II-5
<PAGE>
(5) Contains confidential material omitted and filed separately with the
Securities and Exchange Commission. Brackets denote such omissions.
(6) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
All schedules have been omitted because they are not required, are
inapplicable or the information required is included in the financial statements
or notes thereto.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
The Company hereby undertakes that, for the purpose of determining any
liability under the Securities Act, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Seattle, State of
Washington, on February 24, 1997.
PATHOGENESIS CORPORATION
By: /s/ WILBUR H. GANTZ
-----------------------------------------
Wilbur H. Gantz
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Wilbur H. Gantz and Alan R. Meyer, or any one of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign (i) any and all pre- or post-effective
amendments to this Registration Statement, and to file the same with all
exhibits thereto, and other documents in connection therewith and (ii) any
registration statement, and any and all amendments thereto, relating to the
offering covered hereby filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
Chief Executive Officer,
/s/ WILBUR H. GANTZ President and Director
- ------------------------------ (Principal Executive February 24, 1997
Wilbur H. Gantz Officer)
Senior Vice President,
/s/ ALAN R. MEYER Chief Financial Officer
- ------------------------------ and Director (Principal February 24, 1997
Alan R. Meyer Financial and Accounting
Officer)
/s/ ELIZABETH M. GREETHAM
- ------------------------------ Director February 24, 1997
Elizabeth M. Greetham
/s/ LAWRENCE C. HOFF
- ------------------------------ Director February 24, 1997
Lawrence C. Hoff
/s/ EDWARD MATHIAS
- ------------------------------ Director February 24, 1997
Edward Mathias
II-7
<PAGE>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ MICHAEL J. MONTGOMERY
- ------------------------------ Director February 24, 1997
Michael J. Montgomery
/s/ TALAT M. OTHMAN
- ------------------------------ Director February 24, 1997
Talat M. Othman
/s/ EUGENE L. STEP
- ------------------------------ Director February 24 1997
Eugene L. Step
/s/ FRED WILPON
- ------------------------------ Director February 24, 1997
Fred Wilpon
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ------------- ---------------------------------------------------------------------------------------------- -----
<S> <C> <C>
1 Form of Underwriting Agreement. (1)
3.1 Amended and Restated Certificate of Incorporation, as amended. (1)
3.2 Amended and Restated By-Laws. (1)
4.1 Form of Stock Certificate. (3)
4.2 1992 Stock Option Plan. (3)
4.3 1996 Non-Employee Director Plan. (6)
4.4 Form of 1997 Stock Option Plan. (1)
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP. (2)
10.1 Employment Agreement between the Company and Wilbur H. Gantz, dated March 23, 1992. (3)
10.2 Employment Agreement between the Company and Alan R. Meyer, dated October 12, 1992. (6)
10.3 Form of Employment Agreement between the Company and A. Bruce Montgomery, dated September 19,
1995. (3)
10.4 Employment Agreement between the Company and Marc C. Wipperman, effective as of July 1, 1996.
(1)
10.5 Agreement between the Company and Robert C. Nowinski, dated June 6, 1995. (3)
10.6 Consulting Agreement between the Company and Sidney Altman, dated March 10, 1992. (4)
10.7 Consulting Agreement between the Company and Stephen Benkovic, dated March 26,
1992. (3)
10.8 Consulting Agreement between the Company and Lucy Shapiro, dated as of August 1, 1995. (3)
10.9 Consulting Agreement between the Company and Michael Wigler, dated March 23, 1992 as amended,
dated May 13, 1994. (3)
10.10 Consulting Agreement between the Company and Arnold Smith, dated October 1, 1996. (1)
10.11 Licensing Agreement between the Company and Kaneka Corporation, dated October 25, 1993 and
amendment thereto, dated March 3, 1995. (3)(5)
10.12 Supply Agreement between the Company and Kaneka Corporation, dated as of October 25, 1993.
(3)(5)
10.13 Stock Purchase Agreement between the Company and Kaneka Corporation, dated October 25, 1993.
(3)(5)
10.14 Development Agreement between the Company and Baxter Healthcare Corporation, dated December 1,
1993. (3)(5)
10.15 Product Development Agreement between the Company and Baxter Healthcare Corporation, dated
August 15, 1994. (3)(5)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ------------- ---------------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.16 License Agreement between the Company and Children's Hospital and Medical Center, dated
January 1, 1994. (3)(5)
10.17 License Agreement between the Company and the Cystic Fibrosis Foundation, dated January 1,
1994. (3)(5)
10.18 Agreement between the Company and Cold Spring Harbor Laboratory, dated as of March 11, 1993(3)
and amendments thereto, dated May 13, 1994(3) and December 8, 1995. (5)(6)
10.19 Stock Purchase Agreement between the Company and Cold Spring Harbor Laboratory, dated December
8, 1995. (5)(6)
10.20 Research Agreement between the Company and the Public Health Research Institute, dated
February 26, 1993. (3)
10.21 Lease for laboratory in Seattle, Washington, between David A. Sabey and Sandra L. Sabey and
the Company, dated June 8, 1992, as amended by the Second Amendment, dated November 16, 1992
(3), and as amended by the Third Amendment, dated August 1, 1996. (1)
10.22 Lease for principal executive office in Seattle, Washington, between PFC Holdings and the
Company, dated December 15, 1991, as amended May 26, 1992 and as further amended, effective as
of February 23, 1995. (3)
10.23 Lease for the Skokie, Illinois facility, between The Equitable Life Assurance Society of the
United States and the Company, dated October 1992, as amended, dated March 31, 1995(3) and as
amended, dated April 30, 1996. (1)
10.24 Lease for Annandale, New Jersey facility, between Exxon Research and Engineering Company and
the Company, dated November 25, 1996. (1)
23.1 Consent of KPMG Peat Marwick LLP. (1)
23.2 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in the Opinion filed as
Exhibit 5.1). (2)
24.1 Power of Attorney (included on the signature page hereof). (1)
27.1 Financial Data Schedule. (1)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) To be filed by Amendment.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-97070).
(4) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-2956).
(5) Contains confidential material omitted and filed separately with the
Securities and Exchange Commission. Brackets denote such omissions.
(6) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
<PAGE>
2,000,000 SHARES
PATHOGENESIS CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
DATED MARCH __, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Representations and Warranties of the Company.............2
A. Representations and Warranties of the Company................2
Compliance with Registration Requirements..................2
Offering Materials Furnished to Underwriters...............3
Distribution of Offering Material By the Company...........3
The Underwriting Agreement.................................3
Authorization of the Common Shares.........................3
No Applicable Registration or Other Similar Rights.........3
No Material Adverse Change.................................3
Independent Accountants....................................4
Preparation of the Financial Statements....................4
Incorporation and Good Standing of the Company.............4
Capitalization and Other Capital Stock Matters.............4
Stock Exchange Listing.....................................5
Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required..................5
No Material Actions or Proceedings.........................6
Intellectual Property Rights...............................6
All Necessary Permits, etc.................................6
Title to Properties........................................6
Tax Law Compliance........................................ 7
Company Not an "Investment Company"........................7
Insurance..................................................7
No Price Stabilization or Manipulation.....................7
Related Party Transactions.................................7
No Unlawful Contributions or Other Payments................7
Company's Accounting System................................8
Compliance with Environmental Laws.........................8
ERISA Compliance...........................................9
Clinical Trials............................................9
Licenses and Other Agreements..............................9
Section 2. Purchase, Sale and Delivery of the Common Shares...........9
The Firm Common Shares.....................................10
The First Closing Date.....................................10
The Optional Common Shares; the Second Closing Date........10
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
Public Offering of the Common Shares......................11
Payment for the Common Shares.............................11
Delivery of the Common Shares.............................11
Delivery of Prospectus to the Underwriters................11
Section 3. Additional Covenants of the Company........................12
A. Covenants of the Company....................................12
Representatives' Review of Proposed Amendments and
Supplements..........................................12
Securities Act Compliance.................................12
Amendments and Supplements to the Prospectus and Other
Securities Act Matters...............................12
Copies of any Amendments and Supplements to the
Prospectus...........................................13
Blue Sky Compliance.......................................13
Use of Proceeds...........................................13
Transfer Agent ...........................................13
Earnings Statement .......................................13
Periodic Reporting Obligations ...........................13
Agreement Not To Offer or Sell Additional Securities .....14
Future Reports to the Representatives.....................14
Section 4. Payment of Expenses........................................14
Section 5. Conditions of the Obligations of the Underwriters. ........15
Accountants' Comfort Letter...............................15
Compliance with Registration Requirements; No Stop
Order; No Objection from NASD........................15
No Material Adverse Change ...............................16
Opinion of Counsel for the Company .......................16
Opinion of Counsel for the Underwriters...................16
Opinions of Patent Counsel ...............................17
Opinion of Regulatory Counsel.............................17
Officers' Certificate. ...................................17
Bring-down Comfort Letter. ...............................17
Lock-Up Agreement from Certain Stockholders of the
Company..............................................18
Inclusion for Trading.....................................18
Additional Documents .....................................18
ii
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
Section 6. Reimbursement of Underwriters' Expenses..................18
Section 7. Effectiveness of this Agreement .........................19
Section 8. Indemnification .........................................20
Indemnification of the Underwriters ....................20
Indemnification of the Company, its Directors and
Officers............................................21
Notifications and Other Indemnification Procedures......21
Settlements.............................................22
Section 9. Contribution.............................................23
Section 10. Default of One or More of the Several Underwriters.......24
Section 11. Termination of this Agreement ...........................25
Section 12. Representations and Indemnities to Survive Delivery......25
Section 13. Notices .................................................26
Section 14. Successors...............................................26
Section 15. Partial Unenforceability.................................26
Section 16. Governing Law Provisions.................................27
Section 17. General Provisions.......................................27
iii
<PAGE>
UNDERWRITING AGREEMENT
March __, 1997
MONTGOMERY SECURITIES
PRUDENTIAL SECURITIES INCORPORATED
HAMBRECHT & QUIST LLC
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. PathoGenesis Corporation, a Delaware corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 2,000,000 shares (the "Firm
Common Shares") of its Common Stock, par value $.001 per share (the "Common
Stock"). In addition, the Company has granted to the Underwriters an option to
purchase up to an additional 300,000 shares (the "Optional Common Shares") of
Common Stock, as provided in Section 2. The Firm Common Shares and, if and to
the extent such option is exercised, the Optional Common Shares are collectively
called the "Common Shares". Montgomery Securities, Prudential Securities
Incorporated and Hambrecht & Quist LLC have agreed to act as representatives of
the several Underwriters (in such capacity, the "Representatives") in connection
with the offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File
No. 333-[___]), which contains a form of prospectus to be used in connection
with the public offering and sale of the Common Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to
Rule 462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the
Rule 462(b) Registration Statement. Such prospectus, in the form first used by
the Underwriters to confirm sales of the Common Shares, is called the
"Prospectus"; PROVIDED, HOWEVER, if the Company has, with the consent of
Montgomery Securities, elected to rely upon Rule 434 under the
<PAGE>
Securities Act, the term "Prospectus" shall mean the Company's prospectus
subject to completion (each, a "preliminary prospectus") dated [___] (such
preliminary prospectus is called the "Rule 434 preliminary prospectus"),
together with the applicable term sheet (the "Term Sheet") prepared and filed by
the Company with the Commission under Rules 434 and 424(b) under the Securities
Act and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or the Term Sheet, or any amendments or supplements
to any of the foregoing, shall include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of
the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale
of the Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the
time it became effective and at all subsequent times, complied and will
comply in all material respects with the Securities Act and did not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, as amended or
supplemented, as of its date and at all subsequent times, did not and will
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements
thereto, made in reliance
2
<PAGE>
upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by the Representatives expressly for
use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to the Representatives three complete manually signed copies of
the Registration Statement and of each consent and certificate of experts
filed as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such quantities and at such places as the
Representatives have reasonably requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company
has not distributed and will not distribute, prior to the later of the
Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material in
connection with the offering and sale of the Common Shares other than a
preliminary prospectus, the Prospectus or the Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement.
(g) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or
any development that could reasonably be expected to result in a material
adverse change, in the condition, financial or otherwise, or in the
earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company (any such
change is called a "Material Adverse Change"); (ii) the Company has not
incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of
3
<PAGE>
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of capital stock or repurchase or redemption by the Company of any class of
capital stock.
(h) INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, who have
expressed their opinion with respect to the financial statements (which
term as used in this Agreement includes the related notes thereto) filed
with the Commission as a part of the Registration Statement and included in
the Prospectus, are independent public or certified public accountants as
required by the Securities Act and the Securities and Exchange Act of 1934,
as amended (the "Exchange Act").
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial
statements and supporting schedules of the Company filed with the
Commission as a part of the Registration Statement and included in the
Prospectus present fairly the consolidated financial position of the
Company as of and at the dates indicated and the results of its operations
and cash flows for the periods specified. Such financial statements and
supporting schedules have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved, except as may be expressly stated in the related notes
thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data
set forth in the Prospectus under the captions "Prospectus Summary--Summary
Selected Financial Data", "Selected Financial Data" and "Capitalization"
fairly present the information set forth therein on a basis consistent with
that of the audited financial statements contained in the Registration
Statement.
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY. The Company has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation and has
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and to enter into
and perform its obligations under this Agreement. The Company is duly
qualified as a foreign corporation to transact business and is in good
standing in Illinois, New Jersey, New York, Washington and each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change. The Company does not own any shares of stock or any other
equity securities of any other corporation and does not have any equity
interest in any firm, partnership or other entity.
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in
the Prospectus). The Common Stock (including the Common
4
<PAGE>
Shares) conforms in all material respects to the description thereof
contained in the Prospectus. All of the issued and outstanding shares of
Common Stock have been duly authorized and validly issued, are fully paid
and nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding shares of Common Stock were
issued in violation of any preemptive rights, rights of first refusal or
other similar rights to subscribe for or purchase securities of the
Company. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable
for, any capital stock of the Company other than those accurately described
in the Prospectus. The description of the Company's stock option, stock
bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(l) STOCK EXCHANGE LISTING. The Common Stock (including the Common
Shares) is registered pursuant to Section 12(g) of the Exchange Act and is
listed on the Nasdaq National Market and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act or delisting the Common Stock
from the Nasdaq National Market nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. (the "NASD") is contemplating terminating such registration
or listing.
(m) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. The Company is not in violation of
its charter or by-laws nor is it in default (or, with the giving of notice
or lapse of time, would be in default) ("Default") under any indenture,
mortgage, loan or credit agreement, note, contract, franchise, lease or
other instrument to which the Company is a party or by which it may be
bound, or to which any of the property or assets of the Company is subject
(each, an "Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change. The
Company's execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby and by the Prospectus
(i) have been duly authorized by all necessary corporate action and will
not result in any violation of the provisions of the charter or by-laws of
the Company, (ii) will not conflict with or constitute a breach of, or
Default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company pursuant to, or
require the consent of any other part to, any Existing Instrument, except
for such conflicts, breaches, Defaults, liens, charges or encumbrances as
would not, individually or in the aggregate, result in a Material Adverse
Change and (iii) will not result in any violation of any law,
administrative regulation or administrative or court decree applicable to
the Company. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or regulatory
authority or agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full
5
<PAGE>
force and effect under the Securities Act, applicable state securities or
blue sky laws and from the NASD.
(n) NO MATERIAL ACTIONS OR PROCEEDINGS. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company,
(ii) which has as the subject thereof any officer or director of, or
property owned or leased by, the Company or (iii) relating to environmental
or discrimination matters, where in any such case (A) there is a reasonable
possibility that such action, suit or proceeding might be determined
adversely to the Company and (B) any such action, suit or proceeding, if so
determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the
employees of the Company exists or, to the best of the Company's knowledge,
is threatened or imminent.
(o) INTELLECTUAL PROPERTY RIGHTS. The Company owns or possesses, or
believes that it can acquire on reasonable terms, all material patents,
patent applications, trademarks, service marks, trade names, licenses,
copyrights and proprietary or other confidential information currently
employed by it in connection with its business, and the Company has not
received any notice of infringement of or conflict with asserted rights of
any third party with respect to any of the foregoing which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Change, except as disclosed in
by the Prospectus. In connection with the filing of its patent
applications, the Company conducted reasonable investigations of the
published literature and patent references relating to the inventions
claimed in such applications. There are no issued, enforceable United
States or foreign patents known to the Company on the basis of a reasonable
monitoring of patents issued in the United States which the Company
believes to be infringed by its present activities or which would preclude
the pursuit of its business as disclosed in the Prospectus, except as
described in or contemplated by the Prospectus.
(p) ALL NECESSARY PERMITS, ETC. The Company possesses such valid
and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct its business, and the Company has not received any
notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could result in a Material Adverse Change.
(q) TITLE TO PROPERTIES. The Company does not own any real property.
The Company has good and marketable title to all personal property and
assets reflected as owned in the financial statements referred to in
Section 1(A)(i) above, in each case free and clear of any security
interests, liens, encumbrances, equities, claims and other defects, except
such as do not materially and adversely affect the value of such property
and do
6
<PAGE>
not materially interfere with the use made or proposed to be made of such
property by the Company. The real property, improvements, equipment and
personal property held under lease by the Company are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company.
(r) TAX LAW COMPLIANCE. The Company has filed all necessary federal,
state and foreign income and franchise tax returns and has paid all taxes
required to be paid by it and, if due and payable, any related or similar
assessment, fine or penalty levied against it. The Company has made
adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1(A)(i) above in respect of all federal,
state and foreign income and franchise taxes for all periods as to which
the tax liability of the Company has not been finally determined.
(s) COMPANY NOT AN "INVESTMENT COMPANY". The Company has been
advised of the rules and requirements under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Company is not,
and after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act and will
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(t) INSURANCE. The Company is insured by recognized, financially
sound and reputable institutions with policies in such amounts and with
such deductibles and covering such risks as are generally deemed adequate
and customary for its business including, but not limited to, policies
covering real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and earthquakes. The Company
has no reason to believe that it will not be able (i) to renew its existing
insurance coverage as and when such policies expire or (ii) to obtain
comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that
would not result in a Material Adverse Change. The Company has not been
denied any insurance coverage which it has sought or for which it has
applied.
(u) NO PRICE STABILIZATION OR MANIPULATION. The Company has not
taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Common Shares.
(v) RELATED PARTY TRANSACTIONS. There are no business relationships
or related-party transactions involving the Company or any other person
required to be described in the Prospectus which have not been described as
required.
(w) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the Company
nor, to the best of the Company's knowledge, any employee or agent of the
Company, has made
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any contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(x) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
the Company is not in violation of any federal, state, local or foreign law
or regulation relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum and petroleum
products (collectively, "Materials of Environmental Concern"), or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environment
Concern (collectively, "Environmental Laws"), which violation includes, but
is not limited to, noncompliance with any permits or other governmental
authorizations required for the operation of the business of the Company
under applicable Environmental Laws, or noncompliance with the terms and
conditions thereof, nor has the Company received any written communication,
whether from a governmental authority, citizens group, employee or
otherwise, that alleges that the Company is in violation of any
Environmental Law; (ii) there is no claim, action or cause of action filed
with a court or governmental authority, no investigation with respect to
which the Company has received written notice, and no written notice by any
person or entity alleging potential liability for investigatory costs,
cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties arising
out of, based on or resulting from the presence, or release into the
environment, of any Material of Environmental Concern at any location
owned, leased or operated by the Company, now or in the past (collectively,
"Environmental Claims"), pending or, to the best of the Company's
knowledge, threatened against the Company or any person or entity whose
liability for any Environmental Claim the Company has retained or assumed
either contractually or by operation of law; and (iii) to the best of the
Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result in a
violation of any Environmental
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Law or form the basis of a potential Environmental Claim against the
Company or against any person or entity whose liability for any
Environmental Claim the Company has retained or assumed either
contractually or by operation of law.
(z) ERISA COMPLIANCE. The Company and any "employee benefit plan"
(as defined under the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company or its
"ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA. "ERISA Affiliate" means, with respect to the Company,
any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as
amended, and the regulations and published interpretations thereunder (the
"Code") of which the Company is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the
Company or any of its ERISA Affiliates. No "employee benefit plan"
established or maintained by the Company or any of its ERISA Affiliates, if
such "employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA). Neither the
Company nor any of its ERISA Affiliates has incurred or reasonably expects
to incur any liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit
plan" established or maintained by the Company or any of its ERISA
Affiliates that is intended to be qualified under Section 401(a) of the
Code is so qualified and nothing has occurred, whether by action or failure
to act, which would cause the loss of such qualification.
(aa) CLINICAL TRIALS. The clinical trials and the human and animal
studies conducted by or on behalf of the Company or in which the Company
has participated that are described in the Prospectus were and, if still
pending, are being conducted in accordance with standard medical and
scientific research procedures, and the Company has operated and currently
is in compliance in all material respects with all applicable laws and
regulations, including without limitation, all United States Food and Drug
Administration rules, regulations and policies.
(bb) LICENSES AND OTHER AGREEMENTS. The Company has not received and
is not aware of any communication (written or oral) relating to the
termination or modification of any of the agreements described or referred
to in the Prospectus under the caption "Business - Licenses and Other
Agreements," the termination or modification of which would have a Material
Adverse Change.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
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THE FIRM COMMON SHARES. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $[___] per share.
THE FIRST CLOSING DATE. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on [___], or such other time
and date not later than 10:30 a.m. San Francisco time, on [___] as the
Representatives shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date"). The Company hereby
acknowledges that circumstances under which the Representatives may provide
notice to postpone the First Closing Date as originally scheduled include, but
are in no way limited to, any determination by the Company or the
Representatives to recirculate to the public copies of an amended or
supplemented Prospectus or a delay as contemplated by the provisions of
Section 10.
THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 300,000 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within
30 days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on SCHEDULE A opposite the name of
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such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
PUBLIC OFFERING OF THE COMMON SHARES. The Representatives hereby
advise the Company that the Underwriters intend to offer for sale to the public,
as described in the Prospectus, their respective portions of the Common Shares
as soon after this Agreement has been executed and the Registration Statement
has been declared effective as the Representatives, in their sole judgment, has
determined is advisable and practicable.
PAYMENT FOR THE COMMON SHARES. Payment for the Common Shares shall be
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Montgomery Securities, individually and not as the Representatives
of the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
DELIVERY OF THE COMMON SHARES. The Company shall deliver, or cause to
be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, to the Representatives for the accounts of
the several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form
and registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representatives may designate. Time shall be of the essence, and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 12:00 p.m.
on the second business day following the date the Common Shares of released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
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SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY.
B. COVENANTS OF THE COMPANY. The Company further covenants and agrees with
each Underwriter as follows:
(a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND SUPPLEMENTS.
During such period beginning on the date hereof and ending on the later of
the First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered
in connection with sales by an Underwriter or dealer (the "Prospectus
Delivery Period"), prior to amending or supplementing the Registration
Statement (including any registration statement filed under Rule 462(b)
under the Securities Act) or the Prospectus, the Company shall furnish to
the Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Representatives reasonably object.
(b) SECURITIES ACT COMPLIANCE. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing
of any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of any proceedings to remove, suspend or terminate from
listing or quotation the Common Stock from any securities exchange upon
which the it is listed for trading or included or designated for quotation,
or of the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES
ACT MATTERS. If, during the Prospectus Delivery Period, any event shall
occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if in the opinion of the Representatives or counsel for
the Underwriters it is otherwise necessary to amend or supplement the
Prospectus to comply with law, the Company agrees to promptly prepare
(subject to Section 3(A)(a) hereof), file with the Commission and furnish
at its own expense to the
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Underwriters and to dealers, amendments or supplements to the Prospectus so
that the statements in the Prospectus as so amended or supplemented will
not, in the light of the circumstances when the Prospectus is delivered to
a purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) BLUE SKY COMPLIANCE. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
state securities or blue sky laws or Canadian provincial Securities laws of
those jurisdictions designated by the Representatives, shall comply with
such laws and shall continue such qualifications, registrations and
exemptions in effect so long as required for the distribution of the Common
Shares. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service
of process in any such jurisdiction where it is not presently qualified or
where it would be subject to taxation as a foreign corporation. The
Company will advise the Representatives promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain
the withdrawal thereof at the earliest possible moment.
(f) USE OF PROCEEDS. The Company shall apply the net proceeds from
the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) EARNINGS STATEMENT. As soon as practicable, the Company will
make generally available to its security holders and to the Representatives
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
(i) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and
the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the
Commission all reports on Form SR as may be required under Rule 463 under
the Securities Act.
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(j) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. During the
period of 90 days following the date of the Prospectus, the Company will
not, without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of Montgomery Securities),
directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer or establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or
transfer, or announce the offering of, or file any registration statement
under the Securities Act in respect of, any shares of Common Stock, options
or warrants to acquire shares of the Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock
(other than as contemplated by this Agreement with respect to the Common
Shares); PROVIDED, HOWEVER, that the Company may (i) issue shares of its
Common Stock upon exercise of stock options and warrants outstanding on the
date hereof and described in the Prospectus (it being agreed that the
Company shall not accelerate the exercisability of such options) and (ii)
grant options to purchase its Common Stock pursuant to any stock option,
stock bonus or other stock plan or arrangement described in the Prospectus.
(k) FUTURE REPORTS TO THE REPRESENTATIVES. During the period of five
years hereafter the Company will furnish to the Representatives at [600
Montgomery Street, San Francisco, CA 94111] [9 West 57th Street, New York,
NY 10022] Attention:[ ]: (i) as soon as practicable after the end of each
fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public or
certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its capital
stock.
Montgomery Securities, on behalf of the several Underwriters, may, in
its sole discretion, waive in writing the performance by the Company of any
one or more of the foregoing covenants or extend the time for their
performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified pubic accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
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Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the state securities or blue sky laws or the provincial
securities laws of Canada, and, if requested by the Representatives, preparing
and printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
(vii) the filing fees incident to, and the reasonable fees and expenses of
counsel for the Underwriters in connection with, the NASD's review and approval
of the Underwriters' participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with including the
Common Shares on the Nasdaq National Market, and (ix) all other fees, costs and
expenses referred to in [Item 13] [Item 14] [ of Part II of the Registration
Statement. Except as provided in this Section 4, Section 6, Section 8 and
Section 9 hereof, the Underwriters shall pay their own expenses, including the
fees and disbursements of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the
Representatives shall have received from KPMG Peat Marwick LLP, independent
public or certified public accountants for the Company, a letter dated the
date hereof addressed to the Underwriters, in form and substance
satisfactory to the Representatives, containing statements and information
of the type ordinarily included in accountant's "comfort letters" to
underwriters, delivered according to statement of auditing standards No. 72
(Or any successor bulletin), with respect to the audited and unaudited
financial statements and certain financial information contained in the
Registration Statement and the Prospectus (and the Representatives shall
have received an additional [five] conformed copies of such accountants'
letter for each of the several underwriters).
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date And, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430a under the
Securities Act) in the
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manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective
amendment to the Registration Statement containing the information
required by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon
Rule 434 under the Securities Act and obtained the Representatives'
consent thereto, the Company shall have filed a Term Sheet with the
Commission in the manner and within the time period required by such
Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) NO MATERIAL ADVERSE CHANGE. For the period from and after the
date of this Agreement and prior to the First Closing Date and, with
respect to the Optional Common Shares, the Second Closing Date:
(i) in the judgment of the Representatives there shall not have
occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company by
any "nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act.
(d) OPINION OF COUNSEL FOR THE COMPANY. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP,
counsel for the Company, dated as of such Closing Date, the form of which
is attached as Exhibit A (and the Representatives shall have received an
additional [five] conformed copies of such counsel's legal opinion for each
of the several Underwriters).
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. On Each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Sonnenschein Nath & Rosenthal, counsel
for the Underwriters, dated as of such Closing Date, with respect to the
incorporation of the Company, the sufficiency of all corporate proceedings
and other legal matters relating to the Underwriting Agreement, the
validity of the Common Shares, the Registration Statement and the
Prospectus and other
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related matters as you may reasonably require (and the Representatives
shall have received an additional [five] conformed copies of such counsel's
legal opinion for each of the several Underwriters).
(f) OPINIONS OF PATENT COUNSEL. On Each of the First Closing Date
and the Second Closing Date the Representatives shall have received the
favorable opinion of Christensen, O'connor Johnson Kindness Pllc, Phillips
Moore Lempio & Finley and Townsend and Townsend and Crew, patent counsel
for the Company, in form and substance satisfactory to the Representatives
with respect to such patent matters as the Representative may reasonably
require (and the Representatives shall have received an additional [five]
conformed copies of such counsel's legal opinion for each of the several
Underwriters).
(g) OPINION OF REGULATORY COUNSEL. On Each of the First Closing Date
and the Second Closing Date the Representatives shall have received the
favorable opinion of [Hogan and _______], special regulatory counsel for
the Company, in form and substance satisfactory to the Representatives with
respect to such regulatory and compliance matters as the Representatives
may reasonably require (and the Representatives shall have received an
additional [five] conformed copies of such counsel's legal opinion for each
of the several Underwriters).
(h) OFFICERS' CERTIFICATE. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to the
effect set forth in subsections (b)(ii) and (c)(ii) of this Section 5, and
further to the effect that:
(i) for the period from and after the date of this Agreement and
prior to such closing date, there has not occurred any Material Adverse
Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1 of this Agreement are true and correct with
the same force and effect as though expressly made on and as of such
Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(i) BRING-DOWN COMFORT LETTER. On Each of the First Closing Date and
the Second Closing Date the Representatives shall have received from KPMG
Peat Marwick LLP, independent public or certified public accountants for
the Company, a letter dated such date, in form and substance satisfactory
to the Representatives, to the effect that they reaffirm the statements
made in the letter furnished by them pursuant to subsection (a) of
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this Section 5, except that the specified date referred to therein for the
carrying out of procedures shall be no more than three business days prior
to the First Closing Date or Second Closing Date, as the case may be (and
the Representatives shall have received an additional [five] conformed
cpies of such accountants' letter for each of the several Underwriters).
(j) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY. On
the date hereof, the Company shall have furnished to the Representatives an
agreement in the form of EXHIBIT B hereto from the directors, executive
officers and certain other stockholders, and such agreement shall be in
full force and effect on each of the First Closing Date and the Second
Closing Date.
(k) INCLUSION FOR TRADING. Prior to the commencement of the
offering of the Common Shares, the Common Shares shall have been included
for trading on the NASDAQ National Market.
(l) ADDITIONAL DOCUMENTS. On or before each of the First Closing
Date and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass
upon the issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the Representations and
Warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the
First Closing Date and, with respect to the optional common shares, at Any
time prior to the Second Closing Date, which termination shall be without
liability on the part of any party to any other party, except that
Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 5, Section 7, Section 10
or Section 11, or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all
out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
and the offering and sale of the Common Shares, including but not limited to
fees and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
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SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company to any Underwriter,
except that the Company shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Sections 4 and 6 hereof,
(b) any Underwriter to the Company, or (c) any party hereto to any other party
except that the provisions of Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
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SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees,
and each person, if any, who controls any Underwriter within the meaning of
the Securities Act and the Exchange Act against any loss, claim, damage,
liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as
such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; or (iii) in whole or in part
upon any inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the
Company to perform its obligations hereunder or under law; or (v) any act
or failure to act or any alleged act or failure to act by any Underwriter
in connection with, or relating in any manner to, the Common Stock or the
offering contemplated hereby, and which is included as part of or referred
to in any loss, claim, damage, liability or action arising out of or based
upon any matter covered by clause (i) or (ii) above, PROVIDED that the
Company shall not be liable under this clause (v) to the extent that a
court of competent jurisdiction shall have determined by a final judgment
that such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its bad faith or willful misconduct; and to reimburse
each Underwriter and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by Montgomery
Securities) as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action; PROVIDED, HOWEVER, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense
to the extent, but only to the extent, arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by the Representatives expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto); and provided, further, that with
respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Common
Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2
and a copy of
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the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by
or on behalf of Such underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the sale of
the Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The indemnity agreement set forth in this
Section 8(a) shall be in addition to any liabilities that the Company may
otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS. Each
Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act,
against any loss, claim, damage, liability or expense, as incurred, to
which the Company, or any such director, officer or controlling person may
become subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of such Underwriter), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company by the Representatives
expressly for use therein; and to reimburse the Company, or any such
director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The Company hereby acknowledges that the only information that the
Underwriters have furnished to the Company expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) are the statements set forth (a) as
the last two paragraphs on the inside front cover page of the Prospectus
concerning stabilization and passive market making by the Underwriters and
(b) in the table in the first paragraph and as the second paragraph under
the caption "Underwriting" in the Prospectus; and the Underwriters confirm
that such statements are correct. The indemnity agreement set forth in this
section 8(b) shall be in addition to any liabilities that each Underwriter
may otherwise have.
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly
after receipt by an indemnified party under this section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an
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Indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party for contribution or otherwise than under the
indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action
is brought against any indemnified party and such indemnified party seeks
or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it shall
elect, jointly with all other indemnifying parties similarly notified, by
written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
PROVIDED, HOWEVER, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that a conflict may arise between the
positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from
or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of such
indemnifying party's election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel (together with local counsel), approved by the indemnifying party
(Montgomery Securities in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) SETTLEMENTS. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a
final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party against any loss, claim, damage, liability
or expense by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for fees
and expenses of counsel as contemplated by Section 8(c) hereof, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of
the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance
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<PAGE>
with such request prior to the date of such settlement. No indemnifying
party shall, without the prior written consent of the indemnified party,
effect any settlement, compromise or consent to the entry of judgment in
any pending or threatened action, suit or proceeding in respect of which
any indemnified party is or could have been a party and indemnity was or
could have been sought hereunder by such indemnified party, unless such
settlement, compromise or consent includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason
held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus (or, if
Rule 434 under the Securities Act is used, the corresponding location on the
Term Sheet) bear to the aggregate public offering price of the Common Shares as
set forth on such cover. The relative fault of the Company, on the one hand,
and the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact or any
such inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
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<PAGE>
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; PROVIDED, HOWEVER,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITER. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Common Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall
24
<PAGE>
survive such termination. In any such case either the Representatives or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date
this Agreement maybe terminated by the Representatives by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4
and 6 hereof, (b) any Underwriter to the Company, or (c) of any party hereto to
any other party except that the provisions of Section 8 and Section 9 shall at
all times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
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<PAGE>
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
PathoGenesis Corporation
Suite 150
201 Elliott Avenue West
Seattle, Washington 98119
Facsimile:
Attention:
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement
26
<PAGE>
is for any reason determined to be invalid or unenforceable, there shall be
deemed to be made such minor changes (and only such minor changes) as are
necessary to make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
PATHOGENESIS CORPORATION
By:__________________________
Wilbur H. Gantz
President and Chief
Executive Officer
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<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
PRUDENTIAL SECURITIES INCORPORATED
HAMBRECHT & QUIST LLC
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:________________________________
<PAGE>
SCHEDULE A
Underwriters Number of Firm
Common
Shares to be
Purchased
Montgomery Securities...................................................[______]
Prudential Securities Incorporated......................................[______]
Hambrecht & Quist LLC...................................................[______]
[_____].................................................................[______]
[_____].................................................................[______]
Total........................................................2,000,000
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EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to
Section 5(e) of the Underwriting Agreement.
References to the Prospectus in this EXHIBIT A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement. To the best of our knowledge, the Company does not
own any subsidiary as defined in Rule 405 under the Securities Act.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in Illinois, New Jersey, New
York, Washington and in each other jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the failure to
so qualify or to be in good standing would not, individually or in the
aggregate, result in a Material Adverse Change.
(iv) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the descriptions thereof
set forth in the Prospectus. All of the outstanding shares of Common Stock
have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge, have been
issued in compliance with the registration and qualification requirements
of federal and state securities laws. The form of certificate used to
evidence the Common Stock is in due and proper form and complies with all
applicable requirements of the charter and by-laws of the Company and the
General Corporation Law of the State of Delaware. The description of the
Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted and exercised thereunder, set forth
in the Prospectus accurately and fairly presents the information required
to be shown with respect to such plans, arrangements, options and rights.
(v) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (A) by
operation of the charter or by-laws of the Company or the General
A-1-
<PAGE>
Corporation Law of the State of Delaware or (B) to the best knowledge of
such counsel, otherwise.
(vi) The Underwriting Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(vii) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
(viii) The Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the Commission under the
Securities Act. To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the
Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been instituted or
are pending or are contemplated or threatened by the Commission. Any
required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) under the Securities Act has been made in the manner and within
the time period required by such Rule 424(b).
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or supplement to
the Registration Statement and the Prospectus, as of their respective
effective or issue dates (other than the financial statements and
supporting schedules included therein or in exhibits to or excluded from
the Registration Statement, as to which no opinion need be rendered) comply
as to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act.
(x) The Common Shares have been approved for inclusion on the Nasdaq
National Market.
(xi) The statements (A) in the Prospectus under the captions "Risk
Factors--[___]", "Description of Capital Stock", "Management's Discussion
and Analysis of Financial Condition--Liquidity", "Business", "Certain
Transactions", "Shares Eligible for Future Sale", and "Underwriting" and
(B) in Item 14 and Item 15 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters, the
Company's charter or by-law provisions, documents or legal proceedings, or
legal
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conclusions, has been reviewed by such counsel and fairly present and
summarize, in all material respects, the matters referred to therein.
(xii) To the best knowledge of such counsel, (A) there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein and (B) no contract or other document is required to be
described in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein or
filed as required.
(xiii) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits
thereto; and the descriptions thereof and references thereto are correct in
all material respects.
(xiv) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of the Underwriting Agreement and consummation of the transactions
contemplated thereby and by the Prospectus, except as required under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(xv) to the best of our knowledge, subsequent to the respective dates
as of which information is given in the Registration Statement and the
Prospectus, the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of
any kind on its capital stock).
(xvi) to the best of our knowledge, the Company does not own any real
property and has good and marketable title to all personal property owned
by it, in each case free and clear of any security interests, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such
property by the Company, and any real property, improvements, equipment and
personal property held under lease by the Company are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment and personal property by the Company, in
each case except as disclosed in the Prospectus.
(xvii) to the best of our knowledge, except as disclosed in the
Prospectus, there are no outstanding (A) securities or obligations of the
Company convertible into or exchangeable for any capital stock of the
Company, (B) warrants, rights or options to subscribe for or purchase from
the Company any such capital stock or any such
A-3-
<PAGE>
convertible or exchangeable securities or obligations, or (C) obligations
of the Company to issue any shares of capital stock, any such convertible
or exchangeable securities or obligations, or any such warrants, rights or
options.
(xviii) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder
(other than performance by the Company of its obligations under the
indemnification section of the Underwriting Agreement, as to which no
opinion need be rendered) (A) have been duly authorized by all necessary
corporate action on the part of the Company; (B) will not result in any
violation of the provisions of the charter or by-laws of the Company;
(C) will not constitute a breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company pursuant to, the best knowledge of such counsel,
any material Existing Instrument; or (D) to the best knowledge of such
counsel, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company.
(xix) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of
Investment Company Act.
(xx) Except as disclosed in the Prospectus [under the caption "Shares
Eligible for Future Sale"], to the best knowledge of such counsel, there
are no persons with registration or other similar rights to have any equity
or debt securities registered for sale under the Registration Statement or
included in the offering contemplated by the Underwriting Agreement.
(xxi) To the best knowledge of such counsel, the Company is not in
violation of its charter or by-laws or any law, administrative regulation
or administrative or court decree applicable to the Company or is not in
Default in the performance or observance of any obligation, agreement,
covenant or condition contained in any material Existing Instrument, except
in each such case for such violations or Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change.
(xxii) In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of the
Company, representatives of the independent public or certified public
accountants for the Company and with representatives of the Underwriters at
which the contents of the Registration Statement and the Prospectus, and any
supplements or amendments thereto, and related matters were discussed and,
although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as
specified above), and any supplements or amendments thereto, on the basis
of the foregoing, nothing has come to their attention which would lead them
to believe that either the Registration Statement or any amendments
thereto, at the time the Registration Statement or such amendments
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<PAGE>
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus, as of
its date or at the First Closing Date or the Second Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no belief as to the
financial statements or schedules or other financial or statistical data
derived therefrom, included or incorporated by reference in the
Registration Statement or the Prospectus or any amendments or supplements
thereto).
(xxiii) In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than
the General Corporation Law of the State of Delaware or the federal law of
the United States, to the extent they deem proper and specified in such
opinion, upon the opinion (which shall be dated the First Closing Date or
the Second Closing Date, as the case may be, shall be satisfactory in form
and substance to the Underwriters, shall expressly state that the
Underwriters may rely on such opinion as if it were addressed to them and
shall be furnished to the Representatives) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to
counsel for the Underwriters; PROVIDED, HOWEVER, that such counsel shall
further state that they believe that they and the Underwriters are
justified in relying upon such opinion of other counsel, and (B) as to
matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials.
A-5-
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EXHIBIT B
[Date]
Montgomery Securities
Prudential Securities Incorporated
Hambrecht & Quist LLC
As Representatives of the Several Underwriters
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: PATHOGENESIS CORPORATION (THE "COMPANY")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under Securities Exchange Act
of 1934, as amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date hereof
and continuing through the close of trading on the date 90 days after the date
of the Prospectus. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
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<PAGE>
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- --------------------------------
Printed Name of Holder
By:
- -------------------------------------------
Signature
- -------------------------------------------
Printed Name of Person Signing
(AND INDICATE CAPACITY OF PERSON SIGNING IF
SIGNING AS CUSTODIAN, TRUSTEE, OR ON BEHALF
OF AN ENTITY)
B-2-
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PATHOGENESIS CORPORATION
under
The Delaware General Corporation Law
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PATHOGENESIS CORPORATION
PathoGenesis Corporation, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is PathoGenesis Corporation. The date of
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was December 10, 1991.
2. This Amended and Restated Certificate of Incorporation restates,
integrates and further amends the provisions of the Certificate of Incorporation
of the Corporation. This Amended and Restated Certificate of Incorporation was
duly adopted at a meeting of the directors of the Corporation in accordance with
Section 141 of the General Corporation Law of the State of Delaware (the "DGCL"
or the "Delaware Code") and by the stockholders of the Corporation in accordance
with Sections 242 and 245 of the DGCL:
3. The text of the Certificate of Incorporation is hereby restated and
amended to read in its entirety as follows:
FIRST. The name of the corporation is PathoGenesis Corporation.
SECOND. The address, including street, number, city and county of the
Corporation's registered office in the State of Delaware is 9 East Loockerman
Street, in the City of Dover, County of Kent. The name of its registered agent
at such address is National Corporate Research, Ltd.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
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<PAGE>
FOURTH. A. The aggregate number of shares which the Corporation shall have
authority to issue is 21,000,000, of which 1,000,000 shares of the par value of
$.01 per share shall be designated "Preferred Stock" and 20,000,000 shares of
the par value of $.001 per share shall be designated "Common Stock."
Upon the filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, each share
of Common Stock that is issued and outstanding immediately prior to the filing
of this Amended and Restated Certificate of Incorporation, shall be converted,
without any other action on the part of the respective stockholders thereof,
into one-eighth shares of Common Stock. The Corporation shall not issue
fractional shares with respect to such conversion, but shall pay in cash in lieu
thereof an amount equal to $12.00 times the fraction of a share a stockholder
would otherwise be entitled to receive.
B. Authority is hereby expressly granted to the Board of Directors
of the Corporation (or a committee thereof designated by the Board of Directors
pursuant to the by-laws of the Corporation, as amended from time to time (the
"By-Laws")) to issue the Preferred Stock from time to time as Preferred Stock of
any series and to declare and pay dividends thereon in accordance with the terms
thereof and, in connection with the creation of each such series, to fix by the
resolution or resolutions providing for the issue of shares thereof, the number
of shares of such series, and the designations, powers, preferences, and rights
(including voting rights), and the qualifications, limitations, and
restrictions, of such series, to the fullest extent now or hereafter permitted
by the laws of the State of Delaware.
FIFTH. Election of directors need not be by written ballot.
SIXTH. The Board of Directors is authorized to adopt, amend, or repeal
By-Laws of the Corporation except as and to the extent provided in the By-Laws.
Any By-Law made by the Board of Directors under the powers conferred hereby may
be amended or repealed by the Board of Directors or the stockholders in the
manner provided in the By-Laws. Notwithstanding the foregoing and anything
contained in this Amended and Restated Certificate of Incorporation to the
contrary, Sections 2.2, 3.2, 3.14
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<PAGE>
and 11 of the By-Laws and this Article SIXTH, may not be amended or repealed by
the stockholders, and no provision inconsistent therewith may be adopted by the
stockholders, without the affirmative vote of at least 662/3% of the outstanding
stock of all classes entitled to vote thereon.
SEVENTH. A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation or any of its direct or indirect
subsidiaries or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of any other corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee, or agent or in any other capacity while serving as
a director, officer, employee, or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the DGCL, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability, and loss (including attorneys' fees, judgments, fines, excise or
other taxes assessed with respect to an employee benefit plan, penalties, and
amounts paid in settlement) reasonably incurred or suffered by such indemnitee
in connection therewith, and such indemnification shall continue as to an
indemnitee who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the indemnitee's heirs, executors, and
administrators; provided, however, that, except as provided in Paragraph C of
this Article SEVENTH with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
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<PAGE>
B. The right to indemnification conferred in Paragraph A of this
Article SEVENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any proceeding for which such right to
indemnification is applicable in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the DGCL requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Article SEVENTH or otherwise.
C. The rights to indemnification and to the advancement of expenses
conferred in Paragraphs A and B of this Article SEVENTH shall be contract
rights. If a claim under Paragraph A or B of this Article SEVENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by an indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that the indemnitee has not met any applicable
standard for indemnification set forth in the DGCL, and (ii) any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that the indemnitee has not
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<PAGE>
met any applicable standard for indemnification set forth in the DGCL. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the DGCL, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article SEVENTH or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article SEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
Certificate of Incorporation, By-Law, agreement, vote of stockholders or
disinterested directors, or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee, or agent of the Corporation
or another corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability, or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability, or loss
under the DGCL.
F. The Corporation's obligation, if any, to indemnify any person who
was or is serving as a director, officer, employee, or agent of any direct or
indirect subsidiary of the Corporation or, at the request of the Corporation, of
any other corporation or of a partnership, joint venture, trust, or other
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<PAGE>
enterprise shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
or other enterprise.
G. Any repeal or modification of the foregoing provisions of this
Article SEVENTH shall not adversely affect any right or protection hereunder of
any person in respect of any act or omission occurring prior to the time of such
repeal or modification.
EIGHTH. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate
the liability of the director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount paid in
settlement, penalty, punitive damages, excise or other tax assessed with respect
to an employee benefit plan, or expense of any nature (including, without
limitation, counsel fees and disbursements). Each person who serves as a
director of the Corporation while this Article EIGHTH is in effect shall be
deemed to be doing so in reliance on the provisions of this Article EIGHTH, and
neither the amendment or repeal of this Article EIGHTH, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
EIGHTH, shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for, arising out of, based upon, or in
connection with any acts or omissions of such director occurring prior to such
amendment, repeal, or adoption of an inconsistent provision. The provisions of
this Article EIGHTH are cumulative and shall be in addition to and independent
of any and all other limitations on or eliminations of the liabilities of
directors of the Corporation, as such, whether such limitations or eliminations
arise under or are created by any law, rule, regulation, By-Law, agreement, vote
of stockholders or disinterested directors, or otherwise.
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<PAGE>
NINTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
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<PAGE>
TENTH: The Certificate of Incorporation of the Corporation, as herein
amended, shall constitute a restatement of and shall supersede the Certificate
of Incorporation of the Corporation, as previously filed.
IN WITNESS WHEREOF, The Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed on this 20th day of October, 1995.
PATHOGENESIS CORPORATION
By:
-----------------------------
Wilbur H. Gantz, President
ATTEST:
- ----------------------------------
Alan R. Meyer, Assistant Secretary
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<PAGE>
Exhibit 3.2
BY-LAWS
OF
PATHOGENESIS CORPORATION
SECTION 1. OFFICES
The principal office of the corporation shall be located at its principal
place of business or such other place as the Board of Directors ("Board") may
designate. The corporation may have such other offices, either within or without
the State of Delaware, as the Board may designate or as the business of the
corporation may require from time to time.
SECTION 2. STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders for the purposes of
electing Directors and of transacting such other business as may come before it
shall be held each year at such date, time, and place, either within or without
the State of Delaware, as may be specified by the Board. At any time prior to
the commencement of the annual meeting, the Board may postpone the annual
meeting for a period of up to 120 days from the date fixed for such meeting in
accordance with this subsection 2.1.
2.2 Special Meetings. Special meetings of stockholders for any purpose or
purposes may be held at any time upon call of the Chairman of the Board, if any,
the Chief Executive Officer, the Secretary, or a majority of the Board, at such
time and place either within or without the State of Delaware as may be stated
in the notice. A special meeting of stockholders shall be called by the
President or the Secretary upon the written request, stating time, place, and
the purpose or purposes of the meeting, of stockholders who together own of
record not less than 662/3% of the outstanding stock of all classes entitled to
vote at such meeting. Any action which would be taken at any special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall (a) be signed by stockholders who together own of record not less than
662/3% of the outstanding stock of all classes entitled to vote with respect to
the subject matter thereof (as determined in accordance with subsection 2.6.2
hereof) and (b) be delivered to the corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the corporation having custody of the records of proceedings of
meetings of stockholders. Delivery made to the corporation's registered office
shall be by hand or by certified mail or registered mail, return receipt
requested. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless written consents signed by
stockholders entitled to vote with respect to the subject matter thereof are
delivered to the corporation, in the manner required by this section, within
sixty days of the earliest dated consent delivered to the corporation in the
manner required by this section. Any such consent shall be inserted in the
minute book as if it were the minutes of a meeting of the stockholders.
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<PAGE>
2.3 Place of Meeting. All meetings shall be held at the principal office
of the corporation or at such other place within or without the State of
Delaware designated by the Board, by any persons entitled to call a meeting
hereunder or in a waiver of notice signed by all of the stockholders entitled to
notice of the meeting.
2.4 Notice of Meeting. The Chairman of the Board, the President, any
Vice-President, the Secretary, the Board, or stockholders calling an annual or
special meeting of stockholders as provided for herein, shall cause to be
delivered to each stockholder entitled to notice of or to vote at the meeting
either personally or by mail, not less than ten nor more than sixty days before
the meeting, written notice stating the place, day and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. At any time, upon written request of the holders of not less than the
number of outstanding shares of the corporation specified in subsection 2.2 and
entitled to vote at the meeting, it shall be the duty of the Secretary to give
notice of a special meeting of stockholders to be held on such date and at such
place and hour as the Secretary may fix, not less than ten nor more than sixty
days after receipt of said request, and if the Secretary shall neglect or refuse
to issue such notice, the person making the request may do so and may fix the
date for such meeting. If such notice is mailed, it shall be deemed delivered
when deposited in the official government mail properly addressed to the
stockholder at his or her address as it appears on the stock transfer books of
the corporation with postage prepaid. If the notice is telegraphed, it shall be
deemed delivered when the content of the telegram is delivered to the telegraph
company.
2.5 Waiver of Notice.
2.5.1 Whenever any notice is required to be given to any stockholder
under the provisions of these By-Laws, the Certificate of Incorporation or the
General Corporation Law of Delaware, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
2.5.2 The attendance of a stockholder at a meeting shall constitute
a waiver of notice of such meeting, except when a stockholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
2.6. Fixing of Record Date for Determining Stockholders.
2.6.1 Meetings. For the purpose of determining stockholders entitled
to notice of and to vote at any meeting of stockholders of any adjournment
thereof, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which record date shall not be more than sixty nor less than ten days
before the date of such meeting. If not record date is fixed by the Board, the
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record date for determining stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
and to vote at the meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
2.6.2 Consent to Corporate Action Without a Meeting. For the purpose
of determining stockholders entitled to consent to corporate action in writing
without a meeting, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is required by Chapter 1 of the
General Corporation Law of the State of Delaware, as now or hereafter amended,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
and prior action by the Board is required by Chapter 1 of the General
Corporation Law of the State of Delaware, as now or hereafter amended, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board adopts the resolution taking such prior action.
2.6.3 Dividends, Distributions and Other Rights. For the purpose of
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board adopts the resolution relating thereto.
2.7 Voting List. At least ten days before each meeting of stockholders, a
complete list of the stockholders entitled to vote at such meeting, or any
adjournment thereof, shall be made, arranged in alphabetical order, with the
address of an number of shares held by each stockholder. This list shall be open
to examination by any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held.
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This list shall also be produced and kept at such meeting for inspection by any
stockholder who is present.
2.8 Quorum. A majority of the outstanding shares of the corporation
entitled to vote, present in person or represented by proxy at the meeting,
shall constitute a quorum at a meeting of the stockholders; provided, that where
a separate vote by a class or classes is required, a majority of the outstanding
shares of such class or classes, present in person or represented by proxy at
the meeting, shall constitute a quorum entitled to take action with respect to
that vote on that matter. If less than a majority of the outstanding shares
entitled to vote are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. If
a quorum is present or represented at a reconvened meeting following such an
adjournment, any business may be transacted that might have been transacted at
the meeting as originally called. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
2.9 Manner of Acting. In all matters other than the election of Directors,
if a quorum is present, the affirmative vote of the majority of the outstanding
shares present in person or represented by proxy at the meeting and entitled to
vote on the subject matter shall be the act of the stockholders, unless the vote
of a greater number is required by these By-Laws, the Certificate of
Incorporation or the General Corporation Law of Delaware. Where a separate vote
by a class or classes is required, if a quorum of such class or classes is
present, the affirmative vote of the majority of outstanding shares of such
class or classes present in person or represented by proxy at the meeting shall
be the act of such class or classes. Directors shall be elected by a plurality
of the votes of the shares present in person or represented by proxy at the
meeting and entitled to vote on the election of Directors.
2.10 Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person of persons to act for such
stockholders by proxy executed in writing by the stockholder or by his or her
attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. A proxy shall become invalid
three years after the date of its execution, unless otherwise provided in the
proxy. A proxy with respect to a specified meeting shall entitle the holder
thereof to vote at any reconvened meeting following adjournment of such meeting
but shall not be valid after the final adjournment thereof.
2.11 Voting of Shares. Each outstanding share entitled to vote with
respect to the subject matter of an issue submitted to a meeting of stockholders
shall be entitled to one vote upon each such issue.
2.12 Voting for Directors. Each stockholder entitled to vote at an
election of Directors may vote, in person or by proxy, the number of shares
owned by such stockholder for as many
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persons as there are Directors to be elected and for whose election such
stockholder has a right to vote.
SECTION 3. BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the corporation shall be
managed by the Board.
3.2 Number and Tenure. The Board shall be composed of not less than three
nor more than 10 Directors, the specific number to be set by resolution of the
Board or the stockholders. The number of Directors may be changed from time to
time by amendment to these By-Laws, but no decrease in the number of Directors
shall have the effect of shortening the term of any incumbent Director. The
Directors, other than those who may be elected by the holders of any series of
Preferred Stock, will be classified with respect to the time for which they
severally hold office into three classes, as nearly equal in number as possible,
designated Class I, Class II and Class III. The Directors appointed to Class I
will hold office for a term expiring at the annual meeting of stockholders to be
held in 1996; the Directors appointed to Class II will hold office for a term
expiring at the annual meeting of stockholders to be held in 1997; and the
Directors appointed to Class III will hold office for a term expiring at the
annual meeting of stockholders to be held in 1998, with the members of each
class to hold office until their respective successors are elected and
qualified. At each succeeding annual meeting the stockholders of the
Corporation, the successors of the class of Directors whose terms expire at that
meeting will be elected by plurality vote of all votes cast at such meeting to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election. Election of Directors of
the Corporation need not be by written ballot unless requested by the Chairman
or by the holders of a majority of the outstanding stock present in person or
represented by proxy at a meeting of the stockholders at which Directors are to
be elected. Directors need not be stockholders of the corporation or residents
of the State of Delaware.
3.3 Annual and Regular Meetings. An annual Board meeting shall be held
without notice immediately after and at the same place as the annual meeting of
stockholders. By resolution, the Board or any committee designated by the Board
may specify the time and place either within or without the State of Delaware
for holding regular meetings thereof without other notice than such resolution.
3.4 Special Meetings. Special meetings of the Board or any committee
appointed by the Board may be called by or at the request of the Chairman of the
Board, the President, the Secretary or, in the case of special Board meetings,
any one Director and, in the case of any special meeting of any committee
appointed by the Board, by the Chairman thereof. The person or persons
authorized to call special meetings may fix any place either within or without
the State of Delaware as the place for holding any special Board or committee
meeting called by them.
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3.5 Meetings by Telephone. Members of the Board or any committee
designated by the Board may participate in a meeting of such Board or committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
3.6 Notice of Special Meetings. Notice of a special Board or committee
meeting stating the place, day and hour of the meeting shall be given to a
Director in writing or orally by telephone or in person. Neither the business to
be transacted at, nor the purpose of, any special meeting need be specified in
the notice of such meeting.
3.6.1 Personal Delivery. If notice is given by personal delivery,
the notice shall be effective if delivered to a Director at least two days
before the meeting.
3.6.2 Delivery by Mail. If notice is delivered by mail, the notice
shall be deemed effective if deposited in the official government mail properly
addressed to a Director at his or her address shown the records of the
corporation with postage prepaid at least five days before the meeting.
3.6.3 Delivery by Telecopy. If notice is delivered by telecopy, the
notice shall be deemed effective if it is transmitted to a facsimile number
provided by a Director for that purpose from time to time and successful
transmission thereof is confirmed by telephone with the operator of the
receiving equipment at least three days before the meeting.
3.6.4 Oral Notice. If notice is delivered orally, by telephone or in
person, the notice shall be deemed effective if personally given to the Director
at least two days before the meeting.
3.7 Waiver of Notice.
3.7.1 In Writing. Whenever any notice is required to be given to any
Director under the provisions of these By-Laws, the Certificate of Incorporation
or the General Corporation Law of Delaware, a waiver thereof in writing, signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notice.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board or any committee appointed by the Board need be
specified in the waiver of notice of such meeting.
3.7.2 By Attendance. The attendance of a Director at a Board or
committee meeting shall constitute a waiver of notice of such meeting, except
when a Director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
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3.8 Quorum. A majority of the total number of Directors fixed by or in the
manner provided in these By-Laws shall constitute a quorum for the transaction
of business at any Board meeting but, if less than a majority are present at a
meeting, a majority of the Directors present may adjourn the meeting from time
to time without further notice.
3.9 Manner of Acting. The act of the majority of the Directors present at
a Board meeting at which there is a quorum shall be the act of the Board, unless
the vote of a greater number is required by these By-laws, the Certificate of
Incorporation or the General Corporation Law of Delaware.
3.10 Presumption of Assent. A Director of the corporation present at a
Board or committee meeting at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless his or her dissent
is entered in the minutes of the meeting, or unless such Director files a
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof, or forwards such dissent by registered
mail to the Secretary of the corporation immediately after the adjournment of
the meeting. A Director who voted in favor of such action may not dissent.
3.11 Action by Board or Committees Without a Meeting. Any action which
could be taken at a meeting of the Board or of any committee appointed by the
Board may be taken without a meeting if a written consent setting forth the
action so taken is signed by each of the Directors or by each committee member.
Any such written consent shall be inserted in the minute book as if it were the
minutes of a Board or a committee meeting.
3.12 Resignation. Any Director may resign at any time by delivering
written notice to the Chairman of the Board, the President, the Secretary or the
Board, or to the registered office of the corporation. Any such resignation
shall take effect at the time specified therein, or if the time is not
specified, upon deliver thereof and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.13 Removal. At a meeting of stockholders called expressly for that
purpose, one or more members of the Board (including the entire Board) may be
removed, with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote on the election of Directors. If the Certificate of
Incorporation provides for cumulative voting in the election of Directors, then
if less than the entire Board is to be removed, no one of the Directors may be
removed if the votes cast against his or her removal would be sufficient to
elect such Director if then cumulatively voted at an election of the entire
Board.
3.14 Vacancies. Any vacancy occurring on the Board whether by reason of
removal, resignation, death or otherwise shall be filled exclusively by the
affirmative vote of a majority of the remaining Directors though less than a
quorum of the Board. A Director elected to fill a vacancy shall be elected for
the unexpired term of his or her predecessor in office. Any
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directorship to be filled by reason of an increase in the number of Directors
may be filled by the board.
3.15 Executive and Other Committees.
3.15.1 Creation and Authority of Committees. The Board may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in place
of any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board, shall have and may exercise all the
powers and authority of the Board in the management of the business, property,
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
power or authority in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
pursuant to authority expressly granted to the Board by the Certificate of
Incorporation, fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of the assets of the
Corporation, or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation), adopting an agreement of merger or
consolidation under Section 251 or 252 of the General Corporation Law of the
State of Delaware, recommending to the stockholders the sale, lease, or exchange
of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of dissolution, or amending these By-Laws; and, unless such
resolution or resolutions expressly so provided, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of the State of Delaware. Each committee which
has been established by the Board pursuant to these By-Laws may fix its own
rules and procedures. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member of members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member.
3.15.2 Minutes of Meetings. All committees so appointed shall keep
regular minutes of their meetings and shall cause them to be recorded in books
kept for that purpose.
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3.15.3 Quorum and Manner of Acting. A majority of the number of
Directors composing any committee of the Board, as established and fixed by
resolution of the Board, shall constitute quorum for the transaction of business
at any meeting of such committee but, if less than a majority are present at a
meeting, a majority of such Directors present may adjourn the meeting from time
to time without further notice. The act of a majority of the members of a
committee present at a meeting at which a quorum is present shall be the act of
such committee.
3.15.4 Resignation. Any member of any committee may resign at any
time by delivering written notice thereof to the Chairman of the Board, the
President, the Secretary, the Board or the Chairman of such committee. Any such
resignation shall take effect at the time specified therein, or if the time is
not specified, upon delivery thereof and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
3.15.5 Removal. The Board may remove from office any member of any
committee elected or appointed by it or by an Executive Committee, but only by
the affirmative vote of not less than a majority of the number of Directors
fixed by or in the manner provided in these By-Laws.
3.16 Compensation. By Board resolution, Directors and committee members
may be paid their expenses, if any, of attendance at each Board or committee
meeting, or a fixed sum for attendance at each Board or committee meeting, or a
stated salary as Director or a committee member, or a combination of the
foregoing. No such payment shall preclude any Director or committee member from
serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 4. OFFICERS
4.1 Number. The officers of the corporation shall be a President, a
Secretary and a Treasurer, each of whom shall be elected by the Board. One or
more Vice Presidents and such other officers and assistant officers, including a
Chairman of the Board, may be elected or appointed by the Board, such officers
and assistant officers to hold office for such period, have such authority and
perform such duties as are provided in these By-Laws or as may be provided by
resolution of the Board. Any officer may be assigned by the Board any additional
title that the Board deems appropriate. The Board may delegate to any officer or
agent the power to appoint any such subordinate officers or agents and to
prescribe their respective terms of office, authority and duties. Any two or
more offices may be held by the same person.
4.2 Election and Term of Office. The officers of the corporation shall be
elected annually by the Board at the Board meeting held after the annual meeting
of the stockholders. If the election of officers is not held at such meeting,
such election shall be held as soon thereafter as a Board meeting conveniently
may be held. Unless an officer dies, resigns, or is removed from office, he or
she shall hold office until the next annual meeting of the Board or until his or
her successor is elected.
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4.3 Resignation. Any officer may resign at any time by delivering written
notice to the Chairman of the Board, the President, a Vice President, the
Secretary or the Board. Any such resignation shall take effect at the time
specified therein, or if the time is not specified, upon delivery thereof and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
4.4 Removal. Any officer or agent elected or appointed by the Board may be
removed by the Board whenever in its judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the persons so removed.
4.5 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification, creation of a new office or any other cause may be
filled by the Board for the unexpired portion of the term, or for a new term
established by the Board.
4.6 Chairman of the Board. If elected, the Chairman of the Board shall
perform such duties as shall be assigned to him or her by the Board from time to
time and shall preside over meetings of the Board and stockholders unless
another officer is appointed or designated by the Board as Chairman of such
meeting.
4.7 President. The President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and stockholders in the absence of a Chairman
of the Board, and, subject to the Board's control, shall supervise and control
all of the assets, business and affairs of the corporation. The President may
sign certificates for shares of the corporation, deeds, mortgages, bonds,
contracts or other instruments, except when the signing and execution thereof
have been expressly delegated by the Board of by these By-Laws to some other
officer or agent of the corporation or are required by law to be otherwise
signed or executed by some other officer or in some other manner. In general,
the President shall perform all duties incident to the office of President and
such other duties as are prescribed by the Board from time to time.
4.8 Vice President. In the event of the death of the President or his or
her inability to act, the Vice President (or if there is more than one Vice
President, the Vice President who was designated by the Board as the successor
to the President, or if no Vice President is so designated, the Vice President
first elected to such office) shall perform the duties of the President, except
as may be limited by resolution of the Board, with all the powers of and subject
to all the restrictions upon the President. Any Vice President may sign with the
Secretary or any Assistant Secretary certificates for shares of the corporation.
Vice President shall have, to the extent authorized by the President or the
Board, the same powers as the President to sign deeds, mortgages, bonds,
contracts or other instruments. Vice Presidents shall perform such other duties
as from time to time may be assigned to them by the President or by the Board.
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4.9 Secretary. The Secretary shall: (a) keep the minutes of meetings of
the stockholders and the Board in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the provisions of
these By-Laws or as required by law; (c) be custodian of the corporate records
and seal of the corporation; (d) keep registers of the post office address of
each stockholder and Director; (e) sign certificates for shares of the
corporation; (f) have general charge of the stock transfer books of the
corporation; (g) sign, with the President or other officer authorized by the
President or the Board, deeds, mortgages, bonds, contracts or other instruments;
and (h) in general perform all duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him or her by the
President or by the Board. In the absence of the Secretary, an Assistant
Secretary may perform the duties of the Secretary.
4.10. Treasurer. If required by the Board, the Treasurer shall give a bond
for the faithful discharge of his or her duties in such amount and with such
surety or sureties as the Board shall determine. The Treasurer shall have charge
and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in banks, trust companies or other depositories selected in
accordance with the provisions of these By-Laws; sign certificates for shares of
the corporation; and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by the Board. In the absence of the Treasurer, an
Assistant Treasurer may perform the duties of the Treasurer.
4.11 Salaries. The salaries of the officers shall be fixed from time to
time by the Board or by any person or persons to whom the Board has delegated
such authority. No officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts. The Board may authorize any officer or officers, or agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation. Such authority may be general or
confined to specific instances.
5.2 Loans to the Corporation. No loans shall be contracted on behalf of
the corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board. Such authority shall be confined
to specific instances.
5.3 Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, or agent or agents,
of the corporation and in such manner as is from time to time determined by
resolution of the Board.
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5.4 Deposits. All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Issuance of Shares. No shares of the corporation shall be issued
unless authorized by the Board, which authorization shall include the maximum
number of shares to be issued and the consideration to be received for each
share.
6.2 Certificates for Shares. Certificates representing shares of the
corporation shall be signed by the Chairman of the Board or Vice Chairman of the
Board or the President or the Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all the
signatures on the certificate may be a facsimile. All certificates shall include
on their face written notice of any restrictions which may be imposed on the
transferability of such shares and shall be consecutively numbered or otherwise
identified.
6.3 Stock Records. The stock transfer books shall be kept at the
registered office or principal place of business of the corporation or at the
office of the corporation's transfer agent or registrar. The name and address of
each person to whom certificates for shares are issued, together with the class
and number of shares represented by each such certificate and the date of issue
thereof, shall be entered on the stock transfer books of the corporation. The
person in whose name shares stand on the books of the corporation shall be
deemed by the corporation to be the owner thereof for all purposes.
6.4 Restriction on Transfer. Except to the extent that the corporation has
obtained an opinion of counsel acceptable to the corporation that transfer
restrictions are not required under applicable securities laws, or has otherwise
satisfied itself that such transfer restrictions are not required, all
certificates representing shares of the corporation shall bear a legend on the
face of the certificate, or on the reverse of the certificate if a reference to
the legend is contained on the face, which reads substantially as follows:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 or any applicable state
law, and no interest therein may be sold, distributed, assigned,
offered, pledged or otherwise transferred unless (a) there is an
effective registration statement under such Act and applicable state
securities laws covering any such transaction involving said
securities or (b) this corporation receives an opinion of legal
counsel for the holder of these securities (concurred in by legal
counsel for this corporation) stating that such transaction is
exempt from registration or this corporation otherwise satisfies
itself that such transaction is exempt from registration. Neither
the offering
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of the securities nor any offering of materials have been reviewed
by any administrator under the Securities Act of 1933 or any
applicable state law."
6.5 Transfer of Shares. The transfer of shares of the corporation shall be
made only on the stock transfer books of the corporation pursuant to
authorization or document of transfer made by the holder of record thereof or by
his or her legal representative, who shall furnish proper evidence of authority
to transfer, or by his or her attorney-in-fact authorized by power of attorney
duly executed and filed with the Secretary of the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificates for a like number of
shares shall have been surrendered and cancelled.
6.6 Lost or Destroyed Certificates. In the case of a lost, destroyed or
mutilated certificate, a new certificate may be issued therefor upon such terms
and indemnity to the corporation as the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its stockholders
and Board and such other records as may be necessary or advisable.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year,
provided that if a different accounting year is at any time selected for
purposes of federal income taxes, the accounting year shall be the year so
selected.
SECTION 9. SEAL
The seal of the corporation shall consist of the name of the corporation,
the state of its incorporation and the year of its incorporation.
SECTION 10. INDEMNIFICATION
10.1 Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved (including, without
limitation, as a witness) in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the corporation or that, being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of the corporation as a Director, officer, employee or
agent of another corporation or of a partnership,
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joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as such a Director,
officer, employee or agent or in any other capacity while serving as such a
Director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the full extent permitted by the General Corporation Law of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than permitted prior
thereto), or by other applicable law as then in effect, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) actually and reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
Director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that except
as provided in subsection 10.2 of this Section with respect to proceedings
seeking to enforce rights to indemnification, the corporation shall indemnify
any such indemnitee in connection with a proceeding (or part thereof) initiated
by such indemnitee only if such proceeding (or part thereof) was authorized or
ratified by the Board. The right to indemnification conferred in this subsection
10.1 shall be a contract right and shall include the rights to be paid by the
corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that if the General Corporation Law of Delaware requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
Director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal that such
indemnitee is not entitled to be indemnified for such expenses under this
subsection 10.1 or otherwise.
10.2 Right of Indemnitee to Bring Suit. If a claim under subsection 10.1
of this Section is not paid in full by the corporation within sixty days after a
written claim has been received by the corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. The indemnitee shall be presumed to be entitled to indemnification under
this Section upon submission of a written claim (and, in an action brought to
enforce a claim for an advancement of expenses, where the required undertaking,
if any is required, has been tendered to the corporation), and thereafter the
corporation shall have the burden of proof to overcome the presumption that the
indemnitee is not so entitled. Neither the failure of the corporation (including
its Board, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such
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suit that indemnification of the indemnitee is proper in the circumstances not
an actual determination by the corporation (including its Board, independent
legal counsel or its stockholders) that the indemnitee is not entitled to
indemnification shall be a defense to the suit or create a presumption that the
indemnitee is not so entitled.
10.3 Nonexclusivity of Rights. The rights to indemnification and to the
advancement of expenses conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
agreement, vote of stockholders or disinterested Directors, provisions of the
Certificate of Incorporation or By-laws of the corporation or otherwise.
10.4 Insurance, Contracts and Funding. The corporation may maintain
insurance, at its expense, to protect itself and any Director, officer, employee
or agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law of Delaware. The
corporation, without further stockholder approval, may enter into contracts with
any Director, officer, employee or agent in furtherance of the provisions of
this Section and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure that payment
of such amounts as may be necessary to effect indemnification as provided in
this Section.
10.5 Indemnification of Employees and Agents of the Corporation. The
corporation may, by action of the Board, grant rights to indemnification and
advancement of expenses to employees or agents or groups of employees or agents
of the corporation with the same scope and effects as the provisions of this
Section with respect to the indemnification and advancement of expenses of
Directors and officers of the corporation; provided, however, that an
undertaking shall be made by an employee or agent only if required by the Board.
10.6 Persons Serving Other Entities. Any person who is or was a Director,
officer or employee of the corporation who is or was serving as a Director or
officer of another corporation of which a majority of the shares entitled to
vote in the election of its Directors is held by the corporation shall be deemed
to be so serving at the request of the corporation and entitled to
indemnification and advancement of expenses under subsection 10.1 of this
Section.
SECTION 11. AMENDMENTS
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These By-Laws may be amended or repealed and new By-laws may be adopted by
the Board. The stockholders may also amend and repeal these By-laws or adopt new
By-laws. All By-Laws made by the Board may be amended or repealed by the
stockholders. Notwithstanding the foregoing and anything contained in the
Certificate of Incorporation of the Corporation or these By-Laws to the
contrary, Sections 2.2, 3.2, 3.14 and this Section 11 of the By-Laws of the
Corporation may not be amended or repealed by the stockholders, and no provision
inconsistent therewith may be adopted by the stockholders, without the
affirmative vote of the holders of at least 662/3% of the outstanding stock of
all classes entitled to vote thereon.
* * * * *
Adopted by Board of Directors on September 18, 1995. Approved by
Stockholders on October 17, 1995.
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Exhibit 4.4
PATHOGENESIS CORPORATION
1997 STOCK OPTION PLAN
SECTION 1. Purpose. The Purpose of the PathoGenesis Corporation 1997 Stock
Option Plan (this "Plan") is to provide a means whereby selected employees,
officers, directors, agents, consultants and independent contractors of
PathoGenesis Corporation (the "Company") or of any parent or subsidiary (as
defined in subsection 5.7 and referred to hereinafter as "related corporations")
thereof, may be granted incentive stock options and/or nonqualified stock
options to purchase the Common Stock (as defined in Section 3) of the Company,
in order to attract and retain the services or advice of such employees,
officers, directors, agents, consultants and independent contractors and to
provide added incentive to them by encouraging stock ownership in the Company.
SECTION 2. Administration.
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board"), except to the extent the Board delegates its authority to
a committee of the Board to administer this Plan. The administrator of this Plan
shall hereinafter be referred to as the "Plan Administrator."
(b) For so long as the Company's Common Stock is registered under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no
Option shall be granted to a director or officer (subject to Section 16 of the
Exchange Act) of the Company by the Board unless (i) approved in advance by the
Board or the Plan Administrator in accordance with the provisions of Rule
16b-3(d)(1) under the Exchange Act (where the Plan Administrator is composed
solely of two or more non-employee directors who satisfy the requirements of
Rule 16b-3(b)(3) under the Exchange Act), or (ii) approved in advance, or
subsequently ratified by the shareholders in accordance with the provisions of
Rule 16b-3(d)(2) under the Exchange Act. Absent such approval, no officer or
director of the Company may sell shares received upon the exercise of an option
during the six month period immediately following the grant of such option.
2.1 Procedures. The Board shall designate one of the members of the
Plan Administrator as chairman. The Plan Administrator may hold meetings at such
times and places as it shall determine. The acts of a majority of the members of
the Plan Administrator present at meetings at which a quorum exists, or acts
reduced to or approved in writing by all Plan Administrator members, shall be
valid acts of the Plan Administrator.
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2.2 Responsibilities. Except for the terms and conditions explicitly
set forth in this Plan, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options to be granted under
this Plan, including selection of the individuals to be granted options, the
number of shares to be subject to each option, the exercise price, and all other
terms and conditions of the options, including the designation of such options
as an incentive stock
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option or nonqualified stock option. Grants under this Plan need not be
identical in any respect, even when made simultaneously. The interpretation and
construction by the Plan Administrator of any terms or provisions of this Plan
or any option issued hereunder, or of any rule or regulation promulgated in
connection herewith, shall be conclusive and binding on all interested parties,
so long as such interpretations and construction with respect to incentive stock
options corresponds to the requirements of Internal Revenue Code (the "Code")
Section 422, the regulations thereunder, and any amendments thereto.
2.3 Section 16(b) Compliance and Bifurcation of Plan. It is the
intention of the Company that this Plan comply in all respects with Section
16(b) and Rule 16b-3 under the Exchange Act, to the extent applicable, and, if
any Plan provision is later found not to be in compliance with such Section or
Rule, as the case may be, the provision shall be deemed null and void, and in
all events the Plan shall be construed in favor of its meeting the requirements
of Section 16(b) and Rule 16b-3 under the Exchange Act. Notwithstanding anything
in the Plan to the contrary, the Board, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any
provision of the Plan to participants who are officers and directors or other
persons subject to Section 16(b) of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other participants.
SECTION 3. Stock Subject to This Plan. The stock subject to this Plan
shall be the Company's Common Stock (the "Common Stock") presently authorized
but unissued or subsequently acquired by the Company. Subject to adjustment as
provided in Section 7 hereof, the aggregate amount of Common Stock to be
delivered upon the exercise of all options granted under this Plan shall not
exceed 2,000,000 shares as such Common Stock was constituted on the effective
date of this Plan. If any option granted under this Plan shall expire, be
surrendered, exchanged for another option, cancelled or terminated for any
reason without having been exercised in full, the unpurchased shares subject
thereto shall thereupon again be available for purposes of this Plan, including
for replacement options which may be granted in exchange for such surrendered,
cancelled or terminated options.
SECTION 4. Eligibility. An incentive stock option may be granted only to
any individual who, at the time the option is granted, is an employee of the
Company or any related corporation. A nonqualified stock option may be granted
to any director, employee, officer, agent, consultant or independent contractor
of the Company or any related corporation, whether an individual or an entity.
Any party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee".
SECTION 5. Terms and Conditions of Options. Options granted under this
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan (the "Option
Agreement"). Notwithstanding the foregoing, options shall include or incorporate
by reference the following terms and conditions:
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<PAGE>
5.1 Number of Shares and Price. The maximum number of shares that
may be purchased pursuant to the exercise of each option and the price per share
at which such option is exercisable (the "exercise price") shall be as
established by the Plan Administrator, provided that the Plan Administrator
shall act in good faith to establish the exercise price which shall be not less
than the fair market value per share of the Common Stock at the time the option
is granted with respect to incentive stock options and not less than 85% of the
fair market value per share of the Common Stock at the time the option is
granted with respect to nonqualified stock options and also provided that, with
respect to incentive stock options granted to greater than 10% shareholders, the
exercise price shall be as required by Section 6.
5.2 Term and Maturity. Subject to the restrictions contained in
Section 6 with respect to granting incentive stock options to greater than 10%
shareholders, the term of each incentive stock option shall be as established by
the Plan Administrator and, if not so established, shall be 10 years from the
date it is granted but in no event shall the term of any incentive stock option
exceed 10 years. The term of each nonqualified stock option shall be as
established by the Plan Administrator and, if not so established, shall be 10
years from the date it is granted. To ensure that the Company or related
corporation will achieve the purpose and receive the benefits contemplated in
this Plan, any option granted to any Optionee hereunder shall, unless the
condition of this sentence is waived or modified in the agreement evidencing the
option or by resolution adopted by the Plan Administrator, be exercisable
according to the following schedule:
Period of Optionee's
Continuous Relationship
With the Company or Related
Corporation From the Date Portion of Total Option
the Option is Granted Which is Exercisable
--------------------------- ------------------------
after 1 year 25%
after 2 years 50%
after 3 years 75%
after 4 years 100%
5.3 Exercise. Subject to the vesting schedule described in
subsection 5.2 above, each option may be exercised in whole or in part;
provided, however, that no fewer than 100 shares (or the remaining shares then
purchasable under the option, if less than 100 shares) may be purchased upon any
exercise of option rights hereunder and that only whole shares will be issued
pursuant to the exercise of any option. Options shall be exercised by delivery
to the Company of notice of the number of shares with respect to which the
option is exercised, together with payment of the exercise price.
5.4 Payment of Exercise Price. Payment of the option exercise price
shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall
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be in cash, bank certified or cashier's check or personal check (unless at the
time of exercise the Plan Administrator in a particular case determines not to
accept a personal check) for the Common Stock being purchased.
The Plan Administrator can determine at the time the option is
granted for incentive stock options, or at any time before exercise for
nonqualified stock options, that additional forms of payment will be permitted.
To the extent permitted by the Plan Administrator and applicable laws and
regulations (including, but not limited to, federal tax and securities laws and
regulations and state corporate law), an option may be exercised by:
(a) delivery of shares of stock of the Company held by an Optionee
having a fair market value equal to the exercise price, such fair market value
to be determined in good faith by the Plan Administrator; provided, however,
that payment in stock held by an Optionee subject to Section 16(b) of the
Exchange Act shall not be made unless the stock shall have been owned by the
Optionee for a period of at least six months;
(b) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal, state or local
withholding tax obligations that may arise in connection with the exercise;
provided, that the Plan Administrator, in its sole discretion, may at any time
determine that this subparagraph (b), to the extent the instructions to the
broker call for an immediate sale of the shares, shall not be applicable to any
Optionee who is subject to Section 16(b) of the Exchange Act, or is not an
employee at the time of exercise;
(c) delivery of a properly executed exercise notice together with
instructions to the Company to withhold from the shares that would otherwise be
issued upon exercise that number of shares having a fair market value equal to
the option exercise price.
5.5 Withholding Tax Requirement. The Company or any related
corporation shall have the right to retain and withhold from any payment of cash
or Common Stock under the Plan the amount of taxes required by any government to
be withheld or otherwise deducted and paid with respect to such payment. At its
discretion, the Company may require an Optionee receiving shares of Common Stock
to reimburse the Company for any such taxes required to be withheld by the
Company and withhold any distribution in whole or in part until the Company is
so reimbursed. In lieu thereof, the Company shall have the right to withhold
from any other cash amounts due or to become due from the Company to the
Optionee an amount equal to such taxes or retain and withhold a number of shares
having a market value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for any such taxes and cancel
(in whole or in part) any such shares so withheld. If required by Section 16(b)
of the Exchange Act, the election to pay withholding taxes by delivery of shares
held by any person who at the time of exercise is subject to Section 16(b) of
the Exchange Act, shall be made either six
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months prior to the date the option exercise becomes taxable or at such other
times as the Company may determine as necessary to comply with Section 16(b) of
the Exchange Act.
5.6 Assignability and Transferability of Option. Options granted
under this Plan and the rights and privileges conferred hereby may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operations of law or otherwise) other than (i) by will or by the applicable laws
of descent and distribution, (ii) pursuant to a qualified domestic relations
order as defined in Section 414(p) of the Code, or Title I of the Employee
Retirement Income Security Act of 1974, as amended or the rules thereunder or
(iii) as otherwise determined by the Plan Administrator and set forth in the
applicable Option Agreement. Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under this Plan or of any right
or privilege conferred hereby, contrary to the Code or to the provisions of this
Plan, or the sale or levy or any attachment or similar process upon the rights
and privileges conferred hereby shall be null and void. The designation by an
Optionee of a beneficiary does not, in and of itself, constitute an
impermissible transfer under this Section.
5.7 Termination of Relationship. If the Optionee's relationship with
the Company or any related corporation ceases for any reason other than
termination for cause, death or total disability, and unless by its terms the
option sooner terminates or expires, then the Optionee may exercise, for a
three-month period, that portion of the Optionee's option which is exercisable
at the time of such cessation, but the Optionee's option shall terminate at the
end of the three-month period following such cessation as to all shares for
which it has not theretofore been exercised, unless, in the case of a
nonqualified stock option, such provision is waived in the agreement evidencing
the option or by resolution adopted by the Plan Administrator within 90 days of
such cessation. If, in the case of an incentive stock option, an Optionee's
relationship with the Company or related corporation changes (i.e., from
employee to nonemployee, such as a consultant), such change shall constitute a
termination of an Optionee's employment with the Company or related corporation
and the Optionee's incentive stock option shall terminate in accordance with
this subsection 5.7.
If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for dishonesty, conviction or confession of a crime
punishable by law (except minor violations), fraud, misconduct of disclosure of
confidential information. If an Optionee's relationship with the Company or any
related corporation is suspended pending an investigation of whether or not the
Optionee shall be terminated for cause, all Optionee's rights under any option
granted hereunder likewise shall be suspended during the period of
investigation.
If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the Optionee's option shall
not terminate or, in the case of an incentive
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stock option, cease to be treated as an incentive stock option until the end of
the 12 month period following such cessation (unless by its terms it sooner
terminates and expires). As used in this Plan, the term "total disability"
refers to a mental or physical impairment of the Optionee which is expected to
result in death or which has lasted or is expected to last for a continuous
period of 12 months or more and which causes the Optionee to be unable, in the
opinion of the Company and two independent physicians, to perform his or her
duties for the Company and to be engaged in any substantial gainful activity.
Total disability shall be deemed to have occurred on the first day after the
Company and the two independent physicians have furnished their opinion of total
disability to the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship
between or among the Company and/or any related corporation shall not be deemed
to constitute a cessation of relationship with the Company or any of its related
corporations. For purposes of this subsection 5.7, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
As used herein, the term "related corporation", when referring to a
subsidiary corporation, shall mean any corporation or other entity (other than
the Company) in, at the time of the granting of the option, an unbroken chain
of corporations or other entities ending with the Company, if stock or other
interests possessing 50% or more of the total combined voting power of all
classes of stock or other interests of each of the corporations or other
entities other than the Company is owned by one of the other corporations or
other entities in such chain. When referring to a parent corporation, the term
"related corporation" shall mean any corporation or other entity in an unbroken
chain of corporations or other entities ending with the Company if, at the time
of the granting of the option, each of the corporations or other entities other
than the Company owns stock or other interests possessing 50% or more of the
total combined voting power of all classes of stock or other interests in one
of the other corporations or other entities in such chain.
5.8 Death of Optionee. If an Optionee dies while he or she has a
relationship with the Company or any related corporation or within the three
month period (or 12 month period in the case of totally disabled Optionees)
following cessation of such relationship, any option held by such Optionee to
the extent that the Optionee would have been entitled to exercise such option,
may be exercised within one year after his or her death by the personal
representative of his or her estate or by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the applicable laws
of descent and distribution.
5.9 Status of Shareholder. Neither the Optionee nor any party to
which the Optionee's rights and privileges under the option may pass shall be,
or have any of the rights or privileges of, a shareholder of the Company with
respect to any of the shares issuable upon the exercise of any option granted
under this Plan unless and until such option has been exercised.
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<PAGE>
5.10 Continuation of Employment. Nothing in this Plan or in any
option granted pursuant to this Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of a related corporation, or to
interfere in any way with the right of the Company or of any such related
corporation to terminate his or her employment or other relationship with the
Company at any time.
5.11 Modification and Amendment of Option. Subject to the
requirements of Code Section 422 with respect to incentive stock options and to
the terms and conditions and within the limitations of this Plan, the Plan
Administrator may modify or amend outstanding options granted under this Plan.
The modification or amendment of an outstanding option shall not, without the
consent of the Optionee, impair or diminish any of his or her rights or any of
the obligations of the Company under such option. Except as otherwise provided
in this Plan, no outstanding option shall be terminated without the consent of
the Optionee. Unless the Optionee agrees otherwise, any changes or adjustments
made to outstanding incentive stock options granted under this Plan shall be
made in such a manner so as not to constitute a "modification" as defined in
Code Section 424(h) and so as not to cause any incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Code Section 422(b).
5.12 Limitation on Value for Incentive Stock Options. As to all
incentive stock options granted under the terms of this Plan, to the extent that
the aggregate fair market value (determined at the time the incentive stock
option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by the Optionee during any calendar year
(under this Plan and all other incentive stock option plans of the Company, a
related corporation or a predecessor corporation) exceeds $100,000, such options
shall be treated as nonqualified stock options. The previous sentence shall not
apply if the Code is amended or if the Internal Revenue Service publicly rules,
issues a private ruling to the Company, any Optionee, or any legatee, personal
representative or distributee of an Optionee or issues regulations, changing or
eliminating such annual limit, in which case the limitation shall be that
provided by the Code or the Internal Revenue Service, as the case may be.
5.13 Valuation of Common Stock Received Upon Exercise
5.13.1 Exercise of Options Under Sections 5.4(a) and (c). The
value of Common Stock received by the Optionee from an exercise under Sections
5.4(a) and 5.4(c) hereof shall be the fair market value as determined by the
Plan Administrator, provided that, if the Common Stock is traded in a public
market, such valuation shall be the average of the high and low trading prices
or bid and ask prices, as applicable, of the Common Stock for the date of
receipt by the Company of the Optionee's delivery of shares under Section 5.4(a)
hereof or delivery of the exercise notice under Section 5.4(c) hereof.
5.13.2 Exercise of Option Under Section 5.4(b). The value of
Common Stock received by the Optionee from an exercise under Section 5.4(b)
hereof shall equal (a) in the
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case of the sale of the Common Stock received as a result of the exercise by a
broker on the date of receipt by the Company of the Optionee's exercise notice,
the sales price received for such shares; and (b) in all other cases, the
average of the high and low trading prices or bid and ask prices, as applicable,
of the Common Stock for the date of receipt by the Company of the Optionee's
exercise notice.
SECTION 6. Greater Than 10% Shareholders.
6.1 Exercise Price and Term of Incentive Stock Options. If incentive
stock options are granted under this Plan to employees who own more than 10% of
the total combined voting power of all classes of stock of the Company or any
related corporation, the term of such incentive stock options shall not exceed
five years and the exercise price shall be not less than 110% of the fair market
value of the Common Stock at the time the incentive stock option is granted.
This provision shall control notwithstanding any contrary terms contained in an
option agreement or any other document. The term and exercise price limitations
of this provision shall be amended to conform to any change required by a change
in the Code or by a ruling or pronouncement of the Internal Revenue Service.
6.2 Attribution Rule. For purposes of subsection 6.1, in determining
stock ownership, an employee shall be deemed to own the stock owned, directly or
indirectly, by or for his or her brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries. If an employee or a person
related to the employee owns an unexercised option or warrant to purchase stock
of the Company, the stock subject to that portion of the option or warrant which
is unexercised shall not be counted in determining stock ownership. For purposes
of this Section 6, stock owned by an employee shall include all stock owned by
him which is actually issued and outstanding immediately before the grant of the
incentive stock option to the employee.
SECTION 7. Adjustments Upon Changes in Capitalization. The aggregate
number and class of shares for which options may be granted under this Plan, the
number and class of shares covered by each outstanding option, and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
7.1. Effect of Liquidation, Reorganization or Change in Control.
7.1.1 Cash, Stock or Other Property for Stock. Except as
provided in subsection 7.1.2, upon a merger (other than a merger of the Company
in which the holders of
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Common Stock immediately prior to the merger have the same proportionate
ownership of common stock in the surviving corporation immediately after the
merger), consolidation, acquisition of property or stock, separation,
reorganization (other than a mere reincorporation or the creation of a holding
company) or liquidation of the Company, as a result of which the shareholders of
the Company receive cash, stock or other property in exchange for or in
connection with their shares of Common Stock, any option granted hereunder shall
terminate, but the Optionee shall have the right immediately prior to any such
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise such Optionee's option in whole or in
part whether or not the vesting requirements set forth in the option agreement
have been satisfied.
7.1.2 Conversion of Options on Stock for Stock Exchange. If
the shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and corporation issuing
the Exchange Stock, in their sole discretion, determine that any or all such
options granted hereunder shall not be converted into options to purchase shares
of Exchange Stock but instead shall terminate in accordance with the provisions
of subsection 7.1.1. The amount and price of converted options shall be
determined by adjusting the amount and price of the options granted hereunder in
the same proportion as used for determining the number of shares of Exchange
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. Unless the Board
determines otherwise, the converted options shall be fully vested whether or not
the vesting requirements set forth in the option agreement have been satisfied.
7.2 Fractional Shares. In the event of any adjustment in the number
of shares covered by an option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
7.3 Determination of Board to Be Final. All Section 7 adjustments
shall be made by the Board, and its determination as to what adjustments shall
be made, and the extent thereof, shall be final, binding and conclusive. Unless
an Optionee agrees otherwise, any change or adjustment to an incentive stock
option shall be made in such a manner so as not to constitute a "modification"
as defined in Code Section 425(h) and so as not to cause his or her incentive
stock option issued hereunder to fail to continue to qualify as an incentive
stock option as defined in Code Section 422(b).
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SECTION 8. Securities Regulation. Shares shall not be issued with respect
to an option granted under this Plan unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance,
including the availability of an exemption from registration for the issuance
and sale of any shares hereunder. Inability of the Company to obtain from any
regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares hereunder
or the unavailability of an exemption from registration for the issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that such transfer is not in
violation of any applicable law or regulation, may be stamped on stock
certificates in order to assure exemption from registration. The Company may
also require such other action or agreement by the Optionees as it may from
time to time deem to be necessary or advisable to comply with the federal and
state securities laws. THE COMPANY SHALL NOT BE OBLIGATED, BY REASON OF THIS
PROVISION OR OTHERWISE TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. Amendment and Termination.
9.1 Board Action. The Board may at any time suspend, amend or
terminate this Plan, provided that except as set forth in Section 7, the
approval of the holders of a majority of the Company's outstanding shares of
voting capital stock is necessary for the adoption by the Board of any amendment
which will:
(a) increase the number of shares which are to be reserved for
the issuance of options under this Plan;
- 11 -
<PAGE>
(b) permit the granting of stock options to a class of persons
other than those presently permitted to receive stock options under this Plan;
or
(c) require shareholder approval under applicable law,
including Section 16(b) of the Exchange Act.
9.2 Automatic Termination. Unless sooner terminated by the Board,
this Plan shall terminate ten years from the earlier of (a) the date on which
this Plan is adopted by the Board or (b) the date on which this Plan is approved
by the shareholders of the Company. No option may be granted after such
termination or during any suspension of this Plan. The amendment or termination
of this Plan shall not, without the consent of the option holder, alter or
impair any rights or obligations under any option theretofore granted under this
Plan.
SECTION 10. Effectiveness Of This Plan. This Plan shall become effective
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock at any time
within 12 months before or after the adoption of this Plan.
Adopted by the Board of Directors on January 8, 1997 and approved by the
stockholders on _______________ .
- 12 -
<PAGE>
PATHOGENESIS CORPORATION
NONQUALIFIED STOCK OPTION LETTER AGREEMENT
Date:_______________
TO: ______________________
We are pleased to inform you that you have been selected by the Plan
Administrator of PathoGenesis Corporation (the "Company") 1997 Stock Option Plan
(the "Plan"). The Plan was adopted by the Board of Directors, subject to
stockholder approval, which approval will be sought at the Company's 1997 Annual
Meeting of Stockholders. When you sign and return to the Company the Acceptance
and Acknowledgment attached to this Stock Option Agreement you will be entitled
to receive a nonqualified option for the purchase of ________ shares of the
Company's Common Stock at an exercise price of $____ per share (the "exercise
price"), subject to the vesting provisions set forth herein and subject to
stockholder approval of the Plan. A copy of the Plan is attached and the
provisions thereof, including, without limitation, those relating to withholding
taxes, are incorporated into this Agreement by reference. It is understood that
this Option is not intended to constitute an incentive stock option as that term
is defined in Section 422A of the Internal Revenue Code of 1986, as amended.
The terms of the option are as set forth in the Plan and in this
Agreement. The most important of the terms set forth in the Plan are summarized
as follows:
Term: The term of the option is ten years from date of grant, unless
sooner terminated.
Exercise: During your lifetime only you can exercise the option. The Plan
also provides for exercise of the option by the personal representative of your
estate or the beneficiary thereof following your death. The vested portion of
the option may be exercised, in whole or in part, but not as to any fractional
shares, during the term of the option. You may use the Notice of Exercise of
Nonqualified Stock Option in the form attached to this Agreement when you
exercise the option.
Notice: All notices sent in connection with this option whall be in
writing and, if to the Company, shall be delivered personally to the President
of the Company or mailed to its principal office, addressed to the attention of
the President and, if to you, shall be delivered personally or mailed to you at
the address noted on the attached Acceptance and Acknowledgment. Such addresses
may be changed at any time by notice from one party to the other.
Payment for Shares: The vested portion of this option may be exercised by
the delivery of:
(a) Cash, personal check (unless, at the time of exercise, the Plan
Administrator determines otherwise), bank certified or cashier's checks;
- 1 -
<PAGE>
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, shares of the capital stock of the Company held by you having a fair
market value at the time of exercise, as determined in good faith by the Plan
Administrator, equal to the exercise price;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed exercise notice together with instructions to the
Company to withhold from the shares that would otherwise be issued upon exercise
that number of shares having a fair market value equal to the option exercise
price; or
(d) A properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
Upon receipt of written notice of exercise and payment and delivery of any
other required documentation, the Company shall deliver to the person
exercising the option a certicate or certificates for such shares. It shall be a
condition to the performance of the Company's obligation to issue or transfer
Common Stock upon exercise of this option that you pay, or make provision
satisfactory to the Company for the payment of, any taxes which the Company is
obligated to collect with respect to the issue or transfer of Common Stock upon
exercise.
Termination: The option will terminate immediately upon termination for
cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or a related corporation, unless cessation is due
to death or total disability, in which case the option shall terminate one year
after cessation of such relationship. All unvested options will terminate
immediately upon the cessation of your relationship with the Company or
Affiliate for any reason, including, without limitation, termination for cause,
resignation, death or disability.
Transfer of Option: The option is not transferable except by will or by
the applicable laws of descent and distribution or pursuant to a qualified
domestic relations order.
Vesting: The option is vested according to the following schedule:
Period of Optionee's
Continuous Relationship
With the Company or Related
Corporation From the Date Portion of Total Option
the Option is Granted Which is Exercisable
--------------------------- -----------------------
after 1 year 25%
after 2 years 50%
after 3 years 75%
after 4 years 100%
- 2 -
<PAGE>
Date of Grant: The date of grant of the option is _______________.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING
THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR
SELLING THE SHARES UNDERLYING SUCH OPTIONS.
You understand that it is the intention of the Company that this Plan
comply in all respects with Section 16(b) and Rule 16b-3 under the Exchange Act,
to the extent applicable, and, if any Plan provision is later found not to be in
compliance with such Section or Rule, as the case may be, the provision shall be
deemed null and void, and in all events the Plan shall be construed in favor of
its meeting the requirements of Section 16(b) and Rule 16b-3 under the Exchange
Act. Notwithstanding anything in the Plan to the contrary, the Board, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to participants who are officers
and directors or other persons subject to Section 16(b) of the Exchange Act
without so restricting, limiting or conditioning the Plan with respect to other
participants.
All decisions or interpretations made by the Plan Administrator with
regard to any question arising hereunder or under the Plan shall be binding and
conclusive on the Company and you.
This Agreement shall bind and inure to the benefit of the parties hereto
and the successors and assigns of the Company and, to the extent provided in the
Plan, your executors, adminstrators, legatees and heirs.
- 3 -
<PAGE>
Please execute the Acceptance and Acknowledgement set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
PathoGenesis Corporation
By: _______________________________
Wilbur H. Gantz
President and Chief Executive
Officer
- 4 -
<PAGE>
ACCEPTANCE AND ACKNOWLEDGEMENT
I, a resident of the State of ______________, accept the nonqualified
stock option described above and in PathoGenesis Corporation's 1997 Stock
Option Plan, and acknowledge receipt of a copy of this Agreement, including a
copy of the Plan. I have read and understand this Agreement and the Plan,
including the provisions of Section 8.
Dated: _____________________
- --------------------------------------- -----------------------------------
Taxpayer I.D. Number
By his or her signature below, the spouse of the Optionee, if such
Optionee is legally married as of the date of his or her execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of this Agreement and the Plan.
Dated: _____________________
------------------------------
Spouse's Signature
------------------------------
Printed Name
- 5 -
<PAGE>
NOTICE OF EXERCISE
PATHOGENESIS CORPORATION
201 Elliott Avneue West, #150
Seattle, Washington 98119
Gentlemen:
I hereby exercise my right to purchase ______ shares of Common Stock (the
"Shares") of PathoGenesis Corporation, a Delaware corporation, pursuant to, and
in accordance with, the PathoGenesis Corporataion 1997 Nonqualified Stock Option
Agreement ("Agreement") dated __________. As provided in that Agreement, I
deliver herewith a certified or bank cashier's check in the amount of the
aggregate option price. Please deliver to me stock certificates representing the
subject shares registered as follows:
Name:______________________________________
Address:____________________________________
------------------------------------
Social Security Number:_______________________
The aggregate exercise price is $___________ (total number of shares to be
purchased x $____ per share).
1. If the sale of the Shares and the resale thereof has not, prior to the
date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"), the
undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own
account (and not for the account of others), for investment and not with a view
to the distribution or resale thereof;
(b) By virtue of his or her position, the undersigned has access to
the same kind of information which would be available in a registration
statement filed under the Act;
(c) the undersigned is a sophisticated investor;
- 1 -
<PAGE>
(d) the undersigned understands that he or she may not sell or
otherwise dispose of the Shares in the absence of either (i) a registration
statement filed under the Act or (ii) an exemption from the registration
provisions thereof; and
(e) The certificates representing the Shares may contain a legend to
the effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a registration statement filed and declared effective under the Act,
the undersigned hereby represents and warrants that he or she has received the
applicable prospectus and a copy of the most recent annual report, as well as
all other material sent to stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of Common
Stock represented by the Shares.
4. The undersigned understands that there are certain tax implications to
his or her exercise of his or her right to purchase shares of Common Stock under
the Agreement. The undersigned further understands that it is his or her
obligation to confer with his or her own tax advisor with respect to such tax
implications.
Very truly yours,
------------------------------------
(signature)
------------------------------------
(please type or print name)
- 2 -
<PAGE>
PATHOGENESIS CORPORATION
INCENTIVE STOCK OPTION LETTER AGREEMENT
Date:_________________
TO: _____________________
We are pleased to inform you that you have been selected by the Plan
Administrator of the PathoGenesis Corporation (the "Company") 1997 Stock Option
Plan (the "Plan"). The Plan was adopted by the Board of Directors, subject to
stockholder approval, which approval will be sought at the Company's 1997 Annual
Meeting of Stockholders. When you sign and return to the Company the Acceptance
and Acknowledgment attached to this Stock Option Agreement you will be entitled
to receive an incentive option for the purchase of ________ shares of the
Company's common stock, $.001 par value, at an exercise price of $_____ per
share (the "exercise price") subject to the vesting provisions set forth herein
and subject to stockholder approval. A copy of the Plan is attached and the
provisions thereof, including, without limitation, those relating to withholding
taxes, are incorporated into this Agreement by reference.
The terms of the option are as set forth in the Plan and in this
Agreement. The most important of the terms set forth in the Plan are summarized
as follows:
Term. The term of the option is ten years from date of grant, unless
sooner terminated.
Exercise. During your lifetime only you can exercise the option. The Plan
also provides for exercise of the option by the personal representative of your
estate or the beneficiary thereof following your death. The vested portion of
the option may be exercised, in whole or in part, but not as to any fractional
shares, during the term of the option. You may use the Notice of Exercise of
Incentive Stock Option in the form attached to this Agreement when you exercise
the option.
Notice: All notices sent in connection with this option whall be in
writing and, if to the Company, shall be delivered personally to the President
of the Company or mailed to its principal office, addressed to the attention of
the President and, if to you, shall be delivered personally or mailed to you at
the address noted on the attached Acceptance and Acknowledgment. Such addresses
may be changed at any time by notice from one party to the other.
Payment for Shares. The vested portion of this option may be exercised by
the delivery of:
(a) Cash, personal check (unless at the time of exercise the Plan
Administrator determines otherwise), or bank certified or cashier's checks;
- 1 -
<PAGE>
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed exercise notice together with instructions to the
Company to withhold from the shares that would otherwise be issued upon exercise
that number of shares having a fair market value equal to the option exercise
price; or
(d) A properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
Upon receipt of written notice of exercise and payment and delivery of any
other required documentation, the Company shall deliver to the person
exercising the option a certicate or certificates for such shares. It shall be a
condition to the performance of the Company's obligation to issue or transfer
Common Stock upon exercise of this option that you pay, or make provision
satisfactory to the Company for the payment of , any taxes which the Company is
obligated to collect with respect to the issue or transfer of Common Stock upon
exercise.
Termination. All vested options will terminate immediately upon
termination for cause, as defined in the Plan, or three months after cessation
of your relationship with the Company or an Affiliate thereof, unless cessation
is due to death or total disability, in which case the option shall terminate
one year after cessation of such relationship. All unvested options will
terminate immediately upon the cessation of your relationship with the Company
or Affiliate for any reason, including, without limitation, termination for
cause, resignation, death or disability.
Transfer of Option. The option is not transferable except by will or by
the applicable laws of descent and distribution or pursuant to a qualified
domestic relations order.
Vesting. The option is vested according to the following schedule:
Period of Optionee's
Continuous Relationship
With the Company or an
Affiliate From the Date Portion of Total Option
The Option is Granted Which is Exercisable
----------------------- -----------------------
after 1 year 25%
after 2 years 50%
after 3 years 75%
after 4 years 100%
- 2 -
<PAGE>
Date of Grant. The date of grant of the option is ______________.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING
THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR
SELLING THE SHARES UNDERLYING SUCH OPTIONS.
You understand that it is the intention of the Company that this Plan
comply in all respects with Section 16(b) and Rule 16b-3 under the Exchange Act,
to the extent applicable, and, if any Plan provision is later found not to be in
compliance with such Section or Rule, as the case may be, the provision shall be
deemed null and void, and in all events the Plan shall be construed in favor of
its meeting the requirements of Section 16(b) and Rule 16b-3 under the Exchange
Act. Notwithstanding anything in the Plan to the contrary, the Board, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to participants who are officers
and directors or other persons subject to Section 16(b) of the Exchange Act
without so restricting, limiting or conditioning the Plan with respect to other
participants.
All decisions or interpretations made by the Plan Administrator with
regard to any question arising hereunder or under the Plan shall be binding and
conclusive on the Company and you.
This Agreement shall bind and inure to the benefit of the parties hereto
and the successors and assigns of the Company and, to the extent provided in the
Plan, your executors, adminstrators, legatees and heirs.
- 3 -
<PAGE>
Please execute the Acceptance and Acknowledgment set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
PathoGenesis Corporation
By:_________________________
Name: Wilbur H. Gantz
Title: President and Chief Executive
Officer
- 4 -
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
I, a resident of the State of __________, accept the stock option
described above granted under the PahtoGenesis Corporation 1997 Stock Option
Plan, and acknowledge receipt of a copy of this Agreement, including a copy of
the Plan. I have read and understand this Agreement and the Plan, including
the provisions of Section 8 thereof.
Dated: _____________________
- --------------------------------------- ------------------------------------
Taxpayer I.D. Number Signature
By his or her signature below, the spouse of the Optionee, if such
Optionee is legally married as of the date of such Optionee's execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of this Agreement and the Plan.
Dated: _____________________
------------------------------
Spouse's Signature
------------------------------
Printed Name
- 5 -
<PAGE>
NOTICE OF EXERCISE
PATHOGENESIS CORPORATION
201 Elliott Avneue West, #150
Seattle, Washington 98119
Gentlemen:
I hereby exercise my right to purchase ______ shares of Common Stock (the
"Shares") of PathoGenesis Corporation, a Delaware corporation, pursuant to, and
in accordance with, the PathoGenesis Corporataion 1997 Incentive Stock Option
Agreement ("Agreement") dated __________. As provided in that Agreement, I
deliver herewith a certified or bank cashier's check in the amount of the
aggregate option price. Please deliver to me stock certificates representing the
subject shares registered as follows:
Name:______________________________________
Address:____________________________________
------------------------------------
Social Security Number:_____________________
The aggregate exercise price is $___________ (total number of shares to be
purchased x $____ per share).
1. If the sale of the Shares and the resale thereof has not, prior to the
date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"), the
undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own
account (and not for the account of others), for investment and not with a view
to the distribution or resale thereof;
(b) By virtue of his or her position, the undersigned has access to
the same kind of information which would be available in a registration
statement filed under the Act;
(c) the undersigned is a sophisticated investor;
- 1 -
<PAGE>
(d) the undersigned understands that he or she may not sell or
otherwise dispose of the Shares in the absence of either (i) a registration
statement filed under the Act or (ii) an exemption from the registration
provisions thereof; and
(e) The certificates representing the Shares may contain a legend to
the effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a registration statement filed and declared effective under the Act,
the undersigned hereby represents and warrants that he or she has received the
applicable prospectus and a copy of the most recent annual report, as well as
all other material sent to stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of Common
Stock represented by the Shares.
4. The undersigned understands that there are certain tax implications to
his or her exercise of his or her right to purchase shares of Common Stock under
the Agreement. The undersigned further understands that it is his or her
obligation to confer with his or her own tax advisor with respect to such tax
implications.
Very truly yours,
------------------------------------
(signature)
------------------------------------
(please type or print name)
- 2 -
<PAGE>
Exhibit 10.4
PATHOGENESIS CORPORATION
Employee Agreement
In consideration of my employment by PathoGenesis Corporation or any of its
subsidiaries and affiliates (the "Company"), any opportunities for advancement
or reassignment which the Company may from time to time offer me, the
compensation paid to me in connection with such employment and any capital stock
of the Company and/or stock options which have been or may be granted to me by
the Company, I agree as follows:
1. Definitions
For purposes of this Agreement the term:
(a) "Invention" includes any machine, article of manufacture, biological
material, method, discovery, process, use, device, apparatus, system,
chemical compound, formulation, composition of matter, design or
configuration of any kind, or any improvement thereon (including all data,
records and other materials related thereto), whether patentable or
unpatentable.
(b) "Proprietary Information" means all information concerning the Company
except that which is generally known publicly, or information entrusted to
the Company by third parties. This includes information which may relate,
for example, to Inventions, research, development, manufacturing,
purchasing, accounting, marketing or selling. The information may be
contained in material such as drawings, data, specifications, reports,
customer lists, compilations or computer programs, or may be in the nature
of unwritten knowledge, know-how or trade secrets.
2. Ownership and Protection of Proprietary Information
All Proprietary Information which I conceive or develop, either alone or
with others, during the term of my employment, and all notes, memoranda,
reports, drawings, blueprints, manuals, materials, data and other records
relating thereto which shall come into my possession during the term of my
employment, shall be the exclusive property of the Company. I will preserve
in confidence and will not disclose or use, either during or after the term
of my employment, any Proprietary Information known to me as a result of my
employment except as required in my work for the Company or as authorized
in writing by the Company. Upon termination of my employment or upon
request, I will deliver to the Company all Proprietary Information and
materials related thereto in my possession.
3. Covenant Not to Compete, Disclose or Solicit
During the term of my employment and for 12 months thereafter, I will not:
(a) for my benefit or the benefit of others, engage or assist others to
engage in the same or similar activity that I was performing for the
Company relating to any product similar to a product offered or being
developed by the Company, or engage in any activity which could reasonably
be anticipated to require or expected to result in the use or disclosure of
any Proprietary Information known to me as a result of my employment with
the Company; or (b) directly or indirectly solicit, induce or in any
manner influence any person who is, or shall be, employed by the Company,
to leave such employment for the purpose of engaging in a business, or
being employed by or associated with any person or entity.
1
<PAGE>
4. Inventions
(a) Any Invention which I conceive, develop or first actually reduce to
practice, either alone or with others during the term of my employment
shall be the exclusive property of the Company. I will promptly and fully
disclose to the Company any such Invention. During my employment and
thereafter, upon request, I will execute all papers in a timely manner and
to all acts necessary to apply for and secure patents on the Inventions in
the United States and foreign countries, and I will execute all papers and
do any and all acts necessary to assign and transfer to the Company or any
person or party or entity designated by the Company, the whole right, title
and interest to the Invention and any applications for patents in the
United States and foreign countries, and I will do all things necessary to
sustain and maintain such applications, patents and assignments. The
Company will pay all reasonable expenses related to such activities.
(b) I hereby represent and warrant that except as set forth on the attached
list of Inventions, patent applications and patents made or conceived by me
prior to my employment with the Company which are subject to prior
agreements and which I desire to exclude from this Agreement, I have no
other employment arrangements, and have made no undertakings which would
restrict or impair my performance of this Agreement, except as set forth in
the Employment Agreement dated July 1, 1996. If no such list is attached, I
hereby represent and warrant that there are no such Inventions, patent
applications or patents.
(c) In accordance with Company's policy and State of Washington law, this
Agreement does not apply to, and I have no obligation to assign to the
Company, any invention for which no Company trade secrets, and no
equipment, supplies, or facilities of the Company were used, and which was
developed entirely on my own time, unless: (i) the invention relates
directly to the Company's own business; (ii) the invention relates to
Company's existing or demonstrably anticipated research or development
work; or (iii) the invention results from my work for the Company.
5. Copyrights
The Company shall own the copyrights in all writings and other works
prepared by me during my employment with the Company that may be
copyrighted and that are related to the present or planned business of the
Company.
6. Miscellaneous
(a) The obligations of this Agreement shall continue beyond the termination of
employment and shall be binding on me and my heirs, assigns and legal
representatives. This Agreement is for the benefit of the Company, its
successors and assigns, and is not conditioned on employment for any period
of time or compensation therefor.
(b) If any provision or term of this Agreement is found by any court of
competent jurisdiction to be unenforceable, the remaining terms and
provisions of this Agreement shall remain in full force and effect as if
such unenforceable provision or term had never been a part hereof.
(c) This Agreement shall be governed by and construed in accordance with the
laws of the state of Washington.
2
<PAGE>
DATE: July 1, 1996
------------------------
/s/Marc F. Wipperman
-------------------------------
Marc F. Wipperman
PATHOGENESIS CORPORATION
By /s/Walter H. Gantz
---------------------------
Its Pres. and CEO
---------------------------
3
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into on 11/11/96 by and between Marc F. Wipperman
("Wipperman") and PathoGenesis Corporation, a Delaware corporation (the
"Company"), with an effective date of July 1, 1996 (the "Effective Date").
WHEREAS, the Company desires to employ Wipperman and Wipperman desires to
be so employed;
WHEREAS, the Company and Wipperman desire to set forth in writing the terms
of their agreement with respect to Wipperman's employment;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs Wipperman and Wipperman hereby
accepts employment on a full-time basis upon the terms and conditions set forth
in this Agreement.
2. Term. Wipperman's employment hereunder will commence on the Effective
Date and will continue until June 30, 2000, except as provided under this
Agreement. Thereafter, Wipperman's employment will be automatically renewed for
successive quarterly terms, unless written notice of termination is given by
either party to the other at least sixty days before the expiration of the then
current term.
3. Duties. Wipperman will perform such duties as may be determined and
assigned to him from time to time by the Board and/or officer(s) of the Company
to whom he reports, and will be given such powers and authority as may be needed
to carry out those duties. If Wipperman shall be designated as a member of any
board or committee of the Company or to any other office of the Company or any
of its subsidiaries or affiliates, he agrees to serve in such capacity or
capacities without additional compensation. Wipperman agrees to devote all of
his working time and best efforts to the performance of his duties as an
employee of the Company. Wipperman agrees that while he is employed by the
Company, he will not engage in any other business activities or pursuits,
whether on his own behalf or on behalf of any other person, firm or corporation,
except that Wipperman may participate in the operation of Certified
Manufacturing Corporation ("CMC") until December 31, 1996 to the extent
necessary to wind up the operation of CMC, it being agreed that PathoGenesis'
affairs must receive priority and that Wipperman's participation in the
operations of CMC shall not adversely interfere with Wipperman's obligations to
the Company.
4. Compensation. The Company will pay Wipperman an annual base salary of
$190,000 for the year commencing July 1, 1996, which amount may be increased by
the Board of Directors for each subsequent year of this employment with an
annual review date consistent with that of other senior executives of the
Company. Wipperman's annual base salary will be payable in equal installments
not less frequently than monthly in accordance with the policy of the Company in
effect during the term of his employment. Wipperman will be eligible to receive
an annual discretionary bonus of up to 25% of the annual base salary paid or
payable to him during each calendar year of his employment. The amount of each
annual bonus, if any, will be determined by
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the Board in its sole discretion; and the Board may take into account such
factors as it may determine in its sole discretion including, but not limited to
the performance of Wipperman and of the Company during the calendar year. The
Company has granted Wipperman an Incentive Stock Option, under the Company's
1992 Stock Option Plan, to purchase 40,000 shares of the Company's common stock
at an exercise price determined by the Company at the time of grant. A copy of
the plan is attached as Exhibit A.
5. Travel Expenses. Wipperman acknowledges and agrees that his position
is expected to require travel, including both domestic and international travel.
The Company will reimburse Wipperman for travel, entertainment and other out-of-
pocket expenses reasonably incurred by him in the performance of his duties
under this Agreement upon timely presentation to and approval by the Company of
appropriate vouchers or receipts.
6. Benefits. During the term of his employment, Wipperman will be
eligible for all of the Company's employee benefits that are generally made
available to all employees of the Company in accordance with the terms of the
Company's employee benefit plans and programs.
7. Termination of Employment.
(a) Death. Wipperman's employment hereunder shall terminate upon his
death.
(b) Disability. If during his employment by the Company Wipperman becomes
physically or mentally disabled, whether totally or partially, so that Wipperman
is unable to perform his services hereunder with reasonable accommodation as
defined under the Americans with Disabilities Act for an aggregate of 180 days
during any 270 day period, the Company, by written notice to Wipperman may
terminate Wipperman's employment hereunder. Upon such termination, Wipperman
shall be entitled to receive compensation earned prior to the date of such
notice and, other than as set forth in this sentence, Wipperman shall have no
right to receive any compensation or benefit hereunder on or after a notice of
termination is given pursuant to this paragraph 7(b) other than pursuant to the
Company's disability insurance policies. Nothing contained in this paragraph
7(b) shall be deemed to extend the term of Wipperman's employment under this
Agreement. Notwithstanding the foregoing, in the event at any time Wipperman is
receiving benefit payments under disability insurance policies paid for by the
Company, then amounts otherwise due Wipperman under this Agreement shall be
reduced by the amounts so received by Wipperman under such policies.
(c) Termination for Cause. In addition to any other rights or remedies
available to the Company, the Company may terminate Wipperman's employment
hereunder for Cause. For purpose of this Agreement, the term "Cause" means (i)
any failure or refusal of Wipperman to adequately perform employment duties and
obligations hereunder as reasonably determined by the Company which is not cured
within thirty days after written notice from the Company, of the ways in which
Wipperman's job performance is unsatisfactory, (ii) any material breach by
Wipperman of the other provisions of this Agreement as reasonably determined by
the Company which is not cured within thirty days after written notice from the
Company, (iii) any conduct constituting a crime involving dishonesty or moral
turpitude or any conduct which is materially injurious to the Company as
reasonably determined by the Company, or (iv) any other reason that would
constitute cause under Washington state law.
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(d) Other Remedies. Notwithstanding the Company's right to terminate
Wipperman's employment for Cause, the Company may, in addition, pursue other
remedies in law or equity in the event of any breach of this Agreement by
Wipperman.
8. Restrictive Covenants. Wipperman acknowledges and agrees that he has
executed and delivered to the Company an Employee Agreement dated July 1, 1996,
a copy of which is attached as Exhibit B, which is and shall remain in full
force and effect in accordance with its terms.
9. Indemnification. The Company will indemnify Wipperman consistent with
the Company's indemnification policies applicable to all officers of the
Company; provided however that in no event shall the Company indemnify Wipperman
for willful misconduct, fraud or gross negligence.
(a) No Prior Agreements. Wipperman represents and warrants that he is not
bound by any agreement or any other existing or previous business relationship
or in any other way which conflicts with, or may prevent or otherwise conflict
with, the full performance of his obligations and duties under this Agreement.
10. Notices. Any notice under this Agreement must be in writing and will
be deemed to have been given when personally delivered or mailed by first-class
or express mail to the recipient at the following address (or such other address
as shall be specified by prior written notice):
To the Company:
PathoGenesis Corporation
201 Elliott Avenue West, Suite 150
Seattle, WA 98119
Attention: Chief Executive Officer
Chief Financial Officer
To Marc F. Wipperman:
Marc F. Wipperman
2 Hyde Road
Flemington, NJ 08822
11. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law.
If any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or the interpretation of this Agreement in any other jurisdiction.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of Washington, without regard to the law
of conflicts.
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13. Successors and Assigns. The rights and services and duties to be
performed by Wipperman hereunder are personal and may not be assigned or
delegated in any way. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and Wipperman, his heirs and
legal representatives. Without limiting the generality of the foregoing, the
Company shall have the right to assign this Agreement to any subsidiary or
affiliate of the Company.
14. Complete Agreement. This Agreement along with the Employee Agreement
constitutes the entire agreement between the parties concerning the subject
matter hereof.
15. Waiver. Failure by either party to insist upon strict adherence to any
one or more of the provisions of this Agreement on one or more occasions shall
not be construed as a waiver, nor shall it deprive that party of the right to
require strict compliance thereafter.
16. Survival. The obligations set forth in paragraphs 8, 9, 9(a) and 10,
and to the extent applicable, 11, 12, 13, 14, 15, 16, 17, and 18, shall survive
termination of this Agreement.
17. Amendments. No amendment hereto, or waivers or releases of obligations
or liabilities hereunder or under the Employee Agreement, shall be effective
unless agreed to in writing, signed by the parties hereto.
18. Withholding. The Company may deduct and withhold from the payments to
be made to Wipperman hereunder any amounts required to be deducted and withheld
by the Company for Wipperman under the provision of any statute, law, regulation
or ordinance now or hereafter enacted and advances, debts or other financial
obligations owed by Wipperman to the Company. In addition, in the event that the
Company reasonably determines that it is required to make any payments of
withholding taxes as a result of Wipperman's receipt of any other compensation
or benefits pursuant to the terms of this Agreement, the Company may, as a
condition to such receipt, require that Wipperman provide the Company with an
amount of cash sufficient to enable the Company to pay such withholding taxes.
19. Reference to the Board of Directors. Whenever any reference to or
power of the Company or the Board of Directors is provided or contemplated in
this Agreement, such reference or power shall mean that of the Board of
Directors of the Company and/or its designee(s).
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date above written.
PathoGenesis Corporation
By: /s/ Walter H. Gantz
--------------------------
Its: Pres. and CEO
-------------------------
/s/ Marc F. Wipperman
------------------------------
Marc F. Wipperman
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Exhibit 10.10
CONSULTING AGREEMENT
This Agreement (the "Agreement") is entered into as of October 1, 1996, by
and between Arnold Smith, M.D. ("Consultant") and PathoGenesis Corporation (the
"Company"). The Company and Consultant are sometimes collectively referred to
herein as the "Parties" and individually as a "Party".
In consideration of the mutual covenants and agreements set forth herein,
the Parties agree as follows:
1. Consulting Services. The Company engages Consultant as an independent
contractor, and not as an employee, to render consulting services to the Company
as hereinafter provided, and Consultant hereby accepts such engagement, for a
period commencing on October 1, 1996 and terminating on September 30, 2000. The
Parties agree that Consultant will not have any authority to bind or act on
behalf of the Company. During this period, Consultant shall render such
consulting and advisory services in connection with the Company's business as
the Company from time to time requests, which services shall include, but not be
limited to, those relating to membership on the Company's Science Advisory
Board. Consultant shall perform such services as and where requested by Company
and when agreed to mutually by Company and Consultant.
2. Compensation. In consideration of Consultant's services set forth in
paragraph 1 above, the Company will pay to Consultant $50,000 per year, such
payment to be made in quarterly installments. In addition, the Company will
grant Consultant an option, under the Company's 1992 Stock Option Plan, to
purchase 10,000 shares of the Company's common stock at an exercise price
determined by the Company at the time of grant. A copy of the plan is attached.
The Company shall also promptly reimburse Consultant for reasonable travel
expenses actually incurred by Consultant in connection with such services.
3. Termination. This Consulting Agreement shall terminate on September
30, 2000 unless either the Company or Consultant delivers written notice to the
other Party, indicating such Party's intention to terminate this Consulting
Agreement. This Consulting Agreement shall then terminate 30 days after the
delivery of such termination notice.
1.
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4. Confidential Information. Consultant acknowledges that the
information, observations and data relating to the business of the Company and
its respective affiliates which Consultant has obtained as a consultant of the
Company or will obtain during the course of Consultant's association with the
Company and its affiliates and Consultant's performance under this Agreement are
the property of the Company. Consultant agrees that Consultant will not use
property of the Company. Consultant agrees that Consultant will not use for
Consultant's own purposes or disclose to any third party any of such
information, observations or data without the prior written consent of A. Bruce
Montgomery, M.D., Senior Vice President of the Company, unless and to the extent
that the aforementioned matters become generally known to and available for use
by the public other than as a result of Consultant's acts or omissions to act.
The disclosure of any of such information or data in a publication, such as a
patent, shall not alter Consultant's obligations under this paragraph with
respect to any information, observations or data not included in such
publication.
Notwithstanding any other provision hereof, Consultant shall provide the
Company with prompt notice of any judicial, administrative, governmental or
other order, request or demand to disclose any of such information, observations
or data.
5. Intellectual Property. In the event that Consultant as part of
Consultant's activities on behalf of, or pursuant to any agreement with, the
Company generates or contributes to any invention, design, new development,
device, product, method or process (whether or not patentable or reduced to
practice) (collectively, "Intellectual Property"), Consultant acknowledges that
such Intellectual Property is the exclusive property of the Company and hereby
assigns all right, title and interest in and to such Intellectual Property to
the Company. Consultant will promptly and fully disclose all Intellectual
Property to the Company and will cooperate with the Company to protect the
Company's interests in and rights to such Intellectual Property (including,
without limitation, providing reasonable assistance in securing patent
protection and executing all documents as reasonably requested by the Company).
6. Tax Returns. Consultant agrees that Consultant will file all tax
returns and reports required to be filed by Consultant on the basis that
Consultant is an independent contractor, rather than an employee, as defined in
Treasury Regulation SS.31.3121(d) - 1(c) (2). Further, Consultant agrees that
Consultant will indemnify the Company for the amount of any employment taxes
paid by the Company as the result
2.
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of the Company not withholding employment taxes from the Consulting Payment. The
Consultant's tax identification or social security number is 91-1543454.
7. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Company and its affiliates, successors and assigns and
shall be binding upon and inure to the benefit of Consultant and Consultant's
legal representatives and assigns; provided that in no event shall Consultant's
obligations to perform future services for the Company be delegated or
transferred by Consultant without the prior written consent of the Company
(which consent may be withheld in its sole discretion). The Company may assign
or transfer its rights hereunder to any of its affiliates or to a successor
corporation in the event of merger, consolidation or transfer or sale of all or
substantially all of the assets of the Company.
8. Modification of Waiver. No amendment, modification or waiver of this
Agreement shall be binding or effective for any purpose unless it is made in
writing signed by the Party against who enforcement of such amendment,
modification or waiver is sought. No course of dealing between the Parties to
this Agreement shall be deemed to affect or to modify, amend or discharge any
provision or term of this Agreement. No delay on the part of the Company or
Consultant in the exercise of any of their respective rights or remedies shall
operate as a waiver thereof, and no single or partial exercise by the Company or
Consultant of any such right or remedy shall preclude other or further exercises
thereof. A waiver of right or remedy on any one occasion shall not be construed
as a bar to or waiver of any such right or remedy on any other occasion.
9. Governing Law. This Agreement shall in all respects be interpreted,
enforced, governed by and construed under the laws of the State of Illinois,
excluding that body of law applicable to choice of law.
10. Severability. Whenever possible each provision and term of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision or term of this Agreement shall be held to
be prohibited by or invalid under such applicable law, then such provision or
term shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement.
3.
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11. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the Parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any Party.
12. Consultant's Representations. Consultant represents and warrants to
the Company that Consultant's execution and delivery of this Agreement does not
conflict with, or result in the breach of or violation of, any other agreement,
order, judgment or decree to which Consultant is bound.
13. Notice. Any notice required or permitted hereunder shall be given in
writing and mailed (by certified or registered mail), telecopied (confirmed by
certified or registered mail), cabled or personally delivered to the other Party
hereto at Party's address or telecopy number shown below:
If to the Company:
PathoGenesis Corporation
201 Elliott Avenue West, Suite 150
Seattle, Washington 98119
Attn: A. Bruce Montgomery, M.D., Senior Vice President
Telecopy: (206) 282-5065
If to Consultant:
Arnold Smith, M.D.
Department of Molecular Microbiology
and Immunology
University of Missouri
M-642, Medical Center Drive
Columbia, Missouri 65212
or at such other address or telecopy number as such Party may designate by ten
days advance written notice to the other Party.
14. Captions. The captions used in this Agreement are for convenience of
reference only and do not constitute a part of this Agreement and will not be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement will be enforced and construed
as if no caption had been used in this Agreement.
4.
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15. Counterparts. This Agreement may be executed in counterparts, any one
of which need not contain the signatures of more than one party, but all such
counterparts taken together will constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Consulting Agreement
as of the date first above written.
PATHOGENESIS CORPORATION
/s/A. Bruce Montgomery, M.D.
----------------------------------
A. Bruce Montgomery, M.D.
Senior Vice President
CONSULTANT
/s/Arnold Smith, M.D.
----------------------------------
Arnold Smith, M.D.
1 Oct 96
5.
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Exhibit 10.21
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (this "Amendment") is entered into
as of the 1st day of August, 1996, by and between DAVID A. SABEY AND SANDRA L.
SABEY, husband and wife ("Landlord") and PATHOGENESIS CORPORATION, a Delaware
corporation ("Tenant"), with respect to the following facts:
RECITALS
A. Landlord and Tenant are parties to that certain Lease Agreement dated
June 8, 1992, as amended, modified or supplemented by that certain First
Amendment to Lease Agreement dated September 24, 1992, the Second Amendment to
Lease Agreement dated November 16, 1992 and the Settlement Agreement dated July
20, 1995 (collectively the "Lease Agreement"). Defined terms used herein, unless
otherwise expressly defined herein, shall have the meaning as set forth in the
Lease Agreement.
B. Pursuant to the terms of the Lease Agreement, Tenant had the right of
first offer on any space to become available on the first and second floor of
the Building, the Expansion Space. The current tenant of the remaining space on
the first and second floor of the Building, Oncemembrane, Inc., is vacating and
terminating its tenancy. Landlord has notified Tenant of the availability of the
space and Tenant has notified Landlord of its exercise or its rights to lease
the Expansion Space in accordance with the terms of the Lease Agreement.
C. Landlord and Tenant are executing this Amendment to acknowledge and
memorialize the terms of Tenant's lease of the Expansion Space, in accordance
with the terms of Paragraph 40 of the Lease Rider to the Lease Agreement and to
further amend the Lease in accordance with the terms set forth herein below.
AMENDMENT
NOW, THEREFORE, in consideration of the mutual covenants of the parties,
Landlord and Tenant hereby agree as follows:
1. Premises. Paragraph 1b. of the Lease Agreement is hereby amended and
modified to the extent necessary to provide that the Premises shall be expanded
to include the Expansion Space on the first and second floor of the Building as
outlined on the floor plan attached hereto as Exhibits A-1 and A-2 (the
"Expansion Space"), which Exhibits hereby are incorporated into and supplement
the existing Exhibits A-1 and A-2 of the Lease Agreement. From and after the
Expansion Space Rent Commencement Date (as defined below) the term Premises in
the Lease Agreement shall include the entire space in the Building as outlined
in Exhibit A-1 and A-2 on the first and second floor, including the Expansion
Space. Landlord and Tenant hereby agree and the Lease Agreement is hereby
amended to provide that from and after the Expansion Space Rent Commencement
Date, the floor area and net rentable square feet of the Premises shall be as
follows:
Usable Load Rentable
Initial Floor Area
Floors 1 and 2 40,530 -- 43,700
Expansion Space
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Floor 1 9,530 1.081 10,302
Floor 2 14,703 1.103 16,217
------ ------
Total Expansion Space 24,233 26,519
Total Floor Area 64,763 70,219
2. Tenant's Percentage of the Building. Paragraph 1c. of the Lease
Agreement is hereby amended to provide that "Tenant's Percentage of the
Building" shall mean 52.36%, calculated by dividing the area of the Premises,
including the Expansion Space (70,219 rentable square feet) by the area of the
Building (134,118).
3. Delivery of Expansion Space. Landlord shall deliver the Expansion Space
to Tenant on or before August 30, 1996, in accordance with and subject to the
provisions of this Third Amendment, including paragraphs 5 and 7b: provided,
however, Tenant may enter the Expansion Space prior to the delivery date for the
purposes of inspection, architectural, design or engineering review. Landlord's
delivery of the Expansion Space shall be in its "AS IS" condition as of the date
of delivery, and Landlord shall not be required to make repairs, alterations,
additions or improvements to the Expansion Space, except as provided in
paragraph 5 below.
4. Expansion Space Rent Commencement Date. The rent commencement date for
the Expansion Space shall be August 1, 1996 (the "Expansion Space Rent
Commencement Date"); provided, however, Expansion Space Annual Base Rent for the
month of August shall be paid by Tenant upon delivery by Landlord of the
Expansion Space in accordance with the terms of paragraph 3 above.
5. Expansion Space Annual Base Rent. The Annual Base Rent for the
Expansion Space ("Expansion Space Annual Base Rent") shall be $17.50 per square
foot from the Expansion Space Rent Commencement Date until September 30, 1997,
and thereafter, from October 1, 1997 until the Expiration Date at $19.50 per
square foot. Commencing on the Expansion Space Rent Commencement Date, the
Annual Base Rent payable by Tenant shall be increased by the Expansion Space
Annual Base Rent. Payment of Expansion Space Annual Base Rent shall be paid
monthly in advance in accordance with the terms of the Lease Agreement
commencing on the Expansion Space Rent Commencement Date; provided, however, the
Rent Credit and Free Rent provisions concerning the initial Premises set forth
in Section 1h, and paragraph 37 of the Lease Rider (Exhibit E) shall not apply
to the Expansion Space Annual Base Rent; provided, further, that the Expansion
Space rent will not be payable until Landlord has completed a janitorial
clean-up of the Premises, repair of door frames and removal of the staircase
between the second and third floors. Landlord and Tenant hereby agree to amend
paragraph 1h of the Lease as follows:
h. Rent:
Year Initial Premises Expansion Space Total
Annual Base Rent Annual Base Rent Annual Base Rent
1 538,311 538,311
2 584,657 584,657
3 677,350 677,350
4 564,458 564,458
4 112,892 77,352 190,244
(8/1/96-9/30/96)
5 677,350 464,113 1,141,463
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6 764,750 517,155 1,281,905
7 764,750 517,155 1,281,905
8 764,750 517,155 1,281,905
9 764,750 517,155 1,281,905
10 764,750 517,155 1,281,905
Last six months -- 258,577 258,577
Payment of Expansion Space Annual Base Rent (but not the initial Premises)
by Tenant shall be subject to paragraph 41 of the Lease Rider to the Lease
Agreement with respect to the payment of broker commissions. Landlord and Tenant
agree that the total amount of the commission which may be offset by Tenant
solely against the Expansion Space Annual Base Rent shall be $140,100.00, which
amount shall be credited solely against the Expansion Space Annual Base Rent
payable for the first three (3) months at $38,676.09 per month and of $24,071.74
for the fourth (4th) month.
6. Additional Rent. For the purposes of determining Additional Rent for
the Expansion Space, the Expansion Space shall have a Base Year of 1993.
7. Expansion Space. Landlord hereby agrees to lease to Tenant and Tenant
hereby agrees to lease from Landlord the Expansion Space. The Expansion Space
contains certain trade improvements ("Trade Improvements") and supplemental
mechanical and HVAC system ("Mechanical System"), located in and servicing the
Expansion Space, which belong to Landlord. Tenant's lease of the Expansion Space
shall include the use of the Trade Improvements and Mechanical System, subject
to the terms of this Third Amendment.
a. Profit Split On Sublease Space. During any time that all or any
portion of the Expansion Space is subleased, assigned, licensed or the
beneficial use or possession of the Expansion Space is granted by Tenant and is
held by a third party, including without limitation any joint venture,
partnership, research contract or similar arrangement with a third party or
other entity of which Tenant is not a 50% or more owner, partner or shareholder
("Subtenant"), the Expansion Space Annual Base Rent shall be increased by an
amount equal to the following profit split on such space:
Landlord shall receive as Additional Rent 50% of the profit from any
Subtenant. Profit is equal to the sublease rent or any other form of
consideration actually received by the Tenant for the rental space
minus brokerage commission (not to exceed 5%), tenant improvements,
legal fees (not to exceed $5,000) incurred by Tenant, and amounts
paid by subtenant under the sublease to reimburse Tenant for
pass-through costs and expenses, minus Adjusted Expansion Space Rent
applicable to the subleased space. Adjusted Expansion Space Rent is
Expansion Space Base Rent applicable to the sublease space minus
sublease rent adjustment (annual basis of $2.00 per square foot
times square footage subleased). Landlord's profit split is 50% of
the profit on a cumulative basis. Landlord's profit split payment is
Landlord's profit split minus sublease rent adjustment. Profit will
be computed on a monthly basis. Landlord's profit split payment will
be remitted only when the cumulative profit split exceeds the
cumulative sublease rent adjustment. Except for payments required to
be made by Tenant to Landlord pursuant to this paragraph, all rent
and other sums payable by any subtenant shall belong to Tenant. An
example of the profit split computation is set forth on Schedule 1
attached hereto and incorporated herein by this reference.
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Subject to obtaining Landlord's consent, as provided in Section 17
of the Lease Agreement, Tenant agrees to notify Landlord immediately upon
Tenant's entering into any sublease and to meet with Landlord and provide
Landlord with marketing and leasing reports in connection with subleasing of the
Expansion Space at Landlord's request on a two-week basis.
b. Condition and Uses. Landlord shall deliver the Trade Improvements
and Mechanical Systems located in or serving the Expansion Space, without
representation or warranty of any kind whatsoever, whether express or implied,
"AS IS, WHERE IS" including without limitation, warranty for habitability,
suitability or for particular use. Tenant acknowledges that eight (8) fume hoods
and cabinets comprising a part of the Trade Improvements contain asbestos and
accepts such fume hoods and cabinets "as is;" provided, however, that Tenant
shall have no responsibility to remove such asbestos or otherwise comply with
any environmental laws with regard thereto or to incur any costs or expenses in
connection therewith relating to the presence of such asbestos, and Landlord
shall be responsible, at Landlord's expense, to comply with any environmental
laws relating to the presence of such asbestos in the fume hoods and cabinets.
Tenant shall have no responsibility for compliance with environmental laws or
any costs or expenses related thereto regarding the present condition of the
Trade Improvements and Mechanical System. Tenant shall be responsible for
complying with environmental laws and for any release or potential release of
hazardous substances and any costs or expenses related thereto arising from
Tenant's use of the Trade Improvements or Mechanical System. A list of the Trade
Improvements is set forth in Exhibit G attached hereto. Notwithstanding the
foregoing, Landlord represents to Tenant that Landlord (i) owns the Trade
Improvements and Mechanical Systems free and clear of any liens, encumbrances or
claims, except the lien of Landlord's mortgagee; (ii) has the authority and
right to enter into and perform this Third Amendment; and (iii) to the best of
Landlord's knowledge, the Trade Improvements and Mechanical Systems have been
adequately maintained and repaired by the prior owner, Oncomembrane, Inc. and
are in reasonably good working order, normal wear and tear excepted. Tenant
hereby agrees that with respect to its use of the Trade Improvements and
Mechanical Systems, it will comply with all of the terms of the Lease, including
without limitation, Section 6 of the Lease. Tenant has retained an independent
company to conduct an inspection and inventory of the Trade Improvements and
Mechanical Systems and has submitted a report to Landlord setting forth repairs
necessary to bring the Trade Improvements and Mechanical Systems to reasonably
good working order. Landlord shall not be required to make repairs, alterations,
additions or improvements to the Trade Improvements or Mechanical System, except
that Landlord, at Landlord's expense, shall have the repairs noted in Exhibit G
completed in a diligent manner but no later than September 16, 1996.
c. Repair, Maintenance and Alterations. Except as provided in
paragraph 7b, Tenant hereby agrees to maintain and repair, at Tenant's sole cost
and expense, the Trade Improvements and Mechanical Systems at all times during
the term hereof. Tenant shall maintain the Trade Improvements and Mechanical
Systems at all times in reasonably good repair and shall repair the Trade
Improvements and Mechanical Systems as necessary to maintain the Trade
Improvements and Mechanical Systems in reasonably good order and repair for
equipment of its age and usage. Tenant shall make no material alterations or
modifications to the Trade Improvements and Mechanical Systems without the prior
written consent of the Landlord which consent shall not be unreasonably
withheld. Landlord and Tenant acknowledge that the Mechanical System (consisting
of, without limitation, air handling units, boilers, chillers, natural gas,
electricity and vacuum systems) also serves certain space on the third floor of
the Building presently leased by Cell Therapeutic, Inc. (Cell Therapeutic, Inc.
and each other tenant or occupant of such space, hereinafter collectively
referred to as "CTI"), and that the Mechanical System shall also continue to
serve, and Tenant shall provide service to, that portion of the Building on a
nonexclusive basis upon request of CTI. CTI shall promptly reimburse Tenant on a
monthly basis pro rata, based on the square feet occupied by each party, or such
other basis as Tenant and CTI may agree, for all costs and expenses incurred by
Tenant based on Tenant's estimate. All such costs and expenses shall be
reconciled on an annual basis by Tenant. Tenant's obligations under this
paragraph to maintain and repair the Mechanical System and allow CTI the use of
the Mechanical System shall be a Lease covenant enforceable by Landlord under
the terms of the Lease. Landlord agrees to cooperate with
4
<PAGE>
Tenant in collecting any past-due amounts from CTI, including exercising any
remedies available to Landlord under its lease with CTI. Tenant shall have the
right to discontinue such service if payment is not made within such 30-day
period.
d. Removal of Property and Surrender. Tenant shall not remove the
Trade Improvements and Mechanical Systems from the Premises without the prior
written consent of the Landlord. Upon the termination of the Lease, Tenant shall
surrender the Trade Improvements and Mechanical Systems to the Landlord in
reasonably good working condition and repair for equipment of its age and usage,
normal wear and tear excepted. Tenant shall have no obligation to remove from
the Premises the Trade Improvements and Mechanical Systems.
8. Parking. In addition to the parking provided Tenant under the Lease
Agreement for the initial Premises, Tenant shall lease, and Landlord shall make
available to Tenant, an additional 25 parking spaces, on an unassigned basis at
the rate of $100 per month, subject to adjustment as set forth in the Lease
Agreement.
9. No Claims. Landlord and Tenant each represent and warrant to the other
that as of the date hereof, there do not exist any, and neither are aware of
events that constitute or would with the passage of time constitute, defaults or
claims against the other under the Lease, except for any Rent or Additional Rent
that may have accrued under the terms of the Lease but has yet to have been paid
or invoiced, if any.
10. Exhibit F. Landlord and Tenant hereby acknowledge that Exhibit F
(Nonexclusive List of Tenant Personalty) to the Lease was never completed by
Tenant and that the parties desire to complete Exhibit F at this time. Tenant
shall deliver to Landlord simultaneously with execution of this Third Amendment,
Tenant's Exhibit F for Landlord's review and approval. Landlord's execution of
this Third Amendment shall constitute his approval of Exhibit F. Tenant shall
have the right to amend Exhibit F annually to update it for new or replaced
personalty.
11. Miscellaneous. Except as otherwise set forth in this Third Amendment,
the Expansion Space shall be subject to all other terms and conditions of the
Lease Agreement, including without limitation, the option to extend the Lease
Term, determination of Annual Base Rent and Additional Rent during extension
terms, Landlord's rights to approve build out of the Expansion Space and the
terms and conditions with respect to assignment and subletting the Premises.
12. Amendment. Except as expressly modified and amended herein, the Lease
Agreement shall remain in full force and effect.
Dated as of this 1st day of August, 1996.
LANDLORD: DAVID A. SABEY AND SANDRA L. SABEY
/s/ David A. Sabey
---------------------------------------
David A. Sabey individually
and as attorney-in-fact for
Sandra L. Sabey
TENANT: PATHOGENESIS CORPORATION
By: /s/ [ILLEGIBLE]
-----------------------------------
5
<PAGE>
Its: Sr. VP & CFO
--------------------------
Approved:
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: CIGNA Investments, Inc.
________________________________________
Its ____________________________________
STATE OF WASHINGTON )
) ss:
COUNTY OF KING )
On this 30th day of August, 1996, before me, a Notary Public in and for
the State of Washington, personally appeared DAVID A. SABEY, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person who
executed this instrument; on oath stated that he was authorized to execute the
instrument as attorney-in-fact for his wife, SANDRA L. SABEY; acknowledged that
he signed and sealed the same as his free and voluntary act and deed for himself
and as attorney-in-fact for said principal for the uses and purposes therein
mentioned; and on oath stated that the Power of Attorney authorizing the
execution of this instrument has not been revoked and that the said principal is
now living and is competent.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day
and year first written above.
/s/ Sharon V. Signorelli
--------------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Seattle.
Printed Name: Sharon V. Signorelli
My commission expires: 1-30-99.
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day 29th day of August, 1996, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Al Meyer, to me known to be the SR. V.P. & CFO of the
corporation that executed
6
<PAGE>
the foregoing instrument, and acknowledged the said instrument to be the free
and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned, and on oath stated that he was authorized to execute the said
instrument.
Witness my hand and official seal hereto affixed the day and year first
above written.
/s/ Carolyn Armstrong
----------------------------------
(Signature)
Carolyn Armstrong
----------------------------------
(Please print name legibly)
NOTARY PUBLIC in and for the State of
Washington, residing at Seattle.
My commission expires: June 2000.
7
<PAGE>
<PAGE>
EXHIBIT A-1
FIRST FLOOR PLAN
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT A-2
SECOND FLOOR PLAN
[GRAPHIC OMITTED]
<PAGE>
Schedule 1
Profit Split and Payment
Example
Assumptions
- --------------------------------------------------------------------------------
Sublease Area 16,000 Sq Ft Adj. Expansion
Space Base Rent $15.50 Per Sq Ft
Sublease Rent $26.00 Per Sq Ft
Sublease Rent Adjustment $2.00 Per Sq Ft
Expansion Space
Base Rent $17.00 Per Sq Ft
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 8 Month 9 Month 10
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sublease Rent $ 34,667 $ 34,667 $ 34,667 $ 34,667 $ 34,667 $ 34,667 $ 34,667 $ 34,667 $ 34,667
Brokerage Commission 11,520 11,520 11,520
Tenant Improvements 15,000
Legal 5,000
Adj. Expansion Space Base Rent 20,667 20,667 20,667 20,667 20,667 20,667 20,667 20,667 20,667
-------------------------------------------------------------------------------------------
Profit (17,520) 2,480 2,480 14,000 14,000 14,000 14,000 14,000 14,000
-------------------------------------------------------------------------------------------
Profit Split @ 50% (8,760) 1,240 1,240 7,000 7,000 7,000 7,000 7,000 7,000
Cumulative Profit Split (A) (8,760) (7,520) (6,280) 720 7,720 14,720 21,720 28,720 35,720
Cumulative Sublease Rent Adj. (B) 2,667 5,334 8,001 10,668 13,335 16,002 18,669 21,336 24,003
-------------------------------------------------------------------------------------------
Cum. Profit Split Payment (A-B if>0) -- -- -- -- -- -- 3,051 7,384 11,717
-------------------------------------------------------------------------------------------
Landlord's Profit Split Payment $ -- $ -- $ -- $ -- $ -- $ -- $ 3,051 $ 4,333 $ 4,333
===========================================================================================
Total Payment to Landlord on Subleased Space
- ------------------------------------------------------------------------------------------------------------------------------------
Expansion Space Base Rent $ 23,333 23,333 23,333 23,333 23,333 23,333 23,333 23,333 23,333
Landlord's Profit Split Payment -- -- -- -- -- -- 3,051 4,333 4,333
-------------------------------------------------------------------------------------------
Total $ 23,333 $ 23,333 $ 23,333 $ 23,333 $ 23,333 $ 23,333 $ 26,385 $ 27,666 $ 27,666
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit G
Landlord's Personal Property
August 16, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ONCO BIO BIO
TAG # TAG # LOCATION DESCRIPTION COMMENTS
====================================================================================================================================
<S> <C> <C> <C> <C>
310002 10447 103 ETC - Sterilizer (42) good cond.
- ------------------------------------------------------------------------------------------------------------------------------------
104 Stainless Steel bench good cond.
- ------------------------------------------------------------------------------------------------------------------------------------
105 Restroom with locker bank, shower, sink, toilet
- ------------------------------------------------------------------------------------------------------------------------------------
107 Lab Bench O.k.
- ------------------------------------------------------------------------------------------------------------------------------------
10456 108 Hood Baker 6 ft NCB-5 EF-2 Fair
- ------------------------------------------------------------------------------------------------------------------------------------
108 Stainless Steel lab benchy w/sink & wall mounted overhead cupboard Good
- ------------------------------------------------------------------------------------------------------------------------------------
109 Stainless steel bench w/sink Good
- ------------------------------------------------------------------------------------------------------------------------------------
202 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310014 10091 203 Lyline Fume HD#1 (13) good cond.
- ------------------------------------------------------------------------------------------------------------------------------------
203 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
203 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
206 Stainless Steel sink bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310018 10101 209 Van Wilson - Cold Room (21) broken door handle
- ------------------------------------------------------------------------------------------------------------------------------------
310555 10118 209 Lyline Fume Hood#2 (15) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
310624 10266 209 NorLake Walk-in Cold Room
- ------------------------------------------------------------------------------------------------------------------------------------
209 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
209 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
209 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
209 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
211 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310033 10139 216 Lyline-Fume Hood #3 (11) bad cond., got burned
- ------------------------------------------------------------------------------------------------------------------------------------
216 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
216 Stainless Steel sink bench Fair, stained
- ------------------------------------------------------------------------------------------------------------------------------------
217 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310040 10158 219 Van Wilson - Cold Room (31) off main hallway on 2
- ------------------------------------------------------------------------------------------------------------------------------------
220 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
220 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310050 10173 221 Baker-Hood SG600 (41) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
310046 10174 221 Baker Co. - 8 hoods See #310013 fume/UV hood
- ------------------------------------------------------------------------------------------------------------------------------------
221 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
311271 10283 222 Baker 6ft Hood ok
- ------------------------------------------------------------------------------------------------------------------------------------
222 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
311303 10300 223 Baker 6ft Hood ok
- ------------------------------------------------------------------------------------------------------------------------------------
310059 10237 224 Lyline Fume Hood #7 (21) dirty
- ------------------------------------------------------------------------------------------------------------------------------------
311231 10237 224 Lyline-Fume Hood #11 (14) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
311342 10238 224 Lyline-Fume Hood #11 (14) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
310056 10240 224 Lyline-Fume Hood #4 (31) dirty
- ------------------------------------------------------------------------------------------------------------------------------------
224 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
224 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
224 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
224 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
224 Stainless Steel sink bench Fair, may be non-func
- ------------------------------------------------------------------------------------------------------------------------------------
229 Stainless Steel sink bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310089 10339 232 Lyline - Fume Hood #9 (11) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
310088 10398 232 Lyline - Fume Hood #8 (11) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
310090 10400 232 Lyline - Fume Hood #10 (14) bad cond.
- ------------------------------------------------------------------------------------------------------------------------------------
310091 10401 232 Lyline - Fume Hood #11 (14) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit G
Landlord's Personal Property
August 16, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ONCO BIO BIO
TAG # TAG # LOCATION DESCRIPTION COMMENTS
====================================================================================================================================
<S> <C> <C> <C> <C>
232 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
232 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
232 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
232 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
232 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
232 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
232 Stainless Steel sink bench Poor condition-stained
- ------------------------------------------------------------------------------------------------------------------------------------
310110 10377 234 Lyline Fume Hood #12 (13) exc. cond.
- ------------------------------------------------------------------------------------------------------------------------------------
234 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
234 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
234 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
234 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310122 10339 238 Lyline Fume Hood #13 (21) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
310130 13047 239 Lyline Fume Hood #14 (21) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
240 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
240 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
240 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310119 241 Baker Co. - 8 hoods See #310013 o.k. cond.
- ------------------------------------------------------------------------------------------------------------------------------------
241 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
241 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
241 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
241 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310143 10376 243 Van Wilson - Cold Room (61) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
243 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
243 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
311165 10349 244 NorLake Cold Room o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
245 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310147 10190 246 Baker - Hood NCB-B4 o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
246 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
246 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
310691 10183 248 Verntron-GL Wash Acc (43) Glass wash accessories
- ------------------------------------------------------------------------------------------------------------------------------------
310158 10184 248 Vemitron GL Washer (43) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
310155 10187 248 ETC - Sterilizer (43) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
310156 10188 248 ETC - Sterilizer (43) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
310690 10189 248 Forma-Sci-Dryer (42) o.k.
- ------------------------------------------------------------------------------------------------------------------------------------
248 Stainless Steel sink bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
249 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
249 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
249 Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
106A Short Stainless steel bench Door locked - good s
- ------------------------------------------------------------------------------------------------------------------------------------
242A Stainless Steel sink bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
242A Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
242B Lab Bench Fair
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Report to Landlord
Necessary repairs to bring personal property to reasonably good working order:
1) Boiler number 1 has leaking steam tubes. Need to be replaced
2) Boiler number 2 has plugged bottom blow down line.
3) Boiler number 3 main steam stop valve leaks
4) Condensate return pump leaks and rotten pipes behind it leak
5) Major steam leak in the autoclave in the animal facility
6) Steam leak in the autoclave in the glass wash facility
7) Domestic hot water heater needs expansion valve to prevent overpressuring
8) See also attached Macdonald Miller report on Equipment for Biomembrane space.
<PAGE>
PAGE 1 OF 2
MacDonald-Miller 7707 DETROIT AVE. S.W. SEATTLE, WA 98106
Service, Inc. (206) 767-7995
[Logo] FAX (206) 767-7648
Providers of comprehensive HVAC services & maintenance since 1965
A MacDonald-Miller Industries Company
WORK ORDER NUMBER: AT 60802
ISSUE DATE: 8-13-96
Billed to
___________________________________
___________________________________
___________________________________
- -------------------------------------------
Location
Pathogenesis Corporation
- -----------------------------------
201 Elliot Ave N.
- -----------------------------------
Seattle
- -----------------------------------
- -------------------------------------------
WORK AUTHORIZATION
NAME:______________________________
PHONE:_____________________________
P.O. NO.___________________________
- -------------------------------------------
SERVICE REQUESTED:
Check equipment for Biomembrain space.
MAKE MODEL NUMBER SERIAL NUMBER VOLTAGE
MAKE MODEL NUMBER SERIAL NUMBER VOLTAGE
WORK PERFORMED:
Checked air handler and exhaust fans, all appear to be operating normally.
Checked circulating pumps, P17 has been shut off at MCC panel and tagged to
leave off.
Chilled water loop has no glycol in it and some of the pipe insulation on
roof has fallen off.
Air compressor alternator does not switch between compressor #1 and #2,
compressor #2 has been set to run. Would need to trouble shot.
Chiller #1 McQuay MN ALR050C SN 5RH0709900 circuit #2 is off on low
pressure switch, all refrigerant has leaked out. Would need to pressure test
system, repair leak and charge system. Both compressor contactors need to be
replaced. Need to degrease compressors. Top off charge.
RECOMMENDATIONS:
See EWO 24195-24199
|_| PER PROPOSAL
|X| JOB COMPLETE
|_| JOB INCOMPLETE
TERMS: NET 30 DAYS / 1% WILL BE ADDED TO INVOICES OVER 30 DAYS PAST DUE
DATE NAME REG O.T. ACCOUNTING USE ONLY
8-13-96 Dave G.
- --------------------------------------------------------------------------------
RECORD OF MATERIAL USED
- --------------------------------------------------------------------------------
QTY CODE DESCRIPTION PRICE ACCTG.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POUNDS REFRIG
REGRIG TYPE RECOVERY UNIT CHARGE
RECOVERED/RECYCLED (CIRCLE ONE)
NEW REFRIGERANT USED
REFRIGERANT REMOVED FROM SITE
Important Notice: Thank You for this opportunity of serving you. Our Service
Technicians are required to have you approve this work order. This is done to
protect both you and the Service Technician. Please be sure to examine carefully
material and labor statements before our Service Technician leaves your
premises. If anything is unsatisfactory or not clearly understood, please phone
our office immediately.
I find the time and material, as shown above, satisfactory and agree to pay for
same upon presentation of invoice. If suit is required to collect this invoice,
I agree to pay reasonable legal fees and costs.
MacDonald-Miller Service, Inc. warrants all labor in this service for 30 days.
SEE REVERSE SIDE FOR TERMS AND CONDITIONS.
THANK YOU
SIGN /s/ C. Tolleson
CUSTOMERS/SHOP COPY
<PAGE>
PAGE 2 OF 2
MacDonald-Miller 7707 DETROIT AVE. S.W. SEATTLE, WA 98106
Service, Inc. (206) 767-7995
[Logo] FAX (206) 767-7648
Providers of comprehensive HVAC services & maintenance since 1965
A MacDonald-Miller Industries Company
WORK ORDER: NUMBER AT 60802
ISSUE DATE: 8-13-96
Billed to
___________________________________
___________________________________
___________________________________
- -------------------------------------------
Location
Pathogenesis Corporation
- -----------------------------------
201 Elliot Ave N.
- -----------------------------------
Seattle
- -----------------------------------
- -------------------------------------------
WORK AUTHORIZATION
NAME:______________________________
PHONE:_____________________________
P.O. NO.___________________________
- -------------------------------------------
SERVICE REQUESTED:
MAKE MODEL NUMBER SERIAL NUMBER VOLTAGE
MAKE MODEL NUMBER SERIAL NUMBER VOLTAGE
WORK PERFORMED:
Chiller #2 McQuay MN ALR115C SN 5RH0708400 circuit #2 has leak on liquid
line service valve packing, valve should be replaced. Compressor #1 is missing
suction service valve cap. Compressors need to be de-greased.
Chiller #3 McQuay MN ALR115C SN 5RH0708600 need to replace compressor
contactors. ACU-1 chilled water valve has packing leak. Valve has leaked a lot
of water.
Building has pneumatic controls, was not able to check control operation or
calibration. Concern with all equipment is age, ten years old. Will require
maintenance and repair on regular basis to keep running properly.
RECOMMENDATIONS:
|_| PER PROPOSAL
|X| JOB COMPLETE
|_| JOB INCOMPLETE
TERMS: NET 30 DAYS / 1% WILL BE ADDED TO INVOICES OVER 30 DAYS PAST DUE
DATE NAME REG O.T. ACCOUNTING USE ONLY
- --------------------------------------------------------------------------------
RECORD OF MATERIAL USED
- --------------------------------------------------------------------------------
QTY CODE DESCRIPTION PRICE ACCTG.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POUNDS REFRIG
REGRIG TYPE RECOVERY UNIT CHARGE
RECOVERED/RECYCLED (CIRCLE ONE)
NEW REFRIGERANT USED
REFRIGERANT REMOVED FROM SITE
Important Notice: Thank You for this opportunity of serving you. Our Service
Technicians are required to have you approve this work order. This is done to
protect both you and the Service Technician. Please be sure to examine carefully
material and labor statements before our Service Technician leaves your
premises. If anything is unsatisfactory or not clearly understood, please phone
our office immediately.
I find the time and material, as shown above, satisfactory and agree to pay for
same upon presentation of invoice. If suit is required to collect this invoice,
I agree to pay reasonable legal fees and costs.
MacDonald-Miller Service, Inc. warrants all labor in this service for 30 days.
SEE REVERSE SIDE FOR TERMS AND CONDITIONS.
THANK YOU
SIGN /s/ C. Tolleson
CUSTOMERS/SHOP COPY
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
Num Loc Property Description Cost Serial Number
- --------------------------------------------------------------------------------
Group #410 Computer Equipment
1 1 Beginning Balance 2,198.69
2 1 Printer, Laserjet 2,188.95 JPBC026287
4 1 Computer, 386 2,729.28 MO22492014
5 1 Printer 1,097.66 3208JL07H3
7 1 Labor to Install 2,800.00
8 1 Battery Backup-UPS 763.4
9 1 Monitor 830.22 31K09160C
10 1 Analyzer, Network 1,509.39
11 1 Computer, HP Desktop Portable 545.07
12 1 Network Installation 3,246.00
13 1 Concentrator, Synoptics 3000N 1,664.75
14 1 Enet Hose, 3-Model 3308A 3,263.08
15 1 Printer, Laserjet 4M 2,038.70 JPVK022346
16 1 Enet, Model 3313A 2,345.04
17 1 Network Cards 597.57
18 1 Monitor 381.31
19 1 Data Cartridge 206.94
20 1 Sparcstation 9,374.38 30504330
21 1 Monitor 444.7 30305277A988
23 1 Monitor, Multisync 819.99 33K17860C
24 1 Monitor, Multisync 768.11 33K17888C
25 1 Monitor, Multisync 768.11 33K17890C
26 1 Software, Office for Windows x 3 1,246.46
27 1 Upgrade, Compaq Prolinea x 3 468.85
28 1 Computer, Compaq Prolinea 4,348.24 A311HET30944
29 1 Printer, Laserjet 4M 2,042.18 JPBGO23163
30 1 Computer, Trion 386 x 2 1,401.20
31 1 Monitor, Trion 291.06
32 1 Host, Remote PC Anywhere 114.05
33 1 Jet Direct Card x 2 852.37
34 1 Backup UPS 787.71
35 1 Ethernet, Model 3313A 2,335.57
36 1 Tray, Legal Paper - S. Colwell 60.78
37 1 Upgrade, Compaq Prolinea 571.05
38 1 Computer, Mac Centris 3,454.27 SF2309NEWCN7
39 1 Computer, Compaq Prolinea 3,709.51 A314HEV70807
40 1 Accessories 1,278.92
41 226 Printer, Laserjet 4M 2,039.46 JPBG024707
42 1 Jet Direct Card 429.41
43 1 Computer, Trion 386 704.81
44 1 Modem, QBlazer x 2 584.28
45 1 Computer, Isis Mac 4,878.59
46 1 Computer, Compaq Prolinea 433 2,212.69 A307HCW80819
47 1 Computer, Compaq Prolinea 433 2,212.69 A253HCW70487
48 1 Backup System 7,300.25
49 223 Computer, Compaq Prolinea 3,713.93 A314HEV70597
50 1 Computer, Mac Centris 3,049.12 SF2324J5DCN7
1
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
Num Loc Property Description Cost Serial Number
- --------------------------------------------------------------------------------
51 1 Concentrator, Mod 3394 Lattistalk 2,606.06
52 1 Jet Direct Card 429.41
53 259 Computer, Mac Centris 650 3,938.48 F1322ADTOC3
54 1 Computer, Mac Centris 650 4,046.68 F1322ADQOC3
55 1 Server, MS Mail 992
56 1 Transceiver, Apple x 3 386
57 1 Computer, Compaq Prolinea 2,540.31 A318HER20106
58 207 Computer, Compaq Prolinea 1,969.26 A318HER20111
59 1 Computer, Compaq Prolinea 1,969.26 A318HER20113
60 1 Monitor, Color 360.66
61 1 Printer, Laserjet 2,035.04 JPBF059931
62 1 Printer, Laserjet 2,035.04 JPBH024614
63 1 Printer, Laserjet 4L 702.22
64 1 Upgrades, 2 System 192.6
65 1 Ethernet Host Module 1,015.73
66 1 Upgrades, Compaq Prolinea x 6 947.17
67 1 Printer, Epson LX-810 195.32 44BO496302
68 1 Computer, Compaq Prolinea 3,162.59
69 l Jet Direct Card x 2 945.27
70 1 Scanner, Color 1,730.12 120890
71 1 Hard Drive, 120 MB External 486.9
72 224 Computer, Mac Centris 3,537.06 XC332MVECD9
73 1 Computer, Mac Quadra 650 3,537.06
74 1 Microsoft SMTP Gateway 3,787.00 MSFT068099126
75 1 Hard Drive, 1900 MB SCSI 2,488.89
76 1 Computer, Mac Color Classic 1,340.04 SSG32463BC2C
77 1 Computer, Prolinea & Monitor 2,479.42 A322HER61368
\1371
78 1 CD Rom, External 647.61
79 1 Monitor, Multisync 762.01 JC-1531VMA-2
80 215 Computer, Compaq Prolinea 2,117.30 A326HER20523
81 226 Computer, Compaq Prolinea 2,933.79 A330HER24365
82 1 Monitor, Color 2 876.48
83 1 Digitizer 1,620.00
84 1 LaserGraphics 7,135.80 63122
85 223 Computer, Mac Color Classic 1,512.85 SSG316374C2C
86 1 Modem, QBlazer 430.9
190 1 Computer, Compaq Prolinea & Monitor 2,069.65 A307HCW70841
191 1 Computer, Compaq Prolinea & Monitor 2,134.72 A307HCW70781
192 1 Sparcstation 15,898.57
193 1 Software, Chem Window - Todaro 485.93
194 1 Novell NFS Gateway 3,758.87
195 1 Modem, QBlazer 513.95
200 1 Computer, Prolinea 486 3,575.47 A314AG07007
201 1 Computer, Compaq 486 3,128.58 A344HHC4050
1000 1 Computer, 80486/50 Todaro 9,558.39 2238-0501
1001 1 Printer, Laserjet 1,893.50 3207A40218
1002 1 Printer, Laserjet 1,608.83 3203J64162
1003 1 Computer, 486 5,058.35 2670
2
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
Num Loc Property Description Cost Serial Number
- --------------------------------------------------------------------------------
1005 1 Printer, Apple Personal LW 1,731.15 CA226E9%M2016G
1006 1 Computer, 386 3,199.75 6218HBR31118
1007 1 Printer, Laserjet 1,735.53 3221A12918
1010 1 Computer, Mac 3,931.99 FT23066U716
1012 1 Computer, 486 4,674.24 2716-1021
1014 1 Printer, Laserjet 1,664.11 JPBJO18230
1015 226 Computer, Mac 4,264.63 F2237MWN3B5
1016 240 Printer, Apple Personal LW 1,857.63 CA30VPT,
%M201G G/A1
1017 215 Computer, Mac 4,264.63 F2238J033B5
1018 1 Computer, 486 4,630.96 2807
1019 218 Computer, MacIIVX - Baker 4,461.59 F2250J8G385
1020 103 Printer, Laserjet 4 - Acctng 1,480.46 USBB020200
1021 232 Computer, Compaq Prolinea-Burmer 3,948.08 A253HDV71595
1022 103 Computer, Compaq Prolinea-Shashi 3,863.22 A253HDV71616
1023 1 Computer, Compaq Prolinea 4,143.61 A246HDV30040
1024 1 Computer, Compaq Prolinea 4,143.61 A246HDV30874
1036 1 Computer, Prolinea - Duggan 4,292.07 A246HDV30710
1038 1 Computer, Prolinea - Wallace 7,636.54 6253HDT30111
1041 212 Computer, Apple Computer 7,730.90 F11457H8725
1060 1 Printer, Laserjet 2,019.06 JPBJ050078
1061 1 Printer, Laserjet 2,019.06 JPBK019702
1062 1 NetBlazer, PM-NS10-1E 3,732.90
1063 1 Disk Drives, PM-E2000 3,327.15
1064 1 Disk Drives, PM-E2000 3,327.15
1065 1 Disk Drives, PM-E2000 3,327.15
1073 1 Printer, Laserjet 4M 2,047.82 JPBG024206
1074 1 Printer, Laserjet 4M 2,039.46 JPBG024472
1182 1 Computer, Compaq Prolinea 4,197.50 A311HET31233
1192 1 Computer, Compaq Prolinea 1,242.83 A307HDU21019
1211 1 Computer, Compaq Prosignea & Netware 18,798.52 6305HDT60684
1212 1 Computer, Compaq Prolinea 1,244.30 A316HEP20062
1216 178 Computer, Compaq Prolinea 3,482.72 A305HDV31719
1217 206 Computer, Compaq Prolinea 2,375.64 A314HEV70759
1218 1 Computer, Compaq Prolinea 2,375.64 A314HEV70765
1235 1 Computer, Compaq Prolinea 2,375.64 A314HEV70771
1237 260 Computer, Compaq Prolinea 3,483.44 A305HDV31539
1240 215 Computer, Mac Centris 3,794.89 SF2304JVWCN2
1241 1 Printer, Laserjet 4M 2,063.98 JPBG022998
1242 224 Printer, Laserjet 4M 2,047.44 JPBG023891
1243 226 Computer, Compaq Prolinea 3,709.51 A314HEV70808
1247 217 Computer, Mac Centris et al 3,054.27 SF2309N3CCN7
1248 217 Printer, Laserjet 4M 2,038.70 JPBJ043732
1249 1 Computer, Mac Centris 3,941.12 SF1319652CA8
1250 1 Computer, Compaq Prolinea 1,599.42 A318HER20204
1253 226 Printer, Phaser Color 3,440.94 JPC3590
1279 181 Printer, Laserjet 4 1,500.74 USBB086119
1289 1 Computer, Compaq Prolinea 1,242.83 A303HDU21191
1290 1 Computer, Compaq 425 1,244.29 6318HEP21714
3
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1291 1 Computer, Pro 4DX2 4,239.05 A352HHC70082
1292 1 Modem Satisfaxtion 400e 348.68
1293 1 Computer, Pro 4DX2 3,739.40 A402HHC70335
1294 1 Printer, Laserjet 2,425.52 JPBG099066
1295 1 Ethernet Host 3308A 10Baset 1,072.82
1296 1 Computer, Pro 4s/25 1,341.13 S6408HFH21453
1297 236 Computer, Pro 4DX2 3,280.69 A410HHC51476
1298 1 Computer, Pro 4DX2 4,573.08 A408HHC50235
1299 1 Printer, Laserjet 4 w/card 1,968.16 JPBK121555
1300 1 Printer, Laserjet 4M w/card 2,445.32 JPBG111457
1302 226 Computer, Mac Quadra 650 3,900.89 SFC4053P32D9
1303 1 Computer, Pro 486/33 2,435.58 S6411HER31117
1304 1 Computer, Pro 4DX2 2,089.18 S6414HHB51062
1305 1 Host, Synoptics 2,235.31
1306 1 Host Module, 3308A 10BT 2,216.53
1307 1 Printer, Laserjet/Bernoulli 1,810.70 JPBK131671
1308 1 Monitor, Multlsync 4FGe 1,215.75 3X03660CA
1309 1 Computer, Mac PB180 4/120 2,931.45 SFC406SQ4441
1310 1 Computer, Pro 486 1,574.31 A408HER34531
1311 1 Powerport, Enet, 4MB Module 831.58
1312 1 Computer, Power Mac 7100/66 4,279.60 SFC4190C22Q4
1313 224 Computer, Dell Dimension Pentium 90/XPS 3,216.79 A/N 1456 S/N 3PQPB
1314 1 Computer, Toshiba T19S0CS 200MB 3,575.02 4438258
1315 1 Optical Drive, Pinnacle 3,805.79 110205208
1316 1 Concentrator, Ethernet 3000N 1,730.12
1317 1 Printer, Laserjet 4M Plus 2,162.86 SJPFG002485
1318 1 JetDirect CRD Ehernet 10 Base-T 322.44
1319 1 Printer, Laserjet 4M 2,155.15 SJPFG011021
1320 221 Computer, PRO 486DX2, 66 2,272.81 SG427HKD32600
1321 129 Printer, Laserjet 4 1,645.82 USBB142793
1322 179 Computer, PRO 486DX2,66 3,563.62 S6423HHC51232
1323 179 Printer, LaserJet 1,601.04 JPGJ001099
1324 1 Computer, Dimension Pentium 90/XPS 4,416.73 3VWSY
1325 1 Computer, HP VL2E 486SX/25 1,024.86
1326 1 Computer, Concerto 486/25 1,697.27 7338HDX31309
1327 1 Computer, Prosig 2,000.33 6407HHS10624
1328 1 Monitor, Multisync 4FGe 1,215.75 3X03660CA
1329 1 Hard Drive 1.05GB x 2 2,233.25
1330 1 Upgrade, Memory 8MB, 16MB 1,315.71
1331 1 Monitor, Msync 4FGE, Keyboard, Software 1,443.00 8119770
1332 254 Computer, Quadra 650 2,861.89 SFC40406Y2D8
1333 204 Printer, Laserjet 4L 1,156.12 SUSBB940322
1334 222 Computer/Monitor, Pro/MSYNC 4FGE Monitor 2,837.00 S6427HKB30161
1335 1 Computer/Monitor, Power Mac 7100/MSYNC 4FG 4,538.51 SXC4406VR3WQ
1336 1 Printer, HP Jet Direct 378.7
1337 1 Monitor, MultiSync 4FGe 696.81 s4803469KA
1338 1 Computer, Demension Pentium 90XPS Dell 4,351.82 4PSVQ
1339 1 Frame Relay Subsystem 1,167.48
</TABLE>
4
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1340 1 Multidrive 4 drive unit SCSI 2,275.00
1341 1 Computer, HP VL2E 1,516.42 3428A03668
1342 1 Upgrade, Memory 32 MB RAM - 2 Simms 1,630.58
1343 1 Hard Drive, 1 GB IDE 1,097.15
1344 1 Computer, Pro 486 1,574.31 A408HER34526
1345 226 Computer, PMAC 6100 2,758.02 SXC4406W73WQ
1346 1 Computer, Dimension Pentium 90/XPS 4,946.92 47789
1347 1 Computer, PMAC 6100 1,873.44 SXB440573WQ
1348 229 Computer, Dell Dimension Pentium 90/XPS 2,920.33 3PQP8
1349 1 Upgrade, Memory 16 MB - Reynolds 1,060.36
1350 1 Computer, Micron P90PCI w/15" Monitor 4,501.40 Pat Nardella Clinica
1351 1 Printer, Laserjet 45IMX 4,651.84 SUSGB540865
1352 1 LanRover 2,523.19 HE100914
1353 207 Printer, LaserJet 4+ 1,586.75 JPGK042360
1354 1 Computer, Dell Pentium 90/XPS 4,266.34 4P5VQ
1355 1 Computer, Dell Latitude XP i486 Notebook 4,735.92 2QM62
1356 1 Computer, Dell Pentium 90.XPS 3,157.29 4NFZX
1357 1 Panel Display Unit, Ovation + 842 Panel 5,278.53
1358 1 Upgrade, 8MB Memory & Software 1,363.60
1359 1 Printer, LaserJet 4+ 1,586.75 JPGB000167
1360 177 Computer, Dell Latitude XP i486 100MHz 4,526.01 2QQ8D
1361 228 Computer, Dimension Pentium 90/XPS 3,157.29 4NFZT
1362 1 Computer/Monitor, HP v13, P90, w/NEC XE15 3,547.64
1363 1 Printer, Laserjet 4M+ 2,232.45 SJPGK125783
1364 1 Computer, Dimension Pentium 90 XPS 3,087.17 4SLML
1365 1 Computer, Dimension Pentium 90 XPS 2,832.69 4SVJC
1366 104 Monitor, NEC Msync 5FGE 17 1,137.99 NSN1
1367 1 Computer, Demension Pentium 90/XPS 2,832.69 4SVLB
1368 105 Computer, HP VL3, P90 3,083.16 3516A00455
1369 1 Printer, LaserJet 4+ 1,622.62 USFC264019
1370 1 Backup Tape Drive 70 Gbyte 5,405.54 17000024
1371 1 Computer, HP 600 C 4,312.85 SUS51400794
1372 1 Computer, Dell Latitude XP 100Mhz 4,328.01 2R733
1373 1 Computer, Dell Dimension Pentium 90/XPS 3,216.79 A/N 1349 S/N 3VWSY
1562 1 Computer, Dell Pentium 12Oc/XPS Mini Tower 3,908.05 5B9QR
1563 1 Computer, Dell Latitude XPi 75Mhz Pentium NB 3,809.73 4HHZP
1564 1 Computer, Dell invoice #060890837 4,095.22
1577 1 Computer, Millenia Plus Series - Micron 7,120.92
1578 1 Host Module, En Pointe Technologies 1,088.49
1582 1 NetConnex Connector 4.0 - Worldtalk 1,617.59
1583 1 ISIS - software installation 1,400.00
3013 1 Computer, Dell Latitude XPi 75MHz 4,033.71 4J7GR\3013
3014 1 Computer, Dell Dimension Pentium 12Oc/xps 3,068.40 5LNTD\3014
3015 1 Computer, Dell Dimension Pentium 12Oc/xps 3,068.40 5LNTN\3015
3016 1 Computer, Dell Dimension 5100T 1,978.99 5R10V
3018 1 Computer, Dell Latitude XPi 75MHz Notebook 4,052.10 4JS45
3019 1 Computer, Dell Dimension Pentium 12OC/XPS 3,067.33 5T2V7
3022 1 Computer, Dell Dimension Pentium 12OC/XPS 2,654.95 61W2W
</TABLE>
5
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3026 1 Computer, Dell Dimension Pentium 133C/XPS 2,719.86 67V15
3027 1 Computer, Dell Dimension Pentium 133C/XPS 2,719.86 67V1B
3033 1 Computer, Dell Latitude Notebook - Steve Bec 3,335.82 S1LYG
3034 1 Computer, ACD Data Station Server IRX-Towell 9,753.31
3036 1 Computer, Dell Latitude XPi 100 MHz Notebook 3,551.14 S1P6H
3037 1 Computer, Monitor(#3038) TRIPOS Indigo - Che 32,391.83
3039 1 Computer, Dell Dimension 133C/XPS Mini Tower 3,270.89 6LFT8
3040 1 Printer, HP LJ4Plus 1,298.02 JPGH094380
3041 1 Computer, Dell Dimension Pentium 133C/XPS 3,030.68 6P6S1
3042 1 Computer, Dell Dimension Pentium 133C/XPS 3,030.69 6P6RX
3043 1 Computer, Dell Dimension Pentium 133C/XPS 2,662.81 6S1HN
3044 1 Firewall, TIS Gauntlet Internet V3.1 17,853.00 3044
3046 1 Computer, Dell Dimension 5133T 2,847.67 6TYL6
3047 1 Computer, Dell Dimension 5133T 2,847.68 6TYKW
3048 1 Computer, Dell Latitude XPi 100MHz 4,417.27 SQ21G
3049 1 Computer, Dell Latitude XPI 100MHz 4,417.26 SQ21H
3050 1 Monitor, Sony 15" CPD-15X1 3,466.73 22375
3051 1 Monitor, Sony 15" CPD-15X1 3,321.74 1532
------------
Total Computers 735,863.34
============
Group #415 Software
201 1 Software 2,398.63
202 1 Software 4,927.32
203 1 Software 19,147.79
204 1 Software 2,119.64
205 1 Software 1,789.15
206 1 Software ChemDraw Plus 2,105.00
207 1 Software Microlink 2.0 1,352.50
208 1 License for MAC Network Y3.12, Software 5,047.42
209 1 Software 5,119.75
210 1 Software 3,296.26
211 1 Software 4,433.05
212 1 Sequencher Software 2,221.00
213 1 Sequencher Software 2,244.00
214 1 Stock Option Software 7,000.00
215 1 ISIS /Base/Draw - Win 3,084.78
------------
Total Software 66,286.29
============
Group #420 Furniture
204 1 Seattle Furniture 242,505.00
206 1 Custom Laminate Tables 627.49
207 1 Bookcase 515.03
208 1 Seattle Furniture 561.03
209 1 Seattle Furniture 5,563.64
210 1 Shelves, wall strips 3,188.68
211 1 Tables, Shelves, File Drawer 5,395.09
</TABLE>
6
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
212 1 Office Furniture 1,850.22
213 1 Office Furniture 10,526.29
214 1 Office Furniture 37,777.53
215 1 Table 737.38
216 1 Office Furniture 75,031.55
217 1 Office Furniture 3,498.00
218 1 Office Furniture 3,562.00
219 1 Office Furniture 5,125.43
220 1 Office Furniture 373.29
221 1 Office Furniture 4,567.31
222 1 Office Furniture 363.55 Hag Balans Chair
223 1 Office Furniture 2,770.18
224 1 Office Furniture 1,034.78
226 1 Office Furniture - Seattle 324.6
227 1 Office Furniture - Seattle 966.6
228 1 Office Furniture - Seattle 330.55
229 1 Office Furniture - Seattle (Feischmann) 3,459.15
230 1 File Drawers (MBI) 5,332.10
231 1 Chair, Lab (Baxter) 1,211.84
232 1 Shelves - Storage and file drawers 6,135.51
233 1 Office Furniture - Seattle (Fleishmann) 28,641.61
234 1 Office Furniture - Seattle (MBJ) 17,033.26
------------
Total Furniture 469,008.69
============
Group #427 Art Work
------------
1 Nancy Mee piece-In main lobby next to stairs 15,000.00
============
Group #430 Office Equipment
206 1 Office Equip - Seattle 597.45
207 1 Telephones 55,849.73
208 1 Copier 16,394.97
209 1 Fax Machine 4,108.90 18461
210 1 Fax Machine 1,027.85 SJPA4303064
213 1 Office Equip - Seattle 558.75
216 1 Office Equip - Legend MLX-10D/B Set 941.34
217 1 Telephones 6,079.76
218 1 Telephones 875
219 1 Telephones 375
220 173 Telephone, Conference Master TC-100AC 1,547.26 DA28120
221 1 Canon Fax L776 4,105.10 UBL49339
222 1 Cannon Np 665011 SF Copier 16,410.13 NBJ 01333
223 1 Shredder 1,585.69
224 1 Mer Legend MLX 10D Telephone 755.35
225 1 Copier Canon 6650, Fax Canon L775, Shredder 8,584.32 CWN00742,UBL02542,38
</TABLE>
7
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
226 1 Copier Canon 4050, Fax Canon L775, Shredder 6,432.84 NUD06465,UB711543,38
227 1 Fax Machine, Brothers 2 @ $627.55 Costco 1,255.11
----------
Total Office Equipment 127,484.55
==========
Group #450 Lab Furniture
209 1 Lab Benches, Chairs, Shelves, Counters 481,793.29
210 1 Lab Furniture 3,750.76
211 1 Cabinet, Safety 1,577.00
212 1 Cabinet, Safety Shelves 2,638.00
----------
Total Lab Furniture 489,759.05
==========
Group #460 Generic Lab Equipment
87 253 Centrifuge, High-speed 37,160.46 JB93C13
88 224 Centrifuge, High Speed - asset# 88/3 1,639.77 3B90008-1R
89 1 Centrifuge, High Speed Upright 29,289.87 XTV9318
90 1 Centrifuge, High Speed Upright 29,289.87
91 1 Centrifuge, High Speed Upright 29,289.87
92 1 Freezer Racks Nitrogen 5,497.04
93 1 Freezer Racks - 63 4,611.39
94 220 Microplate Reader/washer 16,771.00 G3263
95 1 Microscope, Dissecting 2,413.95
96 1 Microscope, Fluorescent 18,114.93 11173-3
97 204 Microscope, Inverted 4,843.06 10431-2
98 1 Thermal Cycler 3,150.67 6.6993E+11
99 1 Thermal Cycler 3,150.67 6.6993E+11
100 1 Thermal Cycler 3,150.67 6.69921E+11
101 1 Pourer, Petri Dish 1,618.70 323
102 132 Pump, Vacuum 2 Stage 1,294.07 77572
103 132 Refrigerator, Chromatography 4,391.72
104 253 SpeedVac 4,719.75 3F250202
105 215 Thermal Cycler 3,143.21 66993066623
106 1 Refrigerator, 14-20 CF 9,229.46
107 1 Freezer,x2-6.1 1,244.30
108 204 Freezer 19 Cu Ft 518.28
109 207 Freezer 19 Cu Ft 518.28
110 242 Freezer 19 Cu Ft 518.28
111 231 Freezer 19 Cu Ft 518.28
112 1 Pulser & Controllers, x 3 1,553.48
113 1 Pulser, Gene 3,343.23 145br4048
114 1 Incubator, C02 1,592.70
115 1 Pulser, Gene Cap Extender 1,040.68
116 1 Incubator 1095FT3 2,313.32
117 255 Shaker Environmental 7,841.47 6930127
118 1 Centrifuge, High Speed 1,084.09 3E20013-1R
</TABLE>
8
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
119 1 Transport (Spectrophotometer) 2,125.72
120 1 Holder, Unheated Micro 796.35
121 1 Holder, Unheated Auto 709.79
122 1 Adapters 57.13
123 1 Rotor, JA-17 2,824.74
124 1 Tube Topper 190.43
125 1 Rotor, JA-20 2,423.68
126 1 Autosampler, Variable 7,113.89
127 1 Heater, Column Compartment 969.47
128 1 Rotor, SW-55T1 9,200.54
129 1 Adapters x 4 1,058.66
130 1 Centrifuge, GS-6 6,228.50
131 1 Rotor, GA-24 Angle 1,246.46
132 1 Rotor, GH3.8 1,999.54
133 1 Adapters 77.04
134 1 Canister Kit 735.76
135 1 Tube Racks x 2 398.18
136 1 Pulser, Gene 3,267.53 154BR4277
137 1 Pulse Controller 724.4
138 1 Econo System, Automated 10,893.86 700BR05614
139 1 Pump, Prep Cell 3,131.15
140 1 Pulser, Gene 3,337.82 154BR4253
141 1 Power Supply 1000/500 1,276.06 214BR12994
142 1 Speedvac 1,898.57 3E20013-1R
143 1 Pump, Gel 1,958.42
144 1 Speedvac Integrated 8,526.87 3I400180-IC
145 1 Rotor for flasks 688.42
146 1 Flasks, 50ml x 2 sets 252.25
147 231 Drying System, Gel 3,205.63 SGD 4050-31360248-1H
148 1 Holds, Rotor x 2 903.89
149 1 Rotors, High Speed x2 902.78
150 215 Shaker, Incubator 5,809.26
151 232 Spectrophotometer 2,807.80
152 1 Power Supply 3000 2,284.94 1746
153 1 Thermoplate, STS 45 x 3 2,974.71
154 1 Glass Plates x 6 238.69
155 1 Incubator, Roll-in 3,935.13 DR 975
156 1 Base & 3 Decks 2,397.97 GB-166
157 205 Cytospin 3 5,463.39 MA382607T
158 1 Ultrasonic Processor 3,486.46 18619
159 1 Horn Clipper & tips 1,136.10
160 1 Glass cup Horn 968.39
161 1 Thermal Cycler, DNA 3,787.00 6658812081
162 1 Thermal Cycler, DNA 3,787.00 6.6993E+11
163 204 Balance, Analytical 5,072.15 2108248
164 1 Incubator, Imperial III 1,605.69 0993-1656
165 1 Centriflige, High Speed - asset# 88/3 1,639.77 3E2013-1R
166 1 Refrigerator, Chromatography 4,571.46 V11C-145087-VC
</TABLE>
9
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
167 1 Shaker Utility 1,572.15
168 1 Anesthesia System 4,100.35 001792F
169 1 Gel Dryer, Air 1,213.33 93-1096-H
170 1 Power Supply 3000 1,828.66 1115
171 1 Fraction Collector 1,585.77 FC2036
172 1 Autoclave ES 315 5,404.59 808080
173 1 Bucket, 325K x 2 486.9
174 1 Centrifuge, Micro 1,876.24 187730
175 1 Econo System 7,702.55 700BR0S292
176 215 Centrifuge, High Speed - asset# 88/3 1,639.77 3B90007-1R
177 213 Pump, Vacuum 2 Stage 1,294.07 77580
178 132 Pump, Vacuum 2 Stage 1,294.07 77592
179 132 Pump, Vacuum 2 Stage 1,294.07 77593
180 132 Pump, Vacuum 2 Stage 1,294.07 77676
181 1 Thermal Cycler 3,143.21 6.6993E+11
182 1 Thermal Cycler 3,143.21 6.6993E+11
183 1 Power Supply 3000 2,284.94 1747
184 1 Centrifuge, Micro 1,876.24 187730
188 231 Power Supply 1000/500 1,257.56 12667
189 1 Power Supply 1000/500 1,257.56 12657
196 1 Hoods, Delivery of-Nuaire 3,500.00
197 1 Incubator, Installation of 1,078.75
210 1 Bath Circulator, Refrigerated 3,068.55 30303
211 1 Refrigerator, Chromatography 4,836.26 001C-133234-0C
212 1 Centrifuge, Micromax 1,006.26 24980904
213 1 Centrifuge, Micromax 1,006.26
214 1 Centrifuge, Micromax 1,006.26 24982261
1037 242 Laminar Flow Hood 5,797.77 26510
1042 242 Laminar Flow Hood 5,797.77 26530
1043 204 Laminar Flow Hood 5,797.77 26518
1044 204 Laminar Flow Hood 5,797.77 26527
1045 203 Laminar Flow Hood 5,797.77 26534
1046 203 Laminar Flow Hood 5,797.77 26499
1047 205 Laminar Flow Hood 5,797.77 26517
1048 132 Laminar Flow Hood 5,797.77 26548
1049 132 Laminar Flow Hood 5,797.77 26516
1050 132 Laminar Flow Hood 5,797.77 26544
1051 132 Laminar Flow Hood 5,797.77 26545
1052 132 Laminar Flow Hood 5,797.77 26546
1053 132 Laminar Flow Hood 5,797.77 26547
1054 124 Laminar Flow Hood 5,797.77 26535
1067 212 Centrifuge, Table-top 9,092.87 gr93a26
1068 132 Centrifuge, Table-top 9,092.87 gr93a24
1069 206 Freezer, Nitrogen 11,807.34 jia92h111
1070 211 Incubator, Bacterial 1,244.03 1192-0731
1091 231 Power Supply 1000/500 1,268.12 12667
1092 231 Power Supply 1000/500 1,268.12 12657
1096 203 Incubator, Tissue Culture 7,342.45 16c-134110
</TABLE>
10
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1097 132 Incubator, Tissue Culture 7,342.45 15c-134024
1098 204 Incubator, Tissue Culture 7,342.45 16c-134111
1099 203 Incubator, Tissue Culture 7,342.45 15c-134025
1102 220 Incubator, Hybridization 3,475.39 32729
1104 214 Balance, Analytical 1,592.71 21203366
1108 205 pH Meter 1,173.53 5401
1109 212 Polarimeter 30,044.79 5981
1110 253 Spectrophotometer 10,499.33 4315452
1112 212 Refrigerator, Explosion proof 1,641.40 134151
1113 214 Refrigerator, Explosion proof 1,641.40 134152
1114 214 Balance, Top-loading 2,462.63 10403782
1115 231 Power Supply 3000 2,560.77 1702
1116 214 Melting Point Apparatus 1,832.91 4678
1119 2l2 Ozone Generator 6,696.73 3290
1120 231 Power Supply 3000 2,560.77 1704
1121 1 Power Supply 3000 2,560.77 1708
1122 231 Power Supply 3000 2,560.77 1701
1123 1 Power Supply 3000 2,560.77 1703
1125 1 Transilluminator, U.V. w/Camera 1,770.33 95-01784-04
1129 207 Centrifuge, Ultra 66,846.82 x93b913
1135 231 Incubator, Hybridization 3,475.39 32048
1136 231 Centrifuge, Table-top 9,092.87 gr93a33
1137 214 Rotary Evaporator 1,801.81 220027
1138 162 Freezer, Chest -80 6,598.84 003c-133370-0c
1139 204 Freezer, Chest -80 6,598.84 003c-133369-0c
1140 253 Freezer, Chest -80 7,018.59 003c-133367-0
1142 214 Rotary Evaporator 1,801.81 220036
1143 216 Rotary Evaporator 1,801.81 220022
1144 214 Rotary Evaporator 1,801.81 220029
1148 227 SpeedVac 4,719.75 90053-16
1149 231 Gel Drying System 2,827.22 90070-1f
1150 231 Gel Drying System 2,827.22 90068-1f
1159 253 Scintillation Counter 21,483.97 7066111
1160 227 Centrifuge, Table-top 9,092.87 gr3a29
1161 255 Centrifuge, Table-top 9,092.87 93a35
1162 204 Centrifuge, Table-top 9,092.87 gr93a22
1164 212 Fraction Collector 2,832.27 179b3b061
1165 212 Fraction Collector 2,832.27 179b3b059
1166 231 Spectrophotometer 10,499.33 4315451
1170 227 pH Meter 1,173.53 6105
1171 1 Balance, Analytical 1,592.71 20502480
1172 1 Balance, Top-loading 2,462.63 10403778
1173 253 Shaker, Environmental 3,435.35 193-0357
1207 211 Microtome 5,941.26 19860829
1220 132 Incubator, Bacterial 1,244.03 1192-0722
1221 1 Freezer, Ultima 7,018.60 003c-133368-0c
1223 132 Microscope, Upright 4,674.33 17195-1
1225 132 Centrifuge, Ultra 66,846.82 X936910
</TABLE>
11
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1227 227 Fluorometer, DNA 2,744.28 96-1237
1229 231 Incubator, Baterial 1,244.03 1192-0725
1230 232 Transilluminator, w/Camera 1,770.33
1231 231 Gel Drying System 2,827.22 sgd40503f2901-65-1h
1233 225 Thermal Cycler 4,910.48 P15906
1244 207 Freezer, Nitrogen 11,807.34 jia92j107
1245 207 Microscope, Upright 4,674.33 17435-1
1246 242 Incubator, Bacterial 1,244.03 1192-0728
1261 1 HPLC 28,618.53 1233888
1263 253 HPLC 28,618.53 1233885
1264 242 Incubator, Bacterial 1,244.03 1192-0723
1267 220 Environmental Shaker 3,435.35 193-0248
1276 1 Ultrasonic Processor 4,455.82 18084
1280 205 Balance, Top-loading 1,276.76 20402979
1284 231 Thermal Cycler 4,910.48
1291 231 Thermal Cycler 4,910.48 P12269
1292 1 Thermal Cycler 4,910.48 P15897
1293 1 Incubator 2,722.31
1294 203 Microscope, Photo Inverted 4,593.09 205043
1295 1 Microscope, Photo 7,728.73 339531
1296 223 Incubator 1,604.38 1093-4932
1297 1 Fluorometer, DNA 2,165.84 98-1407
1298 212 Hydrogenation Apparatus 2,498.44 1293
1299 206 Lyophilizer 9,034.70 206211
1300 1 Lyophilizer 18 Port 1,383.88
1301 1 Hood, Table Top Laminar Flow 1,740.92
1302 1 Freezer, Controlled Temp 3,058.88
1303 1 Reticle, 10mm 68.17
1304 1 Pipettor, Electrapette Programmable 2,132.08 A00050550
1305 1 Technomouse 10,814.59 1882736-5723
1306 1 Microscope, Photo 7,728.73 339531
1307 1 Compressor 2,159.91 03-02-94 74441
1308 1 Pipettor, Electrapette Programmable 2,132.08 A00050554
1309 1 Pump, Vane Vacuum 1,238.90
1310 1 Power Supply 500VDC 1,084.24 94-1093
1312 1 Spectrophotometer, Visible 2,867.30 3155209002
1313 1 Incubator Model 3025T 4,993.32
1314 1 Heater, Dri-Block 1,139.35 3723214
1315 1 Shaker, Incubator Model #2200 1,082.00 22001181
1316 1 Centrifuge, Micromax w/rotors 2,740.71 24980905
1317 1 Autosampler 12,049.02 163-1389
1318 1 Heater/Oven, Column 1,488.83
1319 1 Fraction Collectors 1,902.16
1320 204 Balance, Top Loading 2,100.17 31215354
1321 209 Incubator 1,834.00 9308-006
1322 1 Incubator Model 6LM Digital 2,591.40 9403-003
1323 1 Pipettor, 12 Channel 1,034.67 931096
1324 1 Chamber, Exposure 8,984.39
</TABLE>
12
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1325 1 Hood, Table Top Laminar Flow 7,999.90
1326 1 Incubator, Double C02 3,842.18
1327 1 Heater/Oven, Column 1,492.21
1328 1 Thermocycler, PE9600 11,206.36 P6862
1329 1 Balance Capacity 610G 1,086.87
1330 204 Microscope, Tissue Culture 3,430.25 211731
1331 1 Balance, Capacity 310G 1,406.60
1332 1 Cabinet, Biological Safety 6,588.63 58670ABS
1333 1 Recirculator, Polar Bear 2,867.05 41592391001
1334 207 Autoplate, 3000 2,881.92 AP01-00318
1335 1 CASBA II Laser Scanner 2,078.37
1336 1 Image Analysis System 55,227.97 1807T, AN 1403, 1392
1337 231 Thermalcycler, PE480 5,452.66 P10990
1338 1 Omnislide 12,180.62 311
1339 1 Ultrasphere ODS Column, x 2 1,049.54 4UE1556, 4UE1553
1340 1 Thermocycler, PE9600 11,206.36 P6864
1341 l Sequencer,DNA 119,320.00 94041824S
1342 1 Thermocycler, PE9600 11,206.36 P6874
1343 1 Probe, Solids for XSQ 7000 9,763.69
1344 1 Luminometer w/Injectors 23,191.41 402472
1345 1 Chamber, Temperature for Incubator 1,844.77
1346 1 Injector 1,317.69
1347 1 Hood, Laminar flow - Animal Facility 756.59
1348 224 Thermocycler P480 4,667.60
1349 1 Thermocycler P480 4,667.60 P16912
1350 225 Thermocycler P480 6,445.73 P30275
1351 225 Thermocycler P480 6,445.73 P30279
1352 1 Electrophoresis Unit 2,192.13
1353 162 Microtome/Cryostat 2,995.25 3398631
1355 1 Hybridizer Tubes & Adaptors 247.45
1356 1 Bus Sat/In Module 2,116.13
1357 1 Freezer, Cryo Ultra Low (-86 to -50 C) 6,919.40
1358 1 Incubator, Precision Scientific 1,498.58
1359 1 Autoplate 3000 14,835.30 AP01-00318
1360 1 CASBA II 16,614.11 476
1361 1 Microscopy System w/Video Camera 29,868.07
1362 207 Incubator, C02 4,058.58 37298-00236
1363 217 Rotary Evaporator 2,884.89 R-114C, 10007814
1364 1 Incubator, Microprobe 1,255.14
1365 1 Beadbeater, Mini -8 1,083.10
1366 224 Freezer, Cryo 17.2 cu ft 6,708.40
1367 1 Freezer, Ultima 9,753.15
1368 1 Printer, Video for Nikon Labophot 2A 2,894.35
1369 1 Balance, Top Loading 1,460.70 40805157
1370 1 Stainer, Slide w/ Hood 16,013.60 940700592
1371 1 Mixer Model 5436 2,741.89 5436B05819
1372 1 Luminometer Automatic w/ injector 26,501.48
1373 1 HPLC Gradient Sovent Delivery Module 13,653.25 514-1001
</TABLE>
13
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1374 1 Mill, Model ED-5 7,561.51
1375 1 Stainer, Automated Cell System 21,640.00 53546
1376 1 Electron Multiplier 1,560.24
1377 1 Hood, Luminometer 1,325.45
1378 1 Rotary Evaporator 3,857.33 10006178
1379 1 Hood Modification 324.6
1380 1 Rotary Evaporator 3,857.34 10014760
1381 1 Heater, Steele Column 886.16
1382 1 HPLC, Computer, SysSuit/Validation 2020 5,359.96
1383 1 HPLC, Multisolvent Delivery System 600E 15,799.66
1384 1 HPLC, Mill 2020 Novell 4 User Sys 21,059.77
1385 1 HPLC, 2020 Client A/O for Novell 3,265.08
1386 1 Autosampler, 717 Plus 10,878.16
1387 1 HPLC, Custom Novell Server 10,429.24
1388 1 Detector, Beckman 168 9,318.73 479-0293
1389 1 Mixer, Model 5436 2,423.68 5436B05532
1390 224 Thermocyler, PE480 5,452.66 P10773
1391 1 Detector, UV Visable 7,129.56
1392 1 Freezer 2l.2 Cu Ft 1,748.51
1393 1 Planapochromat 3,007.96
1394 1 Hood Ventilation Box 1,604.70
1395 1 Holder, Vial 1,623.00
1396 1 Stretch liner upgrade for DNA Sequencer 16,291.67
1397 1 Mixer, Model 5436 2,423.68 5436B05785
1398 1 Cabinet, Biological Safety - Nuaire 6,482.26 63172ACR
1399 1 Cabinet, Biological Safety - Forma Scientifi 8,378.93
1401 1 Cabinet, Biological Safety - Moving incl 139 506.25
1402 232 Thermocycler, PE480 5,452.66 P10772
1403 1 Rotary Evaporator 3,857.33 10007813
1404 1 HPLC, Multisolvent Delivery System 600E 15,799.66
1405 1 Autosampler, 717 Plus 10,878.16
1406 1 Detector, UV Visible 7,129.56
1407 1 Cabinet, Biological Safety- Install incl 139 583.2
1408 1 Vial Holder - Reaction Block 3,769.70
1409 1 Vial Holder - Machining Modifications 1,190.20
1410 1 Vial Holder - Modifications 1,970.37
1411 1 Hybridizer, HB-1 3,191.90
1579 1 Circulator, Low temp bath 3,434.00
1580 1 Vial Holder - Modifications 1,790.92
1581 1 Robotic System - Parts 442.28
1582 1 Lab Equipment - Batch Purchase (Oncomembrane 12,178.03 1589 - 1609
3002 1 Robotic Workstation & Computer (Bohdan) 71,350.96 3001 & 3002
3007 1 Rotor - Arquele Stainless Steel W/ Magnet 6,048.26 6F2702/18-1G
3011 162 Freezer, Lab 21.2 Cu Ft 1,058.63 X27E222338YE\3011
3012 8 Freezer, Lab 21.2 Cu Ft 792.63 X27E222337YE\3012
3017 1 Fast Prep System - Bio 101 Inc. 2,230.00 5I370156-1
3020 1 Molecular Imager - Bio-Rad 48,417.35
3021 1 Turbovap workstation, Zymark 7,446.65 T89602N6601
</TABLE>
14
<PAGE>
PathoGenesis, Inc.
Sebedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- --------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
3023 1 Incubator, General Purpose Model 70096015473 1,557.40 41925
3024 1 Pump, Alcatel Mechanical 1,202.37 258785
3028 1 Shaking Machine 1,562.48 VHJ240039
3030 1 Freezer 21 CF 619.57 WB60804745
3031 1 Refrigerator 18.5 CF 633.51 10209885MY
3032 1 Autoplate 4000, Scanner, Micron P100 computer 31,258.98 C40696-219,587955-00
-------------
Total Lab Equipment 2,051,735.18
=============
Group #461 Small Equipment
213 1 Small Equipment 28,818.50
214 1 Small Equipment 16,472.07
215 1 Small Equipment 11,798.48
216 1 Small Equipment 893.96
217 1 Small Equipment 221.81
218 1 Hood - 24x24x30 Inch TT Unit 5,410.00
219 1 Centrifuge, Eppendorf w/Rotor 3,132.40 5416-B-00597
-------------
Total Small Equipment 66,747.22
=============
Group #462 Specialized Lab Equipment
177 1 Cytometer, Flow Facsort 140,376.14 B0256
178 253 Sequencer, Protein System 104,477.59 308017
179 1 Mask, Air MMR 2,126.83 260794
180 119 NMR, QE Plus Magnet System 146,611.00 LFK1346
181 1 Mask, Air MMR 2,126.83 260901
182 1 Mask, Air MMR 2,126.83
217 1 Tools for Spectrometer & MMR 473.54
1093 211 Dispenser, BioMek Bulk 4,674.24 1615
1094 211 Biomek mp200 2,787.23 1961
1095 207 Robot, BioMek 42,797.41 bmc9306
1111 253 Synthesizer, DNA 45,444.00 93011225j
1126 211 Sequencer, DNA 119,505.82 9212914
1262 253 Capillary Electrophoresis 60,938.94 PB3C18
1263 207 Luminometer, Microplate 27,758.44 LB96-1076
1264 210 Spectrometer, Mass 201,104.93 TS 000826
1265 1 Ionization, Atmospheric 32,812.60 TSQ-700
1266 1 Chromatograph, Liquid 3,990.02 LDC4100MSLC
1267 1 Autosampler, Variable 10,605.01 AS3000
1268 1 Ionization, Atmospheric 32,812.60 TSQ-710
1269 1 Storage Racks, Freezer 1,226.80
1273 1 Phosphorimager - Hardware & Software MAC 610 3,005.80
-------------
Total Specialized Lab Equipment 987,782.60
=============
</TABLE>
15
<PAGE>
PathoGenesis, Inc.
Schedule F
Personal Property Asset Listing
<TABLE>
<CAPTION>
Num Loc Property Description Cost Serial Number
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Group #464 Specialized Lab Equipment
179 1 Refrigerated Walk-in Cold Room 21,681.00
180 1 Refrigerated Walk-in Cold Room 21,681.00
181 1 Autoclave, Pass-thru 62,581.80 R813489201
182 l Hoods & Distillation Racks 5,646.67
183 1 Garbage Disposal Unit 3,851.20 9101497A
184 1 Manifold, Gas Tank 3,873.76
185 1 Cage Washer 37,171.03 93-6503
186 205 Water System 29,466.36 F2PM74971G
187 136 Cages, Animal 16,978.46 M046488G9317
188 136 Cages, Animal 16,978.46 MO534409301
189 136 Cages, Animal 16,978.46 MO534409302
198 1 Technical Support 8,030.00
199 1 Installation of Equipment 14,632.97
1025 2l4 Fume Hood 5,961.28
1026 212 Fume Hood 5,961.29
1027 242 Fume Hood 5,961.27
1028 216 Fume Hood 5,961.28
1029 213 Fume Hood 5,961.27
1030 214 Fume Hood 5,961.28
1031 214 Fume Hood 5,961.27
1032 214 Fume Hood 5,961.28
1033 214 Fume Hood 5,961.27
1034 227 Fume Hood 5,961.28
1035 214 Fume Hood 5,961.27
1036 1 Fume Hood 1,991.96
1055 1 Ice Machine 2,142.85 kc2731
1056 226 Ice Machine 2,542.70 gc0293
1057 205 Refrigerator, Pass-thru 5,439.47 Y12B-128470-YB
1066 1 Developer, Film 5,437.05 4107367
1197 130 Autoclave 53,998.29 0134292-02
1198 130 Autoclave 28,159.05 0135492-02
1285 130 Drier/Oven, Sterilizer 13,372.43
1286 1 Washer, Glass 30,488.60
1287 1 Hood, Fume Systems 11,769.30
1288 1 Hood, Fume Systems 333.73
1289 1 Caging Equipment 9,746.28
1290 1 Cages 14,817.99
1291 1 Caging Equipment 13,237.90
1292 1 Caging Equipment 1,874.89
1293 1 Caging Equipment 2,831.47
1294 1 Cage, Metabolic w/Racks 3,374.44
1295 1 Cabinet, Tall Storage 1,233.48
1296 1 Hoods, Certification of Hoods/Installation 1,761.58
-------------
Total Specialized Lab Equipment 529,678.67
=============
-------------
Grand Total 5,539,345.59
=============
</TABLE>
16
<PAGE>
PathoGenesis Corporation
Oncomembrane Equipment
<TABLE>
<CAPTION>
NEW NEW
SERVICE ONCO PATHO ONCO BIO BIO Patho
DATE TAG # TAG # TAG # TAG # LOCATION DESCRIPTION Purchase
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dec-86 310044 1589 10172 221 Ameri Sci-CO2 Incubator (41) 500
11/90 310327 1606 120 Baxter-Fume Absorber (26) 232
12/86 310654 1597/1598 10340 241 Turner Flourometer 525
9/87 1608 102 Lab Prod-Cage Racks (42) 959
9/87 1607 104 Lab Prod-Cage Racks (42) 959
1/87 1605 North Steel Cabinet (52) 259
1/87 1604 North Steel Cabinet (52) 188
1/87 1603 North Steel Cabinet (52) 259
1/87 1602 240 North Steel Cabinet (52) 259
12/86 311307 1590 10296 247 Ameri Sci-CO2 Incubator (41) 500
310657 Unmarked 10333 241 Bio-Rad power supply 75
310661 1599 240 Analytic Balance 400
----------
5,115
----------
May-87 310001 1609 10451 232 Curt Math-Refrig explosion proof (42) 114
Dec-86 310079 1582 311214 10211 227 Amer-Sci-30C50CFU Freezer (11) 325
Dec-86 310080 1581 311215 10212 227 Amer-Sci-30C50CU Freezer (31) 326
Dec-86 310081 1580 311216 10213 227 Amer-Sci-30C50CU Freezer (14) 325
11/87 310146 1594 311159 10195 245 Hussman sliding door refrig. (31) 194
12/86 310152 1601 10179 247 Ameri Sci-90C Freezer (41) 475
12/86 310154 1593 10181 247 Amer-Sci-30C50CFU Freezer (11) 326
1585 10268 222 Slide Door Refr 358
12/86 310704 1584 311266 10411 223 Amer-Sci-Slide Door Refr (11) 358
12/86 310139 1592 311282 10288 240 Ameri Sci-30C23CU Freezer (15) 280
12/86 310191 1587 311294 10306 251 Amer-Sci-30C50CFU Freezer (11) 361
12/86 310622 1583 311220 10209 227 Hussman-Refrigerator (41) 205
12/86 310650 1596 10322 237 Hussman-Refrigerator (41) 205
5/87 310653 1600 10338 238 Amer Sci-Freezer (21) 160
12/86 310702 1586/1591 311260 10401 249 Hussman-Refrigerator (41) 205
12/87 310621 Unmarked 249 Hussman-Refrigerator (41) 256
Dec-86 Unmarked 10214 Amer. Sci Freezer 454
12/87 310621 Unmarked 249 Hussman-Refrigerator (41) 252
12/86 310718 1588 311295 10295 251 Hussman-Refrigerator (41) 205
----------
5,382
----------
All Furniture 10,000
Grand Total $ 20,497
Washington State Sales Tax @ 8.2% $1,680.78
----------
$22,178.03
==========
</TABLE>
<PAGE>
[Letterhead of Seattle Daily Journal of Commerce]
Thursday, June 20, 1996
Biotech lab space opens up
The Biomembrane Institute, a Seattle biomedical research lab that occupies
39,000 square feet of lab space at 201 Elliott Ave. W. in Seattle, has closed
its doors. The closure has set off a scramble among biotech companies looking
for lab space.
Industry sources described the Biomembrane Institute as a small research
facility funded by a Japanese organization that has decided to cease its lab
operations here.
The move has prompted other biotech companies to pounce on the lab space,
which is in short supply in the region. At the moment no deal has been struck.
But sources said Pathogenesis, which leases space in the same building, is known
to be interested.
<PAGE>
Exhibit 10.23
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Amendment") dated this 31 day of April,
1996, is entered into by and between KNICKERBOCKER PROPERTIES, INC. XVII, a
Delaware corporation ("Landlord") and PATHOGENESIS CORPORATION, a Delaware
corporation ("Tenant").
WITNESSETH:
WHEREAS, Landlord is successor in interest to The Equitable Life Assurance
Society of the United States ("Original Landlord");
WHEREAS, Old Orchard Office Venture, the predecessor to Original Landlord
and Tenant entered into that certain Lease dated October ____, 1992 (the
"Original Lease") for Suite 910 (the "Original Premises") in that certain
building located at 5215 Old Orchard Road, Skokie, Illinois (the "Building");
and
WHEREAS, Original Landlord and Tenant entered into that certain First
Amendment to Lease, dated March, 1995 (the "First Amendment," the Original Lease
as amended by the First Amendment is hereinafter referred to as the "Amended
Lease");
WHEREAS, Landlord and Tenant now desire to add approximately 1,786 square
feet of net rentable area, as shown on Exhibit A attached hereto and hereby made
a part hereof (the "New Premises") to the Original Premises and to amend certain
other provisions of the Amended Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant
hereby agree as follows:
1. From the date hereof and until July 1, 1996 (such date being the
"Effective Date"), the terms and provisions of the Amended Lease shall remain in
full force and effect and shall not be deemed to be amended by this Amendment.
From and after the Effective Date, the Amended Lease shall be deemed amended by
this Amendment (the Amended Lease, as amended by this Amendment being
hereinafter referred to as the "Lease").
2. Effective from and after the Effective Date, Landlord leases to
Tenant, and Tenant accepts and leases from Landlord, in accordance with the
provisions, terms and conditions of the Amended Lease as amended by this
Amendment, the New Premises, which New Premises contains approximately 1,786
square feet of net rentable area. From and after the Effective Date, the term
"Leased Premises" in the Lease shall mean the Original Premises as expanded by
the New Premises. Subject to the conditions of this paragraph, Landlord hereby
demises and leases the New Premises on an "as-is" "where-is" basis. The parties
hereto acknowledge and agree that the taking of possession by Tenant shall be
conclusive evidence that the New Premises are in good order and repair and are
in satisfactory condition as of the date of the taking of possession; provided,
however, that Tenant's acceptance of the New Premises is subject to Tenant's
right to prepare and submit a punch list of incomplete or incorrect items within
30 days of taking possession of the New Premises. Landlord shall repair all
items on the punch list within 30 days of receiving the punch list from Tenant.
Landlord and Landlord's agents have made no representations, warranties or
promises, express or implied with respect to
<PAGE>
the condition of the Building, the New Premises, the existing fixtures or the
building Systems serving the New Premises or as to any other thing or fact
related thereto, and no rights, easements or licenses are acquired by Tenant by
implication or otherwise except as expressly set forth herein. Notwithstanding
the foregoing, Landlord shall perform the work described in Exhibit B attached
hereto prior to the Effective Date.
3. From and after the Effective Date, the Schedule set forth on
pages 1 and 2 of the Lease shall be deleted in its entirety and replaced with
the following:
"SCHEDULE
A. Description of Leased Premises: Suite 910, located on the ninth (9th)
floor of the Building, consisting of 4,304 square feet of net rentable
area, more or less.
B. Tenant's type of business: sales and administrative office for
pharmaceutical company.
C. Base Rent: Monthly RSF
---------- -------
From the Effective Date through 12/31/96: $ 4,168.59 $ 11.62
From 1/1/97 through 6/30/97: 4,237.83 11.82
From 7/1/97 through 12/31/97: 4,312.24 12.02
From 1/1/98 through 6/30/98: 4,383.59 12.22
From 7/1/98 through 12/31/98: 4,458.01 12.43
Notwithstanding anything contained in the Lease to the contrary, Base Rent
shall be determined on a monthly basis as Set forth in this Schedule.
D. Tenant's Share: 2.05% (the percentage of the number of square feet of
net rentable area in the Leased Premises to 209,616, the number of
square feet of net rentable area in the Building).
E. Term: A term commencing on the date specified in Paragraph 2A
(hereinafter referred to as the "Commencement Date") and ending on
December 31, 1998 (hereinafter referred to as the "Termination Date")
unless otherwise terminated as provided in this Lease.
F. Security Deposit: $ -0-
G. Broker: CB Commercial
2
<PAGE>
H. Addresses for Notices:
If to Landlord:
Knickerbocker Properties, Inc. XVII
c/o O'Connor Realty Advisors Incorporated
399 Park Avenue
New York, NY 10022
Attn: Asset Manager
with a copy to:
Hines Interests Limited Partnership
5215 Old Orchard Road
Skokie, Illinois 60077
Attn: Property Manager
If to Tenant:
Pathogenesis Corporation
Suite 910
5215 Old Orchard
Skokie, Illinois 60077
This Lease is subject to the Terms and Conditions and the provisions
of any riders attached hereto, which Terms and Conditions and riders
are hereby made a part of this Lease."
4. From and after the Effective Date, Paragraphs 2B, 31, 32 and 33
of the Amended Lease shall be deleted in their entirety.
5. From and after the Effective Date, Paragraph 4E of the Amended
Lease shall be deleted and replaced with the following:
"E. EXAMINATION OF BOOKS AND RECORDS. Tenant or its
representative, at the sole cost of Tenant, shall have the right to
examine Landlord's books and records with respect to the items set
forth in Landlord's statements regarding actual Operating Expenses and
actual Taxes, upon reasonable prior notice and during normal business
hours at any time within thirty (30) days following delivery to Tenant
of such statements (such period being the "Review Period"). Upon
Tenant's timely request to examine Landlord's books and records,
Landlord shall, in Landlord's sole discretion, elect to either (a)
allow Tenant to conduct such examination by engaging Tenant's choice
of either Arthur Anderson, Price Waterhouse, Ernst and Young, Deloitte
& Touche or Coopers & Lybrand to perform such examination or (b)
directly engage one of the above accounting firms to perform such
examination Tenants behalf, the cost and expense of
3
<PAGE>
which, in either case, shall be payable by Tenant. Unless Tenant shall
take written exception to any item prior to the date that is thirty
(30) days following expiration of the Review Period, Landlord's
statements regarding actual Operating Expenses and Taxes, as the case
may be, shall be considered final and accepted by Tenant. Any amount
due to Landlord as shown on relevant statements, regardless of whether
written exception is taken, shall be paid by Tenant when due without
prejudice to any such written exception. If, after such written
exception is taken, Landlord and Tenant are unable to reach agreement
as to the resolution of such item within sixty (60) days following
Landlord's receipt of the written exception, then either Landlord or
Tenant may refer the decision of said issue to an expert employed by
one of the accounting firms set forth above, having not less than ten
(10) years' experience in commercial real estate management (the
"Auditor"), said Auditor to be reasonably acceptable to both Landlord
and Tenant. The decision of the Auditor shall be final. The parties
shall divide equally all fees and expenses of the Auditor; provided,
however, that if the Auditor determines that Landlord has made errors
adverse to Tenant in excess of seven percent (7%) of the aggregate
amount of the Operating Expenses or Taxes shown on the applicable
statements, then the Auditor's fees and expenses shall be paid
entirely by Landlord."
6. It is expressly understood and agreed that this Amendment is
intended to modify and amend the Amended Lease only to the extent set forth
herein and that all other provisions, terms and conditions of said Amended Lease
(including all riders, exhibits and other attachments thereto), as hereby
modified and amended, shall remain in full force and effect and are hereby
ratified and confirmed.
7. It is expressly understood and agreed that none of Landlord's
covenants, undertakings or agreements made in this Amendment or the Amended
Lease are made or intended as personal covenants, undertakings or agreements by
Landlord, and any liability of Landlord for damages for breach or nonperformance
by Landlord or otherwise arising under or in connection with this Amendment or
the Amended Lease or the relationship of Landlord and Tenant hereunder, shall be
collectible only out of Landlord's interest in the Land and Building, in each
case as the same may then be encumbered, and no personal liability is assumed
by, nor at any time may be asserted against, Landlord, or its shareholders,
officers, directors, employees, agents, legal representatives, successors or
assigns, all such liability, if any, being expressly waived and released by
Tenant.
8. All capitalized terms used herein shall have the same meanings as
in the Amended Lease, unless otherwise defined herein. In the event of any
conflict between the terms and provisions of this Amendment and the terms and
provisions of the Amended Lease, the terms and provisions of this Amendment
shall control.
9. This Amendment may be executed in counterparts.
4
<PAGE>
EXHIBIT A
[GRAPHIC OMITTED] - FLOOR PLAN
<PAGE>
EXHIBIT B
Landlord's Work
Landlord shall improve the Lease Premises as detailed below and illustrated in
the attached Exhibit B2:
A. Remove portion of wall, create doorway and patch carpet
B. Remove door and frame
C. Remove partial wall
D. Add full-height wall and door and frame
E. Remove wall and patch carpet
F. Remove door and frame
G. Remove glass door. Install standard wood door and frame
<PAGE>
EXHIBIT B2
[GRAPHIC OMITTED] - FLOOR PLAN
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands hereto as of the day
and year first above written.
LANDLORD:
KNICKERBOCKER PROPERTIES, INC. XVII, a
Delaware corporation
By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------------
Its: V.P.
----------------------------------
TENANT:
PATHOGENESIS CORPORATION, a Delaware
corporation
By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------------
Its: Sr. VP & CFO
----------------------------------
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Exhibit 10.24
LEASE AGREEMENT
EXXON RESEARCH AND ENGINEERING COMPANY
LANDLORD
and
PATHOGENESIS CORPORATION
TENANT
Dated: ________, 1996
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LEASE AGREEMENT
TABLE OF CONTENTS
Page
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ARTICLE 1
Section 1.01 Certain Definitions ................................ 1
ARTICLE 2
Section 2.01 Demised Premises and Term .......................... 3
ARTICLE 3
Section 3.01 Use of Demised Premises ............................ 3
ARTICLE 4
Section 4.01 Condition of Demised Premises on Occupancy ......... 4
Section 4.02 Landlord's Representations ......................... 4
ARTICLE 5
Section 5.01 Rent ............................................... 5
ARTICLE 6
Section 6.01 Additional Rent .................................... 6
Section 6.02 Real Estate Taxes .................................. 6
Section 6.03 Operating Expenses ................................. 7
Section 6.04 Optional Services .................................. 9
Section 6.05 Utility Charges .................................... 11
Section 6.06 Interruption of Service ............................ 13
Section 6.07 Utility Alterations Prohibited ..................... 14
Section 6.08 Landlord's Services, Maintenance & Repairs ......... 14
ARTICLE 7
Section 7.01 Taxes Payable by Tenant ............................ 14
ARTICLE 8
Section 8.01 Compliance with Laws ............................... 15
ARTICLE 9
Section 9.01 Landlord Work ...................................... 15
Section 9.02 Tenant Alterations and Repairs ..................... 16
Section 9.03 Removal of Alterations ............................. 18
Section 9.04 Condition of Demised Premises ...................... 18
Section 9.05 Adjustment of Service/Common Facilities ............ 19
ARTICLE 10
Section 10.01 Liens .............................................. 20
ARTICLE 11
Section 11.01 Distribution of Risk ............................... 20
Section 11.02 Personal Injury .................................... 20
Section 11.03 Property Damage .................................... 21
Section 11.04 Indirect Damages ................................... 22
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Section 11.05 Insurance .......................................... 22
Section 11.06 Exclusions ......................................... 22
ARTICLE 12
Section 12.01 Assignment and Subletting .......................... 23
Section 12.02 Landlord's Consent ................................. 24
Section 12.03 Brokers' Commissions ............................... 24
Section 12.04 Bankruptcy Assignment .............................. 24
ARTICLE 13
Section 13.01 Insolvency or Bankruptcy ........................... 25
ARTICLE 14
Section 14.01 Security ........................................... 25
ARTICLE 15
Section 15.01 Damage or Destruction .............................. 26
Section 15.02 Obligation of Tenant ............................... 27
ARTICLE 16
Section 16.01 Eminent Domain ..................................... 27
ARTICLE 17
Section 17.01 ISRA/Non-Subject Operations ........................ 28
Section 17.02 Subject Operations ................................. 28
Section 17.03 Responsibility For Site Work ....................... 30
Section 17.04 Default ............................................ 30
Section 17.05 Holdover Status; Bond .............................. 31
Section 17.06 Remediation Agreement .............................. 32
Section 17.07 Compliance Costs ................................... 32
ARTICLE 18
Section 18.01 Use of Hazardous Materials ......................... 33
Section 18.02 Chemical Stockroom ................................. 33
Section 18.03 Storage of Hazardous Substances .................... 34
ARTICLE 19
Section 19.01 Disposal of Hazardous Materials .................... 34
Section 19.02 Hazardous Waste Storage ............................ 35
Section 19.03 Off-Site Disposal .................................. 35
ARTICLE 2O
Section 20.01 Emergency Control Force ............................ 35
Section 20.02 Tenant Responsibilities ............................ 36
Section 20.03 Safety ............................................. 36
ARTICLE 21
Section 2l.01 Default ............................................ 37
ARTICLE 22
Section 22.01 Deficiency ......................................... 37
Section 22.02 Non-Waiver ......................................... 38
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Page
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Section 22.03 Divisible Contract ................................. 38
Section 22.04 Acceleration ....................................... 38
Section 22.05 No Right of Redemption ............................. 39
ARTICLE 23
Section 23.01 Arbitration ........................................ 39
ARTICLE 24
Section 24.01 Notices ............................................ 39
ARTICLE 25
Section 25.01 Access & Right of Inspection ....................... 39
ARTICLE 26
Section 26.01 Performance of Covenants ........................... 41
ARTICLE 27
Section 27.01 Rules & Regulations ................................ 41
ARTICLE 28
Section 28.01 Mortgagee Right to Cure ............................ 42
ARTICLE 29
Section 29.01 Abandonment of Property ............................ 42
ARTICLE 30
Section 30.01 Holdover Tenancy ................................... 42
ARTICLE 3l
Section 31.01 Subordination ...................................... 43
Section 31.02 Attornment ......................................... 43
Section 31.03 Agreement Amendments ............................... 43
ARTICLE 32
Section 32.01 Landlord's Liability ............................... 44
Section 32.02 Personal Liability of Landlord ..................... 44
ARTICLE 33
Section 33.01 Estoppel Certificate ............................... 44
ARTICLE 34
Section 34.01 Quiet Enjoyment .................................... 45
ARTICLE 35
Section 35.01 No Waiver .......................................... 45
ARTICLE 36
Section 36.01 Late Charges ....................................... 45
ARTICLE 37
Section 37.01 Surrender of Premises .............................. 46
ARTICLE 38
Section 38.01 Brokerage .......................................... 46
ARTICLE 39
Section 39.01 Recordation ........................................ 47
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Page
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ARTICLE 40
Section 40.01 Force Majeure ...................................... 47
ARTICLE 41
Section 41.01 Renewal Option ..................................... 47
ARTICLE 42
Section 42.01 Parking ............................................ 48
ARTICLE 43
Section 43.01 Signs .............................................. 48
ARTICLE 44
Section 44.01 Permits & Approvals ................................ 49
ARTICLE 45
Section 45.01 Construction of Terms .............................. 49
ARTICLE 46
Section 46.01 Miscellaneous ...................................... 49
Section 46.02 Remedies Cumulative ................................ 50
Section 46.03 Consent ............................................ 50
Section 46.04 Benefit ............................................ 50
Section 46.05 Entire Agreement ................................... 50
Section 46.06 Severability ....................................... 51
Section 46.07 Not an Option to Lease ............................. 51
Section 46.08 Time of the Essence; Calculation of Days ........... 51
Section 46.09 Governing Law ...................................... 51
Section 46.10 Name of Building ................................... 51
Section 46.11 No Advertisements .................................. 51
Section 46.12 Expansion Option ................................... 51
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EXHIBITS
Page
Reference
In Text
-------
Exhibit A Metes and Bounds Description of the Property ..... 1
Exhibit B The Demised Premises
B-1 - LG-1 ....................................... 2
B-2 - Inventory .................................. 2
Exhibit C The Research Campus .............................. 3,7
Exhibit D Optional Services ............................. 6,9,10,12
Exhibit E Operating Expenses for Operating Base Year 1996 .. 9
Exhibit F-1 Calculation of Actual Utility Usage Through Year-
End 1996 ......................................... 11
Exhibit F-2 Utility Charges for Utility Base Year 1996 ....... 11
Exhibit F-3 Tenant's Estimated Utility Usage Through Year-
End 1997 ......................................... 11
Exhibit F-4 Illustration of Utility Rate Increase ............ 11
Exhibit G Letter of Credit Agreement (with Letter of Credit) 25
Exhibit H Rules and Regulations Relating to the Use and
Handling of Hazardous Materials .................33,36,40
Exhibit I Instructions for Potentially Problematic ........34,36,40
Discharges to AWTP
Exhibit J Agreement of Cross-Indemnification ............... 36
Exhibit K Building Rules and Regulations ..................36,40,41
Exhibit L Form of Non-Disturbance Agreement ................ 43
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LEASE AGREEMENT
THIS LEASE AGREEMENT, made as of this 25th day of Nov., 1996 by and
between EXXON RESEARCH AND ENGINEERING COMPANY, a Delaware corporation, having
its principal office at 190 Park Avenue, Florham Park, New Jersey 07932
("Landlord"), and PATHOGENESIS CORPORATION, a Delaware corporation having an
office at 5215 Old Orchard Road, Suite 910, Skokie, Illinois 60077 ("Tenant").
WITNESSETH:
WHEREAS, by Lease Agreement dated as of September 1, 1983 and amended as
of May 26, 1988 (the "Main Lease") between Exxon Capital Corporation, a New
Jersey corporation having its principal office at 5959 Los Colinas Blvd.,
Irving, Texas 75039-2298 as lessor (the "OverLandlord") and Landlord as lessee,
Landlord entered into a lease of certain property which Landlord represents is
described as follows: all that certain tract of land in Clinton Township,
Hunterdon County, New Jersey described on Exhibit A annexed hereto together with
buildings and improvements thereon (the "Property"); and
WHEREAS, Landlord is willing to sublease to Tenant a portion of the
Property on the terms hereinafter set forth; and
WHEREAS, the consent of the OverLandlord to this Agreement has been
obtained;
NOW THEREFORE, in consideration of the mutual covenants and agreements of
the parties, the parties hereby agree as follows:
ARTICLE 1
Section 1.01 CERTAIN DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings where used herein:
(a) Agreement. This Lease Agreement dated as of Nov. 25, 1996
between Landlord and Tenant.
(b) Building. The office, laboratory, and shop/pilot plant space
referenced in the Main Lease and located on the Property.
(c) Common Areas. Those areas of the Research Campus which are used
in common by Landlord and Tenant including, without limitation, sidewalks,
roads, halls, corridors, elevators, locker facilities, stairs, plazas, outside
parking areas, landscaped areas,
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entrances, exits and any and all other areas and facilities used in common by
Landlord and Tenant which require cleaning, protection, security, maintenance
and repair and for which no separate allocated or metered charge is made
pursuant to this Agreement.
(d) Demised Premises. Those portions of the Building hereby leased
to Tenant commonly known as the LG portion of Level 1 of the northeast quadrant
of the laboratory facilities, but excluding LG-122 Lobby, LG-124, LG-119 and
LG/H lB ("LG-1"), Entrance as more particularly depicted on Exhibit B-1 annexed
hereto, together with that proportionate share of the mechanical rooms in the
LE/LG penthouse and that portion of the cylinder storage area in the LE/LG
penthouse which serve LG-1, and the proportionate share of the mechanical space
on Level 0 of the LE/LG wing, all of which are deemed to be 17,916 rentable
square feet.
Tenant acknowledges that it will be required to share the service
corridor between LG-1 and LE-1 (as depicted on Exhibit B-1) with the occupant of
LE-1 (currently Immunobiology Research Institute, Inc. ("IRI"). Tenant shall
have the right to use such service corridor in common with IRI; provided,
however, that each party shall only be permitted to place equipment, containers
and other tangible items on the side of the corridor immediately adjacent to its
Demised Premises and in a manner which will not obstruct access through such
corridor. Tenant's employees, agents and visitors shall not be entitled to enter
the LE-1 premises from this service corridor without the permission of IRI or
the current occupant of LE-1. Subject to Landlord's obligations under Section
25.01, Tenant shall be responsible for its own security measures to control
access to the Demised Premises from this service corridor. Landlord shall have
no liability to Tenant for any personal injury or property damage or loss
resulting from unauthorized entry into the Demised Premises from this service
corridor, and Tenant agrees to indemnify Landlord from any claim by or liability
to a third party resulting from any unauthorized entry into the Demised
Premises, or resulting from any unauthorized entry into LE-1 by any employee,
agent or invitee of Tenant. The above-mentioned service corridor shall be
considered a part of the Demised Premises for purposes of the indemnity
agreements of Article 11 of this Agreement.
The portions of the Demised Premises within the Building shall also
include the laboratory furniture, laboratory casework, incidental furniture,
fixtures, hoods, equipment, shades, draperies, carpeting and office furniture
and the like in place as of the commencement of this Agreement and identified in
Exhibit B-2 annexed hereto.
(e) Government or Governmental. The Federal, State, County and
municipal governments.
(f) OverLandlord. This term, used above to refer to Exxon Capital
Corporation, shall also be deemed to include any successor to the interests of
the Lessor pursuant to the Main Lease.
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(g) Plant Facilities. Those facilities which are not within Common
Areas and are not available to Tenant as are Common Areas, but which are
necessary for the proper function and operation of the Building, such as but not
limited to, tanks, transformers and other electrical equipment, central air
conditioning equipment, and boilers, excluding, however, the switching station,
the industrial wastewater treatment facility and the sanitary wastewater
treatment facility.
(h) Research Campus. That portion of the Property being
approximately 228 acres which is depicted on Exhibit C annexed hereto. Landlord
reserves the right to reduce the size of the Research Campus and will, in such
event, reduce accordingly the real estate tax liability to which Tenant's
percentage share is applied pursuant to Sec. 6.02 hereof.
ARTICLE 2
Section 2.01 DEMISED PREMISES AND TERM
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
the Demised Premises for the term of sixty (60) months commencing at 12:01 a.m.
on Second of Dec. 1996 and expiring at 12:00 midnight on the second day of
December, 2001, unless this Agreement is sooner terminated as hereinafter
provided.
ARTICLE 3
Section 3.01 USE OF DEMISED PREMISES
The Demised Premises shall be used by Tenant solely and exclusively for
research in the healthcare field of biopharmaceutics and biotechnology, and for
general office and administrative functions. Tenant's uses may include the
discovery, development, testing and analysis of biopharmaceutical and
biotechnological products intended for therapeutic, preventive or diagnostic
use, quality control, new product development, purification of drug product
components for use elsewhere, clinical trials, and bulk storage of finished
product in the feasibility stage. Except in connection with the activities
described above, the manufacture of products for sale or distribution is
expressly prohibited. The use of animals in the Demised Premises for any
research activity is expressly prohibited. All such uses shall be conducted
strictly in accordance with Landlord's rules, the rules, regulations, ordinances
and laws of all governmental units having jurisdiction over such use, and all of
the terms and conditions of this Agreement.
Landlord acknowledges that Tenant intends to conduct proprietary
activities in the Demised Premises and agrees that Landlord's employees, agents
and invitees are prohibited from entering the Demised Premises, except as
authorized in this Agreement. Tenant shall be responsible to take all safeguards
necessary to avoid disclosure of its confidential information, and Landlord
shall reasonably cooperate with Tenant in this regard, including, if requested
by Tenant, the temporary cessation of one or more optional services to be
provided to the Demised
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Premises by Landlord, but the periodic charges relating to such services shall
not cease, unless Landlord so agrees. If the Landlord and Tenant agree that
disclosure of confidential information is necessary, they shall negotiate
mutually an appropriate confidentiality agreement.
Tenant understands and acknowledges that Landlord conducts proprietary
activities at the Research Campus and may lease other space in the Building to
third parties, and Tenant agrees that its employees, agents and invitees are
prohibited from entering any parts of the Building or Research Campus reserved
for or dedicated to the conduct of business or research activities by Landlord
or other tenants. Landlord represents that the acknowledgment and prohibitions
contained in the preceding sentence have been and shall be made provisions of
any and all leases entered or to be entered by Landlord with other tenants in
the Building.
Tenant shall not be permitted to undertake any activity which requires
application for new or substituted permits for the Demised Premises, or
amendment of Landlord's existing permits for the Research Campus, without prior
notice to and consent from Landlord. Landlord, in the reasonable exercise of its
discretion, may refuse to allow Tenant to undertake any such activity. Landlord
represents that no new or substituted permits are required for the activities
contemplated under Section 3.01 hereof. Landlord's approval shall not be
required for Tenant's application for a hazardous waste generator identification
number and for air permits.
ARTICLE 4
Section 4.01 CONDITION OF DEMISED PREMISES ON OCCUPANCY
Tenant acknowledges that it has thoroughly examined the Demised Premises
and takes and accepts the Demised Premises in its "AS IS" condition on the
commencement date of this Agreement subject only to the specific rights to make
Alterations pursuant to Section 9.02.
Section 4.02 LANDLORD'S REPRESENTATIONS
Landlord represents and warrants to Tenant that:
(1) Landlord has no knowledge of any pending or anticipated condemnation
or eminent domain proceeding which would affect the Demised
Premises, the Building, or the Research Campus, or any part thereof.
Landlord has no knowledge of any pending or threatened litigation,
proceeding (zoning or otherwise) or governmental investigation
against Landlord which would adversely affect the Research Campus,
the Building or the Demised Premises.
(2) Landlord has no knowledge of any asbestos or asbestos-containing
materials in the Demised Premises or the Building or any part
thereof that require, or may in the foreseeable future reasonably be
expected to require, removal or encapsulation pursuant to federal,
state or local law or
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regulation. Landlord has disclosed to Tenant the existence of three
asbestos-containing materials affixed in the Building known to
Landlord: (1) mastic used to secure vinyl flooring tiles, (2)
aggregate used in some laboratory benchtops, and (3) fume hood
splash panels. If these materials require encapsulation or removal,
other than by reason of alterations or other activities by Tenant,
such encapsulation or removal shall be performed by Landlord at its
expense. If any other asbestos-containing materials are discovered
in the Demised Premises, Landlord shall be responsible at its
expense for the proper handling of same, as may be necessary for the
use of the Demised Premises by Tenant.
(3) natural gas and electric power are supplied to the facility by
public utilities; as of the date of this Agreement, the supply of
each is operating and all installation and connection charges have
been paid in full.
(4) the Certificate of Occupancy for the Building permits occupancy of
the Demised Premises by Tenant for the purposes specified in Section
3.01.
(5) the cessation of operations in the Demised Premises by the prior
occupant thereof (IRI) was not subject to ISRA, as defined in
Section 8.01.
(6) LG-193 has been decontaminated in accordance with applicable laws
and a NRC certificate has been issued to such effect.
(7) Landlord has no knowledge of any hazardous materials having been
left in the Demised Premises by IRI.
ARTICLE 5
Section 5.01 RENT
Rent for the demised term shall be Two Million Three Hundred Seventy-Three
Thousand, Eight Hundred Seventy and NO/l00 Dollars ($2,373,870.00), payable at
the rate of Thirty-Nine Thousand Five Hundred Sixty-Four and 50/100 Dollars
($39,564.50) per month for the period December 2, 1996 through December 2, 2001,
which sum shall be the Basic Monthly Rental.
Tenant shall pay Landlord the Basic Monthly Rental for the three months of
each calendar quarter of the demised term on the 15th day of the second month of
such calendar quarter, without deduction or offset and without notice or demand,
in lawful money of the United States of America, at Landlord's Notice Address as
designated in Article 24, or at such other place or to such other person as
Landlord may designate from time to time by written notice. Further, all charges
to be paid by Tenant to Landlord under this Agreement for real estate taxes,
Operating Expenses, and Utility Charges shall be considered Additional Rent for
the purposes of
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this Agreement. Basic Monthly Rental and Additional Rent are herein sometimes
collectively referred to as "Rent." Rent payments may be made by electronic wire
transfer.
ARTICLE 6
Section 6.01 ADDITIONAL RENT
It is the intention of the parties hereto that in addition to payment of
the Basic Monthly Rental there shall be paid on a quarterly basis Additional
Rent so that the leasing of the Demised Premises shall be construed as a net
lease to Landlord except for the obligations specifically assumed by Landlord.
In addition, there are Optional Services which Landlord can offer to Tenant
which, if accepted Tenant, will require payments to Landlord as Additional Rent.
The services are those described in Section 6.04 and any other services for
which parties may contract.
There are three categories of Additional Rent items as follows: Real
Estate Taxes, Operating Expenses, and Utility Charges. Optional Services,
although not categorized as Additional Rent, are covered in Section 6.04 below.
Landlord agrees to provide Tenant with appropriate documentation as reasonably
requested by Tenant to substantiate Additional Rent charges and Optional
Services, except that Landlord shall not be required to substantiate (i) the
rates set forth in Exhibit D hereto for Optional Services, as said rates may be
changed from time to time in accordance with Section 6.04, and (ii) the hourly
labor rates for employees of Landlord in connection with Operating Expenses and
Utility Charges.
On the first day of the second month of each calendar quarter during the
lease term, Landlord shall provide Tenant with a quarterly invoice setting forth
Tenant's items of Additional Rent and Optional Services. Invoices will be
adjusted to account for partial calendar quarters. Tenant shall pay the invoiced
amount by the 21st day of that month. Quarterly payments (as well as adjusted
payments and refunds) may be made by electronic wire transfer.
Section 6.02 REAL ESTATE TAXES
(a) Tenant's percentage share of Taxes, as hereinafter defined, is two and
32/100 percent (2.32%), representing the ratio of the net rentable area of the
Demised Premises to the net rentable area of the Building. The net rentable area
of the Building is deemed for purposes of this Agreement to be 772,345 square
feet. Landlord represents that this is the number used in calculating the
percentage share of the other tenants in the Building. Tenant's percentage share
of Taxes shall be adjusted in the event the numerator or denominator used in
establishing the ratio changes as a result of additions to or reductions in the
square footage of the net rentable area of the Building or the Demised Premises.
(b) As used herein, the term "Taxes" shall mean all real estate taxes,
assessments, governmental levies, municipal taxes, county taxes, rental license
fees or any other governmental charge, general or special, ordinary or
extraordinary, unforeseen as well as
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foreseen, of any kind or nature whatsoever pertaining to real estate, which are
or may be assessed levied or imposed upon all or part of the Research Campus
(which, as shown on Exhibit C, is inclusive of the wastewater treating
facilities), including any tax, excise or fee measured by or payable with
respect to any rent, and levied against Landlord or the Research Campus, and any
reasonable expenses incurred by Landlord in contesting any of the foregoing or
in contesting the assessed valuation of all or any part of the land, Buildings,
and improvements of the Research Campus. If, due to a change in the method of
taxation or in the taxing authority, a new or additional real estate tax, or a
franchise, income, transit, profit or other tax or governmental imposition,
however designated, shall be levied against Landlord, or the Research Campus, in
addition to, or in substitution in whole or in part for, any tax which would
constitute "Taxes", or in lieu of Taxes, such tax or imposition shall be deemed
for the purposes hereof to be included within the term "Taxes". Tenant's
liability for its percentage share of such new or substituted tax shall only be
to the extent that such tax or imposition would be due if Landlord (or
OverLandlord) owned only the Research Campus and its appurtenances, and engaged
in no other business. Except as specifically provided above, Tenant shall not be
responsible for any income or franchise tax imposed on Landlord, or for any
penalties and/or interest as a result of Landlord paying Taxes in other than a
timely fashion. Landlord shall have the sole right in its absolute discretion to
determine whether or not to contest the tax assessment of the Research Campus
and the manner of any such contest. If any such contest results in a refund of
Taxes with respect to which Tenant has paid its proportionate share, Tenant
shall be entitled to a payment of its proportionate share of such refund less
the costs of the contest.
(c) The term "Tax Year" shall mean the 12 month period commencing January
1 of each year, or such other period of 12 months as may be hereafter adopted as
the fiscal year for real estate tax purposes in Hunterdon County.
(d) Tenant shall pay as Additional Rent for each Tax Year or proportionate
part thereof during the lease term, an amount equal to Tenant's percentage
share, to wit, 2.32%, of the Taxes for such Tax Year ("Tenant's Tax Payment").
Tenant's Tax Payment shall be based upon a statement furnished by Landlord at
the commencement of such Tax Year. When a new statement for each Tax Year
becomes available from the municipal tax collector, Landlord shall adjust the
quarterly payments and give Tenant written notice thereof. Tenant shall
thereafter pay the adjusted quarterly payments set forth in Landlord's notice.
Taxes for the calendar year 1996 total $3,159,212.
Section 6.03 OPERATING EXPENSES
As used herein, the term "Operating Expenses" shall mean (except as
otherwise provided below) all costs and expenses (and taxes thereon, if any)
paid or incurred by Landlord, or on behalf of Landlord, with respect to the
operation, maintenance and repair of the Common Areas, Plant Facilities, and
other portions of the Research Campus from which Tenant derives benefit or which
Tenant uses in some form in common with Landlord. Operating Expenses include the
following categories of expenses: solid waste disposal (excluding those
categories of waste covered by Section 19.03); site security; grounds
maintenance; janitorial services; facilities
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maintenance and repair; heating, ventilating and air conditioning (HVAC) systems
maintenance and repair; site operations (including, without limitation,
operation of the receiving facility, the Emergency Control Force, and the
industrial hygiene and safety functions); management; and insurance, payments in
lieu thereof, or imputed premiums as set forth more specifically in Article 11
hereof.
Operating Expenses also include, without limitation, salaries, wages
(including social security, unemployment and other payroll taxes), bonuses and
all other benefits paid to those employees of Landlord whose activities are
dedicated in whole or in part to tenant support and/or services (and if
dedicated only in part, then a reasonable allocation of said charges) for work
performed in connection with the items described above. Additionally, costs and
expenses of supplies, tools, materials and equipment; depreciation of movable
equipment used in repair and maintenance; uniforms, work clothes and their dry
cleaning; trash removal (other than hazardous or regulated waste); laundry and
towel service; telephone; stationery; legal, accounting and other professional
fees and disbursements to the extent that they relate to management and
operation of the Building and excluding any such professional fees and
disbursements that relate to tenant disputes; electrical costs; other energy
costs; utility costs; and any and all other costs and expenses related to items
described in this Section 6.03 are to be included as Operating Expenses.
Depreciation on capital improvements and capital equipment which, under
Landlord's accounting procedures, are capitalized, shall be included in
Operating Expense for the years in which such depreciation is taken. Expenses
for items that, under Landlord's accounting procedures, are expensed, shall be
included in Operating Expenses for the years in which such expense is booked.
All charges of independent contractors for Section 6.03 items shall be included
as Operating Expenses.
Provided, however, that the foregoing costs and expenses shall exclude or
have deducted from them, as the case may be: depreciation of capital costs
except as provided above; the cost of all charges for utilities furnished to the
Demised Premises or any other space (excluding Common Areas and Plant
Facilities) leased to and occupied by Tenant, by other tenants or by Landlord;
metered charges; mortgage interest and amortization payments; leasehold
improvements for other tenants, for Landlord, or for areas dedicated to the
support of Optional Services; brokerage commissions; refinancing costs; ground
rent under the Main Lease; and costs associated with providing Optional Services
to Tenant, to other tenants or to Landlord.
Tenant shall pay as Additional Rent for each calendar year or
proportionate part thereof during the lease term Tenant's "Operating Expense
Payment," calculated as follows: The term "Operating Base Year" shall mean 1996.
The term "Index" shall mean the Consumer Price Index for
Philadelphia-Wilmington-Trenton, PA-NJ-DE-MD (NSA, 1982-84 = 100; CPI-U:PCUPHIN)
published by the Bureau of Labor Statistics of the U.S. Department of Labor (all
items). If the Index is no longer published, then a mutually agreeable
substitute or successor
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index published by the U.S. Department of Labor ("USDOL") or other U.S.
governmental agency shall be used.
Attached hereto as Exhibit E is an agreed-upon statement of Operating
Expenses that would have been incurred by Tenant for the Operating Base Year had
Tenant occupied the Demised Premises for the entire calendar year 1996. Subject
to the appropriate proration for partial calendar years, Tenant's Operating
Expense Payment for each year of the lease term shall be the equivalent of
Tenant's Operating Expense Payment for the prior calendar year (corrected as set
forth below), adjusted upward (or downward as the case may be) by the percentage
change from the prior year's Index. The 1996 Operating Expense Payment shall be
as set forth in Exhibit E. If Landlord achieves any material cost savings by
reductions in Landlord's expenses to operate the facility which reduce the
level of site operations services to Tenant, then the 1996 Operating Expense
Payment shall be equitably adjusted downward to reflect such cost savings.
An illustrative example of "percentage change" as used in the preceding
paragraph is as follows: The percentage change of the 1991 Index (142.18) from
the 1990 Index (135.84) is the difference (6.34) as a percentage of the 1990
Index, to wit, 4.67%.
The amount invoiced shall be calculated based on the estimate published by
the USDOL for the percentage change in the Index for the then-current calendar
year. This published estimate, if available, or an agreed-upon estimate, shall
be provided to Tenant no later than October 15th of the then-current year.
During each January of the lease term (or as soon thereafter as the final figure
is published by the USDOL), Landlord shall furnish Tenant with an Index
Comparative Statement setting forth (i) the amount actually paid as Tenant's
Operating Expense Payment for the preceding calendar year, (ii) the amount that
should have been paid based upon the final figure published by the USDOL showing
the actual percentage change in the Index, and (iii) the estimated amount due as
Tenant's Operating Expense Payment during the then-current calendar year based
on the USDOL's estimate of percentage change for the then-current calendar. With
its next succeeding payment, Tenant shall pay any amount underpaid; any excess
shall be promptly refunded by Landlord in cash or as a credit, at Tenant's
option.
Section 6.04 OPTIONAL SERVICES
Landlord offers optional services in each of the following three
categories, as indicated on Exhibit D hereto: (1) Predetermined, (2) Headcount,
and (3) Usage.
(1) Predetermined. Annual rates to be charged for each predetermined
service shall become effective as of the first day of June of each
year of the lease term. Landlord shall provide Tenant with its
estimate of the new annual rates by December 31 of each prior year.
Landlord will finalize the rates no later than March 1 of each year,
and will promptly advise Tenant of any changes from the earlier
estimate. Adjustments, if any, will appear in the second quarterly
invoice. Landlord may change a rate or cancel a service at any time
by giving Tenant not less than thirty (30) days notice, in which
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event Tenant's liability for charges for the cancelled service shall
be prorated to the last day of service. Tenant shall also have the
right to cancel any predetermined optional service upon thirty (30)
days prior written notice to Landlord.
(2) Headcount. Landlord shall set the annual rates and advise Tenant as
set forth in (1) immediately above, except that Landlord shall not
be entitled to cancel service. Not later than January 2 of each
year, Tenant shall advise Landlord of its projected average
headcount (number of full-time employees and/or contractors) for the
upcoming year of the lease term. Tenant shall promptly advise
Landlord if the average headcount departs materially from Tenant's
projection.
(3) Usage. Landlord shall set rates based upon the extent of Tenant's
usage of any service (for example, by the hour, weight, load, dewar,
etc.), effective as of the first day of January of each year of the
lease term. Landlord shall set the annual rates and advise Tenant as
set forth in (1) above. Landlord may change a rate or cancel a
service at any time by giving Tenant not less than thirty (30) days
notice.
On the first day of the second month of each quarter, Landlord shall
provide Tenant with a quarterly invoice setting forth Tenant's Optional Services
payment, inclusive of categories (1) through (3) above, with an itemized
breakdown of Tenant's utilization, and Tenant shall pay the invoiced amount by
the 15th day of that month. Quarterly payments may be made by electronic wire
transfer.
Other services not listed on Exhibit D may also be available from
Landlord, and, if desired by Tenant, shall be the subject of a separate
Agreement for Services. If Tenant contracts for janitorial services from a third
party vendor, the vendor shall be subject to Landlord's approval. Further,
Landlord's approval may be withdrawn at any time if, in the reasonable exercise
of Landlord's judgment, the vendor's personnel are creating a risk to property
or security.
If Tenant desires delivery via a house system (as opposed to cylinders) of
any of the gases offered as House Gases in Exhibit D, these must be purchased
from Landlord.
To the extent that Tenant, its agents, employees, contractors or invitees
use the services of a nurse employed by Landlord, Tenant agrees to indemnify,
defend and save harmless Landlord and any nurse employed by Landlord from and
against any and all claims by or on behalf of Tenant, its agents, employees,
contractors and invitees arising from the acts or omissions, including
negligence, arising out of or relating to the provision of said services by such
nurse, except for acts or omissions of willful misconduct.
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Section 6.05 UTILITY CHARGES
Tenant shall pay as Additional Rent for each calendar year or
proportionate part thereof during this lease term Tenant's utility charge,
covering (1) Electricity, (2) Air conditioning, (3) Heat, (4) Steam for
humidification, heating and process use, and (5) Lab process chilled water. For
the period December 2, 1996, through December 31, 1997, Tenant shall pay
quarterly to Landlord the utility charges calculated in accordance with Exhibit
F-1, based upon the agreed-upon utility rates listed in Exhibit F-2 and
Landlord's estimate of Tenant's usage as set out in Exhibit F-3. During the
first calendar quarter of 1998, Landlord shall furnish a statement of Tenant's
actual utility usage to December 31, 1997, as metered or allocated in accordance
with Exhibit F-1. The amount paid by Tenant for utility charges to December 31,
1997 shall thereupon be adjusted to reflect actual usage levels, said adjustment
to be reflected in the next quarterly invoice.
Tenant's adjusted utility charge for the year 1997 shall thereafter
constitute the "Utility Base Year." From and after January 1, 1998, and subject
to the appropriate proration for partial calendar year, Tenant's annual utility
charge shall be the adjusted utility charge for the Utility Base Year, increased
or decreased (as the case may be) by the effective amount of any electrical rate
increase or decrease (as the case may be) received by GPU Energy or its
successor ("GPU") from the Board of Regulatory Commissioners ("BRC"). Note that
the effective amount of any electrical rate change for the Building is typically
lower than the figure published by GPU, due to operating efficiencies. Exhibit
F-4 illustrates the manner in which the effective rate change for the Building
will be calculated. Rate changes will become effective when published, and
adjustments will be reflected in the next quarterly invoice and will be based
upon actual amounts billed by GPU to Landlord. Each of Exhibits F-1, F-2, F-3,
and F-4 are attached hereto and made a part hereof.
As a matter of information for Tenant's accounting purposes (but without
binding effect), Landlord shall provide Tenant with rate projections furnished
by GPU.
In addition to the utility charges set forth above, Tenant shall pay One
Hundred and No/100 Dollars ($100) per calendar day for Industrial Wastewater
Treatment.
(a) Electricity. Landlord will permit the electrical risers, feeders and
wiring in the Building which serve the Demised Premises (except those which are
connected to the emergency generators) to be used by Tenant to the extent that
they are available, suitable and safe. Tenant may connect equipment requiring
electric power to the existing electrical panels in the Demised Premises.
Laboratory wiring may only connect to the panel designated for such laboratory.
Tenant's use of electrical energy shall never exceed the capacity of the
electrical system supplying the Demised Premises. In order to ensure that such
electrical capacity is not exceeded and to avert possible adverse effects upon
the Building's electrical system, Tenant shall not, without the prior written
consent of Landlord, make, perform or permit any alteration to wiring
installations to the electrical panels or panel main breaker. Should Landlord
grant any required consent, all additional risers, wire installations or other
electrical facilities shall be
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provided by Landlord at the same hourly craft rates as set forth in Exhibit D.
Landlord shall not be obligated to consent to any such alteration or
installation if, in the reasonable exercise of Landlord's judgment, the same
will cause permanent damage or injury to the Building or the Demised Premises or
will cause or create a hazardous condition. Tenant's installation of any
electrical equipment requiring greater energy supply than 10 amps at 480 volts,
or emanating from main corridor electrical closets, shall require prior Landlord
approval.
Landlord shall have no liability to Tenant for any loss, damage or
expense which Tenant may sustain or incur by reason of any change, failure,
inadequacy or defect in the supply or character of the electrical energy
furnished to the Demised Premises or if the quantity or character of the
electrical energy is no longer available or suitable for Tenant's requirements,
except to the extent that such change, failure, inadequacy or defect is due to
the gross negligence or willful misconduct of Landlord, its employees, agents or
invitees.
Tenant shall be responsible for the cost of replacement of all
lighting tubes, lamps, starters and bulbs required in the Demised Premises,
consistent with the specification for existing electrical equipment.
(b) Telephone. Landlord operates a telephone exchange for the entire
Research Campus. Tenant shall pay a monthly charge for the use of the telephone
exchange and such telephones and telecommunications equipment as Tenant selects
pursuant to Section 6.04 "Optional Services" hereof. Telephone charges for
telephone calls will be billed directly to Tenant by United Telephone Company.
No delay or failure in telephone service arising out of the actions or failure
to act by United Telephone Company shall be considered a material breach of this
Agreement.
Normal hours for all purposes under this Agreement shall be 7:00
a.m. to 7:00 p.m. on business days (Mondays through Fridays except Landlord's
holidays). The hours of 7:00 p.m. to 7:00 a.m. and Saturdays, Sundays and
Landlord's holidays shall be considered after-hours. Landlord's holidays are New
Year's Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day,
Veterans Day, Thanksgiving Day and the following Friday, and Christmas Day. The
foregoing specification of Landlord's holidays is subject to change on not less
than thirty (30) days notice. Air conditioning and heating shall be provided on
a continuous basis in the LG-l laboratories. After-hours air conditioning or
heating for offices in LG-l will be provided on request. Landlord's services
(including building systems, and services included in Base Rent, except
janitorial) are generally available on Landlord's holidays; certain Optional
Services may be available with advance notice at premium rates. The Emergency
Control Force is not available on Landlord's holidays.
(c) Industrial Wastewater Treatment. Landlord operates an industrial
wastewater treatment facility and will provide industrial wastewater treatment
service for Tenant. All of Tenant's industrial wastewater passing into the
industrial wastewater collection system will be treated in the industrial
wastewater treatment facility.
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If Tenant's average daily discharge of industrial wastewater from
LG-1 in any month shall exceed 2,000 gallons, and if the industrial wastewater
treatment facility is approaching its maximum capacity, then, following not less
than twenty (20) days written notice to Tenant, Landlord shall be entitled to
reasonably allocate industrial wastewater treatment capacity among Landlord,
Tenant, and other tenants (provided that Tenant's allocation shall not be less
than 2,000 gallons per day) and Tenant shall abide by said allocation.
(d) Water. Landlord shall supply at no additional cost to Tenant potable
and non-potable water to the Demised Premises in amounts sufficient for normal
sanitary and laboratory purposes.
(e) Sanitary wastewater treatment. Landlord operates a sanitary wastewater
treatment facility, and will provide sanitary wastewater treatment to Tenant at
no additional cost up to a limit of 1,000 gallons per day. If Tenant's average
daily discharge of sanitary wastewater in any month shall exceed 1,000 gallons,
and if the sanitary wastewater treatment facility is approaching its maximum
capacity, then, following not less than twenty (20) days written notice to
Tenant, Landlord shall be entitled to reasonably allocate sanitary wastewater
treatment capacity among Landlord, Tenant, and other tenants, and Tenant shall
abide by said allocation.
Section 6.06 INTERRUPTION OF SERVICE
Landlord reserves the right to stop heating, air conditioning, elevator,
plumbing, electric, sewer, water, telephone and any other systems or services
when necessary in order to make repairs to the system, the service or to the
Demised Premises or to the Research Campus or for the purpose of installation of
equipment, or on account of acts of God or the elements, labor disturbances of
any character, or accidents or restrictions on the use of said services and
utilities due to energy shortages or any other causes, or to comply with any
governmental regulation or request. Furthermore, Landlord shall be entitled to
cooperate voluntarily in a reasonable manner with the efforts of governmental
bodies or utility suppliers in reducing energy consumption. Landlord agrees to
use its reasonable efforts to minimize any such interruptions or reductions in
any system or service. Wherever possible Landlord shall give Tenant reasonable
notice of the stoppage or curtailment of any system or service in or to the
Demised Premises.
If Landlord fails to initiate or diligently pursue curing an interruption
in any one of the above-identified services or systems within five (5) days of
the onset of the interruption, or if Landlord initiates and diligently pursues a
cure, but if notwithstanding Landlord's efforts, the interrupted service or
system is not restored within ten (10) days, then Tenant shall be entitled to an
abatement of that portion of the Basic Monthly Rent, Operating Expenses and
Taxes attributable to those parts of the Demised Premises that are rendered
unfit for Tenant's use or occupancy in consequence of the interruption, said
abatement to commence on the sixth (6th) day following the onset and to remain
effective until the interruption is cured or an adequate substitute provided.
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Notwithstanding the requirements of any other Article of this Agreement,
Landlord shall not be liable to Tenant, or to any person claiming through
Tenant, for loss or injury to Tenant or Tenant's property, work in process or
any other thing or matter, however occurring, or for any interruption to
Tenant's business, through or in connection with or incidental to the furnishing
of, or failure to furnish, any of the aforesaid systems or services.
Section 6.07 UTILITY ALTERATIONS PROHIBITED
Tenant shall not make or cause to be made any connection or alteration to
main utility system piping upstream of the isolation valve servicing a
laboratory module, nor shall Tenant alter, modify, or make any connection to
heating, ventilation or air conditioning ductwork or controls within the Demised
Premises without prior approval of Landlord.
Section 6.08 LANDLORD'S SERVICES. MAINTENANCE AND REPAIRS
In addition to any services to be provided by Landlord that may be set
forth elsewhere in this Agreement, Landlord shall provide the following
services, the same to be included in Operating Expenses to the extent permitted
pursuant to this Agreement: solid waste disposal (excluding those categories of
waste covered by Section 19.03); site security; grounds maintenance; janitorial
service; facilities maintenance and repair as set forth more specifically below;
heating, ventilating and air conditioning (HVAC) systems maintenance as set
forth more specifically below; snow removal; management (including Landlord's
office and shift superintendent); fire and life safety equipment center and
systems (that is, extinguishers, smoke alarms and halon systems); fire water
system; and elevator service.
Landlord shall be responsible for maintaining, repairing, and, if
necessary, replacing all structural elements of the Building, as well as the
roof and roof membrane. Landlord's responsibility for maintenance repair and, if
necessary, replacement of HVAC, piping and electrical systems in the Demised
Premises owned or supplied by Landlord shall cover the following items: HVAC
Systems: all Landlord owned or supplied equipment; Electrical Systems: in
laboratories, all equipment up to and including distribution panels serving each
laboratory; in office areas, all Landlord owned or supplied equipment; Piped
Utilities except for Waste Systems: all equipment up to and including the block
valve serving each laboratory; Waste Systems: all piping and equipment
downstream of sinks and drains.
ARTICLE 7
Section 7.01 TAXES PAYABLE BY TENANT
Tenant shall pay all taxes which may be levied with respect to Tenant's
personal property located upon the Demised Premises, and Tenant agrees to use
its best efforts to cause such personal property to be taxed or assessed
separately from the Demised Premises and not as a lien thereon.
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ARTICLE 8
Section 8.01 COMPLIANCE WITH LAWS
Tenant shall not do or permit anything to be done in or to the Demised
Premises, or bring or keep any thing therein which will, in any way, obstruct or
interfere with the rights of Landlord or of other tenants, or in any way injure
or annoy Landlord or other tenants or subject Landlord to any liability for
injury to persons or damage to property, or interfere with the good order of the
Building or conflict with the present or future laws, rules or regulations of
any Governmental authority. Tenant shall not be permitted to undertake any
activity that would impair the reputation and appearance of the Research Campus
as a first class research campus and office facility. At the request of
Landlord, Tenant shall (at no cost to Tenant unless otherwise set forth herein)
join with Landlord in any application for a permit or license affecting the
Research Campus, provided that said permit or license would not materially
interfere with Tenant's use of the Demised Premises for the purposes specified
hereunder.
Tenant shall conform to all Governmental laws, rules, regulations or
ordinances to the extent that same pertain to Tenant's activities in the Demised
Premises. If any Governmental laws, rules, regulations or ordinances are of
general application to the Building or Research Campus and require improvements,
alterations, or installation of new or substitute equipment, then Landlord shall
take whatever steps are necessary to comply and shall bear the costs and
expenses thereof. If any Governmental laws, rules, regulations or ordinances
relate solely to Tenant's specific use in the Demised Premises, then Tenant
shall take whatever steps are necessary to comply and shall bear the costs and
expenses thereof.
Without limiting the generality of the foregoing, in the Demised Premises
and Common Areas, Tenant shall not violate any environmental laws, rules,
regulations, ordinances or orders, including, without limitation, the Resource
Conservation and Recovery Act 42 U.S.C. Sec. 6901 et seq., the Occupational
Safety and Health Act 29 U.S.C. Sec. 651 et seq., the Clean Water Act, 33 U.S.C.
Sec. 25 et seq., the Clean Air Act 42 U.S.C. Sec. 7401 et seq., the Atomic
Energy Act of 1954, as amended, 42 U.S.C. 2011 et seq., the Worker and Community
Right to Know Act N.J.S.A. 47:1A-1 et seq., the Spill Compensation and Control
Act N.J.S.A. 58:10-23.11 et seq., and the Industrial Site Recovery Act ("ISRA")
N.J.S.A. 13:1K-6 et seq., the New Jersey Radiation Protection Code, N.J.S.A.
26:2C-1 et seq., and the New Jersey Division of Waste Management regulations,
N.J.A.C. 7:26-1.1 et seq.
ARTICLE 9
Section 9.01 LANDLORD WORK
In addition to the work described in Section 25.01, Landlord agrees to
install at its own expense within thirty (30) days after the Commencement Date
building standard carpet in the corridors between the labs and the offices and
in the LG interaction area, and to construct at its own expense a men's restroom
in Room LG-126/130 for the Demised Premises. The design and
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materials of this restroom shall be substantially similar to the other men's
restrooms in the LG/LE wing of the Building. Until completion of this restroom,
Tenant shall use the men's restrooms located in the Common Areas of the
Building.
Section 9.02 TENANT ALTERATIONS AND REPAIRS
Outline plans for the initial alterations to be performed by Tenant in the
Demised Premises (the "Initial Alterations") have been approved by Landlord,
subject to Landlord's approval of the final plans for conformity to such outline
plans. Subsequent to the Initial Alterations, Tenant shall not make or suffer to
be made any structural alterations to the Demised Premises (as defined below),
nor shall Tenant make any non-structural alterations, installations, additions,
fixtures or improvements to the Demised Premises, including the attachment of
any fixtures or equipment which (i) exceed on an annual basis a threshold of
$15,000 in cost (inclusive of materials and installation) or (ii) involve
partitioning or affect utilities, without obtaining Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed. For
purposes of this Section, Landlord's delay beyond thirty (30) days shall be
deemed unreasonable. As used in this Agreement, the term "structural" shall mean
any load-bearing component of the Building which provides support for another
component. Structural components shall include, by way of example and not
limitation, the foundation, floors, columns, beams, supports and slabs.
Structural alterations and non-structural alterations covered by (i) or (ii)
above shall hereinafter be collectively referred to as "Alterations". When
applying for Landlord's required consent, Tenant shall furnish complete plans
and specifications for Alterations. Operating equipment and other trade fixtures
shall not constitute Alterations.
Except as otherwise provided herein and subject to Section 9.03 below, all
Alterations, whether temporary or permanent in character, made in or upon the
Demised Premises by or on behalf of either Landlord or Tenant, shall at once
become part of the Building and belong to Landlord and, at the end of the term
hereof, shall remain on the Demised Premises without compensation of any kind to
Tenant. Movable furniture and equipment owned by Landlord forming a part of the
Demised Premises shall remain the property of Landlord. Movable furniture and
equipment owned and placed by Tenant and Tenant's trade fixtures (like, for
example, computer equipment, automatic filing systems, lateral files, benchtop
equipment, laboratory equipment, freezers, autoclaves, power panels and wiring
therefrom) shall remain the property of Tenant.
If Landlord agrees to permit an Alteration to be made by Tenant, the
Alteration shall be made and performed under such conditions and in such manner
as consented to by Landlord. Alterations shall be made only by contractors or
mechanics approved by Landlord. No Alterations shall be made to any partition
separating the Demised Premises from other parts of the Building, or to the
public corridors, or to the entrance doors of the Demised Premises. No
Alterations shall affect any part of the Building other than the Demised
Premises or adversely affect any service required to be furnished by Landlord to
Tenant or any other occupant of the Building or reduce the value or utility of
the Building. In the course of any construction activity occasioned by
Alterations, reasonable precautions shall be taken by Tenant (and required by
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Tenant of its contractors) to minimize any impact on the quiet enjoyment of the
balance of the Building and Research Campus by Landlord and other tenants. No
Alterations shall affect the outside appearance or the strength of the Building
or any structural parts. All business machines, laboratory and mechanical
equipment shall be placed and maintained by Tenant in settings sufficient, in
the reasonable exercise of Landlord's judgment, to absorb and prevent vibration,
noise and annoyance to Landlord or other occupants of the Building.
Any contracts with third parties for Alterations shall require the
contractor and its subcontractors to carry worker's compensation insurance and
liability insurance as follows:
(i) Worker's Compensation and Employer's Liability Insurance for all of
the Contractor's employees engaged in the performance of the
Contract-Statutory Requirements.
(ii) Contractor's Public Liability Insurance covering claims for bodily
injury or death and damage to property.
a. Bodily Injury - each person $100,000
- each accident $300,000
b. Property Damage - each accident $300,000
(iii) Contractor's Protective Public Liability Insurance (Required only if
any of the work is sublet.)
a. Bodily Injury - each person $100,000
- each accident $300,000
b. Property Damage - each accident $300,000
(iv) Automobile Public Liability Insurance covering claims for bodily
injuries or death and damage to property.
a. Bodily Injury - each person $100,000
- each accident $300,000
b. Property Damage - each accident $300,000
Landlord shall be named as additional insured on all such insurance policies.
Tenant shall make any such insurance policies available for Landlord's
inspection at Landlord's request.
All construction permits, and any other permits, approvals or certificates
required by applicable Governmental authorities shall be timely obtained by
Tenant at Tenant's expense and submitted to Landlord. Landlord shall not
unreasonably refuse to join any application for a permit or approval, provided
that (i) such joinder shall be without expense to Landlord, (ii)
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Landlord has in the first instance given its consent to the Alteration and (iii)
Landlord's joinder is required by such governmental authority.
Notwithstanding Landlord's approval of plans and specifications for any
Alterations, all Alterations shall be made and performed in full compliance with
all applicable laws, orders and regulations of governmental authorities and all
building codes, rules and regulations and the rules and regulations of this
Agreement; all materials and equipment to be incorporated into the Demised
Premises as a result of all Alterations shall be new and first quality; no such
materials or equipment shall be subject to any lien, encumbrance, chattel
mortgage or title retention or security agreement, and all Alterations shall be
made and performed in a good and workmanlike manner.
Section 9.03 REMOVAL OF ALTERATIONS
Notwithstanding any other provisions contained in this Agreement, Tenant
agrees that it shall, upon Landlord's written request, at Tenant's sole cost and
expense, promptly remove any Alterations designated by Landlord to be removed
and repair any damage to the Demised Premises resulting from such removal in the
following instances: (i) where such Alterations were installed by Tenant without
Landlord's written consent in violation hereof, or (ii) at the expiration or
sooner termination of this Agreement provided that Landlord shall have advised
Tenant in writing simultaneous with its consent to the Alteration that removal
would be required. Such removal or repair shall be accomplished in a good and
workmanlike manner leaving the Demised Premises in a clean and safe condition.
Section 9.04 CONDITION OF DEMISED PREMISES
Subject to Section 9.01, by taking possession of the Demised Premises,
Tenant accepts the Demised Premises as being (i) in the condition in which the
Landlord is obligated to deliver them, and (ii) in good and sanitary order,
condition and repair. Tenant shall at all times during the term of this
Agreement, at its sole cost and expense, keep the Demised Premises in good and
sanitary order, condition and repair, reasonable wear and tear excepted, with
replacements of any damaged materials to be made by use of materials of equal or
better quality to those damaged. Landlord shall be responsible for the
correction of any latent defects in the Demised Premises. Landlord has no
obligation to alter, install, add to, improve, repair, remodel or paint the
Demised Premises except as specifically provided herein. Tenant acknowledges
that Landlord has made no representations regarding the condition of the Demised
Premises or the Building except as expressly set forth in this Agreement.
Tenant shall commit no act of waste and, subject to Landlord's obligations
set forth in Section 6.08, shall take good care of Landlord's fixtures,
equipment and appurtenances in the Demised Premises. By way of example, and not
intended to be all-inclusive, all electric, plumbing, heating, fire protection,
elevator, telephone, telegraph, communication and radio systems, fixtures and
outlets, venetian blinds, partitions, railings, gates, doors, walls, stairs,
paneling, (including display cases and cupboards recessed in paneling), molding,
shelving,
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radiators and enclosures, cork, rubber, linoleum and composition floors,
furniture and furnishings which are a part of the Demised Premises, and
ventilating, silencing, air conditioning and cooling equipment and all
laboratory fixtures and equipment shall be deemed to be included in such
furniture, fixtures, equipment, improvements and installations, whether or not
attached to or built into the Demised Premises. Nothing in this section 9.04
shall be construed to give the Landlord title to or prevent Tenant's removal of
Tenant's trade fixtures, equipment and furniture, provided that Tenant repairs
any damage to the Demised Premises caused by such removal.
Except as otherwise provided in this Agreement, upon the expiration or
sooner termination hereof, Tenant shall surrender the Demised Premises to
Landlord, together with all Alterations, fixtures, and repairs which have been
made thereto (unless Landlord has required their removal as herein provided), in
the same condition as at the commencement of the lease term, ordinary wear and
tear and insured casualty excepted.
Section 9.05 ADJUSTMENT OF SERVICE/COMMON FACILITIES
Landlord reserves the right following notice reasonable under the
circumstances, and without incurring liability to Tenant therefor, from time to
time:
(a) To install, use, maintain, repair, replace and relocate pipes, ducts,
conduits, wires and appurtenant meters and equipment for service to other parts
of the Building above the ceiling surfaces, below the floor surfaces, within the
walls and in the central core areas within the Demised Premises whether said
facility serves the Demised Premises or other parts of the Building, and to
expand the Building; provided that Landlord shall use diligent efforts to
minimize any inconvenience to Tenant's use of the Demised Premises by reason
thereof; and
(b) to change the arrangement and/or location of public entrances,
passageways, roadways, parking spaces, location of gas storage, doors, doorways,
corridors, elevators, stairways, toilets and other shared parts of the Buildings
or the Research Campus, provided such changes do not materially adversely affect
access to or use of the Demised Premises; to designate a reserved gate or
entrance for certain employees or contractors on a nondiscriminatory basis; to
change the method or manner of providing services hereunder; to change the
method, manner or provider of any utility or service; to change, alter,
transfer, relocate or terminate the sanitary or industrial wastewater treatment
facilities; to change, alter, relocate, terminate, sell, lease or in any way
dispose of any other facility, part or improvement on or of the Research Campus;
provided, however, that if Landlord elects to alter a service such that Tenant's
ability to use the Demised Premises as specified hereunder is materially
impaired, then Tenant shall be entitled to an abatement of Rent during the
period of impairment; and provided further that in the event of termination of a
service (except an Optional Service pursuant to Section 6.04), Landlord shall
supply an adequate and reasonably equivalent substituted service. Landlord shall
use diligent efforts to obtain any such substituted service at reasonably
comparable cost.
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ARTICLE 10
Section 10.01 LIENS
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished or to be furnished to Tenant upon credit, and that no
construction lien or notice of unpaid balance creating a lien or purporting to
do so for any such labor or materials shall attach to or affect the reversion or
other estate or interest of Landlord in and to the Demised Premises, the
Research Campus or the Property; provided that the foregoing shall not apply to
labor or materials furnished to Landlord for Alterations performed for Tenant by
Landlord. Any lien claim filed against the Demised Premises, Building, the
Research Campus, the Property or the Building arising out of or pertaining to
work done for or materials furnished to Tenant shall be discharged by Tenant, at
its sole cost and expense, within thirty (30) days after notice of such filing,
by payment of the amount claimed to be due or by filing of the bond required by
law or otherwise. In the event Tenant fails to discharge any such lien claim
within said thirty (30) days, Landlord shall have the following rights upon five
(5) days notice to Tenant:
a. To fully pay the amount claimed in said lien claim;
b. To bond the amount claimed in said lien claim;
c. To institute any action in order to discharge said lien claim.
Tenant shall fully cooperate in all Landlord efforts to remove any such
lien claim. Any cost, payment or expense of any kind incurred by Landlord to
discharge said lien claim shall be paid by Tenant on the next succeeding rent
payment date as Additional Rent.
ARTICLE 11
Section 11.01 DISTRIBUTION OF RISK
As a material part of the consideration for this Agreement, Tenant hereby
assumes all risks, and waives all claims, against Landlord for any damage to any
property or any injury to or death of any person in or about the Demised
Premises, the Research Campus or the Property arising at any time and from any
cause whatsoever other than solely by reason of the gross negligence or willful
misconduct of Landlord.
Section 11.02 PERSONAL INJURY
Subject to the exceptions set forth in Section 11.06, Tenant shall
indemnify, defend and save harmless Landlord, its agents and employees, from and
against any and all claims for bodily injury, including death, by or on behalf
of any person, firm or corporation arising from (i) the conduct or management of
any work or thing done by Tenant in or about, or from transactions of Tenant
concerning, the Demised Premises, or (ii) any breach or default on the part of
Tenant in the performance of any covenant or agreement on the part of Tenant to
be performed pursuant to the terms of this Agreement, and, as to both (i) and
(ii), due to the
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negligence or willful misconduct of Tenant, or any of its agents, contractors,
servants, employees or licensees. This indemnity shall encompass all reasonable
costs, counsel fees, expenses and liabilities incurred in connection with any
such claim or action or proceeding brought thereon. Furthermore, in case any
action or proceeding is brought against Landlord by reason of any claims of such
liability, Tenant agrees to defend such action or proceeding at Tenant's sole
expense by counsel approved in writing by Landlord, which approval shall not be
unreasonably withheld; the selection of counsel by Tenant's insurer shall be
deemed reasonable.
Subject to the exceptions set forth in Section 11.06, Landlord shall
indemnify, defend and save harmless Tenant, its agents and employees, from and
against any and all claims for bodily injury, including death, by or on behalf
of any person, firm or corporation arising from (i) the conduct or management of
any work or thing done by Landlord in or about, or from transactions of Landlord
concerning, the Demised Premises, or (ii) any breach or default on the part of
Landlord in the performance of any covenant or agreement on the part of Landlord
to be performed pursuant to the terms of this agreement, and, as to both (i) and
(ii), due to the gross negligence or willful misconduct of Landlord, or any of
its agents, contractors, servants, employees or licensees. This indemnity shall
encompass all reasonable costs, counsel fees, expenses and liabilities incurred
in connection with any such claim or action or proceeding brought thereon.
Furthermore, in case any action or proceeding is brought against Tenant by
reason of any claims of such liability, Landlord agrees to defend such action or
proceeding at Landlord's sole expense by counsel approved in writing by Tenant,
which approval shall not be unreasonably withheld.
Section 11.03 PROPERTY DAMAGE
Landlord shall be responsible for and shall hold Tenant harmless for loss
or damage howsoever caused to the Building, Plant Facilities, and other
improvements to the Research Campus and to Landlord's property thereon. Tenant
shall be responsible for and shall hold Landlord harmless for loss or damage
howsoever caused to Tenant's property located on the Research Campus. Each party
shall procure at its own expense a waiver by its insurer(s) of all right of
subrogation against the other, its officers, directors and employees, and in the
case of Landlord against Tenant, its subtenants or assignees, in connection with
any loss or damage thereby insured against. Said waivers shall be maintained in
effect throughout the term of this Agreement and any renewals hereof, and shall
be evidenced to the other party upon request from time to time.
In the event that Landlord elects to self-insure, Landlord shall so notify
Tenant and Tenant shall pay as an Operating Expense its percentage share (as set
out in Section 6.02, to wit, 2.32%) of the imputed premium were Landlord to
purchase all-risk property insurance covering the full replacement value of the
Building, Plant Facilities, other improvements (inclusive of the Demised
Premises, Landlord's Work and all Alterations) and Landlord's property on the
Research Campus, with the above-described waiver of subrogation, and covering as
well the loss of rent (both Basic Rent and items of Additional Rent) for a
12-month period.
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Said imputed premium shall be determined annually by Exxon Risk Management
Services or its successor organization.
Section 11.04 INDIRECT DAMAGES
Notwithstanding any other provision of this Agreement, each party shall be
responsible for any consequential, special or indirect damages or loss of
anticipated profits it sustains, even if such loss or damage results from the
other's willful misconduct, and each party shall hold the other harmless from
such liability.
Section 11.05 INSURANCE
Tenant shall maintain in force the following types of insurance: (i)
workers' compensation and employers' liability insurance or similar social
insurance; and (ii) automobile liability insurance with minimum aggregate limits
of at least One Million Dollars ($1,000,000) for personal injury, death or
property damage resulting from each occurrence, and (iii) commercial general
liability insurance with minimum aggregate limits of at least Two Million
Dollars ($2,000,000) for property damage and at least Five Million Dollars
($5,000,000) for personal injury or death resulting from each occurrence. Tenant
agrees that compliance with the minimum insurance requirements set forth herein
shall not limit or waive Tenant's legal and contractual responsibilities to
Landlord and to others.
Section 11.06 EXCLUSIONS
The following categories of claims, demands and causes of action shall be
excepted from the foregoing provisions of this Article 11 and shall be governed
by the specific terms of the respective referenced sections, or in the case of
subsection (iv), shall be governed by such subsection (iv):
(i) those which are the subject of Article 17;
(ii) those which are the subject of the indemnifications set forth in
Section 19.01;
(iii) those which are the subject of Article 20;
(iv) claims, demands and causes of action arising out of or relating to
the improper or unlawful release or discharge of a hazardous
substance or waste, as to which the responsible party shall be
liable without regard to fault (with liability in proportion to the
allocable share of responsibility where the release or discharge
results from the acts or omissions of Tenant and Landlord or any
other tenant in the Building);
(v) claims, demands or causes of action arising out of the services of
Landlord's nurse pursuant to Section 6.04.
The provisions of this Article, and the provisions of Article 17, Section 19.01,
Article 20 and Section 6.04 excepted pursuant to this Article, shall survive the
expiration or sooner termination
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of this Agreement with respect to any claims or liability arising prior to such
expiration or sooner termination.
ARTICLE 12
Section 12.01 ASSIGNMENT and SUBLETTING
Except as expressly permitted below, Tenant shall not sell or assign this
Agreement or any interest herein.
Tenant shall not encumber this Agreement or any interest herein, sublet
the Demised Premises or any part thereof, or suffer any other person to occupy
or use the Demised Premises or any portion thereof, without the prior written
consent of Landlord. If Landlord's consent is obtained, Tenant may sublet or
assign the Demised Premises in whole or in part, provided that (i) any sublessee
acquires its interest in the Demised Premises subject to all of the terms and
conditions of this Agreement, and (ii) any assignee agrees to comply with all of
the terms and conditions of this Agreement.
An assignment shall not be deemed to include one or more sales or
transfers by which an aggregate of fifty percent (50%) or more of Tenant's
publicly-traded stock becomes vested in a party or parties who are not
stockholders as of the date of this Agreement.
Landlord's consent shall not be withheld from (i) a sublet of the Demised
Premises (or portions thereof) to an affiliate of Tenant, or (ii) an assignment
of this Agreement to an affiliate of Tenant or to a corporation or other
business entity into which or with which Tenant shall be merged or consolidated,
or to which substantially all of Tenant's assets may be transferred (a
"successor corporation") ; provided, however, that Landlord may withhold its
consent from such sublease or assignment where (a) the sublessee or assignee is
a preexisting entity or the successor of a preexisting entity (other than
Tenant) and (b) Landlord reasonably determines that such entity has a negative
record and reputation with respect to health, safety and/or the environment.
If Landlord withholds its consent from a sublease or assignment to an
affiliate or successor of Tenant in accordance with the provisions of the
previous paragraph, Tenant shall have the right to terminate this Lease on
twelve (12) months' written notice to Landlord. At the end of such twelve (12)
month period, this Lease shall terminate in the same manner as if the expiration
date thereof had occurred. During such twelve (12) month period, Landlord shall
have the right to accelerate the termination of this Lease by written notice to
Tenant to a date which is not less than ninety (90) days after the delivery of
such notice to Tenant, whereupon this Lease shall terminate on the date
specified by Landlord in the same manner as provided above with respect to a
termination by Tenant.
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Any sale, assignment, encumbrance, subletting, occupation or other
transfer of this Agreement or any interest herein which does not comply with the
provisions of this Article shall be void and shall be a default hereunder.
Any request to Landlord for its consent to an assignment or sublease shall
be in writing, accompanied by a complete description of the proposed assignee or
subtenant, the proposed uses to which it intends to put the Demised Premises and
a certified financial statement of such proposed assignee or subtenant. Within
twenty (20) days after its receipt of such request and information, Landlord
shall either (a) consent to the assignment or sublease, (b) deny its consent,
stating its reasons therefor or (c) elect to terminate this Lease with respect
to the entire Demised Premises in the case of a proposed assignment, or with
respect to the premises proposed to be sublet with respect to a sublease for
substantially the balance of the term of this Lease. Such termination shall be
effective not less than thirty (30) nor more than sixty (60) days after the
notice from Landlord, and, in such case, this Lease shall terminate on the date
stated in Landlord's notice, either with respect to the entire Demised Premises
or the portion thereof intended to be subleased, with the same effect as if the
Term of this Lease had expired with respect to such space. If Landlord fails to
respond to Tenant within said twenty (20) day period, it shall be deemed that
Landlord has granted its consent to the proposed assignment or sublease. Upon a
termination pursuant to this Section, any security held by Landlord shall be
returned to Tenant in accordance with the provisions of Article 14.
Section 12.02 LANDLORD'S CONSENT
Landlord's consent to any encumbrance, subletting, occupation or other
transfer shall not release Tenant from any of Tenant's obligations hereunder or
be deemed to be a consent to any subsequent such occurrence.
Section 12.03 BROKERS' COMMISSIONS
Tenant shall hold Landlord harmless from any claims for brokers'
commissions in connection with any sublease of Tenant's interest or any part
thereof in the Demised Premises. Each party shall hold the other harmless from
any claims for brokers' commissions in connection with an assignment of its
interest in this Agreement.
Section 12.04 BANKRUPTCY ASSIGNMENT
Without limiting any of the provisions of the above paragraphs, if
pursuant to the Federal Bankruptcy Code (the "Code"), or any similar law
hereafter enacted having the same general purpose, Tenant is permitted to assign
this Agreement notwithstanding the restrictions contained in this Agreement,
adequate assurance of future performance by an assignee expressly permitted
under such Code shall be required and shall be deemed to mean the deposit of
cash security in an amount equal to the annual base rent plus an amount equal to
the sum of all other charges, including, without limitation, Additional Rent due
and payable by Tenant hereunder for the calendar year preceding the year in
which such assignment is intended to become effective,
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which deposit shall be held by Landlord for the balance of the term, with
interest, as a Security Deposit for the full performance of all of Tenant's
obligations under this Agreement, to be held and applied in the manner specified
for security in Article 14.
ARTICLE 13
Section 13.01 INSOLVENCY OR BANKRUPTCY
If (a) Tenant shall admit in writing its inability to pay its debts as
they mature; (b) Tenant shall make an assignment for the benefit of creditors or
take any other similar action for the protection or benefit of creditors; (c)
Tenant shall file a voluntary petition in bankruptcy or shall be adjudicated a
bankrupt or insolvent; (d) Tenant shall file any petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the present or future applicable federal, state or other
statute or law relative to bankruptcy, insolvency or other relief for debtors;
(e) a petition shall be filed against Tenant under the reorganization provisions
of the Code and Tenant shall fail to have such petition discharged within ninety
(90) days of the filing thereof; (f) there shall be a sale or attempted sale by
or under execution or other legal process of Tenant's leasehold interest
hereunder and/or substantially all of Tenant's other assets; (g) Tenant's goods
or chattels used in, or incident to, Tenant's operations at the Demised Premises
are seized, sequestered or impounded by authority of law; or (h) there is an
assignment by operation of law of Tenant's leasehold interest hereunder; then
Landlord may terminate this Agreement by giving five (5) days written notice of
termination to Tenant. In no event shall this Agreement be assigned or
assignable by reason of any voluntary or involuntary bankruptcy proceeding, nor
shall any rights or privileges hereunder be an asset of Tenant in any
bankruptcy, reorganization or debtor relief proceedings of any nature. If
Landlord is prevented by any order, law, rule or judgment of any court from
terminating this Agreement, and the Agreement continues pending resolution of
Bankruptcy or insolvency proceedings, then Tenant shall furnish security of
performance as set forth in Section 12.04 to be administered by Landlord in the
same manner specified for security in Article 14.
ARTICLE 14
Section 14.01 SECURITY
Contemporaneously herewith the parties shall enter a Letter of Credit
Agreement in the form annexed hereto as Exhibit G, and on or prior to the
commencement date of this Agreement Tenant shall provide to Landlord as security
a Letter of Credit in the form annexed as an exhibit to the Letter of Credit
Agreement. The security shall be administered as follows: If Tenant defaults
with respect to any provision of this Agreement, including but not limited to
the provisions relating to the payment of Basic Monthly Rental or Additional
Rent, Landlord may cash the Letter of Credit in whole or in part and use, apply
or retain all or any portion of the security for the payment of any Rent or any
other amount which Landlord may spend or may be required to spend by reason of
Tenant's default, to repair damages to the Demised Premises or the Research
Campus or to compensate Landlord for any other loss or damage which Landlord
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may suffer by reason of Tenant's default. Should Landlord use any portion of the
security to cure any default by Tenant hereunder, Tenant shall, within thirty
(30) days of a request from Landlord, pay to Landlord the sum so used or provide
a new Letter of Credit so that the security shall be replenished to its former
amount. Tenant shall not assign or encumber or attempt to assign or encumber the
Letter of Credit or monies deposited hereunder as security. If Tenant shall
fully and punctually comply with all the terms of this Agreement, then thirty
(30) days following the expiration or termination of this Agreement and
surrender of the Demised Premises by Tenant, the Letter of Credit shall
automatically expire, and any monies being held by Landlord as security shall be
returned to Tenant, without interest. Landlord shall deliver the Letter of
Credit and any cash held as security to the purchaser of Landlord's interest in
the Demised Premises in the event that such interest is sold and thereupon
Landlord shall be discharged from any further liability with respect to the
security, and Landlord's successor-in-interest shall be responsible for its
return in accordance with this Agreement.
ARTICLE 15
Section 15.01 DAMAGE OR DESTRUCTION
If the Building is damaged by fire or any other cause, whether or not said
fire or other cause damages the Demised Premises, to the extent that the cost of
restoration, as reasonably estimated by Landlord, equals or exceeds twenty
percent (20%) of the replacement value of the Building (exclusive of
foundations) immediately prior to the occurrence of the damage, and if Landlord
does not elect to restore the Building, then Landlord may, no later than the
ninetieth (90th) day following the damage, give Tenant a notice of election to
terminate this Agreement. In such event, this Agreement shall be deemed to
terminate on the thirtieth (30th) day after the giving of said notice, and
Tenant shall surrender possession of the Demised Premises within a reasonable
time thereafter, and the Basic Monthly Rental and any Additional Rent shall be
apportioned as of the date of said surrender.
Tenant shall also have the right to terminate this Lease in the same
manner as provided above for Landlord, if more than twenty percent (20%) of the
Demised Premises is damaged and Landlord does not elect to repair such damage.
If the cost of restoration as estimated by Landlord shall amount to less
than twenty percent (20%) of said replacement value of the Building, or if,
despite the cost, Landlord elects to restore the Building, Landlord shall at its
expense restore the Building and the Demised Premises, inclusive of and any
Alterations, with reasonable promptness, subject to delays beyond Landlord's
control, and delays in the making of insurance adjustments between Landlord and
its insurance carrier(s), if any.
In any case in which use of the Demised Premises is affected by any fire
or other casualty to the Building, there shall be either an abatement or an
equitable reduction in Basic Monthly Rent and Additional Rent depending on the
period for which and the extent to which
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the Demised Premises are not reasonably useable for the purpose for which they
were leased hereunder.
Subject to the rights of other Building occupants, if Tenant's use of the
Demised Premises for the purposes specified hereunder is materially impaired,
then Landlord shall attempt to locate for Tenant reasonably equivalent
substitute space that is available elsewhere in the laboratory wing of the
Building.
If Landlord elects to restore, Tenant shall also have the right to
terminate this Agreement if substantial completion of restoration of the Demised
Premises is projected to require more than three (3) months from the date of
casualty, and, Tenant's use of the Demised Premises for the purposes specified
hereunder is materially affected by the damage so that Tenant cannot engage in
business in the ordinary course. Tenant's election to terminate must be made
within sixty (60) days of Tenant's receipt from Landlord of Landlord's election
to restore and projected date by which restoration will be substantially
complete.
Section 15.02 OBLIGATION OF TENANT
Tenant shall cooperate with Landlord's insurer(s), including but not
limited to permitting reasonable entries for inspections and providing such
information as is reasonably requested. Tenant's failure to cooperate with the
reasonable requests of Landlord's insurer(s) shall be an event of default
hereunder, and without prejudice to any other remedies, shall give rise to a
cause of action for breach of lease.
ARTICLE 16
Section 16.01 EMINENT DOMAIN
If any part of the Research Campus or Building shall be taken or
appropriated under the power of eminent domain or conveyed in lieu thereof, so
that Landlord's or Tenant's activities are materially affected, the affected
party shall have the right to terminate this Agreement at its option, said
election to be made within sixty (60) days of the effective date of the taking.
Landlord's activities shall have been materially affected if, in the reasonable
exercise of Landlord's judgment, Landlord determines that one or more components
necessary to the operation of the Building generally (i.e., not limited in its
use to the areas where Landlord performs proprietary research) has been taken
and cannot reasonably be replaced. Tenant shall determine whether its activities
have been materially affected, but Tenant's determination shall not be
unreasonable, and Tenant's activities shall be deemed not to have been
materially affected if Landlord makes available for Tenant's use comparable
space elsewhere in the laboratory wing of the Building.
Landlord shall receive any income, rent, award or interest therein which
may be paid in connection with the exercise of such power of eminent domain, and
Tenant shall have no claim against Landlord for any part of any such paid by
virtue of such proceedings, whether or
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not attributable to the value of the unexpired term of this Agreement, except
that Tenant may file a separate claim for any taking of fixtures and
improvements owned by Tenant and for moving expenses, provided that as to said
separate claim, it in no event reduces the award made to Landlord. Tenant hereby
releases and assigns to Landlord all Tenant's rights to such awards and
covenants to deliver such further assignments and assurances thereof as Landlord
may from time to time request.
If a part of the Demised Premises shall be so taken or appropriated or
conveyed and neither party hereto shall elect to terminate this Agreement and
the Demised Premises have been damaged as a consequence of such partial taking
or appropriation or conveyance, Landlord shall repair or restore any injury or
damage to the Demised Premises, Alterations, and any other improvements to the
Demised Premises, made by or at the expense of Tenant that are a part of the
Building, and the future rent shall be equitably abated to reflect the part of
the Demised Premises lost to Tenant. Landlord shall not be required to repair or
restore equipment, fixtures, improvements, or the like, owned by Tenant.
ARTICLE 17
Section 17.01 ISRA/NON-SUBJECT OPERATIONS
Tenant represents that its SIC Code is 8734. In the event that, after the
commencement of this Agreement, any of Tenant's activities or any transaction in
which Tenant is involved (including, without limitation, the expiration or
sooner termination of this Agreement) triggers the applicability to the Demised
Premises of ISRA, as the same may be amended from time to time, or such
successor statute as may replace ISRA, Tenant shall undertake at its expense any
necessary ISRA compliance for the Demised Premises. If Tenant determines that
its operations are not subject to ISRA, Tenant agrees to request a letter of
non-applicability, or any equivalent thereof which may hereafter be established
(an "LNA") from the New Jersey Department of Environmental Protection ("NJDEP")
covering its operations at the Demised Premises. Tenant will provide Landlord
with a copy of the LNA and Tenant's supporting affidavit and the letter
requesting the LNA. If Tenant obtains an LNA based on an affidavit and request
which fully and accurately describe the relevant facts, as reasonably determined
by Landlord, Tenant shall not be obligated to undertake any further ISRA
compliance under this paragraph with reference to the transaction for which the
LNA was obtained.
In the event that Landlord is involved in any activity or transaction
which triggers ISRA compliance for the Demised Premises, and if Landlord
determines that its operations are not subject to ISRA, Tenant shall cooperate
in Landlord's application for an LNA, providing such data and affidavits as
Landlord may reasonably request, and Landlord shall bear all of the costs and
expenses reasonably so incurred.
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Section 17.02 SUBJECT OPERATIONS
If Tenant's operations are subject to ISRA or to any other environmental
laws or regulations, then except as provided herein, Tenant agrees, at its own
expense, to undertake any compliance required under ISRA, or such other laws,
with respect to Tenant's operations at the Demised Premises, including, without
limitation, to the extent applicable to Tenant, preparing notices, providing
data, making affidavits, commissioning sampling or cleanup plans, and hiring
consultants. Tenant shall provide Landlord with complete copies of any and all
filings made hereunder and with copies of any and all correspondence with NJDEP.
Section 17.02.1 If required hereunder, Tenant shall submit to NJDEP a
fully completed ISRA initial notice for its operations at the Research Campus at
least 1 year prior to the expiration of this Agreement, unless Tenant has
exercised any option which it may have to renew this Agreement, in which event
said notice shall be submitted at least one (1) year prior to the expiration of
such renewal term. Landlord agrees to cooperate reasonably with Tenant's
compliance activities, providing such affidavits, data and other information as
may be reasonably requested by Tenant, to the extent that such data or
information is available through diligent inquiry by Landlord but not available
through diligent inquiry by Tenant. Tenant shall diligently pursue the ISRA
compliance process so that, prior to termination of its operations at the
Research Campus, Tenant shall have received a No Further Action Letter or of the
execution of its Remedial Action Workplan. If, notwithstanding Tenant's
diligence pursuant to this Section 17.02.1, the Remedial Action Workplan is not
executed before expiration or sooner termination of this Agreement, then Tenant
shall obtain a Remediation Agreement (if available in the circumstance of a
lease expiration) to enable the Remedial Action Workplan to be executed
subsequent to the expiration or sooner termination of this Agreement.
Section 17.02.2 Prior to consummating any transaction regulated by ISRA
that would affect the Demised Premises, Tenant will provide Landlord with a copy
of NJDEP's No Further Action Letter, Remedial Action Workplan, Remediation
Agreement or equivalent as is applicable. Nothing contained herein shall be
interpreted to authorize an assignment or subletting in violation of Article 12.
Section 17.02.3 Tenant acknowledges its responsibility for ISRA compliance
for the Demised Premises in the event that Tenant triggers the applicability of
ISRA because Tenant ceases operations, initiates bankruptcy proceedings,
implements a corporate reorganization within the purview of ISRA, or otherwise
terminates this Agreement.
Section 17.02.4 In the event that Landlord or any other tenant is involved
in any activity or transaction which triggers ISRA compliance for the Demised
Premises, Landlord or such other tenant shall undertake at its expense whatever
compliance activities are required. Except as otherwise provided in Section
17.07, Tenant shall, at no expense to Tenant, cooperate with Landlord's or such
other tenant's compliance activities, providing such affidavits and data as may
be reasonably requested, to the extent that such data is available through
diligent inquiry by
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Tenant, but not available through diligent inquiry by Landlord, and Landlord
shall bear all of the costs and expenses reasonably so incurred.
Section 17.03 RESPONSIBILITY FOR SITE WORK
Should Tenant or NJDEP determine that ISRA or any other environmental law
or regulation requires sampling or cleanup work to be done as a result of
Tenant's operations at the Research Campus, Tenant agrees to notify Landlord of
such determination. The costs of performing all such sampling and cleanup work
will be shared by the Landlord and Tenant as follows: Tenant shall bear the cost
of preparing and executing the initial sampling plan and obtaining NJDEP
approval thereof and the analysis of all samples taken thereunder; provided,
however, that if any new permanent installations (such as, e.g., monitoring
wells or air monitoring equipment) are required, the cost of installing same
will be shared equally by Landlord and Tenant. The cost of any further sampling
and analysis required by NJDEP after its review of the initial sampling results
and the cost of developing and executing any cleanup plan required by NJDEP will
be borne in accordance with the provisions of Section 17.07. Tenant hereby
grants Landlord the option to (i) undertake any necessary sampling, analysis or
cleanup work with its own personnel, or (ii) hire contractors acceptable to
Landlord to perform the same. Tenant agrees to reimburse Landlord for Tenant's
share of any reasonable, documented costs expended in such a sampling, analysis
and/or cleanup procedure. Tenant agrees to cooperate reasonably with any
employees of Landlord designated to undertake such tasks or with any contractors
hired by Landlord to perform the same. Tenant agrees to promptly review and
execute any and all documents necessary for the environmental compliance process
which have been prepared by Landlord or its contractors and which ISRA requires
to be executed by Tenant. Any cleanup required under this Article 17 shall be to
the residential standard as defined in ISRA, unless Landlord agrees otherwise in
its sole discretion. Notwithstanding the foregoing, if the ISRA or other
environmental compliance is triggered by a sale or other disposition of the
Building by Landlord, the cost of such compliance shall be paid by Landlord,
unless and until a condition is discovered which is in whole or in part the
responsibility of Tenant hereunder.
Section 17.04 DEFAULT
Any failure to comply with any of the provisions of this Article by Tenant
shall, after notice and an opportunity to cure as provided in Article 21,
constitute a default under this Agreement and Landlord shall, after notice
provided for in Article 21, be entitled to immediate possession of the Demised
Premises, together with the right to exercise such other rights and remedies set
forth elsewhere in this Agreement with respect to events of default or such
other remedies as may be provided by law and to charge Tenant with the
reasonable costs occasioned upon Tenant's default. Tenant shall indemnify,
defend and hold Landlord harmless from and against any fines, suits, procedures,
claims, actions, costs or damages of any kind arising out of or in any way
connected with Tenant's use of hazardous substances or wastes (as defined by
ISRA) at the Demised Premises during the term of this Agreement or arising out
of Tenant's
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failure to provide any information or make any submissions or take any other
action required of Tenant to comply with ISRA.
Section 17.05 HOLDOVER STATUS: BOND
If Tenant fails, notwithstanding diligent application, to obtain an LNA or
a No Further Action Letter or a Remedial Action Workplan for the Demised
Premises prior to the expiration of this Agreement, or if Landlord shall recover
possession of the Demised Premises as a result of Tenant being in breach of
Sections 17.01, 17.02 or 17.03 of this Agreement, then Tenant shall be deemed to
be a holdover tenant or a tenant in possession without authority, and Tenant
shall pay rent monthly at the rate of the Basic Monthly Rental of the month
prior to expiration of the term, increased by the Index, as if the term of the
Lease had been renewed under Article 41 (together with Additional Rent) until
the requisite ISRA approval has been obtained. Tenant shall continue to pursue
diligently said approval.
In addition, in the event that Tenant is a holdover tenant or a tenant in
possession without authority pursuant to this Section, Tenant shall provide
Landlord with a bond or a letter of credit, at Tenant's option (either
instrument hereinafter referred to as a "bond"), said bond to secure Landlord
and be payable to Landlord in the event that Tenant defaults in the performance
of its obligations hereunder. The amount of said bond shall be the amount
estimated, by Tenant's expert ISRA consultant, as the cost (as of the expiration
date of the Agreement) of completing ISRA compliance and the holdover Rent.
Landlord shall have a timely opportunity to provide Tenant's ISRA consultant
with information relevant to its estimate of compliance costs. Tenant shall
increase the amount of such bond if the estimated costs of ISRA compliance
increase prior to receiving NJDEP approval. Upon obtaining ISRA approval, Tenant
shall forward a copy of same to Landlord and vacate the Demised Premises. The
final installment of holdover rent shall be prorated to the date on which
Landlord receives a copy of such approval or the date on which Tenant vacates
the Demised Premises, whichever is later. Landlord shall return the original
bond to Tenant within five (5) days of Landlord's receipt of a copy of such
approval.
In the event that Tenant becomes a holdover tenant or a tenant in
possession pursuant to this Section and Tenant obtains from NJDEP its written
(i) acknowledgment that the Agreement is terminated and (ii) waiver of its
rights to void the termination of the Agreement and any subsequent leasing
transaction respecting the Demised Premises, then Tenant shall forward a copy of
same to Landlord and vacate the Demised Premises. The above-described holdover
tenancy shall thereupon terminate whether or not final ISRA approval has been
obtained, and the final installment of holdover rent shall be prorated to the
later of the date on which Landlord receives a copy of such approval or Tenant
vacates the Demised Premises. Landlord shall promptly thereafter release that
portion of the bond associated with holdover Rent.
At Landlord's option, Landlord may elect to terminate the above-described
holdover tenancy before ISRA approval is obtained. If Landlord so elects, it
shall give Tenant thirty (30) days notice of same, Tenant shall surrender the
Demised Premises on or before the
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termination date so notified, Tenant's obligation to pay holdover Rent shall be
apportioned to the date of surrender, and Landlord shall release that portion of
the bond associated with holdover Rent. Landlord may thereafter relet the
Demised Premises (although it shall be under no obligation to do so), but Tenant
shall not be relieved of its obligation to diligently pursue and obtain ISRA
compliance. In such case, Landlord shall also release, if possible, that portion
of the bond or other security not needed for environmental compliance
necessitated by Tenant.
Section 17.06 REMEDIATION AGREEMENT
If there is available from the NJDEP an Agreement consenting to
termination of this Agreement notwithstanding the fact that ISRA compliance has
not been obtained (hereinafter, a "Remediation Agreement" or "RA"), and if
Tenant fails to obtain a No Further Action Letter, Remedial Action Workplan or
the equivalent as required for the Demised Premises prior to termination of this
Agreement, whether on the expiration date or otherwise, then at its option,
Tenant may elect to obtain an RA or the equivalent as required and post a bond,
payable to the NJDEP in the event that Tenant defaults in the completion of ISRA
compliance, in the amount estimated, on the Agreement termination date, as the
cost of completing ISRA compliance. Tenant shall increase the amount of such
bond if the estimated costs of ISRA compliance increase prior to receiving NJDEP
approval. If the foregoing RA is available and is elected and provided by
Tenant, then the provisions of Section 17.05 shall be superseded. Tenant shall
promptly provide Landlord with copies of the a RA and the ISRA approval.
Section 17.07 COMPLIANCE COSTS
If, in the course of any compliance activities under this Article 17,
NJDEP identifies contamination of the environment with hazardous materials
attributable exclusively to Tenant's activities at the Demised Premises, any
further sampling, analysis or cleanup designed to remedy such contamination
including any cleanup or sampling required with respect to any Plant Facility,
the Sanitary Wastewater Treatment Facility, the Industrial Wastewater Treatment
Facility, the Switching Station, or any other facility or service generally
supporting occupants at the Research Campus, shall be performed at Tenant's cost
and expense.
If contamination is discovered which is caused by materials whose use (i)
cannot be attributed exclusively to Landlord, Tenant or any other tenant, and
(ii) cannot be demonstrated not to be attributable to Tenant, then Tenant agrees
to pay its proportionate share of the cost of any further sampling and analysis
and any cleanup work required due to said contamination, including the costs of
any cleanup or sampling required with respect to any Plant Facility, the
Sanitary Wastewater Treatment Facility, the Industrial Wastewater Treatment
Facility, the Switching Station, or any other facility or service generally
supporting occupants at the Research Campus (except that Tenant shall not be
required to pay any costs arising out of a contamination that occurred before
the commencement date or after the termination of the term of this Agreement and
the vacation of the Demised Premises by Tenant). Tenant's proportionate share of
such costs shall be the same as Tenant's percentage share of Taxes under Article
6 of this Agreement.
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Tenant shall pay costs for which it is liable under this Section to Landlord as
Additional Rent together with the rental payment next following the receipt of
Landlord's invoice for same, or within thirty (30) days of receipt of the
invoice, whichever is later.
If contamination is discovered which is caused exclusively by materials
whose use can be demonstrated not to be attributable to Tenant, any further
sampling, analysis or cleanup work shall be performed at no cost or expense to
Tenant.
ARTICLE 18
Section 18.01 USE OF HAZARDOUS MATERIALS
Tenant shall take any necessary steps to ensure that its agents,
employees, contractors or representatives at the Demised Premises abide strictly
by Landlord's Rules and Regulations Relating to the Use and Handling of
Hazardous Materials, appended as Exhibit H to this Agreement. These may be
amended from time to time by Landlord on thirty (30) days notice to Tenant,
provided that no advance notice shall be required where the amendment is
required by law. Tenant recognizes that the failure to abide by said Rules and
Regulations may have harmful repercussions on Landlord and any other tenants at
the Research Campus as well as on residents of the surrounding community.
Use of radioactive material or a radiation source and any other material
requiring special permitting or licensing is strictly prohibited without advance
notice to and written consent from Landlord. Such notice shall be accompanied by
Tenant's demonstration that Tenant can obtain any necessary permits governing
the use and disposal of such materials and that Tenant has made adequate
arrangements to use such materials safely at the Demised Premises and to dispose
of same in accordance with law.
Tenant is expressly prohibited from bringing onto the Research Campus or
into the Building any equipment containing polychlorinated biphenyls ("PCBs")
or asbestos in a form that presents a health hazard.
Section 18.02 CHEMICAL STOCKROOM
Tenant requires the presence of certain hazardous substances, as the same
are defined under ISRA, for its operations at the Demised Premises. In order to
provide for the orderly administration of permits, unified attention to safety
and to provide for proper storage of such materials, Tenant agrees to establish
its own Chemical Stockroom and to order any hazardous substances necessary for
its operations through its Chemical Stockroom. Tenant further agrees that it
shall maintain a complete and accurate current accounting of any and all
hazardous substances ordered by it and stored in the Chemical Stockroom, which
accounting shall be continuously maintained and updated. Tenant shall provide
Landlord with a copy of its current accounting at frequent, periodic intervals
and, upon Landlord's request, shall provide to Landlord a copy of the Material
Safety Data Sheet ("MSDS") for any substance on the
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accounting. This paragraph is intended to cover all hazardous substances used in
the laboratory operations or for laboratory cleanup at the Demised Premises.
This paragraph is not intended to cover any hazardous substances involved in
Tenant's office use or in the routine maintenance of the non-laboratory portion
of the Demised Premises.
Section 18.03 STORAGE OF HAZARDOUS SUBSTANCES
No hazardous substances or wastes may be stored anywhere on the Research
Campus, other than in laboratories, or areas specially designated for such
purposes. No hazardous substances for use by any of Tenant's agents, servants,
or employees in the Demised Premises may be brought into the Demised Premises
unless indicated on the accounting maintained in accordance with Section 18.02.
Normal office and cleaning supplies shall be excepted from this requirement.
Except for canisters of specialty gases, flammable substances (not wastes)
stored in the service corridor cabinets for flammables awaiting use, and
properly packaged and tagged hazardous wastes awaiting transportation to
Tenant's hazardous waste storage area, hazardous substances and wastes may not
be stored in the service corridors.
ARTICLE 19
Section 19.01 DISPOSAL OF HAZARDOUS MATERIALS
Tenant shall be permitted to dispose of small amounts of certain used
laboratory materials down the laboratory sinks in the Demised Premises. Such
disposal must conform strictly to Landlord's Instructions for Potentially
Problematic Discharges to AWTP appended as Exhibit I to this Agreement. These
may be amended from time to time by Landlord on thirty (30) days notice to
Tenant, provided that no advance notice shall be required where the amendment is
required by law. Landlord may monitor the effluent from laboratory sinks and if
prohibited materials are discovered in the effluent, Landlord will immediately
notify Tenant to discontinue such discharges. Tenant shall immediately take
steps to locate the source of any such discharge, and if due to Tenant's
activities, take any measures necessary to terminate the same. Tenant shall pay
any costs arising in connection with any repair of the industrial wastewater
treatment facility or any other remediation which must be conducted as a result
of such a prohibited discharge.
Tenant shall and hereby does indemnify and hold Landlord harmless from and
against any and all third party claims, liability, damages (including remote
damages), penalties, fees or other costs incurred by third parties and arising,
directly or indirectly, from any prohibited discharge or other improper disposal
of hazardous materials by Tenant, its employees, agents or invitees, at or from
the Demised Premises. This agreement of indemnification shall include, without
limitation, (i) indemnification against any and all costs, charges, claims,
liability or damages arising out of an improper discharge of hazardous
substances or materials to the industrial wastewater treatment facility which
causes or creates a claim or claims, liability, damages or other costs arising
out of damage to Landlord, other tenants or any other person or property
downstream of the industrial wastewater treatment facility, (ii) any and all
damage
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arising out of an improper discharge of hazardous substances or materials which
causes damage to the industrial wastewater treatment facility, and (iii)
liability for penalties or fees assessed by any governmental agency for
exceeding the permitted discharge limitations. In the event Tenant causes damage
to the industrial wastewater treatment facility, this agreement of
indemnification shall extend not only to the cost of repair of such facility but
also to any increased costs incurred by Landlord and other tenants for alternate
industrial wastewater treating pending repair, in each case to the extent
attributable, directly or indirectly, to Tenant's prohibited discharge or other
improper disposal of hazardous substances or materials.
Landlord represents that it has or shall obtain from each tenant in the
laboratory or pilot wings of the Building an agreement of indemnification
respecting prohibited discharges of hazardous substances or materials to the
industrial wastewater treatment facility that is similar in substance to the
foregoing paragraph.
Section 19.02 HAZARDOUS WASTE STORAGE
Materials not permitted to be disposed of in laboratory sinks, or wastes
in excess of the quantities permitted to be so discharged, shall be collected
and packaged by Tenant in accordance with Federal, State and local regulations,
delivered by Tenant to and stored in that area of the Demised Premises
designated by Tenant for hazardous waste storage. Tenant shall maintain the
designated area in accordance with Federal, State and local regulations. Tenant
shall alert Landlord to the storage of any waste that poses additional safety
concerns, either to persons or to the Property, generally.
Section 19.03 OFF-SITE DISPOSAL
Tenant shall maintain its own generator permit if so required by law and
shall hire licensed contractors to appropriately dispose of any hazardous waste
generated at the Demised Premises which may not be disposed of down laboratory
sink drains. Tenant shall also hire licensed contractors to dispose of other
regulated wastes, including but not limited to medical wastes. Landlord shall
have no responsibility or obligation with respect to any of the hazardous or
regulated wastes that are generated by Tenant which may not be disposed of down
laboratory sink drains. Each party shall indemnify and hold the other harmless
from and against any claim, cost, liability or damages on account of any such
hazardous or regulated wastes generated by the indemnifying party. Landlord
represents that it has or shall obtain from each tenant in the laboratory or
pilot wings of the Building an agreement of indemnification respecting disposal
of hazardous or regulated wastes generated by each such tenant.
ARTICLE 20
Section 20.01 EMERGENCY CONTROL FORCE
Tenant shall solicit volunteers and inform Landlord of the individuals,
including where available members of Tenant's staff functioning as an Industrial
Hygienist, Safety Officer,
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and appropriate medical personnel, who will participate in the Emergency Control
Force for the Research Campus. Such persons will be trained by Landlord and will
assemble to address an emergency in any part of the Research Campus in response
to a signal to be given by Landlord. Tenant acknowledges and agrees that
Landlord's employees and employees or representatives of other tenants at the
Research Campus may also be a part of the Emergency Control Force. None of these
personnel will be held liable by Landlord or Tenant for any actions taken in
responding to an emergency at the Demised Premises; further, Landlord and Tenant
shall each indemnify and hold the other and its agents or employees harmless
from and against any and all claims arising out of any act or omission,
including negligence, of the members of the Emergency Control Force and
Landlord's Emergency Medical Technicians which may occur while carrying out
their duties in responding to an emergency in the Demised Premises or on the
Research Campus.
Simultaneous with execution of this Agreement, Tenant shall execute an
Agreement of Cross-Indemnification in the form annexed hereto as Exhibit J.
Landlord represents that each existing and subsequent tenant in the Building
shall be required to execute, or has executed, a like Agreement of
Cross-Indemnification, and Landlord shall show Tenant the original Agreement,
bearing each required signature, within ten (10) days of execution of any new
lease agreement for space in the Building. If any tenant already in the Building
declines to execute an Agreement of Cross-Indemnification, then Tenant's
employees who participate in the Emergency Control Force shall not be required
to render emergency assistance in the premises leased by such non-signatory
tenant, nor to employees, agents or invitees of such non-signatory tenant,
wherever the emergency occurs. Landlord agrees to make reasonable efforts to
enforce the provisions of this Section uniformly among all tenants of laboratory
space.
Section 20.02 TENANT RESPONSIBILITIES
Tenant shall report to Landlord any and all conditions or occurrences
within the Demised Premises which may affect portions of the Research Campus
outside the Demised Premises, including any conditions which may affect the
Building, building services, including HVAC, potable and non-potable water,
sanitary wastewater, industrial wastewater disposal and any other services
provided by Landlord. Upon the occurrence of an event which has the potential to
cause harm to persons or building systems, Tenant will notify Landlord, and if
harm is imminent, shall take any steps necessary to notify the Emergency Control
Force and shall permit said Emergency Control Force to have access to the
Demised Premises and provide the Emergency Control Force with any and all
information relating to the materials and circumstances involved in the
emergency occurrence so that the Emergency Control Force will have adequate
information with which to make an appropriate response.
Section 20.03 SAFETY
Tenant will instruct its employees in safety measures and procedures
appended as Exhibits H, I, and K, and in the reporting of emergencies to
Landlord, and will undertake the supervision necessary to see that such measures
and procedures are carried out. Tenant shall be
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responsible for instructing its employees, licensees, and visitors that, in the
event of an emergency at the Demised Premises, all persons are to follow the
instructions of the members of the Emergency Control Force.
ARTICLE 21
Section 2l.0l DEFAULT
If Tenant defaults in the payment of Basic Monthly Rental, or Additional
Rent, or defaults in the performance of any of the other covenants or conditions
hereof, Landlord may give Tenant notice of such default and, if Tenant does not
cure any default in the payment of Basic Monthly Rental or Additional Rent
within five (5) business days after giving of such notice, or if Tenant does not
cure any other default within ten (10) business days after the giving of such
notice (or if such other default is of such a nature that it cannot be
completely cured within such period, if Tenant does not commence such cure
within such ten (10) business day period and thereafter proceed with reasonable
diligence and in good faith to cure such default), then Landlord may terminate
this Agreement on not less than three (3) business days notice to Tenant. On the
date specified in said notice, Tenant's right to possession of the Demised
Premises shall cease and Tenant shall then quit and surrender the Demised
Premises to Landlord, but Tenant shall remain liable as hereinafter provided. If
this Agreement shall have been so terminated by Landlord, Landlord may, at any
time thereafter, resume possession of the Demised Premises by any lawful means
and remove Tenant or other occupants and their effects. If this Agreement is
terminated in accordance with this Article, Tenant shall comply with the
provisions of Article 17 above, with respect to the requirements set forth in
Section 17.05 for posting a bond and the payment of holdover rent.
ARTICLE 22
Section 22.01 DEFICIENCY
In any case where Landlord has recovered possession of the Demised
Premises by reason of Tenant's default, Landlord may, at Landlord's option,
occupy the Demised Premises or cause the Demised Premises to be reasonably
redecorated, altered, divided, consolidated with other adjoining premises, or
otherwise changed or prepared for reletting, and may relet the Demised Premises
or any part thereof as agent of Tenant or otherwise, for a term or terms to
expire prior to, at the same time as, or subsequent to the original expiration
date of this Agreement, at Landlord's option, and receive the rent therefor.
Rent so received shall be applied first to the payment of such reasonable
expenses as Landlord may have incurred in connection with the recovery of
possession, repairing, the removal of pre-agreed items, and the reletting,
including reasonable brokerage and reasonable attorney's fees, and then to the
payment of damages in amounts equal to the Basic Monthly Rent hereunder and to
the costs and expenses of performance of the other covenants of Tenant as herein
provided. Tenant agrees, in any such case, whether or not Landlord has relet, to
pay damages to the Landlord (i) equal to the Basic Monthly Rental, less the net
proceeds of the reletting, if any, as ascertained from time to time,
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and the same shall be payable by Tenant on the rent days above specified or (ii)
pursuant to Section 22.05. Tenant shall not be entitled to any surplus occurring
as a result of any such reletting. In reletting the Demised Premises, Landlord
may grant reasonable rent concessions and Tenant shall not be credited
therewith. No such reletting shall constitute a surrender and acceptance or be
deemed evidence thereof.
Following Landlord's recovery of possession by reason of Tenant's default,
if Landlord elects pursuant to this Article actually to occupy and use the
Demised Premises or any part thereof for its use during any part of the balance
of the term as originally fixed or since extended, Tenant shall not be liable to
Landlord for any items of Additional Rent for the period of Landlord's occupancy
and attributable to that part of the Demised Premises so occupied, and there
shall be allowed against Tenant's obligation for Base Rent or damage as herein
defined, during the period of Landlord's occupancy, the reasonable value of such
occupancy, not to exceed in any event the Basic Monthly Rental herein reserved
and such occupancy shall not be construed as a release of Tenant's liability
hereunder.
Section 22.02 NON-WAIVER
A receipt by Landlord of Rent or any payment of Additional Rent with
knowledge of the breach of any covenant contained in this Agreement shall not be
deemed a waiver of such breach, and shall not be deemed to have been waived
unless expressed in writing and signed by Landlord. Landlord shall be entitled,
to the extent permitted by applicable law, to injunctive relief in case of the
violation, or attempted or threatened violation, of any covenant, agreement,
condition or provision of this Agreement or to a decree compelling performance
of any covenant, agreement, condition or provision of this Agreement, or to any
other remedy allowed Landlord by law.
Section 22.03 DIVISIBLE CONTRACT
For the purposes of any suit brought by Landlord, this Agreement shall be
construed to be a divisible contract, to the end that successive actions may be
maintained on this Agreement as successive periodic sums mature hereunder.
Section 22.04 ACCELERATION
Upon termination of this Lease, Landlord shall have the right to declare
the entire remaining unpaid Basic Monthly Rental for the full balance of the
lease term to be immediately due and payable. Such declaration of acceleration
shall be made by notice given by Landlord to Tenant in accordance with the
notice provisions of this Agreement. Upon notice of declaration of acceleration,
Tenant shall immediately pay to Landlord, without further demand or notice, an
amount equal to the sum of the entire remaining unpaid Basic Monthly Rental
provided in Article 5 of this Agreement for the remaining term, discounted to
present worth as of the date of Landlord's notice. Landlord shall have the right
to dispossess Tenant and reenter and take possession of the Demised Premises if
Tenant has vacated or abandoned the Demised Premises
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or if Landlord is dispossessing and evicting Tenant for the purpose of
ultimately reducing Tenant's liabilities under this Agreement. Landlord may
declare an acceleration as provided in this Section only after the termination
of this Agreement.
Section 22.05 NO RIGHT OF REDEMPTION
Tenant hereby waives all right of redemption to which Tenant or any person
claiming under Tenant might be entitled by any law now or hereafter in force.
ARTICLE 23
Section 23.0l ARBITRATION
Except for the right of Landlord to bring an action for possession of the
Demised Premises and an action for Rent and other damages upon a default by
Tenant under this Agreement, any controversy or claim arising out of or
relating to this Agreement or the breach thereof, shall be settled by
arbitration in the Somerset County, New Jersey office of the American
Arbitration Association, and in accordance with the Rules of the American
Arbitration Association for commercial arbitration; provided, however, that the
parties shall choose a panel of three (3) arbitrators who shall be experienced
in the field of expertise which is the subject matter of the arbitration.
Judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
ARTICLE 24
Section 24.01 NOTICES
All notices and demands which are required or permitted to be given by
either party to the other under this Agreement shall be written and shall be
delivered personally or by overnight courier service, or sent by certified or
registered mail, postage prepaid, return receipt requested, with proof of
mailing obtained from the Post Office, addressed in the case of Tenant to its
offices at 5215 Old Orchard Road, Suite 910, Skokie, Illinois 60077, or to such
other place as Tenant may from time to time designate by written notice, and in
the case of Landlord to Landlord at Clinton Township, Route 22 East, Annandale,
New Jersey 08801, ATTN: Facilities and Services Coordinator, or to such other
place as Landlord may from time to time designate by written notice. Such
notices shall be conclusively deemed to have been given upon receipt or
rejection.
ARTICLE 25
Section 25.01 ACCESS AND RIGHT OF INSPECTION
Tenant shall have access to the Research Campus, the Building and the
Demised Premises 24-hours per day, every day. Access to LG-l is to be secured by
a limited card key and door key access system. Installation is to be
substantially completed by Landlord, at Landlord's
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expense, no later than the date of commencement of the Term of this Agreement.
The performance of Tenant's obligations hereunder shall not be excused pending
complete installation of the access systems. Tenant's employees resident at the
Demised Premises shall be furnished with card keys (and keys, as appropriate),
which must be surrendered to Landlord upon the expiration or other termination
of this Agreement. Further, card keys and keys furnished to employees of Tenant
who cease to be resident at the Demised Premises prior to expiration or other
termination of the Agreement (by reason of transfer, retirement, etc.) must be
surrendered immediately to Landlord.
Landlord shall have the right upon notice reasonable under the
circumstances to enter the Demised Premises (a) to inspect them, (b) to supply
any services provided to Tenant, including emergency services, (c) to show the
Demised Premises to prospective purchasers, lenders or tenants, except that the
Demised Premises may only be shown to prospective tenants during the final
twelve (12) months of the initial term of this Agreement if Tenant has not
renewed, or of any renewal term, (d) to post notices of non-responsibility, (e)
to alter, improve or repair the Demised Premises and any portion of the
Building, (f) to observe Tenant's compliance in the Demised Premises with
Governmental laws, rules, and regulations including but not limited to the
environmental statutes listed in Article 8 above and to observe Tenant's
compliance with environmental safety and industrial hygiene practices as well as
the Rules and Regulations and Instructions annexed hereto as Exhibits H, I and K
and all provisions of this Agreement, and (g) to erect scaffolding and other
necessary structures where required by the work to be performed - all without
any reduction in Basic Monthly Rental or Additional Rent.
Notwithstanding the foregoing, access to Tenant's Clean Rooms shall
strictly accord with mutually-agreeable procedures to be established by Landlord
and Tenant to assure that the integrity of the Clean Rooms is not compromised.
These procedures may include, but will not be limited to, restrictions on the
number of entrants, the use of gowns, and the presence of a Tenant
representative. The procedures shall also address access under emergency
circumstances.
Tenant acknowledges that access to the Level 0 and penthouse mechanical
spaces shall not require notice. Landlord's entry for the foregoing purposes
shall not be deemed an injury to or interference with Tenant's business or quiet
enjoyment of the Demised Premises. Landlord shall use its reasonable efforts to
minimize any disruption to Tenant occasioned by Landlord's entries and work
performed hereunder by Landlord.
Any and all door locks shall be on Landlord's site systems and Landlord
shall at all times have keys to unlock all of the doors in and about the Demised
Premises. Landlord shall have the right to use any means reasonably necessary
and proper to open said doors in an emergency without liability to Tenant for
any damage resulting therefrom, and any such entry to the Demised Premises shall
not under any circumstances be construed or deemed a detainer of the Demised
Premises or an eviction of Tenant from any portion of the Demised Premises.
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All of Landlord's entries into the Demised Premises shall be made by an
Industrial Hygienist, Safety Engineer, Shift Superintendent, Facilities and
Services Coordinator, members of Emergency Control Force, maintenance personnel,
security personnel or other appropriate employees whom Landlord shall designate
to Tenant in advance of such entry.
ARTICLE 26
Section 26.0l PERFORMANCE OF COVENANTS
Except as otherwise expressly provided in this Lease, all covenants and
agreements to be kept or performed by Tenant under the terms of this Agreement
shall be performed by Tenant at Tenant's sole cost and expense and without any
reduction of Rent. If Tenant shall be in default in its obligations under this
Agreement to pay any sum of money other than Rent or to perform any other act
hereunder, and if such default is not cured within the applicable grace period
provided in Article 21 above, Landlord may, but shall not be obligated to, make
any such payment or perform any such act on Tenant's part without waiving its
rights based upon any default of Tenant and without releasing Tenant from any
obligation hereunder. All sums so paid by Landlord and all incidental costs,
together with interest thereon at a rate equal to the lesser of (i) two percent
(2%) over the prime rate charged by Chase Manhattan Bank, N.A. or (ii) the
maximum rate of interest permissible by law from the date of such payment or the
incurring of such cost by Landlord, whichever occurs first, shall be paid to
Landlord on demand. In the event of nonpayment by Tenant, Landlord shall have,
in addition to any other rights or remedies hereunder, the same rights and
remedies as in the case of default by Tenant for nonpayment of Rent.
ARTICLE 27
Section 27.01 RULES AND REGULATIONS
Tenant shall faithfully comply with the "Building Rules and Regulations"
appended as Exhibit K to this Agreement. These may be amended from time to time
by Landlord on thirty (30) days notice to Tenant, provided that no advance
notice shall be required where the amendment is required by law. Landlord shall
not amend the Building Rules and Regulations in a way that would materially
impair Tenant's ability to use the Demised Premises as contemplated under this
Agreement or in a discriminatory manner. Landlord shall not be responsible for
the non-performance by any other tenant or occupant of the Building of any of
said Rules and Regulations. Said Rules and Regulations shall be applied
uniformly and Landlord's enforcement of them against Tenant shall not be
punitive or excessively harsh as compared with its enforcement against other
tenants in the Building.
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ARTICLE 28
Section 28.01 MORTGAGEE RIGHT TO CURE
Tenant agrees to give any mortgagee by notice as provided in Article 24, a
copy of any notice of default served upon Landlord by Tenant, provided that
prior to such notice, Tenant has been notified, in writing (by way of Notice of
Assignment of Rents and Leases, or otherwise) of the address of such mortgagee.
Tenant further agrees that the mortgagee shall have the time provided for in
this Agreement to cure such default, or, if such default cannot be cured within
that time, then such additional time as may be necessary. If within the initial
period for cure any such mortgagee has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure), then
in that event this Agreement shall not be terminated while such remedies are
being so diligently pursued; provided, however, that, if during such period
essential repairs are not being made which materially affect the habitability of
the Demised Premises, Tenant, upon notice to such mortgagee, may make the
repairs and offset the reasonable cost thereof against Rent. Notwithstanding the
foregoing, Tenant shall have the right to terminate this Agreement if (i)
Tenant's use of the Demised Premises for the purposes specified hereunder is
materially affected by the default, and (ii) cure by mortgagee is projected to
require or does in fact require more than six (6) months from the date when
mortgagee received notice of the default. Nothing contained herein shall be
interpreted to place any obligation upon any mortgagee.
ARTICLE 29
Section 29.01 ABANDONMENT OF PROPERTY
At the expiration of this Agreement or its sooner termination, and
following fifteen (15) days' notice to Tenant of any personal property belonging
to Tenant that is left in the Demised Premises, Landlord may store such personal
property in a public warehouse or elsewhere at the sole cost and for the account
of Tenant. If Landlord does not elect to store any or all of Tenant's property
left in the Demised Premises, Landlord may consider such property to be
abandoned by Tenant and Landlord may thereupon dispose of such property in any
manner deemed appropriate by Landlord. Any proceeds realized by Landlord on the
disposal of such property shall first be applied against Landlord's costs
incurred in disposing of such property and the balance, if any, shall be
credited against Tenant's outstanding obligations to Landlord under this
Agreement.
ARTICLE 30
Section 30.0l HOLDOVER TENANCY
Except as provided in Section 17.05, if Tenant holds possession of the
Demised Premises after the term of this Agreement, Tenant shall become a tenant
from month to month,
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subject to all of the provisions of this Agreement, but at a Basic Monthly
Rental of one hundred fifty percent (150%) of the Basic Monthly Rental for the
last month of the term or any renewal term, payable in advance on or before the
first day of each month, and such tenancy shall continue until terminated by
either party on thirty (30) days' written notice.
ARTICLE 31
Section 3l.01 SUBORDINATION
This Agreement is subject to the Main Lease. Upon execution of this
Agreement, Landlord shall furnish Tenant with a Non-Disturbance Agreement in the
form annexed as Exhibit L, duly executed by OverLandlord. This Agreement shall
be subject and subordinate to all ground or underlying leases which may
hereafter affect all or any part of the Property of which the Research Campus
forms a part, to all mortgages which may hereafter affect such leases or such
Property, and to all renewals, modifications, replacements and extensions
thereof, provided that the holder of each such superior interest shall furnish
Tenant with a Non-Disturbance Agreement reasonably satisfactory to said holder
and Tenant. Said Non-Disturbance Agreement shall obligate the holder of the
superior interest (i) not to disturb Tenant's occupancy so long as Tenant
performs its obligations under this Agreement, (ii) not unreasonably to withhold
or delay any consent or approval required to be obtained from such holder by
Tenant (except as to Section 12.01), and (iii) to honor all of the Tenant's
rights and all of the Landlord's obligations under this Agreement, on condition
that Tenant, when requested by the holder, shall execute an attornment agreement
to the holder should the holder succeed to the rights of Landlord under this
Agreement. The provisions of this Article shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute and deliver at its own cost and
expense any instrument, in recordable form if required, that Landlord, the
OverLandlord, or the holder of any superior mortgage or any of their respective
successors-in-interest may request to evidence such subordination. Landlord
represents that as of the commencement date of this Agreement, the OverLandlord
and Landlord are the sole entities with superior interests to Tenant in the
Demised Premises.
Section 3l.02 ATTORNMENT
In the event that any ground lease or underlying lease terminates for any
reason, or any mortgage or deed of trust is foreclosed, or a conveyance in lieu
of foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor-in-interest to
Landlord, at the option of such successor-in-interest, on the terms and
conditions of this Lease.
Section 31.03 AGREEMENT AMENDMENTS
If, in connection with the financing or further construction at the
Research Campus or the Property, a lender or successor-in-interest to the
OverLandlord requests reasonable modifications to this Agreement, Tenant shall
not unreasonably withhold, delay or
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defer making such modifications, provided that such modifications do not affect
the Rent, the term of this Lease (as described in Articles 2 and 41), the size
of the Demised Premises (as described in Article 1) or otherwise materially
increase Tenant's obligations under this Lease or reduce the rights or benefits
available to Tenant under this Lease.
ARTICLE 32
Section 32.01 LANDLORD'S LIABILITY
Landlord may assign its interest in the Main Lease or this Agreement to
others. In the event that Landlord sells or assigns its interest in the Main
Lease, this Agreement, the Property, the Research Campus, the Building or any
part thereof containing or affecting the Demised Premises, Landlord shall, to
the extent of such assignment, be released from any liability arising thereafter
based upon any of the terms, covenants or conditions, expressed or implied,
which are contained in this Agreement, provided that any assignee of this
Agreement shall agree to be bound by all of the terms and conditions hereof. In
such event, Tenant agrees to look solely to Landlord's successor-in-interest for
any liability under this Agreement thereafter arising.
Section 32.02 PERSONAL LIABILITY OF LANDLORD
It is specifically understood and agreed that notwithstanding anything to
the contrary herein provided or otherwise provided at law or in equity, Landlord
shall have absolutely no personal liability in excess of its interest in the
Research Campus and Building nor shall any successor-in-interest thereto have
any personal liability in excess thereof with respect to any of the terms,
covenants or conditions of this Agreement. In the event of a breach or default
by Landlord, or any successor-in-interest thereof, of any of its obligations
under this Agreement, Tenant shall look solely to the then Landlord or such
successor-in-interest for each and every remedy of Tenant.
ARTICLE 33
Section 33.01 ESTOPPEL CERTIFICATE
Within ten (10) days following any written request which either party may
make from time to time, the other party shall execute and deliver a statement
certifying: (a) the date of commencement of this Agreement; (b) the fact that
this Agreement is unmodified and in full force and effect (or, if there have
been modifications hereto, that this Agreement is in full force and effect, as
modified, and stating the date and nature of such modifications); (c) the date
to which the Basic Monthly Rental, Additional Rent and other sums payable under
this Agreement have been paid; (d) the fact that there are no current defaults
under this Agreement by either Landlord or Tenant, except as specified in the
statement; and (e) such other matters as may be reasonably requested. Landlord
and Tenant intend that any statement delivered pursuant to this Article may be
relied upon by the Over-Landlord, any mortgagee, beneficiary, purchaser or
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prospective purchaser of the Property, the Research Campus, the Building or any
interest therein. Tenant will provide said estoppel certificate in favor of the
Landlord, the OverLandlord or any mortgagee, as may be requested from time to
time by Landlord.
ARTICLE 34
Section 34.0l QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant pays the Basic Monthly
Rental and Additional Rent as herein provided, and keeps, observes and performs
each and every term of this Agreement on Tenant's part to be kept, observed and
performed, Landlord shall do nothing to affect Tenant's right to peaceably and
quietly have, hold and enjoy the Demised Premises for the term herein mentioned,
subject to the provisions of this Agreement and the Main Lease and to the
provisions of any superior mortgage and/or ground leases, none of which
provisions are inconsistent with the terms hereof.
ARTICLE 35
Section 35.0l NO WAIVER
If either Landlord or Tenant waives the performance of any term, covenant
or condition contained in this Agreement, such waiver shall not be deemed to be
a waiver of the term, covenant or condition itself or a waiver of any subsequent
breach of the same or any other term, covenant or condition contained herein.
Furthermore, the acceptance of Rent by Landlord shall not constitute a waiver of
any preceding breach by Tenant of any of the terms, covenants or conditions of
this Agreement, regardless of Landlord's knowledge of such preceding breach at
the time Landlord accepted such rent. Failure by Landlord to enforce any of the
terms, covenants or conditions of this Agreement for any length of time shall
not be deemed to waive or to decrease the right of Landlord to insist thereafter
upon performance by Tenant. Waiver by Landlord of any term, covenant or
condition contained in this Agreement may only be made by a written instrument
signed by Landlord.
ARTICLE 36
Section 36.0l LATE CHARGES
In any calendar year, Tenant shall be entitled once to receive twenty-four
(24) hours' notice before Landlord may assess a late charge on any installment
of Basic Monthly Rent, Additional Rent or payments for Optional Services due
hereunder. If said notice period has elapsed, or if such notice has already been
given and notice is no longer required for the balance of such calendar year,
then Tenant shall pay Landlord a late charge of three percent (3%) of any
installment of Basic Monthly Rental, Additional Rent or payments for Optional
Services due hereunder which is paid more than five (5) business days after the
due date thereof. Basic
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Monthly Rent, Additional Rent and payments for Optional Services are not late if
paid within five (5) business days of their due date.
ARTICLE 37
Section 37.01 SURRENDER OF PREMISES
Upon the expiration or other termination of the term of this Agreement,
Tenant shall quit and surrender the Demised Premises to Landlord, broom clean,
in good safe order and condition, ordinary wear and tear excepted, and Tenant
shall remove all of its property as herein provided. Tenant's obligation to
observe or perform this covenant shall survive the expiration or other
termination of this Agreement. If Tenant becomes a holdover tenant pursuant to
Section 17.05, then Tenant shall not be deemed to have surrendered the Demised
Premises until Tenant has obtained any necessary ISRA approval.
ARTICLE 38
Section 38.01 BROKERAGE
Tenant covenants, warrants and represents that no broker except Keller,
Dodds & Woodworth Inc. (KD&W) and Cushman & Wakefield of New Jersey, Inc.
("C&W", and with KD&W, the "Brokers") introduced Tenant to the Property or was
instrumental in bringing about or consummating this lease and that Tenant had no
conversations or negotiations with any broker except the Brokers concerning the
leasing of the Premises. Tenant agrees to indemnify and hold Landlord harmless
against and from any claims for any brokerage commissions and all costs,
expenses and liabilities in connection therewith, including, without limitation,
reasonable attorneys' fees and expenses, arising out of any conversations or
negotiations had by Tenant with any broker other than the Brokers. Landlord
shall pay the brokerage commission due C&W as per a separate agreement between
Landlord and C&W; and C&W shall pay a commission to KD&W in accordance with a
separate agreement between C&W and KD&W.
Landlord warrants and represents that Landlord had no conversations or
negotiations with any broker except the Brokers concerning the leasing of the
Premises to Tenant, and Landlord agrees to indemnify and hold harmless Tenant
against and from any claims for any brokerage commissions and all costs,
expenses and liabilities in connection therewith, including, without limitation,
reasonable attorneys' fees and expenses, arising out of any conversations or
negotiations had by Landlord with any broker other than Brokers concerning the
leasing of the Premises to Tenant.
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ARTICLE 39
Section 39.0l RECORDATION
Neither this Agreement nor any memorandum thereof shall be recorded in the
Office of the Clerk of Hunterdon County.
ARTICLE 40
Section 40.01 FORCE MAJEURE
Any obligations, responsibilities, covenants, or agreements of either party
as contained herein (except for obligations to pay money) shall be suspended if
and during any delay or interruption brought about by Force Majeure. "Force
Majeure" shall mean and include those situations beyond the affected party's
control, including by way of example, but not limited to, acts of God,
accidents, repairs, strikes, shortages of labor, supplies or materials,
inclement weather, rules or regulations of any federal, state, municipal or
other governmental agency, or where applicable, the passage of time while
waiting for an adjustment of insurance proceeds. The time of such delay or
interruption shall not be counted against the affected party, anything in this
Agreement notwithstanding.
ARTICLE 41
Section 41.01 RENEWAL OPTIONS
Provided that Tenant is not in default under any of the terms and
conditions of this Agreement beyond the periods for notice and cure pursuant to
Article 21 hereof; Tenant shall have the option to renew this Agreement for an
additional term of five (5) years, upon the same terms and conditions contained
in this Agreement, except (i) there shall be only one further renewal option,
and (ii) the Base Rent shall be recalculated using fifty percent (50%) of the
Index identified in Section 6.03 above. The renewal rent for each year of the
first renewal term shall be the equivalent of $26.50 per square foot of net
rentable space, adjusted upward (or downward as the case may be) by fifty
percent (50%) of the percentage change in the Index from December 2, 1996 to the
commencement date of the first renewal term.
If the renewal option is exercised by Tenant, the first renewal term shall
commence on December 3, 2001 and expire on December 3, 2006. In order to
exercise the renewal option, Tenant must give Landlord notice of its intention
to renew at least eighteen (18) months prior to the expiration date of the
initial term. Time shall be of the essence with respect to the exercise of the
renewal option.
Provided that Tenant is not in default under any terms and conditions of
this Agreement beyond the periods for notice and cure pursuant to Article 21
hereof; Tenant shall have a further option to renew this Agreement for an
additional term of five (5) years, upon the same terms and conditions contained
in this Agreement, except (i) there shall be no further
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renewal option, and (ii) the Base Rent shall be recalculated using one hundred
percent (100%)of the Index identified in Section 6.03, above. The renewal rent
for each year of the second renewal term shall be the equivalent of the Base
Rent per square foot for the first renewal term, adjusted upward (or downward as
the case may be) by one hundred percent (100%) of the percentage change in the
Index from December 3, 2006 to the commencement date of the second renewal term.
If the second renewal option is exercised by Tenant, the second renewal
term shall commence on December 4, 2006 and expire on December 4, 2011. In order
to exercise the second renewal option, Tenant must have validly exercised the
first renewal option and must thereafter give Landlord notice of its intention
to renew at least eighteen (18) months prior to the expiration date of the first
renewal term. Time shall be of the essence with respect to the exercise of the
renewal option.
ARTICLE 42
Section 42.01 PARKING
Tenant, as part of the Demised Premises, will have made available to it
sufficient outdoor parking spaces to accommodate the vehicles of Tenant's
employees and visitors and two (2) indoor parking spaces. If in the future
Landlord gives more than 200 reserved parking spaces to a tenant or tenants of
the Building, Landlord shall make available to Tenant on comparable terms and in
comparable location. Tenant's share of reserved parking spaces, based on the
ratio of the square footage of the Demised Premises to the square footage of the
tenants to whom the reserved spaces were granted.
ARTICLE 43
Section 43.0l SIGNS
Tenant shall be permitted to have an exterior sign located at the entrance
to the Property at Route 22 and an interior sign at its entrance from the Common
Areas to LG-1. The location, size and type of each sign shall be subject to
Landlord approval, which approval will not be unreasonably withheld or delayed,
and shall further be subject to governmental regulations. Costs for this signage
shall be borne by Tenant. The signs shall conform with standards for such signs
as set forth in the land development ordinances and zoning ordinance of Clinton
Township, and any other governmental regulations and shall be consistent with
uniform signing and design throughout the Research Campus. The consent of the
Landlord shall be required prior to making any application for a sign permit,
and the Landlord may, in its sole discretion, impose reasonable conditions
relative to such consent.
Landlord shall provide and locate suitable identification and directional
signs at appropriate locations within the Research Campus.
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ARTICLE 44
Section 44.01 PERMITS AND APPROVALS
Wherever in this Agreement it is required that Tenant obtain any
governmental permit or approval respecting its use or occupancy of the Demised
Premises, Tenant shall give thirty (30) days notice (or such shorter period as
shall be reasonable under the circumstances) to Landlord of its intent to apply
for such permit or approval. Landlord may within said thirty (30) day (or
shorter) period determine at its option that it will obtain said permit or
approval and, in that event, Landlord shall give notice to Tenant of Landlord's
desire to apply for such permit or approval on Tenant's behalf, in which event
Landlord shall obtain the permit or approval in Tenant's name and for Tenant's
use, at Landlord's sole cost and expense. If Landlord determines not to apply
for such permit, Tenant shall, nonetheless, allow and afford Landlord the
opportunity to review the application and to participate in making such
application.
Upon Landlord's request, Tenant shall promptly furnish Landlord with
complete copies of any permits or approvals (including, without limitation,
environmental permits) it has obtained from any governmental body or agency
pertaining to Tenant's use or occupancy of the Premises, together with such
supporting documentation as is reasonably necessary to appreciate the nature and
substance of the permit.
Notwithstanding the foregoing provisions of this Section, Tenant shall not
be required to (i) allow Landlord to obtain on Tenant's behalf any establishment
permit covering the Demised Premises that must be obtained by Tenant and in
Tenant's name from the Food and Drug Administration ("FDA") and (ii) disclose to
Landlord any confidential information.
ARTICLE 45
Section 45.01 CONSTRUCTION OF TERMS
The words "Landlord" and "Tenant" as used herein shall include the plural
as well as the singular. Words used in masculine gender include the feminine and
neuter, where applicable. The headings and titles to the articles and sections
of this Agreement are used for convenience only and shall have no effect upon
the construction or interpretation of this Agreement.
ARTICLE 46
Section 46.01 MISCELLANEOUS
No acceptance by Landlord of a lesser sum than the Basic Monthly Rental and
Additional Rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of
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such installment or pursue any other remedy provided in this Agreement. The
delivery of keys to any employee of Landlord, or to Landlord's agent or any
employee thereof, shall not operate as a termination of this Agreement or a
surrender of the Demised Premises.
Section 46.02 REMEDIES CUMULATIVE
The specific remedies to which either party may resort under the terms of
this Agreement are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which either party may be lawfully entitled in
case of any breach or threatened breach of any provisions of this Agreement. In
addition to the other remedies provided in this Agreement, either party shall be
entitled to restraint by injunction of the violation or attempted or threatened
violation of any of the covenants, conditions, or provisions of this Agreement
or to a decree compelling specific performance of any such covenants, conditions
or provisions.
Section 46.03 CONSENT
Except under Article 12, and unless specifically provided to the contrary
elsewhere in this Agreement, any consent or approval required of either party
under this Agreement shall not be unreasonably withheld or delayed. Unless
specifically provided to the contrary elsewhere in this Agreement, if the
consent or approval of either party as to any matter may not be unreasonably
withheld or delayed and it is established by arbitration that a party has been
unreasonable, the only effect of such finding shall be that the party shall be
deemed to have given its consent or approval. Neither party shall be liable to
the other in any respect for money damages by reason of withholding or delaying
its consent or approval. In the case of a claim by a party that the other party
unreasonably withheld or delayed consent or approval as to any matter where
consent or approval is required, the following provisions shall apply: (i) upon
the written request of the aggrieved party, the dispute shall be submitted to
the American Arbitration Association (the "Association") for disposition
pursuant to the "Expedited Procedures" of the Association (set forth in
paragraphs 54 through 58 of that certain booklet published by the Association
and titled "Commercial Arbitration Rules," as amended and in effect March 1,
1986, or such successor provisions as may be subsequently adopted by the
Association); and (ii) all fees payable to the Association for services rendered
in connection with the resolution of the dispute shall be paid for by the party
suffering the adverse decision of the Association.
Section 46.04 BENEFIT
The terms, covenants and conditions contained herein shall be binding upon
and inure to the benefit of the heirs, successors, executors, administrators and
permitted successors and assigns of the parties hereto.
Section 46.05 ENTIRE AGREEMENT
This Agreement, together with its exhibits, contains the entire agreement
of the parties hereto and supersedes any previous or contemporaneous
negotiations. There have been
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no representations made by Landlord or understandings made between the parties
other than those set forth in this Agreement and its exhibits. This Agreement
may not be modified except by a written instrument duly executed by the parties
hereto.
Section 46.06 SEVERABILITY
If any provision of this Agreement or the application thereof to any person
or circumstance shall be invalid or unenforceable to any extent, the remainder
of this Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
Section 46.07 NOT AN OPTION TO LEASE
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or option for lease and it is not effective as a
lease or otherwise until execution and delivery by both Landlord and Tenant.
Section 46.08 TIME OF THE ESSENCE; CALCULATION OF DAYS
Time is of the essence for this Agreement and all of its provisions. Unless
expressly designated as business days, the calculation of periods of time
pursuant to this Agreement shall be based upon calendar days.
Section 46.09 GOVERNING LAW
This Agreement shall in all respects be governed by the laws of the State
of New Jersey without reference to its conflicts laws.
Section 46.10 NAME OF BUILDING
Landlord shall have the right to name the Building, the Research Campus or
the Property by such name or names as Landlord, in its sole discretion, shall
elect, with no obligation to Tenant by reason thereof.
Section 46.11 NO ADVERTISEMENTS
Tenant shall not cause and will make good faith efforts not to permit the
release of any advertising or publicity referring to Landlord, OverLandlord, or
using the word "Exxon" other than to identify this Lease, without Landlord's
prior written approval.
Section 46.12 EXPANSION OPTION
Subject to the rights of the existing tenant thereof and its successors and
assigns (IRI) and to the first refusal rights of a presently existing tenant of
the Building and its successors and assigns (Merck), Tenant shall have the
option to add to the Demised Premises the entire LE
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portion of Level 1 of the Building ("LE") in accordance with the provisions of
this Section. At such time as Landlord determines that LE will become available
to Tenant, (i.e., IRI and Merck did not exercise their options, and in no event
prior to eighteen (18) months before LE becomes available for occupancy by
Tenant), Landlord shall so notify Tenant (the "Availability Notice), such notice
to include the date upon which LE shall become available (the "Availability
Date"), Tenant shall thereafter have thirty-five (35) days within which to
notify Landlord whether it desires to add LE to the Demised Premises. If Tenant
notifies Landlord within such period that it desires to add LE to the Demised
Premises, LE shall become a part of the Demised Premises on the Availability
Date. The Base Rent per square foot for LE shall be the same as the Base Rent
per square foot for the original Demised Premises pursuant to this Lease, and
Tenant's proportionate share of the Building shall be appropriately adjusted
with respect to its obligations for Additional Rent. LE shall be delivered to
Tenant on the Availability Date in its then "AS IS" condition, broom clean,
vacant and free of tenants, occupants and rights of possession. If Tenant fails
to exercise the within option within thirty-five (35) days after its receipt of
the Availability Notice, Landlord shall be free for a period of one year after
the Availability Date to enter into a lease of LE to any third party or to
occupy LE itself for its own business purposes. If Landlord has not leased or
occupied LE within that period, its shall be obligated to reoffer LE to Tenant
with another Availability Notice in accordance with the procedure described
above. In no event shall this option extend to less than the entire LE. If LE
becomes part of the Demised Premises, Tenant's renewal options under Article 41
shall apply to the expanded Demised Premises, and the parties shall enter into
an appropriate Amendment to this Lease to reflect the expansion of the Demised
Premises.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Agreement to be
duly executed as of the date provided on Page 1 of this Agreement.
LANDLORD:
EXXON RESEARCH & ENGINEERING COMPANY
By: /s/Alfredo Lopez
-------------------------------
Title: Vice President
----------------------------
Date: November 22, 1996
TENANT
PATHOGENESIS CORPORATION
By: /s/Marc Wipperman
-------------------------------
Title: Vice President
----------------------------
Date: November 25, 1996
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STATE OF NEW JERSEY )
) SS:
COUNTY OF HUNTERDON )
On November 22, 1996, before me, the undersigned, an Attorney at Law of the
State of New Jersey, personally appeared A.M. Lopez, known to me to be the Vice
President of the corporation that executed the within Instrument, known to me to
be the person who executed the within Instrument on behalf of the corporation
therein named, and he thereupon acknowledged to me that the within Instrument
was executed pursuant to the corporation's by-laws or a resolution of its board
of directors as and for the act and deed of the corporation.
/s/J.R. Nacheman
-------------------------------
Attorney at Law of New Jersey
STATE OF NJ )
) SS:
COUNTY OF HUNTERDON )
On November 25, 1996, before me, the undersigned, a Notary Public in and
for said State, personally appeared Marc F. Wipperman known to me to be the Vice
President of the corporation that executed the within Instrument, known to me to
be the person who executed the within Instrument on behalf of the corporation
therein named, and she/he thereupon acknowledged to me that the within
Instrument was executed pursuant to the corporation's by-laws or a resolution of
its board of directors as and for the voluntary act and deed of the corporation.
(Notarial Seal) /s/Cindy Lee Hissim
-------------------------------
A Notary Public of New Jersey
My Commission expires: 2001
CINDY LEE HISSIM
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires May 23, 2001
<PAGE>
EXHIBIT A
Tract 1: Lot 30 in Block 30 on the Clinton Township Tax Map, together with
(i) the right of ingress and egress across Lot 17 in Block 30 and (ii)
the right to access monitoring wells on Lot 17 in Block 30 for the
purpose of obtaining samples and recording groundwater levels.
Tract 2: Lot 1 in Block 31 on the Clinton Township Tax Map
Each of the above-identified tracts being described by metes and
bounds on the following pages.
-1-
<PAGE>
EXHIBIT A
Tract One: Clinton Township tax lot 30 in block 30
BEGINNING at a point, which point marks the south-easterlymost corner of
other lands of Seed Realty Corp., which lands were acquired on the 9th day of
October, 1979 from The New Jersey District of the Lutheran Church - Missouri
Synod.
Also known as Lot 41, Block 30 on the Tax Map of the Township of Clinton
for the year 1981 and from this beginning point thence
(1) along said Lot 41, North 9 (degrees) 17' 38"West, a distance of
823.90' to a point for a corner; thence
(2) still along said Lot 41, North 55 (degrees) 50' 18" West, a distance
of 29.86' to a point, corner to lands now or formerly The Church of the
Immaculate Conception; thence
(3) along the said lands of the Church, North 93 (degrees) 13' 31: East, a
distance of 877.77' to a point for a corner; thence
(4) still along the said lands of the Church, North 6 (degrees) 45' 55"
West, a distance of 1749/98' to a point for a corner; thence
(5) still along the said lands of the aforementioned Church, South 83
(degrees) 12' 08" West, a distance of 711.31" to a point for a corner
(commencing 521.22' from the beginning of this course there is a 33.00' wide
easement running from lands formerly New Jersey Cooperative Breeders
Association, Inc. and now or formerly The Church of the Immaculate Conception,
to Interstate Route 478, to a point delineated as a no access area); thence
(6) still along the said lands of the aforementioned Church North 6
(degrees) 50' 35" West, a distance of 387.28' to a point, corner to lands
abutting Interstate Route 478; thence
-2-
<PAGE>
The following six courses along the sideline of Interstate Route 173 with
no access to Interstate Route 173 over any lands adjacent to said Highway.
7) North 56 (degrees) 35' 28" East, a distance of 173.50' to a point for a
corner; thence
8) North 76 (degrees) 42' 49" East, a distance of 228.54' to a point for a
corner crossing over the northerly terminus of a 33.00' wide right of way, the
westerly sideline of said right of way is distant 8.74' from the beginning of
the herein described course ; thence
9) North [Illegible] 37' 32" East, a distance of 249.75' to a point for a
corner; thence
10) North 70 (degrees) 02' 56" East, a distance of 252.20' to a point for a
corner; thence
11) South 23 (degrees) 53' 20" East, a distance of 10.00' to a point for a
corner; thence
12) North 56 (degrees) 20' 01" East, a distance of 411.18' to a point in
the southerly sideline of U.S. Route #22; thence
13) along the southerly sideline of U.S. Route #22, North 11 (degrees) 09'
02" East, a distance of 434.98' to a point for a corner; thence
14) still along the said southerly sideline, North 54 (degrees) 09' 02"
East, a distance of 42.83' to a point for a corner; thence
15) still along the said southerly sideline, North 54 (degrees) 41' 14"
East, a distance of 74.01' to a point for a corner; thence
16) still along the said southerly sideline, North 55 (degrees) 47' 54"
East, a distance of 59.61' to a point for a corner; thence
17) still along the said southerly sideline, North 56 (degrees) 57' 23"
East, a distance of 39.59' to a point for a corner; thence
18) still along the said southerly sideline on a curve to the right having
a radius of 980.00', an arc distance of 158.63', a chord bearing of North 62
(degrees) 09' 13" East and with a chord distance of 158.45' to a point for a
corner; thence
-3-
<PAGE>
19) still along the said southerly sideline on a curve to the right having
a radius of 2734.79' an arc distance of 421.27', a chord bearing of North 78
(degrees) 42' 44" East, with a chord distance of 420.37' to a point for a
corner; thence
20) still along the said southerly sideline, North 26 (degrees) 57' 17"
West, a distance of 2.00'; thence
21) still along the said southerly sideline, North 83 (degrees) 32' 43"
East, a distance of 72.03' to a point for a corner, corner to lands now or
formerly Freddis Suydam; thence
22) along the said lands of Suydam, South 07 (degrees) 41' 43" East, a
distance of 341.39' to a point for a corner; thence
23) still along the said lands of Suydam, and lands now or formerly Norman
Runyon, North 83 (degrees) 07' 42" East, a distance of 578.00' to a point for a
corner; thence
24) along the said lands of Runyon, North 07 (degrees) 39' 53" West, a
distance of 341.58' to a point in the southerly sideline of U.S. Route #22;
thence
25) along the southerly sideline of U.S. Route #22, North 83 (degrees) 22'
14" East, a distance of 630.21' to a point: thence
26) still along the said southerly sideline on a curve to the left having a
radius of 11.492.30', an arc distance of 200.60', a chord bearing of North 82
(degrees) 52' 14" East, with a chord distance of 200.60' to a point for a
corner; thence
27) still along the said southerly sideline, North 82 (degrees) 22' 14"
East, a distance of 115.03' to a point, corner to lands now or formerly S.
Ercolano; thence
28) along the said lands of Ercolano, South 07 (degrees) 37' 46" East, a
distance of 204.00' to a point for a corner; thence
29) still along the said lands of Ercolano, North 83 (degrees) 32' 50"
East, a distance of 405.29' to a point on the southwesterly sideline of Sand
Hill Road; thence
30) along the said southwesterly sideline of Sand Hill Road, South 63
(degrees) 26' 16" East, a distance of 989.20' to a point for a corner; thence
-4-
<PAGE>
31) still along the said southwesterly sideline on a curve to the left
having a radius of 1117.00', an arc distance of 267.37', a chord bearing of
South 69 (degrees) 58' 38" East and with a chord distance of 256.79' to a point;
thence
32) still along the said southwesterly sideline. South [Illegible] 31' 20"
East, a distance of 226.81' to a point for a corner; thence
33) still along the said southwesterly and westerly sideline of Sand Hill
Road on a curve to the right having a radius of 385.30', an arc distance of
304.48', a chord bearing of South 53 (degrees) 52' 41" East and with a chord
distance of 296.62' to a point for a corner; thence
34) still along the said sideline, North 58 (degrees) 45' 38" East, a
distance of 8.50' to a point for a corner; thence
35) still along the said westerly sideline, South 31 (degrees) 14' 22"
East, a distance of 212.87' to a point for a corner; thence
36) still along the said sideline, South 82 (degrees) 49' 29" West, a
distance of 9.31' to a point for a corner; thence
37) still along the said westerly sideline, South 31 (degrees) 14' 22"
East, a distance of 9.36' to a point for a corner; thence
38) still along the said westerly sideline, South 22 (degrees) 58' 41"
East, a distance of 268.88' to a point, corner to lands now or formerly zbigniew
and Danuta Hoffman; thence
39) along the said lands of Hoffman, South 67 (degrees) 01' 19" West, a
distance of 308.26' to a point for a corner; thence
40) still along the said lands of Hoffman and lands now or formerly John
Matsen, South 10 (degrees) 46' 51" East, a distance of 281.67' to a point,
corner to lands now or formerly John Matsen and lands now or formerly Howard and
Frances H. Hunt; thence
41) along the said lands of Hunt, South 79 (degrees) 13' 09" West, a
distance of 134.80' to a point for a corner (subject to a 16.00' wide right of
way reserved for this aforesaid Hunt when measured at right angles to this
course in a southerly direction) thence
-5-
<PAGE>
42) still along the said lands of Hunt, South 89 (degrees) 51" East, a
distance of 759.62' to a point for a corner; thence
43) still along the said lands of Hunt and lands now or formerly John
Davidson and Martha C. Davidson, North 83 (degrees) 27' 51" East, a distance of
638.59' to a point, corner to lands now or formerly John Lucas; thence
44) along the said lands of Lucas and lands owned by Jannett Murray, other
lands of Seed Realty Corp., lands now or formerly owned by Barry C. and Elisa
Vistis and lands now or formerly Theodor Holzhauser, South 10 (degrees) 04' 38"
East, a distance of 912.34' to a point, corner to lands now or formerly Joseph
Simko; thence
45) along the said lands of Simko, South 83 (degrees) 17' 57" West, a
distance of 785.42' to a point for a corner; thence
46) still along the said lands of Simko, South 8 (degrees) 83' 32" East, a
distance of 348.44' to a point for a corner; thence
47) still along the said lands of Simko, South 71 (degrees) 20' 32" West, a
distance of 233.79' to a point for a corner; thence
48) still along the said lands of Simko, South 74 (degrees) 37' 56" West, a
distance of 214.50 ' to a point for a corner; thence ' 49) still along the said
lands of Simko, South 73 (degrees) 27' 57" West, a distance of 426.39' to a
point for a corner; thence
50) still along the said lands of Simko, South 21 (degrees) 10' 07" East, a
distance of 362.40' to a point for a corner; thence
51) still along the said lands of Simko and forming a new line through
other lands of Seed Realty Corp., South 84 (degrees) 12' 47" West, a distance of
4038.20' to a point for a corner; thence
52) forming another new line through lands of Grantor,North 5 (degrees) 25'
00" West, a distance of 857.03' to a point for a corner; thence
53) forming another new line through lands of Grantor, South 83 (degrees)
21' 22" West, a distance of 561.52' to the point and place of BEGINNING.
Containing 482.221 Acres.
-6-
<PAGE>
Together with an easement for ingress and egress to the above described
premises along, over and through the following described lands, which easement
begins at a point located on the easterly sideline of New Jersey State Highway
Route #31 on a bearing of North 6 (degrees) 22' 50" West, a distance of 1004.18'
from the northwesterly corner of lands now or formerly Charles H. and Rosemarie
Brower, now lands of Tenax-Glynn One, and from this beginning point thence
(1) along the easterly sideline of New Jersey State Highway Route #31 on a
curve to the left having a radius of 11.499.19', an arc distance of 160.28', a
chord bearing of North 06 (degrees) 46' 48" West and with a chord distance of
160.28' to a point for a corner; thence
(2) South 55 (degrees) 38' 39" East, a distance of 53.22' to a point for a
corner; thence
(3) North 83 (degrees) 19' 21" East, a distance of 133.50' to a point for a
corner; thence
(4) North 06 (degrees) 40' 31" West, a distance of 30.00' to a point for a
corner; thence
(5) North 83 (degrees) 19' 21" East, a distance of 25.00' to a point for a
corner; thence
(6) South 06 (degrees) 40' 31" East, a distance of 30.00' to a point for a
corner; thence
(7) North 83 (degrees) 19' 29" East, a distance of 362.50' to a point for a
corner; thence
(8) on a curve to the left having a radius of 166.00', an arc distance of
260.75', a chord bearing of North 38 (degrees) 19' 29" East, with a chord
distance of 234.76' to a point for a corner; thence
(9) North 06 (degrees) 40' 31" West, a distance of 1027.93' to a point for
a corner; thence
(10) on a curve to the right having a radius of 384.00', an arc distance of
603.19', a chord bearing of North 38 (degrees) 19' 29" East, with a chord
distance of 543.06' to a point for a corner; thence
(11) North 83 (degrees) 19' 29" East, a distance of 149.89' to a point for
a corner on line of course (52) in the overall description
-7-
<PAGE>
set forth above; thence
12) along the aforementioned course (52), South 5 (degrees) [Illegible]
East, a distance of 60.22' to a point for a corner; thence
13) South 82 (degrees) 19' 29" West, a distance of 248.57' to a point for a
corner; thence
14) on a curve to the left having a radius of 324.00', an arc distance of
508.94', a chord bearing of South 38 (degrees) 19' 29" West, with a chord
distance of 458.21' to a point for a corner; thence
(15) South 6 (degrees) 40' 31" East, a distance of 1927.33' to a point for
a corner; thence
(16) on a curve to the right having a radius of 226.00', an arc distance of
355.00', a chord bearing of South 38 (degrees) 19' 29" West, with a chord
distance of 319.61' to a point for a corner; thence
(17) South 79 (degrees) 54' 21" West, a distance of 234.76' to a point for
a corner; thence
(18) South 79 (degrees) 45' 10" West, a distance of 128.41' to a point for
a corner; thence
(19) South 06 (degrees) 40' 31" East, a distance of 30.00' to a point for a
corner; thence
(20) South 83 (degrees) 19' 21" West, a distance of 25.00' to a point for a
corner; thence
(21) North 06 (degrees) 40' 31" West, a distance of 133.50' to a point for
a corner; thence
(22) South 83 (degrees) 19' 21" West, a distance of 133.50' to a point for
a corner; thence
(23) South 35 (degrees) 55' 39" West, a distance of 58.88' to the point and
place of BEGINNING.
In addition to the easement for ingress and egress the Grantee shall have
the right to construct, re-construct, maintain and fo whatever else is necessary
to improve and continue the existing storm drainage facilities.
The Grantee further has the right to install or have installed any and all
utility easements that it deems necessary.
-8-
<PAGE>
It is the intent of this document to merge into and let the following: Part
of Lot 17,Block 30, Lot 13-Q, Block 30, Lot 29, Block 30; part of Lot 29-B,
Block 30; containing one acre of land whichh was obtained from Sophia Erociano;
Lot 30, Block 30; Lot 32, Block 30; Lot 33, Block 30; and Lot 34. Block 30 as
shown on the Clinton Township Tax Map for the year 1978 as separate tax lots.
The above merged lots shall be known as (new) Lot 30. Block 30 on the Tax
Map of the Township of Clinton.
-9-
<PAGE>
EXHIBIT A
Tract Two: Clinton Tax Act 1 in Block 31
BEGINNING at the intersection of the southerly sideline of U.S. Route # 22 and
the easterly sideline of Sand Hill Road, also known as Boyer Road; thence
(1) along the southesly sideline of U.S. Route #22, North 82 (degrees) 22' 14"
East a distance of 300.89 feet to a point, corner to lands Central Railroad of
New Jersey; thence
(2) along lands of Central Railroad of New Jersey, South 56 (degrees) 52' 50"
East a distance of 454.72 feet to a point; thence
(3) still along the Central Railroad of New Jersey, South 62 (degrees) 40 41"
East, a distance of 551.00 feet; thence
(4) still along said lands of Central Railroad of New Jersey, South 74 (degrees)
06' 41" East, a distance of 347.29 feet to a point on the westerly sideline of
Kelly Road; thence
(5) along the westerly sideline of Kelly Road, South 17 (degrees) 01' 26" East,
a distance of 228.53 feet to a point marking the intersection of the westerly
sideline of Kelly Road, and the northerly sideline of Sand Hill Road; thence
(6) along the northerly sideline of Sand Hill Road, North 76 (degrees) 31' 00"
West, a distance of 364.04 feet; thence
(7) still along said road on a curve to the right having a radius of 1,121.30
feet an arc length of 255.96 feet having a chord bearing North 69 (degrees) 58'
38" West a chord distance of 255.40 feet; thence
(8) still along said northerly sideline North 63 (degrees) 26' 16" West a
distance of 969.20 feet to a point; thence
(9) still along said sideline on a curve to the right having a radius of 150.00
feet an arc length of 137.63 feet, having a chord bearing North 37 (degrees) 11'
41" West, a chord distance of 132.67 feet; thence
(10) along the easterly sideline of Sand Hill Road, North 10 (degrees) 56' 46"
West, a distance of 55.66 feet to the point and place of Beginning.
The aforementioned description is based upon a survey performed by Richard H.
Schindeler & Associates, and prepared under the direct supervision of William S.
Titus, N.J. Licensed Surveyer #12350, and containing 0.239 acres. The
aforementioned survey is based upon New Jersey Geometric Grid System.
Subject to slope and drainage rights granted to the State of New Jersey.
Subject to rights granted to the Central Railroad of New Jersey.
-10-
<PAGE>
EXHIBIT B-1
(CROSSHATCHED AREA)
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT B-2
LAB FURNITURE INVENTORY
LG-1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Sep-96 Sep-96 Sep-96 Sep-96 Sep-96
LG127 LG129 LG135 LG137 LG143
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B1 2-DOOR CUPBOARD, 2 SHELVES, 48IN. WIDE, 36 1/4 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
B2 2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 36 1/4 IN. HIGH 6
- -----------------------------------------------------------------------------------------------------------------------
B3 5-DRAWER BASE UNIT, 48 IN. WIDE, 36 1/4 IN. HIGH 2 2
- -----------------------------------------------------------------------------------------------------------------------
5-DRAWER BASE UNIT, 48 IN. WIDE, 30IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
B4 8-DRAWER BASE UNIT, 48 IN. WIDE, 36 1/4 IN. HIGH 3 2 2
- -----------------------------------------------------------------------------------------------------------------------
B6 2-DOOR CUPBOARD, 2 SHELVES, 48 IN. WIDE, 30 1/4 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
B7 2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 30 1/4 IN. HIGH 2
- -----------------------------------------------------------------------------------------------------------------------
2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 36 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
B9 6-DRAWER BASE UNIT, 48 IN. WIDE, 30 1/4 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
3-DRAWER 24"wX30"H
- -----------------------------------------------------------------------------------------------------------------------
1-DRAWER, 1DOOR, 24"WX30"H
- -----------------------------------------------------------------------------------------------------------------------
2-DRAWER, 24"WX30"H
- -----------------------------------------------------------------------------------------------------------------------
CR COAT RACK
- -----------------------------------------------------------------------------------------------------------------------
H1 HOOD, 4 FT. WIDE WITH COUNTER 36 1/4 INCHES FROM FLOOR
- -----------------------------------------------------------------------------------------------------------------------
H7 HOOD, 8 FT. WIDE WITH COUNTER 36 1/4 INCHES FROM FLOOR
- -----------------------------------------------------------------------------------------------------------------------
K1 KNEE HOLE UNIT, 1-DRAWER, 24 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
K2 KNEE HOLE UNIT, 1-DRAWER, 30 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
K3 KNEE HOLE UNIT, 1-DRAWER, 36 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
KS KNEE HOLE UNIT, 2-DRAWER, 48 IN. WIDE 1 2
- -----------------------------------------------------------------------------------------------------------------------
K7 KNEE HOLE UNIT, 3-DRAWER, 60 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
KNEE HOLE UNIT, 2-DRAWER, 48 IN. WIDE + 18" FILLER
- -----------------------------------------------------------------------------------------------------------------------
LTC LAB TECHNICIAN CHAIR 1
- -----------------------------------------------------------------------------------------------------------------------
LAB TECHNICIAN DESK WITH 2 OVERHEAD BINS 1
- -----------------------------------------------------------------------------------------------------------------------
LAB TECHNICIAN DESK WITH 4 OVERHEAD BINS
- -----------------------------------------------------------------------------------------------------------------------
S2 SINK BASE UNIT, 48 IN. WIDE 1 1
- -----------------------------------------------------------------------------------------------------------------------
S3 SINK BASE UNIT, 58 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
S4 SINK BASE UNIT, 36 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
V4 VENTILATED HOOD BASE, 48 IN. WIDE, 36 1/4 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
WI WALL CABINET, 2 SLIDING GLASS DOORS 48" W X 30" H X 14"D 3 4 1 6
- -----------------------------------------------------------------------------------------------------------------------
WALL CABINET, 2 SLIDING GLASS DOORS 48" W X 30" H X 14"D NO GLAS
- -----------------------------------------------------------------------------------------------------------------------
WS1 WALL SHELVES, 8 IN. DEEP
- -----------------------------------------------------------------------------------------------------------------------
WALL SHELVES, 10 IN. DEEP 1
- -----------------------------------------------------------------------------------------------------------------------
WS2 WALL SHELVES, 12 IN. DEEP 3 2 2
- -----------------------------------------------------------------------------------------------------------------------
WALL SHELVES, 15 IN. DEEP
- -----------------------------------------------------------------------------------------------------------------------
WALL SHELVES, 16" DEEP 3
- -----------------------------------------------------------------------------------------------------------------------
60 X 36 TABLE 1
- -----------------------------------------------------------------------------------------------------------------------
7"X25" STAINLESS STEEL COUNTER TOPS 4
- -----------------------------------------------------------------------------------------------------------------------
4-DRAWER 40" H X 48"W CABINET
- -----------------------------------------------------------------------------------------------------------------------
48" DRAW APRON WITH 2 DRAWERS
- -----------------------------------------------------------------------------------------------------------------------
OVERHEAD BINS
- -----------------------------------------------------------------------------------------------------------------------
COLD BOX 1 1
- -----------------------------------------------------------------------------------------------------------------------
16 11 2 12 17
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1 10/9/96
<PAGE>
LAB FURNITURE INVENTORY
LG-1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Sep-96 Sep-96 Sep-96 Sep-96 Sep-96
LG145 LG151 LG153 LG159 LG161
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B1 2-DOOR CUPBOARD, 2 SHELVES, 48IN. WIDE, 36 1/4 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
B2 2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 36 1/4 IN. HIGH 1 1
- -----------------------------------------------------------------------------------------------------------------------
B3 5-DRAWER BASE UNIT, 48 IN. WIDE, 36 1/4 IN. HIGH 2 1 2
- -----------------------------------------------------------------------------------------------------------------------
5-DRAWER BASE UNIT, 48 IN. WIDE, 30IN. HIGH 1
- -----------------------------------------------------------------------------------------------------------------------
B4 8-DRAWER BASE UNIT, 48 IN. WIDE, 36 1/4 IN. HIGH 2 1 2
- -----------------------------------------------------------------------------------------------------------------------
B6 2-DOOR CUPBOARD, 2 SHELVES, 48 IN. WIDE, 30 1/4 IN. HIGH 1
- -----------------------------------------------------------------------------------------------------------------------
B7 2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 30 1/4 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 36 IN. HIGH 2
- -----------------------------------------------------------------------------------------------------------------------
B9 6-DRAWER BASE UNIT, 48 IN. WIDE, 30 1/4 IN. HIGH 1
- -----------------------------------------------------------------------------------------------------------------------
3-DRAWER 24"WX30"H 3
- -----------------------------------------------------------------------------------------------------------------------
1-DRAWER, 1 DOOR, 24"WX30"H 2
- -----------------------------------------------------------------------------------------------------------------------
2-DRAWER, 24"WX30"H 1
- -----------------------------------------------------------------------------------------------------------------------
CR COAT RACK 1
- -----------------------------------------------------------------------------------------------------------------------
H1 HOOD, 4 FT. WIDE WITH COUNTER 36 1/4 INCHES FROM FLOOR 1
- -----------------------------------------------------------------------------------------------------------------------
H7 HOOD, 8 FT. WIDE WITH COUNTER 36 1/4 INCHES FROM FLOOR 1
- -----------------------------------------------------------------------------------------------------------------------
K1 KNEE HOLE UNIT, 1-DRAWER, 24 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
K2 KNEE HOLE UNIT, 1-DRAWER, 30 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
K3 KNEE HOLE UNIT, 1-DRAWER, 36 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
K5 KNEE HOLE UNIT, 2-DRAWER, 48 IN. WIDE 1 3
- -----------------------------------------------------------------------------------------------------------------------
K7 KNEE HOLE UNIT, 3-DRAWER, 60 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
KNEE HOLE UNIT, 2-DRAWER, 48 IN. WIDE + 18" FILLER 1
- -----------------------------------------------------------------------------------------------------------------------
LTC LAB TECHNICIAN CHAIR 1 1 2
- -----------------------------------------------------------------------------------------------------------------------
LAB TECHNICIAN DESKWITH 2 OVERHEAD BINS 1 2
- -----------------------------------------------------------------------------------------------------------------------
LAB TECHNICIAN DESK WITH 4 OVERHEAD BINS 1
- -----------------------------------------------------------------------------------------------------------------------
S2 SINK BASE UNIT, 48 IN. WIDE 1 1 1
- -----------------------------------------------------------------------------------------------------------------------
S3 SINK BASE UNIT, 58 IN. WIDE 1
- -----------------------------------------------------------------------------------------------------------------------
S4 SINK BASE UNIT, 36 IN. WIDE
- -----------------------------------------------------------------------------------------------------------------------
V4 VENTILATED HOOD BASE, 48 IN. WIDE, 36 1/4 IN. HIGH 1 2
- -----------------------------------------------------------------------------------------------------------------------
WI WALL CABINET, 2 SLIDING GLASS DOORS 48" W X 30" H X 14"D 7 3 7 14
- -----------------------------------------------------------------------------------------------------------------------
WALL CABINET, 2 SLIDING GLASS DOORS 48" W X 30" H X 14"D NO GLAS 1
- -----------------------------------------------------------------------------------------------------------------------
WS1 WALL SHELVES, 8 IN. DEEP 8 5
- -----------------------------------------------------------------------------------------------------------------------
WALL SHELVES, 10 IN. DEEP 1 5
- -----------------------------------------------------------------------------------------------------------------------
WS2 WALL SHELVES, 12 IN. DEEP 4 9 2 9
- -----------------------------------------------------------------------------------------------------------------------
WALL SHELVES, 15 IN. DEEP
- -----------------------------------------------------------------------------------------------------------------------
WALL SHELVES, 16" DEEP
- -----------------------------------------------------------------------------------------------------------------------
60 X 36 TABLE
- -----------------------------------------------------------------------------------------------------------------------
7"X25" STAINLESS STEEL COUNTER TOPS
- -----------------------------------------------------------------------------------------------------------------------
4-DRAWER 40" H X 48"W CABINET 2
- -----------------------------------------------------------------------------------------------------------------------
48" DRAW APRON WITH 2 DRAWERS 1
- -----------------------------------------------------------------------------------------------------------------------
OVERHEAD BINS
- -----------------------------------------------------------------------------------------------------------------------
COLD BOX
- -----------------------------------------------------------------------------------------------------------------------
24 20 31 4 45
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 10/9/96
<PAGE>
LAB FURNITURE INVENTORY
LG-1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Sep-96 Sep-96 Sep-96 Sep-96 Sep-96
LG167 LG169 LG175 LG177 LG183
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B1 2-DOOR CUPBOARD, 2 SHELVES, 48IN. WIDE, 36 1/4 IN. HIGH 1
- -----------------------------------------------------------------------------------------------------------------------
B2 2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 36 1/4 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
B3 5-DRAWER BASE UNIT, 48 IN. WIDE, 36 1/4 IN. HIGH 1 1 3
- -----------------------------------------------------------------------------------------------------------------------
5-DRAWER BASE UNIT, 48 IN. WIDE, 30IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
B4 8-DRAWER BASE UNIT, 48 IN. WIDE, 36 1/4 IN. HIGH 3 3 3
- -----------------------------------------------------------------------------------------------------------------------
B6 2-DOOR CUPBOARD, 2 SHELVES, 48 IN. WIDE, 30 1/4 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
B7 2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 30 1/4 IN. HIGH 1
- -----------------------------------------------------------------------------------------------------------------------
2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 36 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
B9 6-DRAWER BASE UNIT, 48 IN. WIDE, 30 1/4 IN. HIGH
- -----------------------------------------------------------------------------------------------------------------------
3-DRAWER 24"WX30"H 2
- -----------------------------------------------------------------------------------------------------------------------
1-DRAWER, 1DOOR, 24"WX30"H 3
- -----------------------------------------------------------------------------------------------------------------------
2-DRAWER, 24"WX30"H 1
- -----------------------------------------------------------------------------------------------------------------------
CR COAT RACK 1 1 1 1
- -----------------------------------------------------------------------------------------------------------------------
H1 HOOD, 4 FT. WIDE WITH COUNTER 36 1/4 INCHES FROM FLOOR
- -----------------------------------------------------------------------------------------------------------------------
H7 HOOD, 8 FT. WIDE WITH COUNTER 36 1/4 INCHES FROM FLOOR 1 1
- -----------------------------------------------------------------------------------------------------------------------
K1 KNEE HOLE UNIT, 1-DRAWER, 24 IN. WIDE 2 3 1 1
- -----------------------------------------------------------------------------------------------------------------------
KNEE HOLE UNIT, 1-DRAWER, 30 IN. WTDE 2
- -----------------------------------------------------------------------------------------------------------------------
K3 KNEE HOLE UNIT, 1-DRAWER, 36 IN. WIDE 1 1
- -----------------------------------------------------------------------------------------------------------------------
KS KNEE HOLE UNIT, 2-DRAWER, 48 IN. WIDE 1 1 1
- -----------------------------------------------------------------------------------------------------------------------
K7 KNEE HOLE UNIT, 3-DRAWER, 60 IN. WIDE 1
- -----------------------------------------------------------------------------------------------------------------------
KNEE HOLE UNIT, 2-DRAWER, 48 IN. WIDE + 18" FILLER
- -----------------------------------------------------------------------------------------------------------------------
LTC LAB TECHNICIAN CHAIR 1 1 1
- -----------------------------------------------------------------------------------------------------------------------
LAB TECHNICIAN DESK WITH 2 OVERHEAD BINS 1 1
- -----------------------------------------------------------------------------------------------------------------------
LAB TECHNICIAN DESK WITH 4 OVERHEAD BINS 1 1
- -----------------------------------------------------------------------------------------------------------------------
S2 SINK BASE UNIT, 48 IN. WIDE 1
- -----------------------------------------------------------------------------------------------------------------------
S3 SINK BASE UNIT, 58 IN. WIDE 1
- -----------------------------------------------------------------------------------------------------------------------
S4 SINK BASE UNIT, 36 IN. WIDE 1
- -----------------------------------------------------------------------------------------------------------------------
V4 VENTILATED HOOD BASE, 48 IN. WIDE, 36 1/4 IN. HIGH 2 2
- -----------------------------------------------------------------------------------------------------------------------
W1 WALL CABINET, 2 SLIDING GLASS DOORS 48" W X 30" H X 14"D 4 6 7 8 7
- -----------------------------------------------------------------------------------------------------------------------
WALL CABINET, 2 SLIDING GLASS DOORS 48" W X 30" H X 14"D NO GLAS
- -----------------------------------------------------------------------------------------------------------------------
WS1 WALL SHELVES, 8 IN. DEEP 1
- -----------------------------------------------------------------------------------------------------------------------
WALL SHELVES, 10 IN. DEEP
- -----------------------------------------------------------------------------------------------------------------------
WS2 WALL SHELVES, 12 IN. DEEP 4 6 5 4
- -----------------------------------------------------------------------------------------------------------------------
WALL SHELVES, 15 IN. DEEP
- -----------------------------------------------------------------------------------------------------------------------
WALL SHELVES, 16" DEEP
- -----------------------------------------------------------------------------------------------------------------------
60 X 36 TABLE
- -----------------------------------------------------------------------------------------------------------------------
7"X25" STAINLESS STEEL COUNTER TOPS
- -----------------------------------------------------------------------------------------------------------------------
4-DRAWER 40" H X 48"W CABINET
- -----------------------------------------------------------------------------------------------------------------------
48" DRAW APRON WITH 2 DRAWERS
- -----------------------------------------------------------------------------------------------------------------------
OVERHEAD BINS 2
- -----------------------------------------------------------------------------------------------------------------------
COLD BOX
- -----------------------------------------------------------------------------------------------------------------------
15 21 22 29 24
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3 10/9/96
<PAGE>
LAB FURNITURE INVENTORY
LG-1
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Sep-96 Sep-96 Sep-96 Sep-96
LG185 LG191 LG193 TOT LG1
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
B1 2-DOOR CUPBOARD, 2 SHELVES, 48IN. WIDE, 36 1/4 IN. HIGH 1
- --------------------------------------------------------------------------------------------------------------
B2 2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 36 1/4 IN. HIGH 8
- --------------------------------------------------------------------------------------------------------------
B3 5-DRAWER BASE UNIT, 48 IN. WIDE, 36 1/4 IN. HIGH 2 2 18
- --------------------------------------------------------------------------------------------------------------
5-DRAWER BASE UNIT, 48 IN. WIDE, 30IN. HIGH 1
- --------------------------------------------------------------------------------------------------------------
B4 8-DRAWER BASE UNIT, 48 IN. WIDE, 36 1/4 IN. HIGH 1 1 2 25
- --------------------------------------------------------------------------------------------------------------
B6 2-DOOR CUPBOARD, 2 SHELVES, 48 IN. WIDE, 30 1/4 IN. HIGH 1
- --------------------------------------------------------------------------------------------------------------
B7 2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 30 1/4 IN. HIGH 1 4
- --------------------------------------------------------------------------------------------------------------
2-DRAWER, 2-DOOR CUPBOARD, 1 SHELF, 48 IN. WIDE, 36 IN. HIGH 2
- --------------------------------------------------------------------------------------------------------------
B9 6-DRAWER BASE UNIT, 48 IN. WIDE, 30 1/4 IN. HIGH 1
- --------------------------------------------------------------------------------------------------------------
3-DRAWER 24"WX30"H 2 7
- --------------------------------------------------------------------------------------------------------------
1-DRAWER, 1DOOR, 24"WX30"H 5
- --------------------------------------------------------------------------------------------------------------
2-DRAWER, 24"WX30"H 2
- --------------------------------------------------------------------------------------------------------------
CR COAT RACK 1 6
- --------------------------------------------------------------------------------------------------------------
H1 HOOD, 4 FT. WIDE WITH COUNTER 36 1/4 INCHES FROM FLOOR 1
- --------------------------------------------------------------------------------------------------------------
H7 HOOD, 8 FT. WIDE WITH COUNTER 36 1/4 INCHES FROM FLOOR 1 4
- --------------------------------------------------------------------------------------------------------------
K1 KNEE HOLE UNIT, 1-DRAWER, 24 IN. WIDE 7
- --------------------------------------------------------------------------------------------------------------
K2 KNEE HOLE UNIT, 1-DRAWER, 30 IN. WTDE 1 3
- --------------------------------------------------------------------------------------------------------------
K3 KNEE HOLE UNIT, 1-DRAWER, 36 IN. WIDE 2
- --------------------------------------------------------------------------------------------------------------
K5 KNEE HOLE UNIT, 2-DRAWER, 48 IN. WIDE 4 3 17
- --------------------------------------------------------------------------------------------------------------
K7 KNEE HOLE UNIT, 3-DRAWER, 60 IN. WIDE 1
- --------------------------------------------------------------------------------------------------------------
KNEE HOLE UNIT, 2-DRAWER, 48 IN. WIDE + 18" FILLER 1
- --------------------------------------------------------------------------------------------------------------
LTC LAB TECHNICIAN CHAIR 1 9
- --------------------------------------------------------------------------------------------------------------
LAB TECHNICIAN DESKWITH 2 OVERHEAD BINS 1 7
- --------------------------------------------------------------------------------------------------------------
LAB TECHNICIAN DESK WITH 4 OVERHEAD BINS 3
- --------------------------------------------------------------------------------------------------------------
S2 SINK BASE UNIT, 48 IN. WIDE 1 7
- --------------------------------------------------------------------------------------------------------------
S3 SINK BASE UNIT, 58 IN. WIDE 1 3
- --------------------------------------------------------------------------------------------------------------
S4 SINK BASE UNIT, 36 IN. WIDE 1 2
- --------------------------------------------------------------------------------------------------------------
V4 VENTILATED HOOD BASE, 48 IN. WIDE, 36 1/4 IN. HIGH 2 9
- --------------------------------------------------------------------------------------------------------------
W1 WALL CABINET, 2 SLIDING GLASS DOORS 48" W X 30" H X 14"D 6 5 5 93
- --------------------------------------------------------------------------------------------------------------
WALL CABINET, 2 SLIDING GLASS DOORS 48" W X 30" H X 14"D NO GLAS 1
- --------------------------------------------------------------------------------------------------------------
W51 WALL SHELVES, 8 IN. DEEP 1 4 19
- --------------------------------------------------------------------------------------------------------------
WALL SHELVES, 10 IN. DEEP 7
- --------------------------------------------------------------------------------------------------------------
W52 WALL SHELVES, 12 IN. DEEP 4 8 62
- --------------------------------------------------------------------------------------------------------------
WALL SHELVES, 15 IN. DEEP 6 6
- --------------------------------------------------------------------------------------------------------------
WALL SHELVES, 16" DEEP 3
- --------------------------------------------------------------------------------------------------------------
60 X 36 TABLE 1
- --------------------------------------------------------------------------------------------------------------
7"X25" STAINLESS STEEL COUNTER TOPS 4
- --------------------------------------------------------------------------------------------------------------
4-DRAWER 40" H X 48"W CABINET 2
- --------------------------------------------------------------------------------------------------------------
48" DRAW APRON WITH 2 DRAWERS 1
- --------------------------------------------------------------------------------------------------------------
OVERHEAD BINS 2
- --------------------------------------------------------------------------------------------------------------
COLD BOX 2
- --------------------------------------------------------------------------------------------------------------
29 16 22 360
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Page 4 10/9/96
<PAGE>
OFFICE FURNITURE INVENTORY
LG-1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CODE DESCRIPTION 96 96 96 96 96 96 96 96
- -----------------------------------------------------------------------------------------------------------------------------------
LG126 LG130 LG132 LG136 LG142 LG144 LG146/150 LG154
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OA STEELCASE 9000 VINYL WORKSURFACE ASS'Y 30"x60" 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
OA1 STEELCASE 9000 VINYL WORKSURFACE ASS'Y 30"x35" 2 2 1
- -----------------------------------------------------------------------------------------------------------------------------------
OA2 STEELCASE 9000 VINYL WORKSURFACE ASS'Y 30"x30" 1
- -----------------------------------------------------------------------------------------------------------------------------------
OK PEDESTAL UNITS 4 2 2 2
- -----------------------------------------------------------------------------------------------------------------------------------
OL TABLE, VINYL SURFACE 30"x60" 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
ON DESK CHAIR 2 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
OO SIDE CHAIR 2 2 2 2
- -----------------------------------------------------------------------------------------------------------------------------------
OP SHELVES 10 7 4
- -----------------------------------------------------------------------------------------------------------------------------------
OQ TACK BOARD 4 4 4 3
- -----------------------------------------------------------------------------------------------------------------------------------
OR WHITE BOARD 1 1 1 2 1
- -----------------------------------------------------------------------------------------------------------------------------------
OS COAT RACK 1 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
OU LATERAL FILE, 36"WIDE, 3-DRAWER 1
- -----------------------------------------------------------------------------------------------------------------------------------
OX LATERAL FILE, 42"WIDE, 3-DRAWER 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
OZ BINDER BIN, 30"WIDE 6
- -----------------------------------------------------------------------------------------------------------------------------------
BINDER BIN, 60" WIDE 1
- -----------------------------------------------------------------------------------------------------------------------------------
OAD VERTICAL FILE, 5-DRAWER
- -----------------------------------------------------------------------------------------------------------------------------------
OAE VERTICAL FILE, 4-DRAWER
- -----------------------------------------------------------------------------------------------------------------------------------
OAI WARDROBE CLOSET
- -----------------------------------------------------------------------------------------------------------------------------------
STEELCASE 9000 LAMINATE WORKSURFACE 30X60 2
- -----------------------------------------------------------------------------------------------------------------------------------
OAK DRAPERY 3
- -----------------------------------------------------------------------------------------------------------------------------------
CONFERENCE TABLE, 7' 2
- -----------------------------------------------------------------------------------------------------------------------------------
OAM CONFERENCE ROOM CHAIRS 14
- -----------------------------------------------------------------------------------------------------------------------------------
OAO INTERACTION TABLES
- -----------------------------------------------------------------------------------------------------------------------------------
OAP INTERACTION CHAIRS
- -----------------------------------------------------------------------------------------------------------------------------------
OAQ INTERACTION AREA PLANTS
- -----------------------------------------------------------------------------------------------------------------------------------
CORNER UNIT 42 x 42
- -----------------------------------------------------------------------------------------------------------------------------------
LATERAL FILE, 42" 4-DRAWER
- -----------------------------------------------------------------------------------------------------------------------------------
TASKLIGHTS 50"
- -----------------------------------------------------------------------------------------------------------------------------------
PARTITION WALL PANEL 30"
- -----------------------------------------------------------------------------------------------------------------------------------
GF FURNITURE - 30X66 DESKS
- -----------------------------------------------------------------------------------------------------------------------------------
GF CORNER UNIT - 42 x 42
- -----------------------------------------------------------------------------------------------------------------------------------
GF OVERHEAD BINS - 30"
- -----------------------------------------------------------------------------------------------------------------------------------
STEELCASE OVERHEAD BINS 60"
- -----------------------------------------------------------------------------------------------------------------------------------
STEELCASE 60" TASK LIGHT
- -----------------------------------------------------------------------------------------------------------------------------------
CUSTOM CABINET/TABLE 1
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 5 10/4/96
<PAGE>
OFFICE FURNITURE INVENTORY
LG-1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CODE DESCRIPTION 96 96 96 96 96 96 96 96
- -----------------------------------------------------------------------------------------------------------------------------------
LG-IA LG162 LG164 LG170 LG172 LG178 LG180 LG186
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OA STEELCASE 9000 VINYL WORKSURFACE ASS'Y 30"X60" 1 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
OA1 STEELCASE 9000 VINYL WORKSURFACE ASS'Y 30"X35" 2 1 2 1
- -----------------------------------------------------------------------------------------------------------------------------------
OA2 STEELCASE 9000 VINYL WORKSURFACE ASS'Y 30"x30" 1
- -----------------------------------------------------------------------------------------------------------------------------------
OK PEDESTAL UNITS 2 2 4 2 1 5
- -----------------------------------------------------------------------------------------------------------------------------------
OL TABLE, VINYL SURFACE 30"x60" 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
ON DESK CHAIR 1 1 2 2 2 1 2
- -----------------------------------------------------------------------------------------------------------------------------------
OO SIDE CHAIR 2 2 2
- -----------------------------------------------------------------------------------------------------------------------------------
OP SHELVES 7 7 2 8 5
- -----------------------------------------------------------------------------------------------------------------------------------
OQ TACK BOARD 4 4 2 1 4 4 2
- -----------------------------------------------------------------------------------------------------------------------------------
OR WHITE BOARD 1 1 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
OS COAT RACK 1 1 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
OU LATERAL FILE, 36"WIDE, 3-DRAWER
- -----------------------------------------------------------------------------------------------------------------------------------
OX LATERAL FILE, 42"WIDE, 3-DRAWER 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
OZ BINDER BIN, 30"WIDE
- -----------------------------------------------------------------------------------------------------------------------------------
BINDER BIN, 60" WIDE 4
- -----------------------------------------------------------------------------------------------------------------------------------
OAD VERTICAL FILE, 5-DRAWER 1
- -----------------------------------------------------------------------------------------------------------------------------------
OAE VERTICAL FILE, 4-DRAWER 1
- -----------------------------------------------------------------------------------------------------------------------------------
OAI WARDROBE CLOSET 2
- -----------------------------------------------------------------------------------------------------------------------------------
STEELCASE 9000 LAMINATE WORKSURFACE 30X60 2 2
- -----------------------------------------------------------------------------------------------------------------------------------
OAK DRAPERY
- -----------------------------------------------------------------------------------------------------------------------------------
CONFERENCE TABLE, 7'
- -----------------------------------------------------------------------------------------------------------------------------------
OAM CONFERENCE ROOM CHAIRS
- -----------------------------------------------------------------------------------------------------------------------------------
OAO INTERACTION TABLES 2
- -----------------------------------------------------------------------------------------------------------------------------------
OAP INTERACTION CHAIRS 8
- -----------------------------------------------------------------------------------------------------------------------------------
OAQ INTERACTION AREA PLANTS 2
- -----------------------------------------------------------------------------------------------------------------------------------
CORNER UNIT 42 X 42 1
- -----------------------------------------------------------------------------------------------------------------------------------
LATERAL FILE, 42" 4-DRAWER 1
- -----------------------------------------------------------------------------------------------------------------------------------
TASKLIGHTS 50" 2
- -----------------------------------------------------------------------------------------------------------------------------------
PARTITION WALL PANEL 30" 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
GF FURNITURE - 30X66 DESKS 2
- -----------------------------------------------------------------------------------------------------------------------------------
GF CORNER UNIT - 42 X 42 1
- -----------------------------------------------------------------------------------------------------------------------------------
GF OVERHEAD BINS - 30" 4
- -----------------------------------------------------------------------------------------------------------------------------------
STEELCASE OVERHEAD BINS 60" 2
- -----------------------------------------------------------------------------------------------------------------------------------
STEELCASE 60" TASK LIGHT 1
- -----------------------------------------------------------------------------------------------------------------------------------
CUSTOM CABINET/TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 6 10/4/96
<PAGE>
OFFICE FURNITURE INVENTORY
LG-1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------
CODE DESCRIPTION 96 96 96 SEPT. 96
- -----------------------------------------------------------------------------------------------
LG188 LG194 LG196 LG-1
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OA STEELCASE 9000 VINYL WORKSURFACE ASS'Y 30"X60" 1 1 9
- -----------------------------------------------------------------------------------------------
OA1 STEELCASE 9000 VINYL WORKSURFACE ASS'Y 30"X35" 2 2 15
- -----------------------------------------------------------------------------------------------
OA2 STEELCASE 9000 VINYL WORKSURFACE ASS'Y 30"X30" 2
- -----------------------------------------------------------------------------------------------
OK PEDESTAL UNITS 4 2 2 34
- -----------------------------------------------------------------------------------------------
OL TABLE, VINYL SURFACE 30"X60" 1 7
- -----------------------------------------------------------------------------------------------
ON DESK CHAIR 2 1 1 20
- -----------------------------------------------------------------------------------------------
OO SIDE CHAIR 2 2 18
- -----------------------------------------------------------------------------------------------
OP SHELVES 6 5 61
- -----------------------------------------------------------------------------------------------
OQ TACK BOARD 4 4 4 48
- -----------------------------------------------------------------------------------------------
OR WHITE BOARD 1 1 1 16
- -----------------------------------------------------------------------------------------------
OS COAT RACK 1 1 1 16
- -----------------------------------------------------------------------------------------------
OU LATERAL FILE, 36"WIDE, 3-DRAWER 1
- -----------------------------------------------------------------------------------------------
OX LATERAL FILE, 42"WIDE, 3-DRAWER 1 1 7
- -----------------------------------------------------------------------------------------------
OZ BINDER BIN, 30"WIDE 6
- -----------------------------------------------------------------------------------------------
BINDER BIN, 60" WIDE 5
- -----------------------------------------------------------------------------------------------
OAD VERTICAL FILE, 5-DRAWER 1
- -----------------------------------------------------------------------------------------------
OAE VERTICAL FILE, 4-DRAWER 1
- -----------------------------------------------------------------------------------------------
OAI WARDROBE CLOSET 2
- -----------------------------------------------------------------------------------------------
STEELCASE 9000 LAMINATE WORKSURFACE 30X60 2 8
- -----------------------------------------------------------------------------------------------
OAK DRAPERY 3
- -----------------------------------------------------------------------------------------------
CONFERENCE TABLE, 7' 2
- -----------------------------------------------------------------------------------------------
OAM CONFERENCE ROOM CHAIRS 14
- -----------------------------------------------------------------------------------------------
OAO INTERACTION TABLES 2
- -----------------------------------------------------------------------------------------------
OAP INTERACTION CHAIRS 8
- -----------------------------------------------------------------------------------------------
OAQ INTERACTION AREA PLANTS 2
- -----------------------------------------------------------------------------------------------
CORNER UNIT 42 X 42 1
- -----------------------------------------------------------------------------------------------
LATERAL FILE, 42" 4-DRAWER 1
- -----------------------------------------------------------------------------------------------
TASKLIGHTS 50" 2
- -----------------------------------------------------------------------------------------------
PARTITION WALL PANEL 30" 2
- -----------------------------------------------------------------------------------------------
GF FURNITURE - 30X66 DESKS 2
- -----------------------------------------------------------------------------------------------
GF CORNER UNIT - 42 X 42 1
- -----------------------------------------------------------------------------------------------
GF OVERHEAD BINS - 30" 4 8
- -----------------------------------------------------------------------------------------------
STEELCASE OVERHEAD BINS 60" 2
- -----------------------------------------------------------------------------------------------
STEELCASE 60" TASK LIGHT 1
- -----------------------------------------------------------------------------------------------
CUSTOM CABINET/TABLE 1
- -----------------------------------------------------------------------------------------------
TOTAL 329
- -----------------------------------------------------------------------------------------------
</TABLE>
Page 7 10/4/96
<PAGE>
EXHIBIT C
RESEARCH CAMPUS
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT D
EXXON RESEARCH AND ENGINEERING COMPANY
ANNANDALE, N.J. 08801
OPTIONAL SERVICE SPECIFICATIONS
LABORATORY SERVICES/MATERIALS HANDLING
PICK-UP/DELIVERY - RECEIVING FUNCTION
o Pick-up and delivery services are requested by calling Laboratory
Services at 730-2467 or by sending a work request form to Laboratory
Services in room PC-1 57.
o The nature of the items to be handled should be indicated to ensure
that proper equipment for moving is dispatched.
o For small items, delivery to or from the loading dock, or other
location within the building, will typically be within 24 hours.
o For larger items requiring a forklift or tow motor for handling, a
longer time may be required subject to availability of the required
equipment or the need for two or more people.
o Gas cylinders can be transferred by calling 730-2467 or by sending a
work request form to Laboratory Services in room PC-157.
GLASSWARE WASHING
o Pick-up/delivery activity for glassware washing is charged separately
from the glassware washing charge at the standard pick-up/delivery
rate.
DRY ICE, LIQUID NITROGEN
o Pick-up/delivery activity associated with liquid nitrogen and dry ice
is included in the quoted rates for these materials.
o Deliveries/refills of liquid nitrogen dewars can be made by telephone
requests or by submitting a work order.
o Dry ice will be delivered to a box located in the LF/LH-2 Service
corridor. Delivery frequency will be as required to maintain an
agreed-upon inventory level in the box.
-1-
<PAGE>
SPECIAL SECURITY
o Requests for Special Security Service should be directed to the Shift
Superintendent on 730-3068.
o Special Security Service requests requiring up to eight hours of
security officer time are generally handled on a premium time
(overtime) basis.
o For security requests involving several days or more of a security
officer's time, jobs may be handled on a regular time basis, subject
to availability of temporary, supplemental contractor personnel.
o Request for jobs of up to four work-hours effort require 24 hour's
notice. For larger job, five working days notice is required. Every
effort will be made to accommodate urgent requests for which such
notice is not feasible.
SPECIAL JANITORIAL
o Special janitorial services can be arranged by submitting a work order
to the Site Planning Office in room PA-172. For emergency work or
other urgent jobs, service can be arranged by calling 730-2222. In
such cases, the requester may be asked to subsequently confirm the
request by means of a work order.
o Notice:
+ Emergency work (endangers the health or safety of personnel)
will be handled on an as needed basis.
+ Small jobs (requiring two work-hours or less of effort) will
normally be handled within 24 to 48 hours, and are typically
completed at "regular time" hourly rates.
+ Scheduling of larger jobs may require notice of one week, or
longer under special circumstances. The requester will be
contacted to discuss scheduling for such jobs. These jobs
are normally handled at "premium time" hourly rates. Upon
request, large jobs can be handled on a lump-sum quotation
basis.
-2-
<PAGE>
LAB VACUUM/DISTILLED WATER
o The quarterly charge for laboratory vacuum and distilled water will be
equal to one fourth of the annual charge per laboratory module,
multiplied by the number of laboratory modules to which service is
provided at any time during the quarter. Charges will be invoiced
quarterly in accordance with the terms of the Lease Agreement.
o Tenant may request connection or disconnection of service to any
laboratory module on twenty four hours notice.
HOUSE GASES
o Argon
o Carbon Monoxide (Pilot Plant Only)
o Helium
o Hydrogen
o Natural Gas
o Nitrogen
SPECIAL CONTRACTED SERVICES
o These services are obtained through contractors in areas beyond the
services provided by ER&E Facilities Engineering Division crafts.
o Several crafts including, but not limited to, painting, miscellaneous
carpentry, and minor locksmithing (e.g., minor door adjustment) will
be provided at the rate listed in Part B for labor and inclusive of
materials, subject to special orders for materials which will be
invoiced by the method described herein. Large projects (over $500.00)
can be performed on a cost plus basis. Cost plus means: labor +
materials + markup (if applicable).
o Additional services including, but not limited to, sheet metal work,
insulation, glazing, roofing, rigging, and major locksmithing (e.g.,
card reader electronic hardware) can be performed on a fixed price
quote.
o Quotes and invoicing for ER&E contracted work on a "cost plus" basis
will be through the Landlord's office.
o Estimates for this service represent a "Time and Materials/ not to
exceed" basis.
-3-
<PAGE>
STOCKROOMS
o Tenant employees may obtain items from the mechanical, laboratory
supply and safety stockrooms
o Tenant employees are required to complete a "Materials Request" form
that will contain the item's stock number and quantity requested.
o All stock materials will be provided to Tenant employees at a cost
plus basis as indicated in Rate Schedule.
o Those safety items listed in the safety stockroom catalog that require
the services of ER&E's Health Services Division are not available to
Tenant's employees.
OFFICE FURNITURE RENTAL
o Office furniture may be leased to Tenant, subject to availability, on
a quote basis.
o There will be a minimum rental period of two months, with no
additional penalty for early return.
o Initial cleaning, delivery and removal will be provided at no
additional charge.
o Tenant shall be responsible for maintaining an inventory of ER&E
furniture if it is removed from its original destination.
FOOD SERVICES
General
o When ER&E and Tenants do not observe the same holidays, limited
Cafeteria service will be provided.
o For the indicated charge per Tenant employee, Tenant employees may use
all services of the cafeteria, sundry shop, and the atrium food
service area. Prices charged employees will be same for employees of
ER&E and other Tenants.
o Charges for Cafeteria Access will be invoiced quarterly in accordance
with the terms of the Lease Agreement.
o Food Services are provided to ER&E by a third party contractor. While
the cafeteria access is fixed for one year, food, labor or other costs
may from time to time require that the prices charged in the cafeteria
be increased. Any such increase will be equally applicable to
employees of ER&E and Tenant. ER&E will advise Tenant at least 30
calendar days in advance of any such price increase.
-4-
<PAGE>
Special Services
Coffee Services
o Arrangements for coffee services can be made by calling the cafeteria
on extension 730-3067.
o Requests for coffee services must be received by the cafeteria no
later than 3:00 p.m. the day before service is required.
o Coffee service deliveries can only be made between 7:00 a.m. - 11:00
a.m. and between 1:00 p.m. - 3:00 p.m.
o A charge ticket must be sent to the cafeteria after arrangements are
finalized.
Luncheons/Buffets
o Arrangements for luncheons and buffets can be made by calling the
cafeteria on extension 730-3067.
o Four working days advance notice is required for executive luncheons
or buffets.
o Requests for luncheons and buffets will be priced for groups of 10 or
more. Smaller groups will be charged a 10 person minimum.
o Pricing for luncheons and buffets will be quoted on an individual
event basis with pricing depends on menu selection. Quoted prices will
include a charge for use of the conference dining facilities (if
requested).
o A charge ticket must be sent to the cafeteria alter arrangements are
finalized.
o Conference dining facilities may be used for conference functions in
conjunction with special food service functions only.
Overtime Function
o Minimum of 10 working days advance notice is required for overtime
functions.
o All arrangements for overtime functions should be made with the ER&E
Food Service Specialist, currently Lori Schapiro, on 730-3522.
o Pricing for Overtime functions will be quoted on an individual event
basis with pricing dependent on menu selection. Quoted prices will
include a charge for use of the conference dining facilities (if
requested), and the time of the ER&E Food Service Specialist.
o Conference dining facilities may be used for conference function in
conjunction with special food service functions only.
-5-
<PAGE>
PHOTOGRAPHY/AUDO VISUAL
GENERAL SERVICE
Audio/ Visual
o Delivery & Set-up
o Equipment Operator
o Special A/V
Multiprojector
Audio Synch Projection
Computer Projection
Video Show
o Clinton Communication System
Lecture Hall Booth
Tie Line System
Board Room
Photography
o Standard
Portrait, Location, Publication, Special Event, Construction,
Studio Passport/Visa,ID.
o Photographic Copy
Slides, Hardcopy, Vugraphs
o Technical (Film & Video)
Micro, Macro, Time Lapse, Environmental, High Speed
o Processing
Film Developing
Printing
o Video Production, Editing
o Presentation Slides
Text (Background/Letters) Blue/White, White/Black, Black/White
Continuous Tone Copy
Color
Black & White
Vu graphs
-6-
<PAGE>
FACILTIES ENGINEERING
o Support for normal routine mechanical and engineering work will be
provided and charged at the rates listed in Part B for those skills
normally supplied by ER&E personnel Special large jobs, such as
renovation of a laboratory or series of laboratories will be handled
on a case by case basis with negotiated cost agreements.
Requests will be sent directly to the FED Site Planning Office in PA
172 for scheduling. Invoicing will be quarterly for completed jobs to
include labor and purchased materials. Purchased materials will be
invoiced on the basis of the invoiced price plus a markup as specified
in the Optional Services Schedule. Both labor and materials may be
subject to N.J. Sales Tax which will be included in the invoice.
Mechanical Services Skill Description (Craft)
Construction Mechanic
Builds support structures, hangs fixtures, installs hoods and benches.
Minor carpentry, does small sheet metal jobs, builds enclosures (metal and
plastic). Maintains all of the preceding.
Electricians
Installs electrical power systems, control and instrumentation systems,
tele and data communications cabling, builds control cabinets. Maintains
all of the preceding.
Electronics Technician
Builds electronic support equipment such as amplifiers, data acquisition
circuits, power supplies. Maintains all of the preceding as well as
computer terminals and ancillaries, analytical instrumentation such as
G.C.'s, Mass Spec's, etc. Trouble shoots all electronic equipment. Performs
Telecom/Computer LAN cable pulls and terminations. Maintains site BAS
system and LSS systems (e.g., card readers, site clocks, PA system).
Glass Blower
Builds and repairs all types of laboratory glassware. Consults on and
designs Specialty glass equipment.
HVAC Mechanic
Installs and maintains refrigeration and air handling equipment. Will
provide tenant service on tenant owned refrigeration units.
-7-
<PAGE>
Machinist
Manufactures specialty parts and assemblies using all machine shop tools.
Repairs and makes parts for specialty equipment. Capable of close tolerance
tool and die shop work.
Pipe Fitter
Constructs units and pilot plants comprised of flow, pressure and
temperature controlling devices interconnected by tubing and pipe composed
of any material. Also installs and maintains services piping systems.
Regulator Room
Assembles, overhauls, tests and calibrates pressure regulators and pressure
relief valves for all services encountered on the site.
Welder
Welds, Brazes and solders components and assemblies made and/or required by
other skills. Makes Maintenance repairs on equipment and assemblies.
Engineering and Design Services
Engineer
Consults on, conceives of, specifics equipment and assemblies and
arrangements of mechanical components and instrumentation to fulfill the
customers requirements for research support units and pilot plants. Certain
individuals also support special requirements for HVAC equipment and plant
utilities and environmental controls.
Designer
Assists engineers in the development of a project and the documentation for
construction and modification of equipment and facilities. Handles small
and special design projects.
Other Exempt Services
Contracts Coordinator
Handles the specification, contracting, Supervision and management of work
that is not normally performed by ER&E personnel such as: rigging,
painting, locksmithing, insulation, major sheet metal work, iron work and
any other specialty skill.
-8-
<PAGE>
CENTRAL PRINTING FACILITIES
Major Services
- Lithography (Offset Printing)
- Duplicating
- Finishing (Bindery)
- Vugraphs/Photostats
Other Services
- Printing Consultation - Plate Making
- Large Volume Printing - Scoring
- 4-Color Process Printing - Perforating
- Multi-Color Printing - Stitching
- Label Printing - Drilling
- Envelope Printing - Collating
- NCR Form Printing - Cutting
- Film Negatives - Folding
- Film Positives - Padding
- Screened (Halftone) Negatives - Shrink Wrapping
- Vu-Graphs - Binding
- Photographs - Saddle Stitching
- Posterizations - Slash Tabs
- Color Tabs - Special Papers
- Blueprints
- The Clinton and Florham Park Xerography Satellites handle fast turn
around work that is usually needed the same or following day. Work is
in black ink only and consists of no more than 50 originals and 200
copies.
- In some cases, it is advisable to discus Reprographic requirements
with the Central Printing Facility Coordinators, by phone or in
person. Discussions should be held as early as possible to insure that
all requirements can be met within the allocated time. The contact
phone numbers are: Clinton/Linden - 474-3824 and 474-2853 and Florham
Park - 765-1058.
-9-
<PAGE>
GRAPHIC DESIGN FACILITIES
Services
- Binders and Tabs (Design & Procure)
- Brochure Design
- Cartography
- Certificates & Printed Awards
- Computer Generated Visuals
- Flyers
- Graphic Design
- Manuals Preparation
- Name Badges/Meeting I.D.'s
- Newsletter Design
- Presentation Visuals
- Phototypesetting
- Posters/Signs
- Technical Illustration
- Telecommunication to the Typesetter (Prior arrangement with local
contact required)
- On occasion, subcontractors will be used to supplement internal
services. These costs will be borne directly by the client, but
handled through Graphic Design. All such costs shall be approved by
the client prior to commencement of the job.
-10-
<PAGE>
MAIL SERVICE
TELECOMMUNICATION SERVICES
ANALYTICAL SERVICES
COMPUTER TRAINING ROOM
FITNESS CENTER
VIDEO TELECONFERENCING SERVICE
INFORMATION CENTER
These Optional Services are available but discussions between Tenant and
service providers are necessary to determine projected levels of service
required by Tenant.
-11-
<PAGE>
EXHIBIT D (Continued)
EXXON RESEARCH AND ENGINEERING COMPANY
ANNANDALE, N.J. 08801
OPTIONAL SERVICES SCHEDULE
(PART B)
SERVICE 1996
=======================================================
FOOD SERVICE
Cafeteria Access $700/year/
employee
Special Functions
Coffee Services Quote
Luncheons & Buffets Quote
Overtime Functions Quote
=======================================================
LAB SERVICES/
MATERIAL HANDLING
Liquid Nitrogen $43.00/220 L Dewa
Small Quantities $.25/litre
Dry Ice $13.10/40 lb
Box
Glassware Washing
Pick-up/Delivery $34.60/hr.
Washing $20.00/load
(2 cu ft bin)
Receiving, Pick-up/
Delivery $34.60/hr.
=======================================================
-12-
<PAGE>
SERVICE 1996
=======================================================
SPECIAL JANITORIAL
Regular Time $14.40/hr.
Premium Time $19.70/hr.
=======================================================
SPECIAL SECURITY
Regular Time $14 45/hr.
Premium Time $20.65/hr.
Equipment Quote
Keys $3.50/key
(extra/replacement)
ID Cards $7.50/card
(replacement)
=======================================================
CONFERENCE DINING ROOM $50.00/day
=======================================================
CONFERENCE ROOM - CCMO3 $60.00/day
$40.00/4 hrs.
=======================================================
TRAINING ROOM (CA 1221)
Full Room $75.00/day
$50.00/4 hrs.
Half Room $40.00/day
$25.00/4 hrs.
=======================================================
LECTURE HALL $150.00/day
$100.00/4 hrs.
=======================================================
-13-
<PAGE>
SERVICE 1996
=======================================================
TELECOMMUNICATIONS
Trunk Support $4.00/trunk/mo.
RJ11, Modem Line $8.00/line/mo.
Voice Line only $5.00/line/mo.
STE + Voice Line $7.00/set/mo.
ITE4 + Voice Line $10.00/set/mo.
ITE12 + Voice Line $13.00/set/mo.
ITE12S + Voice Line $14.00/set/mo.
ITE12SD + Voice Line $16.00/set/mo.
ITE24D + Voice Line N/A
ITE3OD + Voice Line $17.00/set/mo.
Async Digital
Interface, ADI 100 $5.00/unit/mo.
LANmark LDI 400 $8.00/unit/mo.
LANmark LDI 410 $10.00/unit/mo.
Voice Mailbox $5.00/box/mo.
Paging Service $75.00/report
Paging Line $14.00/line/mo.
Moves/Adds/Changes $50.00/hr.
Billing Rep. (5.25"
Disk) $50.00/mo.
Call Detail Record $10/ext./mo.
Equipment List Record $10/report
=======================================================
SATELLITE EDUCATION COURSES $250.00/course/
student
=======================================================
-14-
<PAGE>
SERVICE 1996
=======================================================
HOUSE GASES
Natural Gas Service rate
(100 SCF)
Nitrogen $0.40/100 SCF
Argon $5.76/100 SCF
Helium $14.76/100 SCF
=======================================================
FACILITIES ENGINEERING
Engineering $101.50/hr.
Other Professional $101.50/hr.
Design $70.90/hr.
Other Exempt $70.90/hr.
Craft (electrical, $54.70/hr.
mechanical, pipe
fitting, welding,
construction, etc.)
Miscellaneous $41.50/hr.
(Painting, locksmith,
mason, carpentry)
Project Work Quote
(Sheetmetal, Glass, (cost + 10%)
Insulation, Riggers
and other Contracted
work)
=======================================================
LAB VACUUM/ $19.00/lab
DISTILLED WATER module/mo.
=======================================================
OFFICE FURNITURE RENTAL Quote
=======================================================
-15-
<PAGE>
SERVICE 1996
=======================================================
PHOTOGRAPHY/ AUDIO - VISUAL
Photographer/
Operator $120.00/hr.
Equipment Rental Quote
--------------------------------------
Cost of Equipment Rentals will be
based on available and individual
specific needs. Renter will be
charged for repair or replacement
in the event of breakage or loss.
--------------------------------------
=======================================================
CENTRAL PRINTING FACILITY Quote
=======================================================
GRAPHIC DESIGN SERVICES $105.00/hr.
--------------------------------------
Premium charges will be quoted in
advance, if based on assessment of
the work and its impact on overall
services, the work involves a heavy
production time investment in a short
period of time requiring 1) significant
rescheduling of work in progress or
2) overtime.
--------------------------------------
=======================================================
STOCKROOMS
Mechanical Cost + 15%
Chemical Cost + 22%
PURCHASED MATERIALS Cost Plus
(other than < $1000 + 10%
ER&E stockrooms) $1000 & up + 5%
-16-
<PAGE>
SERVICE 1996
=======================================================
MAIL SERVICE (1) $30,765/year
(up to 120
employees)
=======================================================
ANALYTICAL SERVICES (1)
Standard Nuclear Magnetic
Resonance (NMR) Analysis
Mass Spectrometry (MS)
Non-professional $110.00/hr.
Professional $175.00/hr.
=======================================================
COMPUTER TRAINING ROOM (1) $160.00/day
Software Setup &
Cleanup $92.00/hr.
=======================================================
INFORMATION CENTER (1)
Access Fee Available
Upon Request
Reference Questions
(15 minutes or more) $125.00/hr. *
Technical Searching $125.00/hr. *
Current Awareness $125.00/hr. *
Editing $125.00/hr.
* Plus outside online charges or service fees
=======================================================
FITNESS CENTER (1)(2) $90/year/
employee
=======================================================
VIDEO TELECONFERENCING (1) $150/hr.
(Plus outside
fees)
=======================================================
(1) Availability of these services are
subject to separate agreement between
the parties.
(2) Subject to Indemnification
-17-
<PAGE>
EXHIBIT E
OPERATING PAYMENT
LG-1
ANNUAL $
TOTAL TENANT
SITE SHARE
2.32%
JANITORIAL 518,623 12,032
SITE SECURITY 545,752 12,661
GROUNDS 222,215 5,155
SOLID WASTE REMOVAL 52,963 1,229
FACILITIES M&R 605,746 14,053
SITE OPERATIONS 3,030,244 70,302
LOCAL HVAC 675,426 15,670
TOTAL ANNUAL 5,650,970 131,103
<PAGE>
EXHIBIT F-1
UTILITY CHARGES
Electric Power
Direct Metering
o One hood exhaust fan dedicated to LG-1 (one meter)
o Nine 208/120 volt laboratory power distribution panels (nine meters)
Allocation
o Lighting by allocation based upon a survey of light fixtures and hours of
operation, allowing for a diversity factor during occupied hours.
o Power for all 208/120 volt office connected loads from equipment
(including, without limitations, computers and research equipment) based
upon mutually agreed upon survey.
o Power for operating the heating, ventilation, and air conditioning
equipment supplied from Level 0 mechanical space in the LE/LG wing to the
entire LE/LG wing.
- Tenant's allocated share shall be the same ratio as Tenant's
metered hood air exhaust from the LG-1 space to the total metered
hood air exhaust from the LE/LG wing.
- Fan coils and emergency lighting prorated (one meter for the
North Laboratory Building).
Costs
o Unit cost shall be the unit cost for electric power as set forth in Exhibit
F-2. Total cost to the Tenant is the product of the cost per kwh multiplied
by the metered, allocated and prorated kwh.
-1-
<PAGE>
House Chilled Water for Space Cooling
Allocation
o Metering of ton hours of house chilled water to the LE/LG wing with
flow/energy meters. Tenant's allocated share shall be in the same ratio as
Tenant's metered hood air exhaust from the LG-1 space to the metered total
hood air exhaust from the LE/LG wing.
Costs
o Unit cost shall be the site unit cost for house chilled water as set forth
in Exhibit F-2. Total cost to Tenant is the product of the cost per ton
hour multiplied by the estimated ton hours allocated to the Tenant.
House Hot Water for Space Heating
Allocation
o Metering of ton hours of house hot water to the LE/LG wing with flow/energy
meters. Tenant's allocated share shall be in the same ration as Tenant's
metered hood air exhaust from the LG-1 space to the metered total hood air
exhaust from the LE/LG wing.
Costs
o Unit cost shall be the site unit cost for house hot water as set forth in
Exhibit F-2. Total cost to Tenant is the product of the cost per ton hour
multiplied by the estimated ton hours allocated to the Tenant.
Steam for Humidification, HVAC and Process Use
Allocation
o Metering of pounds of steam for humidification, HVAC, and process use to
the LE/LG wing with steam meters. Tenant's allocated share shall be in the
same ratio as Tenant's metered hood air exhaust from the LG-1 space to the
metered total hood air exhaust from the LE/LG wing.
-2-
<PAGE>
Costs
o Unit cost shall be the site unit cost for steam hot water as set forth in
Exhibit F-2. Total cost to Tenant is the product of the cost per 1,000
pounds of steam multiplied by the estimated number of 1,000 pound units of
steam allocated to the Tenant.
Lab Process Chilled Water
Allocation
o The ton hours of lab process chilled water to the LG-1 wing consumed per
year shall be calculated based upon a survey of Tenant's loads.
Costs
o Unit cost shall be the site unit cost for lab process chilled water as set
forth in Exhibit F-2. Total cost to Tenant is the product of the cost per
ton hour multiplied by the allocated ton hours for LG-1.
-3-
<PAGE>
EXHIBIT F-2
UTILITIES
Utilities: 1996 Projected Rates
Electric $ 0.0813/KWH
House Chilled Water $ 0.173/ton hr
House Hot Water $ 0.176/ton hr
Steam $ 11.90/1000 lbs
Lab Process Chilled Water $ 0.15/ton hr
<PAGE>
EXHIBIT F-3
Estimated 12 month utility consumption - LG-1.
1997 ESTIMATE
- -------------
Electrical
HVAC Equipment 221,689 kwh
Lighting/Emergency Power 118,650 kwh
Appliance Power 206,175 kwh
House Chilled Water 98,589 ton hours
House Hot Water 97,220 ton hours
Steam (Humidification, HVAC, Process) 557 k-lbs
Lab Process Chilled Water 10,000 ton hours
<PAGE>
EXHIBIT F-4
UTILITY CHARGE CALCULATION
Example: JCP&L is granted an electrical rate increase effective April 13, 1997
Calculation: Using the previous 12 months of site electrical consumption data
and the new JCP&L rate structure, the calculation shown in the table below
will be used to project the effect of this rate increase. The projected
increase will then be applied to the Tenant's utility charges effective the
month following the electrical rate change. Hence, in the example provided
below, effective May 1, 1997, Tenant's utility charges increase over the
then-current charge by 2.6%.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Previous Rate (Effective 1/1/97) New Rate (Effective 4/13/97)
------------------------------------------------------------------------
Description Total Units(1) General Service Transmission (GT) General Service Transmission (GT)
------------------------------------------------------------------------
Unit Cost 12 Mo. Charge Unit Cost 12 Mo. Charge
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Customer Charge 12 months $ 235.52 $ 2,826.24 $ 235.52 $ 2,826.24
Demand Charge
June thru September 23,227 $ 9.22/KW $ 214,152.94 $ 10.10/KW $ 234,592.70
October thru May 39,502 $ 8.31/KW $ 328,261.62 $ 8.75/KW $ 345,642.50
Energy Charge
On-Peak KWH 14,139,000 $ 0.07221/KWH $ 1,020,977.19 $ O.07421/KWH $ 1,049,255.19
Off-Peak KWH 25,397,000 $ O.06231/KWH $ 1,582,487.07 $ 0.06231/KWH $ 1,582,487.07
Power Factor Charge
Excess KVA 22,138 $ 0.43/KVA $ 9,519.34 $ 0.43/KVA $ 9,519.34
Energy Adjustment (ECA)
Total KWH 39,536,000 $ 0.OO3347/KWH $ 132,326.99 $ 0.003847/KWH $ 152,094.99
============== ==============
Total Charges $ 3,299,551.39 $ 3,376,418.03
- ------------------------------------------------------------------------------------------------------------------
Total Projected Increase $ 85,866.64
==================================================================================================================
Percent Increase (Utility rate increase effective May 1, 1997) 2.6%
==================================================================================================================
</TABLE>
Note: (1) Cummulative site totals for previous 12 months
<PAGE>
EXHIBIT G
LETTER OF CREDIT AGREEMENT
THIS AGREEMENT made this 25th day of November, 1996 by and between EXXON
RESEARCH AND ENGINEERING COMPANY ("Beneficiary") and PATHOGENESIS CORPORATION
("Tenant").
WHEREAS, Beneficiary and Tenant are entering into a certain Lease Agreement
of even date herewith (the "Lease") pursuant to which Tenant has leased from
Beneficiary, as landlord, certain premises located at Route 22 East, Annandale,
New Jersey; and
WHEREAS, as a condition to entering into the Lease, Beneficiary is
requiring Tenant to deliver, and Tenant has agreed to deliver, an irrevocable
letter of credit in favor of Beneficiary as collateral security for the payment
and performance of Tenant's obligations to Beneficiary under the Lease; and
WHEREAS, Beneficiary and Tenant desire to enter into this Agreement in
order to fully set forth and evidence their agreement with respect to such
letter of credit;
NOW, THEREFORE, in consideration of the foregoing and the terms set forth
below, Beneficiary and Tenant agree as follows:
1. Concurrently with the execution and delivery of this Agreement, Tenant
shall deliver to Beneficiary, as collateral security in favor of Beneficiary for
the payment and performance of Tenant's obligations under the Lease, a letter of
credit (the "Letter of Credit") substantially in the form attached hereto as
Schedule A. The initial Letter of Credit, and each replacement Letter of Credit
delivered hereafter in accordance with this Agreement, shall: (a) be
irrevocable; (b) be for a term of not less than 12 months, commencing not later
than the expiration date of the Letter of Credit in place that it is replacing;
(c) be issued only by a financial institution reasonably acceptable to
Beneficiary; (d) require thirty (30) days' notice to Beneficiary prior to its
expiration and automatic renewal for one year in the event such notice is not
given; and (e) otherwise be in form and substance reasonably acceptable to
Beneficiary. The obligation of Tenant to provide a Letter of Credit to
Beneficiary hereunder shall commence on the date of this Agreement and shall
continue until December 1, 2001 (the "Expiration Date"), unless such Expiration
Date is extended by Tenant and Beneficiary.
2. The amount of the initial Letter of Credit delivered hereunder (the
"Initial LC") shall be $675,000. The amount of each Letter of Credit delivered
as a replacement Letter of Credit thereafter (each, a "Replacement LC") shall be
$675,000.
<PAGE>
3. The Initial LC shall have a term of twelve (12) months commencing on
December 2, 1996 (the "Initial Term"). Not later than sixty (60) days prior to
the expiration of the Initial Term and the term of any Replacement LC delivered
hereunder, Tenant shall deliver to Beneficiary a Replacement LC satisfying all
of the terms and conditions set forth in this Agreement.
4. In the event Tenant fails for any reason to deliver any Replacement LC
in accordance with this Agreement on or before the dates referred to in Section
3, then Beneficiary shall have the absolute right, on and after such dates, to
draw the entire then unused principal amount of any Letter of Credit which is
then in effect and to deposit the same into an account to be held as security
and applied in accordance with the provisions of Article 14 of the Lease. In
such event, Tenant shall be entitled to receive any interest on funds deposited
into such account.
5. Tenant agrees to pay all costs and expenses associated with the Initial
LC and all Replacement LC's and any drawing(s) made by Beneficiary thereunder.
6. Beneficiary's rights to draw against any Letter of Credit are set forth
in the Lease and each Letter of Credit issued in accordance with this Agreement,
and no provision of this Agreement shall be construed to limit any right or
remedy of Beneficiary or any affiliate of Beneficiary in law or in equity or
under the Lease, any Letter of Credit, or any other agreement between
Beneficiary and Tenant or their respective affiliates.
7. This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey, without giving effect to choice or conflicts of
laws principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PATHOGENESIS CORPORATION
By: /s/ Marc Wipperman
-------------------------------------
Name: Marc Wipperman
Title: Vice President
EXXON RESEARCH AND ENGINEERING COMPANY
By: /s/ Alfredo Lopez
-------------------------------------
Name: A.M. Lopez
Title: Vice President
<PAGE>
SCHEDULE A
FORM OF IRREVOCABLE LETTER OF CREDIT
Beneficiary: Exxon Research and Engineering Company
Applicant/Account Party: Pathogenesis Corporation
Expiration Date: ___________________, _____p.m.
Exxon Research and Engineering Company
Route 22 East, Clinton Township
Annandale, NJ 08801
Gentlemen and Ladies:
We hereby establish in your favor this Irrevocable Letter of Credit
Numbering the amount of Six Hundred Seventy-Five Thousand Dollars ($675,000).
Drawings hereunder are available with us against your drafts drawn at sight
on us, bearing the clause "Drawn under [name of bank] Irrevocable Letter of
Credit No. _____" and accompanied by Beneficiary's signed statement reading:
"The amount of this drawing represents a sum payable to Exxon Research and
Engineering Company as Pathogenesis Corporation has defaulted under a
certain Lease Agreement between said parties dated ________, 1996 (the
"Lease").
This draft has been drawn and presented under and is in
compliance with the terms of your Irrevocable Letter of
Credit No. __________;"
OR
"The amount of this drawing is payable to Exxon Research and
Engineering Company as Pathogenesis Corporation has
defaulted under a certain Letter of Credit Agreement between
said parties dated _______, 1996.
This draft has been drawn and presented under and is in
compliance with the terms of your Irrevocable Letter of
Credit No. __________;"
<PAGE>
OR
"The expiration date of this Letter of Credit will occur in
sixty (60) days or less and Pathogenesis Corporation has not
furnished to Exxon Research and Engineering Company a
replacement Letter of Credit which conforms to the
requirements of a certain Letter of Credit Agreement between
said parties dated __________, 1996.
This draft has been drawn and presented under and is in
compliance with the terms of your Irrevocable Letter of
Credit No. __________;"
[name of bank] will notify Exxon Research and Engineering Company in
writing by certified mail, return receipt requested, or by courier at Route 22
East, Annandale, New Jersey 08801, ATTN: Leasing Manager, not less than thirty
(30) days prior to the expiration date of this Letter of Credit. In the event
that [name of bank] fails to so notify Exxon Research and Engineering Company,
this Letter of Credit shall automatically be renewed without amendment for a
period of one year.
Such draft(s) and signed statement shall be dated and shall be presented by
you or your agents at our office at [insert designated address of bank]. This
Letter of Credit shall accompany all drafts and documents. We agree that all
drafts drawn under and in compliance with the terms of this Irrevocable Letter
of Credit shall be fully honored upon presentation prior to the expiration date
hereof as set forth above.
Partial drawings and multiple drawings are permitted hereunder, provided
that conforming drawings shall not exceed, in the aggregate, the then amount of
this Letter of Credit.
Please direct all correspondence in connection with this Letter of Credit
to the address stated at the head hereof.
This Letter of Credit is only assignable or transferable in connection with
a sale to a subsequent owner of Exxon Research and Engineering Company's
interest in the Demised Premises, as defined in the Lease.
This Letter of Credit is subject to the Uniform Customs and Practice for
Documentary Credits (1983 revision) International Chamber of Commerce
Publication No.400.
[Name of Bank]
By:_________________________________
Name _______________________________
Title:______________________________
Date:_______________________________
<PAGE>
EXHIBIT H
RULES AND REGULATIONS RELATING TO
THE USE AND HANDLING OF HAZARDOUS MATERIALS
1. Responsibility
Tenant shall be solely responsible for its hazardous waste materials,
activities and disposal.
2. Laboratory Fire Protection
Operations in laboratories shall be consistent with requirements for Class
C Laboratories given in NFPA 45 - "Fire Protection for Laboratories Using
Chemicals".
3. Labeling
Tenant shall label all hazardous waste materials with at least the
following information:
- Tenant organization
- Individual generator's name, room and telephone number
- Correct chemical name(s) of the material
- Characteristic class of material
- Date(s) at which the material was declared a waste
- All appropriate special handling or emergency response information
4. Accumulation and Storage
All waste materials shall be accumulated and stored only in the Demised
Premises.
5. Transportation & Transfer
Tenant shall neither transport nor permit to be transported wastes through
Common Areas except in drums or other sealed metal containers, unless each
container is placed in a second sturdy metal container and surrounded by
cushioning absorbent such as vermiculite, and then only via service
corridors, freight elevators and Level 0 corridors.
Chemicals shall not be transported through Common Areas in unprotected
glass containers. Suitable protection is required, such as a rubber bottle
carrier, a secondary rigid metal container with anti-shock padding, or
packing suitable for shipping.
The movement of any hazardous material or hazardous wastes or the transfer
of same from one container to another shall only be made in designated,
spill controlled areas. and not over open ground, gravel, or other
locations where a discharge could enter the soil.
-1-
<PAGE>
6. Reporting of Spills and Releases
All spills and releases (whether in the Demised Premises, elsewhere in the
Building or exterior to the Building) not otherwise permitted under the
conditions of the Agreement, must be reported to Landlord in accordance
with current site emergency spill notification procedures.
-2-
<PAGE>
EXHIBIT I
INSTRUCTIONS FOR POTENTIALLY PROBLEMATIC DISCHARGES
TO AWTP
The Following May NOT Be Discharged (unless otherwise agreed by Landlord):
o heavy hydrocarbons, e.g. gasoline, kerosene, oil
o selenium
o dichloroethane
o radioactive materials
o pathogenic wastewater (sanitary waste)
o pesticides/herbacides
o PCB's
The following MAY BE discharged, but REOUIRE NOTIFICATION to the Utilities
Engineer for even small quantities or concentrations from each lab prior to the
occasion of the first such discharge ONLY, unless quantities or frequency
subsequently increase substantially.
o acetonitrile o hydroquinone
o acrolein o lactonitrite
o benzene o manganese
o benzo(a)anthracene o morpholine
o benzonitrile o methyldiethanolamine
o benzyl chloride o monoethanolamine
o bis-(2-chloroethoxy) methane o methylethylketone
o bis-(2-chloro isopropyl) ether o methylisobutylketone
o 4-bromophenyl phenyl ether o nitrite
o chelating agents including o nonanol
o EDTA and NTA o 2-octanol
o 4-chloro-3-methyl phenol o oxydipropionitrile
o 4-chlorophenyl phenyl ether o phosphates
o crotonaldelhyde o picric acid
o cyanide o n-propylbenzene
o diethanolamine o pyridine
o dichlorobenzenes o salicylic acid
o dichlorophenols o soluble highly colored
o dinitrophenol materials
o dinitrotoluenes o tartrates
o ethers o toluene
o ethylenediamine o trichlorobenzene
o ethylene dichloride o trichloroethane
o formaldehyde o trichlorophenol
o hexachlorobenzene o urethane
o hexachlorocyclopentadiene o xylenes
o hexane
-1-
<PAGE>
The following require notification only in large quantities (>25 gal/day) or
high concentrations (>300 ppm) or as noted (concentrations of >300 ppm but in
quantities of (1 gal/day are exempt).
o total dissolved solids (concentrations >1000 ppm)
o emulsifiers
o surfactants
o detergents
o acids ( < pH 5; > 50 gal.)
o bases ( < pH 10; > 50 gal.)
o ammonia
-2-
<PAGE>
EXHIBIT J
AGREEMENT OF CROSS-INDEMNIFICATION
This Agreement is made by and between the undersigned parties, effective as
to each on the date accompanying each patty's signature.
WHEREAS the parties to this Agreement are each occupants of space in the
Clinton Township research facility (the "facility") operated by Exxon Research
and Engineering Company ("ER&E"), and
WHEREAS each acknowledges that emergencies which occur at the facility are
addressed by an Emergency Control Force composed of employees of ER&E as well as
employees of other major site occupants;
NOW, THEREFORE, in consideration for the services of the Emergency Control
Force, each signatory below agrees as follows:
(1) None of the Emergency Control Force personnel will be held liable by
the signatory for any actions taken in responding to an Emergency at
the facility; and
(2) Each signatory shall indemnify and hold harmless the other signatory
and the other occupants of the facility, as well as the agents and
employees of such other signatory and occupants, from and against any
and all claims brought by its own employees, agents or invitees and
arising out of any act or omission, including negligence, of the
Emergency Control Force personnel which may occur while carrying out
their duties in responding to an emergency at the facility.
IN WITNESS WHEREOF, each patty hereto has duly executed this Agreement as
of the day and year accompanying each such party's signature.
EXXON RESEARCH AND ENGINEERING PATHOGENESIS, INC.
By: /s/ Alfredo Lopez By: Marc Wipperman
-------------------------- -----------------------------
Title: Vice President Title: Vice President
Date: November 22, 1996 Date: Nov. 25, 1996
<PAGE>
Exhibit K
EXXON RESEARCH AND ENGINEERING COMPANY
CLINTON SITE BUILDING RULES AND REGULATIONS
1. Tenant employees assigned to Clinton Township Site will be issued
"permanent" identification cards which will indicate their employee
status. These identification cards will be encoded for general site
access. Identification cards will remain the property of Exxon Research
and Engineering Co. Other employees, agent, invitees or licensees of
Tenant will be issued temporary or permanent identification cards as
required for appropriate access to the facility upon written request of
Tenant.
All employees, agents, invitees or licensees of Tenant must visible
display identification cards at all times within the Building. Any lost or
misplaced identification card must be reported immediately to the Shift
Superintendent. Any such card will be "locked out of the access system and
the holder will be issued a new identification card and a new access
(encoding) number.
Tenant employees assigned to the Clinton Township site will also be issued
keys to the Demised Premises. Such keys will remain the property of ER&E,
and will be returned to ER&E by Tenant at the expiration or earlier
termination of this Agreement. Any lost or misplaced key must be reported
immediately to the Shift Superintendent, and the holder will be issued a
replacement key.
2. The card key access door at the Main Lobby entrance will allow access to
the Main Lobby 24 hours per day, 365 days per year.
3. Between the hours 6:30 a.m. to 7:00 p.m., except on Saturday, Sunday and
holidays, employees may enter the main site Building via any electronic
card key access doorway programmed to accept their card key.
4. All persons entering or leaving the site between the hours of 7:00 p.m.
and 6:30 a.m. weekdays and at all hours on weekends and holidays will be
logged in and out at the Life, Safety and Security Center ("LSSC") located
in the Main Lobby.
5. All vehicles entering or leaving the site must display proper visible
identification. Employees assigned to the Clinton facility may obtain
vehicle decals from the Shift Superintendent. Access through the Route 31
Gate is controlled by the employee's ID card. All vehicles must follow the
instructions of the security officer at each of the site entrance gates
when the gate is in use.
-1-
<PAGE>
6. Vehicles of Tenant employees, agents, invitees or licensees are subject to
inspection at any time when entering or leaving the site. Tenant employees
wishing to transport either company or personal material off the Clinton
site must have a Gate Pass signed by their Management representative. Gate
Passes are available, along with complete procedural information, from the
LSSC Operator.
7. Vehicles of Tenant employees, agents, invitees or licensees shall be
operated in such a manner as to comply with all site driving and parking
regulations. This shall include, but is not limited to, posted speed
limits, stop and yield signs, and reserved and no-parking areas. Landlord
may report to the appropriate Tenant management any person found to be in
violation of these regulations.
8. Except within your company's area, pictures (including still photographs,
moving pictures, film and video) may not be taken of any aspect of the
Clinton Township Site (including without limitation the Common Areas,
buildings, laboratories, pilot units, equipment or grounds) without the
Facilities and Services Coordinator's prior approval.
9. All Tenant key requests shall be in writing to the Shift Superintendent.
Tenant employees may request to have their office door unlocked in the
event they have misplaced their office keys by contacting the LSSC
Operator. The office will be opened as soon as practicable.
10. Tenant shall exercise reasonable precautions to protect its personal
property from loss or damage by keeping doors to unattended areas locked.
Tenant shall also report any thefts or losses to the Shift Superintendent
as soon as reasonably possible after discovery and shall notify the Shift
Superintendent of the presence of any person whose conduct is suspicious,
who causes a disturbance or who fails to display proper visible
identification while in the Building.
11. ER&E shall not be responsible to the Tenant, its agents, employees,
invitees or licensees for the loss of money, jewelry or other personal
property from their company's areas, Common Areas or Clinton Township's
Site generally.
12. Tenant is requested to lock all office doors and to turn off all lights
and nonessential appliances at the close of the working day.
13. The Shift Superintendent reserves the right to deny entrance to the
Building or to remove any person or persons from the Building in any case
in which the conduct of such person or persons involves a hazard or
nuisance to any tenant or to the public, or in the event of a fire, riot,
civil commotion or similar disturbance or other emergency involving risk
to the Building, tenants or the general public.
-2-
<PAGE>
14. Sidewalks, doorways, vestibules, halls, stairways and other similar areas
shall not be used for the disposal of trash, be obstructed by Tenant or
used by Tenant for any purpose other than ingress or egress from their
company's areas and for going from one to another part of the Building,
unless expressly approved by the Facilities and Services Coordinator in
writing.
15. Tenant shall keep their company's areas neat and clean. Nothing shall be
swept or thrown into the corridors, halls, elevator shafts or stairways,
nor shall Tenant place any trash receptacles in these areas.
16. Plumbing fixtures and appliances shall be used only for the purpose for
which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Costs rising out of damage to
any such fixture or appliances resulting from misuse by Tenant shall be
paid by Tenant.
17. Tenant shall give prompt notice to Facilities and Services Coordinator of
any accidents to or defects in plumbing, electrical fixtures or heating
and cooling equipment. Liquids or other materials or substances which will
cause injury to the plumbing shall not be put into the lavatories, water
closets or other sanitary plumbing fixtures by Tenant, its agents,
employees, invitees, or licensees.
18. No portion of your company's area shall at any time be used for cooking,
sleeping or lodging quarters. No birds, animals or pets of any type, with
the exception of guide dogs accompanying visually handicapped persons,
shall be brought into or kept in or about your company's areas unless
expressly permitted by the Facilities and Services Coordinator in writing.
19. No food, soft drink or other vending machine shall be installed within
your company's area without the Facilities and Services Coordinator's
prior written consent.
20. Tenant shall not make or permit any loud, improper or inappropriate noises
in the Building or otherwise interfere in any way with other tenants or
persons having business in the Building.
21. Tenant shall not conduct or permit to be conducted any auction in your
company's area.
22. Tenant shall not solicit from or circulate advertising material among
other tenants of the Building except via regular use of US mail service.
Tenant shall notify the Facilities and Services Coordinator if it comes to
its attention that any unauthorized person is soliciting from or causing
annoyance to Tenant, its agents, employees, invitees, or licensees.
-3-
<PAGE>
23. Tenant shall not install or cause to be installed television, citizen's
band radio, microwave/satellite dish, or any other type of antenna on the
roof of the Building or outside of their company's areas without the
Facilities and Services Coordinator's written approval.
24. Tenant shall not remove Building Standard window covering nor install any
other window covering between the Building and exterior windows.
25. Tenant shall place all indoor potted plants requiring water, within
containers capable of collecting any water overflow.
26. Tenant shall not tamper with or attempt to adjust temperature control
thermostats for the Common Areas.
27. Except for office supplies, documents and other items of a incidental
nature, equipment and materials shall be transported to and from your
company's areas only via service corridors, freight elevators and Level O
corridors.
28. Smoking is permitted only in the Lobby Smoking Room (CA108), the
designated smoking area in the Cafeteria (during Cafeteria Operating
hours) and outside the building, (except in areas that are designated as
"Smoking Prohibited"; e.g. the pilot plant service court).
-4-
<PAGE>
EXHIBIT L
FORM OF NON-DISTURBANCE AGREEMENT
AGREEMENT made the _____ day of ___________, 1996, between EXXON CAPITAL
CORPORATION, a Delaware corporation having an office at 5959 Los Colinas Blvd.,
Irving, TX 75039-2298 ("Prime Landlord"), and PATHOGENESIS, INC., a
_________________ corporation having an office at 5215 Old Orchard Road, Suite
910, Skokie, Illinois 60077 ("Sub-tenant"),
WITNESSETH, WHEREAS: Prime Landlord is the owner of premises in the
Township of Clinton, County of Hunterdon and State of New Jersey known as Lot 30
in Block 30 on the Clinton Township tax map, together with all the improvements
thereon and appurtenances thereto, and being also served by an access easement
to State Highway 31 across Lot 17 in Block 30 on the Clinton Township tax map,
which premises are subject to a certain lease dated as of September 1, 1983 and
amended as of May 26, 1988 (the "Prime Lease"), made to Exxon Research and
Engineering Company, as tenant (the "Sublessor"); and
Sublessor, as lessor, and Subtenant, as lessee, have entered into a
sublease of part of said premises (the "Sublease"), and the parties hereto
desire to assure Subtenant's possession of the sublet premises upon the terms
and conditions of the Sublease, irrespective of a termination of the Prime
Lease;
NOW, THEREFORE, in consideration of the covenants hereinafter set forth,
the parties hereto hereby covenant and agree as follows:
1. (A) If the current term of the Prime Lease, or any renewal thereof,
shall terminate before the expiration of the term of the Sublease, as the
Sublease may be renewed in accordance with the terms thereof, for any reason
other than condemnation, fire or other damage, the Sublease, if then in
existence, shall continue as a lease between Prime Landlord as lessor, and
Subtenant, as lessee, with the same force and effect as if Prime Landlord and
Subtenant had entered into a lease as of the date of the termination of the
Prime Lease, containing the same terms, covenants and conditions as those
contained in the Sublease, including the rights of renewal thereof, for a term
equal to the unexpired term of the Sublease.
-1-
<PAGE>
(B) Any option which shall be or become vested in Subtenant to cancel the
Sublease, because of default of Sublessor, shall be ineffective unless Subtenant
shall give Prime Landlord notice thereof, and Prime Landlord shall fall to cure
such default within the time and in the manner Sublessor would have been
authorized to do had Sublessor simultaneously received such notice.
2. From and after such termination of the Prime Lease:
(A) Subtenant will attorn to Prime Landlord, and Prime Landlord will
accept such attornment.
(B) Prime Landlord will have the same remedies by entry, action or
otherwise for the nonperformance of any agreement contained in the Sublease for
the recovery of rent, for the commission of any waste or for any cause of
forfeiture which Sublessor had or would have had if the Prime Lease had not been
terminated.
(C) From and after the time of such attornment, Subtenant shall have the
same remedies against Prime Landlord for the breach of an agreement contained in
the Sublease that Subtenant might have had against Sublessor if the Prime Lease
had not been terminated, except that Prime Landlord shall not be (i) liable for
any act or omission of Sublessor, (ii) subject to any offsets or defenses which
Subtenant might have against Sublessor, or (iii) bound by any Rent or Additional
Rent (as defined in the Sublease) which Subtenant might have paid in advance to
Sublessor beyond the current quarter.
3. If, at the time of the termination of the Prime Lease, Sublessor shall
be obligated to do any work or make any alterations or improvements in the
premises demised under the Sublease, at a cost in excess of ten percent (10%) of
the then fixed annual rent under the Sublease, and if Prime Landlord shall
refuse to do or make the same, Prime Landlord, unless Subtenant waives said
requirement, or Subtenant may elect, within thirty (30) days after such
refusal, to cancel this Agreement, in which event neither party hereto shall
have any rights against the other hereunder.
4. The term "Prime Landlord" as used in this agreement means only the
owner for the time being of the premises, so that in the event of any sale or
other transfer of an interest therein, Prime Landlord shall be and thereby is
entirely freed and relieved of all covenants and
-2-
<PAGE>
obligations of the Prime Landlord hereunder. The provisions of this agreement,
however, shall bind any subsequent owner of the premises. In case any lease or
tenancy shall come into existence between Prime Landlord and Subtenant pursuant
to the provisions of this agreement, the provisions of this paragraph shall
apply to any liability imposed upon Prime Landlord by reason of such lease or
tenancy.
5. Any notice which under the terms of this agreement must or may be given
by the parties hereto shall be in writing and may be given by mailing the same
by registered or certified mail addressed to the respective addresses set forth
above. Either party and its respective successors in interest taking the
benefit of this agreement may designate by notice in writing a new or other
address to which such notice shall thereafter be given. Any notice given by mail
shall be deemed to have been received not later than seventy-two (72) hours
after deposit in the United States mall enclosed in a registered or certified
prepaid envelope addressed as provided above.
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement
as of the day and year first above written.
EXXON CAPITAL CORPORATION PATHOGENESIS, INC.
By:____________________________ By:________________________________
Name:__________________________ Name:______________________________
Title:_________________________ Title:_____________________________
The undersigned hereby consents to the execution and delivery of the
foregoing instrument and agrees that neither the execution of the same nor
anything done pursuant to the provisions thereof shall be deemed or taken to
modify the Prime Lease.
EXXON RESEARCH AND ENGINEERING COMPANY
By:____________________________
Name:__________________________
Title:_________________________
-3-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 17, 1997, except as to
note 8 to the financial statements, which is as of January 30, 1997, included
herein and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Seattle, Washington
February 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The audited finacial statements as of December 31, 1996 and 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,785,818
<SECURITIES> 45,901,978
<RECEIVABLES> 298,437
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,809,325
<PP&E> 12,734,045
<DEPRECIATION> 5,320,039
<TOTAL-ASSETS> 69,998,701
<CURRENT-LIABILITIES> 2,974,214
<BONDS> 0
0
0
<COMMON> 13,931
<OTHER-SE> 134,727,920
<TOTAL-LIABILITY-AND-EQUITY> 69,998,701
<SALES> 0
<TOTAL-REVENUES> 439,880
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,914,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,293,782
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,264,230)
<EPS-PRIMARY> (1.66)
<EPS-DILUTED> 0
</TABLE>
