<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1998
REGISTRATION NO. 333- .
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTRACEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 293 04-2980325
(I.R.S. EMPLOYER IDENTIFICATION
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL NUMBER)
CLASSIFICATION CODE NUMBER)
</TABLE>
2005 NW SAMMAMISH ROAD, SUITE 107
ISSAQUAH, WASHINGTON 98027
(425) 392-2992
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SIMON R. MCKENZIE
CHIEF EXECUTIVE OFFICER
INTRACEL CORPORATION
2005 NW SAMMAMISH ROAD, SUITE 107
ISSAQUAH, WASHINGTON 98027
(425) 392-2992
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOSEPH W. BARTLETT, ESQ. ALAN L. JAKIMO, ESQ.
ALLEN L. WEINGARTEN, ESQ. BROWN & WOOD LLP
MORRISON & FOERSTER LLP ONE WORLD TRADE CENTER
1290 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10048
NEW YORK, NEW YORK 10104 (212) 839-5300
(212) 468-8000
</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 (the "Securities Act"), 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, 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,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par value.............. $57,500,000 $16,963
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act solely for the
purpose of calculating the registration fee.
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED JULY 9, 1998
PROSPECTUS
, 1998
SHARES
INTRACEL CORPORATION
COMMON STOCK
All of the shares of common stock offered hereby are being sold by Intracel
Corporation ("Intracel" or the "Company"). Prior to this offering, there has
been no public market for the common stock of the Company. It is currently
estimated that the initial public offering price will be between $ and
$ per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
Application has been made to have the common stock approved for quotation
on the Nasdaq National Market under the symbol "ICEL."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
------------------------
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>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------
Per Share...................... $ $ $
Total(3)....................... $ $ $
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $ , which will be paid by
the Company.
(3) The Company and one of the Company's stockholders (the "Selling
Stockholder") have granted to the Underwriters a 30-day option to purchase
up to and additional shares, respectively, at the Price to the
Public less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions, Proceeds to the
Company, and proceeds to the Selling Stockholder will be $ , $ ,
$ , and $ , respectively. See "Underwriting."
The shares of common stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including their right to
reject orders in whole or in part. It is expected that delivery of share
certificates will be made in New York, New York on or about
, 1998.
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE> 3
[PICTURE OF COMPANY FACILITIES]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
------------------------
ZYMMUNE(R) is a registered United States trademark of the Company.
ASI(BCL), HumaRAD(16.88), HumaRAD(88BV59), Apo-Tek Lp(a) and Accu-D(x) are
trademarks of the Company. Other trademarks used herein belong to various other
parties. As used herein, "OncoVAX(CL)" means OncoVAX(CL)(R), "HumaSPECT" means
HumaSPECT(R), and "ZYMMUNE" means ZYMMUNE(R).
------------------------
All references to Stage I, Stage II, Stage III and Stage IV colon cancer
set forth herein refer to different stages of the disease based upon the status
of a patient's tumor nodes and metastases.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including "Risk Factors" and
the consolidated financial statements and notes thereto. Unless otherwise
indicated, all information in this Prospectus assumes (i) no exercise of the
Underwriters' over-allotment option, or currently outstanding stock options,
granted by the Company and (ii) the conversion of all shares of the Company's
Series A, A-1, A-3, B-1 and B-2 preferred stock into shares of common stock
effective upon the closing of the Offering (the "Preferred Stock Conversion").
All references to the "Company" or "Intracel" herein include Intracel
Corporation, its predecessor Massachusetts corporation and their respective
subsidiaries. Unless otherwise indicated, all references to years refer to the
fiscal years of the Company ending December 31.
THE COMPANY
Intracel is an integrated biopharmaceutical company focused on the
development and commercialization of cancer vaccines and immunotherapeutic and
diagnostic products for cancers and infectious diseases. Based upon the results
of Phase III clinical trials, the Company is preparing a Biologics License
Application ("BLA") for its OncoVAX(CL) cancer vaccine for the post-surgical
treatment of Stage II colon cancer, the most common form of colon cancer. The
Company is also planning to initiate Phase III clinical trials for OncoVAX(CL)
in combination with chemotherapy for Stage III colon cancer, has initiated Phase
III clinical trials for its proprietary formulation of keyhole limpet hemocyanin
("KLH") for the treatment of refractory bladder cancer, and is planning to
initiate a Phase II/III clinical trial for its ASI(BCL) vaccine for the
treatment of low-grade B-cell lymphoma. In addition, the Company markets a
portfolio of in vitro diagnostic products and is introducing a number of new
diagnostic products for detecting and monitoring various cancers, AIDS and heart
disease.
The Company believes that OncoVAX(CL) is the first vaccine to demonstrate
efficacy for the post-surgical treatment of Stage II colon cancer, and has
recently announced the results of a ten-year Phase III clinical trial for
OncoVAX(CL) conducted at University Hospital, Vrije Universiteit, Amsterdam (the
"Amsterdam" trial). This randomized multi-centered 254-patient clinical trial
was the third in a series of clinical trials of OncoVAX(CL) conducted in the
United States and Europe. The series included a Phase III clinical trial
conducted by the Eastern Cooperative Oncology Group (the "ECOG" trial) and a
Phase II/III clinical trial conducted by Dr. Herbert C. Hoover, Jr. (the
"Hoover" trial). In the Amsterdam trial, the Company believes that OncoVAX(CL)
demonstrated a 61% reduction in the rate of recurrences and a 50% improvement in
the survival rate for patients with Stage II colon cancer when compared to
surgery alone. The Company believes that the results of the Amsterdam trial are
supported by positive trends shown in the ECOG and Hoover trials. Stage II colon
cancer accounts for approximately 120,000 of the more than 200,000 new cases of
colon cancer diagnosed in the United States and Europe each year. There is
currently no product approved by the United States Food and Drug Administration
(the "FDA") for patients with Stage II colon cancer, and surgery is the
principal means of treatment. The Company plans to file a BLA for OncoVAX(CL)
with the FDA in late 1998 and is presently seeking the necessary regulatory and
reimbursement approvals in certain countries in Europe.
OncoVAX(CL) is a multivalent vaccine produced from a patient's own
surgically removed tumor. The tumor is collected immediately after surgery and
delivered to one of the Company's OncoVAX treatment centers ("OncoVAX Centers")
for manufacture and subsequent administration of the vaccine. Each OncoVAX
Center has been designed to treat up to 2,000 patients per year. The Company
plans to establish OncoVAX Centers at or near hospitals with established surgery
practices, serving areas characterized by high population density and high
incidence of colon cancer. Each OncoVAX Center will require less than 3,000
square feet and will employ a staff of production technicians and a supervising
physician. The first OncoVAX Center in the United States has been established at
Lehigh Valley Hospital in Allentown, Pennsylvania and the first OncoVAX Center
in Europe is being established at University Hospital, Vrije Universiteit,
Amsterdam. The Company plans to establish more than 25 OncoVAX Centers in the
United States and more than 15 in Europe.
3
<PAGE> 5
The Company plans to leverage its OncoVAX Centers to perform expedited
clinical trials and to launch other products, such as its in vivo imaging agent
HumaSPECT and its B-cell lymphoma vaccine ASI(BCL). The Company has filed an
amendment to the Investigational New Drug application ("IND") for OncoVAX(CL)
with the FDA to commence a Phase III clinical trial for the use of OncoVAX(CL)
in combination with chemotherapy for the treatment of Stage III colon cancer.
The Company believes that this combination therapy will be more effective in the
treatment of Stage III colon cancer than either OncoVAX(CL) or chemotherapy
administered alone. The Company is currently in discussions with the FDA
regarding the commencement of the Phase III clinical trial for this combination
therapy. No assurance can be given that the Company will be given clearance to
commence this Phase III clinical trial in a timely manner, if at all.
As a complementary product for OncoVAX(CL), the Company has developed
HumaSPECT, a totally human antibody labeled with a radioisotope, to monitor
recurrence and metastatic spread of colon cancer. In a Phase III clinical trial
completed in 1996, the Company believes that HumaSPECT demonstrated significant
advantages over CT scans, the current standard for detecting recurrence and
metastatic spread of colon cancer. Based on these results the Company has filed
a BLA in the United States and a Marketing Authorization Application ("MAA") in
Europe. The FDA has completed its initial review of the Company's BLA submitted
for HumaSPECT, and is now reviewing the Company's responses to the FDA's initial
round of questions. There can be no assurance that the Company will obtain FDA
approval to market HumaSPECT in the United States in a timely manner, if at all.
With respect to the MAA, the Company has recently been advised by the European
Medicines Evaluation Agency ("EMEA") that HumaSPECT has been recommended for
marketing authorization. While no assurance can be given, the Company expects
the European Union to approve this MAA.
The Company has initiated a Phase III clinical trial for KLH for the
treatment of refractory bladder cancer. In Phase II clinical trials, the Company
believes that KLH demonstrated significantly less toxicity than the leading
FDA-approved product for the treatment of bladder cancer. The Company has
entered into a strategic partnership with Mentor Corporation ("Mentor"), a
leading urology company, under which Mentor has been funding research and
development, is required to make milestone payments to the Company and will
market KLH worldwide. Mentor also markets Accu-D(x), the Company's rapid bladder
cancer test.
The Company plans to file an amendment to the IND for its ASI(BCL)vaccine
with the FDA to commence a Phase II/III clinical trial for such vaccine in the
first half of 1999. ASI(BCL) is designed to prevent recurrence of low-grade
non-Hodgkin's B-cell lymphoma, the most common type of B-cell lymphoma, in
patients who have achieved remission through chemotherapy and/or immunotherapy.
ASI(BCL), like OncoVAX(CL), is an autologous vaccine and is produced using a
unique antigen derived from a patient's own cancerous cells. The Company
believes that a Phase I clinical trial has demonstrated that ASI(BCL) can
stimulate a specific immune response and is associated with improved clinical
outcomes.
The Company has substantial expertise in the development and manufacturing
of totally human antibodies. In April 1998, the Company commenced enrollment in
its Phase I clinical trial for its totally human antibody HumaRAD(16.88) for the
treatment of head and neck cancer and plans to submit an IND with the FDA to
commence a Phase I clinical trial of a related product, HumaRAD(88BV59), for the
treatment of ovarian cancer, in the first half of 1999. In addition, the Company
is developing several antibody products to treat life-threatening infectious
diseases.
Through its wholly owned subsidiary, Bartels, Inc. ("Bartels"), the Company
also markets a portfolio of innovative in vitro diagnostic products for the
confirmation of viral and bacterial diseases. The Company markets these
diagnostic products domestically to approximately 1,500 hospitals and clinical
laboratories through its internal sales force. Internationally, the Company
relies upon third-party distributors to market its diagnostic products. In 16
countries the Company is marketing a one-minute test for HIV/AIDS based on its
proprietary INSTI technology. In addition, the Company is introducing a number
of new diagnostic products, including its Apo-Tek Lp(a) test kit to monitor an
important indicator of heart disease, its Accu-D(x) test to monitor the
recurrence of bladder cancer, and its ZYMMUNE test to monitor CD4/CD8 levels in
patients with AIDS.
4
<PAGE> 6
The Company's technology foundation in cancer vaccines and human antibodies
is supported by a clinical trial group with expertise in designing and
implementing complex clinical trials and by state-of-the-art manufacturing
facilities capable of producing commercial quantities of its therapeutic,
diagnostic and prognostic products. To conduct research, development,
manufacturing and marketing of its products, the Company employs over 240 people
in multiple facilities, including its corporate headquarters in Issaquah,
Washington, a therapeutic product facility located in Rockville, Maryland and
diagnostic product facilities in Issaquah, Washington and Richmond, British
Columbia, Canada.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... shares
Common Stock to be Outstanding After the
Offering................................... shares(1)
Use of Proceeds.............................. To support the establishment and early
operation of OncoVAX Centers, to repay
existing indebtedness, and the balance for
the Company's other research and development
programs, to conduct clinical trials for the
Company's cancer and infectious disease
products and for working capital and other
general corporate purposes. The Company may
also use a portion of the net proceeds to
acquire technologies or products com-
plementary to its business. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... ICEL
</TABLE>
- ---------------
(1) The foregoing computations exclude: (i) 3,211,240 shares of common stock
issuable upon exercise of stock options outstanding as of March 31, 1998, at
a weighted-average exercise price of $1.35 per share; (ii) 679,341 shares of
common stock issuable upon exercise of warrants expected to remain
outstanding after the Offering, at a weighted-average exercise price of
$4.50 per share; and (iii) 1,720,132 shares of common stock issuable upon
exercise of warrants granted in conjunction with the refinancing of various
short-term and long-term debt which will occur subsequent to March 31, 1998,
but before the date of this Prospectus, of which 98,132 are exercisable at
$7.64 per share and 1,622,000 are exercisable at an exercise price per share
equal to the price to the public per share set forth on the cover page of
this Prospectus, unless a registered public offering of the Company's common
stock is not consummated on or prior to December 31, 1998, in which case
1,622,000 are exercisable at $10.00 per share.
RISK FACTORS
The Offering involves a high degree of risk. See "Risk Factors."
6
<PAGE> 8
SUMMARY FINANCIAL DATA
The following Summary Consolidated Financial and Operating Data of the
Company is qualified by reference to and should be read in connection with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto which
are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED PRO FORMA THREE MONTHS ENDED
YEAR ENDED JUNE 30 ENDED DECEMBER 31 YEAR ENDED MARCH 31
------------------------- DECEMBER 31 ----------------- DECEMBER 31 -------------------------
1993 1994 1995 1995 1996 1997 1997(1) 1997 1998(2)
------ ------ ------- ----------- ------- ------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $1,776 $1,618 $ 1,566 $ 2,426 $14,718 $13,452 $ 21,341 $ 3,785 $ 5,463
Cost of revenue......... 533 449 824 1,779 7,433 9,493 16,109 2,780 3,841
Selling, general and
administrative........ 962 801 1,580 2,593 5,740 8,478 12,922 1,720 4,235
Research and
development........... 785 1,078 1,174 1,118 1,043 556 8,633 151 2,026
Acquired research and
development........... 2,100 37,718
Amortization of cost in
excess of net assets
acquired.............. 151 908 908 993 227 248
Reorganization
expense............... 917
------ ------ ------- ------- ------- ------- -------- ------- --------
Total operating
expense............. 2,280 2,328 3,578 7,741 16,041 19,435 38,657 4,878 48,068
------ ------ ------- ------- ------- ------- -------- ------- --------
Loss from operations.... (504) (710) (2,012) (5,315) (1,323) (5,983) (17,316) (1,093) (42,605)
Interest income
(expense), net........ 47 22 68 (135) (2,179) (2,496) (3,334) (640) (788)
Gain on pension
curtailment........... 800
Loss on sale-leaseback
transaction........... (335)
------ ------ ------- ------- ------- ------- -------- ------- --------
Loss before
extraordinary item.... (457) (688) (1,944) (5,450) (3,502) (8,479) (20,985) (1,733) (42,593)
Extraordinary gain on
early extinguishment
of debt............... 1,367
------ ------ ------- ------- ------- ------- -------- ------- --------
Net loss.............. $ (457) $ (688) $(1,944) $(4,083) $(3,502) $(8,479) $(20,985) $(1,733) $(42,593)
====== ====== ======= ======= ======= ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (3) AS ADJUSTED(3)(4)
----------- ------------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 733 $ 11,213 $ 56,993
Working capital (deficit)................................. (4,176) 6,304 52,084
Total assets.............................................. 45,646 56,126 101,906
Long-term debt, non-convertible, including current
portion................................................. 30,229 36,998 31,998
Long-term debt, convertible, including current portion.... 233 10,382
Redeemable, convertible preferred stock................... 20,463 20,463
Accumulated deficit....................................... (63,301) (63,301) (63,301)
Total stockholders' equity (deficit)...................... (16,391) (20,939) 60,686
</TABLE>
- ---------------
(1) Gives effect to the acquisition of PerImmune Holdings, Inc. and Subsidiary
("PerImmune Holdings") as if it had occurred on January 1, 1997. See "Pro
Forma Consolidated Financial Information."
(2) Represents the Company as consolidated with PerImmune Holdings.
(3) Gives effect to the refinancing of various short-term and long-term debt
which will occur subsequent to March 31, 1998, but before the date of this
Prospectus but excludes the effect of 1,622,000 shares of common stock
issuable upon exercise of warrants granted in connection with this
refinancing, at an exercise price per share equal to the price to the public
per share set forth on the cover page of this Prospectus, unless a
registered public offering of the Company's Common Stock is not consummated
on or prior to December 31, 1998, in which case 1,622,000 are exercisable at
$10.00 per share. See Note 14 to the Company's consolidated financial
statements contained elsewhere in this Prospectus.
(4) Adjusted to reflect (i) the Preferred Stock Conversion, (ii) the exercise of
warrants for the purchase of 928,696 shares of common stock at a
weighted-average price of $6.22 per share upon consummation of the Offering,
(iii) the automatic conversion of certain notes payable into shares of
common stock, upon consummation of the Offering and (iv) the sale of common
stock offered hereby with an assumed total net proceeds of $45,000,000 and
the repayment of $5,000,000 of indebtedness.
7
<PAGE> 9
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of common stock offered hereby.
DEPENDENCE ON ONCOVAX(CL)
The Company's future growth and profitability will depend on its ability to
introduce and market OncoVAX(CL) and establish OncoVAX Centers. There can be no
assurance that the Company will be able to obtain and maintain necessary
regulatory approvals for OncoVAX(CL) on a timely basis, if at all. The failure
of the Company to introduce and market OncoVAX(CL) and establish OncoVAX Centers
on a timely basis would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company believes that the results of the Amsterdam, ECOG and Hoover
trials of OncoVAX(CL) will provide sufficient evidence to support the approval
by the FDA of the Company's BLA for OncoVAX(CL) being prepared for submission.
If the FDA does not consider the ECOG and Hoover trials as relevant or
supporting to the efficacy of OncoVAX(CL), there can be no assurance that the
FDA will consider the Amsterdam trial alone as a sufficient basis for approval.
Given the May 1998 FDA Guidance Document entitled "Providing Clinical Evidence
of Effectiveness of Human Drug and Biological Products," which discusses the use
and limitations of a single clinical trial to form the basis for approval of a
BLA, and the views the FDA has expressed on this subject with respect to
OncoVAX(CL) combined with chemotherapy for the treatment of Stage III colon
cancer discussed below, there can be no assurance that the FDA will not require
additional clinical trials of OncoVAX(CL) prior to FDA acceptance of the
Company's BLA for filing, or ultimately, for approval.
The Company may elect to seek approval of OncoVAX(CL) under the accelerated
approval provisions of the Food and Drug Administration Modernization Act of
1997 (the "FDA Modernization Act"). The accelerated approval regulations apply
to products used in the treatment of serious or life-threatening illnesses that
appear to provide meaningful therapeutic benefits over existing treatments.
These regulations permit approval of such products before clinical research is
completed based on the product's effect on a clinical endpoint or surrogate
endpoint. When a product is approved under the accelerated approval regulations,
the sponsor may be required to conduct additional adequate and well-controlled
studies to verify that the effect on the surrogate endpoint correlates with
improved clinical outcome or to otherwise verify the clinical benefit. In the
event such postmarketing studies do not verify the drug's anticipated clinical
benefit, or if there is other evidence that the drug product is not shown to be
safe and effective, expedited withdrawal procedures permit the FDA, after a
hearing, to remove a product from the market. Significant uncertainty exists as
to the extent to which these accelerated approval regulations will result in
accelerated review and approval. Further, the FDA has not made available
comprehensive guidelines with respect to these regulations and retains
considerable discretion to determine eligibility for accelerated review and
approval. Accordingly, the FDA could employ such discretion to deny eligibility
of OncoVAX(CL) as a candidate for accelerated review or to require additional
clinical trials or other information before approving OncoVAX(CL). A
determination that OncoVAX(CL) is not eligible for accelerated review and delays
and additional expenses associated with generating a response to any such
request for additional trials could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Government Regulation; No Assurance of Regulatory Approvals" and
"Business -- Government Regulation."
Even if OncoVAX(CL) is approved for marketing by the FDA and other
regulatory authorities, there can be no assurance that it will be commercially
successful or that the Company will be successful in establishing and operating
OncoVAX Centers and manufacturing OncoVAX(CL) on a commercial scale at a cost
that will enable the Company to realize a profit. If OncoVAX(CL) is approved,
its commercialization through the Company's OncoVAX Centers would be
substantially different from the manner in which most anti-cancer treatments,
including chemotherapeutics, are now manufactured and distributed. Despite the
results of the clinical trials of
8
<PAGE> 10
OncoVAX(CL) and the absence of any therapeutic products currently approved by
the FDA for post-surgical treatment of Stage II colon cancer, there can be no
assurance that oncologists and other physicians will refer patients for
treatment with OncoVAX(CL). Market acceptance also could be affected by the
availability of third party reimbursement. Failure of OncoVAX(CL) to achieve
significant market acceptance could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Uncertainty Related to Health Care Reform and Third Party Reimbursement" and
"Business -- Competition."
On May 26, 1998, the FDA's Center for Biologics Evaluation and Research
("CBER") advised the Company in writing that its proposed Phase III clinical
trial relating to the use of OncoVAX(CL) in combination with chemotherapy for
the treatment of Stage III colon cancer had been placed on clinical hold and,
therefore, may not begin until certain manufacturing information is provided to
CBER. The Company has responded to CBER's requests. The Company believes that
upon evaluation of this information CBER will remove the clinical hold and allow
the clinical trial to begin by the third quarter of 1998. CBER also asked
questions regarding the study to determine whether it would constitute a
"pivotal" Phase III trial sufficient to support approval. In addition, the FDA
questioned whether a single pivotal study would be sufficient to approve a
product for this indication and requested further information on this issue. The
Company intends to provide all requested information. There can be no assurance
at this time that the FDA will allow the study to commence or will consider this
clinical trial to be sufficient to support approval.
DEVELOPMENT, INTRODUCTION AND MARKETING OF NEW PRODUCTS
The Company's future growth and profitability will depend, in part, on its
ability to develop, introduce and market new products based on its proprietary
technologies. Many of the Company's products are currently under development,
either in preclinical testing or clinical trials. Other products are planned for
future development. The time period required for such development is extensive
and highly uncertain and such development requires substantial expense. The new
products developed by the Company may prove to be ineffective or unreliable.
They may be difficult to manufacture in a cost-effective manner, may fail to
receive necessary regulatory clearances, may not achieve market acceptance or
may encounter other unanticipated difficulties. The failure of the Company to
develop, introduce and market new products on a timely basis or at all could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business."
UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS
The Company has conducted and plans to continue to undertake extensive and
costly clinical trials to assess the safety and efficacy of its product
candidates. Such trials are often subject to setbacks and delays. The rate of
completion of the Company's clinical trials is dependent upon, among other
factors, the rate of patient enrollment. Patient enrollment is a function of
many factors, including the nature of the Company's clinical trial protocols,
existence of competing protocols, size of the patient population, proximity of
patients to clinical sites and eligibility criteria for the study. Delays in
patient enrollment will result in increased expenses and delays, which could
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company cannot assure that patients enrolled in the
Company's clinical trials will respond to the Company's product candidates.
Failure to comply with FDA regulations applicable to clinical trials could
result in delay, suspension or cancellation of such trials (e.g., clinical
hold), and/or refusal by the FDA to accept the results of such trials. In
addition, the FDA may suspend clinical trials at any time if it concludes that
the participants in such trials are being exposed to unacceptable risks. Thus,
there can be no assurance that any clinical trials will be completed
successfully within any specific time period, if at all, with respect to any of
the Company's product candidates. Furthermore, there can be no assurance that
human clinical trials will show any current or future product candidate to be
safe and effective or that data derived therefrom will be suitable for
submission to the FDA or will support the Company's submission of a BLA, Product
License Application ("PLA") or New Drug Application ("NDA"). See "-- Dependence
on OncoVAX(CL)" for a description of certain issues relating to the clinical
trials of OncoVAX(CL), "Business -- Therapeutic Products -- OncoVAX(CL) for the
treatment of colon cancer" for a description of certain issues relating to the
Company's BLA for HumaSPECT and "Business -- Government Regulation."
9
<PAGE> 11
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
All new drugs, biologics and diagnostic products, including the Company's
products under development, are subject to extensive and rigorous government
regulation in the United States and elsewhere. The requirements imposed by
regulators of pharmaceuticals and medical devices vary from country to country.
In the United States, regulation is administered by the federal government,
principally the FDA under the Federal Food, Drug and Cosmetic Act (the "FDC
Act") and other laws including, in the case of biologics, the Public Health
Service Act (the "PHS Act"), and by state and local governments. Such
regulations govern, among other things, the development, testing, manufacture,
labeling, storage, premarket approval, advertising, promotion, sales and
distribution of such products and post-approval monitoring of safety and
efficacy.
In the European Union, the EMEA is responsible for administering a
centralized assessment procedure for European Union-wide authorizations valid in
Britain, France, Germany, Italy, Spain and Greece ("Member States") for
medicinal products of significant therapeutic interest or comprising a
significant innovation.
In addition, regulatory approval of prices is required in most countries
other than the United States. For example, regulators in certain European
countries condition their approval of a pharmaceutical product on the agreement
of the seller not to sell the product for more than a certain price in their
respective countries. In some cases, the price established in any of these
countries may serve as a benchmark in the other countries. As such, the price
approved in connection with the first approval obtained in any of these European
countries may serve as the maximum price that may be approved in the other
European countries. Also, a price approved in one of these European countries
that is lower than the price previously approved in the other European countries
may require a reduction in the prices in those other European countries. In such
an event, there can be no assurance that the resulting prices would be
sufficient to generate an acceptable return on the Company's investment in its
products.
The regulatory process, which includes preclinical studies and clinical
trials of each potential product, is lengthy, expensive and uncertain. Prior to
commercial sale in the United States, most new drugs, biologics and diagnostic
products, including the Company's products under development, must be approved
by the FDA. Securing FDA marketing approvals often requires the submission of
extensive preclinical and clinical data and supporting information to the FDA.
No assurances can be given that the Company will make such submissions in a
timely fashion. Product approvals, if granted, can be withdrawn for failure to
comply with regulatory requirements or upon the occurrence of unforeseen
problems following initial marketing. Moreover, regulatory approvals for
products such as new drugs, biologics and diagnostic products, even if granted,
may require that the labeling for such products include significant limitations
on the uses for which such products may be marketed. There can be no assurance
that the Company will be able to obtain necessary regulatory approvals on a
timely basis, if at all, for any of its product candidates, and delays in
receipt or failures to receive such approvals or failures to comply with
existing or future regulatory requirements could have a material adverse effect
on the Company's business, financial condition and results of operations.
Failure to comply with applicable FDA and other regulatory requirements can
result in sanctions being imposed on the Company or the manufacturers of its
products, including warning letters, fines, product recalls or seizures,
injunctions, refusals to permit products to be imported into or exported out of
the United States, refusals of the FDA to grant premarket approval of drugs,
biologics or devices, refusals of the FDA to allow the Company to enter into
government supply contracts, withdrawals of previously approved marketing
applications and criminal prosecutions.
The pharmaceutical legislation of the European Union requires any person
seeking to market a medicinal product for human use to obtain approval of an
MAA. While procedures for approval of MAAs have been harmonized within the
European Union through directives for implementation into the domestic law of
each Member State and by regulations having direct effect, the specific
approvals and the time required for approval varies from country to country and
may, in some instances, involve additional testing. Drugs designated by the EMEA
as "high-tech" products are evaluated by the EMEA on an expedited basis,
generally within 210 days.
10
<PAGE> 12
Manufacturers of drugs, biologics and devices also are required to comply
with the FDA current Good Manufacturing Practice ("cGMP") regulations or similar
foreign regulations, which include requirements relating to quality control and
quality assurance as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to inspection by the FDA and
other government regulators, including unannounced inspection in their own and
other jurisdictions. Certain material manufacturing changes to approved drugs,
biologics and diagnostic products also are subject to FDA and foreign regulatory
review and approval. There can be no assurance that the Company or its suppliers
will be able to comply with the applicable cGMP regulations and other FDA or
other post-approval regulatory requirements such as adverse event reporting.
Failure to comply with the post-approval regulatory requirements can lead to
product withdrawal and/or other regulatory action by the FDA. Such failure could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Governmental Regulation."
In addition to regulation by the FDA, the Nuclear Regulatory Commission
(the "NRC") and some individual states (referred to as "Agreement States") also
regulate companies that possess radioactive material and those that manufacture,
prepare or transfer radioactive drugs for commercial distribution. Agreement
States typically regulate in a manner similar to the NRC. The Company's
incorporation of radioactive materials in its labeled products HumaSPECT,
HumaRAD(16.88) and HumaRAD(88BV59) will subject it to these NRC requirements. To
comply, the Company must apply for and maintain appropriate licenses and comply
with reporting, recordkeeping, and other regulatory requirements. The Company's
failure to comply with the regulatory requirements could subject it to
enforcement actions including civil penalties and orders to modify, suspend, or
revoke its licenses. With a suspended or revoked license, the Company would need
to cease and desist from possessing the radioactive material necessary for
producing its products and from distributing its products.
FRAUD AND ABUSE, FACILITY LICENSURE AND OTHER HEALTHCARE REGULATION
In marketing its current products, the Company is subject to federal and
state anti-kickback laws that regulate the financial relationships between
manufacturers of products, such as the Company's diagnostic products, and the
hospitals, physicians and other potential purchasers of medical products or
sources of referral related to the purchase of such products. The statutory
prohibitions are broad and are enforceable with considerable discretion by
federal and state authorities. Federal regulations provide very specific "safe
harbors" for only some business practices; other practices may not be in
violation of the law but are not provided a safe harbor. Because of the breadth
of the statutory provisions, there can be no assurance that the Company's
activities in selling and marketing medical products would not come under
scrutiny and challenge under one or more of these laws. Such a challenge could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's OncoVAX Centers will be subject to state laws regulating the
licensure and operation of health care facilities and clinics where patients
receive treatment. The structure and operation of the OncoVAX Centers and each
OncoVAX Center's relationship to supervising physicians and other health care
professionals also must comply with laws existing in some states that prohibit
the corporate practice of medicine. These laws vary from state to state and are
enforced by the courts and regulatory authorities with broad discretion. The
Company intends to structure and operate its OncoVAX Centers in compliance with
these laws, but a failure to meet these requirements could have a material
adverse effect on the Company's ability to market OncoVAX(CL) and this, in turn,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The relationships between the Company's OncoVAX Centers and their
supervising physicians also will be subject to state and federal anti-kickback
laws, as well as the federal law governing physicians' financial relationships
with health care entities (also known as the "Stark Law") and similar laws.
These laws are enforced by imposition of civil and criminal penalties as well as
possible exclusion from reimbursement by any state or federal health care
program. The Company intends to structure and operate its OncoVAX Centers in
compliance with these laws, but a failure to meet these requirements that
results in an investigation, penalties or exclusion from participation in
government payor programs could have a material adverse effect on
11
<PAGE> 13
availability and extent of reimbursement for OncoVAX(CL) and this, in turn,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
HISTORY OF OPERATING LOSSES; ANTICIPATED FUTURE LOSSES
The Company has experienced significant losses since inception. As of March
31, 1998, the Company's accumulated deficit was approximately $63.3 million. The
Company expects to incur significant additional operating losses primarily in
connection with the establishment and operation of its OncoVAX Centers, ongoing
and expanded research and development and expanded and later stage clinical
trials. The Company expects that losses will fluctuate from quarter to quarter
and that such fluctuations may be substantial. Most of the Company's product
candidates are in development in preclinical studies and clinical trials and
have not generated product revenues. To achieve and sustain profitable
operations, the Company, alone or with others, must develop successfully, obtain
regulatory approval for, manufacture, introduce, market and sell its products.
The time frame necessary to achieve market success is long and uncertain. There
can be no assurance that the Company will ever generate sufficient product
revenues to become profitable or to sustain profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Pro Forma Consolidated Financial Information."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's operations to date have consumed substantial and increasing
amounts of cash. The Company's negative cash flow from operations is expected to
continue and to accelerate in the foreseeable future. The development of the
Company's technology and potential products, including the establishment of
OncoVAX Centers in the United States and Europe, will continue to require a
commitment of substantial funds. The Company expects that its existing capital
resources, including the net proceeds of the Offering and interest thereon, will
be adequate to satisfy the requirements of its current and planned operations
until the end of 1999. However, the rate at which the Company expends its
resources is variable, may be accelerated and will depend on many factors,
including the scope and results of preclinical studies and clinical trials,
continued progress of the Company's research and development of product
candidates, the cost, timing and outcome of regulatory approvals, the expenses
of establishing a sales and marketing force, the cost of establishing and
operating OncoVAX Centers, the cost of manufacturing, the cost involved in
preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims, the acquisition of technology licenses, the status of competitive
products and the availability of other financing.
The Company may need to raise substantial additional capital to fund its
operations and may seek such additional funding through public or private equity
or debt financings, as well as through collaborative arrangements. There can be
no assurance that such additional funding will be available on acceptable terms,
if at all. If additional funds are raised by issuing equity securities,
substantial equity dilution to stockholders may result. If adequate funds are
not available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research and development programs, curtail its
operations or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize on its own. See "Pro Forma Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE UPON PROPRIETARY TECHNOLOGY; UNCERTAINTY OF INTELLECTUAL PROPERTY
RIGHTS
Extensive research has been conducted in the cancer vaccine and monoclonal
antibody fields by pharmaceutical and biotechnology companies and other
organizations and a substantial number of patents in these fields have been
issued to other pharmaceutical and biotechnology companies. In addition,
competitors may have applications for additional patents pending and may obtain
additional patents and proprietary rights related to products or processes
competitive with or similar to those of the Company. Patent applications are
maintained in secrecy for a period after filing and, in the United States,
patent applications are confidential until the patent is issued. Publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries and the filing of related patent applications. The Company may not
be aware of all of the
12
<PAGE> 14
patents potentially adverse to the Company's interests that may have been issued
to other companies, research or academic institutions, or others. No assurance
can be given that such patents do not exist, have not been filed, or could not
be filed or issued, which contain claims relating to the Company's technology,
products or processes. To date, no consistent policy has emerged regarding the
breadth of claims allowable in pharmaceutical and biotechnology patents.
The Company is aware of various patents that have been issued to others
that pertain to a portion of the Company's prospective business. There can be no
assurance that patents do not exist in the United States or in other countries
or that patents will not be issued to third parties that contain preclusive or
conflicting claims with respect to OncoVAX(CL) or any of the Company's other
product candidates or programs. Commercialization of cancer vaccines and
monoclonal antibody-based products may require licensing and/or cross-licensing
of one or more patents with other organizations in the field. There can be no
assurance that the licenses that might be required for the Company's processes
or products would be available on commercially acceptable terms, if at all.
The Company's breach of an existing license or failure to obtain a license
to technology required to commercialize its product candidates may have a
material adverse effect on the Company's business, financial condition and
results of operations. Litigation, which could result in substantial costs to
the Company, may also be necessary to enforce any patents issued to the Company
or to determine the scope and validity of third party proprietary rights. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome is favorable to
the Company. An adverse outcome could subject the Company to significant
liabilities to third parties and require the Company to license disputed rights
from third parties or to cease using such technology.
Patents issued and patent applications filed internationally relating to
biologics are numerous and there can be no assurance that current and potential
competitors and other third parties have not filed or in the future will not
file applications for, or have not received or in the future will not receive,
patents or obtain additional proprietary rights relating to products or
processes used or proposed to be used by the Company. Many non-United States
jurisdictions allow oppositions by third parties to granted patents and/or
issued patents. The Company may have to participate in opposition proceedings in
non-United States jurisdictions to prevent a third party from obtaining a patent
that may be adverse to the Company's interests. Also, the Company may have to
defend against a third party's opposition to a patent granted and/or issued to
the Company. There can be no assurance that the Company will be successful in an
opposition proceeding, and participation in such a proceeding could result in
substantial cost to the Company whether or not the eventual outcome is favorable
to the Company. Moreover, there is certain subject matter which is patentable in
the United States and not generally patentable outside of the United States and
this may limit the protection the Company can obtain on some of its inventions
outside of the United States. For example, methods of treating humans are not
patentable in many countries outside of the United States. These and/or other
issues may prevent the Company from obtaining patent protection outside of the
United States, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Patents and Other Intellectual Property."
The Company also relies on trade secrets and trademarks to protect its
technology, especially where patent protection is not believed to be appropriate
or obtainable. The Company protects its proprietary technology and processes, in
part, by confidentiality agreements with its key employees, consultants, medical
advisory board members, collaborators and contractors. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets and trademarks or
those of its collaborators or contractors will not otherwise become known or be
discovered independently by competitors.
13
<PAGE> 15
HIGHLY COMPETITIVE INDUSTRY; RISK OF TECHNOLOGICAL OBSOLESCENCE
The pharmaceutical and biotechnology industries are intensely competitive.
Many of the product candidates being developed by the Company would compete with
existing drugs, therapies and diagnostic products, and new drugs, therapies and
diagnostic products under development, including, in the case of cancer
treatments, angiogenesis inhibitors, gene therapy, advanced hormonal replacement
therapy and new chemotherapeutics. There are many pharmaceutical companies,
diagnostic companies, biotechnology companies, public and private universities
and research organizations actively engaged in research and development of
products for the treatment of people with cancer. Many of these organizations
have financial, technical, manufacturing and marketing resources greater than
those of the Company. Several of them may have developed or are developing
therapies or diagnostic products that could be used for treatment or diagnosis
of the same diseases targeted by the Company. If a competing company were to
develop or acquire rights to a safer or more efficacious treatment of or
diagnostic products for the same diseases targeted by the Company, or one which
offers significantly lower costs of treatment or diagnosis, the Company's
business, financial condition and results of operations could be materially
adversely affected.
The Company believes that its product development programs will be subject
to significant competition from companies utilizing alternative technologies as
well as to increasing competition from companies that develop and apply
technologies similar to the Company's technologies. Other companies may succeed
in developing products earlier than the Company, obtaining approvals for such
products from the FDA more rapidly than the Company or developing products that
are safer or more effective than those under development or proposed to be
developed by the Company. There can be no assurance that research and
development by others will not render the Company's technology or product
candidates obsolete or non-competitive or result in treatments superior to any
therapy developed by the Company, or that any therapy developed by the Company
will be preferred to any existing or newly developed technologies. See
"Business -- Competition."
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL
The Company is dependent upon a limited number of key management and
technical personnel. The loss of the services of one or more of such key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company's
success will be dependent upon its ability to attract and retain additional
highly qualified personnel. The Company faces intense competition in its
recruiting activities, and there can be no assurance that the Company will be
able to attract and/or retain qualified personnel. See "Management."
EXPOSURE TO PRODUCT LIABILITY
The manufacture and sale of human therapeutic and diagnostic products
involve an inherent risk of product liability claims and associated adverse
publicity. The Company has only limited commercial product liability insurance.
There can be no assurance that the Company will be able to maintain existing
insurance or obtain additional product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Such insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms, if at all. An inability to obtain sufficient insurance
coverage on reasonable terms or to otherwise protect against potential product
liability claims brought against the Company in excess of its insurance
coverage, if any, or a product recall could have a material adverse effect upon
the Company's business, financial condition and results of operations.
UNCERTAINTY RELATED TO THIRD PARTY REIMBURSEMENT
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Initiatives to reform
health care financing continue to be dominated by cost-containment efforts. The
Company anticipates that Congress, state legislatures and the private sector
will continue to review and assess controls on health care spending through
limitations on the growth of private health insurance premiums and Medicare and
Medicaid spending, the increased use of capitated managed
14
<PAGE> 16
care contractors by government payors, price controls on pharmaceuticals and
other fundamental changes to the health care delivery system. Any such proposed
or actual changes could affect the Company's ultimate profitability or could
cause the Company to limit or eliminate spending on development projects. In
anticipation of the impending demographic shifts brought about by the "baby
boom" generation, legislative debate concerning potential reform to Medicare,
the government's health financing program for persons over age 65, is expected
to continue, and market forces are expected to drive reductions in health care
costs. The Company cannot predict what impact the adoption of any federal or
state health care reform measures or future private sector reforms may have on
its business.
In the United States and foreign markets, sales of the Company's proposed
products will depend in part upon the availability of reimbursement from third
party payors, such as government health administration authorities, managed care
providers, private health insurers and other organizations. The Company has very
limited experience obtaining coverage and reimbursement for its products in the
United States. Third party payors are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
OncoVAX(CL), as potentially the first vaccine to treat colon cancer approved for
marketing by government regulators, faces particular uncertainties due to the
absence of a comparable, approved therapy to serve as a model for pricing and
reimbursement decisions.
As an autologous product that will not generally be sold through
traditional commercial channels, OncoVAX(CL) may present unique coverage and
payment issues for Medicare. Because the Company's plans concerning the
production, distribution and administration of OncoVAX(CL) do not precisely fit
the models established for drug coverage and payment by Medicare, the Company
cannot predict whether Medicare will cover and pay for the biologic under its
established rules for drugs and biologics. Failure to obtain coverage and
adequate reimbursement could have a material adverse effect on the Company's
ability to market OncoVAX(CL). With respect to private payors, there can be no
assurance that the Company's product candidates will be considered cost
effective or that adequate third party reimbursement will be available to enable
the Company to maintain price levels sufficient to realize an appropriate return
on its investment in product development. If adequate coverage and reimbursement
rates are not provided by the government and third party payors for the
Company's products, the market acceptance of these products could be adversely
affected, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Reimbursement."
RADIOACTIVE AND OTHER HAZARDOUS MATERIALS
The manufacturing and administration of the Company's HumaRAD products and
HumaSPECT require the handling, use and disposal of (90)Yttrium and Technetium
Tc 99m, respectively, each a radioactive isotope. These activities must comply
with various state and federal regulations. Violations of these regulations
could delay significantly completion of clinical trials and commercialization of
these products.
The Company expects to continue using hazardous chemicals and radioactive
compounds in its ongoing research activities. Although the Company believes that
safety procedures for handling and disposing of such materials will comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. The Company could be held liable for any damages that result from
such an accident, contamination or injury from the handling and disposal of
these materials, as well as for unexpected remedial costs and penalties that may
result from any violation of applicable regulations, which could result in a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may incur substantial costs to
comply with environmental regulations. See "Business -- Radioactive and Other
Hazardous Materials."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY FLUCTUATIONS
The Company's international operations are anticipated to comprise a
substantial percentage of the Company's net revenue in the future and,
accordingly, the Company will be subject to risks associated with international
operations. Such risks include managing a multinational organization,
fluctuations in currency
15
<PAGE> 17
exchange rates, the burden of complying with international laws and other
regulatory and product certification requirements and changes in such laws and
requirements, tariffs and other trade barriers, import and export controls,
restrictions on the repatriation of funds, inflationary conditions, staffing,
employment and severance issues, political and economic instability and longer
payment cycles in certain countries. The inability to effectively manage these
and other risks could adversely affect the Company's business, financial
condition and results of operations.
TAX LOSS CARRYFORWARDS
The Company's net operating loss carryforwards ("NOLs") expire through the
year 2012. Under Section 382 of the Internal Revenue Code of 1986, as amended,
utilization of prior NOLs is limited after an ownership change, as defined in
Section 382, to an annual amount equal to the value of the corporation's
outstanding stock immediately before the date of the ownership change multiplied
by the federal long-term exempt tax rate. Each of the Company and PerImmune
Holdings has experienced an ownership change, and is limited in its use of its
prior NOLs. In the event the Company or PerImmune Holdings achieves profitable
operations, these limitations would have the effect of increasing the Company's
consolidated tax liability and reducing net income and available cash reserves.
See Note 8 to the consolidated financial statements of the Company and Note 13
to the consolidated financial statements of PerImmune Holdings.
CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
Following consummation of the Offering, directors, executive officers and
principal stockholders of the Company will beneficially own approximately %
of the outstanding shares of the Company's common stock. Accordingly, these
stockholders, individually and as a group, may be able to control the Company
and direct its affairs and business, including any determination with respect to
a change in control of the Company, future issuances of common stock or other
securities by the Company, declaration of dividends on the common stock and the
election of directors. See "Principal and Selling Stockholders."
FUTURE MERGERS AND ACQUISITIONS
The Company may acquire complementary businesses, products or technologies
in the future although the Company has no pending agreements or commitments. No
assurance can be given that the Company will not incur problems in integrating
any future acquisition and there can be no assurance that any future acquisition
will result in the Company's becoming profitable or, if the Company achieves
profitability, that such profitability will be sustainable. Furthermore, there
can be no assurance that the Company will realize value from any such
acquisition which equals or exceeds the consideration paid. Any such problem
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, future acquisitions by the
Company may result in dilutive issuances of equity securities, the incurrence of
additional debt, large one-time write-offs and the creation of goodwill or other
intangible assets that could result in amortization expense. These factors could
have a material adverse effect on the Company's business, financial condition
and results of operations.
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the common stock
and there is no assurance that an active market will develop or be sustained
after the Offering. The initial public offering price will be determined through
negotiations among the Company and the Underwriters and may bear no relationship
to the price at which the common stock will trade upon consummation of the
Offering. The securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. The market prices of the common stock of many publicly
held biotechnology and pharmaceutical companies have in the past been, and can
in the future be expected to be, especially volatile. Announcements of
technological innovations or new products by the Company or its competitors,
release of reports by securities analysts, developments or disputes concerning
patents or proprietary rights, regulatory developments, changes in regulatory or
medical reimbursement policies, economic and other external factors, as well as
period-to-period fluctuations in the Company's financial
16
<PAGE> 18
results, may have a significant and adverse impact on the market price of the
common stock. See "Underwriting."
POTENTIAL ADVERSE IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of common stock to be sold in the Offering will be freely
tradable. The remaining shares of common stock, representing approximately
% of the outstanding common stock upon consummation of the Offering, will
be deemed "restricted securities" under the Securities Act, and, as such, will
be subject to restrictions on the timing, manner and volume of sales of such
shares. Certain holders of those shares will have the right to request the
registration of their shares under the Securities Act following the completion
of a period of one year, in the case of directors and executive officers, and a
period of 180 days, in the case of certain other stockholders, after the date of
this Prospectus, which, upon the effectiveness of such registration, would
permit the free transferability of such shares. See "Shares Eligible for Future
Sale."
The Company, its executive officers and directors and certain of its
current stockholders have agreed that, subject to certain limited exceptions,
for a period of one year, in the case of directors and executive officers, and a
period of 180 days, in the case of such other stockholders, after the date of
this Prospectus, without the prior written consent of the Underwriters, they
will not, directly or indirectly, offer to sell, sell or otherwise dispose of
any shares of common stock. See "Underwriting."
No predictions can be made as to the effect, if any, that future sales of
shares or the availability of shares for future sale, will have on the market
price for common stock prevailing from time to time. The sale of a substantial
number of shares held by existing stockholders, whether pursuant to a subsequent
public offering or otherwise, or the perception that such sales could occur,
could adversely affect the market price of the common stock and could materially
impair the Company's future ability to raise capital through an offering of
equity securities.
DILUTION
Purchasers of the shares of common stock offered hereby will experience
immediate dilution of $ per share in net tangible book value (deficit) per
share after deducting the underwriting discounts and estimated offering
expenses. Such investors will experience additional dilution upon the exercise
of outstanding options. See "Dilution."
ADVERSE IMPACT OF POSSIBLE ISSUANCES OF PREFERRED STOCK;
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Board of Directors has authority to issue up to 5,000,000 shares of
preferred stock and to fix the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock could affect adversely the voting power of the holders of common stock and
the likelihood that such holders will receive dividend payments and payments
upon liquidation. Additionally, the issuance of preferred stock and certain
provisions in the Company's Amended and Restated Certificate of Incorporation,
as amended (the "Certificate of Incorporation"), and Bylaws may have the effect
of delaying, deferring or preventing a change in control of the Company, may
discourage bids for the common stock at a premium over the market price of the
common stock and may affect adversely the market price of and the voting and
other rights of the holders of the common stock.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements.
17
<PAGE> 19
Management has initiated a program to prepare the Company's computer
systems and other electronic applications for the year 2000 (the "Year 2000
Program"). Through the Year 2000 Program, management is currently reviewing the
Company's computer systems and other electronic applications in order to
identify potential Year 2000 problems. Based upon preliminary results of the
Year 2000 Program, management anticipates that the Company's Year 2000
compliance expenses will not be material and that the Company's Year 2000
Program will be completed before January 1, 2000. The Company's failure to
successfully complete its Year 2000 Program could have a material adverse effect
on the Company's business, financial condition and results of operations.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements, which may be deemed to
include the Company's plans to commercialize OncoVAX(CL) and other product
candidates, conduct clinical trials with respect to OncoVAX(CL) and other
product candidates, seek regulatory approvals, open OncoVAX Centers, expand its
sales and marketing capability, use OncoVAX Centers to conduct clinical trials,
evaluate additional product candidates for subsequent clinical and commercial
development and apply the proceeds of the Offering. In addition, this Prospectus
states the Company's belief that the net proceeds of the Offering and interest
thereon will be adequate to satisfy the requirements of its current and planned
operations through the end of 1999. Actual results could differ materially from
those projected in any forward-looking statements for a variety of reasons,
including those detailed above in this "Risk Factors" section or elsewhere in
this Prospectus.
18
<PAGE> 20
THE COMPANY
The Company is an integrated biopharmaceutical company focused on the
development and commercialization of cancer vaccines and of immunotherapeutic
and diagnostic products for cancers and infectious diseases. Since its formation
in 1987, the Company has grown in part as a result of various strategic mergers
and acquisitions.
On January 2, 1998, the Company acquired in a tax-free merger (the
"Merger") all of the capital stock of PerImmune Holdings, which conducts
operations through PerImmune, Inc., its wholly owned subsidiary ("PerImmune").
PerImmune's core research and development expertise in cancer and infectious
diseases complement those previously developed by the Company. The Company's
expanded resources and greater management depth resulting from the Merger have
increased the Company's ability to offer a broader spectrum of diagnostic,
prognostic and immunotherapeutic products targeted at cancer and infectious
diseases. In particular, the addition of PerImmune's large clinical development
group has augmented development of the Company's therapeutic products and the
Company's sales and marketing organization has enabled the direct launch of many
of PerImmune's diagnostic products. PerImmune Holdings was incorporated in 1996
by the management of PerImmune to acquire all of the common stock of PerImmune
from Organon Teknika Corporation, an indirect wholly-owned subsidiary of Akzo
Nobel, NV ("Organon Teknika").
In November 1995, the Company entered into a Stock Purchase Agreement with
Dade International, Inc. ("Dade") by which the Company acquired all of the
common stock of Bartels held by Dade. This acquisition provided the Company with
entry into the diagnostic products retail market.
The Company was incorporated under the laws of Massachusetts in 1987 and
reincorporated under the laws of Delaware in 1997. The Company's principal
executive offices are located at 2005 NW Sammamish Road, Suite 107, Issaquah,
Washington 98027 and its telephone number is (425) 392-2992.
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares
of common stock offered hereby, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$45 million ($ million if the over-allotment option granted by the Company
to the Underwriters is exercised in full) based upon an assumed initial public
offering price of $ per share.
The Company anticipates that such net proceeds, together with its other
available cash and cash equivalents, will be used as follows: (i) approximately
$25 million to support the establishment and early operation of OncoVAX Centers;
(ii) $5 million to repay existing indebtedness bearing interest at a rate of
11 1/2% per annum due when the Company receives the proceeds of the Offering;
and (iii) the balance for the Company's other research and development programs,
to conduct clinical trials for the Company's cancer and infectious disease
products and for working capital and other general corporate purposes. The
Company may also use a portion of the net proceeds to acquire technologies or
products complementary to its business, although no material expenditures in
connection with any such acquisitions are anticipated as of the date of this
Prospectus. Pending application as described above, the Company intends to
invest the net proceeds from the Offering in short-term investment-grade,
interest-bearing instruments.
The amounts and timing of the Company's actual expenditures for the
purposes described above will depend upon a number of factors, including: the
scope and results of preclinical studies and clinical trials; continued progress
of the Company's research and development of product candidates; the cost,
timing and outcome of regulatory approvals; the adequacy of manufacturing and
other facilities; the expenses of expanding the Company's sales and marketing
force; the cost involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; the acquisition of technology licenses;
the status of competitive products and the availability of other financing. The
Company will require substantial additional funds to conduct its operations in
the future, and there can be no assurance that such funding will be available on
acceptable terms, if at all. The Company expects that its existing capital
resources, including the net proceeds of the Offering and interest thereon, will
be adequate to satisfy the requirements of its current and planned operations
until the end of 1999. The occurrence of certain unforeseen events or changed
business conditions, however, could result in the application of the proceeds of
the Offering in a manner other than as described in this Prospectus.
DIVIDEND POLICY
The Company has never paid a cash dividend on its common stock and does not
anticipate paying any cash dividends in the foreseeable future.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth at March 31, 1998 (a) the actual
capitalization of the Company; (b) the pro forma capitalization of the Company,
giving effect to the refinancing of various short-term and long-term debt which
will occur subsequent to March 31, 1998, but before the date of this Prospectus
and (c) the pro forma capitalization as adjusted to reflect: (i) the Preferred
Stock Conversion, the probable exercise of certain warrants and the automatic
conversion of certain outstanding notes payable into common stock, each upon the
consummation of the Offering and (ii) the receipt of the estimated net proceeds
from the sale of the shares of common stock offered hereby at an
assumed initial public offering price of $ per share and after deducting the
underwriting discounts and commissions and offering expenses payable by the
Company. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
-------- ---------- --------------
(DOLLAR IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 733 $ 11,213 $ 56,993
======== ========== ============
Long-term debt, non-convertible, including current
portion............................................... $ 30,229 $ 36,998 $ 31,998
Long-term debt, convertible, including current
portion(3)............................................ 233 10,382
Redeemable and convertible preferred stock, $0.0001 par
value; 5,000,000 shares authorized; of which 1,780,220
shares have been authorized for issue in five series
subject to mandatory redemption, of which 1,430,994
shares are issued and outstanding, actual and pro
forma; none pro forma as adjusted(4).................. 20,463 20,463
Stockholder's equity (deficit):
Series A-2 preferred stock, $0.0001 par value; 155,000
shares authorized; 45,482 shares issued and
outstanding, actual; none pro forma and pro forma
as adjusted........................................
Common stock, $0.0001 par value; 25,000,000 shares
authorized; 10,917,256 shares issued and
outstanding, actual and pro forma; shares
issued and outstanding, pro forma as adjusted(5)... 1 1 2
Additional paid-in capital............................ 46,909 42,361 123,985
Accumulated deficit................................... (63,301) (63,301) (63,301)
-------- ---------- ------------
Total stockholders' equity (deficit).......... (16,391) (20,939) 60,686
-------- ---------- ------------
Total capitalization.......................... $ 34,534 $ 46,904 $ 92,684
======== ========== ============
</TABLE>
- ---------------
(1) Gives effect to the refinancing of various short-term and long-term debt
which will occur subsequent to March 31, 1998, but before the date of this
Prospectus. See Note 14 to the Company's consolidated financial statements
contained elsewhere in this Prospectus.
(2) Adjusted to reflect the Preferred Stock Conversion, the exercise of certain
warrants and the automatic conversion of certain outstanding notes payable
into common stock, each upon the consummation of the Offering, and the sale
of common stock offered hereby and the repayment of $5,000,000 of
indebtedness. The par value of common stock issued in the Offering has been
excluded from the pro forma as adjusted column.
(3) Actual includes $232,500 in short-term notes payable which will
automatically be converted into 54,648 shares of common stock upon
consummation of the Offering and pro forma also includes $10,149,807 in
notes payable which will automatically be converted into shares of
common stock upon consummation of the Offering.
(4) On an actual and pro forma basis, includes Series A, 730,000 shares
authorized, 615,697 shares issued and outstanding; Series A-1, 850,000
shares authorized, 664,196 shares issued and outstanding; Series A-3,
200,000 shares authorized, 150,881 shares issued and outstanding; Series
B-1, 100 shares authorized, issued and outstanding; and Series B-2, 120
shares authorized, issued and outstanding. None of such shares will be
outstanding on a pro forma as adjusted basis.
(5) The foregoing computations exclude: (i) 3,211,240 shares of common stock
issuable upon exercise of stock options outstanding as of March 31, 1998, at
a weighted-average exercise price of $1.35 per share; (ii) 679,341 shares of
common stock issuable upon exercise of warrants expected to remain
outstanding after the Offering, at a weighted-average exercise price of
$4.50 per share; and (iii) 1,720,132 shares of common stock issuable upon
exercise of warrants granted in conjunction with the refinancing of various
short-term and long-term debt which will occur subsequent to March 31, 1998,
but before the date of this Prospectus, of which 98,132 of these warrants
are exercisable at $7.64 per share and 1,622,000 are exercisable at an
exercise price per share equal to the price to the public per share set
forth on the cover page of this Prospectus, unless a registered public
offering of the Company's common stock is not consummated on or prior to
December 31, 1998, in which case 1,622,000 are exercisable at $10.00 per
share.
21
<PAGE> 23
DILUTION
The pro forma net tangible book value (deficit) of the Company as of March
31, 1998, was $ , or $ per share of common stock. Net tangible book
(deficit) per share represents the Company's total tangible assets less total
liabilities, divided by shares of common stock outstanding (after
reflecting the Preferred Stock Conversion, the conversion of notes into 54,648
shares of common stock, which notes automatically convert upon consummation of
the Offering, and the exercise of warrants to purchase 928,696 shares of common
stock, which warrants automatically expire ten days after consummation of the
Offering and the sale of shares of common stock by the Company in the
Offering). Without taking into account any other changes in the net tangible
book value after March 31, 1998, other than to give effect to the sale of
shares of common stock by the Company in the Offering (at the
initial price and after deducting the underwriting discounts and commissions and
estimated offering expenses) and the application of the estimated proceeds
thereof, the net tangible book value (deficit) of the Company as of March 31,
1998, would have been $ , or $ per share. This amount represents an
immediate improvement in net tangible book value (deficit) of $ per share to
existing stockholders and immediate dilution in pro forma net tangible book
value (deficit) of $ attributable to new investors purchasing common
stock in the Offering. Dilution per share to new investors represents the
difference between the pro forma net tangible book deficit per share of common
stock immediately upon consummation of the Offering and the amount per share
paid by purchasers of common stock of the Company in the Offering. The following
table illustrates this per share dilution as of March 31, 1998:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $
---------
Pro forma net tangible book value (deficit) per share at
March 31, 1998.........................................
Improvement per share attributable to new investors.......
------
Pro forma net tangible book value (deficit) per share after
the Offering..............................................
---------
Dilution per share to new investors......................... $
=========
</TABLE>
22
<PAGE> 24
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited consolidated pro forma statement of operations (the
"Pro Forma Consolidated Financial Information") gives pro forma effect to the
completion of the Merger of PerImmune Holdings on January 2, 1998, after giving
effect to the pro forma adjustments described in the accompanying notes as if
the Merger had occurred on January 1, 1997. The Pro Forma Consolidated Financial
Information has been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto of each of the
Company and PerImmune Holdings.
The Pro Forma Consolidated Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
results of operations of the Company would have been had the Merger occurred on
the date assumed, nor is it necessarily indicative of the Company's future
operating results. The following table enumerates the unaudited pro forma
consolidated statement of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
ACQUIRED PRO FORMA PRO FORMA
COMPANY BUSINESS ADJUSTMENTS CONSOLIDATED
---------- -------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue
Product................................. $ 13,452 $ 2,111 $ 15,563
Contract................................ 5,778 5,778
---------- -------- ------- ----------
Total revenue........................ 13,452 7,889 21,341
Cost of revenue
Product................................. 9,493 1,600 11,093
Contract................................ 5,016 5,016
---------- -------- ------- ----------
Total cost of revenue................ 9,493 6,616 16,109
Selling, general and administrative....... 8,478 2,849 $ 1,595(1) 12,922
Research and development.................. 556 8,077 8,633
Amortization of cost in excess of net
assets acquired......................... 908 85(1) 993
---------- -------- ------- ----------
Total operating expense.............. 19,435 17,542 1,680 38,657
---------- -------- ------- ----------
Loss from operations................. (5,983) (9,653) (1,680) (17,316)
Interest income (expense), net............ (2,496) (838) (3,334)
Loss on sale-leaseback transaction........ (335) (335)
---------- -------- ------- ----------
Net loss............................. (8,479) (10,826) (1,680) (20,985)
Preferred stock dividends/accretion....... (1,261) (32) 32(2) (1,261)
---------- -------- ------- ----------
Net loss used in calculating loss per
share.............................. $ (9,740) $(10,858) $(1,648) $ (22,246)
========== ======== ======= ==========
Historical net loss per share............. $ (2.39)
==========
Pro forma net loss per share.............. $ (2.33)
==========
Shares used in calculating per share
data.................................... 4,073,398 9,552,052
========== ==========
</TABLE>
- ---------------
(1) Represents the pro forma effects of purchase price allocation amortization.
(2) Represents the pro forma effect of the Merger.
23
<PAGE> 25
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA FOR INTRACEL CORPORATION
The selected financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," the consolidated financial statements of the Company and the notes
thereto included elsewhere in this Prospectus. The statement of operations data
for the years ended June 30, 1993 and June 30, 1994 and the balance sheet data
at June 30, 1993, June 30, 1994, June 30, 1995 and December 31, 1995 are derived
from the financial statements of the Company not included in this Prospectus.
The statement of operations data for the year ended June 30, 1995, the six
months ended December 31, 1995 and the year ended December 31, 1996 and the
balance sheet data as of December 31, 1996 are derived from the consolidated
financial statements of the Company included elsewhere in this Prospectus and
have been audited by Ernst & Young LLP, independent auditors. The financial
statement data as of and for the year ended December 31, 1997 is derived from
the financial statements of the Company included elsewhere in this Prospectus
and has been audited by PricewaterhouseCoopers LLP, independent accountants. The
pro forma financial data for the year ended December 31, 1997 and the financial
data as of and for the periods ended March 31, 1997 and 1998 are unaudited but
have been prepared on a basis consistent with the audited consolidated financial
statements of the Company and the notes thereto and included all adjustments
(constituting only normal recurring adjustments), which the Company considered
necessary for a fair presentation of the information. The results of operation
for the three months ended March 31, 1998 are not necessarily indicative of
results to be expected for the year or for any future periods.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
YEAR ENDED JUNE 30 ENDED DECEMBER 31
-------------------------- DECEMBER 31 -------------------
1993 1994 1995 1995 1996 1997
------ ------- ------- ----------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
Product................................ $1,776 $ 1,618 $ 1,566 $ 2,426 $ 14,718 $ 13,452
Contract...............................
------ ------- ------- ------- -------- --------
Total revenue........................ 1,776 1,618 1,566 2,426 14,718 13,452
------ ------- ------- ------- -------- --------
Cost of revenue
Product................................ 533 449 824 1,779 7,433 9,493
Contract...............................
------ ------- ------- ------- -------- --------
Total cost of revenue................ 533 449 824 1,779 7,433 9,493
Selling, general and administrative...... 962 801 1,580 2,593 5,740 8,478
Research and development................. 785 1,078 1,174 1,118 1,043 556
Acquired research and development........ 2,100
Amortization of costs in excess of net
assets acquired........................ 151 908 908
Reorganization expense................... 917
------ ------- ------- ------- -------- --------
Total operating expense.............. 2,280 2,328 3,578 7,741 16,041 19,435
------ ------- ------- ------- -------- --------
Loss from operations................... (504) (710) (2,012) (5,315) (1,323) (5,983)
Interest income (expense), net........... 47 22 68 (135) (2,179) (2,496)
Gain on pension curtailment..............
Loss on sale-leaseback transaction.......
------ ------- ------- ------- -------- --------
Loss before extraordinary item......... (457) (688) (1,944) (5,450) (3,502) (8,479)
Extraordinary gain on early
extinguishment of debt................. 1,367
------ ------- ------- ------- -------- --------
Net loss............................... (457) (688) (1,944) (4,083) (3,502) (8,479)
Preferred stock dividends................ (211) (266) (790) (1,261)
------ ------- ------- ------- -------- --------
Net loss used in calculating loss per
share................................ $ (457) $ (688) (2,155) (4,349) (4,292) (9,740)
====== ======= ======= ======= ======== ========
Net loss basic and diluted per
share(3)............................. $(0.12) $ (0.17) $ (0.54) $ (1.12) $ (1.10) $ (2.39)
====== ======= ======= ======= ======== ========
Shares used in computing net loss per
share.................................. 3,915 3,947 3,963 3,886 3,895 4,073
====== ======= ======= ======= ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 648 $ 421 $ 2,370 $ 4,072 $ 3,145 $ 1,975
Working capital (deficit)................ 1,072 569 2,273 1,986 2,226 (401)
Total assets............................. 1,912 1,632 3,728 25,646 27,355 28,042
Long-term debt, including current
portion................................ 102 281 193 18,047 22,557 19,672
Redeemable, convertible preferred
stock.................................. 3,961 9,578 10,367 11,222
Accumulated deficit...................... (537) (1,226) (3,381) (7,730) (12,021) (20,708)
Total stockholders' equity (deficit)..... 1,422 834 (1,314) (5,624) (9,717) (9,306)
<CAPTION>
PRO FORMA THREE MONTHS ENDED
YEAR ENDED MARCH 31
DECEMBER 31 -------------------------
1997(1) 1997 1998(2)
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
Product................................ $ 15,563 $ 3,785 $ 4,184
Contract............................... 5,778 1,279
-------- -------- --------
Total revenue........................ 21,341 3,785 5,463
-------- -------- --------
Cost of revenue
Product................................ 11,093 2,780 2,847
Contract............................... 5,016 994
-------- -------- --------
Total cost of revenue................ 16,109 2,780 3,841
Selling, general and administrative...... 12,922 1,720 4,235
Research and development................. 8,633 151 2,026
Acquired research and development........ 37,718
Amortization of costs in excess of net
assets acquired........................ 993 227 248
Reorganization expense...................
-------- -------- --------
Total operating expense.............. 38,657 4,878 48,068
-------- -------- --------
Loss from operations................... (17,316) (1,093) (42,605)
Interest income (expense), net........... (3,334) (640) (788)
Gain on pension curtailment.............. 800
Loss on sale-leaseback transaction....... (335)
-------- -------- --------
Loss before extraordinary item......... (20,985) (1,733) (42,593)
Extraordinary gain on early
extinguishment of debt.................
-------- -------- --------
Net loss............................... (20,985) (1,733) (42,593)
Preferred stock dividends................ (1,261) (207) (366)
-------- -------- --------
Net loss used in calculating loss per
share................................ (22,246) (1,940) (42,959)
======== ======== ========
Net loss basic and diluted per
share(3)............................. $ (2.33) $ (0.50) $ (3.97)
======== ======== ========
Shares used in computing net loss per
share.................................. 9,552 3,908 10,809
======== ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 2,832 $ 733
Working capital (deficit)................ 3,386 (4,176)
Total assets............................. 26,149 45,646
Long-term debt, including current
portion................................ 20,488 30,462
Redeemable, convertible preferred
stock.................................. 10,574 20,463
Accumulated deficit...................... (13,961) (63,301)
Total stockholders' equity (deficit)..... (7,567) (16,391)
</TABLE>
- ---------------
(1) Gives effect to the acquisition of PerImmune Holdings as if it had occurred
on January 1, 1997. See "Pro Forma Consolidated Financial Information."
(2) The quarter ended March 31, 1998 is presented as consolidated with PerImmune
Holdings.
(3) See Note 2 to the Company's consolidated financial statements contained
elsewhere in this Prospectus for explanation of earnings per share
calculations.
24
<PAGE> 26
SELECTED FINANCIAL DATA FOR PERIMMUNE HOLDINGS
The selected financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of PerImmune Holdings and the
notes thereto included elsewhere in this Prospectus. The balance sheet data as
of December 31, 1993 and the statement of operations data for the year then
ended and for the year ended December 31, 1994 are derived from the financial
statements of Biotechnology Research Institute ("BRI"), a predecessor company to
PerImmune which operated as a division of Organon Teknika, an indirect wholly
owned subsidiary of Akzo Nobel, NV. Such financial statements are not included
in this Prospectus but have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The balance sheet data as of December 31, 1994 and
1995 are derived from the financial statements of PerImmune, which was
incorporated as a wholly-owned subsidiary of Organon Teknika in December 1994
(BRI and PerImmune, collectively the "Predecessor Companies"). Such financial
statements are not included in this Prospectus but have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The statement of
operations data for the year ended December 31, 1995 is derived from the
statement of operations of PerImmune, which is included elsewhere in this
Prospectus and which was audited by KPMG Peat Marwick LLP, independent certified
public accountants. The balance sheet data as of August 2, 1996 have been
derived from the unaudited financial statements of PerImmune and have been
prepared on a basis consistent with the audited financial statements of
PerImmune and the notes thereto and include all adjustments (constituting only
normal recurring adjustments), for a fair presentation of the information. The
statement of operations data for the period ended August 2, 1996 is derived from
the financial statements of PerImmune included elsewhere in this Prospectus and
has been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The balance sheet data as of December 31, 1996 and the statement of
operations data for the period then ended were derived from the consolidated
financial statements of PerImmune Holdings included elsewhere in this Prospectus
and have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The balance sheet data as of December 31, 1997 and the statement of
operations data for the year then ended are derived from the consolidated
financial statements of PerImmune Holdings included elsewhere in this
Prospectus, and have been audited by PricewaterhouseCoopers LLP, independent
accountants.
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES (1) PERIMMUNE HOLDINGS
--------------------------------------- -------------------------
JANUARY 1 AUGUST 3
YEAR ENDED DECEMBER 31 THROUGH THROUGH YEAR ENDED
--------------------------- AUGUST 2 DECEMBER 31 DECEMBER 31
1993 1994 1995 1996 1996 1997
------- ------- ------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Government contracts.................................... $ 3,947 $ 6,005 $ 6,578 $ 3,420 $ 2,751 $ 1,869
Commercial and affiliate contracts...................... 11,099 10,483 11,313 7,176 1,106 3,909
Product sales........................................... 821 1,247 1,407 1,632 594 2,111
------- ------- ------- ------- ------- --------
Total revenue....................................... 15,867 17,735 19,298 12,228 4,451 7,889
------- ------- ------- ------- ------- --------
Operating expenses:
Cost of contracts and sales:
Government contracts.................................... 3,469 5,173 5,779 3,375 1,968 1,585
Commercial and affiliate contracts...................... 9,996 9,796 10,189 6,299 886 3,431
Product sales........................................... 609 822 1,124 1,102 325 1,600
------- ------- ------- ------- ------- --------
Total cost of contracts and sales................... 14,074 15,791 17,092 10,776 3,179 6,616
Selling, general and administrative....................... 1,034 1,264 1,283 740 708 2,241
Research and development.................................. 467 239 360 189 4,683 8,077
Other..................................................... 50 29 14 10 608
------- ------- ------- ------- ------- --------
Total operating expenses............................ 15,575 17,344 18,764 11,719 8,580 17,542
------- ------- ------- ------- ------- --------
Income (loss) from operations....................... 292 391 534 509 (4,129) (9,653)
Interest (expense), net..................................... (446) (837)
Loss on sale-leaseback transaction.......................... (335)
------- ------- ------- ------- ------- --------
Income (loss) before income taxes................... 292 391 534 509 (4,575) (10,825)
Provision for income taxes.................................. (111) (285) (356) (68)
------- ------- ------- ------- ------- --------
Net income (loss)................................... $ 181 $ 106 $ 178 $ 441 $(4,575) $(10,825)
======= ======= ======= ======= ======= ========
BALANCE SHEET DATA: (UNAUDITED)
Cash and cash equivalents................................... $ 2 $ 2 $ 2 $ 193 $ 2,424 $ 2,504
Working capital (deficit)................................... 3,123 3,244 3,014 (18) (3,835) (8,871)
Total assets................................................ 7,506 12,694 12,829 12,650 13,624 8,030
Long-term debt, including current portion................... 14,835 10,393
Redeemable, convertible preferred stock..................... 9,786
Retained earnings (accumulated deficit)..................... 178 619 (5,485) (16,310)
Total stockholders' equity (deficit)........................ 5,844 10,242 10,521 9,161 (5,485) (16,027)
</TABLE>
- ---------------
(1) Effective August 3, 1996, 100% of PerImmunes' common stock was acquired by
PerImmune Holdings from Organon Teknika in exchange for a $9,234,935 note
payable.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations may contain forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus. This discussion and analysis should be read in conjunction with
the financial statements and the notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company is an integrated biopharmaceutical company operating in one
business segment, focused on the development and commercialization of cancer
vaccines and of immunotherapeutic and diagnostic products for cancers and
infectious diseases. The Company is applying its extensive expertise in
immunology and its clinical, regulatory, manufacturing and marketing experience
to develop a portfolio of innovative therapeutic, prognostic and diagnostic
products.
On January 2, 1998, the Company acquired all of the capital stock of
PerImmune Holdings. With the consummation of the Merger, PerImmune Holdings
became a subsidiary of Intracel. Management's Discussion and Analysis of
Financial Condition and Results of Operations for each of Intracel and PerImmune
Holdings for 1997, 1996 and 1995 will be presented, as appropriate, on a
separate basis. The results of operations for the three month period ended March
31, 1998 and forward-looking liquidity and capital resources will be discussed
on a consolidated basis.
INTRACEL -- RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1997
Revenues were $5.5 million for the three months ended March 31, 1998 as
compared to $3.8 million for the comparable 1997 period. Product revenues
increased by $.4 million to $4.2 million as a result of $.7 million of revenues
from the acquisition of PerImmune Holdings offset by a decline of $.3 million in
diagnostics revenues. This decline was due to the Company's decision at the end
of 1997 to move its manufacturing for the INSTI product to Canada. The new
facility came on line in March with revenues beginning at that time. Contract
revenues were $1.3 million, all as a result of the Merger.
Cost of revenues increased by $1.1 million to $3.8 million for the three
months ended March 31, 1998 as compared to the same period in 1997. The increase
was primarily due to the Merger and was related to the cost of contract
revenues.
Selling, general and administrative expenses increased period to period by
$2.5 million. Expenses relating to the Merger represented $.8 million of such
increase. Salaries and other related costs rose by $.6 million as a result of
the Company's establishment of an infrastructure for the purpose of managing the
merged companies and preparing for the launch of OncoVAX(CL). Accounting and
legal costs have increased by $.4 million due to a change in timing of the
completion of the Company's audited financial statements as compared to 1997 and
the completion of a comprehensive review of all patents. In addition, as a
result of the Merger, the Company had to prepare additional audited financial
statements for its newly acquired subsidiary, PerImmune Holdings.
Research and development expense in 1998 increased by $1.9 million as
compared to the comparable 1997 period. This increase is almost entirely due to
the Merger.
Interest expense was about the same for both periods.
A gain of $.8 million was recognized in association with the curtailment of
the PerImmune Holdings pension plan.
26
<PAGE> 28
1997 COMPARED WITH 1996
Diagnostic revenues were $13.5 million compared to $14.7 million in 1996.
This $1.2 million decline was primarily attributable to the Company's decision
to establish its own marketing and sales organization to replace the Company's
exclusive third-party distributor. During 1997 the Company's INSTI product for
AIDS testing was introduced to the overseas markets at a price to facilitate
market penetration which resulted in revenues for the INSTI product to increase
by $.4 million to $.5 million for the year.
Cost of product sales increased by $2.1 million to $9.5 million. The
increase was due primarily to a $1.1 million charge for excess and obsolete
inventory used for research-related sales. In addition, costs for the INSTI
product exceeded revenues by $.8 million. Ramp-up costs for the higher volume
were high as an automated filling line was not completed until near year end.
Other automated production enhancements are planned to reduce costs further as
volume expands.
Selling, general and administrative expenses increased by $2.7 million to
$8.5 million. This increase was due to several factors. As indicated above, the
Company developed its own sales and marketing organization during 1997. Also,
during 1997, the Company established a regulatory department. This department
provides quality control in compliance with regulatory requirements to support
Bartel's lines of production and newly emerging products such as INSTI and
ZYMMUNE. Costs increased in 1997 in connection with the Company's merger and
acquisition program, which included the Merger on January 2, 1998. A lease for a
fully developed diagnostic manufacturing facility was acquired in September 1996
with associated costs included for all of 1997.
Research and development expenses decreased by $.5 million due to the
reduced payments under a specific contract. Reorganization expense of $.9
million was incurred in 1996, in connection with the Company's relocation from
Cambridge, Massachusetts to Issaquah, Washington.
Interest expense increased by $.3 million to $2.5 million as a result
primarily of increases in interest rates for certain debt instruments.
SIX MONTHS ENDED DECEMBER 31, 1995
Due to a change in the Company's fiscal year end from June 30 to December
31 during 1995, all information in the following paragraphs under this section
applies to the six months ended December 31, 1995.
Product sales for the six months ended December 31, 1995 were $2.4 million,
primarily comprised of $1.8 million from diagnostic product sales generated by
Bartels from the date of its acquisition.
For the six month period ended December 31, 1995, cost of product sales was
$1.8 million, primarily comprised of $1.2 million pertaining to Bartels cost of
product sales. Selling, general and administrative expenses for the six months
ended December 31, 1995 totaled $2.6 million.
Research and development expenses of $1.1 million for the six month period
ended December 31, 1995 were associated with a specific contract. An additional
$2.1 million was expensed in the six months ended December 31, 1995 for acquired
in-process research and development associated with the acquisition of Bartels.
The Company recognized an extraordinary gain for the six months ended
December 31, 1995 of $1.4 million, pertaining to the Company's early retirement
of debt.
TWELVE MONTHS ENDED JUNE 30, 1995
Net revenues of $1.6 million for the year ended June 30, 1995 were
comprised of sales of proteins and antibodies for use in diagnostic and research
applications.
Cost of sales of $.8 million consisted of the cost to manufacture the
various proteins and antibodies for the year ended June 30, 1995. Selling,
general and administrative expenses were $1.6 million for the year ended June
30, 1995.
27
<PAGE> 29
Research and development expenses of $1.2 million for the year ended June
30, 1995 were associated with a specific contract.
INTRACEL -- LIQUIDITY
The Company's operating activities used $2.5 million in 1997 resulting from
the net loss of $2.9 million (adjusted for non-cash items) offset by a $.4
million reduction in investment in working capital. Investing activities used
$4.2 million of which $2.0 million represented the deposit in escrow of
restricted cash associated with a debt issue. Additionally, $1.4 million was
invested in the purchase of property and equipment and $.8 million was invested
or advanced to Bartels Prognostics, Inc., an unconsolidated subsidiary in which
the Company has a minority interest ("Bartels Prognostics"). Net cash from
financing activities of $5.5 million was primarily comprised of $1.7 million
from the sale of preferred stock and $6.0 million net from the sale of common
stock and the exercise of warrants and options, offset by $2.3 million of
payments on long-term debt net of proceeds of new issuances and associated
costs.
PERIMMUNE HOLDINGS -- RESULTS OF OPERATIONS
PerImmune Holdings' operations are conducted in one business segment which
applies biotechnology and other life sciences technologies to develop and
provide products and services. PerImmune Holdings groups these activities into
three operating activities: Government Contracts, Commercial Contracts and
Product Sales.
PerImmune Holdings' operations began on August 3, 1996 with its acquisition
of PerImmune from Organon Teknika, an indirect wholly owned subsidiary of Akzo
Nobel, NV, in a leveraged buyout. Therefore, all comparisons are for the full
year of 1997 as compared to approximately five months of 1996.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THE FIVE MONTHS ENDED
DECEMBER 31, 1996
Revenues were $7.9 million compared to $4.5 million in 1996. Government
contracts revenues decreased by $.9 million to $1.9 million. This decrease was
the result of several contracts which ended during the government fiscal year,
October 1996 to September 1997, with only one of those contracts being renewed,
at a much lower dollar value than in prior years. Management decided to
de-emphasize the government contract business and instead focus on future
products and services. Commercial contract revenues increased by $2.8 million to
$3.9 million. This increase was due to the start of a research and development
contract with Baxter Healthcare Corporation and the difference in the length of
the two reporting periods. Product sales increased by $1.5 million to $2.1
million due entirely to the difference in the length of the two reporting
periods. There was also a decrease of $.3 million in 1997 sales due to the
completion of research and development for PerImmune's previous parent in 1996.
Gross profit was approximately the same for both years. Government contract
gross profits declined from 28.5% of sales to 15.2% of sales due to the start-up
of new contracts and additional costs not expected on contracts completed.
Commercial contract additional profits declined from 19.9% of sales to 12.2% of
sales due to non-billable overruns on various fixed price research and
development contracts. Product sales gross profits decreased from 45.3% to 24.2%
of sales due to start-up and validation expenses related to products that
received marketing clearance from the FDA in late 1997.
Selling, general administrative expense increased by $1.5 million due to
the change in reporting periods and the initial payment of over $.3 million in
connection with marketing studies prior to the launch of the HumaSPECT product
line. PerImmune's former parent paid marketing costs in the past.
Research and development costs were $3.4 million higher in 1997 due to the
change in reporting periods, introduction of several clinical trials and filing
of applications for approval with the FDA, offset by lower research and
development activity as PerImmune Holdings placed more emphasis on its largest
projects while eliminating others. Other expense increased by $.6 million due in
part to facility costs that in the past had been allocated to government
contracts which were completed in 1996.
Interest expense increased by $.6 million due to the change in reporting
periods. Interest income of $.2 million was due to the earnings on excess cash
received from the sale-leaseback of PerImmune's corporate headquarters building
in January 1997, which also resulted in a $.3 million loss.
28
<PAGE> 30
PERIMMUNE HOLDINGS -- LIQUIDITY
PerImmune Holdings' operating activities used $8.5 million in 1997
resulting from the net loss of $9.9 (adjusted for non-cash items) offset by a
$1.4 million in reduction in investment in working capital. Investing activities
generated $3.6 million of which $5.1 million related to the purchase and
sale-leaseback transaction referred to above and leaseback improvements offset
by capital expenditures of $.3 million and $1.2 million paid to an investor
advisor. Net cash from financing activities of $5.0 million included $9.8
million from issuance of convertible preferred stock, $.3 million from issuance
of common stock and $.9 million from issuance of notes payable offset by $5.6
million in payment of notes payable and $.4 million of increase in restricted
cash.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
As stated earlier, the future liquidity and capital resources of the
Company will be discussed on a post-Merger consolidated basis.
The Company recently announced the results of a ten-year Phase III clinical
trial for OncoVAX(CL), which the Company believes is the first vaccine to
demonstrate efficacy for the post-surgical treatment of Stage II colon cancer.
The Company plans to begin treatment of patients using the OncoVAX(CL) vaccine
by establishing OncoVAX Centers in Europe and the United States. Over 40 OncoVAX
Centers are expected to be established in the next several years. Some capital
expenditures will be needed for each facility but the principal need will be
that of working capital and in particular the build-up of patient receivables.
At January 2, 1998 the Company's principal source of liquidity was
approximately $2.5 million in cash and cash equivalents. The Company has made
some changes to its existing debt and is in the process of completing additional
modifications and refinancings (extending maturities) which will provide
additional funding.
During 1997, the Company received certain amendments and waivers to a debt
agreement and its covenants. These amendments and waivers were retroactive to
January 1, 1997 and remain in effect until June 30, 1998. The amendments and
waivers became effective upon consummation of the Merger. On April 1, 1998 the
Company repaid all amounts outstanding under the debt agreement.
On June 8, 1998, the Company received a firm commitment letter from a
current debt and equity holder for $35.0 million of financing which will provide
approximately $8.0 million of additional funding after the proceeds are applied
to repay existing debt obligations and redeem the Series A-2 preferred stock.
This borrowing arrangement includes warrants to purchase up to approximately
1,622,000 shares of the Company's common stock, expiring on July 1, 2003, and
allows for certain registration rights for these warrant shares. The warrants
are exercisable at an exercise price per share equal to the price to the public
per share set forth on the cover page of this prospectus, unless a registered
public offering of the Company's common stock is not consummated on or prior to
December 31, 1998, in which case the warrants will be exercisable at $10 per
share. In addition, on June 8, 1998, another lender agreed to delay the maturity
of approximately $10,100,000 of the debt assumed from Holdings until January,
2000.
YEAR 2000 COMPLIANCE
Management has initiated the Year 2000 Program to prepare the Company's
computer systems and other electronic applications for the year 2000. Through
the Year 2000 Program, management is currently reviewing the Company's computer
systems and other electronic applications in order to identify potential Year
2000 problems. Based upon preliminary results of the Year 2000 Program,
management anticipates that the Company's Year 2000 compliance expenses will not
be material and that the Company's Year 2000 Program will be completed before
January 1, 2000. The Company's failure to successfully complete its Year 2000
Program could have a material adverse effect on the Company's business,
financial condition and results of operations.
29
<PAGE> 31
BUSINESS
GENERAL
Intracel is an integrated biopharmaceutical company focused on the
development and commercialization of cancer vaccines and immunotherapeutic and
diagnostic products for cancers and infectious diseases. Based upon the results
of Phase III clinical trials, the Company is preparing a BLA for its OncoVAX(CL)
cancer vaccine for the post-surgical treatment of Stage II colon cancer, the
most common form of colon cancer. The Company is also planning to initiate Phase
III clinical trials for OncoVAX(CL) in combination with chemotherapy for Stage
III colon cancer, has initiated Phase III clinical trials for KLH for the
treatment of refractory bladder cancer, and is planning to initiate a Phase
II/III clinical trial for its ASI(BCL) vaccine for the treatment of low-grade
B-cell lymphoma. In addition, the Company markets a portfolio in vitro
diagnostic products and is introducing a number of new diagnostic products for
detecting and monitoring various cancers, AIDS and heart disease.
The Company believes that OncoVAX(CL) is the first vaccine to demonstrate
efficacy for the post-surgical treatment of Stage II colon cancer, and has
recently announced the results of the ten year Phase III Amsterdam trial. This
randomized multi-centered 254-patient clinical trial was the third in a series
of clinical trials of OncoVAX(CL) conducted in the United States and Europe. The
series included the Phase III ECOG trial and the Phase II/III Hoover trial. In
the Amsterdam trial, the Company believes that OncoVAX(CL) demonstrated a 61%
reduction in the rate of recurrences and a 50% improvement in the survival rate
for patients with Stage II colon cancer when compared to surgery alone. The
Company believes that the results of the Amsterdam trial are supported by
positive trends shown in the ECOG and Hoover trials. Stage II colon cancer
accounts for approximately 120,000 of the more than 200,000 new cases of colon
cancer diagnosed in the United States and Europe each year. There is currently
no product approved by the FDA for patients with Stage II colon cancer, and
surgery is the principal means of treatment. The Company plans to file a BLA for
OncoVAX(CL) with the FDA in late 1998 and is presently seeking the necessary
regulatory and reimbursement approvals in certain countries in Europe.
OncoVAX(CL) is a multivalent vaccine produced from a patient's own
surgically removed tumor. The tumor is collected immediately after surgery and
delivered to one of the Company's OncoVAX Centers for manufacture and subsequent
administration of the vaccine. Each OncoVAX Center has been designed to treat up
to 2,000 patients per year. The Company plans to establish OncoVAX Centers at or
near hospitals with established surgery practices, serving areas characterized
by high population density and high incidence of colon cancer. Each OncoVAX
Center will require less than 3,000 square feet and will employ a staff of
production technicians and a supervising physician. The first OncoVAX Center in
the United States has been established at Lehigh Valley Hospital in Allentown,
Pennsylvania and the first OncoVAX Center in Europe is being established at
University Hospital, Vrije Universiteit, Amsterdam. The Company plans to
establish more than 25 OncoVAX Centers in the United States and more than 15 in
Europe.
The Company plans to leverage its OncoVAX Centers to perform expedited
clinical trials and to launch other products, such as its in vivo imaging agent
HumaSPECT and its B-cell lymphoma vaccine ASI(BCL). The Company has filed an
amendment to the IND for OncoVAX(CL) with the FDA to commence a Phase III
clinical trial for the use of OncoVAX(CL) in combination with chemotherapy for
the treatment of Stage III colon cancer. The Company believes that this
combination therapy will be more effective in the treatment of Stage III colon
cancer than either OncoVAX(CL) or chemotherapy administered alone. The Company
is currently in discussions with the FDA regarding the commencement of the Phase
III clinical trial for this combination therapy. No assurance can be given that
the Company will be given clearance to commence this Phase III clinical trial in
a timely manner, if at all.
As a complementary product for OncoVAX(CL), the Company has developed
HumaSPECT, a totally human antibody labeled with a radioisotope, to monitor
recurrence and metastatic spread of colon cancer. In a Phase III clinical trial
completed in 1996, the Company believes that HumaSPECT demonstrated significant
advantages over CT scans, the current standard for detecting recurrence and
metastatic spread of colon cancer. Based on these results the Company has filed
a BLA in the United States and an MAA in Europe.
30
<PAGE> 32
The FDA has completed its initial review of the Company's BLA submitted for
HumaSPECT, and is now reviewing the Company's responses to the FDA's initial
round of questions. There can be no assurance that the Company will obtain FDA
approval to market HumaSPECT in the United States in a timely manner, if at all.
With respect to the MAA, the Company has recently been advised by the EMEA that
HumaSPECT has been recommended for marketing authorization. While no assurance
can be given, the Company expects the European Union to approve this MAA.
The Company has initiated a Phase III clinical trial for KLH for the
treatment of refractory bladder cancer. In Phase II clinical trials, the Company
believes that KLH demonstrated significantly less toxicity than the leading
FDA-approved product for the treatment of bladder cancer. The Company has
entered into a strategic partnership with Mentor, a leading urology company,
under which Mentor has been funding research and development, is required to
make milestone payments to the Company and will market KLH worldwide. Mentor
also markets Accu-D(x), the Company's rapid bladder cancer test.
The Company plans to file an amendment to the IND for its ASI(BCL)vaccine
with the FDA to commence a Phase II/III clinical trial for such vaccine in the
first half of 1999. ASI(BCL) is designed to prevent recurrence of low-grade
non-Hodgkin's B-cell lymphoma, the most common type of B-cell lymphoma, in
patients who have achieved remission through chemotherapy and/or immunotherapy.
ASI(BCL), like OncoVAX(CL), is an autologous vaccine and is produced using a
unique antigen derived from a patient's own cancerous cells. The Company
believes that a Phase I clinical trial has demonstrated that ASI(BCL) can
stimulate a specific immune response and is associated with improved clinical
outcomes.
The Company has substantial expertise in the development and manufacturing
of totally human antibodies. In April 1998, the Company commenced enrollment in
its Phase I clinical trial for its totally human antibody HumaRAD(16.88) for the
treatment of head and neck cancer and plans to submit an IND with the FDA to
commence a Phase I clinical trial of a related product, HumaRAD(88BV59), for the
treatment of ovarian cancer, in the first half of 1999. In addition, the Company
is developing several antibody products to treat life-threatening infectious
diseases.
Through Bartels, the Company also markets a portfolio of innovative in
vitro diagnostic products for the confirmation of viral and bacterial diseases.
The Company markets these diagnostic products domestically to approximately
1,500 hospitals and clinical laboratories through its internal sales force.
Internationally, the Company relies upon third-party distributors to market its
diagnostic products. In 16 countries, the Company is marketing a one-minute test
for HIV/AIDS based on its proprietary INSTI technology. In addition, the Company
is introducing a number of new diagnostic products, including its Apo-Tek Lp(a)
test kit to monitor an important indicator of heart disease, its Accu-D(x) test
to monitor the recurrence of bladder cancer, and its ZYMMUNE test to monitor
CD4/CD8 levels in patients with AIDS.
The Company's technology foundation in cancer vaccines and human antibodies
is supported by a clinical trial group with expertise in designing and
implementing complex clinical trials and by state-of-the-art manufacturing
facilities capable of producing commercial quantities of its therapeutic,
diagnostic and prognostic products. To conduct research, development,
manufacturing and marketing of its products, the Company employs over 240 people
in multiple facilities, including its corporate headquarters in Issaquah,
Washington, a therapeutic product facility located in Rockville, Maryland and
diagnostic product facilities in Issaquah, Washington and Richmond, British
Columbia, Canada.
BACKGROUND INFORMATION
Overview
Cancer is a family of more than one hundred different diseases which can be
categorized into two broad groups: (i) solid tumors, like colon, breast,
prostate and lung cancer and (ii) hematologic, or blood-borne, cancers like
B-cell lymphoma and leukemia. Both groups are generally characterized by a
breakdown of the cellular mechanisms that ordinarily regulate cell growth and
cell death in healthy tissues.
31
<PAGE> 33
Cancers develop from normal cells in the body. When a cell ceases to act
according to its pre-programmed function, it may become malignant and grow
uncontrollably. In solid tumors, malignant cells disrupt the normal function of
the tissues in which they are growing and can also spread to other tissues in
the body or "metastasize." This disruption in vital organs, such as the lungs or
the liver, frequently leads to death. Blood-borne cancers primarily affect blood
cells and the immune system. Death from blood-borne cancers is usually caused by
infection and/or vital organ failure.
Despite a substantial investment in cancer research and development during
the past several decades, the overall incidence of cancer is now higher than it
was 30 years ago. According to the World Health Organization, cancer kills six
million people per annum worldwide. The American Cancer Society estimates that,
in the United States, the incidence of new cancer cases in 1998 will be
approximately 1.2 million and that over 560,000 people will die from cancer. In
addition, according to the American Cancer Society, over 35% of all Americans,
or 85 million people, now living will eventually contract some form of cancer.
According to statistics published by the American Cancer Society which are
based on estimates from the National Cancer Institute, approximately 35% of all
new cancer cases and approximately 24% of cancer deaths in the United States in
1998 will be attributable to colorectal, breast, ovarian, bladder and head and
neck cancer. The diagnosis and treatment of these cancers and B-cell lymphoma
are the subject of current development efforts by the Company. The following
table details the new cases, deaths and direct treatment expenditures for
selected cancers in the United States:
NEW CASES, DEATHS AND ANNUAL EXPENDITURES FOR SELECTED CANCERS IN THE UNITED
STATES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
ANNUAL
EXPENDITURES(2)
TYPE NEW CASES(1) DEATHS(1) (IN MILLIONS)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lung 171,500 160,100 $5,060
- ---------------------------------------------------------------------------------
Colorectal 131,600 56,500 6,465
- ---------------------------------------------------------------------------------
Breast 180,300 43,900 6,599
- ---------------------------------------------------------------------------------
Prostate 184,500 39,200 4,610
- ---------------------------------------------------------------------------------
Ovarian 25,400 14,500 906
- ---------------------------------------------------------------------------------
Bladder 54,400 12,500 2,172
- ---------------------------------------------------------------------------------
Head and neck 30,300 8,000 N/A
- ---------------------------------------------------------------------------------
Non-Hodgkin's lymphoma(3) 55,400 24,900 N/A
</TABLE>
- ---------------
(1) Source: American Cancer Society's Cancer Facts and Figures, 1998.
(2) Includes all direct treatment expenses but excludes all indirect and actual
morbidity costs. Source: Brown M.L., Fintor L.; "The Economic Burden of
Cancer," Cancer Prevention and Control, New York, Marcel Dekker, 1995.
(3) Includes B-cell lymphoma which accounts for a vast majority of new cases and
deaths.
Current Cancer Treatments
The three most common methods of treating patients with cancer are surgery,
chemotherapy and radiation. Surgery is primarily performed to remove solid
tumors that are accessible to the surgeon and can be effective if the cancer has
not yet metastasized. Frequently, however, the surgeon cannot remove all of the
cancerous cells associated with the solid tumor. This results in the need for
post-surgical "adjuvant" treatment methods, such as chemotherapy or radiation,
to kill or limit growth of remaining cancerous cells and to prevent recurrence
of the cancer.
32
<PAGE> 34
Chemotherapy, which typically involves the intravenous administration of
cytotoxic drugs designed to destroy cancerous cells, is used for the treatment
of both solid tumors and blood-borne malignancies. Chemotherapeutic drugs
generally interfere with cell division and are therefore more toxic to rapidly
dividing cancer cells. Since cancer cells can often survive the effect of a
single drug, several different drugs are usually given in a combination therapy
designed to target overlapping mechanisms of cellular metabolism and to
overwhelm the ability of cancer cells to develop drug resistance. Nevertheless,
partial and even complete remissions achieved by chemotherapy are often not
permanent, because the treatment does not kill all the cancer cells, and the
cancer resumes its progression within a few months or years of treatment.
Chemotherapy is often re-administered to relapsed patients whose response
typically becomes shorter with each successive treatment as resistance
increases. Eventually, most patients become "refractory" to chemotherapy,
meaning that the length of their response, if any, to treatment is so brief as
to conclude that further chemotherapy regimes would be of little or no benefit.
Chemotherapeutic drugs are not sufficiently specific to cancer cells to
avoid affecting normal cells, especially those that are growing rapidly. As a
result, patients often experience debilitating side effects such as nausea,
vomiting, hair loss, anemia and fatigue, as well as life-threatening side
effects such as immune system suppression. These side effects can limit the
effectiveness of therapy because the clinician must avoid exceeding the maximum
dose of drug that the patient can tolerate. Since dosages must be limited to
avoid unacceptable side effects, it may not be possible to administer
sufficiently high doses of chemotherapeutic drugs to overcome the natural
ability of cancer cells to become resistant.
Radiation is employed to irradiate a solid tumor and surrounding tissues
and is a first-line therapy for inoperable tumors, but side effects are a
limiting factor in treatment. Radiation accomplishes its purpose by killing
cancers cells through a process called ionization. Some cells die immediately
after radiation because of the direct effect, though most die because the
radiation damages the chromosomes and DNA thereby limiting cell division.
Radiation is used frequently in conjunction with surgery either to reduce the
tumor mass prior to surgery or to destroy any tumor cells that may remain at the
tumor site after surgery. However, radiation therapy cannot assure that all
tumor cells will be destroyed and has very limited utility for treating
widespread metastatic disease.
Mechanisms of Immunity
The immune system is composed of specialized cells that recognize, destroy
and eliminate disease causing foreign substances or cancer cells. There are two
generally recognized components of immunity, cellular immunity and humoral
immunity. Cellular immunity is effected by T lymphocytes ("T-cells"), natural
killer cells, macrophages, and polymorphonuclear leukocytes. T-cells recognize
and can be directly toxic to viruses, bacteria, parasites and cancer cells.
T-cells also secrete cytokines which recruit and activate other immune cells,
such as macrophages, natural killer cells and polymorphonuclear leukocytes, to
the site of infection or tumor, where these cells engulf, or secrete cytotoxic
substances that kill, the foreign substances, infectious agents or cancer cells.
T-cells also direct the development of humoral immunity. Humoral immunity is
effected by antibodies produced by B lymphocytes ("B-cells"). Antibodies are
proteins produced in response to foreign substances called "antigens."
Antibodies have a region that binds specifically to the antigen and a region
that binds other immune cells such as macrophages and natural killer cells. The
region that binds other immune cells is only recognized by these cells when the
antibody is bound to the antigen. Thus, the antibody specifically directs the
elimination of the antigen from the body. In persons with healthy immune
systems, cancerous cells are recognized as antigens and eliminated through a
process called immune surveillance. In patients with cancer, the immune
surveillance process often fails, thus allowing cancerous cells to evade
elimination by the immune system and develop into tumors and lymphomas. It is
believed, however, that the immune system's ability to fight cancer can be
enhanced through various immunotherapeutic approaches.
Emerging Immunotherapeutic Cancer Treatments
Scientific progress in defining key aspects of the molecular biology and
immunology of cancer in recent years has yielded a number of promising new
treatment approaches, which potentially overcome some of the
33
<PAGE> 35
major drawbacks of current treatment modalities. The Company believes that one
of the most promising approaches for the development of cancer treatments is
immunotherapy. The four principal immunotherapeutic or cancer vaccine approaches
are described in the following table and include: (i) Active Specific
Immunotherapy, (ii) Active Non-Specific Immunotherapy, (iii) Antibody-Based
Immunotherapy and (iv) Adoptive Immunotherapy. The Company is developing
products which utilize one or more of the first three of these approaches.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
IMMUNOTHERAPEUTIC APPROACHES
- -------------------------------------------------------------------------------------
TYPE OF IMMUNOTHERAPY DESCRIPTION
- -------------------------------------------------------------------------------------
<S> <C>
Active Specific Activation of anti-tumor immunity using antigenic tumor
cells, cell lysates, or extracted/synthetic tumor antigens.
- -------------------------------------------------------------------------------------
Active Non-Specific Activation of anti-tumor immunity and other nonspecific
effector cells using microbial or chemical immunomodulators.
- -------------------------------------------------------------------------------------
Antibody-Based Transfer of antibodies or antisera, providing indirect
enhancement to immunity.
- -------------------------------------------------------------------------------------
Adoptive Transfer of immunological cells from one patient to another.
</TABLE>
Active Specific Immunotherapy involves the stimulation of a patient's
immune system by using a patient's own cancer cells or extracted or synthetic
tumor associated antigens. Cancer vaccines based upon active specific
immunotherapy are typically mixed with a non-specific adjuvant whose role is to
stimulate the immune system's response to the vaccine. By isolating cells or
antigenic components from the tumor, mixing them with an adjuvant, and
reintroducing this mixture back into the individual, the immune system may be
induced to develop a response capable of destroying tumor cells. Active specific
immunotherapy treatments are generally being developed as an adjuvant to
surgery. Adjuvant therapy is necessary because surgery often fails to remove all
primary or metastatic cancer cells. Active specific immunotherapy may offer the
means by which an individual's immune system can be activated throughout the
body to search out and destroy these residual cancer cells. The Company's active
specific immunotherapeutic products include OncoVAX(CL) for the treatment of
colon cancer and ASI(BCL) for the treatment of B-cell lymphoma.
Active Non-Specific Immunotherapy involves the stimulation of a patient's
immune system by using non-specific microbial or chemical immunomodulators, such
as Bacillus Calmette-Guerin ("BCG"), the only FDA-approved immunomodulator for
the treatment of bladder cancer. The mechanisms by which these non-specific
immunomodulators enhance the immune response to antigens are poorly understood
but are thought to involve the inducement of a local inflammatory reaction. This
reaction results in the recruitment and activation of antigen presenting cells,
the production of cytokines and the recruitment of effector T-cells and B-cells
to the site of the antigen. Some of these non-specific agents have also been
shown to be effective as immunogenic carriers and adjuvants. The Company's
active non-specific immunotherapeutic products include KLH for the treatment of
refractory bladder cancer.
Antibody-Based Immunotherapy involves the use of anti-cancer monoclonal
antibodies as stand-alone therapeutics to augment a patient's immune system or
as targeting mechanisms for the administration of radiation or chemotherapy.
While monoclonal antibodies have been shown to be effective in binding to cancer
cells, problems associated with their specificity, immunogenicity and variable
binding properties have to date resulted in a limited number of useful
applications for even the most effective monoclonal antibodies when used alone.
Research has increasingly moved towards using monoclonal antibodies as vehicles
for targeting the administration of radiation or chemotherapy to the immediate
vicinity of malignant cells. The Company's antibody-based immunotherapeutic
products include HumaRAD(16.88) and HumaRAD(88BV59), totally human antibodies
labeled with (90)Yttrium for the intratumoral treatment of head and neck cancer
and of ovarian cancer, respectively.
Adoptive Immunotherapy involves the transfer of immunological cells with
anti-cancer properties from one patient into another in the hope that these
cells either directly or indirectly produce anti-cancer effects on
34
<PAGE> 36
growing tumors. Although significant advances have been made, the available data
remains inconclusive. At present, the Company is not active in this field.
THERAPEUTIC PRODUCTS
The Company has accumulated and developed proprietary technology and
expertise in several different approaches to the development of cancer vaccines
and immunotherapeutics. The diversity of the Company's product and technology
portfolio reflects the Company's belief that different approaches are required
for different cancers. The following table sets forth the Company's leading
therapeutic and in vivo monitoring products, classifies each according to its
immunotherapeutic approach, specifies the cancer indication treated or monitored
by each and summarizes the regulatory status of each:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
THERAPEUTIC PRODUCTS
- -------------------------------------------------------------------------------------------------------
IMMUNOTHERAPEUTIC/ CLINICAL TRIAL STATUS/
PRODUCT DIAGNOSTIC APPROACH INDICATION EXPECTED MILESTONES(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OncoVAX(CL) Active Specific Stage II colon cancer Phase III complete, BLA
Immunotherapy filing expected in late
1998. Launch in Europe
expected in first half
of 1999.(2)
- -------------------------------------------------------------------------------------------------------
OncoVAX(CL) plus Active Specific plus Stage III colon cancer Amendment to IND filed
chemotherapy chemotherapy for Phase III.(3)
- -------------------------------------------------------------------------------------------------------
HumaSPECT Antibody-Based Diagnosis Monitoring of colon BLA submitted in the
cancer United States. MAA
submitted in Europe,
where EMEA has
recommended approval.(4)
- -------------------------------------------------------------------------------------------------------
KLH Active Non-Specific Refractory bladder cancer Phase III initiated.
Immunotherapy
- -------------------------------------------------------------------------------------------------------
ASI(BCL) Active Specific B-cell lymphoma Phase II/III amendment
Immunotherapy to IND planned for
submission in 1999.
- -------------------------------------------------------------------------------------------------------
HumaRAD(16.88) Antibody-Based Diagnosis Head and neck cancer Phase I enrollment
commenced.
- -------------------------------------------------------------------------------------------------------
HumaRAD(88BV59) Antibody-Based Diagnosis Ovarian cancer Phase I IND planned for
submission in 1999.
- -------------------------------------------------------------------------------------------------------
HumaSPECT Antibody-Based Diagnosis Ovarian cancer Phase II completed.
- -------------------------------------------------------------------------------------------------------
MONOGENE(INT) Antibody-Based gene HIV Phase I IND planned for
therapy submission in 1999.
- -------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) See "Risk Factors -- Government Regulation" and "-- Government Regulation."
(2) See "Risk Factors -- Dependence on OncoVAX(CL)" for a description of certain
issues relating to the proposed BLA filing.
(3) See "Risk Factors -- Dependence on OncoVAX(CL)" for a description of certain
issues relating to the status of this IND amendment.
(4) See "Business -- Therapeutic Products -- OncoVAX(CL) for the treatment of
colon cancer" for a description of certain issues relating to the Company's
BLA for HumaSPECT.
OncoVAX(CL) for the treatment of colon cancer
The American Cancer Society estimates that approximately 95,600 Americans
will be diagnosed with colon cancer in 1998 and approximately 47,700 will die
from colon cancer in 1998, ranking second only to lung cancer as a cause of
death from cancer. According to Facts and Figures in the European Community
(1993), colon cancer afflicts over 120,000 people annually in Europe, with
deaths from colon cancer estimated at over
35
<PAGE> 37
79,000 per year. Colon cancer is generally classified into four categories or
stages according to the status of the tumor nodes and metastasis. In Stage I
colon cancer, the tumor has not penetrated the bowel wall and surgery is
curative in more than 90% of the cases. In Stage II colon cancer, penetration of
the bowel wall has occurred but regional lymph nodes are negative and surgery is
curative for approximately 70% of these patients. Approximately two-thirds of
patients with colon cancer present with Stage II disease. In Stage III colon
cancer, the tumor has spread to the lymph nodes and the cure rate is moderate to
poor depending on the extent of lymph node involvement. In Stage IV colon
cancer, the cancer has spread to other vital organs in the body and is fatal in
the vast majority of cases. Generally, patients that recur present with advanced
colon cancer and the prognosis for these patients is very poor.
Except for surgery, there is no medically accepted treatment for either
Stage I or Stage II colon cancer and trials using adjuvant chemotherapy have not
clearly demonstrated any patient benefit. For Stage III colon cancer, a
combination of the chemotherapeutic drugs 5-fluorouracil ("5-FU") and levamisole
or leucovorin is the treatment of choice in the United States and in Europe. The
Company estimates that between 20% and 30% of patients fail to complete their
course of chemotherapy because of adverse reactions.
OncoVAX(CL) is an active specific immunotherapeutic for the post-surgical
treatment of patients diagnosed with Stage II colon cancer. OncoVAX(CL) is
prepared for each patient using the patient's own surgically removed tumor.
After receipt at an OncoVAX Center, the tumor is enzymatically treated to
separate the tumor cells and these cells are frozen awaiting preparation of the
vaccine. The vaccine consists of a regimen of four inoculations administered
over a period of six months. When a patient presents approximately four to five
weeks after surgery for the first inoculation and one week later for the second
inoculation, a portion of the tumor cells is thawed, irradiated to neutralize
tumorigenic potential and combined with a proprietary formulation of BCG that
serves as an immunogenic enhancer. The third inoculation (given one week after
the second inoculation) and the final booster inoculation (given six months
after the initial inoculation) are prepared the same way but without the
addition of BCG.
In the Amsterdam trial, OncoVAX(CL) was tested in the prospectively
randomized multi-center Phase III clinical trial. A total of 254 patients were
randomized postoperatively to receive either OncoVAX(CL) or no further treatment
after eligibility was established. Eligible patients included patients with
confirmed Stage II or Stage III disease whose primary tumors had an adequate
number of cells to allow for the production of OncoVAX(CL). Twelve hospitals
within a four hour radius of University Hospital screened potential candidates
for the protocol. The potential candidate's colon resection was performed at one
of the twelve sites, and the tumor specimen was transported to University
Hospital's vaccine production laboratory for processing.
The Company believes that the Amsterdam trial demonstrated that, at a
median follow-up period of 5.4 years after treatment, OncoVAX(CL) significantly
reduces the rate of tumor recurrences by 44% in patients with Stage II and III
colon cancer. In Stage II patients, OncoVAX(CL) had the greatest impact with a
statistically significant 61% reduction in the rate of recurrences along with
proportional increases in overall survival.
The Company believes that, in addition to its efficacy, OncoVAX(CL) has
demonstrated an extremely favorable safety profile. Over a 15-year period, more
than 700 people have received either a three- or four-shot regimen of
OncoVAX(CL) with no significant side effects reported. The Company believes that
the results of the Amsterdam trial confirmed positive trends seen in the ECOG
and Hoover trials that tested OncoVAX(CL) administered in regimens of three
inoculations without a six-month booster inoculation.
The Company is now preparing a BLA for OncoVAX(CL) for submission to the
FDA in late 1998. The Company is also seeking the necessary registrations and
reimbursement approvals in certain countries in Europe.
To commercialize OncoVAX(CL), the Company is planning to establish OncoVAX
Centers at or near hospitals with established surgery practices. OncoVAX Centers
have been designed to treat up to 2,000 patients per year. Each OncoVAX Center
will require less than 3,000 square feet and contain all the equipment,
facilities and personnel necessary to manufacture, store and administer
OncoVAX(CL). The first centers in the United States are planned for areas
characterized by high population density and high incidence
36
<PAGE> 38
of colon cancer. In each OncoVAX Center, the Company will employ a staff of
production technicians and a supervising physician. Each center will be
responsible for collecting tumors from regional colorectal surgeons. The Company
estimates that most OncoVAX Centers can be established and put into operation
for an investment of less that $1.5 million per site. The first OncoVAX Center
in the United States has been established at Lehigh Valley Hospital in
Allentown, Pennsylvania and the first OncoVAX Center in Europe is being
established at University Hospital, Vrije Universiteit, Amsterdam. The Company
plans to establish more than 25 OncoVAX Centers in the United States and more
than 15 in Europe.
The Company plans to leverage its OncoVAX Centers to perform expedited
clinical trials and to launch other products, such as its in vivo imaging agent
HumaSPECT for monitoring recurrence of colon cancer and ASI(BCL) for prevention
of recurrence of disease in B-cell lymphoma. In the immediate term, the Company
plans to use the OncoVAX Centers to conduct a Phase III clinical trial for
OncoVAX(CL) in combination with chemotherapy to treat Stage III colon cancer
patients. See "Risk Factors -- Dependence on OncoVAX(CL)" for the status of the
Company's clinical trial for such product.
The Company plans to market OncoVAX(CL) in conjunction with HumaSPECT,
which has been designed to detect recurrence of colorectal cancer. HumaSPECT is
a totally human antibody that is labeled with a radioisotope and then injected
into a patient to detect recurrent or metastatic spread of colon cancer. Because
HumaSPECT utilizes a human antibody (rather than a non-human antibody that can
elicit an adverse reaction by the patient's own immune system), it can be
repeatedly infused. A multi-center, Phase III clinical trial was completed for
HumaSPECT in 1996. In this trial, HumaSPECT demonstrated to be as accurate as CT
scans in detecting recurrence of colorectal cancer and significantly superior to
CT scans in determining whether a recurrence is inoperable. The Company has
since submitted a BLA to the FDA and an MAA to the EMEA which has now
recommended HumaSPECT for European approval. The Company believes, with the EMEA
recommendation for European approval, that HumaSPECT is the first totally human
antibody approved for use in humans. HumaSPECT is also being evaluated in
clinical trials for its efficacy in detecting recurrent lung, ovarian and
prostate cancer. The Company plans to recommend HumaSPECT to patients vaccinated
with OncoVAX(CL) to monitor recurrence and metastatic spread during the
three-year period following vaccination. HumaSPECT can be administered and the
results interpreted at an OncoVAX Center, with the results sent to a patient's
oncologist or physician for further action, if required.
On November 5, 1997, the FDA advised the Company in writing that its BLA
for HumaSPECT was not approvable at that time. The letter raised questions
regarding clinical and manufacturing issues. The Company submitted responses to
the issues raised in the FDA letter via letters dated April 10 and May 19, 1998.
The Company believes it has fully responded to all issues raised by the FDA.
Once a company fully responds to the FDA, the agency has six months to either
approve the BLA or issue a "complete action" letter setting forth specific
deficiencies, if any, and the actions necessary to receive approval. There can
be no assurance, however, that upon review of these submissions that the FDA
ultimately will approve the BLA for HumaSPECT.
KLH for the treatment of bladder cancer
The American Cancer Society estimates that there will be 54,400 new cases
of bladder cancer in the United States in 1998. Bladder cancer is the fourth
most prevalent malignant disease among male patients and the eighth among female
patients. The Company estimates that approximately 350,000 people in the United
States currently have had or are living with bladder cancer. Patients diagnosed
with bladder cancer present with superficial tumors of which approximately 80%
are papillary and the remaining 20% are carcinoma in situ ("CIS"). Superficial
papillary tumors respond well to endoscopic surgery and post-surgical adjuvant
therapy, but recurrence at the same or another site in the bladder is relatively
common. CIS has particularly invasive and lethal potential and is not amenable
to surgical resection. Intravesicular therapy, using chemotherapy and/or BCG, is
used to treat endoscopically unresectable bladder cancer lesions. It is also
used after surgery as adjuvant therapy designed to prevent recurrences.
The Company is developing an active, non-specific immunotherapeutic
approach for the treatment of bladder cancer using a proprietary formulation of
keyhole limpet hemocyanin. Keyhole limpet hemocyanin is a potent immune
stimulator that induces a non-specific inflammatory response in the bladder.
However, a
37
<PAGE> 39
tumor-specific phenomenon may be involved as it has been recognized that keyhole
limpet hemocyanin shares an antigen in common with bladder cancer cells. The
Company believes that keyhole limpet hemocyanin has a significantly more
favorable toxicity profile than BCG therapy and chemotherapy. Keyhole limpet
hemocyanin is also being used by the Company and others as an immunogenic
enhancer for products based upon active specific immunotherapy.
The Company has completed a Phase I/II dose escalation study on KLH for
superficial bladder cancer and CIS of the bladder. KLH was administered as a
treatment for those bladder cancer patients that did not respond to treatment
with BCG or chemotherapy. Data from the Phase I/II study indicates that, of the
25% of all bladder cancer patients who fail to respond to BCG or other forms of
treatment, KLH has a greater than 50% complete response rate. Based upon these
results, the Company has commenced a Phase III clinical trial to evaluate the
efficacy of KLH for the treatment of refractory bladder cancer.
The Company has entered into a strategic partnership agreement for the
marketing and distribution of KLH with Mentor. Under the terms of the agreement,
the Company will receive additional funding for research and development,
milestone payments and 30% of the net sales of the product.
ASI(BCL) for the treatment of B-cell Lymphoma
The American Cancer Society estimates that approximately 55,400 cases of
non-Hodgkin's lymphoma will be diagnosed in the United States in 1998. As with
other cell types in the body, the B-cells and T-cells of the immune system may
become malignant and grow as systemic tumors such as lymphomas. B-cell non-
Hodgkin's lymphomas are one such group of cancers of the immune system and
currently afflict approximately 250,000 people in the United States alone.
B-cell non-Hodgkin's lymphomas are diverse with respect to both diagnosis and
treatment and are generally classified as low-grade, intermediate or high grade.
The Company estimates that approximately half of the 250,000 patients afflicted
with non-Hodgkin's lymphoma in the United States have low-grade or follicular
lymphoma and approximately 18,000 of these have been diagnosed within the
previous 12 months. Treatment alternatives for lymphoma patients include
chemotherapy, radiation and Rituxan(R), which is currently indicated for use in
refractory, low grade, CD20 positive B-cell non-Hodgkin's lymphoma.
In conjunction with researchers at Stanford University, the Company has
been developing ASI(BCL), an active specific immunotherapeutic product for the
treatment of B-cell lymphoma, as an adjuvant therapy to chemotherapy and
antibody-based immunotherapy. The approach is based upon the observation that
each clone of B-cells expresses on the cell surface an antibody unique to that
clone. Each patient's B-cell lymphoma may be characterized by the unique portion
of the antibody molecule, the idiotype, expressed on the surface of that
patient's tumor cells and this idiotype constitutes a patient-specific,
tumor-specific antigen. By stimulating an immune response against this idiotype,
the Company believes that ASI(BCL) may be able to prevent the continuous pattern
of tumor relapse in B-cell lymphoma patients completing remission therapy.
Results from a Phase I study indicated that when B-cell lymphoma patients
were immunized during remission, 71% (15 out of 21) developed an immune response
to ASI(BCL). Of these responding patients, 87% (13 out of 15) remained in a
state of remission for a median duration of 7.9 years. An additional Phase I
activity study has been ongoing since 1995 for which the Company has prepared 31
vaccines of which 27 have now been administered. Based upon results obtained to
date, the Company is preparing to file an amendment to its existing IND to
commence a Phase II/III clinical trial of ASI(BCL) in the United States in the
first half of 1999.
HumaRAD
The Company is developing HumaRAD(16.88) and HumaRAD(88BV59), radiolabeled
human monoclonal antibodies for the treatment of head and neck cancer and of
ovarian cancer, respectively. Focal head and neck cancer grows locally and
usually metastasizes to the regional lymph nodes rather than to distant sites.
This compartmentalization provides an opportunity for intratumoral injection of
a radiolabeled monoclonal antibody. The American Cancer Society estimates that
30,300 people in the United States will develop head and neck cancer in 1998 and
that approximately 8,000 people will die in 1998 from the disease. Surgery and
38
<PAGE> 40
radiation are the only currently available treatments for head and neck cancer
and are often disfiguring. Like head and neck cancer, ovarian cancer is a
relatively localized disease. The American Cancer Society estimates that, in
1998, there will be 25,400 cases of newly diagnosed ovarian cancer in the United
States and that approximately 14,500 people will die in 1998 from the disease.
Approximately 70% of patients with ovarian cancer are diagnosed with advanced
disease. The introduction of platinum combination chemotherapy and taxol has
greatly improved medium-term survival, but long-term survival rates remain low.
The prognosis is particularly poor for patients with recurrent or progressive
disease.
The Company's HumaRAD products utilize radioimmunotherapy ("RIT"), a form
of targeted radiation therapy, by having a human monoclonal antibody carry a
therapeutic dose of radiation, in this case (90)Yttrium, to tumor cells. By
targeting "compartmentalized" tumors with intratumoral injections of a human
monoclonal antibody, the Company believes its HumaRAD products may overcome
systemic toxicity and the antigenicity of non-human antibodies, two of the major
problems previously encountered with RIT in the treatment of solid tumors.
The Company has developed extensive expertise in the RIT field. The
Company's HumaRAD human monoclonal antibodies bind with a variety of tumor types
in vivo and have been shown to be specific for tumor localization in patients
with colorectal, breast, ovarian and head and neck cancer. One of the most
important advantages seen with these HumaRAD products is their lack of
immunogenicity in patients. This is in contrast to a single administration of a
mouse monoclonal antibody from which the majority of patients develop a human
anti-mouse response precluding further or frequent treatment with the mouse
antibody. The administration of HumaRAD, even following multiple infusions, does
not elicit a human anti-human response. This is important because multiple
infusions are necessary to deliver a therapeutic dose of radiation.
The Company, by using intratumoral injections of HumaRAD(16.88) in patients
with head and neck cancer, has been able to demonstrate that it can deliver
therapeutic doses of radiation to the primary tumor and metastatic lymph nodes.
In ovarian cancer, where the whole peritoneal cavity is at risk and the majority
of patients present with advanced disease, the Company is evaluating the
intraperitioneal administration of HumaRAD(88BV59) in patients who have minimal
residual disease following surgery and chemotherapy. The Company has commenced
enrollment of its Phase I clinical trial of HumaRAD(16.88) for the treatment of
head and neck cancer and plans to submit an IND with the FDA to commence a Phase
I clinical trial of HumaRAD(88BV59) for the treatment of ovarian cancer in the
first half of 1999.
Other products
The successful development of HumaSPECT and the Company's HumaRAD products
has enabled the Company to extend its human antibody program to the development
of products to treat several serious infectious diseases in North America and
Europe. The principal targets of this program are life-threatening infectious
diseases, including nosocomial, or hospital-borne infections, and HIV/AIDS.
The Company is developing human monoclonal antibodies for three different
types of bacteria: staphylococcus epidermidis, enterococcus faecalis and
enterococcus faecium. Some of this work was initiated pursuant to an agreement
with Baxter Healthcare Corporation ("Baxter") which terminated March 1998.
Baxter may have some residual licensing rights to products developed during the
course of this contract. Staphylococcus epidermis is a major cause of infections
of premature infants in hospitals. Enterococcus faecalis and enterococcus
faecium are major causes of serious infections in immunocompromised patients.
The seriousness of enterococcus infection, particularly faecium, is exacerbated
by the increasing prevalence of resistance to antibiotics, including vancomycin.
The Company plans to file an IND to commence Phase I clinical trials of one or
more of these antibodies in the first half of 1999.
The Company has also been developing its MONOGENE(INT) antibody-based gene
therapy product for the treatment of patients with HIV/AIDS. MONOGENE(INT)
involves the introduction of an antibody gene into key immune cells of the body.
The antibody gene allows the immune cells to produce an antibody fragment which
binds to the critical integrase protein and which, in extensive preclinical
testing, has been shown to strongly inhibit HIV infection. The Company believes
that this gene therapy approach is less toxic and less likely to result in viral
resistance than certain other therapies. The Company is currently focused on
39
<PAGE> 41
manufacturing clinical grade quantities of MONOGENE(INT) necessary for use in
conducting a Phase I clinical trial.
DIAGNOSTIC PRODUCTS
In addition to its therapeutic products portfolio, the Company also
develops, manufactures and markets a portfolio of in vitro diagnostic products.
The Company's diagnostic business unit has been expanded through acquisition and
internal development to include the following products:
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
DIAGNOSTIC PRODUCTS
- -------------------------------------------------------------------------------------------------
PRODUCT DIAGNOSTIC USES STATUS(1)
- -------------------------------------------------------------------------------------------------
Confirmatory diagnostic Viruses and bacteria Being marketed.
products
- -------------------------------------------------------------------------------------------------
INSTI HIV-1/2 HIV Registered or approved in 16
countries.
- -------------------------------------------------------------------------------------------------
Chemotrax(BR) Breast cancer Pre-market approval ("PMA")
application approved. Being marketed.
- -------------------------------------------------------------------------------------------------
ZYMMUNE CD4/CD8 HIV 501(k) cleared. Being marketed.
- -------------------------------------------------------------------------------------------------
Accu-D(x) Bladder cancer 501(k) cleared. Being marketed by
Mentor.
- -------------------------------------------------------------------------------------------------
Apo-Tek Lp(a) Cardiovascular disease 501(k) cleared. Being marketed by
Sigma Diagnostics, Inc. ("Sigma").
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) See "-- Government Regulation -- Device Regulation."
Confirmatory diagnostic products
With the exception of pathogens which have a major effect on the blood
supply, such as HIV and hepatitis, a significant volume of virology and
bacteriology testing in the United States and elsewhere continues to employ
standard cell culture techniques. Depending on the pathogen suspected and the
organs involved, a fecal, sputum or blood sample is taken from the patient and
sent to a hospital or clinical laboratory in a plastic transport containing a
liquid preservative. The laboratory incubates the patient sample with a cell-
line selected for its ability to produce the suspected pathogen. After a
standard incubation period, the cells are then exposed to antibodies that
recognize the virus or bacterium for which the test has been designed. These
antibodies are coupled with dyes or enzymes so laboratory technicians can
observe whether the virus or bacterium is present.
Through Bartels, the Company manufactures and/or markets a comprehensive
family of products required for every step of this process and is widely
regarded as one of the leading suppliers in the field. The product portfolio
includes 31 transports, 50 cell-lines, more than 60 antibodies and 66
enzyme-linked immuno-assay ("ELISA") tests. The Company also supplies
instrumentation required to read the results of its ELISA tests. In accordance
with standard industry practice, these instruments are generally placed with
customers under the terms of an agreement that require the customer to make
minimum purchases of the Company's products.
INSTI HIV-1/2
After several international clinical trials, the Company is currently
launching a rapid test for detection of HIV-1 and HIV-2. The INSTI HIV-1/2 test
takes approximately one minute to run, is easy to perform and interpret and is
as sensitive and specific as most instrument-based tests which take more than an
hour or more and many steps to perform. The product has been registered/approved
in India, Thailand, Chile, Russia,
40
<PAGE> 42
Pakistan, South Africa, Venezuela, Costa Rica, Panama, Colombia, Jordan, Belize,
Haiti, Dominican Republic, Surinam and Turkey. INSTI HIV-1/2 is the first
product utilizing the Company's INSTI platform technology that provides a fast
and accurate antibody detection system for serum, plasma and whole blood
samples. In addition to speed and accuracy, the INSTI format has been designed
for high-volume, low-cost production. The product is being manufactured at the
Company's facility in Richmond, British Columbia, Canada.
Chemotrax(BR)
Until recently, there has been no FDA-approved test to determine the
sensitivity of solid tumors to the range of chemotherapeutic agents available to
treat these tumors. In 1996, after a four-year PMA application process, Bartels
Prognostics received FDA approval to market Chemotrax(BR), a chemotherapeutic
sensitivity test to be used in conjunction with the treatment of breast cancer.
Clinical trials demonstrated that Chemotrax(BR) accurately measured breast tumor
cell sensitivity to 5-FU, a type of chemotherapy widely used to treat breast and
other cancers, and that assay results correlated closely to patient clinical
responses to 5-FU. Bartels Prognostics has now submitted an investigational
device exemption to the FDA for the testing of six other chemotherapeutic agents
in breast cancer so that a panel of standard chemotherapies can be evaluated for
each breast cancer patient. The Company has exclusive rights to market
Chemotrax(BR).
ZYMMUNE CD4/CD8
The Company is launching ZYMMUNE CD4/CD8, a product to determine the number
of CD4 and CD8 immune cells in the body. CD4/CD8 counts are an important marker
for staging and treating HIV-infected individuals and implementing therapeutic
intervention. The demand for CD4/CD8 testing is expected to grow as patients on
the new triple therapy regimes live longer and require extended monitoring. The
standard methodology used to determine the level of these immune cells has been
a combination of flow cytometry and hematology. ZYMMUNE CD4/CD8 is a simpler,
less costly alternative to the flow cytometer and provides results in less than
35 minutes. The ZYMMUNE CD4/CD8 testing system received final FDA clearance in
August 1996 and is now in expanded field trials.
Accu-D(x)
The Company has developed Accu-D(x), a point-of-care in vitro diagnostic
test for the detection of recurrent bladder cancer. Accu-D(x) is a urine-based
test which can be performed in a physician's office in about seven minutes. The
Company estimates that the market potential for Accu-D(x) in the United States
includes approximately 350,000 persons previously diagnosed with bladder cancer.
Accu-D(x) was cleared for marketing by the FDA in May 1997. The Company has also
entered into an agreement with Mentor for the marketing and distribution of
Accu-D(x), pursuant to which product sales began in early 1998. Under the terms
of the agreement, the Company receives 50% of the net sales of the product.
Apo-Tek Lp(a)
In November 1997, the Company received FDA clearance to market its Apo-Tek
Lp(a) test kit which detects Lipoprotein(a) ("Lp(a)"), a single independent risk
factor for astherosclerotic cardiovascular disease. The Company estimates that
over 57 million Americans have one or more types of cardiovascular disease. The
Company's Apo-Tek Lp(a) test can be used with human serum or plasma to detect
and accurately quantify Lp(a) levels and shows no cross reactivity with
plasminogen or other plasma components. The Company currently has a distribution
agreement with Sigma in connection with Apo-Tek Lp(a), pursuant to which product
sales began in early 1998.
MANUFACTURING
The Company manufactures its therapeutic products in Rockville, Maryland in
a facility of approximately 120,000 square feet. The Rockville, Maryland
facility contains cGMP facilities for production of human monoclonal antibodies,
gene therapy and production of vaccines from antisera as well as extensive
41
<PAGE> 43
research and development facilities. The Company manufactures all of its
FDA-cleared diagnostic products in two registered facilities totaling
approximately 54,000 square feet in Issaquah, Washington. The Company's INSTI
HIV-1/2 product is manufactured in a facility of approximately 7,000 square feet
in Richmond, British Columbia, Canada. The Company has established its first
OncoVAX Center in Allentown, Pennsylvania, is establishing its second OncoVAX
Center in Amsterdam, The Netherlands and is planning to establish more than 40
OncoVAX Centers in the United States and Europe to manufacture and administer
OncoVAX(CL). All of the Company's facilities are leased. Upon establishment of
the OncoVAX Centers, the Company believes that its facilities will be adequate
for the foreseeable future.
MARKETING AND SALES
The Company markets and sells its diagnostic products in the United States
through its own direct sales force. Outside the United States, the Company
utilizes local distributors for the sale of its diagnostic products. The Company
has appointed Sigma and Mentor as exclusive world-wide distributors for Apo-Tek
Lp(a) and of Accu-D(x), respectively.
The Company plans to market and sell OncoVAX(CL) and HumaSPECT through
OncoVAX Centers to be established in the United States and Europe. The Company
anticipates that OncoVAX Centers will be supported by account representatives
with both sales and service responsibilities with centralized marketing support
located in Rockville, Maryland. The Company has appointed Mentor as exclusive
world-wide distributor for KLH, but has not appointed distributors for any of
its other therapeutic products.
REIMBURSEMENT
In the United States, almost all people over age 65 have primary health
care coverage through the federal Medicare program administered by the Health
Care Financing Administration ("HCFA"). The strong correlation between the
incidence of cancer and age means that HCFA's decisions concerning coverage and
payment for OncoVAX(CL) by Medicare will be financially significant to the
Company. As an autologous product that will not generally be sold through
traditional commercial channels, OncoVAX(CL) may present unique coverage and
payment issues for Medicare. Currently, once approved by the FDA, Medicare
covers medically necessary biologics administered as part of or incident to a
physician's service when furnished to beneficiaries in settings such as
physicians' offices or clinics. Under federal law, HCFA establishes a separate
payment amount for each FDA-approved drug based on the commercially published
price of the drug. The Company plans to work to ensure that HCFA addresses and
resolves any unique OncoVAX(CL) issues under its existing policies that
generally provide Medicare coverage and payment for FDA-approved drugs. The
Company plans to operate its OncoVAX Centers in compliance with applicable state
licensure requirements and with applicable Medicare regulations.
Medicare's decision concerning coverage of OncoVAX(CL) also may be useful
in assuring private coverage and payment. Adults under age 65 who have insurance
coverage are likely to have employer sponsored or work-related health plans,
which are increasingly likely to involve some element of managed care with
policies similar to those of Medicare. Because coverage and payment issues for
private insurance coverage are heavily dependent on the provisions in the
insurance contract, the Company is planning to work closely with payors and
patients to obtain coverage and payment for OncoVAX(CL).
GOVERNMENT REGULATION
The testing, manufacturing, labeling, advertising, promotion, export and
marketing, among other things, of the Company's therapeutic and diagnostic
products are subject to extensive regulation by governmental authorities in the
United States and other countries. Therapeutic and diagnostic products that are
administered to patients are regulated as drugs or biologic drugs, while
diagnostic products that are used on blood and tissue samples taken from
patients are regulated as devices.
42
<PAGE> 44
Drug Regulation
Non-biological drugs and biological drugs are generally subject to some of
the same laws and regulations. Ultimately, however, they are approved under
different regulatory frameworks, with non-biological drugs being approved under
the FDC Act through an NDA and biological drugs being approved under the PHS Act
by a BLA. Among other things, the FDA Modernization Act clarifies that
biological products are subject to the same requirements as non-biological
products under the FDC Act, except that a biological product licensed under the
PHS Act is not required to have an NDA. Thus, as a biologic, OncoVAX(CL) is
subject to IND regulations prior to approval and will be regulated as both a
biologic and a drug once it has an approved BLA. Traditionally, a company
seeking FDA approval to market a biological drug (in contrast to a non-
biological drug) was required to file and obtain approval of a PLA and an
Establishment License Application ("ELA") with the FDA pursuant to the PHS Act
before commercial marketing of the product could begin. The FDA Modernization
Act repealed the statutory requirement for an ELA for a biological product.
Instead, a single BLA covering both the product and the facility in which the
product is manufactured is now required. As of February 19, 1998, the effective
date of the FDA Modernization Act, approval of applications filed under the old
system will result in the issuance of a BLA for the product. No refiling or
other action on the part of the applicant will be required to implement this
conversion to a single license. At the present time, the Company believes that
OncoVAX(CL) and other immunotherapeutics that it may develop will be regulated
by the FDA as biologics.
The steps required before a drug or biologic may be approved for marketing
in the United States generally include (i) preclinical laboratory tests and
animal tests, (ii) the submission to the FDA of an IND application for human
clinical testing, which must become effective before human clinical trials may
commence, (iii) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product, (iv) in the case of a biologic, the
submission to the FDA of a BLA, or in the case of a drug, an NDA, (v) FDA review
of the BLA or NDA and (vi) satisfactory completion of an FDA inspection of the
manufacturing facilities at which the product is made to assess compliance with
cGMPs. The testing and approval process requires substantial time, effort and
financial resources, and there can be no assurance that any approval will be
granted on a timely basis, if at all.
Preclinical studies include laboratory evaluation of the product, as well
as animal studies to assess the safety and potential efficacy of the product.
The results of the preclinical studies, together with manufacturing information
and analytical data, are submitted to the FDA as part of the IND. The IND
automatically will become effective thirty days after receipt by the FDA unless
the FDA, before that time, raises concerns or questions about the conduct of the
trials as outlined in the IND and places the trial on clinical hold. In such
case, the IND sponsor and the FDA must resolve any outstanding concerns before
clinical trials can proceed. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials. Moreover, once
trials have commenced, the FDA may stop the trials, or particular types of
trials, by placing a "clinical hold" on such trials because of concerns about,
for example, the safety of the product being tested or the adequacy of the trial
design. Such holds can cause substantial delay and in some cases may require
abandonment of a product or a particular trial.
Clinical trials involve the administration of the investigational products
to healthy volunteers or patients under the supervision of a qualified principal
investigator consistent with an informed consent. Further, each clinical trial
must be reviewed and approved by an independent Institutional Review Board
("IRB") at each institution at which the study will be conducted. The IRB will
consider, among other things, ethical factors, the safety of human subjects and
the possible liability of the institution.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is usually tested for safety (adverse effects), dosage
tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II clinical trials usually involve studies in a limited patient population
to (i) evaluate the efficacy of the drug for specific, targeted indications,
(ii) determine dosage tolerance and optimal dosage and (iii) identify possible
adverse effects and safety risks. Phase III clinical trials generally further
evaluate clinical efficacy and test further for safety within an expanded
patient population and at multiple clinical sites. Phase IV clinical trials are
43
<PAGE> 45
conducted after approval to gain additional experience from the treatment of
patients in the intended therapeutic indication and to document a clinical
benefit in the case of drugs approved under accelerated approval regulations. If
the FDA approves a product while a company has ongoing clinical trials that were
not necessary for approval, a company may be able to use the data from these
clinical trials to meet all or part of any Phase IV clinical trial requirement.
These clinical trials are often referred to as "Phase III/IV post-approval
clinical trials." Failure to promptly conduct Phase IV clinical trials could
result in withdrawal of approval for products approved under accelerated
approval regulations.
In the case of products for severe or life-threatening diseases, the
initial clinical trials are sometimes done in patients rather than in healthy
volunteers. Since these patients are afflicted already with the target disease,
it is possible that such clinical trials may provide evidence of efficacy
traditionally obtained in Phase II clinical trials. These trials are referred to
frequently as Phase I/II trials. There can be no assurance that Phase I, Phase
II or Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk.
The results of the preclinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA in the form of a BLA or NDA requesting approval to market
the product. Before approving a BLA or NDA, the FDA will inspect the facilities
at which the product is manufactured and will not approve the product unless the
manufacturing facility is in cGMP compliance. The FDA may delay approval of a
BLA or NDA if applicable regulatory criteria are not satisfied, require
additional testing or information, and/or require postmarketing testing and
surveillance to monitor safety or efficacy of a product. There can be no
assurance that FDA approval of any BLA or NDA submitted by the Company will be
granted on a timely basis, if at all. Also, if regulatory approval of a product
is granted, such approval may entail limitations on the indicated uses for which
such product may be marketed. Any FDA approvals that may be granted will be
subject to continual review, and newly discovered or developed safety or
efficacy data may result in withdrawal of products from marketing. Moreover, if
and when such approval is obtained, the marketing and manufacture of the
Company's products would remain subject to extensive regulatory requirements
administered by the FDA and other regulatory bodies, including compliance with
cGMPs and adverse event reporting requirements. Failure to comply with these
regulatory requirements could, among other things, result in product seizures,
recalls, fines, injunctions, suspensions, or withdrawals of regulatory
approvals, operating restrictions and criminal prosecutions.
The FDA Modernization Act establishes a new statutory program for the
approval of fast track drugs, including biological products. The fast track
program is designed to facilitate the development and expedite the approval of
therapies that are intended to treat serious or life-threatening conditions,
such as cancer and AIDS, and that demonstrate the potential to address unmet
medical needs for such conditions. Under the new fast track program, a request
for designation may be submitted concurrently with, or any time after, the
submission of an application for an IND. If a product meets the statutory
criteria, the Secretary is required to designate it as a fast track drug within
60 days of the request for designation. An application for a fast track drug may
be approved upon determination that the drug has an effect on a clinical
endpoint or a surrogate endpoint that is reasonably likely to predict clinical
benefit. While precise time frames for approval of fast track products have not
been established, the Prescription Drug User Fee Act established performance
goals correspondence between the FDA Commissioner and Congress committing the
agency to a six-month review period for priority drugs.
The Company may elect to seek approval of OncoVAX(CL) under this
accelerated approval process. If a product is approved under the accelerated
approval regulations, the sponsor may be required to conduct additional adequate
and well-controlled studies to verify that the effect on the surrogate marker
represents improved clinical outcome or otherwise confirm the effect on a
clinical endpoint. In the event such postmarketing studies do not verify the
drug's anticipated clinical benefit, or if there is other evidence that the drug
product is not shown to be safe and effective, expedited withdrawal procedures
permit the FDA, after a hearing, to remove a product from the market. For
products approved under the accelerated approval provisions, promotional
materials must be submitted to the FDA for review 30 days prior to
dissemination.
44
<PAGE> 46
Significant uncertainty exists as to the extent to which such initiative will
result in accelerated review and approval. Further, the FDA has not made
available comprehensive guidelines with respect to this initiative, and it
retains considerable discretion in determining eligibility for accelerated
review and approval and is not bound by discussions that an applicant may have
with FDA staff. Accordingly, the FDA could employ such discretion to deny
eligibility of OncoVAX(CL) as a candidate for accelerated review or require
additional clinical trials or other information before approving OncoVAX(CL).
The Company cannot predict the ultimate impact, if any, of the new approval
process on the timing or likelihood of FDA approval of OncoVAX(CL) or any of its
other potential products.
Treatment of patients with an experimental therapy may be allowed under a
treatment IND before general marketing begins and pending FDA approval. Charging
for an investigation product also may be allowed under a treatment IND to
recover certain costs of development, if various requirements are met. The
Company may elect to file a treatment IND pending approval of its BLA for
OncoVAX(CL).
The Company also will be subject to a variety of regulations governing
clinical trials and sales of its products outside the United States. Whether or
not FDA approval has been obtained, approval of a product by the comparable
non-U.S. regulatory authorities must be obtained prior to the commencement of
marketing of the product in their respective countries. The approval process
varies from country to country and the time needed to secure approval may be
longer or shorter than that required for FDA approval.
The pharmaceutical legislation of the European Union requires any person
seeking to market a medicinal product for human use to obtain approval of an
MAA. Procedures for granting such authorizations have been harmonized within the
European Union through the issue of directives for implementation into the
domestic law of each Member State and by Regulations having direct effect. There
are two authorization procedures by which approvals can be sought to market
pharmaceutical products in more than one Member State. The first is a
centralized assessment procedure administered by the EMEA. The second is a
decentralized, or "mutual recognition" procedure available only to
non-biologics. Pursuant to this procedure, an applicant may apply for a national
authorization in one Member State. Upon obtaining that authorization, an
applicant may make further national applications in such other Member States as
are relevant to the applicant, requesting the relevant national authorities in
those Member States to recognize, by reference to the assessment report of the
relevant national authority in the first Member State, the marketing
authorization already granted. In the event of objection, European Union
authorities require that binding arbitration determine whether authorizations
should be granted and, if so, on what terms. The Company's policy is to design
its clinical trials in order to meet the eligibility requirements for
multi-country European Union approval. Drugs designated by the EMEA as
"high-tech" products are evaluated by the EMEA on an expedited basis, generally
within 210 days.
In addition, prices are regulated in most countries other than the United
States. For example, regulators in certain European countries condition their
approval of a pharmaceutical product on the agreement of the seller not to sell
the product for more than a certain price in their respective countries. In some
cases, the price established in any of these countries may serve as a benchmark
in the other countries. As such, the price approved in connection with the first
approval obtained in any of these European countries may serve as the maximum
price that may be approved in the other European countries. Also, a price
approved in one of these European countries that is lower than the price
previously approved in the other European countries may require a reduction in
the prices in such other European countries. In such event, there can be no
assurance that the resulting prices would be sufficient to generate an
acceptable return on the Company's investment in its products.
Device Regulation
Pursuant to the FDC Act and the regulations promulgated thereunder, the FDA
regulates the preclinical and clinical testing, manufacturing, labeling,
distribution and promotion of medical devices. In the United States, medical
devices are classified into one of three classes (i.e., Class I, II, or III) on
the basis of the controls deemed necessary by the FDA to reasonably ensure their
safety and effectiveness. Class I devices are subject to general controls (e.g.,
labeling, premarket notification and adherence to cGMPs) and Class II devices
are subject to general and special controls (such as performance standards,
postmarket surveillance,
45
<PAGE> 47
patient registries, and FDA guidelines). Generally, Class III devices are those
which must receive premarket approval by the FDA to ensure their safety and
effectiveness (life-sustaining, life-supporting and implantable devices, or new
devices which have been found not to be substantially equivalent to legally
marketed devices). Before a new device can be introduced in the market, the
manufacturer must generally obtain FDA clearance or approval through either
clearance of a 510(k) notification or approval of a PMA application. However,
most Class I devices are now exempt from the FDA's market clearance
requirements.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed Class I or Class II device, or if it is a
preamendment Class III device for which the FDA has called for PMA applications.
A PMA application must be supported by valid scientific evidence to demonstrate
the safety and effectiveness of the device, typically including the results of
clinical trials, bench tests and laboratory and animal studies. The PMA
application must also contain a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling, advertising literature and any training materials.
Once the FDA determines that the PMA application is sufficiently complete
to permit a substantive review, the FDA will accept the application for filing
and begin its review. Although the FDA has 180 days to review a PMA application,
such reviews generally take one to three years, and may take significantly
longer, from the date the PMA application is accepted for filing.
During the review of a PMA application, an advisory committee likely will
be convened to review and evaluate the application and provide recommendations
to the FDA as to whether the device should be approved. The FDA is not bound by
the recommendation of the advisory panel. In addition, prior to approval, the
FDA generally will inspect the manufacturing facility to ensure compliance with
applicable cGMP requirements. If granted approval, the PMA application may
include significant limitations on the indicated uses for which the product may
be marketed, and the agency may require post-marketing studies of the device.
If the FDA's evaluation of the PMA application or manufacturing facilities
is not favorable, the FDA will deny approval of the PMA application or issue a
"non-approval" letter. The FDA may determine that additional clinical trials are
necessary, in which case approval may be delayed for one or more years while
additional clinical trials are conducted and submitted. The PMA application
process can be expensive, uncertain, and lengthy, and a number of devices for
which FDA clearance has been sought by other companies have never been approved
for marketing. Modifications to a device that is the subject of an approved PMA
application, its labeling, or manufacturing process may require approval by the
FDA of PMA application supplements or new PMA applications. Supplements to a PMA
application often require the submission of the same type of information
required for an initial PMA application, except they are generally limited to
that information needed to support the proposed change.
A 510(k) clearance will be granted if the submitted information establishes
that the proposed device is "substantially equivalent" to a legally marketed
Class I or Class II medical device or a preamendment Class III medical device
for which the FDA has not called for PMA applications. In some cases, 510(k)
submissions require clinical data. It generally takes from four to 12 months
from submission to obtain 510(k) premarket clearance, but it may take longer.
The FDA may determine that a proposed device is not substantially equivalent to
a legally marketed device, or that additional information is needed before a
substantial equivalence determination can be made. A "not substantially
equivalent" determination, or a request for additional information could prevent
or delay the market introduction of new products that fall into this category.
For any devices that are cleared through the 510(k) process, modifications or
enhancements that could significantly affect safety or effectiveness, or
constitute a major change in the intended use of the device, will require new
510(k) submissions.
If human clinical trials of a device are required, whether for a 510(k) or
a PMA application, and the device presents a "significant risk," the sponsor of
the trial (usually the manufacturer or the distributor of the device) will have
to file an investigational device exemption ("IDE") application prior to
commencing human clinical trials. The IDE application must be supported by data,
typically including the results of animal and laboratory testing. If the IDE
application is approved by the FDA and one or more appropriate IRBs, human
46
<PAGE> 48
clinical trials may begin at a specific number of investigational sites with a
specific number of patients, as approved by the FDA. If the device presents a
"nonsignificant risk" to the patient, a sponsor may begin the clinical trial
after obtaining approval for the study by one or more appropriate IRBs without
the need for FDA approval. Submission of an IDE does not give assurance that the
FDA will approve the IDE and, if it is approved, there can be no assurance that
the FDA will determine that the data derived from these studies supports the
safety and efficacy of the device or warrants the continuation of clinical
studies. Sponsors of clinical trials are permitted to sell investigational
devices distributed in the course of the study provided such compensation does
not exceed recovery of the costs of manufacture, research, development and
handling. An IDE supplement must be submitted to and approved by the FDA before
a sponsor or investigator may make a change to the investigational plan that may
affect its scientific soundness or the rights, safety or welfare of human
subjects.
Although clinical investigations of most devices are subject to the IDE
requirements, clinical investigations of in vitro diagnostic ("IVDs") tests are
exempt from the IDE requirements, including FDA approval of investigations,
provided the testing meets certain exemption criteria. IVD manufacturers must
also establish distribution controls to assure that IVDs distributed for the
purpose of conducting clinical investigations are used only for that purpose.
Pursuant to current FDA policy, manufacturers of IVDs labeled for
investigational use only ("IUO") or research use only ("RUO") are encouraged by
the FDA to establish a certification program under which investigational IVDs
are distributed to or utilized only by individuals, laboratories, or health care
facilities that have provided the manufacturer with a written certification of
compliance indicating that the IUO or RUO product will be restricted in use and
will, among other things, meet institutional review board and informed consent
requirements.
Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation,
including routine inspections of facilities by the FDA and certain state
agencies. Manufacturers of medical devices for marketing in the United States
are required to adhere to applicable regulations setting forth detailed cGMP
requirements, which include testing, control and documentation requirements.
Manufacturers must also comply with Medical Device Reporting ("MDR")
requirements that a firm report to the FDA any incident in which its product may
have caused or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, it would be likely to cause
or contribute to a death or serious injury. Labeling and promotional activities
are subject to scrutiny by the FDA and, in certain circumstances, by the Federal
Trade Commission. Current FDA enforcement policy prohibits the marketing of
approved medical devices for unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with cGMP requirements, MDR requirements, and other
applicable regulations. With respect to devices, the FDA Modernization Act will
affect the IDE, 510(k) and PMA application processes, and also will affect
device standards and data requirements, procedures relating to humanitarian and
breakthrough devices, tracking and postmarket surveillance, accredited third
party review, and the dissemination of off-label information. The Company cannot
predict how or when these changes will be implemented or what effect the changes
will have on the regulation of the Company's products. Changes in existing
requirements or adoption of new requirements could have a material adverse
effect on the Company's business, financial condition, and results of
operations. There can be no assurance that the Company will not incur
significant costs to comply with laws and regulations in the future or that laws
and regulations will not have a material adverse effect on the Company's
business, financial condition or results of operations.
The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's ability to do business.
Noncompliance with applicable requirements can result in, among other
things, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of marketing
clearances or approvals,
47
<PAGE> 49
and criminal prosecution. The FDA also has authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.
Some states may require licensure of the Company's OncoVAX Centers, and may
have specific requirements concerning the staffing of the OncoVAX Centers. The
structure, staffing, and administration of the patient-care side of the OncoVAX
Centers may differ from state-to-state based on these legal requirements.
The Company's activities in operating its OncoVAX Centers will be subject
to various federal and state laws pertaining to health care fraud and abuse,
including anti-kickback laws, false claims laws, and physician self-referral
laws. Violations of these laws are punishable by criminal and/or civil
sanctions, including, in some instances, imprisonment and exclusion from
participation in federal health care programs, including Medicare, Medicaid,
veteran health programs, and TRICARE. The Company plans to structure and staff
its OncoVAX Centers so as to comply with these laws.
In marketing its current products, the Company also is subject to federal
and state anti-kickback laws that regulate the financial relationships between
manufacturers of products and the hospitals, physicians and other potential
purchasers of medical products or sources of referral related to the purchase of
such products. The statutory prohibitions are broad and are enforceable with
considerable discretion by federal and state authorities. Federal regulations
provide very specific "safe harbors" for only some business practices; other
practices may not be in violation of the law but are not provided a safe harbor.
The Company intends its marketing and sales activities to be in compliance with
these laws, but because of the breadth of the statutory provisions, the Company
cannot provide assurances that its activities in selling and marketing medical
products will not come under scrutiny and challenge under one or more of these
laws.
RADIOACTIVE AND OTHER HAZARDOUS MATERIALS
The NRC and the Agreement States regulate companies that possess
radioactive material and those that manufacture, prepare, or transfer
radioactive drugs for commercial distribution to assure the public's safety
through proper use of radioactive materials. Agreement States typically regulate
in a manner similar to the NRC. The Company's incorporation of radioactive
materials into its HumaRAD products and HumaSPECT subjects it to these NRC
requirements. To comply, the Company must apply for and maintain appropriate
licenses and comply with reporting, recordkeeping, and other regulatory
requirements. Obtaining and maintaining a license includes demonstrating that:
the Company's equipment and facilities are adequate to protect health and
minimize danger to life and property; the personnel are adequately qualified to
operate the equipment; and environmental concerns are adequately addressed.
Other regulatory requirements include specific packaging and labeling
compliance, measuring radiation emitted from products before distribution,
conducting daily inspections and maintaining instruments used to measure the
product's radiation. The regulatory authorities periodically conduct routine
inspections, the frequency of which varies depending on the Company's history
and changes in volume or character of manufacturing operations.
The NRC takes enforcement actions against those companies failing to
achieve compliance with NRC regulations. The Company's failure to comply with
the regulatory requirements could subject it to enforcement actions including
civil penalties up to $5,500 per violation per day and orders to modify,
suspend, or revoke its licenses. With a suspended or revoked license, the
Company would be required to cease possessing the radioactive material necessary
for producing its products and distributing its products. The nature of a
particular penalty will depend on who discovered the violation and upon its
severity, repetitiveness, and the willfulness involved. The manufacturing and
administration of the Company's HumaRAD products and HumaSPECT require the
handling, use and disposal of (90)Yttrium and Technetium Tc 99m, respectively,
each a radioactive isotope. These activities must comply with various state and
NRC regulations regarding the handling and use of radioactive materials.
Violations of these regulations could significantly delay completion of clinical
trials and commercialization of the Company's HumaRAD products and HumaSPECT.
The administration of the Company's HumaRAD products and HumaSPECT entails
the introduction of radioactive materials into patients. These patients emit
radioactivity at levels that pose a safety concern to others around them,
especially healthcare workers for whom the cumulative effect of repeated
exposure to
48
<PAGE> 50
radioactivity is of particular concern. These concerns are addressed in
regulations promulgated by the NRC, as well as by various state and local
governments and individual hospitals. Generally, patients who emit radioactivity
above specified levels are required to be hospitalized, where they can be
isolated from others until radiation falls to acceptable levels. The NRC
recently enacted regulations that have made it easier for hospitals to treat
patients with radioactive materials on an outpatient basis. Under these
regulations, the Company's HumaRAD products and HumaSPECT may be administered on
an outpatient basis in most cases. Although state and local governments often
follow the lead of the NRC, many currently do not, and there can be no assurance
that they will do so or that patients receiving the Company's HumaRAD products
and HumaSPECT will not have to remain hospitalized for one to three days
following administration, adding to the overall cost.
The Company expects to continue using hazardous chemicals and radioactive
compounds in its ongoing research activities. Although the Company believes that
safety procedures for handling and disposing of such materials will comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. The Company could be held liable for any damages that result from
such an accident, contamination or injury from the handling and disposal of
these materials as well as for unexpected remedial costs and penalties that may
result from any violation of applicable regulations, which could result in a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may incur substantial costs to
comply with environmental regulations.
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company believes that patent and trade secret protection is important
to its business and that its future will depend in part on its ability to
maintain its technology licenses, protect its trade secrets, secure additional
patents and operate without infringing the proprietary rights of others.
Currently, the Company has an extensive portfolio of patents and additional
pending patent applications in connection with most of the Company's therapeutic
products. This includes United States Patent No. 5,484,596, which covers the
OncoVAX(CL) method of treatment and will expire in January 2013.
Extensive research has been conducted in the cancer vaccine and monoclonal
antibody fields and by pharmaceutical and biotechnology companies and other
organizations and a substantial number of patents in these fields have been
issued to other pharmaceutical and biotechnology companies. In addition,
competitors may have applications for additional patents pending and may obtain
additional patents and proprietary rights related to products or processes
competitive with or similar to those of the Company. Patent applications are
maintained in secrecy for a period after filing and, in the United States,
patent applications are confidential until the patent is issued. Publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries and the filing of related patent applications. The Company may not
be aware of all of the patents potentially adverse to the Company's interests
that may have been issued to other companies, research or academic institutions,
or others. No assurance can be given that such patents do not exist, have not
been filed, or could not be filed or issued, which contain claims relating to
the Company's technology, products or processes. To date, no consistent policy
has emerged regarding the breadth of claims allowable in pharmaceutical and
biotechnology patents.
The Company is aware of various patents that have been issued to others
that pertain to a portion of the Company's prospective business. There can be no
assurance that patents do not exist in the United States or in other countries
or that patents will not be issued to third parties that contain preclusive or
conflicting claims with respect to OncoVAX(CL) or any of the Company's other
product candidates or programs. Commercialization of cancer vaccines and
monoclonal antibody-based products may require licensing and/or cross-licensing
of one or more patents with other organizations in the field. There can be no
assurance that the licenses that might be required for the Company's processes
or products would be available on commercially acceptable terms, if at all.
The Company's breach of an existing license or failure to obtain a license
to technology required to commercialize its product candidates may have a
material adverse effect on the Company's business, financial
49
<PAGE> 51
condition and results of operations. Litigation, which could result in
substantial costs to the Company, may also be necessary to enforce any patents
issued to the Company or to determine the scope and validity of third party
proprietary rights. If competitors of the Company prepare and file patent
applications in the United States that claim technology also claimed by the
Company, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office to determine priority
of invention, which could result in substantial cost to the Company, even if the
eventual outcome is favorable to the Company. An adverse outcome could subject
the Company to significant liabilities to third parties and require the Company
to license disputed rights from third parties or to cease using such technology.
Patents issued and patent applications filed internationally relating to
biologics are numerous and there can be no assurance that current and potential
competitors and other third parties have not filed or in the future will not
file applications for, or have not received or in the future will not receive,
patents or obtain additional proprietary rights relating to products or
processes used or proposed to be used by the Company. Many non-United States
jurisdictions allow oppositions by third parties to granted patents and/or
issued patents. The Company may have to participate in opposition proceedings in
non-United States jurisdictions to prevent a third party from obtaining a patent
that may be adverse to the Company's interests. Also, the Company may have to
defend against a third party's opposition to a patent granted and/or issued to
the Company. There can be no assurance that the Company will be successful in an
opposition proceeding, and participation in such a proceeding could result in
substantial cost to the Company whether or not the eventual outcome is favorable
to the Company. Moreover, there is certain subject matter which is patentable in
the United States and not generally patentable outside of the United States and
may limit the protection the Company can obtain on some of its inventions
outside of the United States. For example, methods of treating humans are not
patentable in many countries outside of the United States. These and/or other
issues may prevent the Company from obtaining patent protection outside of the
United States which could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies on trade secrets and trademarks to protect its
technology, especially where patent protection is not believed to be appropriate
or obtainable. The Company protects its proprietary technology and processes, in
part, by confidentiality agreements with its key employees, consultants, medical
advisory board members, collaborators and contractors. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets and trademarks or
those of its collaborators or contractors will not otherwise become known or be
discovered independently by competitors.
COMPETITION
The pharmaceutical and biotechnology industries are intensely competitive.
Many of the product candidates being developed by the Company, if approved,
would compete with existing drugs, therapies and diagnostic products. There are
many pharmaceutical companies, biotechnology companies, public and private
universities and research organizations actively engaged in research and
development of products for the treatment of people with cancer. Many of these
organizations have financial, technical, manufacturing and marketing resources
greater than those of the Company. Several of them may have developed or are
developing therapies or diagnostic products that could be used for treatment or
diagnosis of the same diseases targeted by the Company. If a competing company
were to develop or acquire rights to a more efficacious therapeutic or
diagnostic product for the same diseases targeted by the Company, or one which
offers significantly lower costs of treatment or diagnosis, the Company's
business, financial condition and results of operations could be materially
adversely affected.
The Company believes that competition in the development and marketing of
new cancer therapies will be based primarily on product efficacy and safety,
time to market and price. To the extent the Company's product programs are
successful, it also intends to rely to some degree on patents and other
intellectual property and orphan drug designations to protect its products from
competition.
The Company believes that its product development programs will be subject
to significant competition from companies utilizing alternative technologies as
well as to increasing competition from companies that
50
<PAGE> 52
develop and apply technologies similar to the Company's technologies. Other
companies may succeed in developing products earlier than the Company, obtaining
approvals for such products from the FDA more rapidly than the Company or
developing products that are more effective than those under development or
proposed to be developed by the Company. There can be no assurance that research
and development by others will not render the Company's technology or product
candidates obsolete or non-competitive or result in treatments superior to any
therapy developed by the Company, or that any therapy developed by the Company
will be preferred to any existing or newly developed technologies.
PRODUCT LIABILITY AND INSURANCE
The manufacture and sale of human therapeutic and diagnostic products
involve an inherent risk of product liability claims and associated adverse
publicity. The Company has only limited commercial product liability insurance.
There can be no assurance that the Company will be able to maintain existing
insurance or obtain additional product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Such insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms, if at all. An inability to obtain sufficient insurance
coverage on reasonable terms or to otherwise protect against potential product
liability claims brought against the Company in excess of its insurance
coverage, if any, or a product recall could have a material adverse effect upon
the Company's business, financial condition and results of operations.
HUMAN RESOURCES
As of June 30, 1998, the Company had over 240 employees. The Company's
employees are not represented by a collective bargaining agreement. The Company
believes its relations with its employees are good.
MEDICAL ADVISORY BOARD
The Company's Medical Advisory Board is comprised of internationally
recognized clinical researchers in the fields of oncology and cancer surgery.
The Medical Advisory Board advises the Company's management on strategic issues
related to the Company's clinical development programs and consists of the
following individuals:
Herbert C. Hoover, Jr., M.D., co-chairman of the Medical Advisory Board, is
the Chairman of the Department of Surgery at Lehigh Valley Hospital in
Allentown, Pennsylvania and the Vice Chairman of the Department of Surgery and
Professor of Surgery at Pennsylvania State University/Milton S. Hershey Medical
Center, Hershey, Pennsylvania. Dr. Hoover is the holder of the Anne C. and Carl
R. Anderson Chair of Surgery at Lehigh Valley Hospital. Dr. Hoover obtained a
B.A. from the Kansas State College of Pittsburgh in 1966 and his M.D. in 1970
from the University of Kansas School of Medicine. Dr. Hoover is a member of
numerous professional societies and national, regional, medical school and
hospital committees and boards, as well as being on the editorial board of
various medical and scientific journals.
Herbert Michael Pinedo, M.D., Ph.D., co-chairman of the Medical Advisory
Board, is Professor of Medical Oncology and Chief of the Department of Medical
Oncology at the Vrije Universiteit in Amsterdam, the Netherlands. Dr. Pinedo
obtained his M.S. and his M.D. degree in 1967 and his Ph.D. in Medical Science
in 1972, from the Medical School of the University of Leiden in Amsterdam, the
Netherlands. Dr. Pinedo belongs to numerous professional societies, university
and hospital committees and boards, and is on the editorial boards of numerous
medical journals.
Michael Andrew Choti, M.D. is Director, Johns Hopkins Colon Cancer Center,
and Medical Director, Outpatient Center at The Johns Hopkins Hospital and has
been Assistant Professor in the Department of Surgery at The Johns Hopkins
School of Medicine since 1992, Assistant Professor in the Department of Oncology
at The Johns Hopkins School of Medicine since 1995, and a full-time staff member
in the Department of Surgery at The Johns Hopkins Hospital. Dr. Choti obtained
his B.S. in 1979 from the University of California at Irvine and his M.D. in
1983 from Yale University School of Medicine. Dr. Choti is a member in various
professional societies as well as being involved in various professional
activities.
51
<PAGE> 53
Ronald Levy, M.D. has been Chief of the Division of Oncology at Stanford
University School of Medicine since 1993. From 1987, Dr. Levy has been Professor
of Medicine, Division of Oncology, at Stanford University School of Medicine,
Summy Chair at Stanford University School of Medicine, and an American Cancer
Society Clinical Research Professor. Dr. Levy obtained his A.B. from Harvard
University in 1963 and obtained his M.D. from Stanford University in 1968. Dr.
Levy is a member of numerous medical societies and an active member of various
professional review organizations, including the Margaret Early Trust Research
Grant Committee and the Scientific Advisory Board of CellPro, Bothell,
Washington.
H. Kim Lyerly, M.D., Ph.D. is Professor of Surgery, Immunology, and
Pathology and Clinical Director of the Duke Center for Genetic and Cellular
Therapies at Duke University Medical Center. Dr. Lyerly obtained his B.S. in
1980 from the University of California at Riverside and his M.D. from the
University of California at Los Angeles in 1983. Dr. Lyerly is on the Editorial
Board of Annals of Surgery and International Journal of Surgical Science. Dr.
Lyerly has been awarded numerous honors and belongs to numerous professional
societies. Since 1990, Dr. Lyerly has been a research sponsor working with
various M.D.s and Ph.D.s, as well as an investigator since 1988 working on
protocols for the treatment of diseases such as AIDS and leukemia, and on
molecular therapeutics programs.
Bruce G. Wolff, M.D. is Professor of Surgery at the Mayo Medical School and
a consultant in colon, rectal, and general surgery, at the Mayo Clinic. Dr.
Wolff obtained a B.S. from Davidson College and his M.D. from Duke University
School of Medicine. Dr. Wolff belongs to numerous in-house Mayo Clinic
organizations as well as national and regional organizations including being
vice-chairman of the American Cancer Society Executive Committee on Allied
Health Personnel.
LEGAL PROCEEDINGS
The Company is party to claims and litigation that arise in the normal
course of business. Management believes that the ultimate outcome of these
claims and litigation will not have a material impact on the financial position
or results of operations of the Company.
52
<PAGE> 54
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
current directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Michael G. Hanna, 62 Chairman of the Board and Chief Scientific Officer
Ph.D. ..................
Simon R. McKenzie......... 41 President, Chief Executive Officer and Director
Daniel S. Reale........... 43 Senior Vice President and President, OncoVAX(CL) Division
Persis M. Strong.......... 44 Senior Vice President and President, Bartels Diagnostics
Division
Lawrence A. Bloom......... 42 Senior Vice President, Corporate Development
Diana Goroff, Ph.D........ 44 Vice President, Operations
Peggy McGaw............... 40 Vice President, Finance
Carl T. Foster............ 33 Vice President, Business Development
Raymond J. Schuyler....... 62 Director
Joseph Caligiuri.......... 69 Director
Steven Gerber, M.D. ...... 44 Director
Alexander Klibanov, 48 Director
Ph.D. ..................
</TABLE>
- ---------------
Michael G. Hanna, Ph.D. is currently Chairman of the Board and Chief
Scientific Officer of the Company. Dr. Hanna had been Chairman of the Board,
Chief Executive Officer and President of PerImmune since 1994. Dr. Hanna founded
the Litton Institute of Applied Biotechnology ("LIAB") in 1982. In 1985, Organon
Teknika assumed operations of LIAB and Dr. Hanna served as Senior Vice President
of Organon Teknika. Prior to his position at LIAB in 1982, Dr. Hanna served as
the Director of the National Cancer Institute, Frederick Cancer Research Center.
Simon R. McKenzie founded Intracel in 1987 and serves as President, Chief
Executive Officer and a director of the Company. From 1987 to the present, Mr.
McKenzie has served as President of Intracel and, from 1995 to 1997, Mr.
McKenzie was also Chairman of the Board. Prior to forming Intracel, Mr. McKenzie
co-founded and managed Baltech, Inc., an early stage pharmaceutical company
developing a new class of antiviral drugs including candidates for treating
Herpes Simplex. Since 1997, Mr. McKenzie has served on the Board of Directors of
New Century Pharmaceuticals, an early stage company working in x-ray
crystallography.
Daniel S. Reale is currently Senior Vice President of the Company and
President of the Company's OncoVAX(CL) Division. From 1994 to 1997, Mr. Reale
served as President and Chief Operating Officer of Coral Therapeutics, a
provider of in-hospital apheresis-based technologies, where he was responsible
for the establishment of 10 hospital-based state-of-the-art blood service units
in cGMP environments. From 1989 to 1994, Mr. Reale served as Senior Vice
President, Operations for Chartwell Home Therapies, L.P., where Mr. Reale
oversaw 14 infusion pharmacies with hospital based supporting clinics.
Persis M. Strong presently serves as Senior Vice President of the Company
and President of the Company's Bartels Diagnostics Division. She joined the
Company in 1995 as Vice President of Marketing. Ms. Strong has over 17 years of
management and business development experience in the medical diagnostics
industry. Prior to joining the Company, Ms. Strong spent 7 years with Binax,
Inc., a point-of-care diagnostics company, where she served as Vice President of
Marketing. From 1981 to 1988, Ms. Strong was employed by Ventrex Laboratories,
Inc., a biotechnology company, in various marketing and management positions.
Ms. Strong has extensive international business experience and has successfully
organized and negotiated manufacturing and distribution arrangements in over 35
international markets.
Lawrence A. Bloom is Senior Vice President of Corporate Development for the
Company. From 1996 to 1997, Mr. Bloom was a consultant to emerging biotechnology
companies. From 1991 to 1995, Mr. Bloom
53
<PAGE> 55
served as Senior Vice President for Dillon Read Inc., an investment banking
firm. From 1985 to 1990, Mr. Bloom served as Vice President and Associate
Portfolio Manager for Lehman Management Co., a $15 billion money management
division of Shearson/Lehman American Express.
Diana Goroff, Ph.D. is Vice President of Operations. From 1991 to 1998, Dr.
Goroff served as Director of Parenteral Drug Manufacturing for PerImmune. Dr.
Goroff has extensive experience with production of monoclonal antibodies and has
recently managed the clinical production of the Company's first totally human
antibody.
Peggy McGaw is Vice President, Finance and joined the Company in January
1998. From 1995 to 1997, Ms. McGaw served as the Financial Reporting Manager of
Western Wireless Corp., a telecommunication service provider. From 1991 to 1995,
Ms. McGaw was employed by PricewaterhouseCoopers LLP (formerly Coopers & Lybrand
L.L.P.), most recently as a Business Assurance Manager affiliated with the
firm's National High Tech Group. Ms. McGaw is a certified public accountant and
has extensive experience working with emerging technology base companies and in
obtaining public financing.
Carl T. Foster joined the Company as Vice President of Business Development
in June 1998. From 1997 to June 1998, Mr. Foster served as Managing Director of
Ferghana Partners, Inc., an investment banking firm. From 1989 to 1997, Mr.
Foster was employed by Merck and Co., Inc. and Astra Merck, Inc., which are
affiliated pharmaceutical companies, most recently as Director of Licensing and
Business Development of Astra Merck, Inc..
Raymond J. Schuyler has been a director of Intracel since August 1995. Mr.
Schuyler is a Senior Vice President and Chief Investment Officer of Orion
Capital and Security Insurance Co. of Hartford, one of Intracel's principal
institutional stockholders. Mr. Schuyler has been involved in investment banking
and portfolio management for more than 38 years.
Joseph Caligiuri became a director of Intracel immediately following the
Merger. Mr. Caligiuri retired as a Corporate Executive Vice President of Litton
Industries, Inc. in April 1993, where he had worked since 1969. Mr. Caligiuri
also serves as a member of the Board of Directors of Titan Corporation, a
commercial and military electronic and information systems company and Avnet,
Inc., an electronics components and distribution company.
Steven Gerber, M.D. became a director of Intracel immediately following the
Merger. Dr. Gerber is a senior pharmaceutical industry analyst and Head of
Healthcare Research for CIBC Oppenheimer, an investment banking firm. Dr. Gerber
holds a medical staff appointment at Cedars-Sinai Medical Center in Los Angeles.
He is also a member of the Board of Overseers of Tufts University School of
Medicine, and a member of the Board of Directors of Syncor International
Corporation.
Alexander Klibanov, Ph.D. has been a director of Intracel since July 1992.
For more than five years, Dr. Klibanov has been a Professor of Chemistry in the
Department of Chemistry at the Massachusetts Institute of Technology. He serves
on the editorial and review board of numerous scientific publications in the
fields of chemistry and biochemistry. He is a leader in the fields of
enzymology, having published numerous related articles in leading publications.
There are no family relationships among any of the persons who are
directors or executive officers of Intracel.
54
<PAGE> 56
SUMMARY OF EXECUTIVE COMPENSATION
The table below sets forth certain information concerning the compensation
earned by the Company's Chief Executive Officer and each of the other most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers") whose aggregate cash compensation exceeded $100,000 for
services rendered in all capacities to the Company during the year ended
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------- ----------------------------
SHARES OF
COMMON STOCK
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUSES OPTIONS COMPENSATION
- ------------------------------------------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Simon R. McKenzie
President and Chief Executive Officer... $186,434
Persis M. Strong
Senior Vice President, Marketing........ 118,550 20,000
Matthew L. Root
Chief Financial Officer(1).............. 94,003 $20,000
Cheryl Cataldo
Corporate Secretary(1).................. 111,374
</TABLE>
- ---------------
(1) Mr. Root served as chief financial officer for a portion of 1997, and Ms.
Cataldo served as an executive officer for a portion of 1997. They were not
officers of the Company as of the last day of fiscal year 1997.
The following table sets forth information regarding stock options granted
pursuant to the Company Stock Option Plan (as defined) during the fiscal year
ended December 31, 1997 to each of the Named Executive Officers. The Company has
never granted any stock appreciation rights.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATES OF
GRANTED TO STOCK PRICE
NUMBER OF EMPLOYEES APPRECIATION FOR
SECURITIES IN FISCAL YEAR OPTION TERM
UNDERLYING OPTIONS ENDED EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED DECEMBER 31, 1997 PER SHARE(1) DATE 5% 10%
- ---------------------- ------------------ ----------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Simon R.
McKenzie(2).........
Persis M. Strong(2)... 20,000 15.4% $4.50 12/31/02 $24,865 $54,946
Matthew L. Root.......
Cheryl Cataldo........
</TABLE>
- ---------------
(1) All share numbers and prices adjusted to reflect a two-for-one stock split
on December 31, 1997. The Company granted options totaling 130,000 shares
(as adjusted) during the year ended December 31, 1997.
(2) As of April 30, 1998, the Company granted Mr. McKenzie warrants to purchase
679,341 shares of common stock at an exercise price of $4.50 and options to
Ms. Strong to purchase 15,000 shares of common stock at an exercise price of
$7.50 per share.
55
<PAGE> 57
No options were exercised by the Named Executive Officers in 1997. The
following table sets forth the specified information concerning unexercised
options held by the Named Executive Officers as of December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT VALUE OF UNEXERCISED
TO UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END(1)
-------------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Simon R. McKenzie...................... 200,000(2) $475,480
Persis M. Strong....................... 51,666(2) 28,334 90,000 $ 30,000
Matthew L. Root........................
Cheryl Cataldo......................... 7,467 13,333 4,933 6,667
</TABLE>
- ---------------
(1) Calculated based upon the difference between the exercise price and the
estimated fair market value of the underlying securities as of December 31,
1997.
(2) As of April 30, 1998, the Company granted Mr. McKenzie warrants to purchase
679,341 shares of common stock at an exercise price of $4.50 per share and
options to Ms. Strong to purchase 15,000 shares of common stock at an
exercise price of $7.50 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its key
employees. The following is a summary of the material terms and conditions of
such agreements and is subject to the detailed provisions of the respective
agreements attached as exhibits to the Registration Statement.
Dr. Hanna entered into an employment agreement with the Company as of
January 2, 1998, providing for his employment as Chairman of the Board and Chief
Scientific Officer of the Company with a base salary of $200,000, which may be
increased by discretionary bonus payments. In addition, the agreement provides
for a $50,000 bonus if the Company's initial OncoVAX Center commences treatment
of its first cancer patient prior to December 31, 1998 and a bonus of $50,000 if
HumaSPECT receives FDA or MAA final approval prior to September 30, 1998. The
Company may terminate employment for cause (as defined) or either party may
terminate upon 30 days prior notice. Pursuant to the employment agreement, the
Company has provided to Dr. Hanna a $2,000,000 life insurance policy which will
be fully-funded within five years. Dr. Hanna's compensation also includes
customary perquisites and other personal benefits. If Dr. Hanna's employment is
terminated without cause, or Dr. Hanna terminates the agreement by reason of
constructive discharge (as defined), the Company is obligated to pay him a lump
sum amount equal to the monthly portion of his base salary multiplied by 36,
certain benefits for a three-year period following termination and, to the
extent he is not fully vested with the Company retirement plans, the difference
between any amounts payable to him under such plans and amounts which would have
been payable had he been vested. If employment is terminated on account of
medical disability (as defined), the Company is obligated to pay Dr. Hanna an
amount equal to two-thirds of his base salary (less any amounts paid as workers
compensation, social security disability or other federal, state or local
disability benefits) for the period ending the earlier of (i) the date that Dr.
Hanna becomes employed in a full-time manner or substantially full-time basis,
in which case he shall receive his base salary without adjustment or (ii) the
date that Dr. Hanna attains normal retirement age. The agreement has an initial
three-year term and shall be negotiated on an annual basis upon expiration of
the initial term. The agreement also provides that Dr. Hanna may not engage in
certain competitive activities with the Company for a period of one year
following termination of the agreement.
Mr. McKenzie entered into an employment agreement with the Company as of
January 2, 1998, providing for his employment as President and Chief Executive
Officer of the Company with a base salary of $200,000, which may be increased by
discretionary bonus payments. In addition, the agreement provides for a $50,000
bonus if a private placement of the Company's equity securities aggregating not
less than $3,000,000 is consummated by December 31, 1998 and a bonus of $50,000
if a public offering of the Company's equity securities registered under the
Securities Act aggregating not less than $20,000,000 is consummated by December
31, 1998. In addition, pursuant to the agreement the Company granted to Mr.
McKenzie warrants,
56
<PAGE> 58
exercisable at $4.50 per share, to acquire shares of common stock in an amount
which will result in ownership of six percent of the Company's capital stock on
a fully-diluted basis. Mr. McKenzie's compensation also includes customary
perquisites and other personal benefits. The Company may terminate employment
for cause (as defined) or either party may terminate the agreement upon 30 days
prior notice. If such agreement is terminated without cause, or Mr. McKenzie
terminates the agreement by reason of constructive discharge (as defined), the
Company is obligated to pay him a lump sum amount equal to the monthly portion
of his base salary multiplied by 36, certain benefits for a three-year period
following termination and, to the extent he is not fully vested with the Company
retirement plans, the difference between any amounts payable to him under such
plans and amounts which would have been payable had he been vested. If
employment is terminated on account of medical disability (as defined), the
Company is obligated to pay Mr. McKenzie an amount equal to two-thirds of his
base salary (less any amounts paid as workers compensation, social security
disability or other federal, state or local disability benefits) for the period
ending the earlier of (i) the date that Mr. McKenzie becomes employed in a
full-time manner or substantially full-time basis, in which case he shall
receive his base salary without adjustment or (ii) the date that Mr. McKenzie
attains normal retirement age. The agreement has an initial four-year term and
shall be negotiated on an annual basis upon expiration of the initial term. Mr.
McKenzie has agreed not to compete with the Company for a period of one year
following termination of the agreement.
Mr. Reale entered into an employment agreement with the Company effective
March 8, 1998, providing for his employment as President of the OncoVAX Division
with a base salary of $200,000, which may be increased by discretionary bonus
payments. Pursuant to the agreement, the Company has granted Mr. Reale options
to purchase 100,000 shares of its common stock at an exercise price of $7.50 per
share vesting at a rate of 25% on the commencement of his employment and 25% on
each of the first, second and third anniversaries thereof. If Mr. Reale achieves
the first and second year performance objectives set forth therein, his options
will vest at an accelerated rate. Additionally, Mr. Reale may receive additional
performance bonuses totaling up to 100% of his salary. Mr. Reale's compensation
includes customary perquisites and other personal benefits.
Ms. Strong entered into an employment agreement with the Company effective
June 1, 1998, providing for her employment as Senior Vice President and
President of the Bartels Diagnostic Division with a base salary of $160,000,
which may be increased by discretionary bonus payments. During her employment
with the Company, Ms. Strong has purchased 10,000 shares of common stock and
been granted options to purchase 95,000 shares of common stock with exercise
prices ranging from $2.50 per share to $7.50 per share. Ms. Strong's
compensation includes customary perquisites and customary benefits.
Mr. Bloom entered into an employment agreement with the Company effective
February 1, 1998, providing for his employment as Senior Vice President of
Corporate Development with a base salary of $160,000, which may be increased by
discretionary bonus payments and option grants. Prior to his entering this
employment agreement, Mr. Bloom had a consulting agreement with the Company from
August 1997 to February 1998, pursuant to which he was paid $51,000. Mr. Bloom
has purchased 20,000 shares of common stock in the Company and has been granted
options to purchase 35,000 shares of common stock with the exercise prices
ranging from $4.50 per share to $7.50 per share. Mr. Bloom's compensation
includes customary perquisites and customary benefits.
Mr. Foster entered into an employment agreement with the Company effective
May 19, 1998, providing for his employment as Vice President of Business
Development with a base salary of $200,000, which may be increased by
discretionary bonus payments. Pursuant to the agreement, the Company has granted
Mr. Foster options to purchase 100,000 shares of its common stock at an exercise
price of $10.00 per share vesting at a rate of 25% on the commencement of his
employment and 25% on each of the first, second and third anniversaries thereof.
If Mr. Foster achieves the first and second year performance objectives set
forth therein, his options will vest at an accelerated rate. Additionally, Mr.
Foster may receive additional performance bonuses totaling up to 100% of his
salary. Mr. Foster's compensation includes customary perquisites and customary
benefits.
57
<PAGE> 59
STOCK OPTION PLANS
Intracel Stock Option Plans
The Company has reserved 800,000 shares of common stock for issuance under
its 1989 Stock Option Plan and 1990-91 Stock Option Plan (the "Company Stock
Option Plan") which provides for the granting of options to key employees and
consultants of the Company and its subsidiaries. The option price per share, the
amount of shares underlying each option, the vesting period and the expiration
date are determined by the Board of Directors at the date of the grant, except
that the option price may not be less than the fair market value (as defined) of
stock on the date of the grant and the option period may not exceed ten years.
For stockholders possessing more than a 10% ownership interest, the option price
shall not be less than 110% of the fair market value at the date of grant. The
vesting period for options issued in 1997 ranged from 24 months to 48 months and
all had expiration dates five years from the date of issue. At March 31, 1998,
options to purchase 1,007,034 shares of common stock at $1.00 to $4.50 per share
were outstanding, of which 687,533 were vested and exercisable. See Note 10 to
the Company's consolidated financial statements contained elsewhere in this
Prospectus.
PerImmune Holdings, Inc. Stock Option Plan
Pursuant to the Amended and Restated 1996 Stock Option Plan of PerImmune
Holdings (the "PerImmune Stock Option Plan") for independent directors,
executive officers and key employees and consultants (all as defined) of
PerImmune Holdings, PerImmune and the Company, PerImmune Holdings reserved 500
shares of its common stock, par value $.01 per share, for issuance. At the time
of the Merger, options to purchase 257 shares of PerImmune Holdings were
outstanding, of which options to purchase 86 shares of PerImmune Holdings were
vested and exercisable. In connection with the Merger, the Company assumed
PerImmune Holdings' obligations under the PerImmune Stock Option Plan.
Consequently, each option outstanding under the PerImmune Stock Option Plan
converted into an option to purchase 9,108.32 shares of common stock upon
exercise. Of the options to purchase 257 shares of PerImmune Holdings, options
to purchase 255 shares of PerImmune Holdings were granted to employees of
PerImmune Holdings at an exercise price of $2,725 per share and options to
purchase two shares of PerImmune Holdings were granted to directors of PerImmune
Holdings at an exercise price of $45,000 per share.
401(k) RETIREMENT SAVINGS PLAN
The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute amounts through payroll deductions.
The Company matches employees' contributions at the discretion of the Company's
Board of Directors. The Company did not match employee contributions to the
401(k) savings plan in the 1997, 1996 and 1995 periods. The Company does not
provide other post-retirement benefits.
In connection with the Merger, the Company assumed PerImmune Holdings'
employee pension plan, a noncontributory defined benefit pension plan (the
PerImmune Holdings Plan) retroactive to August 2, 1996. The Company froze the
benefits under the PerImmune Holdings Plan in February 1998, and determined that
the remaining PerImmune Holdings Plan assets and recorded pension liability
exceeded the obligation relating to the participants. As a result of the
curtailment of the plan benefits, the Company recorded income of $800,000 and
reduced the related pension liability in accordance with Statement of Financial
Accounting Standards No. 88, "Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans."
In addition, PerImmune Holdings maintains a defined-contribution savings
plan under Section 401(k) of the Internal Revenue Code. This plan covers
substantially all full-time employees. Participating employees may defer a
portion of their pretax earnings up to the Internal Revenue Service annual
contribution limit. PerImmune Holdings matches employee contributions according
to a specified formula. PerImmune Holdings' matching contributions totalled
$176,098 and $72,779 for the year ended December 31, 1997, and period from
August 3, 1996 through December 31, 1996, respectively.
58
<PAGE> 60
COMMITTEES OF THE BOARD OF DIRECTORS
In March 1998, the Board of Directors designated a Compensation Committee,
which consists of Joseph Caligiuri, Steven Gerber and Alexander Klibanov. The
Compensation Committee reviews executive salaries and administers any bonuses,
incentive compensation and stock options of the Company issuable to management
employees and directors of the Company. In addition, the Compensation Committee
consults with management of the Company regarding compensation policies and
practices of the Company. Also in March 1998, the Board of Directors established
an Audit Committee consisting of Joseph Caligiuri, Simon R. McKenzie and Raymond
J. Schuyler, an Executive Committee consisting of Michael J. Hanna, Simon R.
McKenzie and Raymond J. Schuyler and a Finance Committee consisting of Steven
Gerber, Simon R. McKenzie and Raymond J. Schuyler. The Audit Committee will
review the professional services provided by the Company's independent auditors,
the annual financial statements of the Company and the Company's internal
financial controls.
DIRECTOR COMPENSATION
Fees. None of the Company's directors who are also employees of the Company
receive cash compensation for attendance at meetings of the Board of Directors
or at meetings of committees of the Board of Directors of which they are
members. Independent, non-employee directors shall be entitled to cash
compensation of $1,500 for attendance at meetings of the Board of Directors or
at meetings of committees of the Board of Directors of which they are members.
All directors receive reimbursement for reasonable travel expenses incurred in
connection with attendance at each Board of Directors and committee meeting.
Stock Options. To attract and retain independent, non-employee directors
for the Company, the Company has issued, and intends to continue to issue, to
its independent directors, a one time grant of 15,000 options to purchase the
Company's common stock pursuant to the Company Stock Option Plan, in amounts
determined at the discretion of the Board of Directors or the Compensation
Committee and exercisable at a price equal to the fair market value of the
common stock on the date of grant. These options vest over a three year period.
Independent directors will generally be granted stock options upon their initial
appointment, and independent directors and stockholder representative directors
may be granted stock options during their term of service as an incentive for
continued service. Employee directors are not granted stock options for their
services as directors.
CONFIDENTIALITY AND NON-COMPETE AGREEMENTS
The Company has entered into employment agreements containing
confidentiality and non-compete provisions with each of its key employees. The
agreements provide that, among other things, all inventions, discoveries and
ideas which are, directly or indirectly, related to or suggested by the
employee's employment or is pertinent to any field of business or research in
which the Company is engaged or is considering engaging during the employee's
employment shall be the sole and exclusive property of the Company. The
agreements also provide that, for a period of two years from the date of his
termination of employment with the Company for any reason, the employee will
not, directly or indirectly, engage, participate or invest in any business
activity anywhere in the world that is competitive with or similar to the
products and services of the Company or make use of any of the Company's
confidential information.
59
<PAGE> 61
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of April 30, 1998, and as adjusted to
reflect the sale of the shares of common stock offered hereby (assuming no
exercise of the Underwriters' over-allotment option), by: (i) each person (or
group of affiliated persons) known by the Company to own beneficially more than
five percent of the Company's outstanding common stock; (ii) each of the
Company's directors; (iii) each Named Executive Officer of the Company; and (iv)
all directors and executive officers of the Company as a group. Dr. Michael G.
Hanna, Jr. (the "Selling Stockholder") has granted the Underwriters a 30-day
option to purchase up to an aggregate of additional shares of
common stock on the same terms and conditions as the Offering to cover
over-allotments, if any, in connection with the Offering. See "Underwriting."
<TABLE>
<CAPTION>
PERCENTAGE OWNED(2)(3)
NAME, TITLE AND SHARES OF COMMON STOCK --------------------------
ADDRESS OF OFFICERS, BENEFICIALLY OWNED AS OF AS OF AFTER
DIRECTORS AND BENEFICIAL OWNERS(1) APRIL 30, 1998(2) APRIL 30, 1998 OFFERING
---------------------------------- ------------------------ -------------- --------
<S> <C> <C> <C>
Michael G. Hanna, Ph.D.(4) 5,392,125 31.86% %
Chairman of the Board and Chief Scientific
Officer
Northstar Funds, and 1,383,296 8.17
TD Partners, Ole Dial(5)
2 Pickwick Plaza
Greenwich, CT 06830
Security Insurance Co. of Hartford(6) 1,276,862 7.54
600 Fifth Avenue
New York, NY 10020
Simon R. McKenzie(7) 1,264,809 7.10
President, Chief Executive Officer and Director
Mentor Corporation(8) 1,126,536 6.66
5425 Hollister Avenue
Santa Barbara, CA 93111
Syncor International Corporation(9) 975,817 5.77
6464 Canoga Avenue
Woodland Hills, CA 91367
Dianne Goroff, Ph.D.(10) 182,166 1.07 *
Vice President of Operations
Raymond Schuyler(11) 110,743 * *
Director
Alexander Klibanov, Ph.D.(12) 80,000 * *
Director
Persis M. Strong(13) 65,416 * *
Senior Vice President and President, Bartels
Diagnostics Division
Joseph Caligiuri(14) 27,324 * *
Director
Daniel S. Reale(15) 25,000 * *
Senior Vice President and
President, OncoVAX(CL) Division
Lawrence Bloom(16) 23,750 * *
Senior Vice President, Corporate Development
Steven Gerber, M.D.(17) 9,108 * *
Director
All directors and executive officers 7,071,142 39.16% %
as a group (10 persons)
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Unless otherwise indicated, the address for each person is c/o Intracel
Corporation, 2005 NW Sammamish Road, Suite 107, Issaquah, Washington 98027.
60
<PAGE> 62
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission"). In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock and preferred stock
subject to options and warrants held by that person that are exercisable
within 60 days are deemed outstanding. Such shares, however, are not deemed
outstanding for purposes of computing percentage ownership of any other
person. Options vest over a period of three to five years from the date of
grant. Options granted under the PerImmune Holdings, Inc. 1996 Stock Option
Plan have been adjusted and reflected in the equivalent number of shares of
the Company under the merger and consolidation terms of the options
agreement. Unless otherwise indicated in the footnotes to this table, the
persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
(3) Based on 16,923,318 shares outstanding prior to the Offering (including
10,957,256 shares of common stock, 4,982,718 shares of common stock which
will be issued pursuant to the Preferred Stock Conversion, 54,648 shares of
common stock which will be issued under automatic conversion features of
certain outstanding debt, and 928,696 shares of common stock issuable under
warrants immediately exercisable after the Offering), and shares of
common stock outstanding after the Offering.
(4) Includes 4,554,160 shares of common stock held for Dr. Hanna's personal
account and 837,965 shares of common stock over which Dr. Hanna has sole
voting power under the terms of a voting trust entered into among certain
other founding employees of PerImmune Holdings. Such voting trust will
terminate upon consummation of the Offering.
(5) Includes 15,271 shares of Series A-1 preferred stock (which will be
automatically converted to 30,743 shares of common stock at the conclusion
of the Offering) held by Northstar High Total Return Fund; 244,297 shares
of Series A-1 preferred stock (which will be automatically converted to
491,807 shares of common stock at the conclusion of this offering),
warrants to purchase 188,020 shares of common stock at a price of $7.00 per
share), and 159,074 shares of common stock held by Northstar Advantage High
Total Return Fund; 66,096 shares of Series A preferred stock and 76,846
shares of Series A-1 preferred stock (which will be automatically converted
to 132,192 and 153,692 shares of common stock upon consummation of the
Offering), and warrants to purchase 5,546 shares of common stock at a price
of $4.00 per share) held by TD Partners, Ole Dial; and 222,222 shares of
common stock held by Northstar Balance Sheet Opportunities; but does not
include 45,482 shares of Series A-2 preferred stock held by Northstar High
Yield Fund, which has no voting rights and is not convertible to common
stock; and, warrants to purchase 49,066 shares of common held by Northstar
Advantage High Total Return Fund, and warrants to purchase 49,066 shares of
common held by Northstar High Total Return Fund, which were issued April 1,
1998 and which are expected to remain outstanding after the Offering.
(6) Includes 371,897 shares of Series A preferred stock and 153,690 shares of
Series A-1 preferred stock which will be automatically converted to 743,794
and 307,380 shares of common stock, respectively, upon consummation of the
Offering, and 225,688 shares of common stock.
(7) Includes 319,096 shares of common stock beneficially owned, 200,000 shares
issuable upon exercise of options that are currently fully vested and
exercisable and 679,341 shares issuable upon exercise of warrants to be
granted in accordance with an employment agreement dated January 2, 1998,
and 66,372 shares of common stock held in an escrow account created under a
settlement agreement with a terminated employee, over which McKenzie has
voting control.
(8) Includes 120 shares of Series B-2 preferred stock which will be
automatically converted to 1,126,536 shares of common stock upon
consummation of the Offering.
(9) Includes 100 shares of Series B-1 preferred stock which will be
automatically converted to 975,817 shares of common stock upon consummation
of the Offering.
(10) Includes 91,083 shares issuable upon exercise of options that are currently
fully vested and exercisable and 91,083 shares which will be distributed
from the voting trust upon consummation of the Offering.
(11) Includes 15,372 shares of Series A-1 preferred stock which will be
automatically converted to 30,743 shares of common stock upon consummation
of the Offering, 60,000 shares of common stock, and 20,000 shares of common
stock issuable upon exercise of options which are fully vested and
exercisable.
(12) Includes 40,000 shares of common stock issuable upon exercise of options
which are fully vested and exercisable and 40,000 shares of common stock.
(13) Includes 10,000 shares of common stock and 55,416 shares of common stock
issuable upon exercise of options which are fully vested and exercisable.
(14) Includes 9,108 shares of common stock issuable upon exercise of options
which are fully vested and exercisable and 18,216 shares which will be
distributed from the voting trust upon consummation of the Offering.
(15) Includes 25,000 shares of common stock issuable upon exercise of options
which are fully vested and exercisable.
(16) Includes 20,000 shares of common stock and 3,750 shares of common stock
issuable upon exercise of options which are fully vested and exercisable.
(17) Includes 9,108 shares of common stock issuable upon exercise of options
which are fully vested and exercisable.
61
<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Certificate of Incorporation, and Bylaws, copies
of which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
The authorized capital stock of the Company currently consists of (i)
25,000,000 shares of common stock, and (ii) 5,000,000 shares of preferred stock.
Immediately prior to the date hereof, there were 16,978,035 shares of common
stock outstanding (including 5,077,435 shares of common stock issuable upon the
automatic conversion of the 1,469,462 shares of preferred stock issued and
outstanding, or accrued, on the date hereof; 928,696 shares of common stock
issuable in connection with "in-the-money" warrants issued and outstanding on
the date hereof, which warrants automatically expire 10 days after the
consummation of the Offering; and 54,648 shares of common stock issuable in
connection with three convertible Promissory Notes issued and outstanding on the
date hereof, which Notes automatically convert into common stock upon the
consummation of the Offering) held by approximately 145 holders of record.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held of
record on all matters on which stockholders are entitled to vote. Holders of
common stock do not have cumulative voting rights and, therefore, holders of a
majority of the shares of common stock voting for the election of directors can
elect all of the directors. In such event, the holders of the remaining shares
of common stock will not be able to elect any directors.
Holders of common stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company has not paid any cash dividends since inception
and does not anticipate paying cash dividends in the foreseeable future. In the
event of liquidation, dissolution or winding up of the Company, the holders of
common stock are entitled to share ratably in any corporate assets remaining
after payment of all debts, subject to any preferential rights of any
outstanding preferred stock. See "Dividend Policy."
Holders of common stock have no preemptive, conversion or redemption rights
and are not subject to further calls or assessments by the Company. All of the
outstanding shares of common stock are, and the shares offered by the Company
hereby will be, if issued, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors have authority to issue up to 5,000,000 shares of
preferred stock and to fix the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. Upon consummation of the
Offering, all 1,469,462 shares of convertible preferred stock issued and
outstanding, or accrued, will automatically convert into 5,077,435 shares of the
Company's common stock.
WARRANTS
In connection with several transactions, the Company issued warrants
("Warrants") to buy a total of 1,804,079 shares of common stock, of which
Warrants to purchase 1,706,169 shares of common stock are still outstanding. The
Warrants may be exercised in whole or in part at any time after the date of
issue until the expiration date by delivering the warrant agreement with the
duly executed form of subscription to the Company. Warrants generally expire
five years from the date of issue and are subject to antidilution protection.
Outstanding Warrants to purchase 928,696 shares of common stock are subject
to accelerated expiration upon the earlier of: (i) the Offering; or (ii) the
date immediately prior to the effective date of any consolidation of the Company
with or merger of the Company into any other corporation or entity or the sale
or transfer of all or substantially all of the assets of the Company to another
person or entity.
62
<PAGE> 64
Outstanding Warrants to purchase 98,132 shares of common stock are subject
to accelerated expiration ten days after notice by the Company to the holder,
which notice may be provided at any time after the date of the closing of an
underwritten public offering pursuant to an effective registration statement,
that the Company's closing price for common stock on the exchange on which it is
traded has exceeded for twenty consecutive trading days, 150% of the Proceeds to
the Company per share specified on the cover page of this Prospectus. These
warrants are also subject to accelerated expiration on the day prior to the
effective date of any consolidation of the Company with or the merger of the
Company into any other corporation or entity (other than a consolidation or
merger in which the Company is the continuing entity) or the sale or transfer of
all or substantially all of the assets of the Company to another person or
entity.
On July 22, 1994, the Company issued Warrants to purchase 51,999 shares of
common stock to several Series A stockholders in connection with the Preferred
Stock Purchase Agreement between the Company and the Series A preferred
stockholders. After giving effect to a two-for-one split of the common stock
effected as of December 31, 1997 (the "Stock Split"), the remaining outstanding
Warrants are currently exercisable for a total of 67,252 shares of the common
stock at an exercise price of $4.00 per share.
In connection with an additional Preferred Stock Purchase Agreement entered
into by the Company and several Series A-1 preferred stockholders on September
27, 1995, the Company issued Warrants to purchase 86,462 shares of common stock.
After giving effect to the Stock Split, such Warrants are currently exercisable
into 172,924 shares of common stock at an exercise price of $4.00 per share. On
November 21, 1995, the Company issued Warrants to purchase 91,177 shares of
common stock in connection with a second closing under the Preferred Stock
Purchase Agreement dated September 27, 1995. After giving effect to the Stock
Split, such Warrants are currently exercisable into 182,354 shares of common
stock at an exercise price of $7.00 per share.
On December 28, 1995, the Company issued Warrants to purchase 94,010 shares
of common stock in connection with a Warrant and Note Agreement with Northstar
Advantage High Total Return Fund. After giving effect to the Stock Split, such
Warrants are currently exercisable into 188,020 shares of common stock at an
exercise price of $7.00 per share.
On June 11, 1996, the Company issued Warrants to purchase 159,073 shares of
common stock in connection with a Note Agreement with CoreStates Enterprise
Fund. After giving effect to the Stock Split, such Warrants are currently
exercisable into 318,146 shares of common stock at an exercise price of $7.00
per share.
On January 2, 1998, the Company issued Warrants to purchase 679,341 shares
of common stock in connection with an employment agreement between Simon R.
McKenzie, the Company's Chief Executive Officer and the Company. The Warrants
carry an exercise price of $4.50 per share, and expire five years from the date
of issue.
On April 1, 1998, the Company issued Warrants to purchase 98,132 shares of
common stock in connection with a Note and Warrant Purchase Agreement at an
exercise price of $7.64 per share.
CONVERTIBLE NOTES
In January 1997, the Company's subsidiary, PerImmune Holdings, issued three
promissory notes that may each be converted into 18,216 shares of the Company's
common stock. Upon conversion, the rights of each investor under the promissory
notes cease and each investor will be entitled to rights as holders of common
stock. These notes are subject to automatic conversion upon the consummation of
the Offering.
REGISTRATION RIGHTS
Upon consummation of the Offering, certain stockholders who will hold an
aggregate of 11,780,605 shares of common stock (the "Holders"), including
5,774,474 outstanding shares of common stock, 5,077,435 shares of common stock
issuable upon the Preferred Stock Conversion at the consummation of the
Offering, and 928,696 shares of common stock issuable upon exercise of Warrants
that will otherwise expire immediately prior to the Offering, are entitled to
certain registration rights with respect to the common stock under the
Securities Act. Pursuant to the terms of these registration rights, the Company
is required to notify each Holder of each decision of the Company to file a
registration statement. Upon receipt of such
63
<PAGE> 65
notice, a Holder may request to include certain of the Holder's shares of common
stock in the Company's registration, subject to the determination of the
managing underwriters that inclusion will not interfere with the offering. These
rights have been waived by the Holders, other than the Selling Stockholder, to
the extent that such Holders had rights to register common stock in the
Offering.
In addition, certain Holders can require the Company to use its best
efforts to prepare and file a registration statement on Form S-3 (or any
successor form) with respect to such Holders' shares of common stock. The right
of the Holders to request the Company to file a registration statement on Form
S-3 is available to the Holders no more than twice during any twelve-month
period.
The Company generally is required to bear the expenses relating to the sale
of shares under registrations contemplated by the registration rights, except
for underwriting fees and discounts. The Company also is obligated to indemnify
the stockholders whose shares are included in any of the Company's registrations
against certain losses and limitations, including certain liabilities under the
Securities Act and state securities laws generally.
Following the Offering, the rights of any Holder to cause the Company to
register shares terminates when all of such Holder's securities subject to the
registration rights can be transferred or sold under the provisions of Rule 144.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW
Classified Board of Directors. The Certificate of Incorporation of the
Company provides for the Board of Directors to be divided into three classes of
directors, as nearly equal in number as is reasonably possible, serving
staggered terms so that the directors' initial terms will expire either at the
1999, 2000 or 2001 annual meeting of the stockholders. Starting with the 1999
annual meeting of the stockholders, one class of directors will be elected each
year for a three-year term.
The Company believes that a classified Board of Directors will help to
assure the continuity and stability of the Board of Directors and the Company's
business strategies and policies as determined by the Board of Directors, since
a majority of the directors at any given time will have had prior experience as
directors of the Company. The Company believes that this, in turn, will permit
the Board of Directors to more effectively represent the interest of
stockholders. With a classified Board of Directors, at least two annual meetings
of stockholders, instead of one, will generally be required to effect a change
in the majority of the Board of Directors. As a result, a provision relating to
a classified Board of Directors may discourage proxy contests for the election
of directors or purchases of a substantial block of the common stock because its
provisions could operate to prevent obtaining control of the Board of Directors
in a relatively short period of time. The classification provision could also
have the effect of discouraging a third party from making a tender offer or
otherwise attempting to obtain control of the Company. Under the Delaware
General Corporation Law (the "DGCL"), a director on a classified board may be
removed by the stockholders of the corporation only for cause.
Advance Notice Provisions for Stockholder Nominations of Directors and
Stockholder Proposals. The Bylaws of the Company establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors (the "Nomination Procedure") and with regard to other matters to be
brought by stockholders before an annual meeting of stockholders of the Company
(the "Business Procedure").
The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the Bylaws of the Company. If the Chairman of the Board
of Directors determines that the other business was not properly brought before
such meeting in accordance with the Business Procedure, such business will not
be conducted at such meeting.
Although the Bylaws of the Company do not give the Board of Directors any
power to approve or disapprove stockholder nominations for the election of
directors or of any business desired by stockholders to be conducted at an
annual meeting, the Bylaws of the Company (i) may have the effect of precluding
a nomination for the election of directors or precluding the conduct of business
at a particular annual meeting if
64
<PAGE> 66
the proper procedures are not followed or (ii) may discourage or deter a third
party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company, even if the
conduct of such solicitation or such attempt might be beneficial to the Company
and its stockholders.
Business Combinations. The Company is subject to the provisions of Section
203 of the DGCL, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in certain transactions and
"business combinations" with an "Interested Stockholder" (as defined in Section
203) for a period of three years after the date of the transaction in which the
person became an interested stockholder, unless either (i) prior to the date
such person becomes an interested stockholder, the Board approves either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon the consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time of the consummation of such
transaction, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to the date such person becomes an interested stockholder, the business
combination is approved by the Board and authorized at an annual or special
meeting of stockholders, not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes a merger, asset sale,
or other transaction resulting in a financial benefit to the stockholder. For
purposes of section 203, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own) 15%
or more of the corporation's voting stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation contains certain provisions
permitted under DGCL relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty. This provision in the Certificate of Incorporation
does not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as an injunction or other forms of non-monetary relief would
remain available under the DGCL. Each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company, for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, or for any transaction from which the director
derived an improper personal benefit. These provisions will not alter a
director's liability under federal securities laws. The Bylaws of the Company
provide for full indemnification of officers and directors to the full extent
permitted under the DGCL, as it now exists or may in the future by amended (but,
in the case of such amendment, only to the extent that such amendment permits
the Company to provide broader indemnification rights than permitted prior
thereto), or by other applicable law as then in effect, against all expenses,
liabilities and losses actually and reasonably incurred or suffered in
connection with service for or on behalf of the Company, including payment of
expenses in defending an action or proceeding upon receipt of any undertaking by
the person indemnified to repay such payment if it is ultimately determined that
such person is not entitled to indemnification. Such indemnification will
continue to an indemnified person who has ceased to be a director, officer,
employee or agent and will inure to the benefit of the indemnified person's
heirs, executors and administrators.
The Company's Bylaws provide that the Company may maintain insurance, at
its expense, to protect itself and any indemnified party against any expense,
liability or loss, whether or not the Company would have the power to indemnify
such person against such expense, liability or loss under the DGCL. The Company,
without further stockholder approval, may enter into contracts with any
indemnified person in furtherance of the indemnification provisions contained in
the Bylaws and may create a trust fund, grant a security interest or use other
means (including without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in the
Bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock of the Company is
.
65
<PAGE> 67
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the common stock
of the Company. Future sales of substantial amounts of shares of common stock in
the public market following the Offering could adversely affect the market price
of the common stock. Such sales also might make it more difficult for the
Company to sell equity securities or equity-related securities in the future at
a time and price that the Company deems appropriate or at all.
Upon consummation of the Offering, the Company will have shares
of common stock outstanding, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in the Offering will be freely tradable without
restriction or further registration under the Securities Act, unless such shares
are purchased by affiliates of the Company. The remaining 16,978,035 shares of
common stock will be restricted securities ("Restricted Shares") within the
meaning of the Securities Act. Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules
are summarized below. Holders of substantially all of those shares will have the
right to request the registration of their shares under the Securities Act
following completion of a period of one year, in the case of directors and
executive officers, and 180 days, in the case of such other stockholders, after
the date of this Prospectus, which, upon the effectiveness of such registration,
would permit the free transferability of such shares.
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, an affiliate of the Company, or person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year,
will be entitled to sell in any three-month period a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of the
Company's common stock or (ii) the average weekly trading volume of the
Company's common stock on the Nasdaq Stock Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. A person (or person whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days immediately preceding the sale and who has beneficially owned
Restricted Shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
The Company's directors, executive officers and certain stockholders, who
in the aggregate hold 7,017,559 shares of common stock of the Company
outstanding immediately prior to the consummation of the Offering have entered
into or are subject to lock-up agreements under which they have agreed not to
sell, directly or indirectly, any shares owned by them for a period of one year,
in the case of directors and executive officers, and 180 days, in the case of
such other stockholders, after the date of this Prospectus without the prior
written consent of the Underwriters. See "Underwriting." Upon expiration of the
lock-up agreements, approximately shares of common stock (including
approximately shares subject to outstanding vested options) will
become eligible for immediate public resale, subject in some cases to vesting
provisions and volume limitations pursuant to Rule 144. The remaining
approximately shares held by existing stockholders will become
eligible for public resale at various times over a period of less than two years
following the consummation of the Offering, subject in some cases to vesting
provisions and volume limitations. of the shares outstanding
immediately following the consummation of the Offering will be entitled to
registration rights with respect to such shares upon termination of lock-up
agreements. The number of shares sold in the public market could increase if
registration rights are exercised. See "Description of Capital
Stock -- Registration Rights".
66
<PAGE> 68
UNDERWRITING
Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the Underwriters named below
(collectively, the "Underwriters"), for whom Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and NationsBanc Montgomery Securities LLC are
acting as representatives (the "Representatives"), have severally agreed to
purchase the number of shares of common stock from the Company set forth
opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
NationsBanc Montgomery Securities LLC.......................
------
Total.............................................
======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of common stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of common stock (other than the shares
of common stock covered by the over-allotment option described below) must be so
purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of common stock to the public initially at the price
to the public set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
to exceed $
per share. The Underwriters may allow, and such dealers may reallow, discounts
not in excess of $ per share to any other Underwriter and certain other
dealers.
The Company and the Selling Stockholder have granted to the Underwriters an
option to purchase up to additional shares of common stock at the initial
public offering price less underwriting discounts and commissions solely to
cover over-allotments. Such option may be exercised in whole or in part from
time to time during the 30-day period after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
The Company, certain stockholders of the Company and the executive officers
and directors of the Company have agreed not to directly or indirectly offer,
pledge, sell, contract to sell, sell any option or contract to purchase or grant
any option, right or warrant to purchase or otherwise transfer or dispose of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock, or enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
ownership of such common stock, or to cause a registration statement covering
any shares of common stock to be filed, for a period of one year, in the case of
directors and executive officers, and for a period of 180 days, in the case of
such other stockholders, after the closing of the Offering without the prior
written consent of the Underwriters, subject to certain limited exceptions, and
provided that the Company may issue shares of common stock upon vesting of
rights under the Company Stock Option Plan and the PerImmune Stock Option Plan.
See "Shares Eligible for Future Sale."
Prior to the Offering, there has been no established trading market for the
common stock. The initial price to the public for the common stock offered
hereby has been determined by negotiation among the Company and the
Representatives. The factors considered in determining the initial price to the
public include the history of and the prospects for the industry in which the
Company competes, the ability of the Company's management, the past and present
operations of the Company, the prospects for future earnings of the Company, the
general condition of the securities markets at the time of the Offering and the
recent market prices of securities of generally comparable companies. The
Company has been approved for listing of the common stock on the Nasdaq National
Market.
67
<PAGE> 69
The Underwriters do not intend to make sales to accounts over which they
exercise discretionary authority in excess of 5% of the number of shares of
common stock offered hereby.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. Underwriters may bid for and purchase
shares of common stock in the open market to cover syndicate short positions. In
addition, the Underwriters may bid for and purchase shares of common stock in
the open market to stabilize the price of the common stock. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The Underwriters are not required to engage in these activities
and may end these activities at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares offered hereby is being passed upon for the
Company by Morrison & Foerster LLP, New York, New York. Certain legal matters
will be passed upon for the Underwriters by Brown & Wood LLP, New York, New
York.
EXPERTS
The consolidated financial statements of the Company at December 31, 1997,
and for the year then ended, included in this Prospectus have been included
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of the Company at December 31, 1996
and for the year ended December 31, 1996, the six months ended December 31,
1995, and for the year ended June 30, 1995, appearing in this Prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of PerImmune Holdings, Inc. and
Subsidiary at December 31, 1997 and for the year then ended, included in this
Prospectus have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated financial statements of PerImmune Holdings, Inc. and
Subsidiary as of December 31, 1996 and the related consolidated statements of
operations, changes in stockholders' deficit and cash flows for the period from
August 3, 1996 through December 31, 1996 and the statements of operations,
changes in stockholders' equity and cash flows of the predecessor company for
the period from January 1, 1996 through August 2, 1996 and for the year ended
December 31, 1995 appearing in this Prospectus have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
In February 1998, the Company's Board of Directors dismissed Ernst & Young
LLP and appointed PricewaterhouseCoopers LLP as the Company's independent
accountants to report on the Company's balance sheet as of December 31, 1997,
and the related consolidated statements of operations, consolidated statements
of stockholders' (deficit) and consolidated statements of cash flows for the
year then ended. The report of Ernst & Young LLP for the year ended December 31,
1996 and June 30, 1995 and for the six months ended December 31, 1995 did not
contain any adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
In February 1998, in conjunction with the acquisition of PerImmune
Holdings, the Company's Board of Directors dismissed KPMG Peat Marwick LLP and
appointed PricewaterhouseCoopers LLP as PerImmune Holdings independent
accountants to report on its balance sheets as of December 31, 1997, and the
related consolidated statements of operations, consolidated statements of
stockholders' equity (deficit) and consoli-
68
<PAGE> 70
dated statements of cash flows for the year then ended. The report of KPMG Peat
Marwick at December 31, 1996 and the period from August 3, 1996 through December
31, 1996 did not contain any adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles.
In connection with the audits for the periods presented within this
Prospectus and Registration Statement, there were no disagreements with Ernst &
Young LLP or KPMG Peat Marwick LLP on any matter of accounting principles or
practices, financial disclosure or auditor scope of procedure, which
disagreements if not resolved to the satisfaction of Ernst & Young LLP or KPMG
Peat Marwick LLP would have caused them to make reference thereto in their
report on the financial statements for such years. Prior to retaining
PricewaterhouseCoopers LLP, the Company had not consulted with
PricewaterhouseCoopers LLP regarding the application of accounting principles or
the type of audit opinion that might be rendered on the Company's financial
statements.
During the course of Ernst & Young LLP's audit of the consolidated
financial statements of the Company for the year ended December 31, 1996, Ernst
& Young LLP notified the Company that it had identified two material weaknesses
considered reportable conditions as defined under standards of the American
Institute of Certified Public Accountants. The first of these was failure to
maintain accurate information to monitor financial position, results of
operations and liquidity. The second of these related to the method of
accounting, monitoring and valuation of the Company's "Research Use Only"
inventory. Ernst & Young LLP attributed the cause for these two material
weaknesses to inadequate accounting resources, lack of technical accounting
expertise at the Company and the lack of adequate systems to maintain an account
for "Research Use Only" inventory. In order to remedy these weaknesses, the
Company hired several accounting personnel with technical experience and
expertise in financial management and reporting and has performed an extensive
analysis of the "Research Use Only" inventory as of December 31, 1997 to assure
a consistent and accurate valuation. In connection with the audit of the
consolidated financial statements of the Company for the year ended December 31,
1997, the Company's current auditors did not identify any material weaknesses
considered reportable conditions.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the common stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in the schedules and exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
As a result of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and its regional offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may be obtained by mail from the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
World Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Upon approval of the common stock
for quotation on the Nasdaq National Market, such reports, proxy and information
statements and other information can be inspected at the office of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
69
<PAGE> 71
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRACEL CORPORATION
Report of PricewaterhouseCoopers LLP, independent
accountants............................................ F-2
Report of Ernst & Young LLP, independent auditors......... F-3
Consolidated Balance Sheets as of December 31, 1996 and
1997 and March 31, 1998 (unaudited).................... F-4
Consolidated Statements of Operations for the year ended
June 30, 1995, the six months ended December 31, 1995,
the years ended December 31, 1996 and 1997 and the
three months ended March 31, 1997(unaudited) and 1998
(unaudited)............................................ F-5
Consolidated Statements of Stockholders' Deficit for the
year ended June 30, 1995, the six months ended December
31, 1995, the years ended December 31, 1996 and 1997
and the three months ended March 31, 1998
(unaudited)............................................ F-6
Consolidated Statements of Cash Flows for the year ended
June 30, 1995, the six months ended December 31, 1995,
the years ended December 31, 1996 and 1997 and the
three months ended March 31, 1997 (unaudited) and March
31, 1998 (unaudited)................................... F-7
Notes to Consolidated Financial Statements................ F-8
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
Report of PricewaterhouseCoopers LLP, independent
accountants............................................ F-27
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-28
Consolidated Statements of Operations for the year ended
December 31, 1997 and the period from August 3, 1996
through December 31, 1996.............................. F-29
Consolidated Statements of Stockholders' Equity (Deficit)
for the year ended December 31, 1997 and the period
from August 3, 1996 through December 31, 1996.......... F-30
Consolidated Statements of Cash Flows for the year ended
December 31, 1997 and the period from August 3, 1996
through December 31, 1996.............................. F-31
Notes to Consolidated Financial Statements................ F-32
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY AND PREDECESSOR
COMPANY
Report of KPMG Peat Marwick LLP, independent certified
public accountants..................................... F-45
Consolidated Balance Sheet as of December 31, 1996........ F-46
Statements of Operations for the period from August 3,
1996 through December 31, 1996, period from January 1,
1996 through August 2, 1996 and year ended December 31,
1995................................................... F-47
Statements of Stockholders' Equity (Deficit) for the
period from August 3, 1996 through December 31, 1996,
period from January 1, 1996 through August 2, 1996 and
year ended December 31, 1995........................... F-48
Statements of Cash Flows for period from August 3, 1996
through December 31, 1996, period from January 1, 1996
through August 2, 1996 and year ended December 31,
1995................................................... F-49
Notes to Financial Statements............................. F-50
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Intracel Corporation
We have audited the accompanying consolidated balance sheet of Intracel
Corporation (the "Company") as of December 31, 1997, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit of the 1997 financial statements 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Intracel Corporation as of December 31, 1997, and the consolidated results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
PricewaterhouseCoopers LLP
Seattle, Washington
April 24, 1998, except for the second paragraph
of Note 12 as to which the date is May 14, 1998
and the first paragraph of Note 14 as to
which the date is June 8, 1998.
F-2
<PAGE> 73
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Intracel Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of Intracel
Corporation and subsidiary as of December 31, 1996, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the year
ended June 30, 1995, the six months ended December 31, 1995, and the year ended
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. All 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 consolidated financial position of Intracel
Corporation and subsidiary at December 31, 1996, and the consolidated results of
their operations and their cash flows for the year ended June 30, 1995, the six
months ended December 31, 1995, and the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Seattle, Washington
December 3, 1997, except for
paragraph 3 of Note 6 and
paragraph 9 of Note 10, as to
which the date is January 2,
1998.
F-3
<PAGE> 74
INTRACEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
ASSETS ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 3,145,231 $ 1,974,629 $ 732,989
Restricted cash............................................. 2,000,000 2,026,659
Accounts receivable, net.................................... 2,383,828 2,003,249 2,960,416
Inventories, net............................................ 3,945,187 1,821,013 2,176,892
Other assets................................................ 404,679 398,494 797,042
------------ ------------ ------------
Total current assets............................... 9,878,925 8,197,385 8,693,998
Property and equipment, net................................. 3,247,333 3,178,959 5,188,082
Restricted cash............................................. 433,000
Cost in excess of net assets acquired, net.................. 12,563,052 11,654,880 13,647,174
Deferred acquisition costs.................................. 2,862,513
Other assets................................................ 1,665,417 2,147,858 17,683,671
------------ ------------ ------------
Total assets....................................... $ 27,354,727 $ 28,041,595 $ 45,645,925
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current portion of long-term debt........................... $ 3,505,122 $ 2,144,729 $ 2,141,645
Accounts payable............................................ 2,206,033 2,096,995 3,887,236
Accrued liabilities......................................... 1,941,669 4,356,999 6,841,156
------------ ------------ ------------
Total current liabilities.......................... 7,652,824 8,598,723 12,870,037
Line of credit.............................................. 500,000 500,000 500,000
Long-term debt, less current portion........................ 18,551,945 17,027,320 27,820,081
Pension liability........................................... 383,902
------------ ------------ ------------
Total liabilities.................................. 26,704,769 26,126,043 41,574,020
------------ ------------ ------------
Commitments and contingencies
Redeemable and convertible preferred stock, $0.0001 par
value;
5,000,000 shares authorized:
Series A preferred stock, 730,000 shares authorized,
557,656, 603,622, and 615,697 shares issued and
outstanding at December 31, 1996 and 1997, and March 31,
1998, respectively...................................... 4,461,248 4,828,976 4,925,560
Series A-1 preferred stock, 850,000 shares authorized,
738,235, 651,168 and 664,196 shares issued and
outstanding at December 31, 1996 and 1997, and March 31,
1998, respectively...................................... 5,905,880 5,209,340 5,313,532
Series A-3 preferred stock, 200,000 shares authorized,
147,923 and 150,881 shares issued and outstanding at
December 31, 1997, and March 31, 1998, respectively..... 1,183,384 1,207,052
Series B-1 preferred stock, 100 shares authorized, 100
shares issued and outstanding at March 31, 1998......... 4,098,744
Series B-2 preferred stock, 120 shares authorized, 120
shares issued and outstanding at March 31, 1998......... 4,918,493
------------ ------------ ------------
10,367,128 11,221,700 20,463,381
------------ ------------ ------------
Stockholders' deficit:
Series A-2 preferred stock; $0.0001 par value; 155,000
shares authorized; 44,063 and 45,482 shares issued and
outstanding, $4,406,300 and $4,548,200 aggregate
preference in liquidation at December 31, 1997 and March
31, 1998, respectively.................................. 4 5
Common stock, $0.0001 par value; 25,000,000 shares
authorized; 3,967,786, 5,368,578 and 10,917,256 shares
issued and outstanding at December 31, 1996 and 1997 and
March 31, 1998, respectively............................ 397 537 1,092
Additional paid-in capital................................ 2,403,906 11,401,583 46,908,505
Accumulated deficit....................................... (12,021,473) (20,708,272) (63,301,078)
Note receivable due from stockholder...................... (100,000)
------------ ------------ ------------
Total stockholders, deficit........................ (9,717,170) (9,306,148) (16,391,476)
------------ ------------ ============
Total liabilities and stockholders' deficit........ $ 27,354,727 $ 28,041,595 $ 45,645,925
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 75
INTRACEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31,
YEAR ENDED DECEMBER 31, ------------------------- -------------------------
JUNE 30, 1995 1995 1996 1997 1997 1998
------------- ---------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Product........................... $1,565,795 $ 2,426,158 $14,718,421 $13,452,204 $3,785,095 $ 4,184,287
Contract.......................... 1,279,329
---------- ----------- ----------- ----------- ---------- -----------
Total revenue.............. 1,565,795 2,426,158 14,718,421 13,452,204 3,785,095 5,463,616
COST OF REVENUE
Product........................... 823,988 1,779,172 7,432,679 9,493,058 2,780,196 2,847,232
Contract.......................... 993,904
---------- ----------- ----------- ----------- ---------- -----------
Total cost of revenue...... 823,988 1,779,172 7,432,679 9,493,058 2,780,196 3,841,136
Selling, general and
administrative.................... 1,580,336 2,592,940 5,739,937 8,478,175 1,719,366 4,235,152
Research and development............ 1,173,754 1,118,020 1,042,668 555,840 151,115 2,026,072
Acquired research and development... 2,100,000 37,718,000
Amortization of cost in excess of
net assets acquired............... 151,362 908,172 908,172 227,043 248,043
Reorganization expense.............. 917,442
---------- ----------- ----------- ----------- ---------- -----------
Total operating expense......... 3,578,078 7,741,494 16,040,898 19,435,245 4,877,720 48,068,403
---------- ----------- ----------- ----------- ---------- -----------
Loss from operations............ 2,012,283 5,315,336 1,322,477 5,983,041 1,092,625 42,604,787
Interest expense (income), net...... (68,329) 134,400 2,179,496 2,496,418 640,000 788,019
Gain on pension curtailment......... (800,000)
---------- ----------- ----------- ----------- ---------- -----------
Loss before extraordinary
item.......................... 1,943,954 5,449,736 3,501,973 8,479,459 1,732,625 42,592,806
Extraordinary gain on early
extinguishment of debt............ (1,367,000)
---------- ----------- ----------- ----------- ---------- -----------
Net loss................... $1,943,954 $ 4,082,736 $ 3,501,973 $ 8,479,459 $1,732,625 $42,592,806
========== =========== =========== =========== ========== ===========
Pro forma basic and diluted net loss
per share......................... $ 1.25 $ 2.55
=========== ===========
Shares used in computing pro forma
basic and diluted net loss per
share............................. 7,807,520 16,869,976
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 76
INTRACEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES A-2
PREFERRED
STOCK COMMON STOCK NOTE
------------- ------------------- ADDITIONAL RECEIVABLE
PAR PAR PAID-IN ACCUMULATED DUE FROM
SHARES VALUE SHARES VALUE CAPITAL DEFICIT STOCKHOLDERS TOTAL
------ ----- ---------- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1994.......... 3,961,676 $ 396 $ 2,197,898 $ (1,225,674) $(100,000) $ 872,620
Sale of common stock, net........ 2,000 8,000 8,000
Preferred stock dividends........ (211,448) (211,448)
Net loss......................... (1,943,954) (1,943,954)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT JUNE 30, 1995......... 3,963,676 396 2,205,898 (3,381,076) (100,000) (1,274,782)
Preferred stock dividends........ (266,136) (266,136)
Net loss......................... (4,082,736) (4,082,736)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1995..... 3,963,676 396 2,205,898 (7,729,948) (100,000) (5,623,654)
Repurchase of common stock....... (175,114) (17) (326,795) (326,812)
Sale of common stock, net........ 176,000 18 339,712 339,730
Exercise of common stock
options........................ 3,224 8,061 8,061
Other............................ 177,030 177,030
Preferred stock dividends........ (789,552) (789,552)
Net loss......................... (3,501,973) (3,501,973)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1996..... 3,967,786 397 2,403,906 (12,021,473) (100,000) (9,717,170)
Sale of Series A-2 preferred
stock.......................... 40,000 $4 3,999,996 4,000,000
Preferred stock dividends........ 4,063 (647,288) (207,340) (854,628)
Repurchase of common stock....... (103,096) (10) (208,740) (208,750)
Sale of common stock, net........ 1,467,142 146 5,760,778 5,760,924
Exercise of common stock
warrants....................... 36,746 4 146,980 146,984
Other............................ (54,049) (54,049)
Repayment of stockholder note
receivable..................... 100,000 100,000
Net loss......................... (8,479,459) (8,479,459)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1997..... 44,063 4 5,368,578 537 11,401,583 (20,708,272) (9,306,148)
Common stock issued and stock
options granted in conjunction
with the acquisition of
PerImmune Holdings Inc.
(unaudited).................... 5,478,654 548 35,421,466 35,422,014
Common stock issued in exchange
for 1997 placement costs
(unaudited).................... 70,024 7 315,101 315,108
Preferred stock dividends
(unaudited).................... 1,419 1 (224,445) (224,444)
Other (unaudited)................ (5,200) (5,200)
Net loss (unaudited)............. (42,592,806) (42,592,806)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT MARCH 31, 1998
(UNAUDITED).................... 45,482 $5 10,917,256 $1,092 $46,908,505 $(63,301,078) $ $(16,391,476)
====== == ========== ====== =========== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 77
INTRACEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
YEAR ENDED SIX MONTHS ENDED ------------------------- --------------------------
JUNE 30, 1995 DECEMBER 31, 1995 1996 1997 1997 1998
------------- ----------------- ----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net loss........................... $(1,943,954) $ (4,082,736) $(3,501,973) $(8,479,459) $(1,732,625) $(42,592,806)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Extraordinary gain on early
extinguishment of debt......... (1,367,000)
Amortization and depreciation.... 124,363 414,933 2,190,808 2,262,103 604,686 1,141,945
Gain on pension curtailment...... (800,000)
Acquired research and development
charge......................... 2,100,000 37,718,000
Noncash investment charge........ 339,408
Noncash interest expense......... 1,011,392 1,577,341 465,510 441,337
Noncash inventory charge......... 1,147,831
Noncash charge on fixed assets... 600,618 470,328
Other............................ 58,030
Changes in operating assets and
liabilities:
Accounts receivable, net....... 19,027 29,390 (1,396,363) 380,579 (236,979) (151,082)
Inventories, net............... (21,640) 18,357 (1,826,698) 821,568 812,063 6,961
Other assets................... 4,954 (61,950) (323,181) (80,571) 17,380
Accounts payable............... 103,232 886,963 1,764,048 (109,038) (498,126) 1,174,101
Accrued liabilities............ 267,278 666,231 (1,636,458) (387,292) (996,623) 83,495
----------- ------------ ----------- ----------- ----------- ------------
Net cash used in operating
activities......................... (1,451,694) (1,328,908) (3,059,756) (2,508,930) (1,192,337) (2,960,669)
----------- ------------ ----------- ----------- ----------- ------------
Investing activities:
Restricted cash.................... (2,000,000) (26,659)
Investment in other assets......... (82,129) (321,813)
Purchase of Bartels, Inc........... (13,000,000)
Purchase of assets from Zynaxis,
Inc.............................. (519,000)
Purchase of property and
equipment........................ (106,560) (288,391) (1,587,193) (1,360,209) (301,708) (387,164)
Capitalized patent costs........... (183,995) (25,000)
Investment in GAIFAR............... (283,220)
Investment in and advances to
Bartels Prognostics.............. (348,198) (795,299) (375,000)
Cash acquired in conjunction with
purchase of PerImmune Holdings,
Inc.............................. 2,504,064
----------- ------------ ----------- ----------- ----------- ------------
Net cash provided by (used in)
investing activities............... (188,689) (13,807,391) (2,402,606) (4,180,508) (676,708) 1,768,428
----------- ------------ ----------- ----------- ----------- ------------
Financing activities:
Proceeds from sale of preferred
stock............................ 3,750,000 5,350,000 1,732,740 1,732,740
Repurchase of common stock......... (326,812) (208,750)
Proceeds from sale of common stock
and exercise of common stock
options.......................... 8,000 347,791 6,248,201
Stock issue costs.................. (245,968)
Exercise of common stock
warrants......................... 146,984
Repayment of stockholder note
receivable....................... 100,000 100,000
Proceeds from the issuance of
long-term obligations............ 54,226 14,845,744 5,960,000 713,339
Debt issue costs................... (668,351) (78,967)
Payments of long-term
obligations...................... (223,413) (3,356,853) (896,345) (2,908,494) (267,105) (44,199)
Other.............................. 119,000 19,751 (9,935) (5,200)
----------- ------------ ----------- ----------- ----------- ------------
Net cash provided by (used in)
financing activities............... 3,588,813 16,838,891 4,535,283 5,518,836 1,555,700 (49,399)
----------- ------------ ----------- ----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents................... 1,948,430 1,702,592 (927,079) (1,170,602) (313,345) (1,241,640)
Cash and cash equivalents at
beginning of period................ 421,288 2,369,718 4,072,310 3,145,231 3,145,231 1,974,629
----------- ------------ ----------- ----------- ----------- ------------
Cash and cash equivalents at end of
period............................. $ 2,369,718 $ 4,072,310 $ 3,145,231 $ 1,974,629 $ 2,831,886 $ 732,989
=========== ============ =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 78
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
Intracel Corporation (the "Company") develops and manufactures therapeutic
prognostic and diagnostic products for the treatment of cancers and serious
viral diseases. The Company's current and future products are based on several
proprietary platform technologies, including the development of totally human
antibodies, INSTI (a rapid diagnostic format), and ZYMMUNE (a cell counting
technology). These technologies allow the Company to leverage its core
competencies into large, global clinical markets. In 1995, the Company changed
its fiscal year end from June 30 to December 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all significant
intercompany accounts and transactions. Corporate joint ventures are accounted
for under the equity method.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks and
money market funds carried at cost, which approximates market.
Trade accounts receivable
Accounts receivable are presented net of allowances for doubtful accounts
of $60,000, $50,000 and $44,372 at December 31, 1997, 1996 and March 31, 1998
(unaudited), respectively. The Company recorded provisions for doubtful accounts
of approximately $99,000, $11,000 and $15,000 for the periods ended December 31,
1997, 1996 and March 31, 1998 (unaudited), respectively.
Inventories
Inventories consist of raw materials used in the production process and
diagnostic products, research reagents and antibodies held for sale. Inventories
are valued at the lower of first-in, first-out cost or market.
Property and equipment and depreciation
Property and equipment are stated at cost less accumulated depreciation.
Maintenance and repairs are charged to expense as incurred. Significant
betterments are capitalized. Upon retirement or sale the cost of assets disposed
of and the related accumulated depreciation and amortization are removed from
the accounts and any resulting gain or loss is reflected in the consolidated
statements of operations. Depreciation of property and equipment is provided
using primarily the straight-line method over the estimated useful lives of
three to seven years. Leasehold improvements are amortized on a straight-line
method over the shorter of the useful life or the lease term.
Construction in progress includes the costs of constructed machinery.
Construction in progress costs are transferred to other property and equipment
categories when the construction/installation is completed and the asset is
ready for its intended use.
Cost in excess of net assets acquired
Cost in excess of net assets acquired represents the excess of the cost of
purchased subsidiaries over the estimated fair value of the net assets acquired
as of the date of acquisition and is being amortized by the straight-line method
over 10 to 15 years.
F-8
<PAGE> 79
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Other assets
Other assets consist primarily of patent and technology costs and an
investment (see Note 11). Patent costs are amortized on a straight-line basis
over the estimated useful lives of four to seventeen years. The investment is
accounted for using the equity method.
Valuation of long lived assets
The Company periodically evaluates the carrying value of long-lived assets
to be held and used, including, but not limited to, property and equipment, cost
in excess of net assets acquired, and other assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair market values are reduced for
the cost to dispose.
Income taxes
The Company follows the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
The Company provides a valuation allowance, if necessary, to reduce deferred tax
assets to their estimated realizable value.
Stock issuance costs
Proceeds from issuances of capital stock are presented net of specific
incremental costs directly attributable to the related offering.
Revenue recognition
Revenue is recognized when products are shipped.
The Company has entered into various research and development and licensing
agreements. Research and development revenue from cost reimbursement agreements
is recorded as the related expenses are incurred, up to contractual limits and
when the Company meets its performance obligations under the respective
agreements. Contract revenue is recognized under other agreements when
milestones are met and the Company's significant performance obligations have
been satisfied in accordance with the terms of the respective agreements. Cash
received that is related to future performance under such contracts is deferred
and recognized as revenue when earned.
The Company also engages in contracts with commercial entities and agencies
of the U.S. government (Department of Defense and the National Institute of
Health) on either a cost-plus-fixed-fee, fixed price or a
cost-plus-percentage-fee basis. Revenue on cost-plus-fixed-fee, fixed price and
cost-plus-percentage-fee contract is recognized based on the ratio of total
direct and indirect costs incurred during the period to total estimated costs
using the percentage-of-completion method. Estimates to complete are reviewed
periodically and revised as required in the period the revision is determined.
Provisions are made for the full amount of anticipated losses, if any, on
all contracts in the period in which they are first known and estimable.
Contracts with the U.S. government are subject to government audit upon contract
completion and therefore, all contract costs are potentially subject to
adjustment, even after reimbursement. Management believes adequate provisions
for such adjustments, if any, have been made in the consolidated financial
statements. Expense recovery rates have been audited through 1996.
F-9
<PAGE> 80
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Research and development
The Company makes significant investments in research for the development
of new products. Research and development costs are charged to expense as
incurred.
Reorganization expense
The Company recognized reorganization expense of $917,442 in 1996 in
connection with the Company's relocation from Cambridge, Massachusetts to
Issaquah, Washington.
Net loss per share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share." SFAS No. 128
requires the presentation of basic and diluted earnings (loss) per share for all
periods presented.
In accordance with SFAS No. 128, basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, except that pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 98, if applicable, common shares issued in each of the
periods presented for nominal consideration have been included in the
calculation as if they were outstanding for all periods presented.
Pro forma basic and diluted net loss per share as presented in the
consolidated statements of operations has been computed as described above and
also gives effect to the conversion of the convertible instruments that will
occur upon completion of the Company's initial public offering (as if converted
from the original date of issuance) (See Note 14).
A reconciliation of shares used in the calculation of basic and diluted and
pro forma basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, THREE MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ----------------------- ENDED ENDED
JUNE 30, 1995 1995 1996 1997 MARCH 31, 1997 MARCH 31, 1998
------------- ------------ ---------- ---------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net loss.......................... $1,943,954 $4,082,736 $3,501,973 $8,479,459 $1,732,625 $42,592,806
Preferred stock dividends......... 211,448 266,136 789,552 1,260,928 207,328 366,345
---------- ---------- ---------- ---------- ---------- -----------
Net loss for common stock......... $2,155,402 $4,348,872 $4,291,525 $9,740,387 $1,939,953 $42,959,151
========== ========== ========== ========== ========== ===========
Weighted average shares of common
stock outstanding (shares used
in computing basic and diluted
net loss per share)............. 3,962,676 3,886,242 3,895,325 4,073,398 3,908,052 10,809,197
========== ========== ========== ========== ========== ===========
Basic and diluted net loss per
share before extraordinary
item............................ $ 0.54 $ 1.47 $ 1.10 $ 2.39 $ 0.50 $ 3.97
Extraordinary item................ (0.35)
---------- ---------- ---------- ---------- ---------- -----------
Basic and diluted net loss per
share........................... $ 0.54 $ 1.12 $ 1.10 $ 2.39 $ 0.50 $ 3.97
========== ========== ========== ========== ========== ===========
Shares used in computing basic and
diluted net loss per share...... 4,073,398 10,809,197
Adjustment to reflect the effect
of the assumed conversion of
convertible instruments......... 3,734,122 6,060,779
---------- -----------
Shares used in computing pro forma
basic and diluted net loss per
share........................... 7,807,520 16,869,976
========== ===========
Pro forma basic and diluted net
loss per share.................. $ 1.25 $ 2.55
========== ===========
</TABLE>
F-10
<PAGE> 81
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Had the Company been in a net income position, diluted earnings per share
would have included the shares used in the computation of basic net loss per
share as well as additional potential common shares related to outstanding
options and warrants which were excluded because they are anti-dilutive.
Supplemental disclosure of cash flow information
Noncash investing and financing activities consisted of:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31, THREE MONTHS
JUNE 30, DECEMBER 31, ----------------------- ENDED
1995 1995 1996 1997 MARCH 31, 1998
---------- ----------------- ---------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Preferred stock dividends paid with
stock.............................. $211,448 $ 266,136 $ 789,552 $1,260,928 $ 366,344
Acquisition of Zymmune............... 1,500,000
Property and equipment acquired under
capital lease...................... 96,705
Accrued stock issuance costs......... 315,108
Deferred acquisition costs........... 2,862,513
Conversion of note payable into
Series A-2 preferred stock......... 2,000,000
Conversion of accrued interest into
Series A-2 preferred stock......... 267,260
Conversion of Series A-1 preferred
stock into Series A-3 preferred
stock.............................. 1,115,128
Common stock issued in exchange for
1997 stock issuance costs.......... 315,108
Acquisition of Perimmune Holdings,
Inc. ("Holdings" -- See note 11)
Fair value of assets acquired...... 19,248,000
Acquired research and
development...................... 37,718,000
Issuance of Intracel Corporation
common stock..................... 24,654,000
Assumption of long term debt....... 11,778,000
Grant of options to purchase
Intracel Corporation common
stock............................ 10,534,000
Issuance of Series B-1 and B-2
preferred stock.................. 9,017,000
Assumption of acquisition costs.... 3,488,000
Other................................ 73,800
</TABLE>
Net cash paid for interest during 1997, 1996, the six months ended December
31, 1995, the year ended June 30, 1995 and the three months ended March 31, 1998
totalled $1,506,390, $1,094,350, $59,071, $22,154 and $21,727 (unaudited),
respectively.
Concentrations of credit risk
The Company's customers are predominantly comprised of government research
organizations and companies in the biomedical research, pharmaceutical and
diagnostic industries throughout the world. No single customer accounted for a
significant amount of the Company's revenues and there were no significant
accounts receivable from a single customer. The Company reviews the credit
histories of potential customers prior to extending credit and maintains
allowances for potential credit losses. The Company maintains cash and cash
equivalents in high credit quality financial institutions. The Company believes
that its risk from concentration of credit is limited.
F-11
<PAGE> 82
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Use of estimates and assumptions
The preparation of the consolidated 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.
Fair value of financial instruments
For certain financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, recorded amounts
approximate market value.
The Company believes it is not practicable to estimate a fair market value
different from the preferred stock's carrying value as these securities have
numerous unique features (as described in Note 10) and there is no quoted market
price at December 31, 1997.
The carrying amount of the senior note payable and the line of credit
approximate market value because they have interest rates that vary with market
interest rates. The Company believes it is not practicable to estimate the fair
value for the residual of the long term debt as these securities have numerous
unique features such as detachable warrants and contingent interest rates, as
described in Note 6, and there is no quoted market price at December 31, 1997.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform with the 1997 presentation. The reclassifications had no
effect on previously reported net loss, stockholders' deficit or cash flows.
Unaudited interim financial statements
In the opinion of the Company's management, the March 31, 1998 and 1997
unaudited interim financial statements include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the financial
statements except for those pertaining to the acquisition of Holdings as
discussed further in Note 11.
New accounting pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement requires that changes
in comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The statement will be
effective for fiscal years beginning after December 15, 1997. Reclassification
for earlier periods is required for comparative purposes. The Company is
currently evaluating the impact this statement will have on its financial
statements; however, because the statement requires only additional disclosure,
the Company does not expect the statement to have a material impact on its
reported financial position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and
F-12
<PAGE> 83
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
reports revenues. The statement will be effective for fiscal years beginning
after December 15, 1997. Reclassification for earlier periods is required,
unless impracticable, for comparative purposes. The Company is currently
evaluating the impact this statement will have on its financial statements;
however, because the statement requires only additional disclosure, the Company
does not expect the statement to have a material impact on its reported
financial position or results of operations.
3. INVENTORIES:
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.......................... $ 909,198 $1,100,325 $1,399,995
Work in process........................ 265,712 160,886 173,978
Finished goods......................... 2,770,277 559,802 602,919
---------- ---------- ----------
$3,945,187 $1,821,013 $2,176,892
========== ========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment................ $ 4,173,856 $ 4,183,788 $ 8,258,330
Computer equipment.................. 473,483 550,260 1,249,829
Leasehold improvements.............. 392,786 477,177 506,997
Furniture........................... 337,830 365,532 378,527
Construction in progress............ 1,005,316
----------- ----------- -----------
5,377,955 5,576,757 11,398,999
Accumulated depreciation............ (2,130,622) (2,397,798) (6,210,917)
----------- ----------- -----------
$ 3,247,333 $ 3,178,959 $ 5,188,082
=========== =========== ===========
</TABLE>
Depreciation expense for the periods ended December 31, 1997, 1996, the six
months ended December 31, 1995, the year ended June 30, 1995 and the three
months ended March 31, 1998 was $982,740, $861,546, $414,933, $124,363 and
$297,535 (unaudited), respectively.
F-13
<PAGE> 84
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES:
Accrued liabilities consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Acquisition costs...................... $ 375,000 $2,862,513 $2,500,000
Taxes payable.......................... 291,055 828,594 1,034,109
Interest payable....................... 492,752 536,823
Accrued stock issuance costs........... 315,109
Accrued payroll........................ 420,544 304,690 1,048,082
Professional services.................. 701,000
Building maintenance................... 393,000
Other.................................. 362,318 46,093 628,142
---------- ---------- ----------
$1,941,669 $4,356,999 $6,841,156
========== ========== ==========
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Senior note payable to bank, collateralized by
substantially all of the assets of the Company, interest
at the higher of prime plus 1.5% or the federal funds rate
plus 0.5% (10% and 9.75% at December 31, 1997 and 1996,
respectively). If the interest payments are not made on a
timely basis, the stated interest rate will be increased
by a penalty amount. Quarterly principal payments of
$250,000 plus interest payable through December 31, 1996
at which time the payments increase to $500,000 plus
interest through November 16, 2000. The senior note
payable to bank must be repaid to the extent of any net
proceeds from the issuance and sale of equity securities
by the Company. The note includes 182,354 detachable
warrants to purchase common stock at $7.00 per share
expiring November 16, 2002. The warrants were deemed to
have an immaterial fair value for financial reporting
purposes. During April 1998, the Company repaid all of the
senior note payable with the proceeds from the issuance of
$9,000,000 of notes payable to an existing note holder
(the "New Notes"). The New Notes were issued with 98,132
detachable warrants at an exercise price of $7.00 per
share..................................................... $ 8,250,000 $ 6,000,000
</TABLE>
F-14
<PAGE> 85
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Subordinated note payable, collateralized by substantially
all of the assets of the Company, interest at 8% per year
through November 30, 1997, increasing to 11% thereafter.
Principal is due December 31, 2000. The maturity date may
accelerate under certain circumstances, as disclosed and
defined in the terms of the agreement, including a "change
in control." The note includes 188,020 detachable warrants
to purchase common stock at $7.00 per share expiring
December 28, 2000. The warrants were deemed to have an
immaterial fair value for financial reporting purposes.
The note was issued at an original discount of $1,565,000
which is being amortized over the term of the note. The
unamortized discount equaled $819,000 and $1,252,000 at
December 31, 1997 and 1996, respectively. The proceeds
were used to retire a note payable, resulting in an
extraordinary gain of $1,367,000 during the period ended
December 31, 1995. The Company is required to make
quarterly interest payments and has the option under
certain conditions to add required interest payments to
principal in lieu of paying in cash. Interest payments of
$507,106 and $395,061 were made "in kind" by issuing
additional promissory notes during 1997 and 1996,
respectively.............................................. 5,402,060 6,342,166
Subordinated note payable, collateralized by substantially
all of the assets of the Company, interest at 12% per year
through June 21, 1998, increasing to 13% thereafter.
Principal is due June 30, 2001. The note includes 159,074
detachable warrants to purchase common stock at $7.00 per
share expiring on April 1, 2003. The warrants were deemed
to have an immaterial fair value for financial reporting
purposes. In November 1997, the note and warrant holder
purchased 159,074 shares of the Company's common stock for
$4.50 per share, and simultaneously relinquished to the
Company the warrants to purchase 159,074 shares of common
stock at $7.00 per share. The note was converted to Series
A-2 preferred stock during 1997 (see Note 10)............. 2,000,000
Subordinated note payable to bank, collateralized by
substantially all of the assets of the Company, interest
at 12% through June 11, 1998, increasing to 13%
thereafter. Principal is due June 30, 2001. The maturity
date may accelerate under certain circumstances, as
disclosed and defined in the terms of the agreement,
including a "change in control." The note includes 318,146
detachable warrants to purchase common stock at $7.00 per
share expiring on April 1, 2003. Warrants were deemed to
have an immaterial fair value for financial reporting
purposes. The note includes a provision guaranteeing the
issuer a 20% compounded annual return through any
combination of warrant appreciation or interest payments.
The Company is required to make quarterly interest
payments and has the option under certain conditions to
add required interest payments to principal in lieu of
paying in cash. Interest payments of $366,666 and $269,333
were made "in kind" by issuing additional promissory notes
during 1997 and 1996, respectively........................ 4,269,333 4,635,999
</TABLE>
F-15
<PAGE> 86
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Subordinated note payable to the Massachusetts Business
Development Corporation in conjunction with a loan
agreement issued by the United States Small Business
Administration, collateralized by equipment purchased with
the proceeds, interest at prime plus 2.75% (11% at
December 31, 1996). Principal of $8,334 plus interest
payable monthly through April 1, 2002. This note was paid
in full by the Company during 1997........................ 566,656
Note payable, in the amount of $450,000, issued in
conjunction with the purchase of certain assets of Zymmune
Diagnostic Systems and collateralized by the related
equipment, inventory, and intellectual property purchased
with the proceeds. Principal plus accrued interest at 6%
due on October 24, 1999. The note requires contingent
payments of up to $1,050,000 based on attaining certain
FDA clinical trial milestones. Zymmune Diagnostic Systems
believes the milestones been achieved and, accordingly,
the Company has accrued the additional amount. The
Company, however, is disputing these amounts (see Note
11)....................................................... 1,500,000 1,500,000
Note payable collateralized by the equipment purchased
with the proceeds, payments of principal plus interest at
11% totaling $15,208 due monthly through August 1, 2002.
Note allows for additional borrowings of up to $1,500,000
for the purchase of manufacturing equipment. Guaranteed by
a bond posted by the State of Washington Economic
Development Council....................................... 664,588
Other..................................................... 69,018 29,296
----------- -----------
22,057,067 19,172,049
Less current portion...................................... (3,505,122) (2,144,729)
----------- -----------
$18,551,945 $17,027,320
=========== ===========
</TABLE>
The various debt agreements contain restrictive covenants relating to
quarterly profitability, minimum levels of net worth and liquidity, limitations
on additional debt and dividends, and other nonfinancial covenants including
certain subjective clauses.
The Company received certain amendments and waivers to its debt agreement
and covenants contained therein, retroactive to January 1, 1997 which remain in
effect to June 30, 1998. The amendments and waivers became effective upon the
closing of the merger agreement with PerImmune Holdings, Inc. on January 2, 1998
(see Note 11).
On April 1, 1998 the Company repaid all amounts outstanding under the above
referenced debt agreement.
Future minimum debt payments at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................ $ 2,144,729
1999............................................ 3,628,722
2000............................................ 8,485,707
2001............................................ 4,796,064
2002............................................ 116,827
-----------
$19,172,049
===========
</TABLE>
F-16
<PAGE> 87
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
As of March 31, 1998, the Company's debt increased by approximately
$10,382,000 related to the merger of Holdings. See Note 11 for additional
discussion of the merger.
7. LINE OF CREDIT:
Under the terms of the senior note payable to bank (Note 6), the Company
has a line of credit with an aggregate borrowing capacity of $1.0 million at
prime plus 1.5%. The agreement includes various restrictive covenants which,
among other things, require the Company to maintain certain minimum working
capital and net worth amounts. The line of credit facility has a maturity date
of November 16, 2000.
At December 31, 1997 and 1996, there were $500,000 of borrowings on the
line of credit facility. During April 1998, the Company repaid the line of
credit with the proceeds from the issuance of $9,000,000 of notes payable to an
existing noteholder.
8. INCOME TAXES:
The Company did not provide an income tax benefit for any of the periods
presented because it has experienced operating losses since inception.
At December 31, 1997 the Company had net operating loss carryforwards for
federal income tax purposes of approximately $17 million which expire through
2012. Utilization of net operating loss carryforwards will be subject to certain
limitations under Section 382 of the Internal Revenue Code.
The following is a reconciliation of the income tax benefit to the amount
based on the statutory Federal rate of 34%:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER
YEAR ENDED ENDED 31,
JUNE 30, DECEMBER 31, -------------------
1995 1995 1996 1997
---------- ------------ ------- -------
<S> <C> <C> <C> <C>
Federal income tax benefit at statutory
rate..................................... (34)% (34)% (34)% (34)%
Change in valuation allowance.............. 34 % 34 % 34 % 34 %
----- ----- ----- -----
===== ===== ===== =====
</TABLE>
F-17
<PAGE> 88
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES: (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Tax loss carryforwards............................ $3,392,000 $5,770,000
Tax credit carryforwards.......................... 96,000 96,000
Property, plant and equipment..................... 171,000
Inventories....................................... 548,000
Other............................................. 333,000 438,000
---------- ----------
3,992,000 6,852,000
Deferred income tax liabilities:
Other............................................. (65,000) (61,000)
---------- ----------
3,927,000 6,791,000
Valuation allowance................................. (3,927,000) (6,791,000)
---------- ----------
Net deferred taxes assets...........................
========== ==========
</TABLE>
A full valuation allowance has been recorded at December 31, 1997, 1996,
and March 31, 1998 (unaudited) based on management's determination that the
recognition criteria for realization has not been met.
9. COMMITMENTS AND CONTINGENCIES:
The Company is involved in various lawsuits arising in the normal course of
business, none of which, in the opinion of management, is expected to have a
material adverse effect on the Company's financial position, cash flows,
liquidity or results of operations.
In the ordinary course of business, the Company is subject to extensive and
changing federal regulations within the United States and by other foreign
countries with regard to the manufacturing and marketing of products. To date
the Company has not identified any potential liabilities arising from the
manufacturing and marketing of its products.
The Company has operating leases for its facilities with remaining fixed
terms ranging up to six years. Rental expense was approximately $783,000,
$1,466,000, $200,000, and $192,000 for the years ended December 31, 1997 and
1996, the six months ended December 31, 1995 and the twelve months ended June
30, 1995, respectively.
Future approximate minimum operating lease payments are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998................................................... $ 681,347
1999................................................... 335,761
2000................................................... 46,802
2001................................................... 43,491
2002................................................... 43,491
----------
Total minimum lease payments............................. $1,150,892
==========
</TABLE>
Refer to Note 12 for discussion of a contingent liability related to a
joint venture investment.
F-18
<PAGE> 89
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT:
Preferred stock
The Company is authorized to issue 5 million shares of $0.0001 par value
serial preferred stock. Each series of the preferred stock is a separate class
and, as a class, has a liquidation preference equal to the aggregate purchase
price paid for such class.
The historical share information regarding the Company's preferred stock
activity follows:
<TABLE>
<CAPTION>
SERIES SERIES SERIES SERIES SERIES SERIES
A A-1 A-2 A-3 B-1 B-2
------- -------- ------ ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JULY 1, 1994
Issuance of preferred stock............. 468,755
Dividend payments in kind............... 26,431
------- -------- ------ ------- --- ---
BALANCES AT JUNE 30, 1995............... 495,186
Issuance of preferred stock............. 668,750
Dividend payments in kind............... 20,000 13,261
------- -------- ------ ------- --- ---
BALANCES AT DECEMBER 31, 1995........... 515,186 682,011
Dividend payments in kind............... 42,470 56,224
------- -------- ------ ------- --- ---
BALANCES AT DECEMBER 31, 1996........... 557,656 738,235
Issuance of preferred stock............. 40,000
Conversion of Series A-1 into Series
A-3................................... (139,390) 139,390
Dividend payments in kind............... 45,966 52,323 4,063 8,533
------- -------- ------ ------- --- ---
BALANCES AT DECEMBER 31, 1997........... 603,622 651,168 44,063 147,923
Issuance of preferred stock
(unaudited)........................... 100 120
Dividend payments in kind (unaudited)... 12,075 13,028 1,419 2,958
------- -------- ------ ------- --- ---
BALANCES AT MARCH 31, 1998
(UNAUDITED)........................... 615,697 664,196 45,482 150,881 100 120
======= ======== ====== ======= === ===
</TABLE>
Series A, Series A-1, and Series A-3 redeemable and convertible preferred
stock
The Series A, Series A-1, and Series A-3 redeemable and convertible
preferred stocks were issued for net proceeds of $8.00 per share and are
convertible into common stock of the Company at a conversion ratio of two shares
of common stock per one share of preferred stock, which is equivalent to a
conversion price of $4.00 per share. Holders of these preferred shares are
entitled to receive a cumulative 8% annual dividend. Dividends may be paid in
cash or in additional shares ("in kind") at the option of the Company until
January 1, 1999 after which time dividends are payable only in cash. The Company
is required to redeem all outstanding shares at $8.00 per share, plus accrued
dividends, on July 1, 2001 (Series A) and September 22, 2002 (Series A-1 and
Series A-3). Each preferred share has voting rights equivalent to two shares of
common stock except for the Series A-3 which does not have voting rights unless
converted to common stock. The stockholders have a liquidation preference of
$8.00 per share upon the dissolution of the Company. The Company covenants that
it will not amend the articles of incorporation, recapitalize, pay or declare
dividends on junior stock, merge or consolidate, liquidate, dissolve or change
the principal business of the Company as long as 25% of the authorized shares
are outstanding of each series of preferred stock, unless 51% or more of the
preferred stockholders approve the change.
The Series A, Series A-1 and Series A-3 preferred stock is mandatorily
convertible into common stock at a ratio of two shares of common stock per one
share of preferred stock upon the closing of an underwritten public offering
pursuant to an effective registration statement on Form S-1 for the sale of
common stock at a
F-19
<PAGE> 90
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
per share price of at least $4.00 per share with aggregate proceeds of at least
$10,000,000, so long as the offering occurs no later than September 19, 1998.
Series A-2 preferred stock
The Series A-2 preferred stock is non-convertible, non-voting and were
issued in conjunction with the exchange of $2,267,260 of subordinated debt and
accrued interest in addition to the receipt of $1,732,740 in cash, resulting in
net proceeds of $100 per share. Holders of these preferred shares are entitled
to receive a cumulative 13.5% dividend in cash or in kind, at the option of the
Company, until February 28, 2007 at which time the dividend rate increases to
19% and is payable only in cash. The Company has the option to redeem these
shares at any time prior to February 28, 2000 for $100 per share. The
stockholders also have the right to elect directors and exchange their shares
for notes if dividend payments are in arrears for a specified period of time.
The stockholders have a liquidation preference of $100 per share upon the
dissolution of the Company. The Company covenants that it will not amend the
Articles of Incorporation, recapitalize, pay or declare dividends on junior
stock, merge or consolidate, liquidate, dissolve or change the principal
business of the Company without prior approval from at least 51% of the A-2
preferred stockholders.
Series B-1 and B-2 preferred stock
The Series B-1 and B-2 redeemable and convertible preferred stock were
issued in conjunction with the merger with Holdings. The stockholders have a
liquidation preference of $45,000 and $50,000 per share, respectively, upon
dissolution of the Company. Holders of these preferred shares are entitled to
receive a cumulative 7% per annum dividend based on the liquidation preference
amount per share. Holders of these preferred shares are entitled to receive
annual dividends in cash, commencing on April 24, 1998 and June 16, 1998,
respectively, and continuing, thereafter, on each subsequent anniversary date.
Each preferred share has voting rights equivalent to 9,108.32 shares of common
stock. The Company covenants that it will not amend certain portions of it's
articles of incorporation, dissolve, merge or consolidate the Company, unless
51% or more of the Series B-1 preferred stockholders and 51% of the Series B-2
preferred stockholders approve the change.
On the fifth anniversary of the Series B-1 and B-2 assumed initial issue
date, the Company shall redeem all of the then outstanding shares at the Series
B-1 and B-2 liquidation preference amount. Each share of Series B-1 and B-2
preferred stock may be converted into common stock, at any time prior to the
respective redemption dates, at the option of the stockholder. The Series B-1
and B-2 shares will automatically convert to common stock immediately prior to
the first registered, underwritten public offering of shares of common stock by
the Company. Theses preferred shares are convertible into 9,108.32 shares of
common stock per one share of Series B-1 preferred stock or Series B-2 preferred
stock.
Common stock
The Company is authorized to issue 25,000,000 shares of $0.0001 par value
voting common stock. Upon liquidation or dissolution, holders of common stock
will be paid only after preferred stock preferences have been satisfied.
On December 31, 1997, all outstanding shares of common stock were split two
for one. All common stock shares and per share amounts have been restated to
reflect this stock split.
In November 1997, the Company issued 1,368,046 shares of common stock for
proceeds of $5,687,124, net of issuance costs of approximately $561,077 and
other noncash transactions of $73,800. In conjunction with this transaction,
36,746 warrants to purchase common shares for $4.00 per share were exercised for
proceeds of $146,980.
F-20
<PAGE> 91
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
In January 1998, the Company issued 5,478,654 shares of common stock in
connection with the acquisition of Holdings. The Company also assumed the
outstanding stock options granted to Holdings employees equivalent to 2,340,831
shares of Intracel common stock (Note 11).
Stock options
The Company's 1989 Stock Option Plan (the "Plan"), provides for the
issuance of incentive and nonqualified stock options to employees, directors,
and consultants. There are 800,000 shares of common stock reserved under the
Plan. The Company's Board of Directors establishes the option price per share,
vesting period, and option term at the date of grant. Generally, options are
granted by the Company's Board of Directors at an exercise price of not less
than the fair market value of the Company's common stock at the date of grant.
For stockholders possessing at least a 10% ownership interest, the option price
shall not be less than 110% of the fair market value at the date of grant. The
vesting period of options generally ranges from immediately to ratably over four
years. Option terms generally are five or ten years.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the fair value of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
Under APB No. 25, because the exercise price of the Company's stock options
generally equals the fair value, as determined by the Board of Directors, of the
underlying stock on the date of grant, no compensation expense is recognized in
the Company's consolidated financial statements.
Information regarding activities in the option plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding, July 1, 1994........................... 503,034 $2.00
---------
Options outstanding, June 30, 1995.......................... 503,034 2.00
---------
Options outstanding, December 31, 1995...................... 503,034 2.00
Options granted........................................... 328,000 2.69
Options canceled.......................................... (10,000) 2.50
---------
Options outstanding, December 31, 1996...................... 821,034 2.27
Options granted........................................... 130,000 4.50
Options expired........................................... (82,000) 2.50
---------
Options outstanding, December 31, 1997...................... 869,034 2.58
Options assumed in merger with Holdings, Inc.
(unaudited)............................................ 2,340,831 0.34
Options granted (unaudited)............................... 220,000 7.23
Options canceled (unaudited).............................. (218,625) 1.28
---------
Options outstanding, March 31, 1998 (unaudited)............. 3,211,240 1.35
=========
</TABLE>
At December 31, 1996, 1997 and March 31, 1998 the Company granted stock
options in excess of the authorized Plan amount by 124,258, 172,258 and 310,258
(unaudited) shares, respectively. The Company
F-21
<PAGE> 92
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
intends to submit for shareholder approval an amendment to its stock option plan
to increase the number of options authorized for issuance.
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
- ------------------------------------ ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00 - $2.50....................... 699,034 $2.14 1.81 years 627,034 $2.09
$4.00 - $4.50....................... 170,000 4.38 5.81 years 26,249 4.25
------- --------
869,034 2.58 2.59 years 653,283 2.18
======= ========
</TABLE>
Pro forma information regarding net income (loss) is required by SFAS No.
123, and has been determined as if the Company had accounted for its employee
stock options granted after January 1, 1996 under the fair value method of that
statement. The fair values of options granted in 1997 and 1996 (no options were
granted during the six months ended December 31, 1995 or the year ended June 30,
1995) were estimated at the date of grant using the minimum value method and the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Risk free interest rate................................. 6.41% 6.28%
Expected holding period................................. 4 years 6 years
Dividend yield.......................................... 0.0% 0.0%
</TABLE>
The minimum value method was developed for use in estimating the fair value
of options granted by nonpublic entities and, accordingly, excludes
consideration of volatility. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the minimum value
method does not necessarily provide a reliable single measure of the fair value
of its stock options.
The weighted average fair values per share at the date of grant for options
granted were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1996 1997
----- -----
<S> <C> <C>
Options granted whose exercise price was equal to the fair
value of the stock on the date of grant................... $0.75 $1.39
===== =====
</TABLE>
The following table presents net loss and per share amounts as if the
Company accounted for compensation expense related to stock options under the
fair value method prescribed by SFAS No. 123:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
PRO FORMA PRO FORMA
----------- -----------
<S> <C> <C>
Net loss -- as reported........................... $(3,501,973) $(8,479,459)
Net loss -- pro forma............................. (3,532,723) (8,520,920)
Loss per share -- as reported..................... (1.10) (2.39)
Loss per share -- pro forma....................... (1.10) (2.40)
</TABLE>
F-22
<PAGE> 93
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period.
At December 31, 1997, the following warrants to purchase common stock were
outstanding:
<TABLE>
<CAPTION>
PRICE PER
SHARE,
NUMBER OF SUBJECT TO
SHARES ADJUSTMENT EXPIRATION DATE
- --------- ---------- ------------------
<C> <C> <S>
67,252 $4.00 July 22, 1999
172,924 4.00 September 22, 2000
182,354 7.00 November 16, 2002
188,020 7.00 December 28, 2000
318,146 7.00 April 1, 2003
-------
928,696
=======
</TABLE>
The outstanding warrants carry registration rights, certain anti-dilutive
rights, and certain adjustments to the number of shares obtainable under the
warrants, as provided in the warrant agreements. The expiration dates of the
warrants may accelerate under certain circumstances, including the closing of an
initial public offering of common stock at a minimum purchase price per share of
$8 to $9 and minimum aggregate proceeds of $10,000,000.
On January 2, 1998, the Company issued Warrants to purchase 679,341 shares
of common stock in connection with an employment agreement between Simon R.
McKenzie, the Company's Chief Executive Officer, and the Company. The Warrants
carry an exercise price of $4.50 per share and expire 5 years from the date of
issue. On April 1, 1998, the Company issued Warrants to purchase 98,132 shares
of common stock in connection with a Note and Warrant Purchase Agreement at an
exercise price of $7.64 per share.
11. ACQUISITIONS:
In April 1996, the Company entered into an agreement with Bartels
Prognostics acquiring certain manufacturing equipment for $360,000. The
agreement also granted the Company exclusive manufacturing and marketing rights
subject to the full payment of $1,000,000 for 644,696 shares, or 23.443%, of
common stock of Bartels Prognostics. The Company accrued $375,000 and paid
$250,000 in 1996 and made the residual payments of $750,000 in 1997, comprising
the total consideration of $1,000,000. Additionally, the Company made advances
to Bartels Prognostics of $45,299 and $98,198 during 1997 and 1996,
respectively. At December 31, 1997 and 1996, advances to Bartels Prognostics are
included in other current assets and the investment in Bartels Prognostics is
included in other assets. The agreement allows for further discussion regarding
the potential future merger of the two entities.
In November 1995, the Company purchased certain assets and assumed certain
liabilities of Bartels, a biotechnology company in the business of developing,
manufacturing, selling, and distributing reagents and cell culture media from
Dade International for an aggregate purchase price of approximately $17,667,000.
The acquisition was financed primarily via a $9,000,000 term loan and a
$1,000,000 revolving credit note from a commercial bank, and a $4,667,000 note
payable to the seller (the note payable to the seller was paid in December 1995
primarily from the proceeds of the December 1995 Subordinated Secured Promissory
Note). The purchase price was allocated to the assets acquired based upon fair
market values. The excess of the purchase price over the fair market value of
the assets acquired has been allocated to cost in excess of net assets acquired.
In-process research and development approximating $1,300,000 was expensed in
1995 in connection with the acquisition. This acquisition was accounted for as a
purchase and, accordingly, the results of operations of the acquired business is
included in the accompanying consolidated statement of operations from the date
of acquisition.
F-23
<PAGE> 94
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACQUISITIONS: (CONTINUED)
In September 1995, the Company purchased certain assets of Zymmune
Diagnostic Systems from Zynaxis, Inc., a developer of drug delivery systems, for
an aggregate purchase price of approximately $2,019,000. The financing consisted
of a note payable to Zynaxis and a series of contingent payments. The contingent
payment liability of $1,050,000 was recorded as a long-term liability due to the
Company's view that the milestones underlying the payments are probable of being
achieved. The note payable and the contingent payments to Zynaxis resulted in a
noncash transaction for the purchase of the assets in the amount of
approximately $1,500,000. Assets purchased included technology, patents,
equipment, and inventory. The purchase price was allocated to the assets
acquired based upon their fair market values. In-process research and
development approximating $800,000 was expensed in 1995 in conjunction with the
transaction. Although the manufacturing milestone was achieved during fiscal
year 1996, the Company has alleged a number of breaches of the agreement by
Zynaxis and has accordingly withheld all payments pending resolution of the
dispute. The Company is currently in settlement negotiations with the assignee
of this agreement (Vexcel, Inc.) and, in management's opinion, expects to settle
the dispute and all claims for an amount substantially less than the value of
the note and contingent payments.
On January 2, 1998, the Company acquired in a tax-free merger all the
capital stock of PerImmune Holdings ("Holdings") which conducts operations
through PerImmune, Inc., its wholly owned subsidiary ("PerImmune"). As a result
of this transaction, Holdings and PerImmune have become subsidiaries of the
Company. In anticipation of this acquisition, the Company placed $2,000,000 of
cash in a restricted escrow account on December 31, 1997 to satisfy requirements
of the holder of the senior note payable. At December 31, 1997, the Company has
deferred certain acquisition costs related to this transaction, including legal,
accounting and other fees. PerImmune is a research oriented healthcare company
that applies biotechnology and other life sciences technologies to develop and
provide products and services. PerImmune's focus is on the development of human
monoclonal antibodies for cancer and infectious disease applications, as well as
cancer vaccines, specific and nonspecific immunotherapy and cardiovascular
disease test products. The aggregate purchase price was approximately
$59,471,000, payable in 5,478,654 shares of Intracel common stock, 2,340,831
options to purchase Intracel common stock, 220 shares of Intracel Series B-1 and
B-2 preferred stock, the assumption of obligations of approximately $11,532,000
and the assumption of other certain liabilities. The acquisition has been
accounted for using the purchase method of accounting and the March 31, 1998
financial statements reflect valuation of all assets, including identifiable
intangibles, at their estimated fair market values. Perimmune's operating
results are included in Intracel's consolidated operating results from the date
of acquisition. The Company recognized a one time expense of $37,718,000 in the
first quarter of 1998, related to acquired in process research and development.
The remaining $21,742,000 of the total purchase price was allocated among the
acquired assets including patents, current product technology and long term
assets including $849,000 recorded as cost in excess of net assets acquired.
The following unaudited pro forma information has been prepared assuming
Holdings had been acquired as of the beginning of the periods presented. The pro
forma information is presented for information purposes only and is not
necessarily indicative of what would have occurred if the acquisition had been
made as of those dates. In addition, the pro forma information is not intended
to be a projection of future results.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
PRO FORMA INFORMATION DECEMBER 31, -------------------
(IN THOUSANDS, EXCEPT PER SHARE) 1997 1997 1998
-------------------------------- ------------ ------- --------
(ACTUAL)
<S> <C> <C> <C>
Revenue.................................... $21,341 $ 6,081 $ 5,464
Net loss................................... 20,984 41,571 42,593
Loss per common share
basic and diluted........................ 2.33 3.89 3.97
</TABLE>
F-24
<PAGE> 95
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. JOINT VENTURE:
During 1995, the Company made a 45% investment in the German American
Institute for AIDS Research (GAIFAR), a German limited liability Company. The
purpose of the entity was to develop and distribute the Company's products
within the Eastern European market. The investment is accounted for under the
equity method. Also during 1995, GAIFAR obtained a 1,000,000 Deustche mark (DM)
unsecured loan through the German government. During 1996, the Company made an
additional contribution of capital approximating $283,000 in accordance with the
loan agreement with the German government. No further capital contributions were
required based on the terms of the financing. As of December 31, 1996, the
Company had written off the entire investment in the joint venture because the
amount was deemed not to be recoverable, which resulted in a charge to
operations of $339,408.
In July of 1997, the Company entered into a termination and sale agreement
which resulted in the transfer of all joint venture shares back to GAIFAR on May
14, 1998, releasing the Company from its guarantee of the 1,000,000 DM loan.
13. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute amounts through payroll deductions.
The Company matches employees' contributions at the discretion of the Company's
Board of Directors. The Company did not match employee contributions to the
401(k) savings plan in the 1997, 1996 and 1995 periods. The Company does not
provide other post-retirement benefits.
In connection with the Company's merger with Holdings, the Company assumed
Holdings' employee pension plan. The Company froze the benefits under the Plan
in February 1998, and determined that the remaining Plan assets and recorded
pension liability exceeded the obligation relating to the participants. As a
result of the curtailment of the plan benefits, the Company recorded income for
the quarter ended March 31, 1998 of $800,000 and reduced the related pension
liability in accordance with Statement of Financial Accounting Standards No. 88,
"Employers Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans."
14. SUBSEQUENT EVENTS:
Refinancing
On June 8, 1998, the Company received a firm commitment letter from a
current debt and equity holder for $35,000,000 which will provide approximately
$8,000,000 of additional funding after the proceeds are applied to repay
existing debt obligations and redeem the Series A-2 preferred stock. This
borrowing arrangement includes warrants to purchase up to approximately
1,622,000 shares of the Company's common stock, expiring on July 1, 2003, and
allows for certain registration rights for these warrant shares. The warrants
are initially exercisable at $10 per share, subject to various adjustments
including adjustment to the price per share of an initial public offering. In
addition, on June 8, 1998, another lender agreed to delay the maturity of
approximately $10,100,000 of the debt assumed from Holdings until January, 2000.
Management believes the proceeds from these debt-related transactions and the
successful launch of OncoVAX(CL) will provide sufficient funding to meet the
Company's continued operations and its research and development of other
products through at least December 31, 1999.
Initial Public Offering
In March 1998, the Company's Board of Directors authorized the Company to
file a Registration Statement with the Securities and Exchange Commission to
permit the Company to proceed with an initial public offering of its common
stock. Upon consummation of such offering, all of the outstanding Series A,
F-25
<PAGE> 96
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS: (CONTINUED)
A-1, A-3, B-1, B-2 preferred stock will be converted in common stock and it is
anticipated that certain convertible notes and warrants outstanding immediately
prior to such offering will be converted into or exercised for common stock.
Consequently, the Company anticipates 6,060,779 shares of common stock will be
issued upon conversion or exercise of such preferred stock, convertible notes
and warrants.
F-26
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
PerImmune Holdings, Inc.:
We have audited the consolidated balance sheet of PerImmune Holdings, Inc. and
Subsidiary (the "Company") as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit of the 1997 financial statements 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PerImmune
Holdings, Inc. and Subsidiary as of December 31, 1997, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
McLean, Virginia
April 2, 1998, except for the
second paragraph of Note 14
as to which the date is June 8, 1998.
F-27
<PAGE> 98
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,504,064 $ 2,423,910
Accounts receivable, net.................................. 646,524 1,260,719
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 159,561 749,039
Inventories............................................... 362,840 375,488
Prepaid expenses.......................................... 415,928 293,699
------------ -----------
Total current assets.............................. 4,088,917 5,102,855
Property and equipment, net................................. 2,040,698 7,283,715
Restricted cash............................................. 433,000
Cost in excess of assets acquired, including acquisition
costs, net of accumulated amortization of $383,000 in 1997
and $113,000 in 1996...................................... 1,467,500 1,237,500
------------ -----------
Total assets...................................... $ 8,030,115 $13,624,070
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of notes payable.......................... $ 10,220,505 $ 5,600,000
Current portion of capitalized lease obligations.......... 44,896
Accounts payable.......................................... 616,140 1,950,427
Accrued liabilities....................................... 2,078,283 1,387,334
------------ -----------
Total current liabilities......................... 12,959,824 8,937,761
Capitalized lease obligations, less current portion......... 127,342
Pension liability........................................... 1,183,902 935,879
Notes payable, less current portion......................... 9,234,935
------------ -----------
Total liabilities................................. 14,271,068 19,108,575
------------ -----------
Commitments and contingencies
Series A redeemable and convertible preferred stock -- $0.01
par value; 1,000 shares authorized; 100 shares issued and
outstanding at December 31, 1997 (aggregate liquidation
preference of $4,500,000)................................. 4,280,165
Series B redeemable and convertible preferred stock -- $0.01
par value; 1,000 shares authorized; 120 shares issued and
outstanding at December 31, 1997 (aggregate liquidation
preference of $6,000,000)................................. 5,505,952
------------ -----------
9,786,117
------------ -----------
Stockholders' equity (deficit):
Common stock -- $0.01 par value; 3,000 and 1,000 shares
authorized, respectively; 601.5 and 593.5 shares issued
and outstanding at December 31, 1997 and 1996,
respectively........................................... 6 6
Additional paid-in capital............................. 282,668
Accumulated deficit.................................... (16,309,744) (5,484,511)
------------ -----------
Total stockholders' equity (deficit).............. (16,027,070) (5,484,505)
------------ -----------
Total liabilities and stockholders' equity
(deficit)....................................... $ 8,030,115 $13,624,070
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 99
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM
AUGUST 3, 1996 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 3, 1996
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------------
<S> <C> <C>
REVENUE:
Contract research and development revenue:
Government............................................. $ 1,869,301 $ 2,750,942
Commercial............................................. 3,909,239 1,105,515
Product sales............................................. 2,110,695 594,157
------------ -----------
Total revenue..................................... 7,889,235 4,450,614
------------ -----------
COST OF CONTRACTS AND SALES:
Contract research and development costs:
Government............................................. 1,584,922 1,968,098
Commercial............................................. 3,431,181 885,942
Cost of products sold..................................... 1,600,054 324,886
------------ -----------
Total costs of contracts and sales................ 6,616,157 3,178,926
------------ -----------
GROSS PROFIT................................................ 1,273,078 1,271,688
------------ -----------
OPERATING EXPENSES:
Research and development.................................. 8,077,491 4,683,020
General and administrative................................ 1,685,880 708,247
Marketing................................................. 554,720
Other..................................................... 607,521 10,151
------------ -----------
Total operating expenses.......................... 10,925,612 5,401,418
------------ -----------
LOSS FROM OPERATIONS........................................ (9,652,534) (4,129,730)
Other income (expense):
Interest income........................................... 200,958
Interest expense.......................................... (1,038,467) (445,590)
Loss on sale-leaseback transaction........................ (335,190)
------------ -----------
LOSS BEFORE INCOME TAXES.................................... (10,825,233) (4,575,320)
Income taxes................................................
------------ -----------
NET LOSS.................................................... (10,825,233) (4,575,320)
Preferred stock accretion................................... 32,332
------------ -----------
Net loss applicable to common stockholders.................. $(10,857,565) $(4,575,320)
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 100
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM
AUGUST 3, 1996 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock................. 585 $6 $ 5,844 $ 5,850
Acquisition costs paid through issuance
of common stock........................ 9 100,000 100,000
Consideration paid in excess of net
assets acquired........................ (105,844) $ (909,191) (1,015,035)
Net loss for the period from August 3,
1996 through December 31, 1996......... (4,575,320) (4,575,320)
--- -- --------- ------------ ------------
Balance at December 31, 1996............. 594 6 (5,484,511) (5,484,505)
Issuance of common stock on December 12,
1997................................... 7 315,000 315,000
Issuance of additional common stock to
investment advisor (note 2)............ 1
Preferred stock accretion................ (32,332) (32,332)
Net loss for the year.................... (10,825,233) (10,825,233)
--- -- --------- ------------ ------------
Balance at December 31, 1997............. 602 $6 $ 282,668 $(16,309,744) $(16,027,070)
=== == ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 101
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM
AUGUST 3, 1996 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 3,
YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(10,825,233) $(4,575,320)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 268,688 185,834
Amortization........................................... 270,000 113,000
Loss on sale-leaseback and disposal of equipment....... 365,985 1,330
Changes in assets and liabilities:
Decrease in accounts receivable...................... 614,195 230,393
Decrease in costs and estimated earnings in excess of
billings.......................................... 589,478 237,825
Decrease (increase) in inventories................... 12,648 (4,840)
Increase in prepaid expenses......................... (122,229) (162,592)
Increase in accounts payable and accrued
liabilities....................................... 329,685 2,170,210
------------ -----------
Net cash used in operating activities............. (8,496,783) (1,804,160)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (314,601) (129,280)
Acquisition costs......................................... (1,250,000)
Proceeds from sale-leaseback and disposal of equipment.... 5,135,564
Payment to investment advisor............................. (1,225,000)
------------ -----------
Net cash provided by (used in) investing
activities...................................... 3,595,963 (1,379,280)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 315,000 5,850
Proceeds from issuance of convertible preferred stock (net
of transaction costs of $746,215)...................... 9,753,785
Repayment of capital lease obligations.................... (40,381)
Proceeds from issuance of notes payable................... 985,570 5,600,000
Payments of notes payable................................. (5,600,000)
Increase in restricted cash............................... (433,000)
------------ -----------
Net cash provided by financing activities......... 4,980,974 5,605,850
------------ -----------
Net increase in cash and cash equivalents................... 80,154 2,422,410
Cash and cash equivalents at beginning of period............ 2,423,910 1,500
------------ -----------
Cash and cash equivalents at end of period.................. $ 2,504,064 $ 2,423,910
============ ===========
Supplemental cash flow information:
Cash paid for:
Interest............................................... $ 1,013,347 $ 138,600
Supplemental disclosure of non-cash financing activities:
Purchase of common stock of PerImmune, Inc. with a note
payable................................................ $ 9,234,935
Acquisition costs paid through issuance of common stock... 100,000
Consideration paid in excess of net assets acquired....... 1,015,035
Preferred stock accretion................................. $ 32,332
Cost in excess of assets acquired included in accrued
liabilities............................................ 500,000
Equipment acquired under capital lease obligations........ 212,619
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 102
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
PerImmune Holdings, Inc. (Holdings) was incorporated on June 28, 1996 for
the purpose of acquiring PerImmune, Inc. (PerImmune) in a leveraged buyout
transaction.
Between 1985 and 1996, PerImmune was owned by Organon Teknika Corporation
(OTC), a subsidiary of Akzo Nobel, Inc., which is wholly owned by Akzo Nobel, NV
(Netherlands). Prior to December 20, 1994, PerImmune operated as a division of
OTC, and was known as Biotechnology Research Institute (BRI). On December 20,
1994, PerImmune, Inc., was formed as a wholly owned subsidiary of OTC with the
issuance of 1,000 shares of common stock in exchange for all the assets and
liabilities related to PerImmune. Effective August 3, 1996, PerImmune was
acquired by Holdings through a leveraged buyout (see note 2). Holdings has no
substantive operations.
The Company is a research oriented healthcare company that applies
biotechnology and other life sciences technologies to develop and provide
products and services. The Company's focus is on the development of human
monoclonal antibodies for cancer and infectious disease applications, as well
as, cancer vaccines, specific and nonspecific immunotherapy and cardiovascular
disease test products. Most of PerImmune's products are intended for human use
and are, therefore, regulated by the United States Food and Drug Administration.
Historically, the Company's primary sources of revenue have been research and
development contracts with affiliated companies, revenues generated from
government contracts and sales of products and services. PerImmune markets its
products in the United States, Europe and other geographic regions.
Basis of Presentation
The consolidated financial statements include the accounts of Holdings and
PerImmune. All significant intercompany accounts and transactions have been
eliminated in consolidation.
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 materially from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less at the date of investment.
Inventories
Inventories are stated at the lower of cost (as determined by the first-in,
first-out method) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets of 3 to 7 years. Expenditures for maintenance, repairs and
renewals of relatively minor items are generally charged to expense as incurred.
F-32
<PAGE> 103
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Construction in progress includes the costs of constructed machinery.
Construction in progress costs are transferred to other property and equipment
categories when the construction/installation is completed and the asset is
ready for its intended use.
Cost in Excess of Assets Acquired
Cost in excess of assets acquired represents the excess of cost of an
acquired business over the fair value of the identifiable net tangible and
intangible assets acquired. Cost in excess of assets acquired is amortized using
the straight-line method over 15 years. The Company periodically evaluates the
life and the recoverability of cost in excess of assets acquired by comparing
the estimated future undiscounted operational cash flows to the carrying value
of cost in excess of assets acquired.
Acquisition Costs
Acquisition costs represent costs incurred related to the leveraged buyout
transaction (see note 2). Amortization of acquisition costs is computed using
the straight-line method over five years.
Income Taxes
Income taxes are accounted for using the asset and liability method
pursuant to Statement of Financial Accounting Standard No. 109 (SFAS No. 109),
Accounting for Income Taxes. Deferred taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes for a change in tax rates is recognized in income in
the period that includes the enactment date. The Company establishes valuation
allowances in accordance with the provisions of SFAS No. 109. The Company
continually reviews the adequacy of the valuation allowances and will recognize
deferred tax benefits only when it is more likely than not that the benefits
will be realized. Holdings and its subsidiary file a consolidated U.S. federal
income tax return.
Fair Value of Financial Instruments
The Company has notes payable related to the leveraged buy-out and other
notes payable obligations for which it is not practicable to estimate the fair
value since they are not traded, and no quoted values are readily available for
similar financial instruments.
Stock-based Compensation
The Company accounts for stock option issuances in accordance with the
provisions of APB No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, deferred compensation is recorded to the extent that
the fair value of the underlying stock exceeds the exercise price on the date of
grant. Such deferred compensation is amortized over the respective vesting
periods of related option grants. Transactions with non-employees, in which
goods or services are the consideration received for the issuance of equity
instruments, are accounted for under the fair-value based method defined in
Statement of Financial Accounting Standard No. 123 (SFAS No. 123) Accounting for
Stock-Based Compensation (see note 11).
Revenue Recognition -- Contract Research and Development and Licensing
Agreements
The Company has entered into various research and development and licensing
agreements (see note 3). Research and development revenue from cost
reimbursement agreements is recorded as the related expenses are incurred, up to
contractual limits and when the Company meets its performance obligations under
the
F-33
<PAGE> 104
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
respective agreements. Contract revenue is recognized under other agreements
when milestones are met and the Company's significant performance obligations
have been satisfied in accordance with the terms of the respective agreements.
Cash received that is related to future performance under such contracts is
deferred and recognized as revenue when earned.
The Company also engages in contracts with commercial entities and agencies
of the U.S. government (Department of Defense and the National Institute of
Health) on either a cost-plus-fixed-fee, fixed price or a
cost-plus-percentage-fee basis. Revenue on cost-plus-fixed-fee, fixed price and
cost-plus-percentage-fee contracts is recognized based on the ratio of total
direct and indirect costs incurred during the period to total estimated costs
using the percentage-of-completion method. Estimates to complete are reviewed
periodically and revised as required in the period the revision is determined.
Provisions are made for the full amount of anticipated losses, if any, on all
contracts in the period in which they are first known and estimable. Contracts
with the U.S. government are subject to government audit upon contract
completion and therefore, all contract costs are potentially subject to
adjustment, even after reimbursement. Management believes adequate provisions
for such adjustments, if any, have been made in the financial statements.
Expense recovery rates have been audited through 1996.
Research and Development Costs
Research and development costs are expensed as incurred.
Concentration of Credit Risk
The Company performs research and development services for nonaffiliated
entities. The Company generally does not require collateral or other security in
extending credit to its customers. Additionally, the U.S. federal government and
Baxter Healthcare Corporation contributed 24% and 34% of total revenue for the
year ended December 31, 1997, respectively and 62% and 14% for the period from
August 3, 1996 through December 31, 1996, respectively.
Reclassifications
Certain reclassifications have been made to the 1996 financial statements
to conform with the 1997 presentation. The reclassifications had no effect on
previously reported net loss, stockholders' equity (deficit) or cash flows.
(2) LEVERAGED BUYOUT
In 1996, Holdings engaged an investment advisor with regards to the
purchase of PerImmune from Akzo Nobel, Inc. for which the investment advisor's
fee totalled $1,250,000. As of December 31, 1996, $1,225,000 of the advisor's
fee was included in accounts payable and the entire amount was paid in full
during 1997. During 1996, the investment advisor also received 8.5 shares of the
Company's common stock in exchange for funding certain related legal expenses on
behalf of the Company totaling $100,000. The shares are protected from dilution
through certain third-party financings. During the year ended December 31, 1997,
the investment advisor was issued one additional share of the Company's common
stock.
Effective August 3, 1996, 100% of PerImmune's common stock was acquired by
Holdings from OTC in exchange for a $9,234,935 note payable (see note 8). The
transaction was accounted for in accordance with Emerging Issues Task Force
Abstracts No. 88-16 (EITF No. 88-16), Basis in Leveraged Buyout Transactions.
Because the transaction was wholly financed by OTC, all such consideration was
determined to be nonmonetary and, under the provisions of EITF 88-16, the assets
and liabilities of PerImmune were carried over at historical cost.
F-34
<PAGE> 105
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(2) LEVERAGED BUYOUT (CONTINUED)
Concurrent with the leveraged buyout, the ownership rights of certain
patents and other technology rights developed under the research and development
contracts with affiliates, which pertain to the business of PerImmune, were
transferred to Holdings. Under the terms of the transfer, Holdings is required
to make certain milestone payments of up to $10 million if specific future
conditions are met, and will make payments of between 5% and 7.5% of net product
sales and 50% of license revenue. The milestone and royalty payments will
continue until the expiration or termination of the related patents covering the
products defined in the agreement. As of December 31, 1997, $500,000 of
milestone payments were included in accrued liabilities for amounts payable to
OTC. No royalty payments have been accrued or are due to OTC.
(3) CONTRACTS AND AGREEMENTS
Agreement with Baxter
On January 1, 1996, PerImmune entered into a research collaboration and
license agreement with Baxter Healthcare Corporation (Baxter) whereby the
Company agreed to provide certain research, development and pilot manufacturing
services for Baxter in exchange for reimbursement of research and development
costs, milestone payments and certain royalty payments. The Company received a
non-refundable milestone payment of $1,500,000 in January 1996 and is reimbursed
for actual costs incurred plus a fee of 16% during the term of the agreement.
Baxter is also obligated to make up to $3,000,000 in additional milestone
payments, if the Company achieves certain stages of U.S. and European regulatory
approvals for the serotherapy products for infectious and autoimmune diseases
under development. In addition, the Company earns a royalty ranging between 4%
and 8% of gross profit with a minimum royalty ranging between 2% and 4% of net
sales, as defined in the agreement, on sales of products depending on whether
the product is a result of previously existing technology of the Company or new
technology resulting from this development agreement. As of December 31, 1997,
no royalty or additional milestone payments has been earned. The agreement has a
term of three years with an option for a fourth year. Either party may terminate
this agreement at any time without cause. All patents and technology developed
under this agreement are the property of Baxter.
Agreement with Arch Development Corporation
PerImmune has a license agreement with the Arch Development Corporation
(Arch) to make and sell products under the patent rights for Apotek Lp(a)
developed at the University of Chicago. The agreement requires the Company to
pay Arch a royalty of 4 percent of related product sales. As of December 31,
1997, the Company has not incurred any royalty expense under this agreement.
Distribution Agreement with Syncor International Corporation
On April 1, 1997, the Company entered into an exclusive distribution
agreement with Syncor International Corporation (Syncor) for the HumaSPECT and
antibody conjugated radiotherapeutic products. Under this agreement, Syncor
accepts title of the product upon receipt and pays the Company a specific
purchase price defined by the agreement. Additionally, Syncor will pay the
Company a royalty of 50% of its net sales of the Company's products less the
specific purchased price, as defined, and right of return exists if the product
received by Syncor has less than one year until its expiration. To date, the
Company has not earned any royalties under this agreement. The Company is
obligated to spend 15% of annual sales of products covered by this agreement on
research and development to improve upon existing products or develop new
products. The Company is required to reimburse Syncor for all expenses related
to marketing these products up to $1,500,000, plus 50% of amounts over
$1,500,000, provided the expenditures are in accordance with the annual market
plan as prepared and agreed by the two companies. For the year ended December
31, 1997, the Company has reimbursed Syncor for marketing expenses of $330,000.
This agreement has a term of five years and is renewable for two additional
two-year terms.
F-35
<PAGE> 106
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(3) CONTRACTS AND AGREEMENTS (CONTINUED)
Agreements with Mentor Corporation
On June 16, 1997, the Company entered into an exclusive distribution
agreement with Mentor Corporation (Mentor) for the AuraTek -- FDP bladder cancer
diagnostic product, which the Company refers to as Accu-D(x), with an initial
term of five years and is automatically renewable for a one year term thereafter
until either party terminates the agreement with 180 days written notice. Under
this agreement, Mentor accepts title of the product shipments upon receipt and
pays the Company a specific purchase price defined by the agreement.
Additionally, Mentor will pay the Company a royalty of 50% of its net sales of
the Company's product, less the specific purchase price as defined in the
agreement. The Company is obligated to provide up to 12,000 units of the product
per year to be used by Mentor for promotional purposes, at no cost to Mentor.
On December 22, 1997, the Company entered into a research, collaboration
and distribution agreement with Mentor whereby the Company agreed to provide
certain research, development and pilot programs for Mentor in exchange for
research and development fees in an aggregate amount of $3,000,000 based on a
milestone payment schedule. As of December 31, 1997, the Company had not earned
any milestone payments. The Company will receive $1,000,000 within five days of
submission of written notice of the completion of each milestone to Mentor. The
Company is required to pay the cost in excess of $3,000,000 for expenditures
within the scope of the project development schedule. The Company is the owner
of all rights to proprietary technical information and the U.S. Patent to which
Mentor was granted exclusive world-wide rights to market, sell and distribute
the program product. This agreement is effective for a ten year period following
the first approval of commercialized use of products under development. Mentor
has the right to terminate this agreement at the expiration of five years from
the date of the first approval of commercialized use of the product based upon
180 days written notice to the Company.
Sigma Agreement
On June 30, 1997, the Company entered into a product development and
license agreement with Sigma Diagnostics, Inc. (SIGMA) for a diagnostic product,
whereby the Company agreed to provide product development and licensing services
for SIGMA in exchange for a product development fee and royalty payment. The
Company is entitled to receive an aggregate amount of $348,000 based on a
milestone payment schedule that requires a payment of $87,000 upon completion of
each respective milestone of which $87,000 was earned in 1997. In addition, the
Company will receive an annual royalty payment ranging between 3.5% and 7% of
the net selling price of the licensed product depending on whether there are any
additional competitors for this product in the marketplace. The Company has sole
and exclusive ownership of the licensed patents, while SIGMA has the exclusive
world-wide right to use and sublicense the project program information. This
agreement has a term of five years and is automatically renewable for a one year
term thereafter until SIGMA terminates the agreement.
Manufacturing/Distribution Agreement with OTC
On August 1, 1997, the Company entered into an exclusive
manufacturing/distribution agreement with OTC for the FDP Dipstick product,
which the Company refers to as Accu-D(x). Under the agreement, the Company paid
OTC $250,000 in exchange for the exclusive right to purchase, at a defined
price, such OTC product for package and resale under trademarks or tradenames
designated by the Company. The Company is obligated to purchase at least 100,000
units of the product annually at $4.00 per unit, starting on August 1, 1998.
This agreement has an initial term of three years and is automatically renewed
in two-year terms until written notice of termination from either the Company or
OTC.
F-36
<PAGE> 107
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(3) CONTRACTS AND AGREEMENTS (CONTINUED)
Other Contracts and Agreements
The Company has entered into various other licensing and research and
development agreements whereby it is committed to participate in research and
development projects, either on a best efforts basis or upon attainment of
certain performance milestones, as defined, or both, for various periods unless
canceled by the respective parties. Such future amounts to be paid to the
Company will primarily be determined on a cost-plus basis, and are subject to
specific performance criteria.
(4) ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
Government contracts................................. $123,964 $ 395,952
Product sales and corporate contracts................ 535,560 879,767
-------- ----------
659,524 1,275,719
Allowance for doubtful accounts...................... 13,000 15,000
-------- ----------
$646,524 $1,260,719
======== ==========
</TABLE>
(5) INVENTORIES
Inventories at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Finished goods......................................... $ 92,888 $186,837
Work-in-process........................................ 1,337
Raw materials.......................................... 269,952 187,314
-------- --------
$362,840 $375,488
======== ========
</TABLE>
(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Leasehold improvements............................. $ 990,573
Leased property.................................... $ 212,619
Computers.......................................... 667,557 453,946
Machinery and equipment............................ 3,549,485 3,735,691
Construction in progress........................... 1,005,316 5,935,047
---------- -----------
5,434,977 11,115,257
Accumulated depreciation and amortization.......... 3,394,279 3,831,542
---------- -----------
$2,040,698 $ 7,283,715
========== ===========
</TABLE>
Sale-Leaseback of Facility
On January 15, 1997, PerImmune exercised its option to purchase the land
and building it occupies in Rockville, Maryland, for a pre-established price of
$7,900,000. Concurrent with the purchase, PerImmune
F-37
<PAGE> 108
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(6) PROPERTY AND EQUIPMENT (CONTINUED)
sold the property to a third-party buyer. The sale included the building and
improvements, and certain equipment. The sales price, excluding settlement and
transfer costs, was $14,150,000, and the loss resulting from this transaction
was approximately $335,000, after consideration of estimated costs for repairs
described below. The Company received approximately $5,136,000 in cash at the
closing of the transaction. This transaction has been treated as a
sale-leaseback. As such, the plant and equipment previously owned by the Company
were removed from the balance sheet and the loss was recognized.
In conjunction with the sale, PerImmune agreed to make certain repairs at
its own expense and to obtain the release of certain liens against the property.
To ensure compliance with these provisions of the agreement, PerImmune deposited
$500,000 (maintenance escrow) and $100,000 (lien escrow) into escrow accounts.
In addition, PerImmune has agreed to deposit, on a monthly basis from February
1997 through January 2002, $3,333 for costs to be used for elevator repairs and
refurbishment (elevator escrow). The Company is entitled to any amounts not
spent for the described purpose. As of December 31, 1997, the balances in the
maintenance escrow and elevator escrow were $393,000 and $40,000, respectively.
Liens against the property have been released and the $100,000 lien escrow was
refunded to the Company in full during 1997.
In connection with the sale leaseback transaction, PerImmune issued the
buyer a warrant for the purchase of 25,000 shares of PerImmune common stock if
PerImmune consummates an initial public offering (IPO) or if certain other
events occur, such as a capital reorganization, recapitalization, dissolution or
liquidation. The warrants are exercisable for three years following the date of
one of the previously described events. The warrants expire in July 1999 if one
of the above events has not occurred. The warrant purchase price in an IPO would
be the offering price and for the other events described above, the price would
be determined by a formula described in the warrant agreement.
(7) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
The following is a summary of costs and estimated earnings in excess of
billings on uncompleted contracts as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts........... $30,077,868 $28,548,030
Estimated earnings................................ 2,298,118 2,154,438
----------- -----------
Total costs and estimated earnings................ 32,375,986 30,702,468
Less:
Billings to date................................ 32,148,654 29,836,800
Allowance for losses............................ 67,771 116,629
----------- -----------
$ 159,561 $ 749,039
=========== ===========
</TABLE>
(8) NOTES PAYABLE
Notes payable at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
8% promissory notes to OTC........................ $ 9,988,005 $14,834,935
Other notes....................................... 232,500
----------- -----------
10,220,505 14,834,935
Less current portion.............................. 10,220,505 5,600,000
----------- -----------
$ $ 9,234,935
=========== ===========
</TABLE>
F-38
<PAGE> 109
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(8) NOTES PAYABLE (CONTINUED)
In August 1996, in connection with the leveraged buyout, Holdings issued an
8% promissory note to OTC for $9,234,935 to purchase the outstanding common
stock of PerImmune, Inc. Interest accrued on the note is added to the principal
balance on February 1 and August 1 each year. The note matures in August 1998
and is collateralized by the patents, patent applications, trademarks and plant
and equipment acquired in the leveraged buyout. As of December 31, 1997 and
1996, the principal and accrued interest amount outstanding was $9,988,005 and
$9,234,935, respectively.
Holdings also issued an 8% note for a credit facility permitting draws of
$720,000 per month up to $3,600,000 and a $2,871,532 working capital facility to
provide capital for operations, both with OTC. The Company borrowed $3,600,000
and $2,000,000, respectively, under the facilities as of December 31, 1996.
These notes were collateralized by the patents, patent applications, trademarks
and plant and equipment acquired in the leveraged buyout. These notes matured in
January and August 1997, respectively, and principal and accrued interest were
paid in full.
In January 1997, Holdings issued three uncollateralized, non-interest
bearing promissory notes, for a total face amount of $232,500, to its advisors
on the sale leaseback transaction (see note 6). Each promissory note is
convertible into two shares of Holdings $0.01 par value common stock and have no
specified maturity date. As of December 31, 1997, no conversion had taken place.
(9) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accrued payroll..................................... $ 157,856 $ 166,853
Accrued bonuses..................................... 327,648 313,004
Accrued interest -- OTC promissory note............. 332,110 306,990
Accrued repair costs (see note 6)................... 393,000
Due to OTC.......................................... 500,000
Other............................................... 367,669 600,487
---------- ----------
$2,078,283 $1,387,334
========== ==========
</TABLE>
(10) EMPLOYEE RETIREMENT BENEFIT PLANS
Pension Plan
In December 1996, the Company decided to establish a noncontributory
defined benefit pension plan (the Plan) retroactive to the date of the leveraged
buyout. This plan has terms similar to those of the Akzo Nobel Retirement Plan
(ANRP) and covers substantially all of the Company's employees. Under the terms
of this plan employees are given credit for prior service. Pursuant to the terms
of the purchase agreement, the fair value of plan assets equal to the present
value of the accumulated pension benefit obligation (as determined by an
actuarial valuation as of the date of the leveraged buyout) were transferred
from ANRP to PerImmune's new pension trust in April 1997. In February 1998, the
Company froze the benefit accruals under the plan.
F-39
<PAGE> 110
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(10) EMPLOYEE RETIREMENT BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the plan at December
31, 1997 and 1996, and the composition of net periodic pension cost and
significant assumptions for the year ended December 31, 1997 and period from
August 3, 1996 through December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of approximately $1,251,865 in 1997 and $1,133,561 in
1996................................................... $ 1,565,486 $ 1,362,971
Effect of anticipated increase in compensation levels..... 770,256 718,744
------------ ------------
Projected benefit obligation................................ 2,335,742 2,081,715
Plan assets at fair value................................... 1,360,127 1,238,260
------------ ------------
Excess of projected benefit obligation over plan assets..... (975,615) (843,455)
Unrecognized net investment gain............................ (208,287) (92,424)
------------ ------------
Total pension liability accrued................... $ (1,183,902) $ (935,879)
============ ============
Net periodic pension cost includes the following components:
Service cost -- benefits earned during the period......... $ 213,981 $ 93,606
Interest cost on projected benefit obligation............. 151,631 61,916
Actual return on assets................................... (173,965) (135,097)
Net amortization and deferred investment gain............. 56,376 92,424
------------ ------------
Net periodic pension cost......................... $ 248,023 $ 112,849
============ ============
Significant assumptions used were as follows:
Discount rate............................................. 7.5% 7.5%
Rate of increase in compensation levels (graded by age of
participant)........................................... 4.0 to 10.5% 4.0 to 10.5%
Expected rate of return of assets......................... 9.5% 9.5%
============ ============
</TABLE>
Retirement Savings Plan
The Company maintains a defined-contribution savings plan under Section
401(k) of the Internal Revenue Code. The plan covers substantially all full-time
employees. Participating employees may defer a portion of their pretax earnings
up to the Internal Revenue Service annual contribution limit. The Company
matches employee contributions according to a specified formula. The Company's
matching contributions totalled $176,098 and $72,779 for the year ended December
31, 1997, and period from August 3, 1996 through December 31, 1996,
respectively.
(11) STOCKHOLDERS' EQUITY
Syncor Agreement
On April 23, 1997, Holdings issued 100 shares of its Series A Mandatorily
Redeemable Convertible Preferred Stock (par value .01/share) (Series A) to
Syncor International Corporation (Syncor) for $4,500,000 less transaction costs
of $246,215. Dividends are payable if and when declared by the Board of
Directors at the rate of 7% of the liquidation preference per annum, where the
liquidation preference is initially defined as $45,000 per share, subject to
certain adjustments. Each share of Series A may be converted into one share of
common stock before the redemption date (as defined below) at the option of the
holder, or is automatically converted on the date of a qualifying initial public
offering, as defined in the agreement. The Company shall redeem the Series A
seven years after the issuance date (the redemption date) in the event that all
shares have not been converted by this date. If such redemption occurs, the
redemption price shall
F-40
<PAGE> 111
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(11) STOCKHOLDERS' EQUITY (CONTINUED)
equal the amount of the liquidation preference plus any declared but unpaid
dividends. No dividends on the Company's common stock may be made while any
shares of preferred stock remain outstanding. In the event of liquidation or
dissolution, Syncor shall be entitled to be paid from the assets of Holdings, in
preference to the common stockholders, but on an equal basis with Preferred
Series B stockholders, the liquidation preference plus all declared but unpaid
dividends. Holdings shall also have the right of first refusal to repurchase
these shares should Syncor wish to sell them. In connection with this issuance,
Syncor and the holders of Holding's stock were also granted certain registration
rights as contained in the registration agreement.
Mentor Agreements
On June 16, 1997, the Company issued 20 shares of Series B Mandatorily
Redeemable Convertible Preferred Stock (par value .01/share) (Series B) to
Mentor Corporation (Mentor) for $1,000,000. On December 22, 1997, the Company
issued an additional 100 shares of Series B to Mentor for $5,000,000 less
transaction costs of $500,000. Dividends are payable if and when declared by the
Board of Directors at the rate of 7% of the liquidation preference per annum,
where liquidation preferences is defined as $50,000 per share, subject to
certain adjustments. Each share of Series B preferred stock shall have the same
rights, preferences and terms as Series A preferred stock.
Options
On September 27, 1996, Holdings granted 255 stock options to members of
management at an exercise price of $2,725 per option. The options vest over
three years and expire ten years from the date of grant. On May 16, 1997,
Holdings granted an additional 2 stock options to its directors at an exercise
price of $45,000 per option. The options vest over one year and expire ten years
from the date of grant. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding at August 3, 1996............................ $
Granted.................................................. 255 2,725
Exercised................................................
Canceled.................................................
--- -------
Outstanding at December 31, 1996......................... 255 2,725
Granted.................................................. 2 45,000
Exercised................................................
Canceled.................................................
--- -------
Outstanding at December 31, 1997......................... 257 $ 3,054
=== =======
Options exercisable at December 31, 1997................. 85 $ 2,725
=== =======
</TABLE>
The weighted-average remaining contractual life of outstanding options, as
of December 31, 1997 and 1996, was 8.75 and 9.75 years, respectively.
Under APB No. 25, because the exercise price of the Company's stock options
generally equals the fair value, as determined by the Company's management, of
the underlying stock on the date of grant, no compensation expense is recognized
in the Company's consolidated financial statements.
F-41
<PAGE> 112
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(11) STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if the Company had accounted for its stock options under
the fair value method of that statement. The fair value of each option is
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants issued during the
year ended December 31, 1997, and period from August 3, 1996 through December
31, 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Risk-free interest rate................................... 6.76% 6.28%
Dividend yield............................................ 0.00% 0.00%
Volatility factor......................................... 70.00% 70.00%
Expected term of option................................... 2 years 3 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
net loss would have been as indicated in the pro forma table below:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED AUGUST 3, 1996
DECEMBER 31, THROUGH
1997 DECEMBER 31, 1996
------------ -----------------
<S> <C> <C>
Net loss -- as reported........................ $10,825,233 $4,575,320
Net loss -- pro forma.......................... 10,963,095 4,604,552
Weighted average fair value of options
granted...................................... 16,654 1,377
</TABLE>
(12) COMMITMENTS
The Company leases certain equipment under agreements which are classified
as capital leases. Assets under capital leases at December 31, 1997 are included
in the consolidated balance sheet as follows:
<TABLE>
<S> <C>
Telephone system and equipment.............................. $180,619
Computer equipment.......................................... 32,000
--------
212,619
Less: accumulated depreciation.............................. 23,652
--------
$188,967
========
</TABLE>
The Company also leases laboratory, office and manufacturing facilities and
equipment under noncancelable operating leases which expire at various times
through January 31, 2007 (including the lease transaction described in note 6
which is also reflected in the amounts below).
F-42
<PAGE> 113
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(12) COMMITMENTS (CONTINUED)
Future minimum lease payments, by year end and in the aggregate, under the
aforementioned capital and operating leases, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- --------
<S> <C> <C>
1998................................................ $ 1,912,291 $ 66,813
1999................................................ 1,766,447 73,976
2000................................................ 1,801,118 69,980
2001................................................ 1,847,568 5,166
2002................................................ 1,902,379
Thereafter.......................................... 8,396,465
----------- --------
$17,626,268 215,935
===========
Less: imputed interest.............................. 43,697
--------
Present value of net minimum obligations............ 172,238
Current portion..................................... 44,896
--------
Long-term obligation................................ $127,342
========
</TABLE>
Rent expense was $1,753,790 and $588,311 for the year ended December 31,
1997, and the period from August 3, 1996 through December 31, 1996,
respectively. Rent expense is included in both selling, general and
administrative expenses and costs of contracts in the consolidated statements of
operations.
In July 1997, the Company entered into a licensing agreement with a
computer system company for the non-exclusive rights to its system software and
maintenance services. The total licensing fee for the eighteen month period
ending December 31, 1998 is $210,095 and the total maintenance fee is $48,120.
As of December 31, 1997, the Company had paid $132,215 of the licensing and
maintenance fees and the remaining commitment is included in the above future
minimum lease payments.
On January 2, 1998, the Company entered into a three year employment
agreement with a key member of management. The agreement establishes a minimum
compensation level and certain other terms.
(13) INCOME TAXES
The amount computed by applying the Federal corporate income tax rate of
34% to loss before income taxes is reconciled to the provision for income taxes
as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED AUGUST 3, 1996
DECEMBER 31, THROUGH
1997 DECEMBER 31, 1996
------------ -----------------
<S> <C> <C>
Income tax benefit at statutory rates.......... $(3,680,579) $(1,555,609)
State income taxes, net of federal tax
benefit...................................... (486,573) (205,675)
Valuation allowance adjustment................. 4,167,152 1,759,661
Other.......................................... 1,623
----------- -----------
$ $
=========== ===========
</TABLE>
F-43
<PAGE> 114
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(13) INCOME TAXES (CONTINUED)
Deferred income tax (assets) and liabilities as of December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------------
<S> <C> <C>
Net operating loss carryforwards............... $(5,997,028) $(1,802,118)
Excess of tax over book basis of assets........ (95,820) (193,520)
Allowance for doubtful accounts and other
reserves..................................... (32,000) (11,539)
Accrued expenses............................... (604,924) (520,259)
Other.......................................... 23,610 (11,567)
----------- -----------
Deferred tax assets............................ (6,706,162) (2,539,003)
Valuation allowance............................ 6,706,162 2,539,003
----------- -----------
Net deferred tax asset......................... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1997 the Company has a net operating loss carryforward for
both federal and state purposes of approximately $14,992,000 which expire
through the year 2012. This net operating loss carryforward relates to the
period August 3, 1996 through December 31, 1996 and for the year ended December
31, 1997 (periods subsequent to the leverage buyout) and as such, is not limited
under existing tax laws. However, this carryforward will be limited under the
Internal Revenue Code as a result of the changes in ownership of the Company as
discussed in note 14. A valuation allowance has been established to reflect the
uncertainty of future taxable income to utilize available tax loss
carryforwards.
(14) SUBSEQUENT EVENTS
Merger
On January 2, 1998, the stockholders of Holdings sold all outstanding
shares of Holding's capital stock to Intracel Corporation ("Intracel") through a
tax-free merger. With the consummation of the transaction, Holdings and
Perimmune became subsidiaries of Intracel. Intracel is a privately owned
biotechnology company developing products that improve the treatment options for
patients suffering from serious viral diseases and cancers. The aggregate
purchase price was approximately $59,471,000, payable in 5,478,654 shares of
Intracel common stock, 2,340,838 options to purchase Intracel common stock, 220
shares of Intracel Series B-1 and B-2 preferred stock, Intracel's assumption of
Perimmune's debt of approximately $11,532,000 and Intracel's assumption of other
liabilities. The acquisition will be accounted for using the purchase method of
accounting and accordingly, Intracel's financial statements will reflect
valuation of all of Perimmune's assets, including identifiable intangibles, at
their estimated fair market values. Perimmune's operating results will be
included in Intracel's consolidated operating results from the date of
acquisition.
Refinancing
On June 8, 1998 OTC negotiated with Intracel to delay the maturity of the
8% note payable until January 2000.
F-44
<PAGE> 115
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors and Stockholders
PerImmune Holdings, Inc.:
We have audited the consolidated balance sheet of PerImmune Holdings, Inc. and
subsidiary (the Company) as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
period from August 3, 1996 through December 31, 1996. We have also audited the
statements of operations, stockholders' equity and cash flows of the Predecessor
Company for the period from January 1, 1996 through August 2, 1996 and for the
year ended December 31, 1995. These financial statements are the responsibility
of the Companies' 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 consolidated financial position of PerImmune
Holdings, Inc. and subsidiary as of December 31, 1996, and the consolidated
results of their operations and their cash flows for the period from August 3,
1996 through December 31, 1996, and the results of operations and cash flows for
the Predecessor for the period from January 1, 1996 through August 2, 1996 and
for the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 28, 1997, except as to
note 14 which is as of April 23, 1997
and June 16, 1997
F-45
<PAGE> 116
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 2,423,910
Accounts receivable:
Affiliates (Note 3).................................... 218,494
Government............................................. 395,952
Other.................................................. 646,273
Inventories (Note 5)...................................... 375,488
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 7)......................... 749,039
Other current assets...................................... 293,699
-----------
Total current assets........................................ 5,102,855
Plant and equipment, net (Note 6 and 14).................... 7,283,715
Acquisition costs, net (Note 2)............................. 1,237,500
-----------
$13,624,070
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable (Note 8).................................... $ 5,600,000
Accounts payable (Note 2)................................. 1,950,427
Accrued liabilities (Note 9).............................. 1,387,334
-----------
Total current liabilities................................... 8,937,761
Accrued pension liability (Note 10)......................... 935,879
Note payable (Note 8)....................................... 9,234,935
-----------
Total liabilities........................................... 19,108,575
Stockholders' deficit (Notes 2 and 11):
Common stock: $.01 par value; 1,000 shares authorized;
593.5 shares issued and outstanding at December 31,
1996................................................... 6
Accumulated deficit....................................... (5,484,511)
-----------
Total stockholders' deficit................................. (5,484,505)
Commitments and contingencies (Notes 3, 4 and 12)
Subsequent events (Note 14)
-----------
$13,624,070
===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-46
<PAGE> 117
PERIMMUNE HOLDINGS INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
STATEMENTS OF OPERATIONS
PERIOD FROM AUGUST 3, 1996 THROUGH DECEMBER 31, 1996, PERIOD FROM JANUARY 1,
1996 THROUGH
AUGUST 2, 1996 AND YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIMMUNE
HOLDINGS PREDECESSOR COMPANY
CONSOLIDATED -----------------------------------
----------------- PERIOD FROM
PERIOD FROM JANUARY 1,
AUGUST 3, 1996 1996
THROUGH THROUGH YEAR ENDED
DECEMBER 31, 1996 AUGUST 2, 1996 DECEMBER 31, 1995
----------------- -------------- -----------------
<S> <C> <C> <C>
Revenues:
Contract research and development revenue:
Affiliates (Note 3)..................... $ 322,652 $ 5,024,245 $10,537,106
Government.............................. 2,750,942 3,420,549 6,578,019
Commercial.............................. 782,863 2,151,763 775,700
Product sales.............................. 594,157 1,631,918 1,407,274
----------- ----------- -----------
4,450,614 12,228,475 19,298,099
----------- ----------- -----------
Costs of contracts and sales:
Contract research and development costs:
Affiliates (Note 3)..................... 300,066 4,312,638 9,545,830
Government.............................. 1,968,098 3,375,008 5,778,534
Commercial.............................. 585,876 1,985,682 643,224
Costs of products sold..................... 324,886 1,102,374 1,124,239
----------- ----------- -----------
3,178,926 10,775,702 17,091,827
----------- ----------- -----------
Gross profit................................. 1,271,688 1,452,773 2,206,272
Operating expenses:
Research and development (Note 1).......... 4,683,020 189,261 359,998
Selling, general and administrative........ 708,247 740,174 1,283,234
Other...................................... 10,151 14,211 28,862
----------- ----------- -----------
Total operating expenses..................... 5,401,418 943,646 1,672,094
----------- ----------- -----------
Income (loss) from operations................ (4,129,730) 509,127 534,178
Interest expense............................. (445,590) -- --
----------- ----------- -----------
Income (loss) before income taxes............ (4,575,320) 509,127 534,178
Provision for income taxes (Note 13)......... -- 68,259 355,688
----------- ----------- -----------
Net income (loss)............................ $(4,575,320) $ 440,868 $ 178,490
=========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-47
<PAGE> 118
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM AUGUST 3, 1996 THROUGH DECEMBER 31, 1996, PERIOD FROM JANUARY 1,
1996 THROUGH
AUGUST 2, 1996 AND YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
------------ PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------ ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balance at January 1, 1995.............. 1,000 $ 10 $10,242,309 $ -- $10,242,319
Net contribution from parent............ -- -- 100,596 -- 100,596
Net income.............................. -- -- -- 178,490 178,490
----- ---- ----------- ----------- -----------
Balance at December 31, 1995............ 1,000 10 10,342,905 178,490 10,521,405
Net distribution to parent.............. -- -- (1,801,342) -- (1,801,342)
Net income for the period from January
1, 1996 through August 2, 1996....... -- -- -- 440,868 440,868
----- ---- ----------- ----------- -----------
Balance at August 2, 1996................. 1,000 10 8,541,563 619,358 9,160,931
===== ==== =========== =========== ===========
PERIMMUNE HOLDINGS, INC.:
Issuance of common stock of PerImmune
Holdings, Inc. on June 28, 1996...... 585 6 5,844 -- 5,850
Acquisition costs paid through issuance
of common stock (Note 2)............. 8.5 -- 100,000 -- 100,000
Consideration paid in excess of net
assets acquired (Note 2)............. -- -- (105,844) (909,191) (1,015,035)
Net loss for the period from August 3,
1996 through December 31, 1996....... -- -- -- (4,575,320) (4,575,320)
----- ---- ----------- ----------- -----------
Balance at December 31, 1996.............. 593.5 $ 6 $ -- $(5,484,511) $(5,484,505)
===== ==== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-48
<PAGE> 119
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
STATEMENTS OF CASH FLOWS
PERIOD FROM AUGUST 3, 1996 THROUGH DECEMBER 31, 1996, PERIOD FROM JANUARY 1,
1996 THROUGH
AUGUST 2, 1996 AND YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIMMUNE HOLDINGS PREDECESSOR COMPANY
CONSOLIDATED ------------------------------------
--------------------- PERIOD FROM
PERIOD FROM AUGUST 3, JANUARY 1, 1996
1996 THROUGH THROUGH YEAR ENDED
DECEMBER 31, 1996 AUGUST 2, 1996 DECEMBER 31, 1995
--------------------- --------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $(4,575,320) $ 440,868 $ 178,490
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization.................. 298,834 270,148 476,186
Loss on disposal of equipment.................. 1,330 -- 44,342
Decrease (increase) in accounts receivable:
Affiliates................................... (156,721) 2,720,401 991,941
Government................................... 317,372 140,254 (375,722)
Other........................................ 69,742 (439,377) (115,311)
Decrease (increase) in costs and estimated
earnings in excess of billings............... 237,825 (125,687) (158,452)
Increase in inventories........................ (4,840) (57,490) (42,852)
Decrease (increase) in other current assets.... (162,592) 102,105 74,058
Increase (decrease) in accounts payable and
accrued liabilities.......................... 2,062,411 (628,419) (276,783)
Increase in accrued pension liability.......... 112,849 -- --
Increase (decrease) in advance contract
billings..................................... (5,050) (516,568) 132,402
----------- ----------- -----------
Net cash provided by (used in) operating
activities........................................ (1,804,160) 1,906,235 928,299
----------- ----------- -----------
Cash flows from investing activities:
Acquisition costs................................. (1,250,000) -- --
Capital expenditures.............................. (129,280) (104,893) (1,029,395)
----------- ----------- -----------
Net cash used in investing activities............... (1,379,280) (104,893) (1,029,395)
----------- ----------- -----------
Cash flows from financing activities:
Net contribution from (distribution to) parent
company........................................ -- (1,801,342) 100,596
Proceeds from issuance of common stock............ 5,850 -- --
Proceeds from issuance of notes payable........... 5,600,000 -- --
----------- ----------- -----------
Net cash provided by (used in) financing
activities........................................ 5,605,850 (1,801,342) 100,596
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 2,422,410 -- (500)
Cash and cash equivalents at beginning of year...... 1,500 1,500 2,000
----------- ----------- -----------
Cash and cash equivalents at end of year............ $ 2,423,910 $ 1,500 $ 1,500
=========== =========== ===========
Supplementary disclosure of non-cash financing
activities:
Purchase of common stock of PerImmune, Inc. with a
note payable (Note 2).......................... $ 9,234,935 -- --
Acquisition costs paid through issuance of common
stock.......................................... 100,000 -- --
Consideration paid in excess of net assets
acquired....................................... 1,015,035 -- --
=========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-49
<PAGE> 120
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
PerImmune Holdings, Inc. and Subsidiary is composed of PerImmune Holdings,
Inc. (Holdings) and PerImmune, Inc. (the Company or PerImmune). Holdings was
incorporated on June 28, 1996 for the purpose of acquiring the Company in a
leveraged buyout transaction.
Between 1985 and 1996, the Company was owned by Organon Teknika Corporation
(the Parent Company or OTC), a subsidiary of Akzo Nobel, Inc., which is
wholly-owned by Akzo Nobel, NV (Netherlands). Prior to December 20, 1994, the
Company operated as a division of OTC, and was known as Biotechnology Research
Institute (BRI). On December 20, 1994, PerImmune (the Predecessor Company) was
formed as a wholly-owned corporation of OTC with the issuance of 1,000 shares of
common stock in exchange for all the assets and liabilities related to the
PerImmune business. Effective August 3, 1996, the Company was acquired by
Holdings through a leveraged buyout (see Note 2). Holdings has no substantive
operations.
The Company is a research oriented healthcare company that applies
biotechnology and other techniques of modern biology and chemistry to develop,
produce and sell products intended to improve the quality of life by diagnosing,
preventing and treating human disease. The Company's focus is on the development
of human monoclonal antibodies for cancer and infectious disease applications,
as well as, cancer vaccines, specific and non-specific immunotherapy and
cardiovascular disease test products. Historically, the Company's primary
sources of revenue have been research and development contracts with affiliated
companies, revenues generated from government contracts and sales of products
and services. PerImmune markets its products in the United States, Europe and
other geographic regions.
While the Company was held by OTC, it successfully developed a number of
profitable products for the Parent Company including bladder cancer therapeutic,
food pathogen and HIV tests. Most of PerImmune's products are intended for human
use and are, therefore, regulated by the United States Food and Drug
Administration.
Basis of Presentation
The consolidated financial statements as of December 31, 1996 and for the
period from August 3, 1996 through December 31, 1996 include the accounts of
Holdings and the Company. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The financial statements for the year ended December 31, 1995 and for the
period from January 1, 1996 through August 2, 1996 represent the stand-alone
results of operations of PerImmune, Inc., a wholly-owned subsidiary of OTC.
Due to the change in ownership of the Company, the comparability of the
financial statements is affected. In particular, equity has changed
significantly due to the new ownership and debt related to the acquisition. Cash
and cash equivalents is also different as balances are no longer managed by the
former Parent Company. In addition, certain liabilities which were paid for by
the Parent Company and allocated to the division or the subsidiary through the
intercompany accounts have been recognized by the Company subsequent to the LBO
transaction (see Note 3). Also, certain research and development activities
performed prior to the leveraged buyout for affiliates and were reimbursed under
the contractual arrangements described in Note 3, are subsequently performed for
the Company's benefit and are not reimbursed.
F-50
<PAGE> 121
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 materially from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less at the date of investment by the Company.
Inventories
Inventories are stated at the lower of cost or market using the FIFO cost
method.
Plant and Equipment
Plant and equipment are stated at cost. Depreciation on plant and equipment
is computed by the straight-line method over the estimated useful lives of the
assets of 3 to 7 years. Leasehold improvements are amortized on a straight-line
basis over the remaining lease term or asset useful life, whichever is shorter.
Construction in progress represents buildings, leasehold improvements and
other capital expenditures for facilities under construction and machinery
pending installation. This includes the costs of construction, plant and
machinery and costs related to obtaining appropriate regulatory approvals.
Construction in progress costs are transferred to other plant and equipment
categories when the construction/installation is completed, appropriate
regulatory approvals have been obtained and the asset is ready for use.
Acquisition Costs
Acquisition costs represent costs incurred related to the leveraged buyout
transaction (see Note 2). Amortization of acquisition costs is computed on a
straight-line basis over 5 years.
Income Taxes
The Company was included in the Akzo Nobel, Inc. consolidated Federal
income tax return for the year ended December 31, 1995, and for the period
January 1, 1996 through August 2, 1996. The Company will file a separate
consolidated Federal income tax return for the period August 3, 1996 through
December 31, 1996. Prior to August 3, 1996, deferred income taxes were reflected
in stockholders' equity (deficit).
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance for any tax benefits which are
not expected to be realized. The effect on deferred tax assets and liabilities
of changes in tax rates is recognized in the period that such tax rate changes
are enacted.
Fair Value of Financial Instruments
The carrying amount of current financial instruments approximate fair value
because of the short-term nature of these instruments. The Company has notes
payable related to the leveraged buyout for which it is
F-51
<PAGE> 122
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
not practicable to estimate the fair value of these notes since they are not
traded, and no quoted values are readily available for similar financial
instruments. However, management believes that there has been no permanent
impairment in the value of these notes.
Stock-based Compensation
The Company accounts for share option issuances in accordance with the
provisions of APB No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, deferred compensation is recorded to the extent that
the market value of the underlying stock exceeds the exercise price on the date
of grant. Such deferred compensation is amortized over the respective vesting
periods of such option grants. On January 1, 1996, the Company adopted the
disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation, which allows entities to continue to apply the provisions of APB
No. 25 for financial statement reporting purposes and provide pro forma net
income (loss) footnote disclosures for employee stock option grants made in 1995
and 1996 as if the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the financial statement
reporting provisions of APB No. 25 and to provide the pro forma disclosure
provisions of SFAS No. 123. Transactions with non-employees, in which goods or
services are the consideration received for the issuance of equity instruments,
are accounted for under the fair-value based method defined in SFAS No. 123 (see
Note 11).
Revenue Recognition -- Contract Research and Development and Licensing
Agreements
The Company has entered into various research and development and licensing
agreements (see Notes 3 and 4). Research and development revenue from
cost-reimbursement agreements is recorded as the related expenses are incurred,
up to contractual limits and when the Company meets its performance obligations
under the respective agreements. Contract revenue is recognized under other
agreements when milestones are met and the Company's significant performance
obligations have been satisfied in accordance with the terms of the respective
agreements. Cash received that is related to future performance under such
contracts is deferred and recognized as revenue when earned.
The Company engages in research and development contracts with Organon
Teknika International (OT BV) and Organon International (OI). Through August 2,
1996, contract revenue is recorded at negotiated rates per direct labor hour
plus material and supplies and a 7% fee. Revenue is recorded as earned as the
contract direct labor hours are incurred and when materials and supplies are
purchased. Subsequent to August 2, 1996, the contract revenue is recorded on a
cost-plus-fixed-fee basis.
The Company also engages in contracts with commercial entities and agencies
of the U.S. government (Department of Defense and the National Institutes of
Health) on either a cost-plus-fixed-fee, fixed price or a
cost-plus-percentage-fee basis. Revenue on cost-plus-fixed-fee, fixed price and
cost-plus-percentage-fee contracts is recognized based on the total direct and
indirect costs incurred during the period to total estimated costs using the
percentage-of-completion method. Estimates to complete are reviewed periodically
and revised as required in the period the revision is determined. Provisions are
made for the full amount of anticipated losses, if any, on all contracts in the
period in which they are first known and estimable. Contracts with the U.S.
government are subject to government audit upon contract completion and
therefore, all contract costs are potentially subject to adjustment, even after
reimbursement. Management believes adequate provisions for such adjustments, if
any, have been made in the financial statements. Expense recovery rates have
been audited through 1995.
F-52
<PAGE> 123
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development, Patent and Royalty Costs
Research and development, patent and royalty costs are expensed as
incurred.
Concentration of Credit Risk
The Company performs research and development services to both affiliated
and non-affiliated entities. The Company generally does not require collateral
or other security in extending credit to its customers. The Company had three
customers which contributed ten percent or more of revenues. OTC contributed 7%,
41% and 55% of total revenues in the period from August 3, 1996 through December
31, 1996, the period from January 1, 1996 through August 2, 1996 and the year
ended 1995, respectively. The U.S. Federal Government contributed 62%, 28% and
34% of total revenues in the period from August 3, 1996 through December 31,
1996, the period from January 1, 1996 through August 2, 1996 and the year ended
1995, respectively. In addition, Baxter Healthcare Corporation contributed 14%
of the Company's revenue for the period from August 3, 1996 through December 31,
1996.
(2) LEVERAGED BUYOUT
In May 1996, Holdings engaged an investment advisor to advise Holdings with
regards to the purchase of PerImmune from Akzo Nobel, Inc., for which the
investment advisor's fee totaled $1,250,000 of which $1,225,000 is included in
accounts payable as of December 31, 1996. The investment advisor also received
8.5 shares of the Company's common stock in exchange for funding certain related
legal expenses on behalf of the Company totaling $100,000. The shares are
protected from dilution through certain future third-party financings.
Effective August 3, 1996, 100% of the Company's common stock was acquired
by Holdings from OTC in exchange for a $9,234,935 note payable (see Note 8). The
transaction was accounted for in accordance with EITF No. 88-16, Basis in
Leveraged Buyout Transactions. Because the transaction was wholly financed by
OTC, all such consideration was determined to be nonmonetary and, under the
provisions of EITF 88-16, the assets and liabilities of PerImmune were carried
over at historical cost.
Concurrent with the leveraged buyout, the ownership rights of certain
patents and other technology rights developed under the research and development
contracts with affiliates, which pertain to the business of PerImmune, were
transferred to Holdings. Under the terms of the transfer, Holdings is required
to make certain milestone payments of up to $10 million if specific future
conditions are met, and will make payments of between 5% and 7.5% of net product
sales and 50% of license revenue. Any future milestone payments will be recorded
as research and development expense when the milestone is achieved.
(3) RELATIONSHIPS WITH RELATED PARTIES
Akzo Nobel, NV
Prior to the leveraged buyout of PerImmune, ownership rights or patents
developed under the research and development contracts with OT BV and OI
belonged to these affiliates. Expenses incurred by the Company in developing and
obtaining these patents plus a fee (Note 1) were charged to Akzo Nobel, NV and
were recorded as contract research and development revenue. These amounts are
shown as accounts receivable from affiliates prior to August 3, 1996.
Organon Teknika Corporation
Prior to the incorporation of PerImmune, Inc., OTC provided certain
accounting, computer and other administrative services to PerImmune for a
management fee which was based on PerImmune's proportionate share of total OTC
expenses using a formula considering revenues, property and equipment and
payroll factors. OTC also paid all payroll taxes, medical claims, pension and
other employee benefit expenses which
F-53
<PAGE> 124
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) RELATIONSHIPS WITH RELATED PARTIES (CONTINUED)
were allocated to PerImmune and other affiliates based on the total wages of the
respective participating entities. In addition, OTC paid PerImmune's payroll,
bonuses, general insurance, relocation and personal property tax expenses, which
were charged to PerImmune on a specific identification basis. OTC also provided
materials at its cost for certain products for resale by PerImmune. Subsequent
to PerImmune, Inc.'s incorporation, the Company was responsible for paying its
own payroll taxes, personal property taxes and certain other items. Amounts
arising from the transactions described above were treated as expenses and
contributions from Parent Company by PerImmune. Product sales to OTC were
$432,645, $605,703 and $643,434 in the period from August 3, 1996 through
December 31, 1996, the period from January 1, 1996 through August 2, 1996 and
the year ended 1995, respectively.
Effective August 3, 1996, Holdings and OTC entered into a services
agreement to provide each party, including PerImmune, with mutually agreed-upon
services. OTC will provide Holdings for varying periods of time with such
services as employee benefit plan administration, administrative regulatory
support, patent and trademark prosecution and computer and other services.
Holdings will provide OTC with various product support and research services.
Each party is compensated for services as defined in the agreement, generally
cost plus a fee. Revenues and costs related to the research activities are
recorded as affiliates revenue and costs in the statement of operations.
(4) CONTRACTS AND AGREEMENTS
PerImmune has a license agreement with the Arch Development Corporation
(Arch) to make and sell products under the patent rights for Apotek Lp(a)
developed at the University of Chicago. The agreement requires the Company to
pay Arch a royalty of 4 percent of product sales. PerImmune is also
collaborating with Stanford University to develop an active-specific
immunotherapy vaccine for low grade B-cell lymphomas.
Agreement with Baxter
On January 1, 1996, PerImmune entered into a research collaboration and
license agreement with Baxter Healthcare Corporation (Baxter) whereby the
Company agreed to provide certain research, development and pilot manufacturing
services for Baxter in exchange for reimbursement of research and development
costs, milestone payments and certain royalty payments. The Company received a
non-refundable milestone payment of $1,500,000 in January 1996 and is reimbursed
for actual costs incurred plus a fee of 16% during the term of the agreement.
Baxter is also obligated to make up to $3,000,000 in additional milestone
payments, if the Company achieves certain stages of U.S. and European regulatory
approvals for the serotherapy products for infectious and autoimmune diseases
under development. In addition, the Company earns a royalty ranging between 4%
and 8% of gross profit with a minimum royalty ranging between 2% and 4% of net
sales, as defined in the agreement, on sales of products depending on whether
the product is a result of previously existing technology of the Company or new
technology resulting from this development agreement. As of December 31, 1997,
no royalty or additional milestone payments has been earned. The agreement has a
term of three years with an option for a fourth year. Either party may terminate
this agreement at any time without cause. All patents and technology developed
under this agreement are the property of Baxter.
Other Contracts and Agreements
The Company has entered into various other licensing and research and
development agreements whereby they are committed to participate in research and
development projects, either on a best efforts basis or upon attainment of
certain performance milestones, as defined, or both, for various periods unless
canceled by the respective parties. Such future amounts to be paid to the
Company will primarily be determined on a cost-plus basis, and are subject to
specific performance criteria.
F-54
<PAGE> 125
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INVENTORIES
Inventories at December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
Finished goods............................................ $186,837
Work-in-process........................................... 1,337
Raw materials............................................. 187,314
--------
$375,488
========
</TABLE>
(6) PLANT AND EQUIPMENT
Plant and equipment at December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
Leasehold improvements.................................. $ 990,573
Computers............................................... 453,946
Machinery and equipment................................. 3,735,691
Construction in progress................................ 5,935,047
-----------
11,115,257
Less accumulated depreciation and amortization.......... 3,831,542
-----------
$ 7,283,715
===========
</TABLE>
(7) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
The following is a summary of costs and estimated earnings in excess of
billings on uncompleted contracts as of December 31, 1996:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts..................... $28,548,030
Estimated earnings.......................................... 2,154,438
-----------
Total costs and estimated earnings.......................... 30,702,468
Less:
Billings to date.......................................... 29,836,800
Allowance for losses...................................... 116,629
-----------
$ 749,039
===========
</TABLE>
(8) DEBT OBLIGATIONS
Current notes payable at December 31, 1996 is summarized as follows:
<TABLE>
<S> <C>
Secured promissory note -- OTC, 8% interest, due January
1997...................................................... $3,600,000
Working capital secured note -- OTC, 8% interest, due August
1997...................................................... 2,000,000
----------
$5,600,000
==========
</TABLE>
In August 1996, in connection with the leveraged buyout, Holdings issued an
8% secured promissory note to OTC for $9,234,935 to purchase the outstanding
common stock of PerImmune, Inc. The note matures in August 1998. In addition,
Holdings issued an 8% secured note for a credit facility permitting draws of
$720,000 per month up to $3,600,000 and a $2,871,532 working capital facility to
provide capital for operations, both with OTC. The Company has borrowed
$3,600,000 and $2,000,000, respectively, against the facilities as of December
31, 1996. These notes mature on January and August 1997, respectively, when all
principal and accrued interest is due. The note which matured in January 1997
was repaid in full at that time.
F-55
<PAGE> 126
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) DEBT OBLIGATIONS (CONTINUED)
These notes are all secured by the patents, patent applications and trademarks
acquired in the leveraged buyout. The secured promissory note is also secured by
the plant and equipment acquired in the leveraged buyout.
(9) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
Accrued payroll............................................. $ 166,853
Accrued bonuses............................................. 313,004
Accrued interest -- OTC promissory note..................... 306,990
Other....................................................... 600,487
----------
$1,387,334
==========
</TABLE>
(10) EMPLOYEE RETIREMENT BENEFIT PLANS
Pension Plan
The Company has a noncontributory defined benefit pension plan (the Plan)
covering substantially all of its employees. In December 1996, the Company
decided to establish a noncontributory defined benefit pension plan retroactive
to the date of the leveraged buyout. This plan has terms similar to those of the
Akzo Nobel Retirement Plan (ANRP) and covers substantially all of the Company's
employees. Under the terms of this plan employees are given credit for prior
service. Pursuant to the term of the purchase agreement, the fair value of the
plan assets equal to the present value of the accumulated pension benefit
accrued as determined by an actuarial valuation as of the date of the leveraged
buyout were transferred from the ANRP to PerImmune's new pension trust in April
1997.
The following table sets forth the funded status of the plan at December
31, 1996 and the composition of net periodic pension cost and significant
assumptions for the period from August 3, 1996 through December 31, 1996:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of approximately $1,133,561............................ $1,362,971
Effect of anticipated increase in compensation levels..... 718,744
----------
Projected benefit obligation................................ 2,081,715
Plan assets at fair value................................... 1,238,260
----------
Excess of projected benefit obligation over plan assets..... (843,455)
Unrecognized prior service cost............................. --
Unrecognized net investment gain............................ (92,424)
----------
Total pension liability..................................... $ (935,879)
==========
Net periodic pension cost includes the following components:
Service cost -- benefits earned during the period......... $ 93,606
Interest cost on projected benefit obligation............. 61,916
Actual return on assets................................... (135,097)
Net amortization and deferred investment gain............. 92,424
----------
Net periodic pension cost................................... $ 112,849
==========
</TABLE>
F-56
<PAGE> 127
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) EMPLOYEE RETIREMENT BENEFIT PLANS (CONTINUED)
Significant assumptions used were as follows:
<TABLE>
<S> <C>
Discount rate............................................... 7.5%
Rate of increase in compensation levels (graded by age of
participant).............................................. 4.0 to 10.5%
Expected rate of return of assets........................... 9.5%
============
</TABLE>
Retirement Savings Plan
The Company maintains a defined-contribution savings plan under Section
401(k) of the Internal Revenue Code. The plan covers substantially all full-time
employees. Participating employees may defer a portion of their pretax earnings
up to the Internal Revenue Service annual contribution limit. The Company
matches employee contributions according to a specified formula. The Company's
matching contributions totaled $72,779, $101,890 and $168,040 in the period from
August 3, 1996 through December 31, 1996, the period from January 1, 1996
through August 2, 1996, and the year ended 1995, respectively.
(11) STOCKHOLDERS' EQUITY
Common Stock
On December 20, 1994, PerImmune, Inc. was incorporated and authorized
100,000 shares and issued 1,000 shares of common stock.
On June 28, 1996, PerImmune Holdings, Inc. was formed. A total of 1,000
shares of common stock were authorized and 585 shares were issued for $105,850.
Holding's investment advisor was also issued 8.5 shares of common stock in 1996
in connection with the leveraged buyout (see Note 2).
Options
In August 1996, Holdings granted 255 stock options to members of
management. The options vest over three years and expire ten years from the date
of grant. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding at August 3, 1996....................... -- $ --
Granted............................................. 255 2,725
Exercised........................................... -- --
Canceled............................................ -- --
--- ------
Outstanding at December 31, 1996.................... 255 $2,725
=== ======
Options exercisable at December 31, 1996............ -- --
=== ======
</TABLE>
Options outstanding and exercisable by price range as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- -----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE AS OF REMAINING EXERCISE AS OF EXERCISE
PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE PRICES DECEMBER 31, 1996 PRICES
-------- ----------------- ---------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$2,725 255 9.75 years $2,725 -- --
====== === ========== ====== === ======
</TABLE>
F-57
<PAGE> 128
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma Option Information
The per share weighted average fair value of all stock options granted
during 1996 was $1,377 on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: expected
dividend yield 0%, risk-free interest rate of 6.28% and an expected life of 3
years.
The Company applies APB No. 25 and related interpretations in accounting
for its stock options granted to employees. Accordingly, the Company has
recognized no compensation expense in connection with its stock option grants
for the period from August 3, 1996 through December 31, 1996, the period from
January 1, 1996 through August 2, 1996, and the year ended 1995. Had
compensation expense been determined based on the fair value at date of grant
for its stock option under SFAS No. 123, net income (loss) would have been
reported as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 3, 1996 JANUARY 1, 1996
THROUGH THROUGH YEAR ENDED
NET INCOME (LOSS) DECEMBER 31, 1996 AUGUST 2, 1996 1995
----------------- ----------------- --------------- ----------
<S> <C> <C> <C>
As reported....................................... $(4,575,320) $440,868 $178,490
----------- -------- --------
Pro forma......................................... $(4,604,552) $440,868 $178,490
=========== ======== ========
</TABLE>
Pro forma net income (loss) reflects only options granted from August 31,
1996 through December 31, 1996. The effects of applying SFAS No. 123 in the pro
forma net income (loss) above may not be representative of the effects on such
pro forma information for future years.
(12) COMMITMENTS
PerImmune leases laboratory, office and manufacturing facilities and
equipment under noncancellable operating leases which expire at various times
through January 1, 2007 (including the lease transaction described in Note 14
which is also reflected in the amounts below).
Future minimum lease payments under these leases are as follows:
<TABLE>
<S> <C>
1997............................................ $ 1,744,809
1998............................................ 1,797,334
1999............................................ 1,771,120
2000............................................ 1,798,251
2001............................................ 1,849,638
Thereafter...................................... 10,298,844
-----------
$19,259,996
===========
</TABLE>
Rent expense was $588,311 for the period from August 3, 1996 through
December 31, 1996, $782,088 for the period from January 1, 1996 through August
2, 1996 and $1,238,370 for the year ended December 31, 1995. Rent expense is
included in both selling, general and administrative expenses and costs of
contracts in the statements of operations.
(13) INCOME TAXES
The Company was included in the Akzo Nobel, Inc., consolidated Federal
income tax return for the year ended December 31, 1995, and for the period
January 1, 1996 through August 2, 1996. They are presented below, however, on a
separate company basis. The Company will file a separate consolidated Federal
income
F-58
<PAGE> 129
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) INCOME TAXES (CONTINUED)
tax return for the period August 3, 1996 through December 31, 1996. The
provision for income tax expense on earnings before income taxes is summarized
below:
<TABLE>
<CAPTION>
PERIMMUNE HOLDINGS
CONSOLIDATED PREDECESSOR COMPANY
------------------ --------------------------
PERIOD FROM PERIOD FROM
AUGUST 3, JANUARY 1,
1996 THROUGH 1996 THROUGH
DECEMBER 31, AUGUST 2, YEAR ENDED
1996 1996 1995
------------------ ------------ ----------
<S> <C> <C> <C>
Current................................... $ -- $68,259 $355,688
Deferred.................................. -- -- --
------- ------- --------
Total........................... $ -- $68,259 $355,688
======= ======= ========
</TABLE>
The amount computed by applying the Federal corporate income tax rate of
34% to earnings before income taxes is reconciled to the provision for income
taxes as follows:
<TABLE>
<CAPTION>
PERIMMUNE
HOLDINGS
CONSOLIDATED PREDECESSOR COMPANY
------------ --------------------------
PERIOD FROM PERIOD FROM
AUGUST 3, JANUARY 1,
1996 THROUGH 1996 THROUGH
DECEMBER 31, AUGUST 2, YEAR ENDED
1996 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Income tax computed at statutory rates......... $(1,555,609) $ 173,103 $181,621
State income taxes, net of Federal tax
benefit...................................... (205,675) 23,313 25,243
Expenses not deductible for tax purposes....... 1,623 3,036 3,818
Valuation allowance adjustment................. 1,759,661 (131,193) 145,006
----------- --------- --------
$ -- $ 68,259 $355,688
=========== ========= ========
</TABLE>
Deferred income tax (assets)and liabilities as of December 31, 1996 are
summarized as follows:
<TABLE>
<S> <C>
Excess of book over tax (tax over book) basis of assets..... $ (193,529)
Allowance for doubtful accounts and other reserves.......... (11,539)
Accrued expenses............................................ (520,257)
Non-SRLY net operating loss carryovers...................... (1,802,118)
Other....................................................... (11,567)
-----------
(2,539,010)
Valuation allowance......................................... 2,539,010
-----------
$ --
===========
</TABLE>
Prior to the leveraged buyout, the provision for Federal and state income
taxes is recorded using the overall effective tax rate of the consolidated group
applied to the Company's pre-tax earnings before adjustments for permanent
differences. Deferred income tax assets and liabilities are recorded for the
Company's temporary differences using the same effective tax rate. Prior to the
leveraged buyout, the total provision for income taxes represents income taxes
currently payable to the former Parent Company and has been treated as
contributions from parent.
F-59
<PAGE> 130
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) INCOME TAXES (CONTINUED)
At December 31, 1996, the Company has a net operating loss carryforward for
both Federal and state purposes of $4,681,000 which expires in the year 2011.
This net operating loss carryforward relates to the period August 3, 1996
through December 31, 1996 and as such, is not limited under existing tax laws.
However, this carryforward may be significantly limited under the Internal
Revenue Code as a result of future ownership changes by the Company.
It is more likely than not that the net deferred tax assets reflected above
will not be realized in future years. Therefore, a valuation allowance of
$2,539,010 has been established for the year ended December 31, 1996. The
$478,887 difference between the $2,107,355 net increase in the valuation
allowance from December 31, 1995 to December 31, 1996, and the $1,628,468
increase that reconciles expected to actual tax expense in 1996, is related to
the increase in deferred tax assets which results from the LBO transaction.
Future reductions of the valuation allowance will be reported as reductions of
income tax expense in the period(s) in which it becomes more likely than not
that the tax benefits will be realized.
(14) SUBSEQUENT EVENTS
Sale Leaseback of Facility
On January 15, 1997, PerImmune exercised its option to purchase the land
and building it occupies in Rockville, Maryland for a pre-established price of
$7.9 million. Concurrent to the purchase, PerImmune sold the property to a
third-party (Buyer). The sale included part of the building, improvements,
certain equipment and other items previously owned by the Company and shown in
Plant and Equipment at December 31, 1996. The sales price excluding settlement
and transfer costs was $14,150,000, and the loss resulting from this transaction
was approximately $350,000, after consideration of estimated costs for repairs
described below. The Company received approximately $5.2 million at the closing
of the transaction. This transaction will be treated as a sale-leaseback. As
such, the plant and equipment previously owned by the Company will be removed
from the balance sheet and the loss will be recognized immediately.
In conjunction with the sale, PerImmune has agreed to make certain repairs
at its own expense and to obtain the release of certain liens against the
property. To ensure compliance with these provisions of the agreement, PerImmune
deposited $500,000 and $100,000 into escrow accounts. In addition, PerImmune has
agreed to deposit, on a monthly basis from February 1997 through January 2002,
$3,333 for costs to be used for elevator repairs and refurbishment. The Company
is entitled to any amounts not spent for the described purpose.
PerImmune also issued to Buyer in connection with the sale leaseback
transaction a warrant for the purchase of 25,000 shares of PerImmune common
stock if the company consummates an initial public offering (IPO) or if certain
other events occur, such as a capital reorganization, recapitalization,
dissolution or liquidation. The warrants are exercisable on or for three years
following the date of one of the previously described events. The warrants
expire in July 1999 if one of the above events has not occurred. The warrant
purchase price in an IPO would be the offering price and in one of the other
events described above, the price would be determined by a formula described in
the warrant agreement.
In January 1997, Holdings issued three uncollateralized, non-interest
bearing promissory notes, for a total face amount of $232,500, to its advisors
on the sale leaseback transaction (see note 6). Each promissory note is
convertible into two shares of Holdings $0.01 par value common stock and have no
specified maturity date.
F-60
<PAGE> 131
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) SUBSEQUENT EVENTS (CONTINUED)
Syncor Agreement
On April 23, 1997, Holdings issued 100 shares of its Series A Mandatorily
Redeemable Convertible Preferred Stock (par value .01/share) (Series A) to
Syncor International Corporation (Syncor) for $4.5 million. Dividends are
payable if and when declared by the Board of Directors at the rate of 7% of the
Liquidation Preference per annum, where the Liquidation Preference is initially
defined as $45,000, subject to certain adjustments. Each share of Series A may
be converted into common stock before the Redemption Date (as defined below) at
the option of the holder, or is automatically converted on the date of a
qualifying initial public offering, using a conversion rate as defined in the
agreement. The Company shall redeem the Series A five years after the issuance
date (the Redemption Date) in the event that all shares have not been converted
by this date. If such redemption occurs, the redemption price shall equal the
amount of the Liquidation Preference plus any declared but unpaid dividends. In
the event of liquidation or dissolution, Syncor shall be entitled to be paid
from the assets of Holdings, in preference to the common stockholders, but on an
equal basis with Series B stockholders (see below), the Liquidation Preference
plus all declared but unpaid dividends. Holdings shall also have the right of
first refusal to repurchase these shares should Syncor wish to sell them. In
connection with this issuance, Syncor and the holders of Holding's common stock
were also granted certain registration rights as contained in the Registration
Rights Agreement.
On April 1, 1997, the Company also entered into a distribution agreement
for certain products with Syncor. Under this agreement, Syncor will pay the
Company 50% of net sales, as defined, and right of return exists in certain
situations. The Company is obligated annually to spend 15% of sales of products
covered by this agreement on research and development to improve upon the
existing or develop new products. The Company will also reimburse Syncor for all
expenses related to marketing these products up to $1.5 million, plus 50% of
amounts over $1.5 million provided the expenditures are in accordance with the
annual market plan as prepared by the two companies. This agreement has a term
of five years and is renewable for two additional two-year terms.
Mentor Agreement
On June 16, 1997, the Company issued 20 shares of Series B Mandatorily
Redeemable Convertible Preferred Stock (par value .01/share) (Series B) to
Mentor Corporation (Mentor) for $1 million. Dividends are payable if and when
declared by the Board of Directors at the rate of 7% of the Liquidation
Preference per annum, where Liquidation Preference is defined as $50,000,
subject to certain adjustments. Each share of Series B shall have the same
rights, preferences and terms as Series A described above. Series A and B shall
have equal preference.
On June 16, 1997, the Company also entered into a distribution agreement
for certain products with Mentor with an initial term of 5 years. Under this
agreement, Mentor will pay the Company 50% of net sales, as defined in the
agreement. The Company is obligated to provide up to 12,000 units of products
per year to be used by Mentor for promotional purposes, which will not be
reimbursed by Mentor.
F-61
<PAGE> 132
- ---------------------------------------------------------
- ---------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS 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, THE SELLING STOCKHOLDER
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY
JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 8
The Company................................... 19
Use of Proceeds............................... 20
Dividend Policy............................... 20
Capitalization................................ 21
Dilution...................................... 22
Pro Forma Consolidated Financial
Information................................. 23
Selected Financial Data....................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 26
Business...................................... 30
Management.................................... 53
Principal and Selling Stockholders............ 60
Description of Capital Stock.................. 62
Shares Eligible for Future Sale............... 66
Underwriting.................................. 67
Legal Matters................................. 68
Experts....................................... 68
Available Information......................... 69
Index to Consolidated Financial Statements.... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
SHARES
INTRACEL CORPORATION
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with the issuance and distribution of the
securities to be registered hereunder, all of which will be paid by the
Registrant, will be substantially as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
<S> <C>
Commission Registration Fee................................. $16,963
*Nasdaq National Market Filing Fee.......................... $ +
*Blue Sky Fees and Expenses (including legal fees).......... $ +
*Accounting Fees and Expenses............................... $ +
*Legal Fees and Expenses.................................... $ +
*Printing and Engraving..................................... $ +
*Registrar and Transfer Agent's Fees........................ $ +
*Underwriters' Expenses..................................... $ +
*Miscellaneous Expenses..................................... $ +
-------
Total............................................. $ +
=======
</TABLE>
- ---------------
* Estimated
+ To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty as a director, except for
liability, to the extent imposed by applicable law, for: (i) any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) liability for payments of dividends or stock purchases
or redemptions in violation of Section 174 of the Delaware Law; or (iv) any
transaction from which the director derived an improper personal benefit. The
Bylaws provide for the indemnification of officers and directors to the full
extent permitted by the DGCL, as it now exists or may in the future by amended
(but, in the case of such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than permitted
prior thereto), or by other applicable law as then in effect, against all
expenses, liabilities and losses actually and reasonably incurred or suffered in
connection with service for or on behalf of the Company, including payment of
expenses in defending an action or proceeding upon receipt of any undertaking by
the person indemnified to repay such payment if it is ultimately determined that
such person is not entitled to indemnification. Such indemnification will
continue to an indemnified person who has ceased to be a director, officer,
employee or agent and will inure to the benefit of the indemnified person's
heirs, executors and administrators.
The Company's Bylaws provide that the Company may maintain insurance, at
its expense, to protect itself and any indemnified party against any expense,
liability or loss, whether or not the Company would have the power to indemnify
such person against such expense, liability or loss under the DGCL. The Company,
without further stockholder approval, may enter into contracts with any
indemnified person in furtherance of the indemnification provisions contained in
the Bylaws and may create a trust fund, grant a security interest or use other
means (including without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in the
Bylaws.
The Company has agreed to indemnify the Underwriters and their controlling
persons, and the Underwriters have agreed to indemnify the Company and its
controlling persons, against certain liabilities, including liabilities under
the Securities Act. Reference is made to the Underwriting Agreement filed as
Exhibit 1 hereto.
II-1
<PAGE> 134
For information regarding the Company's undertaking to submit to
adjudication the issue of indemnification for violation of the securities, see
Item 17 hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
All references in this Item 15 to common stock reflect a 2-for-1 split
effective December 31, 1997.
COMMON STOCK
In 1996, the Company sold 3,224 shares of common stock in exchange for
$8,061, pursuant to the exercise of stock options. The issuance of such
securities was exempt from registration under Section 4(2) of or Rule 701 under
the Securities Act.
In 1997, the Company sold 1,208,972 shares of common stock in exchange for
$5,440,370, and issued 195,820 shares of common stock in exchange for $862,817
pursuant to the exercise of stock warrants. The issuance of such securities was
exempt from registration under Section 4(2) of or Rule 701 under the Securities
Act.
In January 1998, in connection with the Merger, the Company issued
5,478,654 shares of common stock. The issuance of such securities was exempt
from registration under Section 4(2) of the Securities Act.
In the first quarter of 1998, the Company issued 70,024 shares of common
stock in exchange for $315,104 in underwriting costs associated with the
Company's 1997 sale of common stock. The issuance of such securities was exempt
from registration under Section 4(2) of the Securities Act.
In April 1998, the Company issued 40,000 shares of common stock in exchange
for $100,000 pursuant to the exercise of stock options. The issuance of such
securities was exempt from registration under Section 4(2) of the Securities
Act.
OPTIONS AND WARRANTS
Between January 1995 and April 1998, the Company issued options to purchase
an aggregate of 708,000 shares of common stock to certain of its officers,
directors and key employees under the 1989 Intracel Stock Option Plan and the
1990-91 Intracel Stock Option Plan. The issuance of such securities was exempt
from registration under Section 4(2) of or Rule 701 under the Securities Act.
In September 1995, the Company issued Warrants to purchase 172,924 shares
of common stock at an exercise price of $4.00 per share. The issuance of such
securities was exempt from registration under Rule 506 of Regulation D under the
Securities Act.
Between November 1995 and June 1996, the Company issued Warrants to
purchase 847,594 shares of common stock at an exercise price of $7.00 per share,
of which 159,074 terminated in November 1997. The issuance of such securities
was exempt from registration under Section 4(2) of the Securities Act.
In January 1998, the Company issued Warrants to purchase 679,341 shares of
common stock at an exercise price of $4.50 per share. The issuance of such
securities was exempt from registration under Section 4(2) of the Securities
Act.
In April 1998, the Company issued Warrants to purchase in the aggregate,
98,132 shares of common stock at an exercise price of $7.64 per share. The
issuance of such securities was exempt from registration under Section 4(2) of
the Securities Act.
PREFERRED STOCK
In September and December 1995, the Company issued an aggregate of 668,750
shares of Series A-1 preferred stock, in exchange for $5,350,000. Such preferred
stock will convert into 1,364,093 shares of Common Stock upon consummation of
the Offering. The issuance of such securities was exempt from registration under
Rule 506 of Regulation D under the Securities Act.
II-2
<PAGE> 135
In March 1997, the Company issued an aggregate of 40,000 shares of Series
A-2 preferred stock in exchange for the June 1996 $2,000,000 Subordinated
Secured Promissory Note, accrued interest and transaction expenses, and a cash
payment of $1,732,740. The issuance of such securities was exempt from
registration under Section 4(2) of the Securities Act.
In June 1997, the Company issued an aggregate of 139,390 shares of Series
A-3 preferred stock in exchange for 139,390 shares of Series A-1 preferred
stock. Such preferred stock will convert into 309,873 shares of common stock
upon consummation of the Offering. The issuance of such securities was exempt
from registration under Section 4(2) of the Securities Act.
In January 1998, in connection with the Merger, the Company issued 100
shares of Series B-1 preferred stock and 120 shares of Series B-2 preferred
stock to former holders of PerImmune Holdings' capital stock. Such Preferred
Stock will convert into 992,907 shares and 1,146,074 shares, respectively, of
common stock upon consummation of the Offering. The issuance of such securities
was exempt from registration under Section 4(2) of the Securities Act.
PROMISSORY NOTES
In March 1995, the Company issued a Note in the principal amount of
$700,000. The issuance of such securities was exempt from registration under
Section 4(2) of the Securities Act.
In October 1995, the Company issued a Note and a contingent Note in the
aggregate principal amount of $1,500,000, for the purchase of certain assets of
Zymmune Diagnostic Systems, Inc. The issuance of such securities was exempt from
registration under Section 4(2) of the Securities Act.
In November 1995, the Company issued a Senior Term Note in the principal
amount of $9,000,000. The issuance of such securities was exempt from
registration under Section 4(2) of the Securities Act.
In December 1995, the Company issued a Subordinated Secured Promissory Note
in the principal amount of $6,265,000, at a discount of $1,565,000. The issuance
of such securities was exempt from registration under Section 4(2) of the
Securities Act.
In June 1996, the Company issued two Subordinated Secured Promissory Notes,
in the aggregate principal amount of $6,000,000, at a discount of $40,000. The
issuance of such securities was exempt from registration under Section 4(2) of
the Securities Act.
In November 1997, the Company issued a Note in the principal amount of
$713,340. The issuance of such securities was exempt from registration under
Section 4(2) of the Securities Act.
In April 1998, the Company issued a Promissory Note in the aggregate
original principal amount of $9,000,000. The issuance of such securities was
exempt from registration under Section 4(2) of the Securities Act.
II-3
<PAGE> 136
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
I. EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
1 Underwriting Agreement by and among the Representatives, the
Selling Stockholder and the Company.+
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended.+
3.2 Bylaws of the Company.+
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Common Stock Certificate.+
5 Opinion of Morrison & Foerster LLP.+
10.1 Lease, dated January 15, 1997, between PW Acquisitions 1,
LLC and PerImmune, Inc.
10.2 Lease Agreement, dated April 30, 1991, between Ward
Corporation and Organon Teknika Corporation.
10.3 Commercial Lease Agreement, dated June 1, 1993, between
Rowley Enterprises, Inc. and Polymer Technology
International for the property located at 1871 NW Gilman
Blvd., Issaquah, Washington.
10.4 Lease Agreement, dated August 22, 1988, between Issaquah #1
Limited Partnership and Baxter Healthcare Corporation for
the premises located at I-90 Lake Place, 2005 N.W. Sammish
Road, Issaquah, Washington.
10.5 Lease, dated February 1, 1998, between P.K. Projects Ltd.
and Intracel Corporation for the premises located at
Commerce Parkway, Richmond, British Colombia.
10.6 Agreement and Plan of Reorganization, dated November 26,
1998, among PerImmune Holdings, Inc., Intracel Corporation
and Intracel Acquisition Sub, Inc.
10.7 Employment Agreement, dated January 2, 1998, between Michael
G. Hanna, Jr. and Intracel Corporation.
10.8 Employment Agreement, dated January 2, 1998, between Simon
R. McKenzie and Intracel Corporation.
10.9 Employment Agreement between Daniel Reale and Intracel
Corporation.
10.10 Employment Agreement between Persis Strong and Intracel
Corporation.+
10.11 Employment Agreement between Lawrence Bloom and Intracel
Corporation.+
10.12 Employment Agreement between Carl Foster and Intracel
Corporation.+
10.13 Preferred Stock Purchase Agreement, dated as of March 12,
1997, between Intracel Corporation and Northstar High Total
Return Fund.
10.14 Note and Series A- Warrant Purchase Agreement, dated as of
June 21, 1996, between Intracel Corporation and Northstar
Advantage High Total Return Fund.
10.15 Note and Series A-III Warrant Purchase Agreement, dated as
of June 11, 1996, between Intracel Corporation and
CoreStates Enterprise Fund.
10.16 Note and Warrant Purchase Agreement, dated as of April 1,
1998, between Intracel Corporation and Northstar High Yield
Fund and Northstar High Total Return Fund II.
10.17 Loan and Authority Agreement, dated September 30, 1997,
between the Washington Economic Development Finance
Authority and Intracel Corporation.
10.18 Tax Certificate and Regulatory Agreement, dated September
11, 1997 between the Washington Economic Development Finance
Authority and Intracel Corporation.
10.19 Stock Purchase Agreement, dated July 1, 1996, between
PerImmune Holdings, Inc. and Organon Teknika Corporation.
10.20 Agreements between the Intracel Corporation and Thomas
Jefferson University.
10.21 Product Development and License Agreement, between
PerImmune, Inc, and Sigma Diagnostics, Inc.
</TABLE>
II-4
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
10.22 Research, Collaboration and Distribution Agreement, dated
December 22, 1997, between PerImmune, Inc. and Mentor
Corporation.
10.23 Distribution Agreement, dated June 16, 1997, between
PerImmune, Inc. and Mentor Corporation.
10.24 Intellectual Property Agreement, dated August 2, 1996, by
and among Akzo Nobel Pharma International, B.V. and
PerImmune Holdings, Inc.
10.25 Intellectual Property Security Agreement, dated August 13,
1996, by and among PerImmune Holdings, Inc., PerImmune,
Inc., Akzo Nobel Pharma International, B.V. and Organon
Teknika Corporation.
10.26 1989 Stock Option Plan.+
10.27 1996 Stock Option Plan of PerImmune Holdings, Inc.+
21 List of Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants -- Intracel Corporation.
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants -- PerImmune Holdings, Inc.
23.3 Consent of Ernst & Young LLP, independent auditors.
23.4 Consent of KPMG Peat Marwick LLP, independent certified
public accountants.
24 Power of Attorney (set forth on signature page to
Registration Statement).
27.1 Financial Data Schedule for the year ended December 31, 1997
27.2 Financial Data Schedule for the three months ended March 31,
1998
</TABLE>
- ---------------
+ To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denomination 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
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the 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 Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant 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 in the Offering, the Registrant 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 undersigned Registrant hereby undertakes that:
(1) For the 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.
(2) For the purposes 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-5
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and 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 July 2, 1998.
INTRACEL CORPORATION
By: /s/ SIMON R. MCKENZIE
--------------------------------------
Simon R. McKenzie
President, Chief Executive Officer and
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Simon R. McKenzie and Peggy McGaw, and each 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 any and all amendments to this Form S-1
Registration Statement and to sign any registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) of the
Securities Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith with the Commission, granting 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 and necessary to be done in
and about the premises as fully and 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 his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
<S> <C> <C>
/s/ MICHAEL G. HANNA Chairman of the Board and Chief July 6, 1998
- ----------------------------------------------------- Scientific Officer
Michael G. Hanna
/s/ SIMON R. MCKENZIE President, Chief Executive July 6, 1998
- ----------------------------------------------------- Officer and Director
Simon R. McKenzie (principal executive officer)
/s/ PEGGY MCGAW Vice President, Finance July 2, 1998
- ----------------------------------------------------- (principal financial and
Peggy McGaw accounting officer)
/s/ RAYMOND SCHUYLER Director July 6, 1998
- -----------------------------------------------------
Raymond Schuyler
/s/ JOSEPH CALIGIURI Director July 6, 1998
- -----------------------------------------------------
Joseph Caligiuri
/s/ STEVEN GERBER Director July 6, 1998
- -----------------------------------------------------
Steven Gerber
/s/ ALEXANDER KLIBANOV Director July 6, 1998
- -----------------------------------------------------
Alexander Klibanov
</TABLE>
II-6
<PAGE> 139
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
1 Underwriting Agreement by and among the Representatives, the
Selling Stockholder and the Company.+
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended.+
3.2 Bylaws of the Company.+
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Common Stock Certificate.+
5 Opinion of Morrison & Foerster LLP.+
10.1 Lease, dated January 15, 1997, between PW Acquisitions 1,
LLC and PerImmune, Inc.
10.2 Lease Agreement, dated April 30, 1991, between Ward
Corporation and Organon Teknika Corporation.
10.3 Commercial Lease Agreement, dated June 1, 1993, between
Rowley Enterprises, Inc. and Polymer Technology
International for the property located at 1871 NW Gilman
Blvd., Issaquah, Washington.
10.4 Lease Agreement, dated August 22, 1988, between Issaquah #1
Limited Partnership and Baxter Healthcare Corporation for
the premises located at I-90 Lake Place, 2005 N.W. Sammish
Road, Issaquah, Washington.
10.5 Lease, dated February 1, 1998, between P.K. Projects Ltd.
and Intracel Corporation for the premises located at
Commerce Parkway, Richmond, British Colombia.
10.6 Agreement and Plan of Reorganization, dated November 26,
1998, among PerImmune Holdings, Inc., Intracel Corporation
and Intracel Acquisition Sub, Inc.
10.7 Employment Agreement, dated January 2, 1998, between Michael
G. Hanna, Jr. and Intracel Corporation.
10.8 Employment Agreement, dated January 2, 1998, between Simon
R. McKenzie and Intracel Corporation.
10.9 Employment Agreement between Daniel Reale and Intracel
Corporation.
10.10 Employment Agreement between Persis Strong and Intracel
Corporation.+
10.11 Employment Agreement between Lawrence Bloom and Intracel
Corporation.+
10.12 Employment Agreement between Carl Foster and Intracel
Corporation.+
10.13 Preferred Stock Purchase Agreement, dated as of March 12,
1997, between Intracel Corporation and Northstar High Total
Return Fund.
10.14 Note and Series A- Warrant Purchase Agreement, dated as of
June 21, 1996, between Intracel Corporation and Northstar
Advantage High Total Return Fund.
10.15 Note and Series A-III Warrant Purchase Agreement, dated as
of June 11, 1996, between Intracel Corporation and
CoreStates Enterprise Fund.
10.16 Note and Warrant Purchase Agreement, dated as of April 1,
1998, between Intracel Corporation and Northstar High Yield
Fund and Northstar High Total Return Fund II.
10.17 Loan and Authority Agreement, dated September 30, 1997,
between the Washington Economic Development Finance
Authority and Intracel Corporation.
10.18 Tax Certificate and Regulatory Agreement, dated September
11, 1997 between the Washington Economic Development Finance
Authority and Intracel Corporation.
10.19 Stock Purchase Agreement, dated July 1, 1996, between
PerImmune Holdings, Inc. and Organon Teknika Corporation.
10.20 Agreements between the Intracel Corporation and Thomas
Jefferson University.
10.21 Product Development and License Agreement, between
PerImmune, Inc, and Sigma Diagnostics, Inc.
10.22 Research, Collaboration and Distribution Agreement, dated
December 22, 1997, between PerImmune, Inc. and Mentor
Corporation.
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
10.23 Distribution Agreement, dated June 16, 1997, between
PerImmune, Inc. and Mentor Corporation.
10.24 Intellectual Property Agreement, dated August 2, 1996, by
and among Akzo Nobel Pharma International, B.V. and
PerImmune Holdings, Inc.
10.25 Intellectual Property Security Agreement, dated August 13,
1996, by and among PerImmune Holdings, Inc., PerImmune,
Inc., Akzo Nobel Pharma International, B.V. and Organon
Teknika Corporation.
10.26 1989 Stock Option Plan.+
10.27 1996 Stock Option Plan of PerImmune Holdings, Inc.+
21 List of Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants -- Intracel Corporation.
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants -- PerImmune Holdings, Inc.
23.3 Consent of Ernst & Young LLP, independent auditors.
23.4 Consent of KPMG Peat Marwick LLP, independent certified
public accountants.
24 Power of Attorney (set forth on signature page to
Registration Statement).
27.1 Financial Data Schedule for the year ended December 31, 1997
27.2 Financial Data Schedule for the three months ended March 31,
1998
</TABLE>
- ---------------
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 10.1
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1.
TERM......................................................... 1
SECTION 2.
RENT ........................................................ 1
SECTION 3.
QUIET ENJOYMENT ............................................. 2
SECTION 4.
USE OF THE PREMISES ......................................... 3
SECTION 5.
NET LEASE ................................................... 3
SECTION 6.
PAYMENT OF TAXES, ASSESSMENTS AND OTHER CHARGES ............. 4
SECTION 7.
LIENS AND ENCUMBRANCES ...................................... 4
SECTION 8.
ASSIGNMENT AND SUBLETTING ................................... 5
SECTION 9.
INSURANCE ................................................... 7
SECTION 10.
INDEMNIFICATION ............................................. 9
SECTION 11.
LANDLORD'S RIGHT TO PERFORM TENANT'S UNDERTAKINGS ........... 9
SECTION 12.
REPAIR AND MAINTENANCE OF THE PROPERTY ...................... 9
SECTION 13.
ALTERATIONS AND IMPROVEMENTS ................................ 12
SECTION 14.
INSPECTION OF, AND ACCESS TO, THE PREMISES .................. 12
SECTION 15.
UTILITY CHARGES ............................................. 13
SECTION 16.
CONDITIONAL LIMITATIONS - DEFAULT PROVISIONS ................ 13
SECTION 17.
ESTOPPEL CERTIFICATES ....................................... 15
SECTION 18.
LIMITATIONS OF LANDLORD'S LIABILITY ......................... 16
SECTION 19.
COVENANTS TO RUN WITH THE LAND .............................. 16
SECTION 20.
SURRENDER ................................................... 17
SECTION 21.
NOTICES ..................................................... 17
SECTION 22.
SEPARABILITY ................................................ 18
SECTION 23.
DAMAGE OR DESTRUCTION ....................................... 18
SECTION 24.
CONDEMNATION ................................................ 19
SECTION 25.
MODIFICATIONS ............................................... 20
SECTION 26.
HAZARDOUS MATERIAL .......................................... 20
SECTION 27.
SUBORDINATION/NON-DISTURBANCE ............................... 22
SECTION 28.
TENANT ACCEPTS THE PREMISES "AS IS" ......................... 22
</TABLE>
i
<PAGE> 2
<TABLE>
<S> <C>
SECTION 29.
BANKRUPTCY .................................................. 22
SECTION 30.
BROKERS ..................................................... 23
SECTION 31.
WAIVER OF JURY TRIAL AND COUNTERCLAIMS ...................... 23
SECTION 32.
WAIVER AND MODIFICATION ..................................... 23
SECTION 33.
OPTIONS TO RENEW ............................................ 23
SECTION 34.
CAPTIONS .................................................... 24
SECTION 35.
DECLARATION OF GOVERNING LAW ................................ 24
SECTION 36.
HOLDING OVER ................................................ 25
SECTION 37.
SUCCESSORS AND ASSIGNS ...................................... 25
SECTION 38.
COUNTERPARTS ................................................ 25
</TABLE>
ii
<PAGE> 3
LEASE
THIS LEASE is made as of the 15th day of January, 1997, by and between PW
ACQUISITIONS I, LLC, a Delaware limited liability company (hereinafter called
"Landlord") and Perimmune, Inc., a Delaware corporation (hereinafter called
"Tenant").
W I T N E S S E T H
WHEREAS, Landlord is the owner of certain premises legally described as:
Lot number five (5) in the subdivision known as "70-S Industrial Park", as
per the plat thereof recorded among the Land Records for Montgomery
County, Maryland, in Plat Book 87 at Plat 9281, and whose street address
is 1330 Piccard Drive, Rockville, Maryland 20850-4373 (the "Premises").
WHEREAS, the Premises consists of land and improvements, which improvements
are known as Rockville I and Rockville II.
WHEREAS, Tenant desires to lease the Premises and Landlord is willing to
lease the same on the terms and conditions hereinafter set forth.
NOW THEREFORE, Landlord, for and in consideration of the rents, covenants
and agreements hereinafter contained on the part of Tenant to be paid, kept and
performed, does hereby lease and demise unto Tenant, and Tenant hereby takes
and hires from Landlord, the Premises together with all leasehold improvements
and fixtures installed therein according to the terms and conditions set forth
following.
SECTION 1.
TERM
SECTION 1.1. The term of this Lease shall begin on January 15, 1997 and
shall end on January 31, 2007 (the "Term") unless the term of this Lease shall
sooner terminate as herein provided.
SECTION 2.
RENT
SECTION 2.1. Tenant agrees, commencing on January 15, 1997, to pay
Landlord fixed rent for the Premises as follows:
(a) One Million Seven Hundred Fifty Thousand and 00/100 Dollars
($1,750,000.00) per annum for the period from January 15, 1997 through January
31, 2000;
(b) One Million Seven Hundred Ninety Seven Thousand Five Hundred
Thirty Six and 00/100 Dollars ($1,797,536.00) per annum for the period from
February 1, 2000 through January 31, 2001;
(c) One Million Eight Hundred Fifty One Thousand Four Hundred Sixty
Two and 00/100 Dollars ($1,851,462.00) per annum for the period from February
1, 2001 through January 31, 2002;
<PAGE> 4
(d) One Million Nine Hundred Seven Thousand Eight and 00/100 Dollars
($1,907,008.00) per annum for the period from February 1, 2002 through January
31, 2003;
(e) One Million Nine Hundred Eighty Four Thousand Two Hundred
Sixteen and 00/100 Dollars ($1,984,216.00) per annum for the period from
February 1, 2003 through January 31, 2004;
(f) Two Million Twenty Three Thousand One Hundred Forty Three and
00/100 Dollars ($2,023,143.00) per annum for the period from February 1, 2004
through January 31, 2005;
(g) Two Million Eighty Three Thousand Eight Hundred Thirty Seven and
00/100 Dollars ($2,083,837.00) per annum for the period from February 1, 2005
through January 31, 2006;
(h) Two Million One Hundred Forty Six Thousand Three Hundred Fifty
Two and 00/100 Dollars ($2,146,352.00) per annum for the period from February
1, 2006 through January 31, 2007;
SECTION 2.2. In addition to fixed rent, Tenant agrees to pay as additional
rent ("additional rent") at times hereinafter specified in this Lease any other
amounts that Tenant assumes or agrees to pay under the provisions of this
Lease, including, without limitation, any and all other sums that may become
due by reason of any default of Tenant or failure on Tenant's part to comply
with agreements, terms, covenants and conditions of this Lease to be performed
by Tenant, after notice and lapse of applicable cure period.
SECTION 2.3. Fixed rent and additional rent shall together be denominated
"Rent". Rent shall be paid to Landlord, without abatement, deduction, or
offset, in lawful money of the United States of America, at the office of
Landlord or to such other person or at such other place as Landlord may from
time to time designate in writing. In the event the Term commences or ends on a
day other than the first day of a calendar month, then the Rent for such
fraction of a month shall be prorated for such period on the basis of a thirty
(30) day month and shall be paid at the then current rate for such fractional
month.
SECTION 2.4. The fixed rent shall be payable in equal monthly installments
in advance on the first day of each calendar month during the Term except that
Tenant upon the execution hereof has delivered to Landlord by check, subject to
collection, the sum of $79,973.12 which shall be credited by Landlord against
the fixed rent payable by Tenant for the period from January 15, 1997 through
January 31, 1997.
SECTION 3.
QUIET ENJOYMENT
SECTION 3.1. If Tenant shall pay the fixed rent and additional rent
reserved under this Lease when the same shall become due, and shall keep all
the covenants and agreements required by it to be kept during the Term and
shall perform all of its other obligations hereunder, Landlord will not
interfere with the peaceful and quiet occupation and enjoyment of the Premises
by Tenant, which occupation and enjoyment shall be without hindrance, ejection
or molestation by Landlord.
2
<PAGE> 5
SECTION 4.
USE OF THE PREMISES
SECTION 4.1. Tenant may use and occupy the Premises for any lawful
purpose permitted under the applicable zoning ordinance. Tenant shall at its
sole cost and expense comply promptly with all statutes, rules, orders,
ordinances, requirements and regulations of the city, county, state and federal
governments and their departments and bureaus at any time applicable to the
Premises, whether or not the same shall require structural changes or repairs,
for the correction, prevention or abatement of any and all conditions of
whatever nature in, upon or connected with the Premises, including all
statutes, rules, orders, ordinances, requirements and regulations of any
governmental authority or bureau or department applicable to the operation of
the improvements thereto, whether or not any such statutes, rules, orders,
ordinances, requirements or regulations involve a change of policy on the part
of the authority enacting the same. Tenant shall observe and comply, at its
expense, with the requirements of all policies of public liability, fire and
other insurance at any time in force with respect to the Premises.
SECTION 4.2. Tenant will not permit any unlawful occupation, business
or trade to be conducted on the Premises or any use to be made thereof contrary
to any statute, rule, order, ordinance, requirement or regulation of any
governmental authority applicable thereto, nor will it use or occupy or permit
the Premises to be used or occupied, nor do or permit anything to be done in or
on the Premises or any part thereof, in a manner which would violate in any
material respect any certificate of occupancy affecting the same, or cause
structural injury in any material respect to the improvements or any part
thereof, or constitute a public or private nuisance.
SECTION 4.3. Notwithstanding any other provision herein to the
contrary, Tenant shall be responsible for all liabilities, costs and expenses
arising out or in connection with the compliance of the Premises with the
Americans with Disabilities Act, 42 U.S.C. Section 12101, et seq. (together
with regulations promulgated pursuant thereto, "ADA") and Tenant shall
indemnify, defend and hold harmless Landlord from and against any loss, cost,
liability or expense (including reasonable attorneys' fees and disbursements)
arising out of any failure of the Premises to comply with the ADA.
SECTION 5.
NET LEASE
SECTION 5.1. The fixed rent shall be absolutely net to Landlord, so
that this Lease shall yield, net, to Landlord the full amount of the
installments of fixed rent throughout the term, free of real estate taxes,
assessments, charges, impositions and other costs, expenses and obligations and
all such real estate taxes, assessments, charges, impositions and other costs,
expenses and obligations of every kind and nature (including, without
limitation, a management fee payable to Landlord in an amount equal to one
percent of the fixed rent) which may relate to or be attributable to the
Premises, the ownership thereof or the use and/or occupancy of the Premises
during the Term shall be paid by Tenant.
SECTION 5.2. Except as otherwise expressly provided herein or in any
other agreement between the parties, this Lease shall not terminate, nor shall
the obligations of Tenant hereunder be otherwise affected, by reason of any
prohibition, limitation or restriction of Tenant's use of the Premises, or the
interference with such use by any private person or corporation, any default by
Landlord under any provision of this Lease, or any other agreement to which
Landlord and Tenant may be parties, or for any other cause whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding, it being the intention of the parties hereto that the
obligations of Tenant hereunder shall be separate and
3
<PAGE> 6
independent covenants and agreements, that the fixed rent and additional rent
reserved hereunder shall continue to be payable in all events and the
obligations of Tenant hereunder shall continue unaffected, unless the
requirement to pay or perform the same shall be terminated pursuant to an
express provision of this Lease.
SECTION 6.
PAYMENT OF TAXES, ASSESSMENTS AND OTHER CHARGES
SECTION 6.1 Tenant shall pay, as additional rent, all real estate taxes
(including personal property taxes, if any), assessments, water and sewer rents,
rates and charges, charges for public utilities, excises, levies, license and
permit fees and other governmental charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, of any kind and nature whatsoever, which
at any time prior to or during the Term were or may be assessed, levied,
confirmed, imposed upon or grow or become due and payable out of or in respect
of, or become a lien on, the Premises or any part thereof or any appurtenances
thereto, any use or occupation of the Premises, or such franchises as may be
appurtenant to the use of the Premises (all of the foregoing being hereinafter
referred to as "Impositions"). Tenant shall, within a reasonable time after
payment of any of the Impositions, deliver to Landlord receipts evidencing
payment of all such Impositions. Tenant, however, shall not be required to pay,
discharge or remove any Imposition against the Premises or any part thereof so
long as Tenant shall in good faith diligently proceed, without cost or expense
to Landlord, to contest the same, or the validity thereof, by appropriate legal
proceedings which shall operate to prevent the collection of the Imposition so
contested and/or the sale of the Premises, or any part thereof, to satisfy the
same, provided Tenant shall prevent any sale or forfeiture of the Premises, or
any part thereof, by reason of such non-payment. Tenant may pay any Imposition
in installments, if payment may be so made without fine or penalty. Unless this
Lease shall have terminated as a result of a default by Tenant, all the
Impositions for the tax year in which this Lease shall terminate shall be
apportioned between Landlord and Tenant including any Imposition which Tenant
has elected to pay in installments. If this Lease shall have terminated by
reason of Tenant's default, all Impositions then outstanding shall be paid in
full by Tenant.
SECTION 6.2. Nothing in this Lease contained shall require Tenant to pay
any income, franchise, corporate, estate, inheritance, succession, capital levy,
stamp tax or transfer tax of Landlord, or any income, excess profits or revenue
tax or any other tax, assessment, charge, or levy upon the fixed rent or
additional rent; provided, however, that if any time during the Term a tax or
excise on rents or other tax, however described, is levied or assessed against
Landlord or the fixed rent, in lieu of or as a substitute in whole or in part
for taxes and assessments commonly known as real estate taxes, Tenant shall pay
and discharge such tax or excise on rents or other tax.
SECTION 7.
LIENS AND ENCUMBRANCES
SECTION 7.1. Tenant will not create or permit to be created or to remain,
and will discharge or bond at its sole cost and expense, all liens (including
the liens of mechanics, laborers or materialmen for work, labor, services or
materials done or furnished or alleged to have been done or furnished with
respect to the Premises), encumbrances and other charges upon the Premises or
any part thereof or upon the fixed rent or additional rent payable hereunder or
upon Tenant's leasehold interest in the Premises, except such liens,
encumbrances or charges as may be placed upon the Premises by the act of
Landlord.
4
<PAGE> 7
SECTION 7.2. If any such lien, encumbrances or charge shall at any time
be filed or asserted against the Premises or any part thereof, or upon the fixed
rent or any additional rent payable hereunder, or upon Tenant's leasehold
interest in the Premises, Tenant shall cause the same to be discharged or
bonded within sixty (60) days or such shorter period as required by any
mortgage affecting the Premises after notice of default as provided in Section
16.1(i)(b).
SECTION 7.3. Nothing contained in this Lease shall be construed as
constituting the consent or request of Landlord expressed or implied, to any
contractor, subcontractor, laborer or materialman for the performance of any
labor or services or materials furnished to Tenant, or to anyone holding the
Premises or any part thereof through or under Tenant, and that no mechanics' or
other liens for any such labor or materials shall attach to or affect the fee
or interest of Landlord in and to the Premises, except for such labor, services
or materials furnished at Tenant's request to cure a default of Landlord
hereunder.
SECTION 7.4. Notwithstanding any contrary provision herein, Tenant shall
have the right to contest, in good faith and by appropriate legal proceedings,
the validity or amount of any mechanic's lien or encumbrance without having to
discharge or bond the same; unless discharge or bonding is required by a
mortgagee of the Premises.
SECTION 8.
ASSIGNMENT AND SUBLETTING
SECTION 8.1. Except as hereinafter provided, Tenant shall not, either
voluntarily or by operation of law, directly or indirectly, sell, hypothecate,
assign, pledge, encumber or otherwise transfer this Lease, or sublet the
Premises or any part hereof, or permit or suffer the Demised Premises or any
part thereof to be used or occupied as work space, storage space, mailing
privileges, concession or otherwise by anyone other than Tenant or Tenant's
employees, without the prior written consent of Landlord in each instance,
which consent shall not be unreasonably withheld.
SECTION 8.2. If Tenant is a corporation, the shares of which are not
actively traded upon a stock exchange or in the over-the-counter market, a
transfer or series of transfers whereby twenty-five percent (25%) or more of the
issued and outstanding shares of such corporation are or the voting control is
transferred (but excepting transfers upon deaths of individual shareholders)
from a person or persons or entity or entities which were owners thereof at
the time of execution of this Lease to persons or entities who were not owners
of shares of the corporation at the time of execution of this Lease shall be
deemed an assignment of this Lease requiring the consent of Landlord as
provided in Section 8.1 above. Notwithstanding the foregoing, neither (a) a
transfer of shares to an investor or investors in a private placement raising
for Tenant in excess of $5,000,000 nor (b) a public offering by Tenant of its
shares shall be deemed an assignment of this Lease requiring the consent of
Landlord.
SECTION 8.3. If Tenant desires to assign this Lease to any entity into
which Tenant is merged, with which Tenant is consolidated, or which acquires all
or substantially all of the assets of Tenant, provided that the assignee first
executes, acknowledge and delivers to Landlord an agreement whereby the assignee
agrees to be bound by all of the covenants and agreements in this Lease and
that the assignee shall have a net worth (determined in accordance with
generally accepted accounting principles consistently applied) immediately
after such assignment which is at least equal to the net worth (as so
determined) of Tenant immediately prior to the assignment (or as of the date
hereof, if greater), then Landlord, upon receipt of proof of the foregoing,
will consent to the assignment.
5
<PAGE> 8
SECTION 8.4. In the event Tenant desires to assign, sublease,
hypothecate or otherwise transfer this Lease or sublet the Premises, then at
least forty-five (45) days, but not more than ninety (90) days, prior to the
date when Tenant desires the assignment or sublease to be effective (the
"Assignment Date"), Tenant shall give Landlord a notice (the "Assignment
Notice") containing information (including references) concerning the character
of the proposed assignee or sublessee, the Assignment Date, any ownership or
commercial relationship between Tenant and the proposed assignee or sublessee,
and the consideration and all other material terms and conditions of the
proposed assignment or sublease, all in such detail as Landlord shall
reasonably require. Tenant shall also tender to Landlord, reasonable attorneys
fees and other costs or overhead expenses incurred by Landlord in reviewing
Tenant's request for such consent.
SECTION 8.5. Landlord, in making its determination as to whether
consent should be given to a proposed assignment or sublease, may give
consideration to the financial strength of such successor (notwithstanding the
assignor remaining liable for Tenant's performance), and any such change in use
which such successor proposes to make in the use of the Premises from the use
by Tenant on the date hereof, i.e., clinical scientific research. In no event
shall Landlord be deemed to be unreasonable for declining to consent to
transfer to a successor of poor reputation, lacking financial qualifications,
or seeking change in use.
SECTION 8.6. As conditions precedent to Landlord considering a request
by Tenant to Tenant's transfer of rights or sharing of the Premises, Landlord
may require any or all of the following:
(a) Tenant shall remain fully liable under this Lease during
the unexpired Term;
(b) Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord that the value of Landlord's interest under this Lease
will not thereby be diminished or reduced. Such evidence shall include, but
need not be limited to, evidence respecting the relevant business experience
and financial responsibility and status of the third party concerned;
(c) Tenant shall reimburse Landlord for Landlord's actual
costs and expenses, including, without limitation, reasonable attorneys' fees,
charges and disbursements incurred in connection with the review, processing
and documentation of such request;
(d) Written agreement from any third party concerned that in
the event Landlord gives such third party notice that Tenant is in default
under this Lease, such third party shall thereafter make all payments otherwise
due Tenant directly to Landlord, which payments will be received by Landlord
without any liability on Landlord except to credit such payment against those
due under this Lease, and any such third party shall agree to attorn to
Landlord or its successors and assigns should this Lease be terminated for any
reason; provided, however that in no event shall Landlord or its successors or
assigns be obligated to accept such attornment;
(e) Any such transfer and consent shall be effected on forms
reasonably approved by Landlord as to form and substance;
(f) Tenant shall not then be in default hereunder in any
material respect;
(g) Landlord shall not be bound in any provision of any
agreement pertaining to Tenant's transfer of rights or sharing of the Premises;
and
(h) Tenant shall deliver to Landlord one executed copy of any
and all written instruments evidencing or relating to Tenant's transfer of
rights or sharing of the Premises;
6
<PAGE> 9
(i) A list of Hazardous Materials (as defined in Section 26.6
below), certified by the proposed assignee or sublessee to be true and correct,
which the proposed assignee or sublessee intends to use or store in the
Premises. Additionally, Tenant shall deliver to Landlord, on or before the date
any proposed assignee or sublessee takes occupancy of the Premises all of the
items relating to Hazardous Material of such proposed assignee or sublessee as
described in Section 26.2 below; and
(j) If Tenant's transfer of rights or sharing of the Premises
provides for the receipt by, on behalf or on account of Tenant of any
consideration of any kind whatsoever (including, without limitation, a premium
rental for a sublease or lump sum payment for an assignment) in excess of the
Rent and other charges payable by Tenant under this Lease, Tenant shall pay all
of said excess to Landlord. If said consideration consists of cash paid to
Tenant, said payment to Landlord shall be made upon receipt by Tenant of said
cash payment.
SECTION 8.7. Any sale, assignment, hypothecation or transfer of this
Lease or subletting of the Premises that is not in compliance with the
provisions of this Section 8 shall be void and shall, at the option of
Landlord, terminate this Lease.
SECTION 8.8. The consent by Landlord to an assignment or subletting
shall not relieve Tenant or any assignees of this Lease or sublessee of the
Premises from obtaining the consent of Landlord to any further assignment or
subletting nor shall it release Tenant or any assignee or sublessee of Tenant
from full and primary liability under the Lease.
SECTION 8.9. Notwithstanding any subletting or assignment, Tenant shall
remain fully and primarily liable for the payment of all rent and other sums
due, or to become due hereunder, and for the full performance of all other
terms, conditions, and covenants to be kept and performed by Tenant. The
acceptance of Rent or any other sum due hereunder, or the acceptance of
performance of any other term, covenant, or condition thereof, from any other
person or entity shall not be deemed to be a waiver of any of the provisions of
this Lease or a consent to any subletting, assignment or other transfer of the
Premises.
SECTION 9.
INSURANCE
SECTION 9.1. All insurance provided for in this Section 9 shall be
effected under valid and enforceable policies issued by insurers of recognized
responsibility which are approved in writing by Landlord, with such approval
not to be unreasonably withheld. All coverages provided by Tenant may be
purchased under blanket insurance policies held by Tenant, provided that a
specific coverage amount satisfying the provisions of this Article has been
assigned to the Premises.
SECTION 9.2. During the Term Landlord shall carry insurance upon the
Premises, in an amount equal to full replacement cost (exclusive of the costs
of excavation, foundations, and footings, and without reference to depreciation
taken by Landlord upon its books or tax returns) or such lesser coverage as
Landlord may elect provided such coverage is not less than ninety percent (90%)
of such full replacement cost or the amount of such insurance Landlord's
mortgage lender requires Landlord to maintain providing protection against any
peril generally included within the classification "Fire and Extended Coverage"
together with insurance against sprinkler damage (if applicable), vandalism and
malicious mischief. Landlord, subject to availability thereof, shall further
insure as Landlord deems appropriate against flood, environmental hazard and
earthquake, loss or failure of building equipment, rental loss during the
period of repair or rebuild, workmen's compensation insurance and fidelity
bonds for employees employed to perform services. Tenant, as additional rent,
shall reimburse Landlord for the premiums paid by Landlord for the insurance
policies procured by Landlord pursuant to
7
<PAGE> 10
this Section, provided, however, that Tenant shall not be obligated to
reimburse Landlord an amount greater than a commercially competitive premium
rate.
SECTION 9.3. During the Term, Tenant shall, at its sole cost and expense,
maintain on all fixtures, furnishings, equipment and merchandise located in
the Premises, and on trade fixtures, furnishings, equipment, and merchandise of
others, which are in Tenant's possession located within the Premises, a policy
or policies of fire insurance with a standard form extended coverage
endorsement to the extent of at least ninety (90%) percent of their cost value.
SECTION 9.4. During the Term, Tenant shall maintain broad form commercial
general liability insurance (written on an occurrence basis and including
contractual liability coverage) against claims for bodily injury, death or
property damage occurring on, in or about the Premises and the adjoining
streets, sidewalks and passageways, such insurance to be in an amount not less
than $5,000,000 combined single limit per occurrence. Policies for such
insurance shall be for the mutual benefit of Landlord and Tenant.
SECTION 9.5. During the Term, Tenant shall maintain business interruption
insurance in an amount at least equal to eighteen months fixed rent,
Impositions and insurance premiums.
SECTION 9.6. All policies of insurance required to be maintained by Tenant
pursuant to this Section 9 shall insure Landlord and Tenant as their respective
interests may appear. The originals of all policies required by this Section 9
(or certificates from the insurers evidencing the existence thereof) shall be
filed with Landlord. All such policies shall contain an undertaking by the
respective insurers, to the extent obtainable, that such policies shall not be
canceled or have their coverage materially altered without thirty (30) days
prior written notice to Landlord and Tenant. Not less than thirty (30) days
prior to the expiration dates of the policies, originals of the renewal
policies (or such certificates from the insurers) shall be deposited with the
Landlord, and evidence satisfactory to the Landlord that such policies are in
full force and effect and are non-cancellable without thirty (30) days prior
written notice to Landlord shall be furnished to Landlord. Tenant shall, upon
request of Landlord, deliver to Landlord the originals of all such policies.
Binders committing the insurers to issue the insurance policies required by
this Section 9 shall be accepted by Landlord if such policies are not
obtainable by Tenant at the time in question because of (i) any improvements
then under construction, or (ii) any other cause of temporary duration.
SECTION 9.7. If the Premises are encumbered by a mortgage, indenture, or
deed of trust ("Mortgage"), every such insurance policy (other than liability
insurance policies) shall bear a standard first mortgagee endorsement in favor
of the mortgagee of Landlord's interest in the Premises, or the trustee under a
mortgage or deed of trust of such interest (such mortgagee or trustee being
referred to herein as a mortgagee), and losses under any such policy shall be
made payable to the mortgagee, and any recoveries under any such policy shall be
applied by the mortgagee as provided in any such Mortgage. To the extent any
Mortgage does not require payment to the Mortgagee of all insurance proceeds,
such proceeds shall be payable to Landlord and Tenant, as their interests
appear. Each party shall use reasonable efforts to include in each such policy
an agreement by the insurer that it waives all rights of subrogation against
Tenant and Landlord, that it will not cancel such policy except after thirty
(30) days prior written notice to Landlord and the mortgagee, and that any loss
thereunder shall be payable notwithstanding any act or negligence of Tenant or
Landlord.
SECTION 9.8. Each party shall look first to any insurance in its favor
before making any claim against the other party for recovery for loss or damage
resulting from fire or other casualty. To the extent such insurance is in force
and collectible and to the extent permitted by law, Landlord and Tenant each
hereby releases and waives all rights of recovery against the other.
8
<PAGE> 11
SECTION 9.9. Tenant shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required in this Section 9
to be furnished by Tenant unless Landlord is included therein as a named
insured, with standard first mortgagee endorsement and loss payable as in this
Lease provided. Tenant shall immediately notify Landlord whenever any such
separate insurance is taken out and shall deliver policies or certificates
therefor as provided in this Section 9. Landlord may require insurance policy
limits to be raised to conform with requirements of Landlord's mortgagee,
provided that such policy limits are not in excess of those that prudent owners
of properties similar to the Premises maintain.
SECTION 10.
INDEMNIFICATION
SECTION 10.1. Tenant agrees to indemnify, defend and save Landlord
harmless from and against any and all demands, claims, liabilities, losses,
costs, expenses, actions, causes of action, damages or judgments, and all
reasonable expenses incurred in investigating or resisting the same (including,
without limitation, reasonable attorneys' fees, charges and disbursements), for
injury or death to person or injury to property occurring within or about the
Premises, arising directly or indirectly out of Tenant's, its employees, agents
or guests use or occupancy of the Premises or a breach or default by Tenant in
the performance of any of its obligations hereunder, unless caused solely by
the willful act or negligence of the Landlord.
SECTION 11.
LANDLORD'S RIGHT TO PERFORM TENANT'S UNDERTAKINGS
SECTION 11.1. Except as otherwise provided herein with respect to
contested Impositions, if Tenant shall fail to pay any Imposition pursuant to
Section 6, or to take out, pay for, maintain or deliver any policy of insurance
required by Section 9, or to make any other payment or perform any other act on
its part to be made or performed as provided in this Lease, Landlord may, but
shall not be obligated to, upon three (3) days notice and demand upon Tenant
and without waiving or releasing Tenant from any obligation contained in this
Lease, pay any such Imposition, effect any such insurance coverage and pay
premiums therefor, and make any such other reasonable payment or perform any
such other act on the part of Tenant to be made and performed as provided in
this Lease, and in exercising any such right may pay all necessary, reasonable
attorneys' fees. All sums paid by Landlord pursuant to this Section 11 and all
necessary and incidental costs with respect thereto, together with interest at
the rate of two (2%) percent over the prime rate of Wells Fargo Bank, NA, San
Francisco, California from the date of making of such payment or the incurring
of such costs by Landlord, shall be repaid by Tenant to Landlord on demand.
Tenant will pay to Landlord any such sums and costs, with interest as
aforesaid, and Landlord shall have (in addition to all other rights and
remedies of Landlord) the same rights and remedies in the event of the
nonpayment or late payment thereof by Tenant as in the case of default in the
payment of fixed rent.
SECTION 12.
REPAIR AND MAINTENANCE OF THE PROPERTY
SECTION 12.1. This is a net lease, and except as expressly stated herein,
Landlord shall have no duty, obligation or covenant to make any repairs or
replacements to the Premises of any kind or nature whatsoever, structural,
nonstructural, foreseen or unforeseen, and whether or not imposed by law,
including without limitation duties imposed upon building
9
<PAGE> 12
owners by the Americans for Disabilities Act, laws prohibiting
chlorofluorocarbons ("CFC's"), or like legislation.
SECTION 12.2. Tenant shall, at its sole cost and expense, maintain the
Premises as a first-class facility in no less than its current state of repair
(including necessary replacements to components thereof when continuing repairs
are no longer economic from the view of a long-term property owner) and shall
take good care of the Premises and every part thereof (including the sidewalks
and driveways on or adjacent to the Premises); make all necessary repairs and
replacements to the Premises, ordinary and extraordinary, foreseen and
unforeseen. When used in this Section 12 the term "repairs" includes
replacements or renewals when necessary.
SECTION 12.3. Subject to the provisions of Section 12.6, all alterations,
new structures, changes, additions, repairs and improvements to the Premises,
and the improvements located thereon at any time, are and shall become part of
the realty and the property of Landlord.
SECTION 12.4. Tenant may install, place or erect upon the Premises any
machinery, equipment, furniture, trade fixtures or other personal property, and
all such personal property (but not property which is or shall become the
property of Landlord pursuant to Section 12.3) installed, placed or erected on
the Premises by Tenant, whether or not attached to the Premises, may be removed
by Tenant at the expiration or earlier termination of the Term or at any time
prior thereto, and all such property shall be and remain the personal property
of Tenant; provided, that in removing any such property, Tenant shall repair all
damages caused by such removal. Systems integral to the operation of the
Premises as a clinical research facility shall, in no event, be deemed personal
property of Tenant, shall be deemed part of the realty and the property of
Landlord and upon the expiration or earlier termination of this Lease shall
remain upon and be surrendered with the Premises as a part thereof. Such systems
shall include, without limitation, exterior venting fume hoods, special water
treatment systems (e.g., reverse osmosis and water purification), vacuum
systems, walk-in climatized rooms, gas distribution systems, autoclaves and
associated glassware dryers, heating, ventilating and air-conditioning systems,
electrical distribution systems, piping, conduit and plumbing systems,
electrical panels, air-handlers, chillers, boilers, heaters, steam generators,
cage washers and pumps.
SECTION 12.5. Landlord shall not be obligated to provide janitorial and
trash removal services to the Premises. Tenant will at its sole cost and
expense, provide for ground maintenance and snow removal for the grounds and
parking areas of the Premises. Extraordinary grounds and parking lot maintenance
to such grounds and parking lot required to be maintained by Tenant shall be the
responsibility of Tenant.
SECTION 12.6. Tenant hereby expressly waives any right to make repairs at
the expense of Landlord as may be provided by any statute or law in effect at
the time of the execution of this Lease or which may be hereafter enacted.
SECTION 12.7. In the event, that Tenant is required by Landlord to effect a
repair to the Premises during the last 5 years of the Term or during any Renewal
Term which repair is in the nature of a replacement that is of a capital nature
(e.g., the replacement of the roof of the Premises) and the cost of such capital
improvement will be in excess of Two Hundred Thousand Dollars ($200,000), upon
request by Tenant to Landlord, Landlord shall advance the cost of such capital
improvement to Tenant as the work progresses in the same manner and pursuant to
provisions similar to those set forth in Section 23.2. Sums advanced by Landlord
shall be repaid by Tenant, together with interest in arrears at an annual rate
of interest equal to the Prime Rate (as hereinafter defined) plus two percent
(2%), as additional rent, in equal monthly installments on the first day of each
month in such amount as shall fully amortize the sum advanced over the five (5)
year period commencing on the day of the last advance by Landlord; provided
however, that if the useful life of the capital improvement is less than five
(5) years, then the repayment period shall be equal to such useful life; and
provided
10
<PAGE> 13
further, however, that Tenant shall have no obligation to make payments to
Landlord after the expiration or earlier termination of the Term, other than the
earlier termination of the Term due to the default of Tenant. Notwithstanding
the foregoing, during the period from the date of Landlord's first advance to
the first day of the month following the month in which Landlord made its last
advance, Tenant shall pay to Landlord on the first day of each calendar month
interest only, at the Prime Rate. "Prime Rate" shall mean the rate announced,
from time to time during the repayment period, by Wells Fargo Bank, N.A. as its
prime rate.
SECTION 12.8. The provisions and conditions set forth in Section 13 shall
apply to work required to be done under this Section 12.
SECTION 12.9. Tenant shall deposit with Chicago Title Insurance Company
(the "Title Company") on the first day of each calendar month commencing on
February 1, 1997 and continuing through January 1, 2002 the sum of $3,333.33
which sums shall be held by the Title Company in an interest-bearing account
with the interest being credited to such account. Tenant shall have the right to
request that the deposited sums be disbursed in accordance with the provisions
set forth in that certain Escrow Agreement, dated as of the date hereof, among
Landlord, Tenant and the Title Company (the "Escrow Agreement") to Tenant to pay
for the work described in Category I of Exhibit A annexed hereto and made a part
hereof. Tenant shall cause the Category 1 work to be performed when necessary or
sooner if required by law, but in any event prior to the sixth (6th) anniversary
of the date hereof. Each request for a disbursement shall be accompanied by (a)
unconditional lien releases from all contractors and materialmen who performed
any portion of the work in respect of which a disbursement is being requested,
and (b) reasonably detailed invoices from such contractors and materialmen.
Landlord and the Property Manager shall have the right to approve or disapprove
all such requests as set forth in the Escrow Agreement. The monthly deposit
amount is subject to adjustment upon receipt and approval by Landlord from
Tenant of a proposal in respect of the Category 1 work obtained by Tenant from
an elevator service company reasonably acceptable to Landlord.
SECTION 12.10. Promptly following the date hereof Tenant shall cause the
work described in Category 2 of Exhibit A to be commenced and shall cause such
work to be diligently pursued over the ensuing four year period as and when
required utilizing funds from Tenant's annual facilities budget. In any and all
events all such work shall be completed prior to the fourth anniversary of the
date hereof.
SECTION 12.11. As necessary or sooner if required by law, Tenant, at its
sole cost and expense, shall cause the work described in Category 3 of Exhibit A
to be performed.
SECTION 12.12. Promptly following the date hereof Tenant shall establish a
comprehensive preventative maintenance program in accordance with that certain
proposal, dated December 27, 1996, from Consolidated Engineering Services
("CES") and shall enter into a monitoring agreement with CES for a minimum of
two (2) years. Tenant shall deliver to Landlord a copy of the monitoring
agreement and a copy of the preventative maintenance program.
SECTION 12.13. Landlord, Property Manager and their respective agents and
representatives shall have the right to inspect the Premises for purposes of
determining Tenant's compliance with the provisions of this Section, and Tenant
shall promptly reimburse Landlord and Property Manager for the reasonable costs
incurred in connection with such inspections. Upon Tenant's request, Landlord
shall provide Tenant with copies of invoices of other accountings available to
Landlord evidencing such expenses.
11
<PAGE> 14
SECTION 13.
ALTERATIONS AND IMPROVEMENTS
SECTION 13.1. Tenant may, at its sole cost and expense, make alterations
of and improvements to the Premises with the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Tenant may similarly make
substitutions and replacements for said improvements, provided that (i) the
total market value and usefulness of the Premises shall not be lessened by
reason of any such alteration, substitution, replacement, or improvement; (ii)
any of the foregoing actions shall be done in good and workmanlike manner; and
(iii) all such alterations, substitutions, replacements and improvements shall
be expeditiously completed in compliance with all laws, ordinances, orders,
rules, regulations and requirements applicable thereto. All alterations,
substitutions, replacements or improvements shall be performed only by
architects, contractors, suppliers or mechanics approved by Landlord, such
approval not to be unreasonably withheld. In seeking Landlord's consent or
approval, Tenant shall provide Landlord, at least 14 days in advance of any
proposed construction, with plans, specifications, bid proposals, work contracts
and such other information concerning the nature and cost of such work as may be
reasonably requested by Landlord. Tenant shall promptly pay for all such
alterations, substitutions, replacements and improvements to the Premises, shall
discharge any and all liens filed against the Premises arising out of such
alterations, substitutions, replacements, or improvements, and upon the written
reasonable request of Landlord shall deposit with Landlord a surety bond or
other security satisfactory to Landlord to assure the completion of any such
alterations, substitutions, replacements, or improvements. Tenant shall procure
and pay for all required permits and licenses in connection with such
alterations, substitutions, replacements, or improvements. Tenant shall provide
Landlord with "as-built" plans showing any changes in the Premises.
SECTION 13.2. Tenant shall give notice to Landlord before commencing any
alterations of or improvements to the Premises having an estimated cost in
excess of One Hundred Seventy-Five Thousand and No/100 ($175,000.00) Dollars,
and shall serve or post any notices necessary to hold Landlord harmless, or
which in the reasonable opinion of Landlord shall be necessary to hold Landlord
harmless, from any claim or liability arising out of work done on the Premises
by or at the direction of Tenant.
SECTION 13.3. All such alterations and improvements constructed pursuant
to this Lease, and all alterations, changes repairs and improvements
constructed pursuant to Section 12 (except 12.4) of this Lease shall become
part of the realty and the property of Landlord without any increase or
decrease in rent payable hereunder by Tenant to Landlord during the Term.
SECTION 14.
INSPECTION OF, AND ACCESS TO, THE PREMISES
SECTION 14.1. Tenant will permit Landlord and any authorized
representative of Landlord, subject to any applicable security regulations of
Tenant, to enter the Premises at reasonable times during usual business hours
for the purpose of inspecting the same and making any necessary repairs to the
Premises and performing any work therein that may be necessary to comply with
any laws, ordinances, orders, rules, regulations or requirements of any public
authority, or that Landlord may deem necessary to prevent waste or
deterioration of the Premises. Nothing herein shall imply any duty upon the
part of Landlord to do, or pay for, any work which under any provision of this
Lease Tenant is required to perform, and performance thereof by Landlord, in
the event Tenant does not perform the same after demand, shall not constitute a
waiver of Tenant's default in failing to perform the same. During the progress
of any work on the Premises, Landlord may keep and store thereon all necessary
materials, tools
12
<PAGE> 15
and equipment. Landlord shall not be liable for inconvenience, annoyance,
disturbance, loss of business or other damage to Tenant by reason of making of
repairs or the performance of any work on the Premises, or by reason of bringing
materials, supplies or equipment into or through the Premises, and the
obligations or Tenant under this Lease shall not thereby be affected in any
manner whatsoever; provided, however, that Landlord shall use its best efforts
to minimize interference with Tenant's operations in the Premises and shall give
Tenant at least one (1) day prior written notice of Landlord's intent to enter
the Premises, except in case of an emergency.
SECTION 15.
UTILITY CHARGES
SECTION 15.1. Tenant will pay all charges for gas, fuel, oil, diesel fuel,
water, steam, electricity, light, heat, power and telephone and other utility
and communication services used, rendered, supplied upon or in connection with
the Premises, and shall pay, protect, defend, indemnify and save Landlord
harmless from and against, any liability or damages on such account. Landlord
shall not be required to pay any such charges.
SECTION 16.
CONDITIONAL LIMITATIONS - DEFAULT PROVISIONS
SECTION 16.1. Any of the following occurrences or acts shall constitute an
event of default under this Lease: (i) if Tenant (regardless of the pendency of
any bankruptcy, reorganization, receivership, insolvency or other proceedings,
in law, in equity, or before any administrative tribunal, which have or might
have the effect of preventing Tenant from complying with the terms of this
Lease), shall fail to (a) make a payment of fixed rent or any payment of
additional rent or any other sum herein or in the Lease specified to be paid by
Tenant, within three (3) days after notice from Landlord that such payment is
due and unpaid; or (b) observe or perform any of Tenant's other covenants,
agreements or obligations hereunder within thirty (30) days after Landlord shall
have given notice to Tenant specifying such default (or in the case of default
or contingency which cannot with due diligence be cured with such thirty day
period, if Tenant shall fail to proceed promptly to cure the same and thereafter
to prosecute the curing of such default with all due diligence, it being
intended in connection with a default not susceptible of being cured within
thirty days that the time of Tenant within which to cure the same shall be
extended for such period as may be necessary to complete the curing of the same
with due diligence); or (ii) if Tenant shall file a petition in bankruptcy or
for reorganization or for an arrangement pursuant to the Bankruptcy Code of the
United States and its revisions or shall make a general assignment for the
benefit of its creditors; or (iii) if a receiver, trustee or liquidator of
Tenant or of all or substantially all of the property of Tenant or of the
Premises shall be appointed in any proceeding brought by Tenant, or if any such
receiver, trustee or liquidator shall be appointed in any proceeding brought
against Tenant and if such receiver, trustee or liquidator shall not be
discharged within sixty days after such appointment; or (iv) if the Premises
shall have been left unoccupied and unattended for thirty consecutive days
(exclusive of periods of vacation, labor disturbance or temporary work stoppage
at the Premises).
SECTION 16.2. This Lease and the term and the estate hereby granted are
subject to the limitation that whenever an event of default shall have happened
and be continuing, Landlord shall have the right at its election, then or at any
time thereafter while such event of default shall continue, to give Tenant
written notice of Landlord's intention to terminate the Term on a date specified
in such notice, which date shall not be less than fifteen (15) days after the
date of giving of such notice, and on the date specified in any such notice all
right, title and interest of Tenant hereunder shall thereupon expire as fully
and completely as if the date
13
<PAGE> 16
specified in such notice were the date specifically fixed herein for the
expiration of the Term, unless prior to such date all defaults have been cured
and waived, and Tenant shall then peaceably and quietly quit and surrender
possession of the Premises to Landlord, but Tenant shall remain liable as
hereinafter provided. In the event any such notice is given, Landlord shall
have the right to remove all persons and property therefrom. Should Landlord
elect to re-enter as herein provided, or should Landlord take possession
pursuant to legal proceedings or pursuant to any notice provided for by law,
Landlord may from time to time re-let the Premises or any part thereof for such
term and at such rental and upon such provision and conditions as Landlord may
deem advisable, with the right to make alterations in and repairs of the
Premises.
SECTION 16.3. In the event of any termination of the Term as in this
Section 16 above provided or as permitted by law, Landlord may enter upon the
Premises and again have, repossess and enjoy the same as if this Lease had not
been made, and in any such event neither Tenant nor any person claiming through
or under Tenant by virtue of any statute or an order of any court shall be
entitled to possession or to remain in possession of the Premises, but shall
forthwith quit and surrender possession of the Premises, and Landlord at its
option shall forthwith, notwithstanding any other provision of this Lease to
the contrary, be entitled to recover from Tenant (in lieu of all other claims
for damages on account of the termination of this Lease), as and for liquidated
damages, an amount equal to the excess of all the Rents reserved hereunder for
the then unexpired portion of the Term over the fair market rental value of the
Premises for such unexpired portion of the Term. Nothing herein contained shall
limit or prejudice the right of Landlord, in any bankruptcy or reorganization
or insolvency proceeding, to prove for and obtain as liquidated damages, by
reason of such termination, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such amount
shall be greater than, equal to, or less than the amount of the excess referred
to above.
SECTION 16.4. As an alternative to the remedies contained in Section
16.3 hereof, if Landlord shall re-enter and obtain possession of the Premises
by reason of or following an event of default, Landlord shall have the right
without notice to repair or alter the Premises in such manner as to Landlord
may seem necessary or advisable so as to put the Premises in good order and to
make the same rentable, and shall have the right at Landlord's option to re-let
the Premises or any part thereof, and Tenant agrees to pay Landlord on demand
all expenses incurred by Landlord in obtaining possession, and in altering,
repairing and putting the Premises in good order and condition, and in
reletting the same, including reasonable fees of attorneys, architects, and
other experts, and also all other reasonable and legitimate expenses or
commissions, and Tenant further agrees pay to Landlord upon the dates specified
herein for the payment of fixed rents, from the date of such re-entry until the
date fixed herein for the expiration of the Term, the sums of money which would
have been payable by Tenant as fixed rents hereunder upon said payment dates if
Landlord had not re-entered and resumed possession of the Premises, deducting
only the net amount of rents, if any, which Landlord shall actually receive
(after deducting from the gross receipts the expenses, costs, and payments of
every kind which in accordance with the terms of this Lease would have been
borne by Tenant) in the meantime from and by any re-letting of the Premises,
and Tenant hereby agrees to be and remain liable for all sums aforesaid, as
well as for any deficiency aforesaid, and Landlord shall have the right from
time to time to begin and maintain successive actions or other legal
proceedings against Tenant for the recovery of such deficiency or damages or
for a sum equal to any fixed rent or additional rent and any other sums payable
hereunder which shall then be due and unpaid, and to recover the same upon the
liability of Tenant herein provided, which liability it is expressly covenanted
shall survive the issuance of any action to secure possession of the Premises.
Nothing herein contained shall be deemed to require Landlord to wait to begin
such action or other legal proceeding until the date when this Lease would have
expired by limitation had there been no default by Tenant.
SECTION 16.5. If under any of the preceding provisions of this Section 16
Landlord shall be entitled to give Tenant a notice of termination of the Term,
Landlord without
14
<PAGE> 17
giving such notice of termination and notwithstanding the continuance of the
Term shall have, to the extent permitted by law, all rights, power and remedies
given to Landlord by the preceding provisions of this Section 16, and Tenant
shall have the obligations imposed upon it by such provisions. No such re-entry
or taking of possession of the Premises by Landlord shall be construed as an
election on Landlord's part to terminate the Term unless a written notice of
such intention is given to Tenant or unless such termination is decreed by a
court of competent jurisdiction.
SECTION 16.6. The failure of either party to insist upon the strict
performance of any covenant or agreement or to exercise any option, right,
power or remedy contained in this Lease shall not be construed as a waiver or a
relinquishment thereof for the future. A receipt by Landlord of any fixed rent
or additional rent with knowledge of the breach of any covenant or agreement
contained in this Lease shall not be a waiver of such breach, and no waiver by
either party of any provision of this Lease shall be deemed to have been made
unless expressed in writing and signed by the waiving party. In addition to the
other remedies provided in this Lease, Landlord shall be entitled to injunctive
relief in case of violation, or attempted or threatened violation, of any
covenant, agreement, condition or provision of this Lease and to any other
remedy allowed to Landlord at law or in equity.
SECTION 16.7. Late payment by Tenant to Landlord of Rent and other sums
due will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult and impracticable to
ascertain. Such costs include, but are not limited to, processing and accounting
charges and late charges which may be imposed on Landlord by the terms of any
mortgage or trust deed covering the Premises. Therefore, if any installment of
Rent due from Tenant is not received by Landlord within ten (10) days after the
date such payment is due, Tenant shall pay to Landlord an additional sum of
three percent (3%) of the overdue Rent as a late charge. The parties agree that
this late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant.
SECTION 16.8. No payment by Tenant or receipt by Landlord of a lesser
amount than the Rent payment herein stipulated shall be deemed to be other than
on account of the Rent, 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 such Rent or to pursue any other
remedy provided.
SECTION 17.
ESTOPPEL CERTIFICATES
SECTION 17.1. Tenant shall from time to time upon not less than ten (10)
days prior request by Landlord, execute, acknowledge and deliver to Landlord a
statement in writing, executed by the president or a vice-president of Tenant,
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that this Lease is in full force and effect as
modified, and stating the modifications) and the dates to which the fixed rent
and additional rent and other charges have been paid, and stating whether or
not to the knowledge of the signer of such certificate Landlord is in default
of any covenant, agreement or condition contained in this Lease, and if so
specifying each such default of which the signer may have knowledge, it being
intended that any such statement delivered pursuant to this Section 17 may be
relied upon by any prospective purchaser or mortgagee of the Premises or any
assignee of such mortgagee or by any purchaser of any obligation of Landlord
secured by such mortgage. Landlord will from time to time upon not less than
ten (10) days prior request by Tenant, execute, acknowledge and deliver to
Tenant a statement in writing certifying that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that this Lease is
in full force and effect as modified, and stating the modifications) and
stating whether or not to
15
<PAGE> 18
the knowledge of the signer of such certificate Tenant is in default in the
performance of any covenant, agreement or condition contained in this Lease
and, if so, specifying each such default of which the signer may have knowledge.
SECTION 18.
LIMITATIONS OF LANDLORD'S LIABILITY
SECTION 18.1. If Landlord is in default of this Lease, and as a
consequence, Tenant recovers a money judgment against Landlord, the judgment
shall be satisfied only out of the proceeds of sale received on execution of the
judgment and levy against the right, title and interest of Landlord in the
Premises, and out of rent or other income from such real property receivable by
Landlord or out of the consideration received by Landlord from the sale,
financing, refinancing, or other disposition of all or any part of Landlord's
right, title, and interest in the premises.
SECTION 18.2. Landlord shall not be personally liable for any deficiency.
If Landlord is a partnership or joint venture, the partners of such partnership
shall not be personally liable and no partner of Landlord shall be sued or
named as a party in any suit or action or service of process be made against
any partner of Landlord except as may be necessary to secure jurisdiction of
the partnership or joint venture. If Landlord is a corporation, the
shareholders, directors, officers, employees, and/or agents of such corporation
shall not be personally liable and no shareholder, director, officer, employee
or agent of Landlord shall be sued or named as a party in any suit or action or
service of process made against any shareholder, director, officer, employee or
agent of Landlord. If Landlord is a limited liability company, the members,
employees and/or agents of such limited liability company shall not be
personally liable and no member, employee or agent of Landlord shall be sued or
named as a party in any suit or action or services of process made against any
member, employee or agent of Landlord. No partner, shareholder, director,
employee, or agent of Landlord shall be required to answer or otherwise plead
to any service of process and no judgment will be taken or writ of execution
levied against any partner, shareholder, director, employee or agent of
Landlord.
SECTION 18.3 The term "Landlord" as used in this Lease, so far as covenants
or obligations on the part of Landlord are concerned, shall be limited to mean
and include only Landlord or the successor-in interest of Landlord under this
Lease at the time in question. In the event of any transfer, assignment or the
conveyance of Landlord's title or leasehold, the Landlord herein named (and in
case of any subsequent transfers or conveyances, the then grantor) shall be
automatically freed and relieved, from and after the date of such transfer,
assignment or conveyance, of all liability for the performance of any covenants
or obligations contained in this Lease thereafter to be performed by Landlord
and, without further agreement, the transferee of such title or leasehold shall
be deemed to have assumed and agreed to observe and perform any and all
obligations of Landlord hereunder, during its ownership or ground lease of the
Premises. Landlord may transfer its interest in the Premises or this Lease
without the consent of Tenant and such transfer or subsequent transfer shall not
be deemed a violation on the part of Landlord or the then grantor of any of the
terms or conditions of this Lease.
SECTION 19.
COVENANTS TO RUN WITH THE LAND
SECTION 19.1. Each covenant, agreement, stipulation, provision, condition
and obligation herein expressed and set forth shall be considered as running
with the land and shall extend to, bind and inure to the benefit of, as the
case may require, the successors and assigns
16
<PAGE> 19
of Landlord and Tenant, respectively, or their successors in interest, as fully
as if such words were written whenever reference to Landlord or Tenant occurs
in this Lease.
SECTION 20.
SURRENDER
SECTION 20.1. Upon the expiration or sooner termination of this Lease,
Tenant shall peaceably and quietly leave, yield up and surrender possession of
the Premises to Landlord in the same condition in which the Premises were
received from Landlord at the commencement of the Term, ordinary wear and tear
excepted, and free of occupants and free of any restriction on the immediate
use of the Premises by Landlord or others due to the necessity of Tenant having
to have the Premises inspected by any governmental authority that had issued a
license or permit to Tenant. Tenant shall remove from the Premises within a
reasonable time after such expiration or sooner termination all property
situated thereon which is not owned by Landlord; and Tenant shall at its sole
cost and expense repair any damage caused by such removal. Any property not so
removed shall become the property of Landlord, which may thereafter cause such
property to be removed from the Premises and disposed of, but the cost of any
such removal and disposition shall be borne by Tenant.
SECTION 21.
NOTICES
SECTION 21.1. All notices, approvals, demands, consents, offers,
rejections and requests which may or are required to be given by either party
to the other shall be in writing. All notices, approvals, demands, consents,
offers, rejections and requests shall be served personally or sent by United
States registered or certified mail or by Federal Express (or other nationally
recognized reputable overnight delivery service), postage or charge prepaid,
addressed to Landlord or Tenant, as the case may be, at its address set forth
below, or at such other place as Tenant or Landlord may from time to time
designate in a written notice to the other. Notices, approval, demands,
consents, offers, rejections and requests which shall be sent to Landlord and
Tenant by mail or overnight delivery service in the manner aforesaid shall be
deemed sufficiently served or given if deposited in any U.S. Post Office or
with any overnight delivery service, but shall not be deemed effective until
their actual receipt by the party upon which they are being served.
To Landlord: PW Acquisitions I, LLC
c/o Paine Webber Real Estate Securities, Inc.
1285 Avenue of the Americas
19th Floor
New York, New York, 10019
Attention: William W. Evans, III
With A Copy to: Health Science Properties, Inc.
11440 West Bernardo Court, Suite 170
San Diego, California 92127
Attention: Gary A. Kreitzer, Esq.
To Tenant: Perimmune, Inc.
1330 Piccard Drive
Rockville, MD 20850
Attention: Dr. Michael G. Hanna, Jr.
17
<PAGE> 20
With A copy To: Stern & Kresslein, P.A.
1003 West Seventh Street, Suite 300
Frederick, Maryland 21701
Attention: Seymour B. Stern, Esq.
SECTION 22.
SEPARABILITY
SECTION 22.1. Each covenant and agreement contained in this Lease shall for
all purposes be construed to be a separate and independent covenant and
agreement, and the breach of any covenant or agreement contained herein by
Landlord shall not discharge or relieve Tenant from Tenant's obligation to
perform each covenant and agreement contained herein. If any provision of this
Lease or the application thereof to any person or circumstance shall to any
extent be invalid and unenforceable, the remainder of this Lease, or the
application of such provision to persons or circumstances or other than those as
to which it is invalid or unenforceable, shall not be affected thereby, and each
provision of this Lease shall be valid and shall be enforced to the fullest
extent permitted by law.
SECTION 23.
DAMAGE OR DESTRUCTION
SECTION 23.1. In case of damage or destruction by fire or other casualty to
all or part of the Premises, all fixed rent and additional rent provided by this
Lease shall continue to be paid without abatement. Tenant shall give Landlord
immediate notice of any such damage or destruction. Tenant, as further provided
herein, shall promptly cause the repair, restoration and rebuilding of the
Premises to the same size, design (interior and exterior), configuration
(interior and exterior) and use as the Premises that existed prior to such
damage or destruction, all in such manner that after such repair, restoration
and rebuilding the value of the Premises shall be at least equal to its value
prior to such damage or destruction.
SECTION 23.2. All insurance proceeds, and an amount equivalent to the
deductible coverage on any insurance policy, with respect to any particular
casualty resulting in damage or destruction of less than $50,000.00 in the
aggregate, less any costs of such recovery (such proceeds and deductible amount
being termed "Net Proceeds"), shall be paid to Landlord and delivered to Tenant,
to be applied to cost of restoration. Tenant shall, at its sole cost and
expense, provide the funds equivalent to the deductible insurance coverage. All
Net Proceeds, if any, recovered with respect to any particular casualty
resulting in damage or destruction in excess of $50,000.00 shall be applied to
the payment of the cost of repairing, restoring and rebuilding the Premises
(herein referred to as the "Work"), and shall be paid out from time to time to
Tenant as the Work progresses upon the request of Tenant accompanied by a
certificate of Tenant and the architect or engineer in charge of the Work
stating that: (i) the sum requested has been paid by Tenant to persons who have
rendered services or furnished materials from the Work, or is then due to such
persons and will be paid from the sum requested; and (ii) no part of the cost of
the Work has been the basis for a previous request. Upon the written request of
Landlord, the Net Proceeds shall be deposited with Landlord's mortgagee, and
Landlord's mortgagee shall pay out said Net Proceeds as hereafter provided. The
mortgagee's fees for construction fund control shall be paid solely by Tenant.
Otherwise, the Net Proceeds shall be deposited with Landlord for distribution
hereunder. Upon completion of the Work, any balance of the Net Proceeds held by
Landlord's mortgagee or Landlord, as the case may be, shall be paid to Tenant
upon the request of Tenant accompanied by a certificate of Tenant and the
architect or engineer in charge of the Work stating that the Work has been
completed and that there is no outstanding indebtedness known to Tenant with
respect to the Work. Tenant shall furnish to the holder of the Net Proceeds, at
the time of each such payment, evidence satisfactory to the holder of the Net
Proceeds that there has not been filed with respect to the Premises any
vendor's, mechanic's, materialmen's or other lien as a result of the Work which
has not been discharged of record or bonded, unless Tenant has instituted
proceedings to contest
18
<PAGE> 21
the validity or amount of such lien pursuant to this Lease. The holder of the
Net Proceeds shall not be required to pay out any Net Proceeds when the Premises
are encumbered by any such lien (unless bonding or proceedings shall have been
instituted to contest the same as aforesaid) or if Tenant is otherwise in
default under the Lease. Tenant shall be obligated to repair, restore and
rebuild notwithstanding that the insurance proceeds may not be sufficient to
complete such repair, restoration and rebuilding. The provisions of this Lease
respecting repair, maintenance, alterations and improvements, except to the
extent that such provisions are clearly inconsistent with the provisions of this
Section, shall apply to Work required to be done under this Section. In the
event that Landlord's mortgagee applies the Net Proceeds to the payment of
Landlord's indebtedness, Landlord shall provide to Tenant an amount equal to the
Net Proceeds to be applied to the cost of restoration; provided, however, that
if on the date of the damage or destruction the Term has less than five (5)
years remaining Landlord shall not have any obligation to provide such sum
unless Tenant exercises an option for a Renewal Term pursuant to Section 33.1
within ten (10) days following notice by Landlord to Tenant that Landlord's
mortgagee intends to apply, or has applied, the Net Proceeds against Landlord's
indebtedness. In the event that Landlord is obligated to and fails to provide to
Tenant funds for restoration, Tenant shall have the right (a) to restore the
Premises with its own funds, or (b) terminate this Lease with respect to the
portion of the Premises damaged or destroyed, or (c) to terminate this Lease in
its entirety. If Tenant elects to terminate this Lease with respect to the
damaged portion of the Premises (i) the fixed rent shall be proportionately
reduced, (ii) the Premises shall thereafter be deemed to exclude the damaged
portion thereof, and (iii) Tenant shall have the right to terminate this Lease
with respect to the undamaged portion of the Premises. Provided Landlord has
notified Tenant in advance of its intention to secure adequate funds to effect
repairs to the undamaged portions of the Premises, the Tenant's right to
terminate this Lease pursuant to subsection (iii) above shall expire at such
time as Landlord notifies Tenant that it has secured funds to effect the
repairs, unless prior to such notification Tenant waives its right to require
such repairs and accepts the undamaged portion of the Premises at the then
reduced rent in satisfaction of the Landlord's obligations to deliver possession
of the entire demised premises under this Lease or unless Tenant has prior to
such notification executed and delivered a lease for other premises consisting
of not less than 130,000 square feet of rentable area. In the event that (x)
Tenant has elected to terminate this Lease with respect to the damaged portion
of the Premises and (y) Tenant's right to terminate this Lease with respect to
the undamaged portion of the Premises has expired, this Lease shall be deemed to
have been amended to include within the Premises the damaged portion thereof
from and after the date on which Tenant's right to terminate shall have expired.
SECTION 23.3. If the Premises is so damaged or destroyed by fire or other
casualty as to be no longer economically useful to Tenant in the conduct of its
business, Tenant in lieu of repairing, restoring and rebuilding such
improvements may terminate this Lease by giving not less than thirty (30) days
notice of such termination to Landlord. Notice having been so given, this Lease
shall terminate on the date specified in such notice, and all Net Proceeds
payable as a result of such damage or destruction, except any insurance proceeds
payable to Tenant for loss of its use and occupancy, shall be paid to Landlord.
SECTION 24.
CONDEMNATION
SECTION 24.1. If during the Term: (a) the whole of the Premises is taken
for any public or quasi-public use, under any statute, or by right of eminent
domain; or (b) if any part of the Premises is so taken, and the part not taken
is insufficient for the operation of the Tenant's business at the Premises, then
when possession has been taken thereunder, this Lease shall terminate, the fixed
rent, additional rent, and the other items payable under this Lease shall be
adjusted and paid to the time of such possession, and Landlord shall be entitled
to the entire award, compensation or damages from the condemning authority. If
any such taking is insufficient, under the provisions of this Section to
terminate this Lease, Landlord shall be entitled to the entire award,
compensation or damages from the condemning authority. This Lease shall remain
unaffected, except:
19
<PAGE> 22
(a) the fixed rent shall be reduced by an amount equal to the
square footage of the taking of constructed improvements multiplied by the
fixed rent measured on a square footage basis immediately before the taking.
Until the new fixed rent is determined, Tenant shall pay the rate thereinbefore
specified, and, upon such determination, an appropriate adjustment shall be
made and Tenant shall receive credit for any overpayment.
(b) Tenant shall proceed diligently to repair, restore and
rebuild the Premises as nearly as possible to its character, condition and value
immediately prior to such condemnation. Landlord shall make available to Tenant
so much of the award as is actually received by Landlord, less all reasonable
expenses paid or incurred by Landlord in the condemnation proceeding, as may be
necessary to pay for the cost of repairing, restoring and rebuilding. All
repairs, restoration and rebuilding shall be performed in accordance with the
provision of this Lease and payments to Tenant shall be disbursed in the manner
set forth in Section 23. Any balance of said award thereafter shall be the sole
property of Landlord.
SECTION 24.2. In the event of any taking or condemnation, Tenant shall
not be entitled to compensation for the value of its leasehold estate so taken
or condemned and Tenant shall have no right to participate in the condemnation
proceedings. However, Tenant may make a separate claim in its own name for loss
of business, moving expenses and the unamortized cost of fixtures and equipment
paid for by Tenant during the Term and taken, condemned or injured; provided
that Tenant's award, compensation or damages shall not reduce Landlord's award.
SECTION 25.
MODIFICATIONS
SECTION 25.1. No other agreement, statement, or promise made by either
party hereto or by any employee, officer, or agent of either party hereto
relating to the subject matter of this Lease which is not contained herein
shall be binding or valid, unless subsequently agreed in writing between the
parties hereto. No provision of this Lease shall be construed to waive or
impair any of Tenant's rights pursuant to any other agreement between Landlord
and Tenant.
SECTION 26.
HAZARDOUS MATERIAL
SECTION 26.1. Tenant shall not cause or permit any Hazardous Material
(as hereinafter defined) to be brought upon, kept or used in or about the
Premises in violation of applicable law by Tenant, its agents, employees,
contractors or invitees. If Tenant breaches the obligation stated in the
preceding sentence, or if the presence of Hazardous Materials results in
contamination of the Premises, or any adjacent property or if contamination of
the Premises, or any adjacent property by Hazardous Material otherwise occurs
during the Term or any extension or renewal hereof or holding over hereunder,
then Tenant shall indemnify, defend and hold Landlord, its agents and
contractors harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities, or losses (including, without limitation, diminution
in value of the Premises, damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Premises, damages arising
from any adverse impact on marketing of space in the Premises, and sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees) which
arise during or after the Term as a result of such contamination. This
indemnification of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation of site conditions or any
cleanup, remedial, removal, or restoration work required by any federal, state
or local governmental agency or political subdivision because of Hazardous
Material present in the air, soil or ground water above, on or under the
Premises. Without limiting the foregoing, if the presence of any Hazardous
Material on the Premises or any adjacent property caused or permitted by Tenant
results in any contamination of the Premises
20
<PAGE> 23
or any adjacent property, Tenant shall promptly take all actions at its sole
expense as are necessary to return the Premises or any adjacent property, to
the condition existing prior to the time of such contamination, provided that
Landlord's approval of such action shall first be obtained, which approval
shall not be unreasonably withheld so long as such actions would not
potentially have any material adverse long-term or short-term effect on the
Premises.
SECTION 26.2. Landlord acknowledges that it is not the intent of this
Section 26 to prohibit Tenant from operating its business. Tenant may operate
its business according to the custom of the industry so long as the use or
presence of Hazardous Material is strictly and properly monitored according to
all applicable governmental requirements. As a material inducement to Landlord
to allow Tenant to use Hazardous Material in connection with its business,
Tenant agrees to promptly deliver to Landlord a list identifying each type of
Hazardous Material to be present on the Premises and setting forth any and all
governmental approvals or permits required in connection with the presence of
such Hazardous Material on the Premises ("Hazardous Material List"). Tenant
shall deliver to Landlord an updated Hazardous Material List at least once a
year and shall also deliver an updated list before any new Hazardous Material
is brought onto the Premises. Tenant shall promptly deliver to Landlord true
and correct copies of the following documents (hereinafter referred to as the
"Documents") relating to the handling, storage, disposal and emission of
Hazardous Material: permits; approvals; reports and correspondence; storage and
management plans, notice of violations of any laws; plans relating to the
installation of any storage tanks to be installed on or under the Premises; and
all closure plans or any other documents required by any and all federal, state
and local governmental agencies and authorities for any storage tanks installed
in, on or under the Premises for the closure of any such tanks. Tenant is not
required, however, to provide Landlord with any portion(s) of the Documents
containing information of a proprietary nature which, in and of themselves, do
not contain a reference to any Hazardous Material or hazardous activities. It
is not the intent of this Section to provide Landlord with information which
could be detrimental to Tenant's business should such information become
possessed by Tenant's competitors.
SECTION 26.3. At any time, and from time to time, prior to the
expiration of the Term, Landlord shall have the right to conduct appropriate
tests of the Premises, to demonstrate that contamination has occurred as a
result of Tenant's use of the Premises. Tenant shall be solely responsible for
and shall defend, indemnify and hold Landlord, its agents and contractors
harmless from and against any and all claims, costs and liabilities including
actual attorneys' fees, charges and disbursements, arising out of or
in connection with any removal, clean up, restoration and materials required
hereunder to return the Premises and any other property of whatever nature to
their condition existing prior to the time of any such contamination. Tenant
shall pay for the cost of the tests of the Premises.
SECTION 26.4. If underground or other storage tanks storing Hazardous
Materials are located on the Premises or are hereafter placed on the Premises
by any party, Tenant shall monitor the storage tanks, maintain appropriate
records, implement reporting procedures, properly close any underground storage
tanks, and take or cause to be taken all other steps necessary or required
under all applicable laws.
SECTION 26.5. Tenant's obligations under this Section 26 shall survive
the expiration or earlier termination of the Lease.
SECTION 26.6. As used herein, the term "Hazardous Material" means
any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the State of Maryland or the
United States government. The term "Hazardous Material" includes, without
limitation, any material or substance which is (i) a "hazardous substance" or
"hazardous waste" as defined by Maryland Environment Code Ann., Title 7,
Subtitle 2 (1993), as amended from time to time, and regulations promulgated
thereunder; (ii) "oil" as defined by Maryland Environmental Code Ann., Section
4-401(g)(1993), as amended from time to time, and regulations promulgated
thereunder; (iii) designated as a "hazardous substance" pursuant to Section 311
of the Federal Water Pollution Control Act (33 U.S.C. Section 1317), (iv)
defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conversation and Recovery Act, 42 U.S.C. Section 6901, et. seq. (42 U.S.C.
21
<PAGE> 24
Section 6903), or (v) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response Compensation and Liability Act,
42 U.S.C. Section 9601 et. seq. (42 U.S.C. Section 9601).
SECTION 27.
SUBORDINATION/NON-DISTURBANCE
SECTION 27.1. This Lease is subject and subordinate at all times to the
lien of all mortgages, indentures and deeds of trust in any amount whatsoever
which are now or hereafter placed on or against Landlord's interest or the
estate in the Premises, provided that the mortgagee or beneficiary under such
mortgage, indenture or deed of trust shall agree in writing that, in the event
of foreclosure of same or of any other such action or proceeding for the
enforcement thereof, or of any sale thereunder, this Lease will not be barred,
terminated, cut off or foreclosed nor will the rights and possession of Tenant
hereunder be disturbed if Tenant shall not then be in default in the payment of
Rent or other sums beyond the applicable cure period and shall not otherwise be
in default under the terms of this Lease beyond the applicable cure period and
shall not otherwise be in default under the terms of this Lease beyond the
applicable cure period. Tenant shall attorn to purchaser at such foreclosure
sale, sale or other action or proceeding. The foregoing subordination shall be
effective without the necessity of having any further instruments executed by
Tenant. Tenant shall nonetheless execute upon demand such further instruments
evidencing such subordination as may be reasonably requested by Landlord or any
mortgagee or beneficiary and which are consistent with the foregoing provisions
of this Section 27.1. Tenant shall have the right (but shall not be obligated)
to correct or remedy, any default upon the part of Landlord to be made in
respect to or on account of, any mortgage, indenture, trust deed, or lien by
Landlord so made, placed or created, as superior to that of Tenant's estate
hereunder. Landlord agrees that, in the event Tenant shall make any such
payment so in default, Tenant shall thereupon be subrogated pro tanto to the
rights of such mortgagee, lien holder, or beneficiary, and Tenant may deduct
the same from the installments of fixed rent that are becoming due and payable
hereunder, until the amount of any such payment by Tenant shall have been fully
deducted from the fixed rent so due hereunder.
SECTION 28.
TENANT ACCEPTS THE PREMISES "AS IS"
SECTION 28.1. Tenant has occupied the Premises for several years and thus
is fully familiar with the condition of the Premises and the buildings,
improvements, fixtures and equipment thereof. Landlord has made no
representations of any nature in connection with the condition of the Premises
or the buildings, improvements, fixtures or equipment thereon; and Landlord
shall not be liable for any latent or patent defects therein. Tenant shall be
presumed to have accepted possession of the Premises under this Lease on the
first day of the Term, and such acceptance of possession by Tenant shall be
conclusive evidence as against Tenant that the Premises is in good and
satisfactory condition when possession of the same is so accepted.
SECTION 29.
BANKRUPTCY
SECTION 29.1. In the event a debtor, trustee, or debtor in possession
under the Bankruptcy Code, or other person with similar rights, duties and
powers under any other law, proposes to cure any default under this Lease or to
assume or assign this Lease, and is obliged to provide adequate assurance to
Landlord that (i) a default will be cured, (ii) Landlord will be compensated for
its damages arising from any breach of this Lease, or (iii) future performance
under this Lease will occur, then adequate assurance shall include any or all of
the following, as designated by Landlord.
22
<PAGE> 25
(a) Those acts specified in the Bankruptcy Code or other law as included
within the meaning of adequate assurance, even if this Lease does not concern a
shopping center or other facility described in such laws;
(b) A prompt cash payment to compensate Landlord for any monetary
defaults or actual damages arising directly from a breach of this Lease;
(c) A cash deposit in an amount at least equal to two (2) month's fixed
rent;
(d) The assumption or assignment of all of Tenant's interest and
obligations under this Lease.
SECTION 30.
BROKERS
SECTION 30.1. Tenant represents and warrants that it has had no dealings
with any real estate broker or agent in connection with the negotiation of this
Lease other than Manekin Corporation, Smithy Braedon and Kline/Scott/Visco, as
have been disclosed in writing to Landlord and that it knows of no other real
estate broker or agent who is or might be entitled to a commission in connection
with this Lease. Tenant acknowledges that Landlord has no obligation to pay any
fee or commission of any kind whatsoever to the aforementioned brokers in
connection with this Lease and Tenant hereby agrees to indemnify and hold
Landlord harmless against any claim for brokerage or other compensation by any
broker, agent or finder including the aforementioned brokers.
SECTION 30.2. Tenant represents and warrants that no broker or agent has
made any representation or warranty relied upon by Tenant in Tenant's decision
to enter into this Lease other than as contained in this Lease.
SECTION 31.
WAIVER OF JURY TRIAL AND COUNTERCLAIMS
SECTION 13.1. The parties hereto shall and they hereby do waive trial by
jury in any action, proceeding or counterclaims brought by either of the parties
hereto against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Premises, or any claim of injury or damage.
SECTION 32.
WAIVER AND MODIFICATION
SECTION 32.1. No provision of this Lease may be modified, amended or added
to except by an agreement in writing. The waiver by Landlord of any breach of
any term, covenant or condition herein contained shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition herein contained.
SECTION 33.
OPTIONS TO RENEW
SECTION 33.1. Provided Tenant is not in default under this Lease, Tenant
shall have the right, at its option, to extend this Lease for four (4)
successive terms (each, a "Renewal
23
<PAGE> 26
Term") of five (5) years by giving Landlord notice of such election at any time
not later than one year preceding the scheduled date of expiration of this
Lease, and upon the giving of such notice this Lease thereupon shall, subject to
the provision of Section 33.2, be automatically extended for a Renewal Term with
the same force and effect as if the Renewal Term had been originally included in
the Term, without the execution of any further instrument.
SECTION 33.2. Any notice of election to exercise an option to extend as
hereinabove provided must be in writing and sent to Landlord as provided in
Section 21. In addition, if prior to the exercise of an option to extend Tenant
herein named shall have assigned this Lease, no notice by the then Tenant of
election to exercise an option to extend shall be valid unless joined in or
consented to in writing by Tenant herein named (which consent, in order for the
exercise of such option to be effective, shall be delivered to Landlord at or
prior to the time of the exercise of the option as to which the consent of
Tenant herein named has been given). Neither any option granted to Tenant in
this Section to extend the Term, nor the exercise of any such option by Tenant,
shall prevent Landlord from exercising any option or right granted or reserved
to Landlord in this Lease to terminate this Lease and the effective exercise of
any such right of termination by Landlord shall terminate any such renewal or
extension and any right of Tenant to any such renewal or extension, whether or
not Tenant shall have exercised any such option to extend the Term. Any such
option or right on the part of Landlord to terminate this Lease pursuant to the
provisions hereof shall continue during the Renewal Terms.
SECTION 33.3. All of the terms, covenants and conditions of this Lease
shall continue in full force and effect during the Renewal Terms except that (a)
the fixed rent for the Renewal Terms shall be as set forth in Section 33.4 (all
other rent and charges payable by Tenant remaining unaffected), and (b) there
shall be no further privilege of extension of this Lease beyond the fourth (4th)
Renewal Term.
SECTION 33.4. Fixed rent during the Renewal Terms shall be as follows:
(a) Two Million Two Hundred Ten Thousand Seven Hundred Forty Two and
00/100 Dollars ($2,210,742.00) per annum for the period from the first day of
the first Renewal Term through the last day of the first year of the first
Renewal Term. On each anniversary of the first day of the first Renewal Term,
the fixed rent shall be increased by an amount equal to three percent (3%) of
the fixed rent then in effect;
(b) Fixed rent for the first year of the second, third and fourth
Renewal Terms shall be an amount equal to the fixed rent then in effect plus an
amount equal to three percent (3%) thereof. On each anniversary of the first
day of each Renewal Term, the fixed rent shall be increased by an amount equal
to three percent (3%) of the fixed rent then in effect.
SECTION 34.
CAPTIONS
SECTION 34.1. The captions herein are inserted only as a matter of
convenience for reference and in no way define, limit or describe the scope of
this Lease nor the intent of any provisions thereof.
SECTION 35.
DECLARATION OF GOVERNING LAW
SECTION 35.1. This Lease shall be governed by, construed and enforced in
accordance with laws of the State of Maryland.
24
<PAGE> 27
SECTION 36.
HOLDING OVER
SECTION 36.1. If Tenant remains in possession of the Premises after the
expiration or earlier termination of the Term without the express written
consent of Landlord, Tenant shall become a tenant at sufferance upon the terms
of this Lease except that the monthly rental shall be equal to one hundred
fifty percent (150%) of the rent (fixed rent and additional rent) in effect
during the last thirty (30) days of the Term.
SECTION 37.
SUCCESSORS AND ASSIGNS
SECTION 37.1. Every provision of this Lease will bind and inure to the
benefit of the heirs, executors, administrators, successors and assigns of the
parties. Neuter pronouns will be construed as masculine or feminine pronouns,
and singular pronouns and verbs will be construed as plural where the context
requires.
SECTION 38.
COUNTERPARTS
SECTION 38.1. This Lease may be executed in counterparts, each of which
shall constitute but one and the same instrument.
WITNESS WHEREOF, Landlord and Tenant have respectively caused this Lease
to be executed as of the 15th day of January 1997.
LANDLORD: TENANT:
PW ACQUISITIONS I, LLC, a Delaware PERIMMUNE, INC.
limited liability company
By: (illegible)
By: PW REALTY PARTNERS, LLC, -----------------------------
a Delaware limited liability
company Its: (illegible)
----------------------------
By: PW ACQUISITIONS CORP.,
a Delaware corporation Date: Jan. 13, 1997
---------------------------
By:
--------------------------
Kevin D. Cox
Vice President
25
<PAGE> 1
EXHIBIT 10.2
LEASE AGREEMENT
---------------
BETWEEN
WARD CORPORATION, a Maryland Corporation, as Landlord
AND
Organon Teknika Corporation, a Delaware Corporation,
as Tenant
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Sections Description Page No.
-------- ----------- --------
<S> <C> <C>
1. Definitions 3
2. Rent; Additional Rent 3
3. Additional Rent 3
4. Delivery and Condition of Premises 4
5. Operation of Building and Real Property 4
6. Conduct of Business by Tenant 4
7. Alterations and Tenant's Property 4
8. Repairs 5
9. Liens 5
10. Subordination and Modification
11. Inability to Perform 5
12. Destruction 5
13. Eminent Domain 5
14. Assignment and Subletting 6
15. Building Services 6
16. Default; Remedies 6
17. Insolvency or Bankruptcy 7
18. Fees and Expenses; Indemnity; Liability Insurance 7
19. Access to Premises 8
20. Waiver; Release 8
21. Tenant's Certificates 8
22. Rules and Regulations 8
23. Tax on Tenant's Personal Property 8
24. Authority 8
25. Signage 8
26. Parking 8
27. Miscellaneous 9
Exhibits "A" and "C"
Addendum to Lease
</TABLE>
<PAGE> 3
LEASE
THIS LEASE is made and entered into as of this 30th day of April, 1991,
by and between WARD CORPORATION, a Maryland corporation (herein called
"Landlord), and Organon Teknika Corporation, a Delaware Corporation (herein
called "Tenant").
W I T N E S S E T H:
Upon and subject to the terms, covenants and conditions hereinafter set
forth, Landlord leases to Tenant and Tenant leases from Landlord the Premises
(as hereinafter defined) in the Building.
1. Definitions
1.1 Additional Rent: As defined in Section 2.4, below.
1.2 Basic Rent: As defined in Section 2.1, below.
1.3 Building: The building located at 1300 Piccard Drive, Rockville,
Maryland 20850, upon the Real Property.
1.4 Guarantor(s): N/A
1.5 Lease: This Lease, as amended from time to time, and all
Exhibits attached hereto.
1.6 Lease Commencement Date: June 1, 1991.
1.7 Lease Year: Each period of twelve (12) calendar months during
the Term, commencing on the Lease Commencement Date and Partial Lease Year
ending on the Term Expiration Date.
1.8 Operating Expenses Base Amount. Intentionally Deleted.
1.9 Premises: Approximately Eight Hundred Three (803) square feet of
rentable floor area, located on the Lower Level, within the Building, and
outlined on Exhibit A, attached hereto.
1.10 Real Estate Taxes Base Amount. Intentionally Deleted.
1.11 Real Property: The land comprising all that certain parcel of
land situated in Montgomery County, Maryland, and identified as Lot Six (6) in a
subdivision known as "Lots Four (4), Five (5) and Six (6) and dedication of part
of Piccard Drive, 70-S Industrial Park" as per plat thereof recorded in Plat
Book 87 at plat 9281 among the land records of Montgomery County, Maryland (Tax
Account Number 4-201-1457).
1.12 Term: The four year (4) period commencing on the Lease
Commencement Date and ending on the Term Expiration Date, unless the Term shall
sooner terminate as hereinafter provided.
1.13 Term Expiration Date: May 31, 1995
2. Rent; Additional Rent
2.1 Basic Rent. Commencing on the Lease Commencement Date, Tenant
shall pay to Landlord during the Term a base rental ("Basic Rent") equal to Six
Hundred Two and 25/100 Dollars ($602.25) per month in gross. Basic Rent shall be
payable by Tenant in lawful money of the United States in equal consecutive
monthly installments of one-twelfth the Basic Rent on or before the first day of
each calendar month, in advance, at the address specified for Landlord below, or
such other place as Landlord shall designate, without any prior demand therefor
and without any deductions or setoff whatsoever. Rent for any partial month
shall be prorated at the rate of one-thirtieth (1/30th) of the monthly Basic
Rent per day.
2.2 Above Standard Improvement Rental Rate. Intentionally Deleted.
2.3. Adjustment of Rent. The Basic Rent set forth in Paragraph 2.1
hereinabove shall be increased as follows:
<TABLE>
<CAPTION>
Date New Monthly Rent
---- ----------------
<S> <C>
6/1/92 $ 620.32
6/1/93 $ 639.05
6/1/94 $ 658.46
</TABLE>
2.4 Additional Rent. Tenant shall pay to Landlord as additional rent
hereunder, all charges and other amounts required under this Lease. All such
amounts and charges shall be payable to Landlord at the time and at the place
where Basic Rent is payable. Landlord shall have the same remedies for a default
in the payment of additional rent as for a default in the payment of Basic Rent.
2.5 Late Payment Charge. If Tenant shall fail to pay any Basic Rent
or Additional Rent within five (5) days after the same is due and payable, such
unpaid amounts shall be subject to a late payment charge equal to ten percent
(10%) of such unpaid amounts in each instance to cover Landlord's additional
administrative costs resulting from Tenant's failure. Such late payment charge
shall be paid to Landlord together with such unpaid amounts.
2.6 Returned Check Charge. A service charge of Fifty and 00/100
Dollars ($50.00) will be automatically made for each instance in which a check
is returned unpaid for any reason by the Tenant's bank.
3
<PAGE> 4
3. Intentionally Deleted.
4. Delivery and Condition of Premises. Tenant agrees to accept the
Premises in their "as is" condition and further agrees to be fully responsible
for any alterations or improvements thereto. However, it is understood and
agreed that Tenant will obtain all necessary permits to construct the premises
as required by Code. Landlord shall furnish six (6) 2' X 4' fluorescent light
fixtures for installation by Tenant.
5. Operation of the Building and the Real Property
5.1 Maintenance of Building. The manner in which the Building and
the Real Property are maintained and operated and the expenditures therefor
shall be at the sole discretion of Landlord, in a manner consistent with similar
office buildings in Montgomery County.
5.2 Alterations or Additions. Landlord hereby reserves the right, at
any time and from time to time, to make alterations or additions to the
Building and the Real Property. Landlord also reserves the right at any time and
from time to time to construct other improvements in the Building and to enlarge
same and make alterations therein or additions thereto.
6. Conduct of Business by Tenant
6.1 Permitted Use. Tenant shall use and occupy the Premises during
the Term of the Lease solely for use for storage of files, as permitted by law,
and for no other use or uses without the prior written consent of Landlord.
6.2 Uses Not Permitted. Tenant shall not use or occupy, or permit
the use or occupancy of, the Premises or any part thereof for any use other than
the use specifically set forth in Section 6.1 hereof, or in any manner that, in
Landlord's judgment, would adversely affect or interfere with any services
required to be furnished by Landlord to Tenant or to any other tenant or
occupant of the Building, or with the proper and economical rendition of any
such service, or with the use or enjoyment of any part of the Building by any
other tenant or occupant.
6.3 Tenant's Compliance with Laws. Tenant, at Tenant's cost and
expense, shall comply with all laws, orders and regulations of federal and
municipal authorities, and with all directions, pursuant to law, of all public
officers, that shall impose any duty upon Landlord or Tenant with respect to the
Premises or the use or occupancy thereof.
6.4 Tenant's Compliance with Insurance Requirements, etc. Tenant
shall not do anything, or permit anything to be done, in or about the Premises
which shall conflict with the provisions of any insurance policies covering the
Building or any property located therein, or result in a refusal by any
insurance company to insure the Building or any such property, in amounts
reasonably satisfactory to Landlord, or subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business
operation being conducted in the Premises, or cause any increase in the
insurance rates applicable to the Building or property located therein. Tenant,
at Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body that shall hereafter perform the
function of such Association.
7. Alterations and Tenant's Property
7.1 Initial Improvements. Intentionally Deleted.
7.2 Approved Alterations. Tenant shall make no alterations,
installations, additions or improvements in or to the Premises or any portion
thereof or any alteration to the mechanical systems of the Premises or any
portion thereof, including, without limitation, the plumbing and air
conditioning systems of the Premises or any portion thereof or to the apparatus
of the Premises or any portion thereof of other or like nature without
Landlord's prior written consent, which shall not be unreasonably withheld.
7.3 Requirements for Approved Alterations. Each alteration,
installation, addition or improvement, shall be subject to the limitations that
such Alteration (a) does not adversely affect the structural strength of the
Premises or any portion thereof; (b) does not adversely affect the mechanical,
plumbing, electrical and HVAC systems of the Premises or any portion thereof;
(c) does not materially affect the external appearance or value of the Premises
or any portion thereof; and
(d) does not diminish or impair the use of the Building as a first class office
building. Prior to making any alteration, plans and specifications therefor in
such detail as Landlord may request shall be submitted to Landlord and the
mortgagees of the Building for approval.
7.4 Standards for Approved Alterations. All Alterations made by
Tenant in the Premises or any portion thereof shall be constructed and completed
in a good and workmanlike manner at Tenant's sole cost and expense by
contractors approved by Landlord. Prompt payment shall be made by Tenant and
Tenant shall keep the Premises free of mechanics' and materialmen's liens and
cause the same to be promptly discharged or bonded. Tenant shall deliver to
Landlord written and unconditional waivers of mechanics' and materialmen's liens
upon the Real Property for all work, labor and services to be performed and
material to be furnished in connection with the proposed Alterations. Tenant
shall obtain all necessary governmental permits, licenses and approvals, and
shall promptly comply with all applicable laws. The Alterations shall be
completed in accordance with the approved plans and specifications where such
approvals are required.
7.5 Tenant's Property. All appurtenances, fixtures, improvements,
additions and other property attached to or installed in the Premises, whether
by Landlord or by or on behalf of Tenant, and whether at Landlord's expense or
Tenant's expense, or at the joint expense of Landlord and Tenant, shall be and
remain the property of Landlord. Any furnishings and personal property placed in
the Premises that are removable without material damage to the Building or the
Premises, whether the property of Tenant or leased by Tenant, are herein called
"Tenant's Property". Any replacements of any property of Landlord, whether made
at Tenant's expense or otherwise, shall be and remain the property of Landlord.
4
<PAGE> 5
7.6 Removal of Tenant's Property. Any of Tenant's Property on
the Premises prior to the Term Expiration Date shall be removed by Tenant at
Tenant's cost and expense, and Tenant shall, at its cost and expense, repair
any damage to the Premises or the Building caused by such removal, all on or
before the Term Expiration Date. Any of Tenant's Property not removed from the
Premises prior to the expiration of the Term shall, at Landlord's option,
become the property of Landlord or Landlord may remove such Tenant's Property,
and Tenant shall pay to Landlord Landlord's costs of removal and of any repairs
in connection therewith within ten (10) days after the receipt of a bill
therefor. Tenant's obligation to pay any such costs shall survive any
termination of this Lease.
8. REPAIRS
8.1 Maintenance of Premises. Tenant shall maintain the
Premises and, at Tenant's cost and expense, shall make all repairs and
replacements to preserve the Premises in good working order and in clean, safe
and sanitary condition.
8.2 Repairs by Tenant. All repairs and replacements made by or
on behalf of Tenant or any person claiming through or under Tenant shall be
made and performed (a) at Tenant's cost and expense and at such time and in
such manner as Landlord may designate, (b) by contractors or mechanics approved
by Landlord, (c) so that same shall be at least equal in quality, value, and
utility to the original work or installation, and (d) in accordance with the
rules and regulations for the Building and the Real Property adopted by
Landlord from time to time, and in accordance with all applicable laws and
regulations of governmental authorities having jurisdiction over the Premises.
If Landlord gives Tenant notice of the necessity of any repairs or replacements
required to be made under Section 8.1 above and Tenant fails to commence
diligently to effect the same within ten (10) days thereafter, Landlord may
proceed to make such repairs or replacements and the expenses incurred by
Landlord in connection therewith shall be due and payable from Tenant upon
demand as Additional Rent; provided, that Landlord's making any such repairs or
replacements shall not be deemed a waiver of Tenant's default in failing to
make the same.
8.3 Maintenance of Common Areas. Landlord shall operate and
maintain the common or public areas of the Real Property and the Building in a
manner deemed by Landlord, in its sole discretion, in a manner consistent with
similar office buildings in Montgomery County.
9. Liens. Intentionally Deleted.
10. Subordination and Modification
10.1 Subordination of Lease. Without the necessity of any
additional document being executed by Tenant for the purpose of effecting a
subordination, Tenant agrees that this Lease and Tenant's tenancy hereunder are
and shall be automatically subject and subordinate at all times to (a) all
ground leases or underlying leases that may now exist or hereafter be executed
affecting the Building or the Real Property or both, (b) the lien of any
mortgage deed of trust or similar security instrument that may now exist or
hereafter be executed in any amount for which the Building, the Real Property,
ground leases or underlying leases, or Landlord's interest or estate in any of
said items is specified as security, and (c) all renewals, modifications,
consolidations, replacements and extensions of any of the foregoing.
Tenant covenants and agrees to execute and deliver, upon
demand by Landlord and in the form requested by Landlord, any additional
documents evidencing the subordination of this Lease with respect to any such
ground lease or underlying lease, or the lien of any such mortgage or deed of
trust. If Tenant fails to execute such instruments within fifteen (15) days
after written request therefor, Landlord is hereby appointed Tenant's
attorney-in-fact to execute, acknowledge and deliver any and all such
instruments for and on behalf of Tenant.
10.2 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 of any ground lease, underlying
lease or lien to this Lease, attorn to and become the Tenant of the successor
in interest to Landlord at the option of such successor in interest.
10.3 Amendment or Modification. If, in connection with any loan
secured by a mortgage or deed of trust affecting the Building, Real Property or
both, the lender should require any amendment or modification of the terms
hereof, Tenant shall duly execute and deliver any instrument reasonably
requested by such lender to affect such amendment or modification; provided,
that such amendment or modification shall not enlarge the term hereof or
increase the amount of Basic Rent payable hereunder.
11. Inability to Perform; No Delay to Constitute Eviction.
Intentionally Deleted.
12. Destruction
12.1 Intentionally Deleted.
12.2 Intentionally Deleted.
12.3 Intentionally Deleted.
12.4 Intentionally Deleted.
12.5 No Abatement of Rent if Damage Caused by Tenant. If any
such damage is due to the fault or neglect of Tenant, any person claiming
through or under Tenant, or any of their servants, employees, agents,
contractors, visitors or licensees, then there shall be no abatement of Basic
Rent by reason of such damages, unless Landlord is reimbursed for such
abatement of Basic Rent pursuant to any rental insurance policies that Landlord
may, in its sole discretion, elect to carry.
13. Eminent Domain. Intentionally Deleted.
5
<PAGE> 6
14. Assignment and Subletting
14.1 No Assignment or Subletting Permitted. Tenant shall not
directly or indirectly, voluntarily or by operation of law, sell, assign,
sublease, pledge or otherwise transfer or hypothecate all or any part of the
Premises or Tenant's leasehold estate hereunder, without first obtaining
Landlord's prior written consent, which consent will not be unreasonably
withheld. A transfer of fifty percent (50%) or more of the ownership interests
of Tenant within any twelve (12) month period shall be deemed equivalent to an
assignment or subletting requiring the consent of Landlord. Notwithstanding the
foregoing, a corporate reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986 shall not be considered an assignment or
subletting within the meaning of this Section 14.1. Tenant agrees that any
permitted assignment or subletting hereunder may be conditioned upon payment of
consideration to be agreed upon by Landlord and Tenant.
14.2 Procedure for Assignment, Subletting. If Tenant desires at
any time to assign, sublease or otherwise transfer the Premises or any portion
thereof, it shall send a written notice to Landlord, which notice shall contain
(a) the name of the proposed occupant or subtenant, (b) the nature of the
proposed occupant's or subtenant's business to be carried on in the Premises,
(c) the portion(s) of the Premises to be subject to such assignment or sublease
and the other terms and provisions of the proposed assignment or sublease, (d)
such financial information as Landlord may reasonably request concerning the
proposed occupant or subtenant, and (e) a true copy of a proposed assignment or
sublease.
14.3 No Release of Tenant. No assignment or sublease by Tenant
shall relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the assignment or sublease. Any
assignment or sublease that is not in compliance with this Section 14 shall be
void and, at the option of Landlord, shall constitute a default by Tenant under
this Lease.
15. Building Services.
15.1 Standard Services. Landlord shall furnish reasonably
adequate electrical power for all normal office machines and lighting, and
water without additional cost to Tenant. Landlord shall furnish hot and cold
water at those points of supply provided for the general use of all of the
tenants in the Building. Landlord shall provide routine maintenance, painting
and electrical lighting service for all public areas and special service areas
of the Building, in the manner and to the extent deemed by the Landlord to be
standard. In the event an air conditioner unit or units (in excess of Building
Standard Improvements), for the purposes of cooling computers or other office
machinery, are installed by Tenant, the operation of the unit(s) shall be under
Tenant's control, and the maintenance costs shall be the obligation of Tenant.
Failure by Landlord to any extent to furnish these defined services unless
caused by Landlord's gross negligence, or any cessation thereof, or delay
thereof caused by breakdown, maintenance, repairs, strikes, scarcity of labor
or materials, acts of God or from any other cause, shall not render Landlord
liable in any respect for damages to either person or property, nor shall such
events be construed an eviction of Tenant, nor work an abatement of Basic Rent
or Additional Rent, nor relieve Tenant from the fulfillment of any term,
condition, covenant or agreement contained in this Lease. Should any of the
Building equipment or machinery break down, or for any cause or reason cease to
function properly, Landlord shall use reasonable diligence to repair the same
promptly, but Tenant shall have no claim for rebate of Basic Rent or Additional
Rent or for any damages on account of any interruptions in service occasioned
thereby or resulting therefrom. Where the Landlord does not pursue said cause
diligently, Tenant may, upon written notice to Landlord, have said repairs or
maintenance performed by Landlord's approved contractors and deduct the
reasonable cost for same from the amount owed to Landlord thereafter.
15.2 Additional Services. Intentionally Deleted.
16. Default; Remedies
16.1 Events of Default. The following shall constitute an
event of default under this Lease:
(a) The failure to pay any amount of Basic Rent or
Additional Rent in full within five (5) days after the same is due.
(b) The failure to perform or honor any other covenant or
condition made under this Lease, provided Tenant shall have a grace period of
ten (10) days from the date of written notice from Landlord within which to
cure any such failure governed by this subparagraph but not specifically by the
other subparagraphs of this Section 16-1; provided however, that with respect
to any such default, that cannot reasonably be cured within such ten (10) day
grace period, Tenant shall not be deemed in default if Tenant commences to cure
within ten (10) days from Landlord's notice and continues to prosecute
diligently the curing thereof to completion within a reasonable time; and
provided, further, that if any such failures which would be deemed defaults
hereunder upon expiration of such grace period occur more often than twice in
any twelve month period, the foregoing requirements of written notice and a
grace period shall be deemed waived with respect to any such subsequent
failures for the remainder of the Term.
(c) If any representation or warranty made by Tenant, or
others on behalf of Tenant, under or pursuant to the Lease shall prove to have
been false or misleading in any material respect (including by way of material
omissions) as of the date on which such representation or warranty was made.
(d) If Tenant makes or consents to an assignment for the
benefit of creditors or a common law composition of creditors, or a receiver of
Tenant's assets is appointed, or Tenant files a voluntary petition in any
bankruptcy or insolvency proceeding, or an involuntary petition in bankruptcy
or insolvency proceeding is filed against Tenant and not discharged or
dismissed within thirty (30) days, or Tenant is adjudicated bankrupt or
admits in writing its inability to pay its debts or that it is insolvent.
(e) Final judgment for the payment of money in excess of
Ten Thousand Dollars ($10,000) shall be rendered against Tenant and Tenant
shall not discharge the same or cause it to be discharged within ten (10) days
from the entry thereof, or shall not appeal therefrom or from the order,
judgment, decree or process.
(f) If Tenant shall dissolve or liquidate, and such
dissolution or liquidation is not in connection with a reorganization, merger
or consolidation approved in writing by Landlord.
6
<PAGE> 7
16.2 Landlord's Remedies. Upon the occurrence of an Event of Default
which is not cured by Tenant within the grace periods specified in Section 16.1
hereof, Landlord shall have all rights or remedies available to Landlord in law
or equity.
(a) Landlord may terminate this Lease by notice to Tenant (and
Tenant hereby expressly waives any other or additional notice to quit or notice
of Landlord's intention to re-enter), whereupon this Lease and the Term shall
terminate, Tenant shall quit, vacate and surrender the Premises and all amounts
accrued and unpaid Basic Rent and Additional Rent shall be due and payable in
full.
(b) Intentionally Deleted.
(c) Intentionally Deleted.
(d) Intentionally Deleted.
17. Insolvency or Bankruptcy. Intentionally Deleted.
18. Fees and Expenses; Indemnity; Liability Insurance.
18.1 Performance by Landlord. If Tenant shall default in the
performance of its obligations under this Lease, Landlord, at any time
thereafter and without notice, may remedy such default for Tenant's account and
at Tenant's expense, without thereby waiving any other rights or remedies of
Landlord with respect to such default.
18.2 Indemnification by Tenant. Tenant agrees to indemnify
Landlord, its employees, agents, contractors, mortgagees and successors in
interest against and save Landlord, its employees, agents, contractors,
mortgagees and successors in interest harmless from any and all loss, cost,
liability, damage and expense including without limitation, penalties, fines
and reasonable counsel fees, incurred in connection with or arising from any
cause whatsoever in, on or about the Premises, including, without limiting the
generality of the foregoing (a) any default by Tenant in the observance or
performance of any of the terms, covenants or conditions of this Lease on
Tenant's part to be observed or performed, or (b) the use or occupancy or
manner of use or occupancy of the Premises by Tenant or any person or entity
claiming through or under Tenant contrary to the permitted use provided in
6.1, or (c) intentionally deleted, or (d) any acts, omissions or negligence of
Tenant or any person or entity claiming through or under Tenant, or of the
contractors, agents, servants, employees, visitors or licensees of Tenant or
any such person or entity, in, or about the Premises or the Building, either
prior to, during, or after the expiration of the Term, including without
limitation, any acts, omissions or negligence in the making or performing of
any Alterations. Tenant further agrees to indemnify and save harmless Landlord,
Landlord's agents, and the lessor or lessors under all ground or underlying
leases, from and against any and all loss, cost, liability, damage and expense
including, without limitation, reasonable counsel fees, incurred in connection
with or arising from any claims by any persons by reason of injury to persons
or damage to property occasioned by any negligent act or omission referred to
in the preceding sentence.
18.3 Liability Insurance. Tenant shall procure at its cost and
expense and keep in effect during the Term comprehensive general liability
insurance including contractual liability naming Landlord as an additional
insured thereunder, with a minimum combined single limit of liability of One
Million Dollars ($1,000,000.00). Such insurance shall specifically include the
liability assumed hereunder by Tenant (provided that the amount of such
insurance shall not be construed to limit the liability of Tenant hereunder),
and shall provide that it is primary insurance, and not excess over or
contributory with any other valid, existing and applicable insurance in force
for or on behalf of Landlord, and shall provide that Landlord shall receive
thirty (30) days' written notice from the insurance prior to any cancellation
or change of coverage. Tenant shall provide such additional insurance as
Landlord may require in connection with the storage of any items subject to the
special provisions of Section 6.1 hereof.
18.4 Delivery of Policies. Tenant shall deliver policies of all
required insurance, or certificates thereof, to Landlord on or before the Lease
Commencement Date, and thereafter at least thirty (30) days before the
expiration dates of expiring policies. In the event Tenant shall fail to
procure such insurance, or to deliver such policies or certificates, Landlord
may, at its option, procure same for the account of Tenant, and the cost
thereof shall be paid to Landlord as Additional Rent within five (5) days after
delivery to Tenant of bills therefor. Tenant's compliance with the provisions
of this Section 18.5 shall in no way limit Tenant's liability under any of the
other provisions of this Section.
18.5 Landlord Not Liable. Landlord shall not be responsible for
or liable to Tenant for any loss or damage that may be occasioned by or through
the acts or omissions of persons occupying adjoining premises or any part of
the premises adjacent to or in connection with the Premises or any part of the
Building or of third parties either legally or illegally within the Premises or
the Building or for any loss or damage resulting to Tenant or its property from
burst, stopped or leaking water, gas, sewer or steam pipes or for any damage or
loss or property within the Premises from any causes whatsoever, including
theft or vandalism, except that Landlord shall indemnify Tenant for any
negligent acts or omissions.
18.6 Payment by Tenant. Except as specifically provided to the
contrary in this Lease, Tenant shall pay to Landlord, within five (5) days
after notice by Landlord to Tenant of the amount thereof: (a) sums equal to all
expenditures made and monetary obligations incurred by Landlord including,
without limitation, expenditures made and obligations incurred for reasonable
counsel fees, in connection with the remedying by Landlord for Tenant's account
pursuant to the provisions of Section 18.1 hereof; (b) sums equal to all
losses, costs, liabilities, damages and expenses referred to in Section 18.2
hereof; and (c) sums equal to all expenditures made and monetary obligations
incurred by Landlord, including, without limitation, expenditures made and
obligations incurred for reasonable counsel fees, in collecting or attempting
to collect the Basic Rent, Additional Rent or any other sum of money accruing
under this Lease or in enforcing or attempting to enforce any rights of
Landlord under this Lease or pursuant to law. Any sum of money (other than
Basic Rent) accruing from Tenant to Landlord pursuant to any provision of this
Lease, whether prior to or after the Lease Commencement Date, may, at Landlord's
option, be deemed Additional Rent. Tenant's obligations under this 18.7 shall
survive the expiration or earlier termination of the Term.
7
<PAGE> 8
19. Access to Premises; Landlord's Right to Enter. Landlord reserves and shall
have the right to enter the Premises at all reasonable times during normal
business hours with Landlord providing forty-eight (48) hours advance notice to
Tenant, except in the case of an emergency, to inspect same, to show the
Premises to prospective purchasers, mortgagees or tenants, to post notices of
nonresponsibility, and to alter, improve or repair the Premises, adjacent
premises and any other portion of the Building or any systems serving any of the
same, without abatement of Basic Rent or Additional Rent, and may for that
purpose erect, use and maintain scaffolding, pipes, conduits and other necessary
structures in and through the Premises where reasonably required by the
character of the work to be performed; provided that the entrance to the
Premises shall not be blocked thereby. Landlord and its agents shall also have
unrestricted access to the Premises at any time in the event of an emergency,
without abatement of Basic Rent or Additional Rent. Tenant hereby waives any
claim for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or
any other loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, and Landlord shall have the right to use any
and all means that Landlord may deem necessary or proper to open said doors in
an emergency, in order to obtain entry to any portion of the Premises, and any
entry to the Premises or portions thereof obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. Landlord shall also have the right at any time, without same
constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets and other public parts of the Building.
20. Waiver; Release
20.1 No Waiver. No failure by Landlord to insist upon the strict
performance of any obligation of Tenant under this Lease or to exercise any
right, power or remedy consequent upon a breach thereof, no acceptance of full
or partial Basic Rent or Additional Rent during the continuance of any such
breach, and no acceptance of the keys to or possession of the Premises prior to
the termination of the Term by any employee of Landlord shall constitute a
waiver of any such breach or of such term, covenant or condition or operate as
a surrender of this Lease. No payment by Tenant or receipt by Landlord or a
lesser amount than the aggregate of all Basic Rent and Additional Rent then due
under this Lease shall be deemed to be other than on account of the first
items of such Basic Rent and Additional Rent then accruing or becoming due,
unless Landlord elects otherwise; and no endorsement or statement on any check
and no letter accompanying any check or other payment of Basic Rent or
Additional Rent in any such lesser amount and no acceptance of any such check
or other such payment by Landlord shall constitute an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Basic Rent or Additional Rent or to pursue
any other legal remedy.
20.2 Modifications in Writing. Neither this Lease nor any term or
provision hereof may be changed, waived, discharged or terminated orally, and
no breach thereof shall be waived, altered or modified, except by a written
instrument signed by the party against which the enforcement of the change,
waiver, discharge or termination is sought. No waiver of any breach shall
affect or alter this Lease, but each and every term, covenant and condition of
this Lease shall continue in full force and effect with respect to any other
then existing or subsequent breach thereof.
21. Tenant's Certificates. Tenant, at any time and from time to time upon
not less than fifteen (15) days' prior written notice from Landlord, will
execute, acknowledge and deliver to Landlord and, at Landlord's request, to any
prospective purchaser, ground or underlying lessor or mortgagee of any part of
the Building and Real Property, a certificate of Tenant stating: (a) that
Tenant has accepted the Premises (or, if Tenant has not done so, that Tenant
has not accepted the Premises and specifying the reasons therefor), (b) the
Commencement and Term Expiration Dates of this Lease, (c) that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that same is in full force and effect as modified and stating the
modifications), (d) whether or not there are then existing any defenses against
the enforcement of any of the obligations of Tenant under this Lease (and, if
so, specifying same), (f) the dates, if any, to which the Basic Rent and
Additional Rent and other charges under this Lease have been paid, and (g) any
other information that may reasonably be required by any of such persons,
including but not limited to current financial statements for Tenant (and any
Guarantors of Tenant's obligation hereunder). It is intended that any such
certificate of Tenant delivered pursuant to this Section 21 may be relied upon
by Landlord and any prospective purchaser, ground or underlying lessor or
mortgagee of any part of the Real Property.
22. Rules and Regulations. Tenant, its agents, employees, invitees,
licensees, customers, clients and guests shall at all times faithfully observe
and comply with the rules and regulations attached hereto as Exhibit C, and
such other rules and regulations as may be promulgated from time to time by
Landlord, and all modifications thereof and additions thereto, from time to
time, put into effect by Landlord. Landlord shall not be responsible for the
nonperformance by any other tenant or occupant of the Building of any said
rules and regulations. In the event of an express and direct conflict between
the terms, covenants, agreements and conditions of this Lease and the terms,
covenants, agreements and conditions of such rules and regulations, as modified
and amended from time to time by Landlord, this Lease shall control.
23. Tax on Tenant's Personal Property. At least ten (10) days prior to
delinquency, Tenant shall pay all taxes levied or assessed upon Tenant's
equipment, furniture, fixtures and other personal property located in or about
the Premises. If the assessed value of Landlord's property is increased by the
inclusion therein of a value placed upon Tenant's equipment, furniture,
fixtures or other personal property, Tenant shall pay to Landlord, upon demand,
the taxes so levied against Landlord, or the portion thereof resulting from
said increase in assessment.
24. Authority. The persons executing this Lease on behalf of Tenant
hereby covenant and warrant that Tenant is a duly authorized and existing
entity, that Tenant has and is qualified to do business in the State of
Maryland and Delaware, that Tenant has full right and authority to enter into
this Lease, and each person signing on behalf of Tenant is authorized to do so.
Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord confirming the foregoing covenants and warranties.
25. Signage. Intentionally Deleted.
26. Parking. Intentionally Deleted.
8
<PAGE> 9
27. Miscellaneous
27.1 Notices. Except as otherwise expressly provided in this
Lease, any bills, statements, notices, demands, requests or other
communications given or required to be given under this Lease shall be
effective only if rendered or given in writing, sent by mail or delivered
personally as follows:
to Tenant: Organon Teknika Corporation
1330-A Piccard Drive
Rockville, MD 20850-4373
Attention: Richard J. James
to Landlord: Ward Corporation
1300 Piccard Drive
Rockville, MD 20850
Attention: Richard E. Ward
or to such other address as either Landlord or Tenant may designate as its new
address for such purpose by notice to the other in accordance with the
provisions of this Section. Any such bill, statement notice, demand, request or
other communication shall be deemed to have been rendered or given two (2) days
after the date when it shall have been mailed as provided in this Section if
sent by registered or certified mail, or upon the date personal delivery is
made. If Tenant is notified of the identity and address of Landlord's mortgagee
or ground or underlying lessor, Tenant shall give to such mortgagee or ground
or underlying lessor notice of any default by Landlord under the terms of this
Lease in writing sent by registered or certified mail, and such mortgagee or
ground or underlying lessor shall be given a reasonable opportunity to cure such
default prior to Tenant's exercising any remedy available to it.
27.2 Interpretation. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. The words used in the
neuter gender include the masculine and the feminine. The captions preceding
the articles of this Lease have been inserted solely as a matter of
convenience and such captions in no way define or limit the scope or intent of
any provision of this Lease.
27.3 Successors and Assigns. The terms, covenants and conditions
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and, except as otherwise provided herein, their respective personal
representatives and successors and assigns; provided, however, upon the sale,
assignment or transfer by the Landlord named herein (or by any subsequent
landlord) of its interest in the building as owner or lessee, including any
transfer by operation of law, the Landlord (or subsequent landlord) shall be
relieved from all subsequent obligations or liabilities under this Lease, and
all obligations subsequent to such sale, assignment or transfer (but not any
obligations or liabilities that have accrued prior to the date of such sale,
assignment or transfer) shall be binding upon the grantee, assignee or other
transferee of such interest, and any such grantee, assignee or transferee, by
accepting such interest, shall be deemed to have assumed such subsequent
obligations and liabilities.
27.4 Severability. If any provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and be enforced to the full extent permitted by law.
27.5 Applicable Law. This Lease shall be construed and enforced
in accordance with the laws of the State of Maryland.
27.6 No Option to Lease. Intentionally Deleted.
27.7 Entire Agreement. This instrument, including the Exhibits
hereto, which are made a part of this Lease, contains the entire agreement
between the parties and all prior negotiations and agreements are merged
herein. Neither Landlord nor Landlord's agents have made any representations or
warranties with respect to the Premises, the Building, the Real Property or
this Lease except as expressly set forth herein, and no rights, easements or
licenses are or shall be acquired by Tenant by implication or otherwise unless
expressly set forth herein.
27.8 Inspection by Landlord. The review, approval, inspection or
examination by Landlord of any item to be reviewed, approved, inspected or
examined by Landlord under the terms of this Lease or the Exhibits attached
hereto shall not constitute the assumption of any responsibility by Landlord
for either the accuracy or sufficiency of any such item or the quality or
suitability of such item for its intended use. Any such review, approval,
inspection or examination by Landlord is for the sole purpose of protecting
Landlord's interests in the Building and under this Lease, and no third
parties, including, without limitation, Tenant or any person or entity claiming
through or under Tenant, or the contractors, agents, servants, employees,
visitors or licensees of Tenant or any such person or entity, shall have any
rights hereunder.
27.9 Legal Fees Paid by Prevailing Party. In the event that
either Landlord or Tenant fails to perform any of its obligations under this
Lease or in the event a dispute arises concerning the meaning or interpretation
of any provision of this Lease, the defaulting party or the party not
prevailing in such dispute, as the case may be, shall pay any and all costs and
expenses incurred by the other party in enforcing or establishing its rights
hereunder, including, without limitation, court costs and reasonable counsel
fees.
27.10 Surrender of Premises. Upon the expiration or sooner
termination of the Term, Tenant will quietly and peacefully surrender to
Landlord the Premises in the condition in which they are required to be kept as
provided hereunder, ordinary wear and tear excepted.
27.11 Quiet Enjoyment. Upon Tenant paying the Basic Rent and
Additional Rent and performing all of Tenant's obligations under this Lease,
Tenant may peacefully and quietly enjoy the Premises during the Term as against
all persons or entities lawfully claiming by or through Landlord; subject,
however, to the provisions of this Lease and to any mortgages, ground or
underlying lease referred to herein.
9
<PAGE> 10
27.12 No Reduction in Rent. Tenant covenants and agrees that no
diminution of light, air or view by any structure that may hereafter be erected
(whether or not by Landlord) shall entitle Tenant to any reduction of Basic
Rent or Additional Rent under this Lease, result in any liability of Landlord
to Tenant, or in any other way affect this Lease or Tenant's obligations
hereunder.
27.13 Holding Over by Tenant. Any holding over after the Term
Expiration Date or the termination of the Term if sooner with the consent of
Landlord shall be construed to be a tenancy from month to month at a rental
equal to one hundred twenty-five percent (125%) of the Basic Rent herein
specified unless Landlord shall specify a different rent in its sole
discretion, together with an amount estimated by Landlord for the monthly
Additional Rent payable under this Lease, and shall otherwise be on the terms
and conditions herein specified so far as applicable. Any holding over without
Landlord's consent shall constitute a default by Tenant and entitle Landlord to
reenter the Premises as provided in Section 16 hereof.
27.14 Broker; Indemnification Therefor. Intentionally Deleted.
27.15 No Recordation of Lease by Tenant. Tenant will not record this
Lease or any memorandum or short form hereof, but at the request of Landlord,
Tenant shall execute, acknowledge and deliver to Landlord in proper form for
recordation a memorandum of this Lease, setting forth the terms and provisions
hereof in summary form.
27.16 No Merger of Estates. The fee title of Landlord and the
leasehold estate of Tenant shall at all times be separate and apart, and shall
in no event be merged, notwithstanding the fact that this Lease or the leasehold
estate created hereby, or any interest in either thereof, may be held directly
or indirectly by or for the account of any person who shall own the fee estate
in the Premises or any portion thereof; and no such merger of estates shall
occur by operation of law, or otherwise, unless and until all persons at the
time having any interest in the fee estate and all persons having any interest
in the Lease or the leasehold estate, including any mortgagee or leasehold
mortgagee, shall join in the execution of a written instrument affecting such
merger of estates.
27.17 Security Deposit. Simultaneously with the execution of this
Lease, Tenant shall deposit with Landlord the sum of Six Hundred and 00/100
Dollars ($600.00), as a security deposit for the performance by Tenant of the
provisions of this Lease. Such deposit shall be considered as security for the
payment and performance by Tenant of all Tenant's obligations, covenants,
conditions and agreements under this Lease. In the event of any default by
Tenant hereunder, Landlord shall have the right, but shall not be obligated to
apply all or any portion of the deposit to cure such default, in which event
Tenant shall be obligated to promptly deposit with Landlord the amount
necessary to restore the deposit to its original amount. If Tenant is not in
default at the expiration of the Term, Landlord shall return the security
deposit to Tenant. Landlord shall not be required to pay Tenant interest on the
security deposit.
27.18 Right to Relocate. Landlord shall have the right, exercisable by
giving Tenant reasonable notice, and without liability to Tenant for damage or
injury to property, person or business, all claims for damage being hereby
released by Tenant, and without affecting an eviction or disturbance of Tenant's
use or possession or giving rise to any claim for set offs, or abatement of rent
to relocate Tenant to another location of equal size within the Building at
Landlord's expenses; provided however, that such other location shall have at
least as many square feet of exterior windows as the Premises, and shall contain
improvements that are at least equal in quality, function, etc. to those to be
contained in the Premises, and provided further that Landlord shall use every
reasonable effort to minimize disturbance that any such relocation might cause.
27.19 Additional Documents. Intentionally Deleted.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
Agreement as of the day and year first above written.
LANDLORD: TENANT:
WARD CORPORATION ORGANON TEKNIKA CORPORATION
By: /s/ RICHARD E. WARD By: /s/ MICHAEL G. HANNA, Ph.D.
------------------- ---------------------------
Richard E. Ward Michael G. Hanna, Ph.D.
Its President Its Vice President
ATTEST: ATTEST:
By: /s/ MARIA M. INGLESBY By: /s/ RICHARD J. JAMES
--------------------- --------------------------
Maria M. Inglesby Richard J. James
Commercial Leasing Its Witness
[Corporate Seal] [Corporate Seal]
10
<PAGE> 11
ADDENDUM
THIS ADDENDUM is incorporated in and made a part of the foregoing and
annexed Lease dated April 30th, 1991 (the "Lease") between Ward Corporation (the
"Landlord") and Organon Teknika Corporation, (the "Tenant") covering Eight
Hundred Three (803) net rentable square feet in Landlord's building known by the
street address of 1300 Piccard Drive, Rockville, MD 20850, the provisions of
this Addendum being as follows:
1. The Lease is hereby amended by adding a new Section 28 as follows:
28. Cancellation Option. Tenant shall have the option to terminate this
Lease at the end of the thirty-six (36) month of the Lease Term provided
Tenant has notified Landlord in writing on or before the thirtieth
(30th) month of the Lease Term, of its election to terminate this Lease.
Except as hereinafter amended, the Lease remains in full force and
effect, unmodified. In the event of any conflict between a provision of
this Addendum or the Lease, the provisions of the Addendum shall
prevail.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum as
of the day and year first above written.
LANDLORD: TENANT:
WARD CORPORATION ORGANON TEKNIKA CORPORATION
By: /s/ RICHARD E. WARD By: /s/ MICHAEL G. HANNA, PH.D.
--------------------------- -----------------------------
Richard E. Ward Michael G. Hanna, Ph.D.
Its President Its Vice President
ATTEST: ATTEST:
By: /s/ MARIA M. INGLESBY By: /s/ RICHARD J. JAMES
--------------------------- -----------------------------
Maria M. Inglesby Richard J. James
Commercial Leasing Its Witness
(Corporate Seal]
(Corporate Seal]
1
<PAGE> 12
SECOND ADDENDUM
THIS SECOND ADDENDUM is incorporated in and made a part of the foregoing
and annexed Lease dated April 30, 1991 (the "Lease") between Ward Corporation
(the "Landlord") and Organon Teknika Corporation, (the "Tenant") covering Eight
Hundred Three (803) net rentable square feet in Landlord's building known by the
street address of 1300 Piccard Drive, Rockville, MD 20850, the provisions of
this Second Addendum being as follows:
1. Section 1.9 of the Lease is hereby amended by adding the following
sentence at the end thereof:
"Commencing November 15, 1991, the Premises shall contain an additional
One Thousand One Hundred Fifty-One (1,151) net rentable square feet
(hereinafter the "Additional Lease Space") which space is shown on
Attachment "A", thereby causing the entire leased premises to contain a
total of One Thousand Nine Hundred Twenty-Four (1,924) net rentable
square feet."
2. Section 2.1 of the Lease is hereby amended by adding the following
sentence at the end thereof:
"Commencing November 15, 1991, Tenant shall pay to Landlord during the
Term a base rental ("Basic Rent") for the Additional Lease Space equal
to Nine Hundred Fifty-Nine and 17/100 Dollars ($959.17) per month in
gross."
3. Section 2.3 of the Lease is hereby amended by adding the following
sentence at the end thereof:
"The Basic Rent for the Additional Lease Space (as defined in Item 2
hereinabove) shall be increased as follows:
<TABLE>
<CAPTION>
Date New Monthly Rent
---- ----------------
<S> <C>
6/1/92 $ 987.94
6/1/93 $1,017.68
6/1/94 $1,048.37
</TABLE>
4. Section 4 of the Lease is hereby amended by adding the following
sentence at the end thereof:
"Tenant agrees to accept the Additional Lease Space in their "as-is"
condition and further agrees to be fully responsible for any alterations
or improvements thereto. However, it is understood and agreed that
Tenant will obtain all necessary permits to construct the premises as
required by Code. Landlord shall furnish ten (10) 2' X 4' fluorescent
light fixtures for installation by Tenant."
5. Section 6.1 of the Lease is hereby amended by adding the following
sentence at the end thereof:
"Tenant shall use and occupy the Additional Lease Space during the term
of the Lease solely for use as storage of non-hazardous research
supplies, as permitted by law, and for no other use or uses without the
prior written consent of Landlord."
[signatures appear on next page]
1
<PAGE> 13
THIRD ADDENDUM
THIS THIRD ADDENDUM is incorporated in and made a part of the foregoing
and annexed Lease dated April 30, 1991 (the "Lease") between Ward Corporation
(the "Landlord") and Organon Teknika Corporation, (the "Tenant") covering Eight
Hundred Three (803) of net rentable square feet of storage space ("Leased
Premises") in Landlord's building known by the street address of 1300 Piccard
Drive, Rockville, MD 20850, the provisions of this Third Addendum being as
follows:
1. Section 1.2 of the Lease is hereby amended by deleting "May 31, 1995"
and replacing with the following:
"May 31, 1997".
2. Section 1.12 of the Lease is hereby amended by deleting "The four year
(4) period" and replacing with the following:
"The six year (6) period."
3. Section 2.1 of the Lease is hereby amended:
"Rent for the Leased Premises shall be increased as follows:
<TABLE>
<CAPTION>
Date 803 sf New Monthly Amount
---- ------ ------------------
<S> <C> <C>
6/1/95 $10.13 $677.87
6/1/96 $10.43 $697.94
6/1/97 $10.74 $719.69
</TABLE>
4. The Lease is hereby amended by adding a new Section 29 as follows:
Section 29. Renewal Option. Tenant shall have the right to renew this
Lease for two (2) two (2) year periods by giving Landlord six (6) months
written notice prior to the expiration of the then current Lease term. A
three percent (3%) escalator will follow this Lease throughout the
Renewal periods. If Tenant should choose not to exercise those options
Landlord may begin to show the space to prospective tenants ninety (90)
days prior to the Lease Expiration Date.
Except as hereinafter amended, the Lease remains in full force and
effect, unmodified. In the event of any conflict between a provision of
this Third Addendum or the Lease, the provisions of the Third Addendum
shall prevail.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Third
Addendum as of the ____ day of_______________, 1995.
LANDLORD: TENANT:
WARD CORPORATION PERIMMUNE, INC.
By: /s/ RICHARD E. WARD By: /s/ MICHAEL G. HANNA, JR.
------------------------------- ---------------------------------
Richard E. Ward Michael G. Hanna, Jr., Ph.D.
Its President President & CEO
By:
---------------------------------
ATTEST: WITNESS:
By: [SIG] By: /s/ RICHARD JAMES
------------------------------- ---------------------------------
------------------------------- ---------------------------------
<PAGE> 1
EXHIBIT 10.3
(12.25.92.CPI) ROWLEY ENTERPRISES, INC.
1595 NW GILMAN BLVD.
ISSAQUAH, WASHINGTON 98027
(206) 392-6407 OR 455-4781 FAX 391-4009
COMMERCIAL LEASE AGREEMENT
THIS LEASE made this 1st day of June, 1993, by and between ROWLEY
ENTERPRISES INC., A Washington Corp. ("Landlord") and Polymer Technology Intl.,
A Washington Corporation ("Tenant").
WITNESSETH:
1. PREMISES. For the term specified below, Landlord leases to Tenant, the
building, or portion of the building, located at 1871 NW Gilman Blvd.,
Issaquah, Washington 98027 (the "Premises"). The Premises are located upon
property legally described in Exhibit "A" (the "Property"). The Premises are
diagrammed on the Exhibit "B" map.
2. TERM.
*See Exhibit F
2.1 Commencement Date and Expiration. The term of this Lease shall
commence* on September 15, 1993 and end on September 14, 1998. Tenant shall not
enter the Premises prior to the Lease commencement date without the prior
written consent of the Landlord. The Lease term includes any extensions of the
initial term. See Exhibit G.
2.2 Delays. See exhibit "F" Commencement.
3. RENT.
3.1 Minimum Rent. Tenant covenants and agrees to pay Landlord, at 1595
Gilman Boulevard N.W., Issaquah, Wa. 98027 or to such other party or at such
other place as Landlord designates, the Minimum Rent, initially $15,375.00, plus
the additional amounts described in this Lease, in advance, on or before the
first day of each month of the Lease term.
3.2 Inflation Adjustment to Minimum Rent. Minimum Rent shall be
adjusted beginning on the 25th month of this Lease by using the revised Consumer
Price Index (CPI) for all urban consumers as published by the United States
Department of Labor for the Seattle Metropolitan area (the "Index"). As of the
25th month and on each anniversary of the Lease commencement date thereafter,
the percentage of change in the Index from the previous year compared to the
most current Index shall be multiplied by the Minimum Rent amount; the result
shall be added to the Minimum Rent to determine the Minimum Rent for the coming
year, the maximum adjustment increase shall be no more than 5%. In no event
shall Minimum Rent be less than the previous year's Minimum Rent. If the
publication of said Index is discontinued the Landlord in its sole discretion
shall select a similar replacement index from those available.
3.3 Late Rent and Other Charges. If any rent becomes more than 10 days
past due, Tenant will pay a late charge of 10% of the total monthly rent as
additional rent. However, Landlord may additionally exercise a statutory
Three-Day Notice to Quit Premises or Pay Rent as soon as, and anytime after,
rent is not paid on the first of the month. If so, Tenant will pay the
additional sum of $30 as the cost for preparing and serving notice and this
amount will be added to delinquent rent due. Tenant will pay a $20 fee for
special handling of any dishonored check as additional rent. If no rent check is
honored within the first 10 days of the month, Tenant will pay the late charge
and is subject to a Three-Day Notice to Quit Premises or Pay Rent, as above.
3.4 Interest. Interest will be charged by Landlord on the total rent
unpaid, beginning after delivery of the Notice to Quit Premises or Pay Rent, or
upon expiration of the ten day grace period, whichever date is earlier. The
interest shall be treated as additional rent due. Interest shall be at the rate
of 12% per year.
3.5 Rent Offset or Holdback Prohibited. Rent offsets or holding rent
back for any reason is hereby prohibited.
4. SECURITY DEPOSIT. Landlord acknowledges receipt of Fifteen Thousand and
no/100 Dollars ($15,000.00) as a security deposit. Landlord may deduct from
this security deposit amounts owed under this Lease, including Landlord's costs
related to any default by Tenant. Tenant shall then pay to the Landlord any
deficiency for the default costs and pay to the Landlord the amount needed to
bring the security deposit back to its original amount. Repayment shall be made
within ten days of notice from Landlord. All interest earned on the security
deposit belongs to Landlord. Within 60 days from termination of tenancy and
vacation or abandonment of Premises, Landlord will give Tenant a statement of
the basis for retaining any of the security deposit and any additional amounts
due, or refund any amount due to Tenant at Tenant's last known address.
Withholding security deposit monies by Landlord does not relieve Tenant of
responsibility for payment of damages exceeding the security deposit amount.
Landlord may choose to proceed against Tenant for this additional amount,
together with reasonable attorney's fees. The security deposit may not be used
by Tenant for payment of last month's rent. If Landlord transfers its interest
in this Lease, Tenant shall look solely to the new Landlord for return of the
security deposit.
1
<PAGE> 2
5. UTILITIES. Tenant agrees to timely pay all charges for light, heat,
trash disposal services and all other utilities to the premises during the full
term of this Lease. If the Leased Premises are part of a building or larger
premises to which such costs are charged as a whole, then Tenant agrees to pay
a proper and fair share of said charges as determined by Landlord. Landlord
shall under no circumstances be liable to Tenant in damages or otherwise for
failure to furnish, or interruption in services of any water, electricity,
trash disposal, sewerage or other utility service for any cause whatsoever.
Landlord may charge as additional rent, on a monthly basis or otherwise, an
estimated amount for Tenant's share of utility charges. Tenant must object to
any final utility charge within two months of Landlord's receipt of the actual
bill or receipt of the final charge, whichever date is later, or is forever
barred.
5.1. Non-Liability for Interruption. Lessor shall under no
circumstances be liable to Lessee in damages or otherwise for failure to
furnish or for any interruption of service of any water, gas, electricity,
garbage disposal or for stoppage of sewerage for any cause whatsoever.
6. NET LEASE; TAXES AND INSURANCE.
6.1. Rent to be Net to Landlord. The parties intend that the rent
payable hereunder shall be "triple net" to Landlord, so that this Lease shall
yield to Landlord the full rent and Tenant shall pay all costs, expenses and
obligations of every kind and nature whatsoever relating to the Premises. The
cost of repair and maintenance of parking lot, landscaping, irrigation, and
HVAC are the responsibility of the Landlord.
6.2. Taxes. In addition to the Minimum Rent, as additional rent,
Tenant agrees to pay all real estate taxes and assessments, including but not
limited to LIDs, ULIDs, RIDs, or other assessments, applicable to the Premises
and due and payable during the Lease term. If the Premises are part of a larger
building, Tenant shall pay its portion of said taxes on the building equal to
the percentage of the total net rentable space in the building leased to
Tenant, plus the prorated portion of the taxes applicable to the land described
in Exhibit "A." Tenant shall pay 1/12th of said real estate taxes and
assessments each month as additional rent. If any other law, statute or
ordinance levies any tax (other than Federal or State income taxes) upon rents,
Tenant shall similarly pay such tax.
6.3. Fees. All fees and charges including all license fees, personal
property taxes and other governmental charges levied on the Premises or upon
Tenant's business will be paid directly by Tenant. If the Premises are a part
of a building or larger premises to which such charges are charged as a whole,
then Tenant agrees to pay a proper and fair share of said charges as additional
rent.
6.4. Landlord's Insurance.
6.4.1. Premiums. When Landlord submits proof of payment of insurance
premium, Tenant agrees to pay as additional rent, premiums for fire, flood,
extended coverage, earthquake and other insurance which may be charged during
the Lease term upon the Premises, or upon the total building of which the
Premises are part. Tenant's premium share shall be pro-rated if the Premises
are part of a building. Tenant shall pay to the Landlord 1/12th of the annual
premium for said insurance each month as additional rent. This Lease imposes no
duty to insure upon Landlord.
6.4.2. Conformity with Insurance Policy. Tenant will not keep, use,
or offer for sale in or upon the Premises any article prohibited by the
standard form fire insurance policy.
7. TENANT'S USE OF PREMISES. Tenant shall use the Premises only for
office & Mfg of Medical devices, equip. or Medicine and no other purpose or
use without the prior written consent of Landlord. Tenant agrees that it has
determined the Premises can be used for the permitted use. Tenant acknowledges
that neither Landlord nor Tenant's agent has made any representation or
warranty as to the suitability of the Premises for the conduct of Tenant's
business. Tenant shall not operate, sublease or assign to any automobile
related business.
8. TENANTS DUTY OF REPAIR AND MAINTENANCE
8.1. Premises "As Is". The Premises have been inspected and are
accepted "as is" by Tenant in their present condition and Tenant acknowledges
the present condition of the Premises is good. Landlord is responsible for
containment or removal of any hazardous material currently on the Premises.
8.2. Tenant Cleaning; Conformance with Law. Tenant shall, at its own
expense and at all times, keep the Premises neat, clean, and in a sanitary
condition, and keep and use the Premises in accordance with applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities.
8.3. Waste. Tenant shall permit no waste, damage or injury to the
Premises or building. For example, Tenant shall protect water, heating, gas,
drainage and other pipes from freezing, breaking, and blockage; repair all
leaks and damage caused by leaks; replace interior and exterior light bulbs or
fixtures as needed; replace glass in windows and doors of the Premises if
cracked or broken; paint interior surfaces as needed; repair or replace floor
coverings as needed; and remove ice and snow from sidewalks adjoining the
Premises.
8.4. Tenant Repairs. Tenant shall make repairs necessary to maintain
the Premises in good condition except for structural repairs to the roof,
exterior walls and foundation, which are the responsibility of the Landlord.
8.5. Electrical Overloading. If Tenant installs any electrical
equipment that overloads the line to the Premises or in the building of which
the Premises are a part, Tenant shall at its own expense make whatever changes
are necessary to comply with the
2
<PAGE> 3
requirements of the Insurance Underwriters and/or Governmental authorities
having jurisdiction.
8.6 Landlord's Right to Cure Tenant's Defaults. If Tenant
fails to perform a duty required by this Section 8 to the satisfaction of
Landlord within thirty (30) days after written demand, or less if an emergency,
Landlord may undertake the duty, without liability to Tenant for any loss or
damage that may accrue to Tenant. Tenant shall pay Landlord's costs for
undertaking the duty as additional rent. Landlord's costs will include a markup
of twenty (20%) percent on said costs to cover Landlord's overhead.
9. LANDLORD REPAIR. Landlord shall maintain the structural portions
of the Premises, that is, the exterior of the roof, exterior walls (except
painting) and foundation. If Landlord must make structural repairs due to
Tenant's act or failure to act, the cost of repairs shall become additional
rent. Tenant must give Landlord written notice of necessity for structural
repairs except which are not readily discernible.
10. COMPLIANCE WITH RULES. Tenants shall comply with rules concerning
the Premises provided to Tenant by Landlord. Such rules shall constitute part
of this Lease. Landlord may make amendments and additional rules for the
safety, care, cleanliness and aesthetics of the Premises and the Property. A
violation of any of the rules from time to time in effect shall constitute
default by Tenant under this Lease. These rules are made to enable Landlord to
operate the Property and Premises in a manner beneficial to both Landlord and
Tenants. If there is an express, direct conflict between such rules and this
Lease, the Lease shall control. Landlord shall not be liable to Tenant or to
any third parties for failure of other tenants or occupants of the building to
perform or observe Landlord's rules.
11. SIGNS. No signs or symbols may be placed in the windows or doors
of the Premises, or upon any exterior part of the building or Property, without
Landlord's prior written consent which shall not be unreasonably withheld.
Tenant's failure to remove an unapproved sign or symbol within forty-eight (48)
hours will constitute a default under the Lease. Additionally, Landlord shall
have the right to cause the sign to be removed and the building repaired at
Tenant's sole expense. At the termination of this Lease, Tenant will remove all
signs placed by it upon the Premises, and will repair any damage caused by
removal. All signs must comply with all applicable sign ordinances and be
placed in accordance with required permits.
12. ALTERATIONS.
12.1 Tenant. Tenant shall not make any alterations, additions
or improvements ("Alterations") to the Premises without the prior written
consent of Landlord. Alterations shall be at the sole expense of Tenant, and
shall become the property of the Landlord, at the termination of this Lease,
without disturbance or damage. However, the Landlord may require all or some of
the Alterations be removed and the Premises restored at Tenant's sole expense.
Tenant holds the Landlord free and harmless from damage, loss or expense
arising out of the Alterations. Alterations shall be performed only according
to Landlord approved plans by adequately insured, competent and licensed
contractors.
12.2 Landlord. Tenant agrees that Landlord has the right to
make Alterations to the Premises and to the building in which the Premises are
situate and Landlord shall not be liable for any damage which Tenant might
suffer by reason of such undertaking. Landlord shall notify Tenant 48 hours in
advance for any alteration.
12.3 Liens. Tenant shall keep the Premises and the Property
free and clear from any liens or lien claims arising out of any work performed,
materials furnished or obligations incurred by or on behalf of Tenant. Tenant
shall defend, indemnify and hold Landlord harmless from any liability for
losses or damages resulting directly or indirectly from any such liens or lien
claims and from any work performed on or about the Premises by Tenant, its
agents, employees, contractors or subcontractors. If any lien or lien claim is
filed against any part of the Property or Premises by any person claiming by,
through or under Tenant, Tenant shall, upon Landlord's request, at Tenant's
expense, immediately furnish to Landlord a bond in form and amount and issued
by a surety satisfactory to Landlord indemnifying Landlord and the Property
against all resulting liability, cost and expenses, including attorneys' fees.
If such bond has been furnished to Landlord, Tenant at his sole cost and
expense and after written notice to Landlord, may contest by appropriate
proceedings conducted in good faith and with due diligence any lien,
encumbrance or charge against the Premises arising from work done or materials
provided to or for Tenant if, but only if, such proceedings suspend the
enforcement and collection of the lien or the lien claim and neither the
Premises or the Property is or will be in any danger of being sold, forfeited
or lost.
13. CONDEMNATION.
13.1 General. If a public or quasi public authority, or private
corporation or individual having the power of condemnation (condemnation being
the exercise of power by legal proceedings or otherwise and/or a voluntary sale
or transfer to the condemnor under threat of condemnation) purchases a portion
of or all of the Premises, this Lease shall automatically terminate as to the
portion so taken as of the date the condemnor has right to possession. If a
portion of the Premises taken renders the remaining portion untenantable and
unusable by Tenant, Tenant shall have the option to terminate this Lease.
13.2 Taking of the Property. If a portion of the Property is
taken by condemnation (whether or not the Premises are affected) and (i)
Landlord determines that the remaining portions cannot be economically and
effectively used by it, or (ii) in the opinion of the Landlord the building
should be restored in such a way as to alter the Premises materially, then
Landlord shall have the option to terminate this Lease.
13.3 Restoration and Repair. If a portion of the Premises is
condemned and neither party elects to terminate the Lease, then Landlord
shall, to the extent of severance damages received by Landlord and equitably
allocated by Landlord among the Premises and other portions of the Property,
repair the damage to the Premises at Landlord's cost and expense.
3
<PAGE> 4
Tenant must repair, restore or replace alterations or property and at its sole
expense. Any sums received by Tenant due to the taking shall be applied to the
restoration and repair of Alterations.
13.4. Exercise of Options. If either party elects to exercise any
option to terminate the Lease under this Section 13, it shall do so by giving
written notice of the election to the other party not later than ninety (90)
days after the date the nature and extent of the taking by condemnation have
been finally determined (whether by issuance of a certificate of public use and
necessity or its equivalent by a court or other tribunal having jurisdiction
over the Property or otherwise), and if such notice is given, this Lease shall
terminate on the earlier of the date stated in the notice or the date of taking.
13.5 Claims. Any compensation related to the condemnation paid to
Landlord, including compensation for the value of the leasehold, is the
property for the Landlord and Tenant hereby assigns to Landlord any and all
claims to the compensation. However, the Tenant is not precluded from asserting
claims against condemnor, not Landlord, for the taking of Tenant's personal
property or for moving expenses.
14. PARKING. Tenant understands that parking is apportioned in conformity
with controlling zoning ordinances and that Landlord shall have the right to
make such regulations as Landlord deems desirable for the control of parking
vehicles on the Property or other property under Landlord's control, including
the right to designate certain areas for parking of the Tenant, employees of
Tenant, its customers and other Tenants of Landlord's building(s).
15. SUBLETTING OR ASSIGNMENT.
15.1 Landlord's Consent Required. Tenant shall not transfer,
mortgage, pledge, hypothecate, encumber or otherwise assign this Lease or any
interest therein, and shall not sublet or share all or any part of the Premises
(voluntarily, involuntarily or by operation of law), without the prior written
consent of the Landlord; which shall not be unreasonably withheld and any
attempt to do so without such consent shall be void and constitute breach of
this Agreement.
15.2 No Release of Tenant. No assignment or subletting, and no consent
of Landlord to any assignment or subletting, by Tenant or Tenant's sub or
assignees of any tier, shall relieve Tenant of any obligation to be performed
by Tenant under this Lease, whether before or after such consent, assignment or
subletting. The consent of Landlord to an assignment or subletting does not
relieve the obligation to obtain Landlord's prior written consent to any other
assignment or subletting. The acceptance of rent by Landlord from any person or
entity other than Tenant shall not be deemed a waiver by Landlord of any
provision of this Lease or be deemed a consent to any assignment or subletting.
All assignees or subletters shall assume all obligations of this Lease.
15.3 Transfers of Stock or Other Assets. If Tenant (or any of its
permitted successors or assigns) is a corporation or a partnership, any
transfer of the Lease by merger, consolidation, liquidation, dissolution, or
any change in the majority ownership of or power to vote a majority of its
outstanding voting stock, whether voluntary, involuntary, or by operation of
law, shall constitute a voluntary assignment for purposes of this Section 15.
Landlord agrees to such assignment.
15.4 Transfer and Assignment of Premises by Landlord. Landlord shall
have the right to transfer and assign, in whole or in part, its rights and
obligations under this Lease and in the Premises and/or the Property. In the
event of any such transfer or transfers, the transferor shall be automatically
relieved of any and all obligations and liabilities on the part of Landlord
accruing from and after the effective date of the transfer.
16. ACCESS. Landlord shall have the right to enter the Premises at all
reasonable times to clear, inspect, make repairs, additions or alterations, and
to show the Premises to prospective tenants, purchasers or mortgagees. Landlord
agrees to give Tenant 24 hours notice prior to access except in the case of
emergency.
17. DESTRUCTION OF OR DAMAGE TO THE BUILDING.
17.1 Repairs by Landlord. If the Demised Premises or any portion of
the building in which the Demised Premises are located should be damaged or
destroyed during the Lease term by any casualty, the Landlord may either
terminate this Lease or elect to repair and/or restore the damage or
destruction. If the Landlord elects to repair and/or rebuild, the Tenant's
rent shall be abated, as provided below, during the time of restoration.
Landlord shall advise Tenant in writing of Landlord's intentions within ninety
(90) days after the casualty. If the Landlord elects not to repair or rebuild
then this Lease shall terminate without further notice, and all further
obligations under this Lease of either party shall cease as of the date Tenant
was forced to cease business in the Premises. If such damage occurs and this
Lease is not so terminated by Landlord this Lease shall remain in full force and
in effect. The Landlord's obligation under this paragraph shall not exceed the
work done in the original construction of the Premises.
17.2 Continuation of Business. At Tenants option, Tenant agrees
during any period of reconstruction or repair of the Premises and/or of said
building to continue the operation of its business in the Premises to the
extent reasonably practical.
17.3 Repairs of Tenant Alterations. Tenant shall in the event of any
damage or destruction, unless this Lease shall be terminated as provided
above, promptly replace or fully repair all doors, exterior signs, trade
fixtures, equipment and other installations originally installed by Tenant.
Landlord shall have no obligation to do so. Landlord shall have no interest in
the proceeds of any insurance carried by Tenant on Tenant's interest in this
Lease and Tenant shall have no interest in the proceeds of any insurance
carried by the Landlord.
4
<PAGE> 5
17.4 Abatement of Rent. The rent shall be abated, in a fair
proportion as determined by Landlord, during any period in which there is
damage or restoration causing substantial interference with the operation of
Tenant's business. No abatement shall occur if the damage or destruction was
caused in whole or in part by Tenant.
18. TENANT INDEMNIFICATION, LIABILITY AND PERSONAL PROPERTY INSURANCE.
18.1. No Liability. Landlord shall not be liable to Tenant and
Tenant hereby waives all claims against Landlord for any injury or damage to any
person or property in or about Premises or the Property by or from any cause
whatsoever including, but not limited to, water leakage from the roof, walls,
basement or other portion of the Premises or the Property, or caused by repairs,
operations, gas, fire, oil, electricity; provided, that nothing contained in
this Lease relieves Landlord from liability for any such injury or damage caused
solely by Landlord's negligence or failure to perform normal maintenance.
Tenant, as a material part of the consideration to be received by Landlord under
this Lease, assumes all risk of, and waives and releases all claims for, any
damages through Tenant, which damages result from any accident or occurrence in
or upon the Premises or the Building from any cause whatsoever unless caused
solely by the negligence of Landlord, or failure to perform normal maintenance,
its agents or invitees.
18.2. Indemnification. Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all liability, claims, causes of
action, damages, costs and expenses including without limitation, attorney's
fees, for any injury or damage to any person or property: (i) occurring in, on
or about the Premises or any part of the Premises unless caused solely by
Landlord's negligence, or failure to perform normal maintenance, (ii) occurring
in, on or about any part of the Property, the use of which Tenant may have in
conjunction with other tenants or occupants of the Building, when such injury
or damage shall be caused in whole or in part by the act or omission of Tenant,
its officers, agents, contractors, employees, licensees, or invitees, (iii)
arising from the conduct or management of any work or thing done by Tenant in
or about, or from transactions of Tenant concerning, the Premises, or (iv)
arising from any breach or default under this Lease by Tenant, or from any act
or omission of Tenant, or any of its officers, agents, employees, contractors,
licensees, or invitees. The foregoing provisions shall not be construed to
make Tenant responsible for loss, damage, liability or expense resulting from
injuries to third parties caused solely by the negligence or failure to perform
normal maintenance, or of Landlord or its officers, agents, employees,
contractors, licensees, or invitees. The provisions of this Section 18.2 shall
service the expiration of or termination of this Lease with respect to any
events occurring prior to such expiration or termination. Upon notice by
Landlord, Tenant at Tenant's expense shall defend Landlord, in any action or
preceding brought against Landlord by reason of any claim described in this
Section 18.2.
18.3. Public Liability and Property Damage Insurance. Tenant shall,
during the Lease term, at its sole cost, keep full force and effect a policy of
public liability and property damage insurance with respect to the Premises and
the business operated by the Tenant and/or any Sub-Tenant of Tenant in the
Premises, naming Landlord as an additional insured, in which the limits of
public liability shall be not less than $500,000 per person and $1,000,000 per
accident and in which the property damage portion shall not be less than
$500,000.
18.4. Approval of Insurer and Copies of Policies. Whenever Tenant
is hereby required to insure against any risk, said insurance shall be with an
insurance company approved by the Landlord which approval shall not be
unreasonably withheld and a copy of said policy or Certificate of Insurance
carrier endorsed thereon providing that said policy shall remain in full force
and effect until Landlord is notified in advance and in writing thirty days
before any change or cancellation.
18.5. Conformity with Insurance Policy. Tenant will not keep, use,
or offer for sale in or upon the Premises any article prohibited by the
standard form fire insurance policy.
18.6. Personal Property Insurance. All personal property kept on the
Premises shall be at the sole risk of Tenant. Tenant shall take full
responsibility for obtaining casualty, liability and personal property
insurance. Tenant shall indemnify and hold Landlord harmless for any damage,
either to person or property, sustained by Tenant or others for any reason,
including damage caused by any defects now in said Premises or hereafter
occurring, or due to the failure of Tenant to make repairs to the premises that
are the tenant's responsibility, or caused by fire, windstorm, flood, vandalism
or theft, etc., or from any act of God or a third party.
19. ESTOPPEL CERTIFICATE. Tenant shall, from time to time, upon written
request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written certificate of Tenant stating: that Tenant has accepted the
Premises (or if Tenant has not done so, that Tenant has not accepted the
Premises and specifying the reasons therefore); the commencement and expiration
dates of this Lease; the dates on which rent under this Lease has been paid;
that this Lease is in full force and effect and has not been modified (or if
there have been modifications, that this Lease is in full force and reflect as
modified and stating the modifications); whether or not there are, to Tenant's
knowledge, then existing any defaults by Landlord in the performance of its
obligations under this Lease (and if so, specifying the name); whether or not
there are then existing any defenses against the enforcement of any obligations
of Tenant under this Lease (and if so, specifying the same); the amount of the
security deposit and prepaid rent, if any, that has been deposited with
Landlord; and any other information reasonably requested. It is agreed that any
such certificate deliver pursuant to this paragraph may be relied upon by a
prospective purchaser or mortgagee of any part of Landlord's interest in the
Premises, or an assignee of any mortgage and any part of Landlord's interest.
If Tenant fails to respond within thirty (30) days after receipt by Tenant of
Landlord's written request, Tenant shall be deemed to have admitted the
accuracy of any information supplied by Landlord to such prospective purchaser,
mortgagee or assignee, but such admission shall not relieve Tenant of the
obligation to provide the said Certificate. Further, at Landlord's option, such
failure shall be deemed a breach by Tenant of this Lease.
5
<PAGE> 6
20. SUBORDINATION.
20.1. Priority. This Lease shall be subject and subordinate to the
lien of any mortgage or deed of trust which may now exist or hereafter be
executed in any amount for which all or a portion of the Property or Premises is
specified as security, and all renewals, modifications, extensions,
substitutions, replacements, and/or consolidations of such mortgage or deed of
trust. Not withstanding the foregoing, Landlord shall have the right to
subordinate or cause to be subordinated any such liens to this Lease. Tenant
shall, notwithstanding any subordination, attorn to and become the tenant of the
purchaser at such foreclosure sale or grantee of such deed (the "then owner") if
so requested by the then owner. Tenant covenants and agrees to execute and
deliver any of the instruments or documents described in this paragraph within
thirty (30) days after receipt of written request.
20.2. Mortagee Protection. Tenant agrees to give a copy of any
notice of default served upon Landlord to any mortgagee identified to Tenant by
Landlord. Tenant further agrees that any such mortgagee shall have the right to
cure such default on behalf of the Landlord within thirty (30) days after
receipt of such notice. Tenant further agrees not to invoke any of the remedies
which it may have against Landlord under the Lease until such thirty (30) days
have elapsed, or during any period that the mortgagee is proceeding to cure such
default with due diligence, or is diligently taking steps to obtain the right to
enter the Premises and cure the default, whichever is later.
21. WAIVER OF SUBROGATION RIGHTS. Anything in this Lease to the contrary
notwithstanding. Landlord and Tenant each hereby waive any and all rights of
recovery, claims, actions or causes of action against the other, its agents,
officers, directors, shareholders, or employees, for loss or damage to the
Premises or any improvements to the Premises, or the adjoining property or any
improvements to the Property, or any personal property of such party, that is
caused or results from fire and other perils insured against under the normal
extended coverage clauses of standard insurance policies carried by the parties
and in force at the time of damage or loss.
22. DEFAULT.
22.1. Right to Re-enter. If Tenant fails to pay rent within three
(3) days following delivery to the Premises of a "Notice to Pay Rent"; or if
Tenant fails to perform any provisions of the Lease, other than rent, for more
than ten (10) days after written notice of default has been mailed to Tenant, or
if Tenant becomes bankrupt or insolvent files any debtor proceedings or files,
or has taken against it, any proceedings of any kind under any provisions of a
federal or state bankruptcy, insolvency or suffers this Lease to be taken under
any writ of execution; then Landlord besides other rights or remedies it may
have, may immediately re-enter and remove all persons and property from the
Premises and store such property in a public warehouse or elsewhere at the cost
of and for the account of Tenant, all without service of notice or resort to
legal process and without being deemed guilty of trespass or becoming liable for
any loss or damage which may be occasioned thereby.
22.2. Loss of Tenant's Right to Cure. Despite any provision to the
contrary, if Tenant defaults three (3) times under one or more provisions of
this Lease, at Landlord's option and without further notice, Tenant shall be
deemed to have forfeited its right of cure.
22.3. Landlord's Other Remedies. Notwithstanding Landlord's
above-mentioned remedies for default, those remedies shall not be deemed
exclusive, and Landlord may use and proceed under any legal procedures
available, including eviction pursuant to RCW 59.12.
22.4. Right to Re-let. Should Landlord elect to re-enter as herein
provided for above, or should it take possession pursuant to legal proceedings
or pursuant to any notice provided by law, it may either terminate this Lease or
it may from time to time, without terminating this Lease, make such alterations
and repairs as may be necessary in order to re-let said Premises or any part
thereof for such terms (which may be for a term extending beyond the term of
this Lease) and at such rental or rentals and upon such other terms and
conditions as Landlord in its sole discretion deems advisable.
22.4.1. Application of Rent from Re-letting. Upon each such
re-letting described above, all rentals received by the Landlord from the
re-letting shall be applied first to the payment of any indebtedness other than
rent due hereunder from the Tenant to Landlord; second to the payment of rent
due and unpaid hereunder and the residue, if any, shall be held by Landlord and
applied in payment of future rent on the same basis as listed herein and as the
rentals may become due and payable hereunder. If sub-letting rentals received
during any month after deduction for non-rent obligations of Tenant to Landlord
as described above are less than that to be paid during that month by Tenant
hereunder, Tenant shall pay the deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. Tenant shall have no right to any excess rental.
22.4.2. Termination. No re-entry or taking possession of said
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention is given to
Tenant or unless the termination thereof be decreed by a court of competent
jurisdiction. Not withstanding any re-letting without termination, Landlord may
at any time thereafter elect to terminate this Lease for such previous breach.
Should Landlord at any time terminate this Lease for any breach, in addition to
any other remedies it may have, it may recover from Tenant all damages it may
incur by reason of the breach including the costs and reasonable attorney's
fees, and including the worth at the time of such termination of the excess, if
any, of the amount of rent and charges equivalent to rent reserved in the Lease
for the remainder of the stated term; all such amounts shall be immediately due
and payable from Tenant to Landlord as additional rent.
22.5. Landlord Default. Landlord shall have fifteen (15) days, or
longer if more time is reasonably required, to cure default after written notice
is received from Tenant.
6
<PAGE> 7
23. COSTS AND ATTORNEY'S FEES; ACTIONS. In an action for breach of this
Lease, the losing party agrees to pay the prevailing party's reasonable costs
and attorney's fees. Venue for any legal action brought under this Lease is in
the county in which the Premises are situated. Washington law shall govern this
Lease.
24. NON-WAIVER; NO ACCORD SATISFACTION. The waiver by Landlord of any
breach of any Lease provision is not a waiver of the provision. Acceptance of
rent by Landlord shall not be deemed a waiver of any existing breach by Tenant
regardless of Landlord's knowledge of that breach when accepting the rent.
Landlord's acceptance of keys from the Tenant shall not waive any provision of
the Lease. No payment by tenant, or receipt by Landlord of less than the full
monthly rent, or any endorsement or statement on any check or any letter
accompanying any payment of rent, may be deemed accord and satisfaction. The
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such rent or pursue any other legal remedy.
25. SURRENDER OF LEASE AND HOLDING OVER.
25.1. Surrender Upon Termination. At the expiration of the Lease
term, Tenant shall surrender the Premises in the same condition of cleanliness,
repair and sightliness the Premises were in upon commencement of the Lease,
ordinary wear and tear excepted. Tenant shall surrender all keys to the
Premises to Landlord at the place then fixed for payment of rent, and shall
inform Landlord of all combination on locks and safes. Tenant shall remove all
its movable personal property at its own expense. Any property not so removed
shall be disposed of by Landlord without account to Tenant. Tenant shall be
liable for Landlord's costs regarding the property. If the Premises are not
surrendered at such time, whether with Landlord's consent or not, Tenant
indemnifies Landlord against loss of liability resulting from delay by Tenant
in surrendering the Premises, including without limitation, any claims made by
any succeeding tenant founded upon the delay. Tenant's obligation to observe or
perform this covenant shall survive termination of the Lease.
25.2 Liquidated Damages. If Tenant at termination of this Lease fails
to yield possession to Landlord, Landlord may require Tenant to pay and Tenant
shall pay as liquidated damages for each day possession is withheld, an amount
equal to double the amount of the daily Minimum Rent last in effect, computed
on a thirty day month basis.
25.3 Holding Over. Any holding over after the expiration of the said
term, with the consent of the Landlord, shall be construed to be a tenancy
from month to month at the monthly rentals herein specified in the paragraph on
Liquidated Damages above and shall otherwise be on the Lease's terms and
conditions.
26. EVENTS BEYOND PARTIES' CONTROL. If either party hereto is delayed or
prevented from performing any act required here-under, except payment of rent
and all other amounts by Tenant, by reason of labor troubles, inability to
procure materials, failure of power or water, restrictive governmental laws or
regulations, riots, war or other reason of like nature not the fault of the
party delayed, then performance of such act is excused for the period of the
delay and the period for the performance extended for a period equal to the
delay.
27. SECURITY MEASURES. Tenant hereby acknowledges that the rental payable
to Landlord hereunder does not include the cost of guard service or other
security measures, and that Landlord shall have no obligation whatsoever to
provide same. Tenant assumes all responsibility for the protection of Tenant,
its agents and invitees from acts of third parties.
28. RECYCLING. Tenant will recycle materials including, but not limited
to, the following: Newspaper, Aluminum/Metal/Tin, Glass, #1 PET & #2 HDPE
Plastics, Paperboard Milk & Juice Cartons, Copy/Ledger Paper, Mixed Paper and
Cardboard.
Methods of participation are at the tenant's discretion (for example:
Commercial Pick-up, transfer stations, buy back centers, etc.) Landlord's
recycling coordinator is available for assistance in program development and
implementation.
29. GENERAL.
29.1 Form. The grammatical changes needed to make this Lease apply in
the plural sense, where there is more than one Tenant, and to either
corporations, associations, partnerships or individuals and males or females,
shall be assumed as though fully expressed.
29.2 Captions. The captions of the several articles contained herein
are for convenience only and do not define, limit, describe or construe the
contents of the articles.
29.3 Notice. Any notice required to be given by either party to the
other shall be deposited in the United States mail, postage prepaid, addressed
to the Landlord at 1595 N.W. Gilman Blvd., Issaquah, WA 98027 or to the Tenant
at 1871 N.W. Gilman Blvd., Issaquah, WA 98027 OR at such other address as either
party may designate to the other in writing from time to time.
29.4. Commissions. Each party represents that it has not had dealings
with any real estate broker, finder or other person who would be entitled to any
commission or fee in connection with the negotiation, execution or delivery of
this Lease except N/A. Each party shall indemnify, defend and hold the other
party harmless from all claims, including attorneys' fees, that may be asserted
against the other party by any broker, finder or other person with whom the
party giving the indemnity has or purportedly has dealt, except the broker named
above.
29.5 Joint and Several Obligations. If the Tenant is more than one
person or entity, the obligations imposed on the Tenant shall be joint and
several.
7
<PAGE> 8
29.6. Severability. The unenforceability, invalidity, or illegality
of any provision of this Lease shall not render any other provisions
unenforceable, invalid or illegal.
29.7. Recordation. Tenant shall not record this Lease or any
memorandum of Lease which refers to this Lease. Any such recording shall be a
breach under this Lease.
30. ENTIRE AGREEMENT. This Lease contains the entire agreement between the
parties; there are no verbal promises. Any written promises between them are
attached hereto as an addendum. Any agreement hereafter made shall not change,
modify, discharge or effect an abandonment of this lease in whole or in part,
unless the agreement is in writing and signed by the party against whom
enforcement of this Lease or of any changes, modifications, discharge or
abandonment is sought. This Lease becomes effective as a Lease only upon
execution and delivery by Landlord and Tenant.
31. SUCCESSORS. The covenants and conditions herein contained shall,
subject to the provisions as to assignment, apply to and bind and inure to the
benefit of the respective heirs, successors, executors, administrators and
assigns of the parties hereto and in any case where there is more than one
Tenant, each Tenant shall be jointly and severally liable hereunder.
32. TIME IS OF THE ESSENCE OF THIS LEASE.
33. RIDERS. Riders, if any, attached hereto are made a part of this Lease
by reference and are described as follows: EXHIBIT "A" (legal description of
Property), EXHIBIT "B" (map showing Premises location), EXHIBIT "C" (Landlord
Rules and Regulations), EXHIBIT "D" (Hazardous Substances Warranty) Exhibit "E"
(Tenant Improvements) Exhibit "F" (Commencement Date), Exhibit "G" (Option to
Extend)
IN WITNESS WHEREOF, the parties hereto have executed the above
instrument upon this 1st day of June, 1993.
<TABLE>
<S> <C>
LANDLORD: TENANT:
ROWLEY ENTERPRISES INCORPORATED /s/ [SIG]
A Washington Corporation ----------------------------
/s/ [SIG] Polymer Technology Int'l
- ---------------------------- ----------------------------
President
----------------------------
DATE 6-1-93 DATE 5/26/93
----------------------- -----------------------
</TABLE>
8
<PAGE> 9
STATE OF WASHINGTON )
) ss
County of )
On this 26th day of May, 1993, personally appeared before me Terry G. Kelley, to
me known to be the President of Polymer Technology Int'l the corporation that
executed the within and foregoing 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 they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal,
the day and year first above written.
/s/ BEVERLY BABIS
- -------------------------------------------------
NOTARY PUBLIC, in and for the State of Washington
Residing at: 16501 Saybrook Dr. NE Woodinville 98072
[NOTARY SEAL]
<PAGE> 10
STATE OF WASHINGTON )
) ss
County of King )
On this 1st day of June, 1993, personally appeared before me Richard S. Symms,
to me known to be the President of Rowley Enterprises, Inc. the corporation that
executed the within and foregoing 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 they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal,
the day and year first above written.
/s/ JULIE LAPRARIE
- -------------------------------------------------
NOTARY PUBLIC, in and for the State of Washington
Residing at: Issaquah
<PAGE> 11
AMENDMENT TO LEASE
This Amendment of Lease made this 1st day of November, 1996 affects that
certain Lease Agreement between Rowley Enterprises, Inc., a Washington
Corporation as Landlord and Polymer Technology International Corporation, as
Tenant and which is dated June 1, 1993. Polymer Technology International
Corporation subsequently assigned its interest to Intracel Corporation. Said
Lease Agreement is for that certain office/manufacturing space located at 1871
NW, Gilman Blvd. Issaquah, Washington 98027.
WHEREAS, the parties hereto agree to certain changes or modifications of said
Lease Agreement.
NOW THEREFORE, LANDLORD AND TENANT AGREE the above-mentioned Lease Agreement
shall be modified or changed as follows:
1. The security deposit per paragraph 4 (Security Deposit) shall be increased
to Forty Nine Thousand Five Hundred ($49,500.00) Dollars.
2. Exhibit "G" (Optional to Extend) is modified as follows:
Landlord grants to Tenant an Option to Extend the term of this Lease for
one additional five-year term. Tenant shall notify the Landlord in writing no
later than ninety (90) days before the end of the initial Lease term, of
Tenants intent to exercise its option to extend the term. Rent shall be
increased at the beginning date of every year of the extended term by the
percent of change in the Consumer Price Index per paragraph 23. (Inflation
Adjustment to Minimum Rent), but with a maximum increase of 5% over the
previous year.
ALL OTHER TERMS AND CONDITIONS OF THE LEASE AGREEMENT DATED, JUNE 1, 1993
BETWEEN THE PARTIES HERETO, SHALL REMAIN IN EFFECT AND CONTINUE FOR THE FULL
EXTENDED TERM HEREIN.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE SET THEIR HANDS THE DAY AND
YEAR FIRST WRITTEN ABOVE.
LANDLORD: TENANT:
Rowley Enterprises, Inc. Intracel Corporation
By: /s/ [SIG] By: /s/ [SIG]
---------------------- ---------------------
Its: President Its Chief Financial Officer
---------------------- ---------------------
Date: 10-29-96 Date: 10-30-96
---------------------- ---------------------
<PAGE> 12
STATE OF WASHINGTON )
) ss
County of KING )
On this 29th day of October, 1996, personally appeared before me Richard S.
Symms, to me known to be the president of Rowley Enterprises Inc. the
corporation that executed the within and foregoing 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 they were authorized to execute said
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal,
the day and year first above written.
/s/ JULIE LAPRARIE
- -------------------------------------------------
NOTARY PUBLIC, in and for the State of Washington
Commission Expires 2/5/98
Print Name Julie LaPrarie
Residing at: Issaquah
STATE OF WASHINGTON )
) ss
County of KING )
On this 30th day of October, 1996, personally appeared before me Matthew L.
Root, to me known to be the CFO of Intracel Corporation the corporation
that executed the within and foregoing 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 they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal,
the day and year first above written.
/s/ DIANA K. CAREY
- -------------------------------------------------
NOTARY PUBLIC, in and for the State of Washington
Commission Expires 5-29-00
Print Name Diana K. Carey
Residing at: Seattle WA
<PAGE> 13
ASSIGNMENT OF LEASE
THIS ASSIGNMENT OF LEASE is made this 30 day of October, 1996 by POLYMER
TECHNOLOGY INTERNATIONAL CORPORATION ("Assignor") in favor of INTRACEL
CORPORATION ("Assignee"), with respect to the following:
1. Assignor is Debtor and Debtor in Possession in a Chapter 11
Bankruptcy Case pending in the United States Bankruptcy Court for the Western
District of Washington at Seattle ("Court") in Case No. 95-06304 ("Case"); and
2. Assignor is Tenant under a certain Commercial Lease Agreement dated
June 1, 1993 under which Rowley Enterprises Inc. is Landlord, covering real
property commonly known as 1871 N.W. Gilman Blvd., in Issaquah, Washington
("Lease") a copy of which is attached hereto as Exhibit A; and
3. On October 23, 1996, the Court entered its Order Authorizing Polymer
to Assume and Reject Leases of Nonresidential Real Property ("Order"), which,
among other things, approves Assignor's assignment to Assignee of the Lease, a
copy of which Order is attached hereto as Exhibit B.
NOW, THEREFORE, for and in consideration of the sum of $100,000 ($50,000
due on October 31, 1997 and $43,700 to Polymer due on execution and $6,300 to
Rowley on execution) and the terms of the Order,
1. Assignor hereby assigns all of its rights, title and interest in the
Lease to Assignee subject to modifications in the terms of the Lease pursuant
to the Order.
2. This assignment by Assignor is without recourse and without
representations or warranties of any kind or nature whatsoever except as
expressly set forth above.
3. Landlord and Assignee agree to amend the Lease Agreement paragraph 4.
"Security Deposit" so that Assignee agrees to pay to the Landlord, upon
execution of this Agreement, the sum of Forty Nine Thousand Five Hundred
($49,500.00) as the security deposit for said Lease Agreement. Upon receipt of
Assignee's payment to the security deposit, Landlord shall release its currently
held security deposit of Fifteen Thousand ($15,000.00) Dollars to Polymer
Technology International Corporation, Assignor.
4. As further consideration of this Assignment of Lease, Landlord and
Assignee agree to amend the Lease Agreement, Exhibit "G" "Option To Extend" so
that the Assignee shall have one five-year option to extend the term of the
Lease.
5. As partial consideration for this Assignment of Lease, the Assignee
shall pay to the Landlord the sum of Six Thousand Three Hundred ($6300.00)
Dollars as Landlord's attorney's fees related to the above-mentioned bankruptcy.
POLYMER TECHNOLOGY INTERNATIONAL CORPORATION
By
---------------------------
Its
--------------------
1
<PAGE> 14
CONSENT BY LANDLORD
The undersigned, Landlord under the Lease, hereby consents to the
Assignment of the Lease as amended to Intracel Corporation described herein.
This consent shall apply only to this transaction and shall not be deemed to be
a consent to any other assignment or sublease.
<TABLE>
<S> <C>
LANDLORD: ROWLEY ENTERPRISES INC.
By [ILLEGIBLE]
-----------------------------
Its President
------------------------
10-29-96
</TABLE>
AGREED BY ASSIGNEE
The undersigned, Assignee, hereby agrees to the terms of the order
mentioned above and to the modifications of the Lease as specified therein.
<TABLE>
<S> <C>
ASSIGNEE: INTRACEL CORPORATION
By [ILLEGIBLE]
-----------------------------
Its Chief Financial Officer
------------------------
</TABLE>
2
<PAGE> 15
SECOND AMENDMENT TO LEASE
This Amendment of Lease made this 22nd day of June, 1998 affects that
certain Lease Agreement between Rowley Enterprises Inc., a Washington
Corporation as Landlord and Intracel Corporation, a Delaware Corporation as
Tenant; and Dated June 1, 1993. Said Lease was originally between said Landlord
and Polymer Technology International Corporation as Tenant, whose leasehold
interest was assigned to Intracel Corporation October 30, 1996.
WHEREAS, the parties hereto agree to certain changes or modifications of
said Lease Agreement.
NOW THEREFORE, LANDLORD AND TENANT AGREE the above-mentioned Lease
Agreement shall be modified or changed as follows:
1. Landlord and Tenant hereby extend the term of said Lease Agreement for an
additional term beginning at the expiration date of the current Lease term
and ending the thirty first (31st) day of December, 1998.
2. Tenant shall grant access to the Landlord or his representative for the
purpose of showing the Premises to prospective tenants during business
hours.
3. Tenant agrees to surrender the Premises on December 31, 1998, in the same
condition of cleanliness, repair and as presently equipped and will not
remove fixed property without written consent of the Landlord.
4. Rent shall be adjusted to Seventeen Thousand Eight Hundred Eighty
($17880.00) Dollars per month beginning the first day of October, 1998.
ALL OTHER TERMS AND CONDITIONS OF THE ABOVE-MENTIONED LEASE AGREEMENT
BETWEEN THE PARTIES HERETO, SHALL REMAIN IN EFFECT AND CONTINUE FOR THE FULL
EXTENDED TERM HEREIN.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE SET THEIR HANDS THE DAY AND
YEAR FIRST WRITTEN ABOVE.
LANDLORD: TENANT:
Rowley Enterprises Inc. Intracel Corporation, Inc.
By: [SIG] By: [SIG]
-------------------- --------------------
Its President Its VP, Operations
DATE: June 23, 1998 DATE: June 22, 1998
----------------- -----------------
<PAGE> 1
EXHIBIT 10.4
BASIC LEASE INFORMATION
Lease Date: August 22, 1988
Landlord: Issaquah #1 Limited Partnership, a Texas limited partnership
Address of Landlord: 300 120th Avenue N.E.
Building 1, Suite 120
Bellevue, Washington 98005
Tenant: BAXTER HEALTHCARE CORPORATION, a Delaware corporation
Premises: I-90 Lake Place
2005 N.W. Sammamish Road
Building B, Suite 107
Issaquah, Washington 98027
Paragraph 1
"Premises" approximately 44,199 square feet in Building B of approximately
55,225 square feet (computed from measurements to the exterior of outside walls
of the building and to the center of interior walls), such premises being shown
and outlined in red on the plan attached hereto as Exhibit A, and being part of
the real property described in Exhibit B attached hereto.
Paragraph 1
Lease Term: Commencing on the "Commencement Date" as hereinafter defined and
ending 60 months thereafter except that in the event the Commencement Date is a
date other than the first day of a calendar month, said term shall extend for
said number of months in addition to the remainder of the calendar month
following the Commencement Date.
Paragraph 1
Scheduled Term Commencement Date: April 1, 1989
Paragraph 2
Monthly Base Rent: $40,663.00
Paragraph 2B
Security Deposit: $0.00
Paragraph 4A
Tenant's Initial Monthly Escrow Payment for Taxes and Other Charges: $ 2,558.00
Paragraph 7
Tenant's Initial Monthly Common Area Maintenance Charge: $ 1,326.00
Paragraph 13B
Tenant's Initial Monthly Insurance Escrow Payment: $ 442.00
Tenant's Initial Monthly Payment Total: $42,431.00
The foregoing Basic Lease Information is hereby incorporated into and made a
part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective information herein above set forth and
shall be construed to incorporate all of the terms provided under the
particular Lease paragraph pertaining to such information. In the event of any
conflict between any Basic Lease Information and the Lease, the former shall
control.
<PAGE> 2
LEASE AGREEMENT
Issaquah #1 Limited Partnership,
THIS LEASE AGREEMENT, made and entered into by and between a Texas limited
partnership hereinafter referred to as "Landlord", and Baxter Healthcare
Corporation, a Delaware corporation , hereinafter referred to as
"Tenant":
WITNESSETH
1. PREMISES AND TERM.
A. In consideration of the obligation of Tenant to pay rent as herein
provided, and in consideration of the other terms, provisions and covenants
hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby
takes and leases from Landlord those certain Premises as outlined in red on
Exhibit "A" attached hereto (hereinafter referred to as the "Premises") and
incorporated herein by reference, together with all rights, privileges,
easements, appurtenances, and amenities belonging to or in any way
pertaining to the Premises and together with the buildings and other
improvements situated or to be situated upon land described in Exhibit "B"
attached hereto.
B. TO HAVE AND TO HOLD the same for a term commencing on the
"Commencement Date", as hereinafter declined, and ending thereafter as
specified in the Basic Lease Information, attached hereto, (the "Lease
Term"), provided, however, that, in the event the "Commencement Date" is a
date other than the first day of a calendar month, said term shall extend
for said number of months in addition to the remainder of the calendar
month following the "Commencement Date".
C. The "Commencement Date" shall be the Scheduled Term Commencement Date
shown in the Basic Lease Information, attached hereto and incorporated
herein by reference or the date upon which the Premises shall have been
substantially completed in accordance with the plans and specifications
described in Exhibit "C" and "C-1" excluding the installation of Tenant lab
fixtures and equipment attached hereto and incorporated herein by
reference, as evidenced by the Landlord's Architect's Certificate of
Substantial Completion, whichever is earlier. If the premises shall not
have been substantially completed as aforesaid by the Scheduled Term
Commencement Date, Tenant's obligations to pay rent and its other
obligations for payment under this Lease shall commence on the date the
Premises are substantially completed as aforesaid, and Landlord shall not
be liable to Tenant for any loss or damage resulting from such delay.
Landlord shall notify Tenant in writing as soon as Landlord deems the
Premises to be substantially completed and ready for occupancy. In the
event that the Premises have not in fact been substantially completed as
aforesaid, Tenant shall notify Landlord of its objections. Landlord shall
have a reasonable time after delivery of such notice in which to take such
corrective action as may be necessary, and shall notify Tenant in writing
as soon as it deems such corrective action has been completed so that the
Premises are substantially completed and ready for occupancy. The taking of
possession by Tenant shall be deemed conclusively to establish that the
Premises have been substantially completed in accordance with the plans and
specifications and that the Premises are in good and satisfactory
condition, as of when possession was so taken. Tenant acknowledges that no
representations as to the repair of the Premises have been made by
Landlord, unless such are expressly set forth in this Lease. After the
Commencement Date, Tenant shall, upon demand, execute and deliver to
Landlord a letter of acceptance of delivery of the Premises, specifying the
Commencement Date and the rent commencement date, in recordable form. In
the event of any dispute as to the substantial completion or work performed
or required to be performed by Landlord, the certificate of Landlord's
architect or general contractor shall be conclusive. See additional
provisions in Paragraphs 31, 32, and 33.
2. BASE RENT AND SECURITY DEPOSIT.
A. Tenant agrees to pay to Landlord Base Rent for the premises, in
advance, without demand, deduction or set off, for the entire Lease Term
hereof at the rate specified in the Basic Lease Information, payable in
monthly installments. One such monthly installment shall be due and payable
on the date hereof and a like monthly installment shall be due and payable
on or before the first day of each calendar month succeeding the
Commencement Date recited above during the Lease Term, except that the
rental payment for any fractional calendar month at the commencement or end
of the Lease period shall be prorated on the basis of a 30-day month.
Tenant and Landlord hereby agree that in lieu of Tenant depositing
$43,967.00 as security deposit with Landlord at the beginning of this Lease
Agreement, Tenant will restore the premises to good condition, ordinary
wear and tear excepted.
3. USE. The Premises shall be used only for the purpose of general office,
receiving, storing, shipping, assembly, light manufacturing, and selling
(other than retail) products, materials and merchandise made and/or
distributed by Tenant and for such other lawful purposes as may be
incidental thereto. Outside storage, including without limitation, trucks
and other vehicles, is prohibited without Landlord's prior written consent.
Tenant shall at its own cost and expense obtain any and all licenses and
permits necessary for its use of the Premises. Tenant shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
Premises, and shall promptly comply with all governmental orders and
directives including but not limited to those regarding the correction,
prevention and abatement of nuisances in or upon, or connected with, the
Premises, all at Tenant's sole expense. Tenant shall not permit any
objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to
emanate from the Premises, nor take any other action which would constitute
a nuisance or would disturb or endanger any other tenants of the building
in which the Premises are situated or unreasonably interfere with their use
of their respective Premises. In addition to any other remedies Landlord
may have for a breach by Tenant of the terms of this Section 3, Landlord
shall have the right to have Tenant evicted from the Premises. Without
Landlord's prior written consent, Tenant shall not
<PAGE> 3
receive, store or otherwise handle any product, material or merchandise
which is explosive or highly inflammable. Tenant will not permit the
Premises to be used for any purpose or in any manner (including without
limitation any method of storage) which would render the insurance thereon
void or the insurance risk more hazardous or cause the State Board of
Insurance or other insurance authority to disallow any sprinkler credits.
In the event Tenant's use of Premises shall result in an increase in
insurance premiums, Tenant shall be solely responsible for said increase.
4. TAXES AND OTHER CHARGES.
A. Tenant agrees to pay upon presentation of appropriate tax bill its
proportionate share of any and all real and personal property taxes,
regular and special assessments, license fees and other charges of any
kind and nature whatsoever, payable by Landlord as a result of any public
or quasi-public authority, private party, or owner's association levy,
assessment or imposition against, or arising out of Landlord's ownership
of or interest in, the real estate described in Exhibit "B" attached
hereto, together with the building and the grounds, parking areas,
driveways, roads, and alleys around the building in which the Premises are
located, or any part thereof (hereinafter collectively referred to as the
"Charges"). Tenant's proportionate share of the Charges shall be computed
by multiplying the Charges by a fraction, the numerator of which shall
be the number of gross leasable square feet of floor space in the Premises
and the denominator of which shall be the total applicable gross leasable
square footage or such other equitable apportionment as may be adopted.
B. If Tenant should fail to pay any charges required to be paid by Tenant
hereunder, in addition to any other remedies provided herein, Landlord
may, if it so elects, pay such or taxes, assessments, license fees and
other charges. Any sums so paid by Landlord shall be deemed to be so much
additional rental owing by Tenant to Landlord and due and payable upon
demand as additional rental plus interest at the rate of one percent (1%)
over prime rate at the Seafirst Bank per annum from the date of payment by
Landlord until repaid by Tenant.
C. (1) If at any time during the Lease Term, the present method of
taxation shall be changed so that in lieu of the whole or any part of any
taxes, assessments, fees or charges levied, assessed or imposed on real
estate and the improvements thereon, there shall be levied, assessed or
imposed on Landlord a capital levy or other tax directly on the rents
received therefrom and/or a franchise tax, assessment, levy or charge
measured by or based, in whole or in part, upon such rents or the present
or any future building or buildings, then all such taxes, assessments,
fees or charges, or the part thereof so measured or based, shall be deemed
to be included within the term "Charges" for the purposes hereof.
(2) Tenant may, alone or along with Landlord and other tenants of the
building containing the Premises, at its sole cost and expense, in its or
their own name(s) dispute and contest any Charges by appropriate
proceedings diligently conducted in good faith, but only after Tenant
Landlord and all other tenants, if any, joining with Tenant in such
contest have deposited with Landlord the amount so contested and unpaid or
their proportionate shares thereof as the case may be, which shall be held
by Landlord without obligation for interest until the termination of the
proceedings, at which time the amount(s) deposited shall be applied by
Landlord toward the payment of the items held valid (plus any court costs,
interest, penalities and other liabilities associated with the
proceedings), and Tenant's share of any excess shall be returned to
Tenant. Tenant further agrees to pay to Landlord upon demand Tenant's
share (as among all Tenants who participated in the contest) of all court
costs, interest, penalities and other liabilities relating to such
proceedings. Tenant hereby indemnifies and agrees to hold harmless the
Landlord from and against any cost, damage or expense (including
attorney's fees) in connection with any such proceedings.
(3) Any payment to be made pursuant to this Paragraph 4 with respect to
the calendar year in which this Lease commences or terminates shall bear
the same ratio to the payment which would be required to be made for the
full calendar year as that part of such calendar year covered by the Lease
Term bears to a full calendar year.
(D) Tenant shall be liable for all taxes levied against personal property
and trade fixtures placed by Tenant in the Premises. If any such taxes are
levied against Landlord or Landlord's property and if Landlord elects to
pay the same or if the assessed value of Landlord's property is increased
by inclusion of personal property and trade fixtures placed by Tenant in
the Premises and Landlord elects to pay the taxes based on such increase,
Tenant shall pay to Landlord upon demand that part of such taxes for which
Tenant is primarily liable hereunder.
5. TENANT'S MAINTENANCE.
A. After reasonable notice from Landlord, Tenant shall at its own cost and
expense keep and maintain all parts of the Premises (except those for
which Landlord is expressly responsible under the terms of this Lease) in
good condition, promptly making all necessary repair and replacements,
including but not limited to, windows, glass and plate glass, doors, any
special office entry, interior walls and finish work, floor and floor
covering, downspouts, gutters, heating and air conditioning systems, dock
boards, truck doors, dock bumpers, plumbing work and fixtures, termite and
pest extermination, regular removal of trash and debris, keeping the
whole of the Premises in a clean and sanitary condition. Tenant shall not
be obligated to repair any damage caused by fire, tornado, or other
casualty covered by the insurance to be maintained by Landlord pursuant to
subparagraph 13(A) below, except that Tenant shall be obligated to repair
all wind damage to glass except with respect to tornado or hurricane
damage. Landlord shall repair and pay for damage caused by negligence of
Landlord or Landlord's employees.
B. Tenant shall not damage any demising wall or disturb the integrity and
support provided by any demising wall and shall, at its sole cost and
expense, promptly repair any damage or injury to any demising wall caused
by Tenant or it employees, agents, licensees or invitees.
C. Tenant and its employees, customers and licensees shall have the right
to use the parking areas, if any, subject to rights of ingress and egress
of other tenants. Landlord shall not be responsible for enforcing Tenant's
exclusive parking rights against any third parties. If Tenant or any other
particular tenant of the building can be clearly identified as being
responsible for obstructions or stoppage of
2
<PAGE> 4
a common sanitary sewage line, then Tenant, if Tenant is responsible, or such
other responsible Tenant, shall pay the entire cost thereof, upon demand, as
additional rent.
D. Tenant shall, at its own cost and expense, enter into a regularly scheduled
preventive maintenance/service contract with a maintenance contract or for
servicing all heating and air conditioning systems and equipment within the
Premises.
6. LANDLORD'S REPAIRS. After reasonable notice from Tenant, Landlord shall
repair the roof, exterior walls, floors and foundations, (normal settling
excepted). Tenant shall repair and pay for any damage to such items to be
maintained by Landlord caused by any act, omission or negligence of Tenant, or
Tenant's employees, agents, licensees or invitees, or caused by Tenant's default
hereunder. The term "walls" as used herein shall not include windows, glass or
plate glass, doors, special store fronts or office entries. Tenant shall
promptly give Landlord written notice of defect or need for repairs, after which
Landlord shall have a reasonable opportunity and time to repair same or cure
such defect. Landlord's liability with respect to any defects, repairs or
maintenance for which Landlord is responsible under any of the provisions of
this Lease shall be limited to the cost of such repairs or maintenance or the
curing of such defect.
7. MONTHLY COMMON AREA MAINTENANCE CHARGE. Tenant agrees to pay as an
additional charge each month for its proportionate share of the cost of
operation and maintenance of the Common Area which shall be defined from time to
time by Landlord. Common Area costs which may be incurred by Landlord at its
discretion, shall include, but not limited to those costs incurred for lighting,
water, sewage, trash removal, exterior painting, exterior window cleaning,
sweeping, management, accounting, policing, inspecting, sewer lines, plumbing,
paving, landscape maintenance, plant material replacement and other like
charges, and Landlord's fees for supervision and administration of the items set
forth in this paragraph, currently at 10%. Landlord shall maintain the Common
Areas in reasonably good condition and repair. The proportionate share to be
paid by Tenant of the cost of operation and maintenance of the Common Area shall
be computed on the ratio that the gross leaseable square feet of the Premises
bears to the total applicable gross leaseable square footage or such other
equitable apportionment as may be adopted. Landlord shall make monthly or other
periodic charges based upon the estimated annual cost of operation and
maintenance of the Common Area, payable in advance but subject to adjustment
after the end of the year on the basis of the actual cost for such year. Any
such periodic charges shall be due and payable upon delivery of notice thereof.
The initial Common Area Maintenance Charge, subject to adjustment as provided
herein, shall be due and payable, as additional rent, at the same time and in
the same manner as the time and manner of the payment of monthly rental as
provided herein. The amount of the initial Common Maintenance Charge shall be as
specified in the Basic Lease Information.
8. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises (including but not limited to roof and wall
penetrations) which cost in excess of $10,000.00 per project without the prior
written consent of Landlord which shall not be reasonably withheld. Tenant may,
without the consent of Landlord, but at its own cost and expense and in a good
workmanlike manner erect such shelves, bins, machinery and trade fixtures as it
may deem advisable, without altering the basic character of the building or
improvements and without overloading or damaging such building or improvements,
and in each case complying with all applicable governmental laws, ordinances,
regulations and other requirements. All alterations, additions, improvements and
partitions erected by Tenant shall be and remain the property of Tenant during
the Term of this Lease and Tenant shall, unless Landlord otherwise elects as
hereinafter provided, remove all alterations, additions, improvements and
partitions erected by Tenant and restore the Premises to their original
condition by the date of termination of this Lease or upon earlier vacating of
the Premises, provided, however, that if Landlord so elects prior to termination
of this Lease or upon earlier vacating of the Premises, such alterations,
additions, improvements and partitions shall become the property of Landlord as
of the date of termination of this Lease or upon earlier vacating of the
Premises and shall be delivered up to the Landlord with the Premises. All
shelves, bins, machinery and trade fixtures installed by Tenant may be removed
by Tenant prior to the termination of this Lease if Tenant so elects, and shall
be removed by the date of termination of this Lease or upon earlier vacating of
the Premises if required by Landlord; upon any such removal Tenant shall restore
the Premises to their original condition. All such removals and restoration
shall be accomplished in good workmanlike manner so as not to damage the primary
structure of structural qualities of the buildings and other improvements
situated on the Premises.
9. SIGNS. Tenant shall not install signs upon the Premises without Landlord's
prior written approval, and any such signage shall be subject to any applicable
governmental laws, ordinances, regulations and other requirements. Tenant shall
remove all such signs by the termination of this Lease. Such installations and
removals shall be made in such a manner as to avoid injury or defacement of the
building and other improvements, and Tenant shall repair any injury or
defacement, including without limitation discoloration, caused by such
installation and/or removal.
10. INSPECTION.
A. Landlord and Landlord's agents and representatives shall have the right
provided Landlord shall give Tenant prior notice and shall be accompanied by
employee of Tenant to enter and inspect the Premises at any reasonable time
during business hours, for the purpose of ascertaining the condition of the
Premises or in order to make such repairs as may be required or permitted to be
made by Landlord under the terms of this Lease. During the period that is six
(6) months prior to the end of the Term hereof, Landlord and Landlord's agents
and representatives shall have the right to enter the Premises at any reasonable
time during business hours for the purpose of showing the Premises and shall
have the right to erect on the Premises a suitable sign indicating the Premises
are available.
B. Tenant shall give written notice to Landlord at least thirty (30) days prior
to vacating the Premises and shall arrange to meet with Landlord for a joint
inspection of the Premises prior to vacating. In the event of Tenant's failure
to give such notice or arrange such joint inspection, Landlord's inspection at
or after Tenant's vacating the Premises shall be conclusively deemed correct for
purposes of determining Tenant's responsibility for repairs and restoration. It
shall be the responsibility of Tenant, prior to vacating the Premises, to clean
and repair the Premises and restore them to the condition in which they were in
upon delivery of the Premises to Tenant at the Commencement Date, reasonable
wear and tear excepted. Cleaning, repair and restoration shall include, but not
be limited to, removal of all trash, cleaning of walls, where necessary, of
carpet and flooring broom clean, replacement of light bulbs and tubes, cleaning
and wiping down of all fixtures, maintenance and repair of all heating and air
conditioning systems, and all similar work, which shall be done at the latest
practical date prior to vacation of the Premises.
11. UTILITIES. Landlord agrees to provide at its cost water, electricity and gas
service connections into the Premises; but Tenant shall pay for all water, gas,
heat, light, power, telephone, sewer, sprinkler charges and other utilities and
services used on or from the Premises, together with any taxes, penalties,
surcharges or the
3
<PAGE> 5
like pertaining thereto and any maintenance charges for utilities and shall
furnish all electric light bulbs and tubes. If any such services are not
separately metered to Tenant, Tenant shall pay a reasonable proportion as
determined by Landlord of all charges jointly metered with other Premises.
Landlord shall in no event be liable for any interruption or failure of
utility services on the Premises, unless such interruption results from
Landlord's intentional wrongful act and Landlord's negligence in its
efforts to restore.
12. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not have the right, voluntarily or involuntarily, to
assign, convey, transfer, mortgage or sublet the whole or any part of the
Premises under this Lease without the prior written consent of Landlord
which shall not be unreasonably withheld. In the event Tenant applies to
Landlord for consent to assign, convey, transfer or sublet the Premises,
Landlord may condition such consent upon the right to receive one-half of
the profit, if any, which Tenant may realize on account of such assignment,
conveyance, transfer or sublease of the Premises. For purposes of this
paragraph, "profit" shall mean any sum which the assignee, sublessee or
transferree is required to pay, or which is credited to Tenant as rent in
excess of the Rents required to be paid by Tenant to Landlord under this
Lease. Landlord also reserves the right to recapture the Premises or
applicable portion thereof in lieu of giving its consent by notice given to
Tenant within twenty (20) days after receipt of Tenant's written request
for assignment or subletting. Such recapture shall terminate this Lease as
to the applicable space effective on the prospective date of assignment or
subletting, which shall be the last day of a calendar month and not earlier
than sixty (60) days after receipt of Tenant's request hereunder. In the
event that Landlord shall not elect to recapture and shall thereafter give
its consent, Tenant shall pay Landlord a reasonable fee, not to exceed
$200.00 to reimburse Landlord for processing costs incurred in connection
with such consent.
B. Notwithstanding any permitted assignment or subletting, Tenant shall
at all times remain directly, primarily and fully responsible and liable
for the payment of the rent herein specified and for compliance with all of
its other obligations under the terms, provisions and covenants of this
Lease. Upon the occurrence of an "event of default" as hereinafter defined,
if the Premises or any part thereof are then assigned or sublet, Landlord,
in addition to any other remedies herein provided, or provided by law, may
at its option collect directly from such assignee or subtenant all rents
becoming due to Tenant under such assignment, transfer or sublease and
apply such rent against any sums due to Landlord from Tenant hereunder, and
no such collection shall be construed to constitute a novation or a release
of Tenant from the further performance of Tenant's obligations hereunder.
13. INSURANCE, FIRE AND CASUALTY DAMAGE.
A. Landlord agrees to maintain insurance covering the building of which
the Premises are a part in an amount not less than eighty percent (80%) (or
such greater percentage as may be necessary to comply with the provisions
of any co-insurance clauses of the policy) of the "replacement cost"
thereof as such term is defined in the Replacement Cost Endorsement to be
attached thereto, insuring against the perils of Fire, Lightning, Extended
coverage, Vandalism and Malicious Mischief, extended by Special Extended
coverage Endorsement to insure against all other Risks of Direct Physical
Loss, such coverages and endorsements to be as defined, provided and
limited in the standard bureau forms prescribed by the insurance regulatory
authority for the State in which the Premises are situated for use by
insurance companies admitted in such state for the writing of such
insurance on risks located within such state. Subject to the provisions of
subparagraph 13, C,D,E below, such insurance shall be for the sole benefit
of Landlord and under its sole control. In the event the insurance policy
shall contain a deductible, Tenant shall be liable for and pay any
deductible withheld from insurance proceeds of payable under the terms of
the insurance policy in the event of a claim or insured loss thereunder.
B. Tenant agrees to pay its proportionate share of Landlord's cost of
carrying fire and extended coverage insurance ("Insurance") on the
building. During each month of the term of this Lease, Tenant shall make a
monthly escrow deposit with Landlord equal to one-twelfth of its
proportionate share of the Insurance on the buildings and grounds which
will be due and payable for that particular year. Tenant authorizes
Landlord to use the funds deposited by him with Landlord under this
paragraph to pay the cost of such Insurance. Each Insurance Escrow payment
shall be due and payable, as additional rent, at the same time and manner
of the payment of the monthly rental as provided herein. The initial share
of the estimated Insurance for the year in question, and the monthly
Insurance Escrow Payment is subject to increase or decrease as determined
by Landlord to reflect an accurate monthly escrow of Tenant's estimated
proportionate share of this Insurance. The Insurance Escrow Payment account
of Tenant shall be reconciled annually. If the Tenant's total Insurance
Escrow Payments are less than Tenant's actual pro rata share of the
Insurance, Tenant shall pay to Landlord upon demand the difference; if the
total Insurance Escrow Payments of Tenant are more than Tenant's actual pro
rata share of the Insurance, Landlord shall promptly refund the balance of
such excess to Tenant after first crediting the excess to the next monthly
payment by Tenant for its proportionate share of Taxes and Insurance.
Tenant's cost of insurance shall be computed by multiplying the cost of
Insurance by a fraction, the numerator of which shall be the number of
gross leaseable square feet of floor space in the Premises and the
denominator of which shall be the total applicable gross leasable square
footage. The amount of the initial monthly Insurance Escrow Payment will be
as specified in the Basic Lease Information.
C. If the building, of which the Premises are a part, should be damaged
or destroyed by fire, tornado or other casualty, Tenant shall give prompt
written notice thereof to Landlord.
D. If the building, of which the Premises are a part, should be totally
destroyed by fire, tornado or other casualty, or if it should be so damaged
thereby that rebuilding or repairs cannot in Landlord's estimation be
completed within two hundred (200) days after the date of damage, this
Lease shall terminate and the rent shall be abated during the unexpired
portion of this Lease, effective upon the date of the occurrence of such
damage. Landlord shall give notice to Tenant in writing of its
determination to terminate this Lease within ninety (90) days following the
date of the occurrence of such damage.
E. If the building, of which the Premises are a part, should be damaged
by any peril covered by the Insurance to be provided by Landlord under
subparagraph 13(A) above, but only to such extent that rebuilding or
repairs can in Landlord's estimation be completed within two hundred (200)
days after the date of such damage, this Lease shall not terminate, and
Landlord shall at its sole cost and expense thereupon proceed with
reasonable diligence to rebuild and repair such building to substantially
the condition in which it existed prior to such damage, except that
Landlord shall not be required to rebuild, repair or replace any part of
the partition, fixtures, additions and other improvements which may have
been placed in, or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the rent payable
hereunder during the period in which they are untenantable shall be reduced
to such extent as may be fair and reasonable under all of the
circumstances. In the event that Landlord shall fail to complete such
repairs and rebuilding within two hundred (200) days after the date
4
<PAGE> 6
of such damage, Tenant may at its option terminate this Lease by delivering
written notice of termination to Landlord as Tenant's exclusive remedy,
whereupon all rights and obligations hereunder shall cease and terminate.
F. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering
the Premises requires that the Insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease
by delivering written notice of termination to Tenant within fifteen (15)
days after such requirement is made by any such holder, whereupon all
rights and obligations hereunder shall cease and terminate.
G. Each of Landlord and Tenant hereby releases the other from any loss
or damage to property caused by fire or any other perils insured through
or under them by way of subrogation or otherwise for any loss or damage to
property caused by fire or any other perils insured in policies of
Insurance covering such property, even if such loss or damage shall have
been caused by the fault or negligence of the other party, or anyone for
whom such party may be responsible; provided, however, that this release
shall be applicable and in force and effect only with respect to loss or
damage occurring during such times as the releasor's policies shall
contain a clause or endorsement to the effect that any such release shall
not adversely affect or impair said policies or prejudice the right of the
releasor to recover thereunder and then only to the extent of the
Insurance proceeds payable under such policies. Each of the Landlord and
Tenant agrees that it will request its Insurance carriers to include in
its policies such a clause or endorsement. If extra cost shall be charged
therefor, each party shall advise the other thereof and of the amount of
the extra cost, and the other party, at its election, may pay the same,
but shall not be obligated to do so.
14. LIABILITY. Landlord shall not be liable to Tenant or Tenant's employees,
agents, servants, guests, invitees or visitors, or to any other person
whomsoever, for any injury to person or damage to property on or about the
Premises, resulting from and/or caused in part or whole by the negligence
or misconduct of Tenant, its employees, agents, servants, guests, invitees
or visitors, or of any other person entering upon the Premises, or caused
by the building and improvements located on the Premises becoming out of
repair, or caused by leakage of gas, oil, water or steam or by electricity
emanating from the Premises, or due to any cause whatsoever, and Tenant
hereby covenants and agrees that it will at all times indemnify and hold
safe and harmless the property, the Landlord (including without limitation
the trustee and beneficiaries if Landlord is a trust), Landlord's
employees, agents, servants, guests, invitees, and visitors from any loss,
liability, claims, suits, costs, expenses, including without limitation
attorney's fees and damages, both real and alleged, arising out of any
such damage or injury; except injury to persons or damage to property the
sole cause of which is the negligence of Landlord or the failure of
Landlord to repair any part of the Premises which Landlord is obligated to
repair and maintain hereunder within a reasonable time after the receipt
of which Landlord is obligated to repair and maintain hereunder within a
reasonable time after the receipt of written notice from Tenant of needed
repairs. Tenant shall procure and maintain throughout the term of this
Lease a policy or policies of Insurance, at its sole cost and expense,
insuring both Landlord and Tenant against all claims, demands or actions
arising out of or in connection with: (i) the Premises; (ii) the
condition of the Premises; (iii) Tenant's operations in and maintenance
and use of the Premises; and (iv) Tenant's liability assumed under this
Lease, the limits of such policy or policies to be in the amount of not
less than $1,000,000 per occurrence in respect of injury to persons
(including death) and in respect of property damage or destruction,
including loss of use thereof. All such policies shall be procured by
Tenant from responsible Insurance companies authorized to do business in
the State of Washington satisfactory to Landlord. Certificates of
Insurance shall be delivered to Landlord prior to the commencement date of
this Lease. Not less that fifteen (15) days prior to the expiration date
of such policies, Certificates of Insurance certified copies of the
renewals thereof shall be delivered to Landlord. Such policies shall
further provide that not less than thirty (30) days written notice shall
be given to Landlord before such policy may be cancelled or changed to
reduce insurance provided thereby.
15. CONDEMNATION.
A. If the whole or any substantial part of the Premises should be taken
for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchases in lieu
thereof and the taking would prevent or materially interfere with the use
of the Premises for the purpose for which they are being used, this lease
shall terminate and the rent shall be abated during the unexpired portion
of this Lease, effective when the physical taking of said Premises shall
occur.
B. If part of the Premises shall be taken for any public or quasi-public
use under any governmental law, ordinance or regulation, or by right of
eminent domain, or by private purchase in lieu thereof, and this Lease is
not terminated as provided in the subparagraph above, this Lease shall not
terminate but the rent payable hereunder during the unexpired portion of
this Lease shall be reduced to such extent as may be fair and reasonable
under all of the circumstances.
C. In the event of any such taking or private purchase on lieu thereof,
Landlord shall be entitled to receive the entire award. Tenant shall be
entitled to make a claim in any condemnation proceedings which does not
reduce the amount of Landlord's award, for the value of any furniture,
furnishings and fixtures installed by and at the sole expense of Tenant.
16. HOLDING OVER. Tenant will, at the termination of this Lease by lapse of
time or otherwise, yield up immediate possession to Landlord. If Landlord
agrees in writing that Tenant may hold over after the expiration or
termination of this Lease, unless the parties hereto otherwise agree in
writing on the terms of such holding over, the hold over tenancy shall be
subject to termination by Landlord at any time upon not less than five (5)
days advance written notice, or by Tenant at any time upon not less than
thirty (30) days advance written notice, and all of the other terms and
provisions of this Lease shall be applicable during that period, except
that Tenant shall pay Landlord from time to time upon demand, as rental
for the period of any hold over, an amount equal to one and one-half
(1-1/2) the Base Rent in effect on the termination date, plus all
additional rental as defined herein, computed on a daily basis for each
day of the hold over period. No holding over by Tenant, whether with or
without consent to Landlord, shall operate to extend this Lease except as
otherwise expressly provided. The preceding provisions of this paragraph
16 shall not be construed as Landlord's consent for Tenant to hold over.
17. QUIET ENJOYMENT. Landlord covenants that it now has, or will acquire
before Tenant takes possession of the Premises, good fee or leasehold
title to the Premises, free and clear of all liens and encumbrances,
excepting only the lien for current taxes not yet due, such mortgage or
mortgages as are permitted by the
5
<PAGE> 7
terms of this Lease, zoning ordinances and other building and fire
ordinances and governmental regulations relating to the use of such
property, and easements, restrictions and other conditions of record.
Landlord represents and warrants that it has full right and authority to
enter into this Lease and that Tenant, upon paying the rental herein set
forth and performing its other covenants and agreements herein set forth,
shall peaceably and quietly have, hold and enjoy the Premises for the term
hereof without hindrance or molestation from Landlord subject to the terms
and provisions of this Lease.
18. EVENTS OF DEFAULT. The following events shall be deemed to be events of
default by Tenant under this Lease:
A. Tenant shall fail to pay any installment of the rent herein reserved
when due, or any payment with respect to taxes hereunder when due, or any
other payment or reimbursement to Landlord required herein when due, and
such failure shall continue for a period of ten (10) days from the date
such payment was due.
B. Tenant shall become insolvent, or shall make transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
C. Tenant shall file a petition under any section or chapter of the
National Bankruptcy Act, as amended, or under any similar law or statute of
the United States or any State thereof; or Tenant shall be adjudged
bankrupt or insolvent in proceedings filed against Tenant thereunder.
D. A receiver or trustee shall be appointed for all or substantially all
of the assets of Tenant.
E. Tenant shall desert of the Premises.
F. Tenant shall fail to comply with any term, provision or covenant of
this Lease (other than the foregoing in this Paragraph 18), and shall not
cure such failure within twenty (20) days after written notice thereof to
Tenant.
19. REMEDIES. Upon the occurrence of any such events of default described in
Paragraph 18 hereof, Landlord shall have the option to pursue any one or
more of the following remedies without any notice or demand whatsoever.
A. Landlord may accelerate all rent payments due hereunder which shall
then become immediately due and payable.
B. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails so to do, Landlord
may, without prejudice to any other remedy which it may have for possession
or arrearages in rent, enter upon and take possession of the Premises and
expel or remove Tenant and any other person who may be occupying such
Premises or any part thereof, without being liable for prosecution or any
claim of damages therefor, and Tenant agrees to pay to Landlord on demand
the amount of all loss and damage which Landlord may suffer by reason of
such termination, whether through inability to relet the Premises on
satisfactory terms or otherwise.
C. Enter upon and take possession of the Premises and expel or remove
Tenant and any other person who may be occupying such Premises or any part
thereof, without being liable for prosecution or any claim for damages
therefor, and relet the Premises for such terms ending before, on or after
the expiration date of the Lease Term, at such rentals and upon such other
conditions (including concessions and prior occupancy periods) as Landlord
in its sole discretion may determine, and receive the rent therefor; and
Tenant agrees to pay to the Landlord on demand any deficiency that may
arise by reason of such reletting. Landlord shall have no obligation to
relet the Premises or any part thereof and shall not be liable for refusal
or failure to relet or in the event of reletting for refusal or failure to
collect any rent due upon such reletting. In the event Landlord is
successful in reletting the Premises at a rental in excess of that agreed
to be paid by Tenant pursuant to the terms of this Lease, Landlord and
Tenant each mutually agree that Tenant shall not be entitled, under any
circumstances, to such excess rental, and Tenant does hereby specifically
waive any claim to such excess rental.
D. Enter upon the Premises, without being liable for prosecution or
any claim for damages therefor, and do whatever Tenant is obligated to do
under the terms of this Lease; and Tenant agrees to reimburse Landlord on
demand for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease, and Tenant further
agrees that Landlord shall not be liable for any damages resulting to the
Tenant from such action, unless caused by the negligence of Landlord.
E. Whether or not Landlord retakes possession or relets the Premises,
Landlord shall have the right to recover unpaid rent and all damages caused
by Tenant's default, including attorney's fees. Damage shall include,
without limitation; all rentals lost, all legal expenses and other related
costs incurred by Landlord following Tenant's default, all costs incurred
by Landlord in restoring the Premises to good order and condition, or in
remodeling, renovating or otherwise preparing the Premises for reletting,
all costs (including without limitation any brokerage commissions and the
value of Landlord's time) incurred by Landlord, plus interest thereon from
the date of expenditure until fully repaid at the rate of eighteen percent
(18%) per annum.
F. In the event Tenant fails to pay any installment of rent, additional
rent or other charges hereunder as and when such installment is due, to
help defray the additional cost to Landlord for processing such late
payments Tenant shall pay to Landlord on demand a late charge in an amount
equal to five percent (5%) of such installment; and the failure to pay
such amount within ten (10) days after demand therefor shall be an event
of default hereunder. The provision for such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder or at
law and shall not be construed as liquidated damages or as limiting
Landlord's remedies in any manner.
G. Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided
by law, such remedies being cumulative and non-exclusive, nor shall
pursuit of any remedy herein provided constitute a forfeiture or waiver of
any rent due to Landlord hereunder or of any damages accruing to Landlord
by reason of the violation of any of the terms, provisions and covenants
herein contained. No act or thing done by the Landlord or its agents during
the Lease Term hereby granted shall be deemed a termination of this Lease
or an acceptance of the surrender of the Premises, and no agreement to
terminate this Lease or accept a surrender of said Premises shall be valid
unless in writing signed by Landlord. No waiver by Landlord of any
violation or breach of any of the terms, provisions and covenants herein
contained shall be deemed or construed to constitute a waiver of any other
violation or breach of any of the terms, provisions and covenants herein
contained. Landlord's acceptance of the payment of rental or other
payments hereunder after the occurrence of an event of default shall not
be construed as a
6
<PAGE> 8
waiver of such default, unless Landlord so notifies Tenant in writing.
Forbearance by Landlord to enforce one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default or of Landlord's right to enforce any
such remedies with respect to such default or any subsequent default. If,
on account of any breach or default by Tenant in Tenant's obligations under
the terms and conditions of this Lease, it shall become necessary or
appropriate for Landlord to employ or consult with an attorney concerning
or to enforce or defend any of Landlord's rights or remedies hereunder,
Tenant agrees to pay any reasonable attorney's fees so incurred.
20. LANDLORD'S LIEN. Landlord shall have all rights of Landlord's Lien in
accordance with the State of Washington Statutes.
21. MORTGAGES. Tenant accepts this Lease subject and subordinate to any
mortgage(s) and/or deed(s) of trust now or at any time hereafter
constituting a lien or charge upon the Premises or the improvements
situated thereon, provided, however, that if the mortgagee, trustee, or
holder of any such mortgage or deed of trust elects to have Tenant's
interest in this Lease superior to any such instrument, then by notice to
Tenant from such mortgagee, trustee or holder, this Lease shall be deemed
superior to such lien, whether this Lease was executed before or after
said mortgage or deed of trust. Tenant shall at any time hereafter on
demand execute any instruments, releases or other documents which may be
required by any mortgagee for the purpose of subjecting and subordinating
this Lease to the lien of any such mortgage.
22. LANDLORD'S DEFAULT. In the event Landlord should become in default in any
payment due on any such mortgage described in Paragraph 21 hereof or in the
payment of taxes or any other item which might become a lien upon the
Premises and which Tenant is not obligated to pay under the terms and
provisions of this Lease. Tenant is authorized and empowered after giving
Landlord five (5) days prior written notice of such default and Landlord's
failure to cure such default, to pay any such items for and on behalf of
Landlord, and the amount of any item so paid by Tenant for or on behalf of
Landlord, together with any interest or penalty required to be paid in
connection therewith, shall be payable on demand by Landlord to Tenant;
provided, however, that Tenant shall not be authorized and empowered to
make any payment under the terms of this Paragraph 22 unless the item paid
shall be superior to Tenant's interest hereunder. In the event Tenant pays
any mortgage debt in full, in accordance with this paragraph, it shall, at
its election, be entitled to the mortgage security by assignment or
subrogation.
23. MECHANICS LIENS. Tenant shall have no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever
upon, or in any manner to bind, the interest of Landlord in the Premises or
to charge the rentals payable hereunder for any claim in favor of any
person dealing with Tenant, including those who may furnish materials or
perform labor for any construction or repairs, and each such claim shall
affect and each such lien shall attach to, if at all, only the leasehold
interest granted to Tenant by this instrument. Tenant covenants and agrees
that it will pay or cause to be paid all sums legally due and payable by it
on account of any labor performed or materials furnished in connection with
any work performed on the Premises on which any lien is or can be validly
and legally asserted against its leasehold interest in the Premises or the
improvements thereon and that it will save and hold Landlord harmless from
any and all loss, cost or expense based on or arising out of asserted
claims or liens against the leasehold estate or against the right, title
and interest of the Landlord in the Premises or under the terms of this
Lease.
24. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with
reference to the sending, mailing or delivery of any notice or the making
of any payment by Landlord to Tenant or with reference to the sending,
mailing or delivery of any notice or the making of any payment by Tenant
to Landlord shall be deemed to be complied with when and if the following
steps are taken:
A. All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address hereinbelow set
forth or at such other address as Landlord may specify from time to time
by written notice delivered in accordance herewith. Tenant's obligation to
pay rent and any other amounts to Landlord under the terms of this Lease
shall not be deemed satisfied until such rent and other amounts have been
actually received by Landlord.
B. All payments required to be made by Landlord to Tenant hereunder shall
be payable to Tenant at the address hereinbelow set forth, or at such
other address within the continental United States as Tenant may specify
from time to time by written notice delivered in accordance herewith.
C. Any notice or document required or permitted to be delivered hereunder
shall be deemed to be delivered when actually received. Certified or
Registered Mail, addressed to the parties hereto at the respective
addressed out below, or at such other address as they have theretofore
specified by written notice delivered in accordance herewith:
LANDLORD: TENANT:
ISSAQUAH #1 LIMITED PARTNERSHIP BAXTER HEALTHCARE CORPORATION
300 120th Avenue N.E. One Baxter Parkway
Building 1, Suite 120 Deerfield, Illinois 60015
Bellevue, Washington 98005 Attn: Director, Corporate Real Estate
If and when include within the term "Landlord", as used in this instrument,
there are more than one person, firm or corporation, all shall jointly
arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address for the receipt of
notices and payments to Landlord: if and when included within the term
"Tenant", as used in this instrument, there are more than one person, firm
or corporation, all shall jointly arrange among themselves for their joint
execution of such a notice specifying some individual at some specific
address within the continental United States for the receipt of notices and
7
<PAGE> 9
payments to Tenant. All parties included within the terms "Landlord" and
"Tenant", respectively, shall be bound by notices given in accordance with the
provisions of this paragraph to the same effect as if each had received such
notice.
25. MISCELLANEOUS.
A. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held
to include the plural, unless the context otherwise requires.
B. The terms, provisions and covenants and conditions contained in this
Lease shall apply to, inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly
provided. Landlord shall have the right to assign any of its rights and
obligations under this Lease. Each party agrees to furnish to the other
promptly upon demand, a corporate resolution, proof of due authorization
by partners or other appropriate documentation evidencing the due
authorization of such party to enter into this Lease.
C. The captions inserted in this Lease are for the convenience only and
in no way define, limit or otherwise describe the scope or intent of this
Lease, or any provision hereof, or in any way affect the interpretation of
this Lease.
D. Tenant agrees from time to time within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, the date
to which rent has been paid, the unexpired term of this Lease and such
other matters pertaining to this Lease as may be requested by Landlord. It
is understood and agreed that Tenant's obligation to furnish such estoppel
certificates in a timely fashion is a material inducement for Landlord's
execution of this Lease.
E. This Lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
F. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive
the expiration or earlier termination of the Term hereof, including without
limitation all payment obligations with respect to taxes and insurance and
all obligations concerning the condition of the Premises. Tenant shall
also, prior to vacating the Premises, pay to Landlord the amount, as
estimated by Landlord, of Tenant's obligation hereunder for real estate
taxes and insurance premiums for the year in which the Lease expires or
terminates. All such amount shall be used and held by Landlord for payment
of such obligations of Tenant hereunder, with Tenant being liable for any
additional costs therefor upon demand by Landlord, or with any excess to be
returned to Tenant after all such obligations have been determined and
satisfied, as the case may be.
G. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the Term of
this Lease, then and in that event, it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby, and
it is also the intention of the parties to this Lease that in lieu of each
clause or provision of this Lease that is illegal, invalid or
unenforceable, there be added as part of this Lease contract a clause or
provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and enforceable.
H. Because the Premises are on the open market and are presently being
shown, this Lease shall be treated as an offer with the Premises being
subject to prior Lease and such offer subject to withdrawal or
non-acceptance by Landlord or to other use of the Premises without notice,
and this Lease shall not be valid or binding unless and until accepted by
Landlord in writing and a fully executed copy delivered to both parties
hereto.
I. All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time, on
which all parties hereto have executed this Lease.
26. LIABILITY OF LANDLORD. Tenant agrees that no trustee, officer, employee,
agent or individual partner of Landlord, or its constituent entitles,
shall be personally liable for any obligation of Landlord hereunder, and
that Tenant must look solely to the interests of Landlord, or its
constituent entities in the subject real estate, for the enforcement of
any claims against Landlord arising hereunder.
27. ADDITIONAL PROVISIONS. Addendum and additional paragraphs attached hereto
and made a part hereof.
LANDLORD: TENANT:
ISSAQUAH #1 LIMITED PARTNERSHIP BAXTER HEALTHCARE CORPORATION
a Texas limited partnership a Delaware corporation
By: /s/ [SIG] By: /s/ [SIG] [J8/30]
-------------------------------- -------------------------------
Title: Vice President
----------------------------
<PAGE> 10
STATE OF ILLINOIS )
) SS.
County of Lake )
BE IT REMEMBERED, That on this 30th day of August, 1988, before me, the
undersigned a Notary Public in and for said County and State, personally
appeared the within named A.F. Stanbitz known to me to be Vice President who
executed the within instrument and acknowledged to me that he executed the same
freely and voluntarily.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed
my official seal the day and year last above written.
[MARILYN L. TALLMAN]
--------------------------------------
Notary Public for State of Illinois
My commission expires October 30, 1988
STATE OF WA )
) SS.
County of King )
BE IT REMEMBERED, That on this 24th day of Oct, 1988, before me, the
undersigned a Notary Public in and for said County and State, personally
appeared the within named Curtis Feeny known to me to be general partner who
executed the within instrument and acknowledged to me that he executed the same
freely and voluntarily.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed
my official seal the day and year last above written.
[SIG ILLEGIBLE]
--------------------------------------
Notary Public for State of WA
My commission expires 7/90
<PAGE> 11
ADDENDUM TO LEASE AGREEMENT:
ISSAQUAH #1 LIMITED PARTNERSHIP
a Texas limited partnership
and
BAXTER HEALTHCARE CORPORATION
a Delaware corporation
Additional Paragraph 28, Landlord's Consent. Whenever a clause of this lease
requires Landlord's consent or approval, the Landlord expressly covenants and
agrees not to withhold or delay his consent unreasonably.
Additional Paragraph 29, Options to Renew. Provided Tenant is not, and has not
been, in default of any of its obligations under this Lease, it shall have three
(3) options to renew this Lease for the Premises in "as-is" condition for a term
of five (5) years each on the same terms and conditions as set forth in this
Lease except that the monthly base rent during the first option period will be
$48,796.00. The monthly base rent for the second and third option periods shall
be at current market rent, as determined by Landlord. In no event will the
monthly rental be less than the rental for the last month of the previous term.
To exercise the first option period, Tenant shall give Landlord written notice
to exercise its option at least 180 days prior to the expiration of the current
lease term.
To exercise the second and third option terms, Tenant shall give Landlord
written notice to exercise its options at least 180 days prior to the expiration
of the then current lease term. Within 15 days after Tenant exercises its option
to renew, Landlord will provide Tenant with the current market rent for the
first five years of the renewal term. Tenant shall have 45 days from
notification by Landlord of renewal rent to accept Landlord's market rent. If
Tenant does not accept Landlord's rental figure within the 45 day period, this
option shall be null and void. Landlord shall have no further obligation to
Tenant and Landlord may enter into leases with a third party.
Notwithstanding anything to the contrary herein contained, Tenant's right to
extend the term by exercise of any of the foregoing options shall be conditioned
upon the following: (i) at the time of the exercise of the option, and at the
time of the commencement of any such extended term, Tenant shall be in
possession of and occupying the Premises for the conduct of its business therein
and the same shall not be occupied by any assignee, subtenant or licensee, the
option to extend being applicable hereunder only with respect to so much of the
Premises as is actually occupied by Tenant, and (ii) the notice of exercise
shall constitute a representation by Tenant to Landlord effective as of the date
of the exercise and as of the date of commencement of the extended term, that
Tenant does not intend to seek to assign the Lease in whole or in part, or
sublet all or any portion of the Premises, the election to extend the term being
for purposes of utilizing the Premises for Tenant's purposes in the conduct of
Tenant's business therein.
<PAGE> 12
Additional Paragraph 30. Option to Expand/First Right of Refusal. For a period
of twelve (12) months after the Commencement Date of this Lease, Landlord hereby
reserves for expansion by Tenant the approximate 4,000 square feet adjacent to
the Premises and outlined in green on Exhibit C attached.
If Tenant has not exercised its option to expand, then after the initial twelve
month period of the Lease, Tenant shall have a first right of refusal for the
approximate 4,000 square feet adjacent to the Premises and outlined in green on
Exhibit C attached. Upon notification of Landlord to Tenant, verbally or in
writing, Tenant shall have five (5) working days to notify Landlord of Tenant's
desire to exercise Tenant's right of first refusal, on the same terms and
conditions as the offer to lease that Landlord has received. In the event Tenant
fails to give Landlord notice of Tenant's election to lease the adjoining space
within the time period, Tenant shall have no further right, title or interest in
the adjacent space and the right of first refusal shall terminate. If on the
other hand Tenant exercises its right of first refusal in the manner provided
above, Tenant shall immediately deliver to Landlord payment for the first
month's rent and security deposit for the adjacent space (in the same manner as
provided for in this Lease), and the lease of the adjacent property shall be
consummated without delay, in accordance with the terms set forth in the lease
offer.
Additional Paragraph 31. Holdover Rent February and March, 1989. Landlord shall
pay to Tenant an amount equal to the Holdover Rent, if any, which exceeds
Tenants current rent, as of January 1, 1989, for their current location by 110%,
for the months of February and March, 1989. That is, the Tenant will pay up to
110% of their current rental amount, as of January 1, 1989, for the months of
February and March 1989 and Landlord will pay the Holdover Rent above that
amount. The Holdover Rent shall be verified by delivery, by Tenant to Landlord,
of the holdover lease agreement. All holdover provisions negotiated by Tenant
with its current landlord are subject to Landlord's (Issaquah #1) approval.
Additional Paragraph 32. Additional Provisions for Paragraph 1C. Date of
Delivery of Premises. Landlord shall use all reasonable efforts to have the
Premises completed and ready for occupancy on or before April 1, 1989.
In the event that the Premises are not Substantially Completed by April 1, 1989,
as defined in Paragraph IC of the Lease, the Landlord shall pay to Tenant an
amount equal to the Holdover Rent. The "Holdover Rent" is defined as the
difference between the normal monthly rent that Tenant is currently paying as of
January 1, 1989 and the rent Tenant is paying as of April 1, 1989. The Holdover
Rent shall be verified by delivery, by Tenant to Landlord, of the holdover lease
agreement. All holdover provisions negotiated by Tenant with its current
landlord are subject to Landlord's (Issaquah #1) approval.
For every month after April 1989 that the Premises are not Substantially
Complete as defined in Paragraph 1C, Landlord shall pay to Tenant the Holdover
Rent as described in the above paragraph. The first day of every month or the
date required for rent payment in the holdover agreement, whichever is later,
shall be the reference date for the month when determining Substantial
Completion.
<PAGE> 13
If Landlord has not Substantially Completed the Premises by September 1, 1989,
then Tenant shall have the right to cancel this Lease by written notice to
Landlord delivered on September 1, 1989. Such cancellation right shall continue
for a period of five (5) working days, then such termination option shall be
null and void. Neither party shall have any further liability to the other party
upon termination.
Notwithstanding anything to the contrary contained in the Lease, the Landlord
shall have no liability to the Tenant hereunder if prevented from achieving the
aforementioned deadlines by reason of (a) any strike, lock-out or other labor
troubles, (b) interruption or availability of electrical power, gas, water, fuel
oil, or other utility or service, (d) riot, war, insurrection or other national
or local emergency, (e) accident, flood, fire or other casualty (f) adverse
weather condition, (g) other acts of God, (h) inability to obtain a building
permit or a certificate of occupancy, or (i) other cause similar or dissimilar
to any of the foregoing and beyond the Landlord's reasonable control. In such
event, (a) the Commencement Date shall be postponed for a period equaling the
length of such delay, (b) the Termination Date shall be determined pursuant to
the provisions of Paragraph 1 by reference to the Commencement Date as so
postponed, (c) The April 1, 1989 and September 1, 1989 deadline dates detailed
above shall be postponed for a period equaling the length of such delay.
Tenant's obligation to commence the payment set forth in the Lease shall not be
affected or deferred and Landlord shall have no liability to the Tenant
hereunder if Landlord shall be delayed in Substantially Completing the Premises
as a result of any one or more of the following:
(i) Tenant's alterations or additions to Exhibit C and/or Exhibit C-1;
(ii) Tenant having not approved the working drawing plans by September
30, 1988;
(iii) Such other acts or omissions by Tenant, or Tenant's agents that
delay completion of the Tenant Improvements.
For each day that Landlord is delayed in Substantially Completing the Premises
due to i) through iii) above, the April 1, 1989 and September 1, 1989 deadline
dates shall be delayed by the same number of days, and the Commencement date
shall be moved forward by the same number of days.
Additional Paragraph 33. Direct Cost Reimbursement. Landlord agrees to reimburse
Tenant for Tenant's direct costs resulting from Landlord's failure to have the
Premises Substantially Complete by April 1, 1989 but not to exceed the sum of
One Thousand Dollars ($1,000.00).
<PAGE> 14
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE is made this 21st day of August, 1990, by and between
Issaquah #1 Limited Partnership, a Texas limited partnership (the "Landlord")
and Baxter Healthcare Corporation, a Delaware corporation (the "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
August 22, 1988 (the "Lease"), for Suite 107 located in Building B, I-90 Lake
Place (The "Premises"), as more fully described in the Lease; and
WHEREAS, Tenant desires to lease an additional 3,626 square feet of
space adjacent to the Premises; and Landlord and Tenant desire to modify the
Lease accordingly;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereby mutually agree as follows:
1. The Lease is hereby amended to reflect that effective October 1,
1990, the Premises shall be increased to approximately 47,825 square feet as
outlined in red on Exhibit A-1 attached hereto, which shall replace and
supersede Exhibit A to the Lease.
2. Effective October 1, 1990, the monthly rent as provided for in
Paragraph 2 of the Lease shall be increased to Forty Three Thousand Nine
Hundred Ninety Nine and no/100 Dollars ($43,999.00).
3. Landlord shall at its sole cost and expense perform tenant
improvements upon the Premises within an allowance of $54,390.00 including
permits, fees and Washington State Sales Tax.
4. In the event any payment due from Tenant to Landlord is made by
a party other than Tenant, such payment shall be deemed to have been made by
and for the account of Tenant, and the party making such payment shall have no
rights under this Lease.
5. No trustee, officer, employee, agent, or individual partner of
Landlord, or its constituent entities, shall be personally liable for any
obligation of Landlord hereunder, and Tenant must look solely to the interests
of Landlord, or its constituent entitles in the subject real estate, for the
enforcement of any claims against Landlord arising hereunder.
6. Tenant warrants that all necessary corporate actions have been
duly taken to permit Tenant to enter into this Amendment to Lease and that each
undersigned officer has been duly authorized and instructed to execute this
Amendment to Lease.
7. Except as expressly modified above, all terms and conditions of
the Lease remain in full force and effect and are hereby ratified and confirmed.
LANDLORD: TENANT:
Issaquah #1 Limited Partnership Baxter Healthcare Corporation,
a Texas limited partnership a Delaware corporation
By: Crow-Seattle #1, Inc., a
Texas corporation
its General Partner
By: /s/ CURTIS FEENY By: /s/ [SIG]
----------------------- ---------------------------
Curtis Feeny, President Its: Director Corporate Real
Estate
<PAGE> 15
STATE OF ILLINOIS )
) SS.
COUNTY OF LAKE )
BE IT REMEMBERED, That on this 3rd day of October, 1990, before me,
the undersigned a Notary Public in and for said County and State, personally
appeared the within named [ILLEGIBLE] known to me to be Director of Corporate
Real Estate who executed the within Instrument and acknowledged to me that he
executed the same freely and voluntarily.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year
last above written.
/s/ RACHEL G. HINSHELWOOD
-------------------------------------------------
[OFFICIAL SEAL]
Notary Public for the State of Illinois
My commission expires 4/15/91
STATE OF WASHINGTON )
) SS.
COUNTY OF KING )
On this 18th day of October, 1990, before me, the undersigned, a
Notary Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Curtis Feeny, to me known to be the person who signed as
President of Crow-Seattle #1, Inc., General Partner of Issaquah #1 Limited
Partnership, the Partnership that executed the within and foregoing Instrument,
and acknowledged said Instrument to be the free and voluntary act and deed of
Crow-Seattle #1, Inc. for the uses and purposes therein mentioned; and on oath
stated that he was authorized to execute the said Instrument on behalf on said
Crow-Seattle #1, Inc. and that the corporation was authorized to execute said
Instrument on behalf of Issaquah #1 Limited Partnership.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first above written.
/s/ [SIG]
--------------------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at [ILLEGIBLE]
My appointment Expires 4/26/92.
<PAGE> 16
BASIC LEASE INFORMATION
Lease Date: August 22, 1988
Landlord: Issaquah #1 Limited Partnership, a Texas limited
partnership
Address of Landlord: 300 120th Avenue N.E.
Building 1
Suite 120
Bellevue, Washington 98005
Tenant: BAXTER HEALTHCARE CORPORATION, a Delaware Corporation
Premises: I-90 Lake Place
2005 N.W. Sammamish Road
Building B, Suite 107
Issaquah, Washington 98027
PARAGRAPH 1 "Premises" approximately 43,133 square feet in Building B of
approximately 54,600 square feet (computed from measurements to
the exterior of outside walls of the building and to the center
of interior walls), such premises being shown and outlined in red
on the plan attached hereto as Exhibit A, and being part of the
real property described in Exhibit B attached hereto.
PARAGRAPH 1 Lease Term: Commencing on the "Commencement Date" as hereinafter
defined and ending 60 months thereafter except that in the event
the Commencement Date is a date other than the first day of a
calendar month, said term shall extend for said number of months
in addition to the remainder of the calendar month following the
Commencement Date.
PARAGRAPH 1 Scheduled Term Commencement Date: April 1, 1989*
* Revised to Sept 1st, 1989 per Nov 16th
letter. ______ 6/28/90
PARAGRAPH 2 Monthly Base Rent: $39,683.00
PARAGRAPH 2B Security Deposit: $0.00
Tenant's Initial Monthly Escrow Payment for Taxes
and Other Charges:
PARAGRAPH 7 Tenant's Initial Monthly Common Area Maintenance
Charge: $1,294.00
PARAGRAPH 13B Tenant's Initial Monthly Insurance Escrow Payment: $432.00
Tenant's Initial Monthly Payment Total: 41,409.00
The foregoing Basic Lease Information is hereby incorporated into
and made a part of this Lease. Each reference in this Lease to
any of the Basic Lease Information shall mean the respective
information herein above set forth and shall be construed to
incorporate all of the terms provided under the particular Lease
paragraph pertaining to such information. In the event of any
conflict between any Basic Lease Information and the Lease, the
former shall control.
<PAGE> 17
THIRD AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE is made this 21st day of March 1994, by and between
Department of Natural Resources, Successor in Interest to Issaquah #1 Limited
Partnership, a Texas Limited Partnership, Successor in Interest to Crow-Seattle
#1, a Texas corporation, (the "Landlord") and Baxter Diagnostics, Inc., a
Delaware Corporation (the "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated August
22, 1988, as amended August 13, 1990 and August 21, 1990 (the "Lease"), for
Suite 107 located in Building B, 2005 NW Sammamish Road (the "Premises"), as
more fully described in the Lease; and
WHEREAS, Tenant desires to reduce the square footage of the Premises; and
WHEREAS, the current term of the Lease expires August 31, 1994, and
Landlord and Tenant desire to extend the term of the Lease, and to modify the
Lease accordingly;
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, the parties hereby mutually agree as follows:
1. The term of the Lease is hereby extended for a period of sixty (60)
months commencing September 1, 1994, and terminating August 31, 1999.
2. Effective September 1, 1994, the Premises shall be reduced from
approximately 47,825 square feet to approximately 35,935 square feet as outlined
in red on Exhibit A-2 attached hereto, which shall replace and supersede
Exhibit A-1 to the Lease provided, however, that an acceptable lease has been
fully executed between Landlord and Bartels Prognostics, Inc., ("Prognostics")
prior to August 31, 1994. The Premises shall include approximately 572 square
feet of common area corridor and restrooms as shown on Exhibit A-2.
3. Effective September 1, 1994, the Monthly Rate Rent as provided for in
Paragraph 2 of the Lease shall be reduced to Third-two Thousand One Hundred
Ninety One and 99/100 Dollars ($32,191.77), which is the equivalent of $10.75
per square foot per year, triple net. Effective September 1,1997, the Monthly
Base Rent as provided for in Paragraph 2 of the Lease shall be Thirty-three
Thousand Six Hundred Eighty Nine and 06/100 Dollars ($33,689.06), which is the
equivalent of $11.25 per square foot per year, triple net.
4. If a lease between Prognostics and Landlord is not consummated prior
to August 31, 1994, or if a lease with Prognostics is consummated prior to
August 31, 1994 but terminates for any reason during the term of this Lease
extended hereunder and Prognostics vacates the Premises ("Prognostics
Termination"), then effective August 31, 1994 or upon termination of the
Prognostics Lease Tenant hereby agrees that the Premises shall be increased to
approximately 39,043 square feet as outlined on Exhibit A-3 attached hereto
which shall replace and supersede Exhibit A-2 previously referenced herein. The
Premises shall include approximately 563 square feet of common area corridor and
restrooms as shown on Exhibit A-3.
<PAGE> 18
5. If the Premises are increased pursuant to conditions described in
Paragraph 4 above, then the Monthly Base Rent as provided for in Paragraph 2 of
the Lease shall be increased based upon the equivalent Monthly Base Rent per
square foot per year, triple net as set forth in Paragraph 3 above.
6. Tenant agrees to extend the term as referenced above and accept the
Premises in as-is condition. If a lease with Prognostics is not consummated
prior to August 31, 1994, or if a lease with Prognostics is consummated prior to
August 31, 1994 but that Prognostics lease terminates for any reason thereafter,
Landlord shall have the right to perform certain tenant improvements, at
Landlord's expense and at Landlord's sole discretion as required to separate the
Premises from "Northwing Space" and "Eastwing Space" as outlined on Exhibit A-3
and said work shall interfere with Tenant's operations as little as possible.
Separating the space may include but is not limited to constructing
tenant demising walls, modifying electrical and HVAC systems to provide separate
service as is determined by Landlord to be reasonably feasible. Landlord and
Tenant agree to use best efforts to facilitate the separation of the Northwing
and Eastwing from the Premises in a timely and efficient manner.
7. If Prognostics leases space then Tenant shall allow Prognostics free
and unrestricted access to the following common areas:
1. Second Floor Restrooms 4. Central Staircase
2. Hallways & Corridors 5. First Floor Main
on Second Floor Building Entry
3. Elevator 6. First Floor Restrooms and Common
Corridors located at North Wing
Tenant agrees to indemnify, defend and hold Landlord harmless from and against
any claims, liabilities or damages (including attorneys fees and costs) relating
to Prognostics use of these areas, unless caused by Landlord's gross negligence
or willful misconduct.
8. Paragraph 5D of the Lease shall be deleted and replaced with the
following:
Landlord shall enter into a regularly scheduled normal preventative
maintenance agreement/service contract with a mutually agreeable maintenance
contractor ("Service Contractor") for the servicing of all heating,
air-conditioning and exhaust systems and equipment (including but not limited to
the hydronic heat pump system, roof top gas pack HVAC units, gas fired space
heaters and equipment and other exhaust fans: collectively referred to as
"Building Air Systems") serving the Premises, the Northwing Space and the
Eastwing Space. Tenant shall be responsible for (a) its Proportionate Share or
directly attributable costs of such Service Agreement as reasonably determined
by Landlord and (b) its Proportionate Share or directly attributable costs of
repairs, replacements or other services related to the Building Air Systems as
reasonably determined by Landlord, which costs shall be included in the monthly
Common Area Maintenance Charge per Paragraph 7 of the Lease.
9. Paragraph 7 of the Lease "Monthly Common Area Maintenance Charge"
shall be amended to include the following:
Tenant agrees to pay its proportionate share of the cost of
maintaining the corridor and
<PAGE> 19
restroom common area located between the Premises and Northwing space ("Common
Area North"), as shown on Exhibit A-2. Such costs shall include but are not
limited to janitorial service, and restroom supplies, repairs, light replacement
and those costs required to maintain the Common Area North in reasonably good
condition and repair.
10. Paragraph 11 of the Lease, "Utilities" shall be amended to add the
following:
For the purposes of this Lease Agreement, electricity and/or gas
service shall be jointly metered with the Northwing (except for approximately
2,500 square feet located at the northend of the Northwing Space which is
currently separately metered for gas and electricity) and Eastwing spaces.
11. Landlord represents and warrants to the Tenant the following, which
will survive termination of the lease:
(a) To the best of Landlord's actual knowledge, which knowledge is limited to
the report dated September 11, 1990 prepared by Dames & Moore, Inc., the
property is in compliance with all applicable Environmental Laws. "Environmental
Laws" means any federal, state or local law, rule, regulation or ordinance
relating to environmental, health or safety matters.
(b) To the best of Landlord's actual knowledge, which knowledge is limited to
the knowledge of Rod Rennie, Project Manager, of State of Washington Department
of Natural Resources, subsequent to the Dames & Moore, Inc., report dated
September 11, 1990, Landlord has received no notice of any litigation,
investigation or proceeding pending or threatened against Landlord or the
property regarding the presence or Release of Hazardous Materials at the
property. "Hazardous Materials" means any substance or waste governed by any
Environmental Law.
(c) To the best of Landlord's actual knowledge, which knowledge is limited to
the report dated September 11, 1990 prepared by Dames & Moore, Inc., the
property does not contain: any underground storage tanks or surface
impoundments; any asbestos or asbestos-containing material; any polychlorinated
biphenyls (PCBs); or Release or threatened Release of any Hazardous Materials,
nor are any Hazardous Wastes generated. Landlord will remove and/or encapsulate
any asbestos, at Landlord's expense, in the leased property if required to do so
by any federal, state, or local laws or regulations.
(d) To the best of Landlord's actual knowledge, which knowledge is limited to
the knowledge of Rod Rennie, Project manager, subsequent to the Dames & Moore,
Inc., report dated September 11, 1990, the property is in compliance with all
applicable environmental laws.
(e) If there is a Release of Hazardous Materials at the property that is caused
by landlord, Landlord will cleanup the Release in compliance with all applicable
Environmental laws. If there is a Release of Hazardous Materials at the property
that is not caused or permitted by Tenant, Landlord will indemnify Tenant for
any cleanup, litigation or penalties incurred.
(f) If Landlord breaches any environmental provision in this agreement which
interferes with Tenant's use of the property, Tenant may terminate this Lease
unless Landlord remedies the condition within a reasonable time.
<PAGE> 20
Tenant represents and warrants to the Landlord the following, which will
survive termination of this lease:
(a) If there is a Release of Hazardous Materials at the property caused or
permitted by Tenant, Tenant will clean up the Release in compliance with
all applicable Environmental Law.
(b) Tenant will use the leased property in compliance with all applicable
Environmental Laws.
12. Additional Paragraphs 29, 30, 31, 32, and 33 of the original Lease
dated August 22, 1988, shall be of no further force or effect.
13. In the event any payment due from Tenant to Landlord is made by a
party other than Tenant, such payment shall be deemed to have been made by and
for the account of Tenant, and the party making such payment shall have no
rights under this Lease.
14. No trustee, officer, employee, agent, or individual partner of
Landlord, or its constituent entities, shall be personally liable for any
obligation of Landlord hereunder, and Tenant must look solely to the interests
of Landlord, or its constituent entities in the subject real estate, for the
enforcement of any claims against Landlord arising hereunder.
15. Tenant warrants that all necessary corporate actions have been duly
taken to permit Tenant to enter into this Amendment to Lease and that each
undersigned officer has been duly authorized and instructed to execute this
Amendment to Lease.
16. Except as expressly modified above, all terms and conditions of the
Lease remain in full force and effect and are hereby ratified and confirmed.
LANDLORD: TENANT:
State of Washington Department of Baxter Diagnostics, Inc.,
Natural Resources, Successor in a Delaware Corporation
Interest to Crow Seattle #1 Limited
Partnership, a Texas Limited
Partnership, Successor in Interest
to Crow Seattle #1, A Texas
corporation
By: /s/ RICK CASPER By: /s/ [SIG]
------------------------------- -----------------------------------
Its: Real Estate Division Manager Its: Vice President
Approved as to form only this 3rd
day of May, 1994, by the Washington
State Attorney General's Office,
Jim Schwartz, Assistant Attorney
General.
<PAGE> 21
STATE OF ILLINOIS )
) SS.
County of Lake )
BE IT REMEMBERED, That on this 14th day of April, 1994, before me,
the undersigned a Notary Public in and for said County and State, personally
appeared the within named [SIG] known to me to be Vice President who
executed the within Instrument and acknowledged to me that he executed the same
freely and voluntarily.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year
last above written.
/s/ RACHEL G. HINSHELWOOD
-----------------------------------------------
[OFFICIAL SEAL]
Notary Public for the State of Illinois
My commission expires 4/15/95
STATE OF WASHINGTON )
) SS.
County of THURSTON )
On this 6th day of May, 1994, before me, the undersigned a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Rick Cooper, to me known to be the person who signed as
Agent of the Department of Natural Resources that executed the within and
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of the Department of Natural Resources for the uses and
purposes therein mentioned; and on oath stated that ______ was authorized to
execute the said instrument on behalf of said Department of Natural Resources.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first above written.
/s/ STEVEN R. CARLSON
---------------------------------------
[NOTARY SEAL] NOTARY PUBLIC in and for the State of
Washington, residing at Olympia
My appointment Expires 9/30/95
<PAGE> 1
EXHIBIT 10.5
LEASE
THIS INDENTURE is made as of the 1st day of February, 1998.
BETWEEN:
P.K. PROJECTS LTD., a British Columbia Company with an office at
1203 - 20800 Westminster Highway, Richmond, B.C., V6V 2W3
(hereinafter called the "Landlord")
OF THE FIRST PART
AND:
INTRACEL CORPORATION, a company incorporated under the laws of
the State of Washington, U.S.A., with an office at 1871 NW
Gilman Boulevard, Issaqua, Washington, 98027
(hereinafter called the "Tenant")
OF THE SECOND PART
1. LEASED PREMISES
1.1 WITNESSETH that in consideration of the rents, covenants, and agreements
hereinafter reserved and contained on the part of the Tenant to be paid,
observed and performed, the Landlord does demise and lease unto the Tenant the
premises known as Units 1123, 1128 and 1133 - 13351 Commerce Parkway, Richmond,
B.C. (hereinafter called the "Leased Premises") being all that portion of a
Building as shown outlined in dark outline on the Plan attached hereto as
Schedule "A" and containing a Rentable Area (hereinafter called the "Tenant's
Rentable Area") deemed and agreed by the parties to be 6,541 square feet and
being situate on the lands and premises owned by the Landlord at 13351 Commerce
Parkway, in the City of Richmond, in the Province of British Columbia, described
as:
PID: 023-310-006
Lot 1, Section 5, Block 4 North, Range 5 West,
New Westminster District, Plan LMP26739
(hereinafter called the "Lands")
<PAGE> 2
-2-
2. TERM
2.1 To have and to hold the Leased Premises for and during the term (hereinafter
called the "Term") of five (5) years to be computed from the 1st day of
February, 1998 and from thenceforth next ensuing and to be fully complete and
ended on the 31st day of January, 2003.
3. BASIC RENT
3.1 Yielding and paying therefor during the Term unto the Landlord, as basic
rent, the sum of SIXTY-TWO THOUSAND ONE HUNDRED THIRTY-NINE DOLLARS AND FIFTY
CENTS ($62,139.50) of lawful money of Canada to be paid in advance in equal
monthly installments of FIVE THOUSAND ONE HUNDRED SEVENTY-EIGHT DOLLARS AND
TWENTY-NINE CENTS ($5,178.29) on the first day of each and every month in each
and every year during the Term, commencing on the first day of February, 1998.
If the Term commences on any day other than the first or ends on any day other
than the last day of a month, rent for the fractions of the month at the
commencement and at the end of the Term shall be adjusted pro rata. The Landlord
acknowledges having received from the Tenant the sum of FIFTEEN THOUSAND FOUR
HUNDRED FIFTY-FIVE DOLLARS AND EIGHTY-FOUR CENTS ($15,455.84) to be applied
towards the first and last months' rent hereunder.
3.2 The parties agree that the commencement date of February 1, 1998 shall be
delayed, if necessary, until the Landlord substantially completes construction
of the Leased Premises. If for any reason the Landlord is unable to give
possession of the Leased Premises to the Tenant on February 1, 1998, then:
(a) the Tenant shall take possession of the Leased Premises when the
Landlord delivers possession of the Leased Premises to the
Tenant such date to be not later than March 1, 1998 (herein
referred to as the "Outside Date");
(b) the Lease shall not be void or voidable nor shall the Landlord
be liable for any claims of the Tenant resulting from any such
delay in possession;
(c) the Term shall commence on the date the Landlord makes the
Leased Premises available for occupancy;
(d) no rent shall be payable by the Tenant until the date possession
of the Leased Premises is delivered to the Tenant;
(e) if possession of the Leased Premises is not delivered to the
Tenant by on or before the Outside Date, then after such date
either party may terminate this Lease on written notice to the
other and the Landlord shall return any deposits paid to the
Tenant.
<PAGE> 3
-3-
3.3 The Landlord agrees to provide the Leased Premises to the Tenant basic
rent-free during the first three (3) months of the Term (the "Abatement
Months"). The Tenant shall still be responsible for all Direct Costs, its
Proportionate Share of Operating Expenses and all other additional rent over and
above the basic rent set out in clause 3.1 during the Abatement Months. The
entire basic rent otherwise due and payable for the Abatement Months shall
become immediately due and payable upon the occurrence of an event of default by
the Tenant that is not cured within the time period set out in Clause 22 of this
Lease.
4. DEFINITIONS
4.1 In this Lease:
(a) "Building" means the building in which the Leased Premises are
situate;
(b) "Common Areas" means all parts of the Lands and the Building
that are not comprised in premises leased or set aside or
intended by the Landlord to be leased to tenants;
(c) "Direct Costs" means:
(i) all costs and expenses incurred by or levied on the
Landlord in connection with the Landlord performing on
behalf of the Tenant or enforcing any covenant or
agreement of the Tenant hereunder, including without
limitation, solicitors' costs and fees calculated on a
solicitor-client basis, and
(ii) all amounts stated by any clause of this Lease to be
included in or collectible by the Landlord as Direct
Costs;
(d) "levied" means levied, imposed, charged or assessed;
(e) "Operating Expenses" means all expenses chargeable against
income in connection with the operation, maintenance and repair
of the Building and the Lands, including without limitation, the
following:
(i) all costs and expenses from time to time incurred by or
levied on the Landlord in respect of repairing,
maintaining, cleaning, heating, lighting,
air-conditioning and ventilating the Building and the
Lands and any fixtures and appurtenances thereof and any
improvements thereto, and;
(ii) all premiums from time to time paid by the Landlord for
fire, casualty, liability, loss of rental revenue, and
other insurance in respect of the Building, the Lands
and all fixtures and appurtenances thereof and
improvements thereto; and
<PAGE> 4
-4-
(iii) all costs and expenses from time to time incurred by or
levied on the Landlord in respect of janitorial services
and garbage disposal for the Building and the Lands; and
(iv) all taxes from time to time levied by any taxing
authority on the Building and the Lands or either of
them or on the Landlord in respect of the Building and
the Lands or either of them; and
(v) all Utility Charges from time to time levied on the
Building and the Lands or either of them or on the
Landlord in respect of the Building and the Lands or
either of them; and
(vi) an administration fee equal to 5% of the basic rent
paid pursuant to Clause 3.1;
but not interest on debt, income, capital gains or corporate
taxes of the Landlord, costs for which the Landlord is
reimbursed by proceeds of insurance, or amounts charged to the
Tenant under this Lease or to other tenants of the Building
under their respective leases as Tenant's Taxes, Tenant's
Utility Charges or Direct Costs;
(f) "Proportionate Share" means a fraction which has as the
numerator the Tenant's Rentable Area and as the denominator the
Total Rentable Area of the Building;
(g) "Taxes" means taxes, rates, duties, licenses, levies, fees and
the costs of all works undertaken as local improvements by an
Taxing Authority and levied on the owners or occupiers of lands
benefiting or deemed to benefit from such works;
(h) "Taxing Authority" means any school, municipal, regional,
provincial, federal, parliamentary, or other governmental or
statutory body, corporation or authority;
(i) "Tenant's Taxes" means all taxes levied by an taxing authority
on the Landlord or the Tenant in respect of the Leased Premises,
in respect of the business or profession of the Tenant or in
respect of improvements, fixtures, machinery, chattels or
equipment brought onto or installed in the Leased Premises by
the Tenant or at the request of the Tenant, and whether or not
such taxes are included by the Taxing Authority in the Taxes
included in Operating Expenses;
(j) "Tenant's Utility Charges" means all Utility Charges levied
separately against the Leased Premises or on the Tenant or the
Landlord in respect of the Leased Premises;
(k) "Total Rentable Area" of the Building means the total of the
rentable area of all premises in the Building (including the
Leased Premises) leased or set aside or intended by the Landlord
to be leased to tenants;
<PAGE> 5
-5-
(1) "Utility Charges" means all charges for electricity, heat,
light, power, gas, oil, water, sewer or telephone provided to or
made available upon the Building and the Lands or either of
them.
5. NET LEASE
5.1 The Tenant acknowledges and agrees that it is intended that this Lease shall
be completely Net Lease for the Landlord, except as expressly hereinafter set
out, that the Landlord shall not be responsible during the Term for any costs,
taxes, charges, expenses or outlays of any nature whatsoever arising from or
relating to the Leased Premises or the contents thereof or the Common Areas, and
the Tenant shall pay all charges, impositions, costs and expenses of every
nature and kind relating to the Building and the Lands (or either or them) and
not directly levied on any tenant of the Building and the Tenant covenants with
the Landlord accordingly.
6. TENANT'S COVENANTS
6.1 The Tenant covenants with the Landlord as follows:
(a) to pay basic rent as set out in Clause 3.1;
(b) to pay immediately that they become due the Tenant's Taxes and
the Tenant's Utility Charges, and if at any time for any reason
during the Term of this Lease the Landlord pays any of the
foregoing then a sum equal to the amount so paid shall be
included in Direct Costs and paid to the Landlord immediately
upon demand;
(c) to pay immediately on demand by the Landlord as additional rent
all Direct Costs;
(d) to pay as additional rent the Tenant's Proportionate Share of
Operating Expenses. The Tenant's Proportionate Share of
Operating Expenses shall be paid monthly in accordance with the
reasonable forward estimates thereof made by the Landlord and
shall be adjusted at least once (or more often at the discretion
of the Landlord) in each year during the Term, on the basis of
actual Operating Expenses experienced during the period to which
the adjustments relate. The certificate of a chartered
accountant appointed by the Landlord shall, in the event of
dispute, be conclusive and binding on the Landlord and the
Tenant as to any amounts payable under this paragraph and the
cost of obtaining such certificate shall be included in Direct
Costs and be borne by the Tenant;
(e) to pay as additional rent an amount equal to any and all Goods
and Services Taxes, it being the intention of the parties that
the Landlord shall be fully reimbursed by the Tenant with
respect to any and all Goods and Services Taxes at the full rate
applicable from time to time in respect thereof. The amount of
the Goods and Services Taxes so payable by the Tenant shall be
calculated by the
<PAGE> 6
-6-
Landlord in accordance with the applicable legislation and shall
be paid by the Tenant to the Landlord at the same time as
amounts to which such Goods and Services Taxes apply are payable
to the Landlord under the terms of this Lease. For the purposes
of this section, "Goods and Services Taxes", means and includes
any and all goods and services taxes, sales taxes, value added
taxes, business transfer taxes, or any other taxes imposed on
the Landlord under this Lease or the rental of the Leased
Premises or the provision of any goods services or utilities,
whatsoever by the Landlord to the Tenant under this Lease,
whether characterized as a goods and services tax, sales tax,
value added tax, business transfer tax, or otherwise;
(f) to repair, and at the Tenant's sole cost during the whole of the
Term, to keep and maintain the Leased Premises and all fixtures,
fittings and improvements thereto in good working order and
first class condition including periodic painting and decoration
as determined by the Landlord and to make all needed
maintenance, repairs and replacements thereto with due diligence
and dispatch reasonable wear and tear only excepted; and the
Landlord may enter and view the state of repair, and that the
Tenant will repair according to notice but failure of the
Landlord to give notice shall not relieve the Tenant from its
obligation to repair;
(g) if any part of the Building (including the Leased Premises), the
Common Areas or any fixtures, fittings or improvements thereon
or thereto get out of repair or become stopped up, unusable
damaged or destroyed through the negligence, carelessness or
misuse of the Tenant, its servants, agents, employees, invitees
or any one permitted by the Tenant to be in the Building or on
the Common Areas the expense of the necessary repairs,
replacements or alterations shall be borne by the Tenant and
included in Direct Costs;
(h) not to assign or sublet in whole or in part without first
notifying the Landlord in writing of the intention to assign or
sublet and the date such assignment or subletting is to take
effect and obtaining the Landlord's prior written consent, such
consent not to be unreasonably withheld to a financially
responsible and reasonable person and provided always that such
consent may be arbitrarily withheld where the subletting is to
be for only a portion of the Leased Premises, or where the use
of the Leased Premises by the assignee or sub-lessee will differ
from the use authorized pursuant to this Lease. The Tenant shall
pay the sum of FIVE HUNDRED DOLLARS ($500.00) plus G.S.T. to the
Landlord with each request for consent which sum covers the
Landlord's costs for considering, preparing and consenting to
the Assignment of Lease;
(i) to comply at its own expense with all provisions of law
including, without limiting the generality of the foregoing,
federal and provincial legislative enactments, building by-laws
and any other governmental or municipal regulations which relate
to the partitioning, equipment, operation and use of the Leased
Premises, and to
<PAGE> 7
-7-
the making of any repairs, replacements, alterations, additions,
or improvements of or to the Leased Premises;
(j) not to do or suffer any waste or damage, disfiguration or injury
to the Leased Premises, the Building or the Common Areas or the
fixtures, fittings and improvements thereto and not to permit or
suffer any overloading of the floors of the Leased Premises or
the Building; and to keep the Leased Premises and Common Areas
in a neat and tidy condition;
(k) to indemnify and save harmless the Landlord from and against any
and all actions, claims, costs, expenses, damages, losses or
fines incurred or suffered by the Landlord by reason of:
(i) any breach, violation, non-observance or non-
performance by the Tenant of any covenant, agreement or
provision of this Lease;
(ii) damage or injury to persons or property arising from any
act or omission of the Tenant or any assignee,
sub-tenant, agent, contractor, employee, invitee or
licensee of the Tenant;
(iii) the Landlord observing, performing, exercising or
enforcing any covenant, agreement, right or remedy of
the Landlord hereunder, all costs and expenses incurred
by or levied on the Landlord in connection with the
Landlord performing on behalf of the Tenant any covenant
of the Tenant hereunder or in connection with the
Landlord enforcing any term, condition agreement or
provision of this Lease, and without in any way limiting
the generality of the foregoing including solicitors'
costs and fees calculated on a solicitor and own client
basis;
(1) not to make to, or erect in the Leased Premises any alterations,
additions, decorations or improvements without submitting
drawings and specifications to the Landlord and obtaining the
Landlord's prior written consent in each instance not to be
unreasonably withheld. Any work performed in the Leased Premises
by contractors engaged by the Tenant shall be subject to all
conditions which the Landlord may impose; and the Tenant
covenants to prosecute such work to completion with reasonable
diligence; provided nevertheless that the Landlord may at its
option require that the Landlord's contractors be engaged for
any mechanical or electrical work;
(m) not to suffer or permit during the Term any builders' liens or
other liens for work, labour, services or material ordered by
the Tenant or for the cost of which the Tenant may be in any way
obligated, or any conditional sales agreements or chattel
mortgages to attach to the Leased Premises or to the Building,
the Common Areas or the Lands and that whenever and so often as
any such liens or
<PAGE> 8
-8-
claims therefor or conditional sales agreements or chattel
mortgages shall be registered, the Tenant shall immediately
discharge the same; to allow the Landlord to post and keep
posted on the Leased Premises any notice which the Landlord may
wish to post under the provisions of the Builders' Lien Act;
(n) to restore immediately, and with glass of the same colour and
quality, any glass within, forming part of or bounding the
Leased Premises that is damaged or broken during the Term;
(o) not to paint, display, inscribe, place or affix any sign,
fixture, advertisement, notice, lettering or direction on any
part of the Common Areas or the outside of the Building or
Leased Premises or on windows of the Building or that are
visible from the outside of the Building without the prior
written consent of the Landlord, which consent will not be
unreasonably withheld and to comply with the signage
specifications attached as Schedule "B" hereto;
(p) if required to do so by the Landlord to register this Lease
forthwith at the Tenant's expense in the Land Title Office for
the area in which the Leased Premises are situate. Such
registration to be in the form specified by the Landlord. Should
the Tenant wish to register this Lease, it may only do so in the
form of a Short Form of Lease registration which shall not
contain any reference to rent payable under the Lease. The costs
of such registration shall all be borne by the Tenant, which
costs shall include the sum of TWO HUNDRED FIFTY DOLLARS
($250.00) plus G.S.T. payable to the Landlord for reviewing,
approving and executing the necessary Land Title Office
documents. Upon the expiry or earlier termination of this Lease,
the Tenant will discharge such registration at its expense and
provide discharge particulars to the Landlord;
(q) at any time and from time to time upon not less than ten (10)
days prior notice, to execute and deliver to the Landlord or
such other person or corporation that the Landlord directs, a
written statement certifying that this Lease is in full force
and effect and unmodified (or if modified, specifying the
modifications), the amount of the annual rental being paid
hereunder, whether or not any prepayments have been made
hereunder, and if so details thereof, the dates to which other
levies or charges hereunder have been paid, and whether or not
there is any existing default on the part of the Landlord of
which the Tenant has notice;
(r) to occupy and permit to be occupied only those parking spaces
from time to time designated for the Tenant's use by the
Landlord;
(s) not to employ more employees in the Leased Premises than are
from time to time authorized or permitted by the relevant
governmental acts, statutes, regulations and other authorities
having regard to washroom, lunchroom and other facilities
presently available in or to the Leased Premises and having
regard also to any
<PAGE> 9
-9-
other relevant working conditions, provided that if the Tenant
wishes to employ more employees in the Leased Premises than are
from time to time so authorized or permitted then subject to the
provisions of this Lease, the Tenant may, at his sole expense,
install additional washroom, lunchroom or other facilities in
the Leased Premises or otherwise alter the working conditions in
the Leased Premises to permit such increased number of
employees;
(t) not to install or use any equipment which will exceed or
overload the capacity of any utility facilities on the Leased
Premises or the Building or Common Areas;
(u) to notify the Landlord immediately that the Tenant becomes aware
of any fire or accident in the Leased Premises or any damage to
or malfunctioning of any heating, electrical, plumbing,
mechanical or ventilating system in the Building or any damage
to the foundations, structure, roof, exterior walls or
supporting walls of the Building;
(v) to promptly and strictly comply, and cause any person for whom
it is in law responsible to comply, with all environmental laws
regarding the use and occupancy of the Leased Premises under or
pursuant to this Lease, including without limitation obtaining
all required permits or other authorizations;
(w) to promptly comply with all Tenant rules and regulations
relating to the Building imposed by the Landlord for the smooth
and efficient operation of the Building (a copy of the current
rules is attached hereto as Schedule "C");
(x) if the Landlord so requests, to pay all rent obligations
hereunder by way of a series of post-dated cheques delivered to
the Landlord or by way of a pre-authorized debit system;
(y) to register with the Registrar of Companies in British Columbia
as an extra-provincial company by on or before the commencement
date of the Lease.
6.2 The Tenant shall be responsible for obtaining its business licence and all
permits and approvals required in connection with its leasehold improvements or
other work not included in the Landlord's responsibility. The Tenant shall also
be responsible for the installation of power and distribution to the operation
and maintenance of any special equipment or lighting required by its occupancy,
including but not limited to telephone and communication facilities.
7. LANDLORD'S COVENANTS
7.1 Subject to the terms and provisions of this Lease, the Landlord covenants
with the Tenant as follows:
<PAGE> 10
-10-
(a) that provided the Tenant pays the rent hereby reserved, and
observes and performs the covenants and agreements herein
contained and on the part of the Tenant to be observed and
performed, the Tenant shall and may peaceably possess and enjoy
the Leased Premises for the Term hereby granted without
interruption or disturbance from the Landlord, or any persons
lawfully claiming by, through or under the Landlord;
(b) to repair and maintain the foundations, structure, roof and
exterior walls of the Building, the costs of which shall be
borne by the Tenant and paid as part of Operating Expenses;
(c) to permit the Tenant and its employees and all persons lawfully
requiring communication with them to have the use in common with
others having a like right of the Common Areas;
(d) to provide to the Tenant the exclusive use of thirteen (13)
reserved parking stalls and two (2) loading bays, which stalls
and loading bays shall be provided free of charge during the
Term.
7.2 The Landlord agrees to provide the following tenant improvements to the
Leased Premises by, on or before the commencement date:
(a) partition wall separating the showroom area of the Leased
Premises from the high ceiling warehouse area of the Leased
Premises, partition wall to be installed along entire width of
Units 1123 and 1128; two double personnel doors to be installed
in the partition wall;
(b) T-Bar ceiling to entire showroom area, ceiling tiles to be
non-shedding surface finish;
(c) air-conditioning for showroom portion of all three units;
(d) vinyl tile to be installed to the showroom portion of all three
units;
(e) 220 volt power to the warehouse area of the Leased Premises; and
(f) demising wall separating Unit 1133 from the other two units and
a double door to be installed near the front of the unit for
access.
8. LIMITATION OF LANDLORD'S COVENANTS
8.1 Unless negligent, the Landlord shall not be liable for any direct, indirect
or consequential loss, damage, injury or expense caused by the Tenant, its
agents, employees, invitees and licensees or its or their property by or arising
from:
<PAGE> 11
-11-
(a) fire, explosion, falling plaster, gas, electricity or seeping or
leaking water; or
(b) the interruption for any reason whatever, of any service
facility or utility provided by the Landlord;
(c) the Landlord observing, performing, exercising or enforcing any
covenant, agreement, right or remedy of the Landlord;
(d) any other cause beyond the reasonable control of the Landlord.
8.2 The Landlord does not warrant that any service or facility provided by the
Landlord hereunder will be free from interruptions caused or required by
maintenance, repairs, renewals, modifications, strikes, riots, insurrections,
labour controversies, force majeure, Acts of God or other cause or causes beyond
the Landlord's reasonable control. No such interruption shall render the
Landlord liable in damages to the Tenant, nor relieve the Tenant from its
obligations under this Lease, provided that the Landlord shall without delay
take all reasonable and practical steps within its power to remove the cause of
such interruption.
9. INSURANCE
9.1 The Landlord covenants to effect and maintain insurance of the Building and
the Lands, excluding all tenants' fixtures, fittings, machinery, chattels,
equipment and improvements for insurable risks against which and in amounts for
which a prudent Landlord would protect itself.
9.2 The Tenant covenants to effect and maintain in force during the Term in the
names of the Tenant, the Landlord and the Landlord's Mortgagees as their
respective interests may appear insurances in such forms and amounts and with
carriers and insuring such risks as the Landlord may from time to time
reasonably require, including, without limitation, the following:
(a) fire and extended coverage insurance on the Tenant's fixtures,
fittings, machinery, chattels, equipment and improvements in an
amount of not less than the full replacement costs thereof;
(b) property damage and public liability insurance including
personal liability, contractual liability, tenant's legal
liability, non-owned automobile liability, lease agreement
contractual coverage and owners' and contractors' protective
insurance coverage with respect to the Leased Premises, and the
Tenant's use of the Common Areas and facilities, coverage to
include the business operations conducted by the Tenant and any
other person on the Leased Premises, and such policies to be
written on a comprehensive basis with limits of not less than
TWO MILLION DOLLARS ($2,000,000.00) per occurrence.
<PAGE> 12
-12-
9.3 With respect to all policies of insurance effected by the Tenant hereunder,
the Tenant shall obtain from the insurers undertakings to notify the Landlord in
writing at least thirty (30) days prior to any material change or cancellation
thereof. The Tenant shall furnish the Landlord certified copies of all such
policies and shall provide written evidence of the continuation of such policies
not less than ten (10) days prior to their expected expiry dates. The cost or
premium for each and every such policy shall be paid by the Tenant. The Tenant
agrees that if the Tenant fails to take out or keep in force such insurance the
Landlord shall have the right to do so, without however imposing any obligation
on the Landlord to do so, and to pay the premiums therefor, and in such event
the amount paid as premiums shall be included as Direct Costs and paid to the
Landlord immediately on demand.
9.4 The Tenant covenants not to do or omit or permit to be done or omitted upon
the Leased Premises or the Common Areas anything whereby any policy of insurance
effected by the Landlord or the Tenant pursuant to this Lease may be
invalidated, or the coverage thereunder reduced, and will immediately upon
notice from the Landlord remedy the condition giving rise to the invalidation or
threatened invalidation or reduction in coverage and in default the Landlord may
at its option either cancel this Lease or enter the Leased Premises and remedy
the condition, and the costs occasioned thereby shall be included in Direct
Costs and paid to the Landlord immediately on demand.
9.5 If the Tenant does or omits or permits to be done or omitted upon the Leased
Premises or the Common Areas anything whereby the premiums for any insurance
carried by the Landlord with respect to the Building or the Lands are increased,
the amount of such increase shall be included in Direct Costs and paid to the
Landlord immediately on demand from time to time during the Term.
10. USE OF LEASED PREMISES
10.1 The Tenant covenants to use the Leased Premises solely for the purpose of
conducting business of the manufacture, assembly and distribution of medical
equipment and related business activities and not to use or permit the use of
the Leased Premises for any other business or purpose or by any persons other
than the Tenant, its employees and invitees.
11. OFFENSIVE TRADE ETC.
11.1 Notwithstanding the generality of Clause 10, the Tenant covenants not to
carry on or permit to be carried on in the Leased Premises any noisome or
offensive trade or business or any acts or practices which may injure the Leased
Premises, or the Building or the Common Areas or which may be a nuisance,
disturbance or menace to the Landlord or other tenants or occupants of the
Building and not to allow odours to escape from the Leased Premises which, in
the opinion of the Landlord, are offensive.
<PAGE> 13
-13-
12. ACCESS TO LEASED PREMISES TO REPAIR ETC.
12.1 The Landlord, its agents, employees and contractors, with material and
equipment, shall have the right at all times to enter on the Leased Premises to
effect repairs, alterations, improvements or additions to the Leased Premises,
the Building and the Lands or any of them or to preserve any of them from injury
or damage, and no such entry or work shall constitute an eviction of the Tenant
in whole or in part and the rent reserved shall not abate while such work is
being carried out.
13. LANDLORD MAY SHOW LEASED PREMISES
13.1 The Landlord or its agents shall have the right at all reasonable times to
enter the Leased Premises to examine them and to show them to prospective
purchasers, lessees, or mortgagees and during the six months prior to the
expiration of the Term may place on the Leased Premises the usual notices to let
or for sale which notices the Tenant shall permit to remain thereon without
molestation.
14. LANDLORD MAY ENTER FORCIBLY
14.1 If the Tenant shall not be personally present to open and permit entry to
the Leased Premises at any time, when for any reason an entry therein shall be
necessary or permissible pursuant to Clauses 12 or 13, or any other clause of
this Lease, the Landlord, its agents, employees or contractors may enter the
Leased Premises by a master key or forcibly without rendering the Landlord or
such agents, employees or contractors liable therefor and without in any manner
affecting the obligations or covenants of the Tenant herein, and the Tenant
shall not be entitled to compensation for any inconvenience, nuisance or
discomfort or for any damage or injury to property or persons in the Leased
Premises occasioned by any such entry or by any work done in connection with
such entry.
15. SURRENDER OF LEASED PREMISES
15.1 At the end or sooner determination of the Term, the Tenant shall surrender
and yield up to the Landlord the Leased Premises in the same state of repair as
they were at the commencement of the Term, reasonable wear and tear only
excepted.
16. REMOVAL OF FIXTURES
16.1 All alterations, additions, decorations and improvements made by the Tenant
to the Leased Premises, other than the Tenant's trade fixtures, shall
immediately become the property of the Landlord without compensation therefor to
the Tenant and shall not be removed from the Leased Premises either during or at
the end or sooner determination of the Term except that:
(a) the Tenant may, if not in default, remove its trade fixtures;
and
<PAGE> 14
-14-
(b) the Tenant shall, at the end or sooner determination of the
Term, remove such of the trade fixtures, alterations, additions,
decorations and improvements as the Landlord may require; and
(c) in the case of every such removal, the Tenant shall repair any
damage to the Leased Premises and the Common Areas caused by the
installation and removal of any such trade fixtures,
alterations, additions, decorations and improvements, and the
cost of all such removals and repairs shall be borne by the
Tenant.
16.2 If the Tenant does not remove as requested by the Landlord under
Clause 16.1(b), then the Landlord may, but shall not be obliged to, remove such
items and the Tenant shall pay on demand the Landlord's costs of removal plus an
administration charge of twenty per cent (20%) of the cost of removal.
16.3 The Tenant shall not, without the prior written consent of the Landlord,
mortgage, charge or transfer any of its trade fixtures, alterations, additions,
decorations and improvements, and any purported mortgage, charge or transfer of
the said items without the prior written consent of the Landlord shall be of no
effect against the Landlord.
17. CONDITION OF LEASED PREMISES
17.1 The Tenant agrees that it has leased the Leased Premises after examining
them and that they are at the date of this Lease in a good state of repair and
suitable for the intended use and business of the Tenant.
18. NO REPRESENTATIONS
18.1 The Tenant agrees that no representations, warranties or conditions have
been made other than those expressed herein, and that no agreement collateral
hereto shall be binding upon the Landlord unless in writing and signed on behalf
of the Landlord.
19. SUBORDINATION
19.1 This Lease and all of the rights of the Tenant hereunder are, and shall at
all times be, subject and subordinate to any and all mortgages, trust deeds and
debentures, now or hereafter in force or registered against the Lands and
improvements thereto, and all renewals, extensions and modifications thereof and
all advances of money made thereunder. The Tenant covenants to execute in
registrable form immediately on request from time to time, any assurances that
the Landlord may require to confirm this subordination and will if requested by
the Landlord attorn to the holder of any such mortgages, trust deeds and
debentures.
20. DAMAGE OR DESTRUCTION
20.1 If the Leased Premises are damaged by fire or other casualty then:
<PAGE> 15
-15-
(a) the basic rent under Clause 3 (but not sums payable hereunder as
additional rent) shall be abated in whole or in part in the
proportion that the area of the untenantable or non-useable
portion of the Leased Premises is to the Tenant's Rentable Area
until such damage is repaired provided that there shall be no
abatement for time required to repair or replace the Tenant's
trade fixtures or the alterations, additions, decorations and
improvements made to the Leased Premises by the Tenant which is
in excess of the time required to make other necessary repairs
or replacements;
(b) subject to the provisions of Clause 21, the damage to the Leased
Premises shall be repaired by the Landlord with reasonable
diligence but the cost of the repairs and replacements of the
Tenant's trade fixtures and of the alterations, additions,
decorations and improvements made to the Leased Premises by the
Tenant shall be borne by the Tenant.
21. DESTRUCTION OF LEASED PREMISES OR BUILDING
21.1 If more than thirty per cent (30%) of the Leased Premises and the Building,
or either of them, are so damaged by fire or other casualty that the Landlord
decides not to restore them or is unable to restore them within one hundred
eighty (180) days from the date of damage, the Landlord shall within forty-five
(45) days after the fire or other casualty give to the Tenant a notice in
writing of such decision, and thereupon the Term of this Lease shall end, and
the Tenant shall vacate the Leased Premises and surrender them to the Landlord,
but if the Leased Premises are untenantable during such period the Tenant's
liability for rent shall cease as of the day following the fire or other
casualty.
22. DEFAULT OF TENANT
22.1 If and whenever the rent hereby reserved or any part thereof shall not be
paid on the day appointed for payment thereof, whether lawfully demanded or not,
or in case of breach of non-observance or non-performance of any of the
covenants, agreements, provisos and conditions on the part of the Tenant to be
kept, observed or performed, or in case the Leased Premises shall be vacated or
remain unoccupied for fifteen (15) days or in case the Term shall be taken in
execution or attachment for any cause whatever, then and in every such case, it
shall be lawful for the Landlord thereafter to enter into and upon the Leased
Premises or any part thereof in the name of the whole and the same to have
again, repossess and enjoy as of its former estate, anything in this Lease
contained to the contrary notwithstanding other than the proviso to this Clause
22. Provided that the Landlord shall not at any time have the right to re-enter
and forfeit this Lease by reason of the Tenant's default in payment of the rent
reserved by this Lease or by reason of the failure of the Tenant to comply with
any of its obligations under this Lease, unless and until the Landlord shall
have given to the Tenant at least five (5) days written notice of its intention
so to do and setting forth the default complained of and the Tenant shall have
the right during such five (5) days to cure any such default in payment of rent
or cure any default of the Tenant's obligations, as the case may be.
<PAGE> 16
-16-
23. BANKRUPTCY
23.1 In case, without the written consent of the Landlord, the Leased Premises
or any part thereof shall be used by any other person than the Tenant or for any
other purpose than that for which the same were let or in case the Term or any
of the goods and chattels of the Tenant shall be at any time seized in execution
or attachment by a creditor of the Tenant or if the Tenant or the indemnitor of
the Tenant's obligations under this Lease makes any assignment for the benefit
of creditors or any bulk sale or becomes bankrupt or insolvent or takes the
benefit of any Act now or hereafter in force for bankrupt or insolvent debtors,
or, if the Tenant is a corporation and any order shall be made for the
winding-up of the Tenant, or other termination of the corporate existence of the
Tenant then in any such case this Lease shall at the option of the Landlord
cease and terminate and the Term shall immediately become forfeited and void and
the then current month's rent and the next ensuing three months rent shall
immediately become due and be paid and the Landlord may re-enter and take
possession of the Leased Premises as though the Tenant or other occupant or
occupants of the Leased Premises was or were holding over after the expiration
of the Term without any right whatever, and in such event Clause 25 shall not
apply.
24. DISTRESS
24.1 The Landlord shall have the right to distrain for rent in arrears against
the goods and chattels of the Tenant and may use such force as may be necessary
for that purpose and for gaining admittance to the Leased Premises without being
liable to any action in respect thereof, or for any loss or damage occasioned
thereby and the Tenant hereby expressly releases the Landlord, its employees and
agents for all actions, proceedings, claims or demands whatsoever for or on
account of or in respect of any forcible entry or any loss or damage sustained
by the Tenant in connection therewith. The Tenant hereby waives and renounces
the benefit of any present or future statute taking away or limiting the
Landlord's right of distress, and covenants and agrees that notwithstanding any
such statute none of the goods and chattels of the Tenant on the Leased Premises
at any time during the Term shall be exempt from levy by distress for rent in
arrears.
25. RIGHT OF RE-ENTRY
25.1 The Tenant covenants and agrees that on the Landlord's becoming entitled to
re-enter upon the Leased Premises under any of the provisions of this Lease,
the Landlord in addition to all other rights shall have the right to enter the
Leased Premises as the agent of the Tenant either by force or otherwise, without
being liable for any prosecution therefor and to relet the Leased Premises as
the agent of the Tenant, and to receive the rent therefor, and as the agent of
the Tenant to take possession of any furniture or other property on the Leased
Premises and to sell the same at public or private sale without notice and to
apply the proceeds of such sale and any rent derived from reletting the Leased
Premises upon account of the rent under this Lease, and the Tenant shall be
liable to the Landlord for the deficiency, if any.
<PAGE> 17
-17-
26. RIGHT OF TERMINATION
26.1 The Tenant covenants and agrees that on the Landlord's becoming entitled to
re-enter upon the Leased Premises under any of the provisions of this Lease,
the Landlord in addition to all other rights, shall have the right to terminate
this Lease and the Term by leaving upon the Leased Premises notice in writing of
its intention so to do, and thereupon the rent shall be computed, apportioned
and paid in full to the date of such termination and any other payments for
which the Tenant is liable under this Lease shall be paid and the Tenant shall
immediately deliver up possession of the Leased Premises to the Landlord, and
the Landlord may re-enter and take possession of the same.
27. NON-WAIVER
27.1 No condoning, excusing or overlooking by the Landlord of any default,
breach or non-observance by the Tenant at any time or times in respect of any
covenant, proviso or condition herein contained shall operate as a waiver of the
Landlord's rights hereunder in respect of any continuing or subsequent default,
breach or non-observance, and no waiver shall be inferred from or implied by
anything done or omitted by the Landlord save only express waiver in writing.
All rights and remedies of the Landlord in this Lease contained shall be
cumulative and alternative.
28. OVERHOLDING
28.1 If the Tenant shall continue to occupy the Leased Premises after the
expiration of this Lease with or without the consent of the Landlord, and
without any further written agreement, the Tenant shall be a monthly tenant on
the terms and conditions herein set out except as to length of tenancy and
further except that the rent shall be an amount per month equal to one hundred
fifty per cent (150%) of the monthly instalments payable on account of rent
pursuant to Clause 3.
29, RECOVERY OF ADJUSTMENT
29.1 The Landlord in addition to all other rights or remedies, shall have the
same rights and remedies in the event of default by the Tenant in payment of any
amount payable by the Tenant pursuant to any clause of this Lease, as the
Landlord would have in the case of default in payment of rent.
30. INTEREST ON RENT IN ARREARS
30.1 Any instalment of rent not paid on the due date shall, without prejudice to
any other rights and remedies of the Landlord arising from such breach, bear
interest from such due date at the rate of twenty per cent (20%) per annum
until paid.
<PAGE> 18
-18-
31. ADDITIONAL RENT
31.1 Without prejudice to any other rights and remedies of the Landlord, any
money payable by the Tenant to the Landlord hereunder in addition to the basic
rent referred to in Clause 3 of this Lease shall be deemed to be rent and, with
interest at the rate of twenty per cent (20%) per annum thereon from the date
the Landlord shall have demanded payment of the same from the Tenant, shall be
paid as additional rent and shall be collectible as rent and unless otherwise
provided in this Lease shall be payable with the next ensuing monthly instalment
of rent.
32. LANDLORD MAY CURE TENANT'S DEFAULT
32.1 If the Tenant shall fail to perform or cause to be performed each and every
of the covenants, agreements and obligations of the Tenant hereunder, the
Landlord shall have the right (but shall not be obligated) to perform or cause
to be performed the same and all payments, expenses, costs and levies incurred
or paid by the Landlord in respect thereof shall be included in Direct Costs
together with an administration fee of twenty per cent (20%) of the total of
such costs and paid to the Landlord immediately on demand.
33. REMEDIES CUMULATIVE
33.1 No remedy conferred upon or reserved to the Landlord herein, by statute or
otherwise, shall be considered exclusive of any other remedy, but the same shall
be cumulative and shall be in addition to every other remedy available to the
Landlord and all such remedies and powers of the Landlord may be exercised
concurrently and from time to time and as often as occasion may be deemed
expedient by the Landlord.
33.2 No right or remedy provided for the Landlord herein shall preclude or be
deemed or construed to preclude the Landlord from exercising any other right or
remedy provided or implied by law, each such right and remedy being hereby
reserved to the Landlord.
34. SUBDIVISION, STRATIFICATION
34.1 The Landlord may subdivide or stratify the Lands some time during the Term
or the renewal. The Tenant agrees to consent to any such subdivision and/or
stratification. The parties agree to sign all such further documents as may be
necessary to allow any such subdivision and/or stratification to be completed,
including any necessary modifications to the within Lease to reflect the revised
legal status of the Lands (which modification shall include the Tenant's
agreement to comply with all of the bylaws, rules and regulations of the Strata
Corporation as set from time to time).
<PAGE> 19
-19-
35. RENEWAL
35.1 If the Tenant duly and regularly pays the rent hereby reserved and observes
and performs all the covenants and agreements herein contained on the part of
the Tenant to be paid, observed and performed, the Landlord upon written request
by the Tenant delivered not less than six months before the expiration of the
Term, shall grant to the Tenant a renewal of this Lease for a further period of
five (5) years upon the same terms, covenants and conditions as are herein
contained except as to rent and except that there shall be no further right of
renewal. The rent for such renewal term shall be determined by agreement, and
failing agreement by on or before the 30th day prior to the start of the renewal
term, by arbitration before a single arbitrator in accordance with the
provisions of the Commercial Arbitration Act of British Columbia then in force
such single arbitrator to be appointed by agreement, and failing agreement, in
accordance with the provisions of the Commercial Arbitration Act of British
Columbia then in force provided that the monthly rent for the renewal term shall
not be less than the rent for the last month of the immediately preceding term.
This provision shall be binding on the arbitrator.
36. NOTICE AND PAYMENTS
36.1 Any and all payments to be made by the Tenant to the Landlord as provided
in this Lease shall be payable at the address of the Landlord hereinbefore set
out or at such other address as the Landlord may from time to time notify the
Tenant. Any notice required or contemplated by any clause of this Lease shall be
given in writing enclosed in a sealed envelope addressed, in the case of notice
to the Landlord at it at its address hereinbefore set out, and in the case of
notice to the Tenant to it at the Leased Premises, and mailed in British
Columbia registered and postage prepaid. The time of giving and receipt of such
notice shall be conclusively deemed to be the second business day after the day
of such mailing. Such notice shall also be sufficiently given if and when the
same shall be delivered, in the case of notice to the Landlord, to an executive
officer of the Landlord, and in the case of notice to the Tenant, delivered to
the Leased Premises. Such notice, if delivered, shall be conclusively deemed to
have been given and received at the time of such delivery. If in this Lease two
or more persons are named as Tenant, such notice shall also be sufficiently
given if and when the same shall be delivered personally or mailed as aforesaid
to any one of such persons. Provided that either party may, by notice to the
other, from time to time designate another address in Canada to which notices
shall be addressed.
37. HEADINGS
37.1 The headings to the clauses of this Lease are for convenience only and
shall not constitute a part of this Lease.
<PAGE> 20
-20-
38. DEFINITIONS APPLY
38.1 The definitions of any words used in this Lease shall apply to such words
when used elsewhere in the clause in which they are defined and when used in any
other clause or place in this Lease whenever the context is consistent.
39. TIME OF THE ESSENCE
39.1 Time shall be of the essence of the Lease and every part hereof.
40. GOVERNING LAW
40.1 This Lease shall be construed and governed by the laws of the Province of
British Columbia.
41. SUCCESSORS
41.1 All rights and liabilities herein given to, or imposed upon, the respective
parties hereto shall extend to and bind the several respective permitted heirs,
executors, administrators, successors and assigns of the said parties. No
rights, however, shall enure to the benefit of any assignee of the Tenant
unless the assignment to such assignee has been approved by the Landlord in
writing as provided herein.
42. EXTENDED MEANINGS
42.1 Words importing the singular, masculine or neuter shall be construed as
meaning the plural, feminine or body corporate or politic and vice versa
wherever the context in this Lease or the Landlord so requires.
43. SEVERABILITY
43.1 It is agreed that should any clause, condition or term, or any part
thereof, contained in this Lease be unenforceable or prohibited by law or by any
present or future provincial or federal legislation, then such clause,
condition, term or part thereof, shall be amended, and is hereby amended, so as
to be in compliance with the said legislation or law but if such clause,
condition or term or part thereof cannot be amended so as to be in compliance
with any such legislation, then such clause, condition, term or part thereof is
severable from this Lease and all the rest of the clauses, terms and conditions
or parts thereof contained in this Lease shall remain binding on the parties.
<PAGE> 21
-21-
44. ENVIRONMENTAL MATTERS
44.1 DEFINITIONS. - For the purpose of this Clause:
(a) "Contaminants" means any pollutants, contaminants, deleterious
substances, underground or aboveground tanks, asbestos
materials, urea formaldehyde, dangerous substances or goods,
hazardous, corrosive or toxic substances, special waste or waste
of any kind or any other substance which is now or hereafter
prohibited, controlled or regulated under Environmental Laws;
and
(b) "Environmental Laws" means any statutes, laws, regulations,
orders, bylaws, standards, guidelines, permits and other lawful
requirements of any governmental authority having jurisdiction
over the Leased Premises now or hereafter in force relating in
any way to the environment, health, occupational health and
safety, product liability or transportation of dangerous goods,
including the principles of common law and equity.
44.2 TENANT'S COVENANTS AND INDEMNITY. - The Tenant covenants and agrees as
follows:
(a) not to use or permit to be used all or any part of the Leased
Premises for the sale, storage, manufacture, disposal, handling,
treatment, use or any other dealing with any Contaminants,
without the prior written consent of the Landlord, which may be
unreasonably withheld. Without limiting the generality of the
foregoing, the Tenant shall in no event use, and does not plan
or intend to use, the Leased Premises to dispose of, handle or
treat any Contaminants in a manner that, in whole or in part,
would cause the Leased Premises or any adjacent property to
become a contaminated site under Environmental Laws;
(b) to strictly comply, and cause any person for whom it is in law
responsible to comply, with all Environmental Laws regarding the
use and occupancy of the Leased Premises;
(c) to promptly provide to the Landlord a copy of any environmental
site investigation, assessment, audit or report relating to the
Leased Premises conducted by or for the Tenant at any time
before, during or after the Term (or any renewal thereof). The
Tenant shall, at its own cost at the Landlord's request from
time to time, obtain from an independent environmental
consultant approved by the Landlord an environmental site
investigation of the Leased Premises or an environmental audit
of the operations at the Leased Premises, the scope of which
shall be satisfactory to the Landlord and shall include any
additional investigations that the environmental consultant may
recommend;
<PAGE> 22
-22-
(d) to maintain all environmental site investigations, assessments,
audits and reports relating to the Leased Premises in strict
confidence and not to disclose their terms or existence to any
third party (including without limitation, any governmental
authority) except as required by law, to the Tenant's
professional advisers and lenders on a need to know basis or
with the prior written consent of the Landlord, which consent
may be unreasonably withheld;
(e) to promptly provide to the Landlord on request such written
authorizations as the Landlord may require from time to time to
make inquiries of any governmental authorities regarding the
Tenant's compliance with Environmental Laws;
(f) to promptly notify the Landlord in writing of any release of a
Contaminant or any other occurrence or condition at the Leased
Premises, or any adjacent property which could contaminate the
Leased Premises, or subject the Landlord or the Tenant to any
fines, penalties, orders, investigations or proceedings under
Environment Laws;
(g) on the expiry or earlier termination of this Lease or at any
time if requested by the Landlord or required by any
governmental authority pursuant to Environmental Laws, to remove
from the Leased Premises all Contaminants, and to remediate any
contamination of the Leased Premises or any adjacent property
resulting from Contaminants, in either case brought onto, used
at or released from the Leased Premises by the Tenant or any
person for whom it is in law responsible. The Tenant shall
perform these obligations promptly at its own cost and in
accordance with Environmental Laws. All such Contaminants shall
remain the property of the Tenant, notwithstanding any rule of
law or other provision of this Lease to the contrary and
notwithstanding the degree of their affixation to the Leased
Premises; and
(h) to indemnify the Landlord and its directors, officers,
shareholders, employees, agents, successors and assigns, from
any and all liabilities, actions, damages, claims, remediation
cost recovery claims, losses, costs, orders, fines, penalties
and expenses whatsoever (including all consulting and legal fees
and expenses on a solicitor-client basis and the cost of
remediation of the Leased Premises and any adjacent property
arising from or in connection with:
(i) any breach of or non-compliance with the provisions of
this Clause by the Tenant; or
(ii) any release or alleged release of any Contaminants at or
from the Leased Premises related to or as a result of
the use and occupation of the Leased Premises or any act
or omission of the Tenant or any person for whom it is
in law responsible.
<PAGE> 23
-23-
The obligations of the Tenant under this Clause shall survive the expiry or
earlier termination of this Lease. The obligations of the Tenant under this
Clause are in addition to, and shall not limit, the obligations of the Tenant
contained in other provisions of this Lease.
IN WITNESS WHEREOF the parties hereto have hereunto executed this Lease
as a valid and binding act as of the day and year first before written.
The Corporate Seal of INTRACEL )
CORPORATION was hereunto affixed in the )
presence of: )
)
- ------------------------------- ) (C/S)
Authorized Signatory )
)
- ------------------------------- )
Authorized Signatory )
The Corporate Seal of P.K PROJECTS )
LTD. was hereunto affixed in the )
presence of: )
[SIG] )
- ------------------------------- ) (C/S)
Authorized Signatory )
<PAGE> 24
THIS INDEMNITY AGREEMENT dated for reference the 1st day of February, 1998.
BETWEEN:
P.K PROJECTS LTD., a British Columbia Company with an
office at 1203 - 20800 Westminster Highway, Richmond,
B.C., V6V 2W3
(hereinafter referred to as the "Landlord")
OF THE FIRST PART
AND:
BARTELS, INC., a company incorporated under the laws of
the State of Washington, U.S.A., with an office at 1871
NW Gilman Boulevard, Issaqua, Washington, 98027
(hereinafter referred to as the "Indemnitor")
OF THE SECOND PART
In order to induce the Landlord to enter into the lease (the "Lease")
dated the 1st day of February, 1998, and made between the Landlord and INTRACEL
CORPORATION as Tenant, and for other good and valuable consideration, the
receipt and sufficiency whereof is hereby acknowledged, the Indemnitor hereby
makes the following indemnity and agreement (the "Indemnity") with and in favour
of the Landlord:
1. The Indemnitor hereby agrees with the Landlord that at all times during the
Term and any extension or renewal of the Lease, the Indemnitor shall:
(a) make due and punctual payment of all rent, moneys, charges and
other amounts of any kind whatsoever payable under the Lease by
the Tenant whether to the Landlord or otherwise and whether the
Lease has been disaffirmed or disclaimed;
<PAGE> 25
-2-
(b) effect prompt and complete performance of all of the terms,
covenants and conditions contained in the Lease on the part of
the Tenant therein to be kept, observed and performed; and
(c) promptly indemnify and save harmless the Landlord from and
against any claims arising out of any failure by the Tenant to
pay the rent, moneys, charges or other amounts due under the
Lease or resulting from any failure by the Tenant to observe and
perform any of the terms, covenants and conditions in the Lease.
2. The Indemnitor hereby expressly acknowledges and agrees that this Indemnity
is absolute and unconditional and the obligations of the Indemnitor shall not be
released, discharged, mitigated, impaired or affected by:
(a) any extension of time, indulgences or modifications which the
Landlord extends to or makes with the Tenant in respect of the
performance of any of the obligations of the Tenant under the
Lease;
(b) any waiver by or failure of the Landlord to enforce any of the
terms, covenants and conditions contained in the Lease;
(c) any transfer of the Lease by the Tenant or by any transferee or
by any trustee, receiver or liquidator;
(d) any consent which the Landlord gives to any such transfer;
(e) any relocation of the Leased Premises or any changes to the
Lease resulting therefrom;
(f) any amendment or modification to the Lease;
<PAGE> 26
-3-
(g) any waiver by the Tenant or any transferee of any of its rights
under the Lease;
(h) the expiration or termination of the Lease; or
(i) any overholding by the Tenant of the Leased Premises or any part
thereof.
3. The Indemnitor hereby expressly waives notice of the acceptance of this
Indemnity and all notice of non-performance, non-payment or non-observance on
the part of the Tenant of the terms, covenants and conditions in the Lease.
Without limiting the generality of the foregoing, any notice which the Landlord
desires to give to the Indemnitor shall be sufficiently given if delivered in
person to the Indemnitor or if mailed by prepaid registered or certified post
addressed to the Indemnitor at the Leased Premises, and every such notice shall
be deemed to have been given on the day it was delivered in person or, if
mailed, seventy-two (72) hours after it was mailed. The Indemnitor may designate
by notice in writing a substitute address for that set forth above and
thereafter notices shall be directed to such substitute address. If two or more
persons are named as Indemnitor any notice given hereunder or under the Lease
shall be sufficiently given if delivered or mailed in the foregoing manner to
any one of such persons.
4. In the event of a default under the Lease or under this Indemnity, the
Indemnitor waives any right to require the Landlord to:
(a) proceed against the Tenant or pursue any rights or remedies
against the Tenant with respect to the Lease;
(b) proceed against or exhaust any security of the Tenant held by
the Landlord; or
(c) pursue any other remedy whatsoever in the Landlord's power.
<PAGE> 27
-4-
The Landlord shall have the right to enforce this Indemnity regardless of the
acceptance of additional security from the Tenant and regardless of any release
or discharge of the Tenant by the Landlord or by others or by operation of any
law.
5. Without limiting the generality of the foregoing, the liability of the
Indemnitor under this Indemnity shall not be and shall not be deemed to have
been waived, released, discharged, impaired or affected by reason of the release
or discharge of the Tenant in any receivership, bankruptcy, winding-up or other
creditor's proceedings or the rejection, disaffirmance or disclaimer of the
Lease in any proceeding and shall continue with respect to the periods prior
thereto and thereafter, for and with respect to the Term as if the Lease had not
been disaffirmed or disclaimed, and, in furtherance hereof, the Indemnitor
agrees, upon any such disaffirmance or disclaimer, that the Indemnitor shall, at
the option of the Landlord, become the Tenant of the Landlord upon the same
terms and conditions as are contained in the Lease, applied with the necessary
changes having been made, and the Indemnitor shall immediately execute any
documentation (prepared by the Landlord at the Indemnitor's expense) that the
Landlord requires in confirmation thereof. The liability of the Indemnitor shall
not be affected by any repossession of the Leased Premises by the Landlord,
provided, however, that the net payments received by the Landlord after
deducting all costs and expenses of repossession and reletting the Leased
Premises shall be credited from time to time by the Landlord against the
indebtedness of the Indemnitor hereunder and the Indemnitor shall pay any
balance owing to the Landlord from time to time immediately on demand.
6. No action or proceeding brought or instituted under this Indemnity and no
recovery in pursuance thereof shall be a bar or defense to any further action or
proceeding which may be brought under this Indemnity by reason of any further
default hereunder or in the performance and observance of the terms, covenants
and conditions in the Lease.
7. No modification of this Indemnity shall be effective unless it is in writing
and is executed by both the Indemnitor and the Landlord.
<PAGE> 28
-5-
8. The Indemnitor shall, without limiting the generality of the foregoing, be
bound by this Indemnity in the same manner as though the Indemnitor were the
Tenant named in the Lease. The Indemnitor acknowledges that it has received the
Lease and is familiar with the terms, covenants and conditions contained herein.
9. If the Indemnitor is a corporation, it shall not change the effective voting
control thereof from that existing as of the date of commencement of the Term of
the Lease and, if the Indemnitor is a partnership, joint venture or co-tenancy,
it shall not change the persons comprising the partnership, joint venture or
co-tenancy as of the date of commencement of the Term of the Lease without in
either case obtaining the Landlord's prior written consent in each and every
instance, which consent may be unreasonably withheld.
10. If two or more individuals, corporations, partnerships or other business
associations (or any combination of two or more thereof) execute this Indemnity
as Indemnitor, the liability of each such individual, corporation, partnership
or other business association hereunder is joint and several. In like manner, if
the Indemnitor named in this Indemnity is a partnership or other business
association, the members of which are, by virtue to statutory or general law,
subject to personal liability, the liability of each such member is joint and
several.
11. All of the terms, covenants and conditions of this Indemnity extend to and
are binding on the Indemnitor, its heirs, executors, administrators, successors
and assigns, as the case may be, and enure to the benefit of and may be enforced
by the Landlord, its successors and assigns, as the case may be, and any
mortgagee of the Leased Premises.
12. The expressions "Landlord", "Tenant", "Term", "Leased Premises" and other
terms or expressions where used in this Indemnity, respectively, have the same
meaning as in the Lease.
13. This Indemnity shall be construed in accordance with the laws of the
Province of British Columbia.
<PAGE> 29
-6-
14. Wherever in this Indemnity reference is made to either the Landlord or the
Tenant, the reference is deemed to apply also to the respective heirs,
executors, administrators, successors and permitted assigns of the Tenant and to
the successors and assigns of the Landlord. Any assignment by the Landlord of
any of its interest in the Lease operates automatically as an assignment to such
assignee of the benefit of this Indemnity.
IN WITNESS WHEREOF the parties have hereunto set their hands and seals the day
and year first above written.
The Corporate Seal of P.K. PROJECTS )
LTD. was hereunto affixed in the presence of: )
) (C/S)
)
[SIG] )
- ------------------------------- )
Authorized Signatory )
The Corporate Seal of BARTELS INC. was )
hereunto affixed in the presence of: )
)
Signed by : Simon McKenzie )
- ------------------------------- )
Authorized Signatory ) (C/S)
)
)
- ------------------------------- )
Authorized Signatory )
<PAGE> 1
EXHIBIT 10.6
AGREEMENT AND PLAN OF REORGANIZATION
among
PERIMMUNE HOLDINGS, INC.
INTRACEL CORPORATION
and
INTRACEL ACQUISITION SUB, INC.
DATED AS OF NOVEMBER 26, 1997
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.01 Definitions and Usage ......................................................8
ARTICLE II
THE MERGER
Section 2.01 The Merger ................................................................12
Section 2.02 Effects of the Merger .....................................................12
Section 2.03 Certificate of Incorporation and Bylaws ...................................12
Section 2.04 Directors and Officers ....................................................12
Section 2.05 Conversion ................................................................12
Section 2.06 Tax Consequences ..........................................................14
ARTICLE III
EXCHANGE OF SHARES
Section 3.01 Exchange of Certificates ..................................................14
Section 3.02 Stock Options .............................................................16
Section 3.03 Dissenting Shares .........................................................16
Section 3.04 Adjustments ...............................................................17
Section 3.05 Lost Certificates .........................................................17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.01 Organization ..............................................................17
Section 4.02 Capitalization ............................................................17
Section 4.03 Authority Relative to This Agreement ......................................18
Section 4.04 Consents and Approvals; No Violations .....................................19
Section 4.05 Absence of Certain Changes ................................................19
Section 4.06 Financial Statements ......................................................20
Section 4.07 No Undisclosed Liabilities ................................................20
Section 4.08 No Default ................................................................20
Section 4.09 Litigation ................................................................20
Section 4.10 Compliance with Applicable Law ............................................20
Section 4.11 Taxes .....................................................................21
Section 4.12 ERISA .....................................................................21
Section 4.13 Title to Property .........................................................22
Section 4.14 Intellectual Property .....................................................23
Section 4.15 Interested Party Transactions .............................................24
Section 4.16 Insurance .................................................................24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.17 Products ..................................................................25
Section 4.18 Change in Control .........................................................25
Section 4.19 Environmental, Health, and Safety .........................................25
Section 4.20 Employment and Labor Matters ..............................................26
Section 4.21 Contracts .................................................................27
Section 4.22 Predominant Customers .....................................................27
Section 4.23 Change in Customers or Vendors ............................................27
Section 4.24 Notes and Accounts Receivable .............................................27
Section 4.25 Questionable Payments .....................................................27
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF INTRACEL
PARENT AND INTRACEL ACQUISITION SUB
Section 5.01 Organization ..............................................................28
Section 5.02 Capitalization ............................................................28
Section 5.03 Authority Relative to this Agreement ......................................29
Section 5.04 Consents and Approvals; No Violations .....................................30
Section 5.05 Financial Statements ......................................................30
Section 5.06 Absence of Certain Changes ................................................30
Section 5.07 No Undisclosed Liabilities ................................................31
Section 5.08 No Default ................................................................31
Section 5.09 Litigation ................................................................31
Section 5.10 Compliance with Applicable Law ............................................31
Section 5.11 Taxes .....................................................................32
Section 5.12 ERISA .....................................................................32
Section 5.13 Title to Property .........................................................33
Section 5.14 Intellectual Property .....................................................33
Section 5.15 Interested Party Transactions .............................................35
Section 5.16 Insurance .................................................................35
Section 5.17 Products ..................................................................35
Section 5.18 Interim Operations of Intracel Acquisition Sub ............................36
Section 5.19 Change in Control .........................................................36
Section 5.20 Environmental, Health, and Safety .........................................36
Section 5.21 Employment and Labor Matters ..............................................37
Section 5.22 Contracts .................................................................38
Section 5.23 Predominant Customers .....................................................38
Section 5.24 Change in Customers or Vendors ............................................38
Section 5.25 Notes and Accounts Receivable .............................................38
Section 5.26 Questionable Payments .....................................................38
ARTICLE VI
COVENANTS
Section 6.01 Covenants of the Company and Intracel Parent ..............................39
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
Section 6.02 Additional Covenants of the Company and Intracel Parent ...................41
Section 6.03 No Solicitation ...........................................................42
Section 6.04 Access to Information .....................................................43
Section 6.05 Stockholders Meetings .....................................................43
Section 6.06 Brokers or Finders ........................................................43
Section 6.07 Consents, Approvals and Filings ...........................................43
ARTICLE VII
CONDITIONS
Section 7.01 Conditions to Each Party's Obligation to Effect the Merger ................44
Section 7.02 Conditions of Obligations of Intracel Parent and Intracel Acquisition Sub..45
Section 7.03 Conditions of Obligations of the Company ..................................47
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.01 Termination ...............................................................50
Section 8.02 Effect of Termination .....................................................50
Section 8.03 Amendment .................................................................50
Section 8.04 Extension; Waiver .........................................................51
ARTICLE IX
POST CLOSING COVENANTS
ARTICLE X
MISCELLANEOUS
Section 10.01 Nonsurvival of Representations and Warranties .............................51
Section 10.02 Notices ...................................................................51
Section 10.03 Descriptive Headings ......................................................52
Section 10.04 Counterparts ..............................................................52
Section 10.05 Entire Agreement; Assignment ..............................................52
Section 10.06 Governing Law .............................................................52
Section 10.07 Specific Performance ......................................................52
Section 10.08 Expenses ..................................................................53
Section 10.09 Publicity .................................................................53
Section 10.10 Parties in Interest .......................................................53
</TABLE>
iii
<PAGE> 5
<TABLE>
EXHIBITS
<S> <C>
Exhibit 2.03(a) Amended and Restated Certificate of Incorporation of Surviving Corporation
Exhibit 2.03(b) Amended and Restated Certificate of Incorporation of Intracel Parent
Exhibit 2.03(c) Amended and Restated Bylaws of Surviving Corporation
Exhibit 2.03(d) Amended and Restated Bylaws of Intracel Parent
Exhibit B Hanna Letter
Exhibit C Shareholders Agreement
Exhibit D Registration Rights Agreements
</TABLE>
iv
<PAGE> 6
<TABLE>
COMPANY DISCLOSURE SCHEDULES
<S> <C>
Section 4.02 Capitalization of Company and Subsidiaries
Section 4.04 Consents and Approvals; No Violations
Section 4.05 Absence of Certain Changes
Section 4.07 No Undisclosed Liabilities
Section 4.08 No Default
Section 4.09 Litigation
Section 4.11 Taxes
Section 4.12 ERISA
Section 4.13 Title to Property
Section 4.14 Intellectual Property
Section 4.15 Interested Party Transactions
Section 4.17 Products
Section 4.18 Change in Control
Section 4.20 Employment and Labor Matters
Section 4.21 Contracts
Section 4.22 Predominant Customers
Section 4.23 Change in Customers or Vendors
Section 6.01 Covenants of the Company and Intracel Parent
</TABLE>
v
<PAGE> 7
<TABLE>
INTRACEL PARENT DISCLOSURE SCHEDULE
<S> <C>
Section 2.04 List of Directors and Officers of Intracel Acquisition Sub, the Surviving
Corporation and Intracel
Section 5.02(a) Capitalization
Section 5.02(b) Subsidiaries of Intracel Parent
Section 5.04 Consents and Approvals; No Violations
Section 5.05 Financial Statements
Section 5.06 Absence of Certain Changes
Section 5.07 No Undisclosed Liabilities
Section 5.08 No Default
Section 5.09 Litigation
Section 5.11 Taxes
Section 5.12(a) ERISA
Section 5.12(c) Unfunded ERISA Benefit Obligations
Section 5.12(d) Obligations for Retiree and Life Benefits
Section 5.13 Title to Property
Section 5.14(b) Intracel Parent Intellectual Property and Jurisdictions
Section 5.14(c) Non-Ordinary Intellectual Property Information
Section 5.14(d) Breach of Intellectual Property Agreements
Section 5.14(e) Intellectual Property Litigation
Section 5.14(f) Intracel Parent Persons Who Have Executed Intellectual Property Protection
and Assignment Agreements
Section 5.14(g) Undisclosed Uses of Confidential Information
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C>
Section 5.15 Interested Party Transactions
Section 5.17 Products
Section 5.19 Change in Control
Section 5.21 Employment and Labor Matters
Section 5.22 Contracts
Section 5.23 Predominant Customers
Section 5.24 Change in Customers or Vendors
Section 6.01 Covenants of the Company and Intracel Parent
</TABLE>
vii
<PAGE> 9
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of November 26, 1997, by and
among PerImmune Holdings, Inc., a Delaware corporation (the "COMPANY"), Intracel
Corporation, a Delaware corporation ("INTRACEL PARENT"), and Intracel
Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of
Intracel Parent ("INTRACEL ACQUISITION SUB").
RECITALS
A. The Boards of Directors of Intracel Parent, the Company and Intracel
Acquisition Sub believe it is in the best interests of their respective
companies and the shareholders of their respective companies that the Company
and Intracel Acquisition Sub combine into a single company through the statutory
merger of Intracel Acquisition Sub with and into the Company (the "MERGER") and,
in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
the Company capital stock, shall be converted into shares of Intracel Parent
capital stock, at the rate set forth herein.
C. Intracel Parent and Intracel Acquisition Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions and Usage. (a) For purposes of this Agreement:
"AFFILIATE" means, with respect to any person, any other person directly or
indirectly controlling, controlled by, or under common control with such person.
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
8
<PAGE> 10
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or waste.
"FDA" means the United States Food and Drug Administration and any
successor agency thereto.
"KNOWLEDGE" of any person which is not an individual means the knowledge of
such person's officers after reasonable inquiry.
"MATERIAL ADVERSE EFFECT" means, when used in connection with Intracel
Parent or the Company, any change, effect, event, occurrence or state of facts
that has had, or would reasonably be expected to have, a material adverse effect
on the business, operations, assets, liabilities, condition (financial or
otherwise) or results of operations of Intracel Parent and its subsidiaries,
taken as a whole, or the Company and its subsidiaries, taken as a whole as the
case may be.
"OFFICER" means, in the case of Intracel Parent or the Company, any
executive officer of Intracel Parent or the Company, as applicable, within the
meaning of Rule 3b-9 of the 1934 Act.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute thereto.
"SUBSIDIARY" means, with respect to any person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such persons.
A reference in this Agreement to any statute shall be to such statute as
amended from time to time, and to the rules and regulations promulgated
thereunder.
9
<PAGE> 11
(b) Each of the following terms is defined in the Sections set forth opposite
such term:
<TABLE>
<S> <C>
B-1 Conversion Ratio............................. 2.05(a)
B-2 Conversion Ratio............................. 2.05(a)
Certificates..................................... 3.01(b)
Certificate of Merger............................ 2.01
Closing Date..................................... 2.01
Common Conversion Ratio.......................... 2.05(a)
Company Balance Sheet............................ 4.06
Company Balance Sheet Date....................... 4.06
Company Benefit Plans............................ 4.12(a)
Company Common Stock............................. 2.05(a)
Company Disclosure Schedule...................... 4.02(a)
Company Dollar Threshold......................... 4.22
Company Financial Reports........................ 4.06
Company Intellectual Property.................... 4.14(a)
Company Permits.................................. 4.10
Company Primary Opinion.......................... 7.02(e)
Company Product.................................. 4.17(a)
Company Series A Preferred....................... 2.05(a)
Company Series B Preferred....................... 2.05(a)
Company Shares................................... 2.05(a)
Company Stock Option............................. 6.02(b)
Company Stock Option Plan........................ 3.02
Effective Time .................................. 2.01
ERISA ........................................... 4.12(a)
ERISA Affiliate.................................. 4.12(a)
Exchange Agent................................... 3.01(a)
GCL.............................................. 2.01
Governmental Entity.............................. 4.04
Incentive Stock Options.......................... 6.02(a)
Intracel Parent B-1 Preferred.................... 2.05(a)
Intracel Parent B-2 Preferred.................... 2.05(a)
Intracel Parent Balance Sheet.................... 5.05
Intracel Parent Balance Sheet Date 5.05
Intracel Parent Benefit Plans.................... 5.12
Intracel Parent Common Stock..................... 2.05(a)
Intracel Parent Disclosure Schedule 5.02(a)
Intracel Parent Financial Reports................ 5.05
Intracel Parent Permits.......................... 5.10
Intracel Parent Product.......................... 5.17(a)
Intracel Parent Shares........................... 2.05(a)
Intracel Parent Stock Plans...................... 5.02(a)
Intracel Primary Opinion......................... 7.03(e)
</TABLE>
10
<PAGE> 12
<TABLE>
<S> <C>
IRS.............................................. 4.12(a)
Merger Consideration ............................ 2.05(d)
Surviving Corporation ........................... 2.01
Taxes............................................ 4.11
Third Party Intellectual Property................ 4.14(b)
</TABLE>
11
<PAGE> 13
ARTICLE II
THE MERGER
Section 2.01 The Merger. Upon the terms and subject to the conditions hereof, as
promptly as practicable following the satisfaction or waiver of the conditions
set forth in Article VII hereof, but in no event later than two business days
thereafter, unless the parties shall otherwise agree, a certificate of merger
(the "CERTIFICATE OF MERGER") providing for the Merger shall be duly prepared,
executed and filed by the Company, as the surviving corporation (sometimes the
"SURVIVING CORPORATION"), in accordance with the relevant provisions of the
Delaware General Corporation Law (the "GCL") and the parties hereto shall take
any other actions required by law to make the Merger effective.
Following the Merger, the Company, with all its purposes, objects,
rights, privileges, powers and franchises, shall continue, and Intracel
Acquisition Sub shall cease to exist. The time the Merger becomes effective is
referred to herein as the "EFFECTIVE TIME" and the date on which the Effective
Time occurs is referred to as the "CLOSING DATE." Prior to the filing of the
Certificate of Merger, a closing shall take place at the offices of Morrison &
Foerster LLP, 1290 Avenue of the Americas, New York City, New York 10104.
Section 2.02 Effects of the Merger. The Merger shall have the effects set forth
in the GCL, this Agreement and the Certificate of Merger. As of the Effective
Time, the Surviving Corporation shall be a wholly owned subsidiary of Intracel
Parent.
Section 2.03 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of the Surviving Corporation and Intracel Parent shall be amended
and restated as set forth in Exhibit 2.03(a) and Exhibit 2.03(b), respectively.
The Bylaws of the Surviving Corporation and Intracel Parent shall be amended and
restated as set forth in Exhibit 2.03(c) and Exhibit 2.03(d), respectively.
Section 2.04 Directors and Officers. The directors and officers of Intracel
Acquisition Sub immediately prior to the Effective Time shall be the initial
directors and officers of the Surviving Corporation until their successors shall
have been duly elected or appointed and shall have been qualified or until their
earlier death, resignation or removal in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. Such directors and
officers, together with the officers of Intracel Parent immediately subsequent
to the Effective Time, are set forth in Section 2.04 hereto.
Section 2.05 Conversion. At the Effective Time, by virtue of the Merger and
without any action on the part of Intracel Parent, Intracel Acquisition Sub, the
Company or the holder of any of the following securities:
(a) Subject to Section 3.01(e), each issued and outstanding share of (i)
common stock, par value $.01 per share, of the Company ("COMPANY COMMON
STOCK") (other than shares to be cancelled in accordance with Section
2.05(b) hereof) shall be converted into the
12
<PAGE> 14
right to receive a number of fully paid and nonassessable shares of
Intracel Parent common stock, par value $.0001 per share ("INTRACEL
PARENT COMMON STOCK") equal to the Common Conversion Ratio (as
hereinafter defined), (ii) Series preferred stock, par value $.01 per
share, of the Company ("COMPANY SERIES A PREFERRED") (other than shares
to be cancelled in accordance with Section 2.05(b) hereof) shall be
converted into the right to receive a number of fully paid and
nonassessable shares of Intracel Parent preferred stock, Class B-1, par
value $.0001 per share ("INTRACEL PARENT B-1 PREFERRED") equal to the
B-1 Conversion Ratio (as hereinafter defined); and (iii) Series B
preferred stock, par value $.01 per share, of the Company ("COMPANY
SERIES B PREFERRED" and, together with the Company Common Stock and
Company Series A Preferred, the "COMPANY SHARES") (other than shares to
be cancelled in accordance with Section 2.05(b) hereof) shall be
converted into the right to receive a number of fully paid and
nonassessable shares of Intracel Parent preferred stock, Class B-2, par
value $.0001 per share ("INTRACEL PARENT B-2 PREFERRED" and, together
with the Intracel Parent Common Stock and Intracel Parent B-1 Preferred,
"INTRACEL PARENT SHARES") equal to the B-2 Conversion Ratio (as
hereinafter defined). For purposes of the foregoing, the (i) "COMMON
CONVERSION RATIO" shall mean an amount equal to the quotient of: (A) the
total number of outstanding shares of Intracel Parent Common Stock on a
fully diluted basis immediately prior to the Effective Time, divided by
(B) the total number of outstanding shares of Company Common Stock on a
fully diluted basis immediately prior to the Effective Time, (ii) "B-1
CONVERSION RATIO" shall mean 1 and (iii) "B-2 CONVERSION RATIO" shall
mean 1. For the purposes of determining "fully diluted basis" pursuant
to the immediately preceding sentence and Section 3.01(e), all shares of
Intracel Parent Common Stock or Company Common Stock, as the case may
be, issuable upon exercise of options or warrants, or upon conversion,
exchange or exercise of other securities or other rights outstanding,
and all payment in kind dividends for any series of capital stock which
have not been paid but have accrued through the date, immediately prior
to the Effective Time (regardless of whether then exercisable,
convertible or exchangeable and including shares issuable upon exercise
of outstanding options, notwithstanding that such options are being
assumed or converted pursuant to Section 6.02(b) hereof) shall be deemed
outstanding.
(b) All Company Shares held in the treasury of the Company and all Company
Shares held by Intracel Parent or any subsidiary of Intracel Parent
shall be cancelled and retired and cease to exist.
(c) Each issued and outstanding share of the capital stock of Intracel
Acquisition Sub shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(d) The consideration to be delivered in exchange for each security, as set
forth in this Section 2.05, is hereafter referred to as the "MERGER
CONSIDERATION."
13
<PAGE> 15
Section 2.06 Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code.
ARTICLE III
EXCHANGE OF SHARES
Section 3.01 Exchange of Certificates.
(a) At the Effective Time, Intracel Parent shall make available to Perkins,
Coie, as the exchange agent (the "EXCHANGE AGENT"), certificates
representing the aggregate number of Intracel Parent Shares issuable
pursuant to Section 2.05 in exchange for Company Shares, and the
Exchange Agent shall hold such certificates in trust for the benefit of
the holders of Company Shares for exchange in accordance with this
Article III.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to each
holder of record of a certificate or certificates which immediately
prior to the Effective Time represented Company Shares (the
"CERTIFICATES") a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions
as Intracel Parent and the Company may reasonably specify) and
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Intracel Parent Shares and any
dividends payable on such Intracel Parent Shares as provided in Section
3.01(c) and cash in lieu of fractional shares as provided in clause (e)
of this Section 3.01, if applicable. Upon surrender of a Certificate to
the Exchange Agent, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the certificates representing whole Intracel Parent
Shares and cash in lieu of fractional shares as provided in clause (e)
of this Section 3.01, if applicable, which such holder has the right to
receive pursuant to the provisions of this Agreement, and the
Certificate so surrendered shall forthwith be cancelled. If a
certificate representing Intracel Parent Shares is to be issued in a
name other than that in which the Certificate surrendered in exchange
therefor is registered, it shall be a condition to the issuance that
such Certificate be properly endorsed (or accompanied by an appropriate
instrument of transfer) and accompanied by evidence that any applicable
stock transfer taxes have been paid or provided for. Until surrendered
as contemplated by this Section 3.01, each Certificate shall be deemed
at any time after the Effective Time to represent only the right to
receive the consideration specified herein; provided that in the event
any holder exercises his appraisal rights, if any, under Section 262 of
the GCL and becomes entitled to receive the appraised value of his
Company Shares instead of the Intracel Parent Shares into which such
Company Shares shall have been converted, Intracel Parent shall pay such
holder the appraised value of such Company Shares, together with any
other sums which it may owe him as a result of the appraisal proceeding,
upon his surrender to the Exchange Agent of the certificate or
certificates which immediately prior to the Effective Time represented
14
<PAGE> 16
the shares so appraised, and the Exchange Agent shall not thereafter be
required to deliver to such holder any Intracel Parent Shares.
Any certificates representing Intracel Parent Shares which remain unclaimed
by the holders of Certificates for twelve months after the Effective Time shall
remain outstanding and shall be held by Intracel Parent, and any holders of
Certificates who have not surrendered their Certificates in compliance with
Section 3.01 shall thereafter receive delivery (subject to abandoned property,
escheat or other similar laws) of the Intracel Parent Shares issuable upon the
conversion of their Certificates and any dividends payable on such Intracel
Parent Shares, without any interest thereon only after delivering their
Certificates and letters of transmittal to Intracel Parent, and otherwise
complying with Section 3.01(b).
(c) No dividends or other distributions declared or made after the Effective
Time with respect to Intracel Parent Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the Intracel Parent Shares represented
thereby and no cash payment in lieu of fractional shares shall be paid
to any such holder pursuant to Section 3.01(e) until the holder of
record of such Certificate shall surrender such Certificate. Following
surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole Intracel Parent Shares
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional
Intracel Parent Share to which such holder is entitled pursuant to
Section 3.01(e) and the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to
such whole Intracel Parent Shares and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole Intracel
Parent Shares.
(d) Following the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of
the Company Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, they shall be cancelled and
exchanged as provided in this Article III.
(e) No certificate or scrip representing fractional Intracel Parent Shares
shall be issued upon the surrender for exchange of Certificates, and
such fractional share interests will not entitle the owner thereof to
vote or to any rights of a stockholder of Intracel Parent. In lieu of
any such fractional share, Intracel Parent shall pay to each former
stockholder of the Company who otherwise would be entitled to receive a
fractional Intracel Parent Share an amount in cash determined by
multiplying (i) the quotient of $75,000,000 divided by the number of
outstanding shares of Intracel Parent Common Stock on a fully diluted
basis immediately prior to the Effective Time by (ii) the fraction of an
Intracel Parent Share to which such holder would otherwise be entitled.
As promptly as practicable after any determination of the amount of cash
to be paid to holders of Company Shares in lieu of any fractional share
interests, Exchange Agent shall pay such
15
<PAGE> 17
amounts to such holders of Company Shares in accordance with the terms
of this Article III.
(f) The Intracel Parent Shares to be issued pursuant to this Section 3.01
shall not have been registered and shall be characterized as "restricted
securities" under the federal securities laws, and under such laws such
shares may be resold without registration under the Securities Act, only
in certain limited circumstances. Each certificate evidencing Intracel
Parent Shares to be issued pursuant to this Section 3.01 shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND WERE ISSUED IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SAID ACT. SUCH SHARES MAY NOT
BE RESOLD, REOFFERED, TRANSFERRED, PLEDGED HYPOTHECATED,
CONVEYED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SAID
ACT.
(g) Notwithstanding anything to the contrary in this Section 3.01, none of
the Exchange Agent, the Company or any party hereto shall be liable to
any person for any amount properly paid to a public official pursuant to
any applicable abandoned property, escheat or similar law.
(h) If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and
to vest the Surviving Corporation with full right, title and possession
to all assets, property, rights, privileges, powers and franchises of
the Company and Intracel Acquisition Sub, the officers and directors of
the Company and Intracel Acquisition Sub are fully authorized in the
name of their respective corporations or otherwise to take, and will
take, all such lawful and necessary action, so long as such action is
not inconsistent with this Agreement.
Section 3.02 Stock Options. At the Effective Time, the PerImmune Amended and
Restated 1996 Stock Option Plan (the "COMPANY STOCK OPTION PLAN") and each
option to purchase shares of Company Common Stock outstanding under the Company
Stock Option Plan, whether or not exercisable, and whether or not vested, shall
be assumed by Intracel Parent in accordance with Section 6.02 (b), and, prior to
the Effective Time, Intracel Parent shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Intracel Parent Common
Stock for delivery upon exercise of such options so assumed by it.
Section 3.03 Dissenting Shares. If any holder of Company Shares shall be
entitled to be paid the "fair value" of his Company Shares, as provided in
Section 262 of the GCL, the Company shall give Intracel Parent notice thereof
and Intracel Parent shall have the right to participate in all negotiations and
proceedings with respect to any such demands. The Company shall not,
16
<PAGE> 18
except with the prior written consent of Intracel Parent, voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
payment.
Section 3.04 Adjustments. If, between the date of this Agreement and the
Effective Time, the Intracel Parent Shares or Company Shares shall have been
exchanged into a different number of shares or a different class by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or a stock dividend thereon shall be declared with a
record date within such period, the amount of Intracel Parent Shares into which
the Company Shares will be converted in the Merger shall be correspondingly
adjusted.
Section 3.05 Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting of such person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration to be paid in respect of the shares of
Company Shares represented by such Certificates as contemplated by this Article.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Intracel Parent and Intracel
Acquisition Sub as follows:
Section 4.01 Organization. Each of the Company and PerImmune, Inc. (the
"Subsidiary") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. The Subsidiary is the only
subsidiary of the Company. The Company and the Subsidiary are duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not have a Material Adverse Effect on the Company and the
Subsidiary, taken as a whole. The Company has heretofore delivered to Intracel
Parent accurate and complete copies of the Certificate of Incorporation and
Bylaws, as currently in effect, of the Company and the Subsidiary.
Section 4.02 Capitalization. (a) The authorized capital stock of the Company
consists of 3,000 shares of Company Common Stock, 100 shares of Company Series A
Preferred, 20 shares of Company Series B Preferred and 880 Company Shares which
are preferred stock without designation, of which, as of the date hereof, 594.5
shares of Company Common Stock, 100 shares of Company Series A Preferred and 20
shares of Company Series B Preferred were issued and outstanding. All the issued
and outstanding Company Shares are validly issued, fully paid
17
<PAGE> 19
and nonassessable and free of preemptive rights. As of the date hereof, 257
shares of Company Common Stock were issuable upon exercise of options pursuant
to the Company Stock Option Plan. Section 4.02 of the disclosure schedule
attached hereto relating to the Company (the "COMPANY DISCLOSURE SCHEDULE") sets
forth each other subscription, option, warrant, call, right, convertible
security or other agreement or commitment of any character obligating the
Company to issue, transfer or sell any security and, as to each such security,
agreement or commitment, the average conversion or exercise price thereof, a
range of the conversion or exercise prices and the effects of the Merger and the
other transactions contemplated hereby on such security, agreement or
commitment, including pursuant to the antidilution provisions thereof. The
Company owns 100% of the issued and outstanding capital stock of PerImmune, Inc.
Except as set forth above or in Section 4.02 of the Company Disclosure
Schedule, or as contemplated hereby, there are not now, and at the Effective
Time there will not be, any shares of capital stock (or securities substantially
equivalent to capital stock) of the Company issued or outstanding or any
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating the Company to issue,
transfer or sell any of its securities.
(b) Section 4.02 of the Company Disclosure Schedule sets forth
the name, jurisdiction of incorporation and capitalization of each subsidiary of
the Company. Except as disclosed in Section 4.02 of the Company Disclosure
Schedule, the Company does not own, directly or indirectly, any capital stock or
other equity securities of any corporation or have any direct or indirect equity
or ownership interest in any business. All of the outstanding shares of capital
stock of the Subsidiary have been validly issued and are fully paid and
nonassessable and, except as set forth in Section 4.02 of the Company Disclosure
Schedule, are owned by either the Company or the Subsidiary free and clear of
all liens, charges, claims or encumbrances. Except as set forth in Section 4.02
of the Company Disclosure Schedule, there are not now, and at the Effective Time
there will not be, any outstanding subscriptions, options, warrants, calls,
rights, convertible securities or other agreements or commitments of any
character relating to the issued or unissued capital stock or other securities
of the Subsidiary, or otherwise obligating the Company or any such subsidiary to
issue, transfer or sell any such securities. Except as set forth in Section 4.02
of the Company Disclosure Schedule, there are not now, and at the Effective Time
there will not be, any voting trusts or other agreements or understandings to
which the Company or the Subsidiary is a party or is bound with respect to the
voting of the capital stock of the Company or the Subsidiary. Except as set
forth above or in Section 4.02 of the Company Disclosure Schedule, there are no
persons or entities (other than the Subsidiary) in which the Company or the
Subsidiary has any voting rights or equity interests.
Section 4.03 Authority Relative to This Agreement. The Company has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than, with respect to the Merger, the approval of the Merger and adoption
of this Agreement by
18
<PAGE> 20
the holders of a majority of the outstanding shares of Company Common Stock, a
majority of the outstanding shares of Series A Preferred and a majority of the
outstanding shares of Series B Preferred). This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, subject as to enforcement to bankruptcy, reorganization,
moratorium, insolvency or other laws of general applicability relating to or
affecting creditors rights and to general equity principles.
Section 4.04 Consents and Approvals; No Violations. Except for applicable
requirements of the Securities Act, applicable state securities laws and the
filing and recordation of a Certificate of Merger, as required by the GCL and
such other filings, permits, authorizations, consents or approvals which if not
obtained or made would not individually or in the aggregate have a Material
Adverse Effect on the Company, no filing with, and no permit, authorization,
consent or approval of, any public body or authority, including courts of
competent jurisdiction, domestic or foreign ("GOVERNMENTAL ENTITY"), is
necessary for the consummation by the Company of the transactions contemplated
by this Agreement. Except as set forth in Section 4.04 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of the Company or the Subsidiary, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any
material note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which the Company or the Subsidiary is a party or by
which any of them or any of their properties or assets may be bound or (iii)
violate any material order, writ, injunction, decree, statute, treaty, rule or
regulation applicable to the Company, the Subsidiary or any of their properties
or assets, except in the case of (ii) or (iii) for violations, breaches or
defaults which are not in the aggregate material to the business, operations or
financial condition of the Company and the Subsidiary taken as a whole and which
will not prevent or delay the consummation of the transactions contemplated
hereby.
Section 4.05 Absence of Certain Changes. Except as set forth in Section 4.05 of
the Company Disclosure Schedule, in the Company Financial Reports (as defined
below) or the Company Balance Sheet, and except as contemplated by this
Agreement, since September 30, 1997, neither the Company nor the Subsidiary has
taken any of the actions set forth in Sections 6.01(b) to (h), suffered any
adverse changes in its business, operations or financial condition which are
material to the Company and the Subsidiary taken as a whole (other than changes
generally affecting the industries in which the Company operates, including
changes due to actual or proposed changes in law or regulation, or changes
relating to the transactions contemplated by this Agreement, including the
change in control contemplated hereby) or entered into any transaction, or
conducted its business or operations, other than in the ordinary and usual
course of business and consistent with past practice and other than in
connection with the Company's exploration of alternatives leading to the
execution of this Agreement.
19
<PAGE> 21
Section 4.06 Financial Statements. The Company's audited consolidated financial
statements dated December 31, 1996 ("COMPANY FINANCIAL REPORTS") and unaudited
consolidated interim financial statements dated September 30, 1997 fairly
present, in conformity with generally accepted accounting principles applied on
a consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of the Company and the Subsidiary as of the
dates thereof and their consolidated results of operations and cash flows for
the periods then ended (subject to normal year-end adjustments in the case of
any unaudited interim financial statements). For purposes of this Agreement,
"COMPANY BALANCE SHEET" means the consolidated balance sheet of the Company as
of September 30, 1997 and "COMPANY BALANCE SHEET DATE" means September 30, 1997.
Section 4.07 No Undisclosed Liabilities. Except as and to the extent set forth
in the audited Company Financial Reports, the Company Balance Sheet or Section
4.07 of the Company Disclosure Schedule, neither the Company nor the Subsidiary
had on the date of such Company Financial Report or on the Company Balance Sheet
Date any material liabilities required by generally accepted accounting
principles to be reflected on a consolidated balance sheet of the Company and
the Subsidiary. Except as set forth on Section 4.07 of the Company Disclosure
Schedule, since the Company Balance Sheet Date, neither the Company nor the
Subsidiary has incurred any liabilities material to the business, operations or
financial condition of the Company and the Subsidiary taken as a whole, except
liabilities incurred in the ordinary and usual course of business and consistent
with past practice and liabilities incurred in connection with this Agreement.
Section 4.08 No Default. Except as set forth in Section 4.08 of the Company
Disclosure Schedule, neither the Company nor the Subsidiary is in default or
violation (and no event has occurred which with notice or the lapse of time or
both would constitute a default or violation) of any term, condition or
provision of (i) its Certificate of Incorporation or its Bylaws, (ii) any
material note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which the Company or the Subsidiary is a party or by
which they or any of their properties or assets may be bound or (iii) to the
knowledge of the Company, any material order, writ, injunction, decree, statute,
rule or regulation applicable to the Company or the Subsidiary, which defaults
or violations would, in the aggregate, have a Material Adverse Effect on the
business, operations or financial condition of the Company and the Subsidiary
taken as a whole or which would prevent or delay the consummation of the
transactions contemplated hereby.
Section 4.09 Litigation. Except as disclosed in Section 4.09 of the Company
Disclosure Schedule, there is no action, suit, proceeding or, to the best
knowledge of the Company, review or investigation pending or, to the best
knowledge of the Company, threatened involving the Company or the Subsidiary, at
law or in equity, or before any Governmental Entity which are reasonably likely
to have a Material Adverse Effect on the Company or the Subsidiary.
Section 4.10 Compliance with Applicable Law. The Company and the Subsidiary
hold all material permits, licenses, variances, exemptions, orders and approvals
of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "COMPANY PERMITS"), except for failures to hold such
Company Permits which would not have a Material
20
<PAGE> 22
Adverse Effect on the Company. The Company and the Subsidiary are in compliance
with the terms of the Company Permits, except where the failure to so comply
would not have a Material Adverse Effect on the Company. The businesses of the
Company and the Subsidiary are not being conducted in violation of any
applicable law, ordinance, rule, regulation, decree or order of any Governmental
Entity, except for violations which do not and would not have a Material Adverse
Effect on the Company.
Section 4.11 Taxes. Except as set forth in Section 4.11 of the Company
Disclosure Schedule, the Company and the Subsidiary have duly filed all federal,
state, local and foreign tax returns required to be filed by it, and the Company
and the Subsidiary have duly paid, caused to be paid or made adequate provision
for the payment of all Taxes (as hereinafter defined) shown to be due in respect
of the periods covered by such tax returns and has made adequate provision for
payment of all Taxes anticipated to be payable in respect of all calendar
periods since the periods covered by such returns. All deficiencies and
assessments asserted as a result of any examinations or other audits known to
the Company by federal, state, local or foreign taxing authorities have been
paid, fully settled or adequately provided for in the Company Financial Reports,
and no issue or claim has been asserted for Taxes by any taxing authority for
any prior period, the adverse determination of which would result in a
deficiency which would have a Material Adverse Effect on the Company, other than
those heretofore paid or provided for. Except as set forth in Section 4.11 of
the Company Disclosure Schedule, there are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal or
foreign income tax return of the Company or the Subsidiary. For purposes of this
Section 4.11 and Section 5.11 below, "TAXES" shall mean all taxes, assessments
and governmental charges imposed by any federal, state, county, local or foreign
government, taxing authority, subdivision or agency thereof, including interest,
penalties or additions thereto.
Section 4.12 ERISA. (a) With respect to each employee benefit plan (including,
without limitations, any "employee benefit plan", as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and
any material bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
insurance or other plan, arrangement or understanding and any employment or
change in control agreements (all the foregoing being herein called the "COMPANY
BENEFIT PLANS"), maintained or contributed to by the Company or the Subsidiary
as of the date hereof, the Company has made available to Intracel Parent a true
and correct copy of, where applicable, (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service (the "IRS"), (ii) such Company
Benefit Plans, (iii) each trust agreement and group annuity contract, if any,
relating to such Company Benefit Plan and (iv) the most recent actuarial report
or valuation relating to a Company Benefit Plan subject to Title IV of ERISA.
All Company Benefit Plans are set forth on Section 4.12 of the Company
Disclosure Schedule. None of the Company Benefit Plans are multiemployer plans
within the meaning of Section 3(37) of ERISA or have been at any time since
September 26, 1980. Each of the Plans covered by ERISA (a) has been operated in
all material respects in accordance with ERISA, (b) has met the minimum funding
standards of Section 412 of the Code and (c) which is intended to be qualified
under Section 401(a) of the Code, has received or applied for, a favorable
determination letter from the IRS, and the
21
<PAGE> 23
Company is not aware of any circumstances likely to result in revocation of such
determination letter. No notice of "reportable event" (within the meaning of
Section 4043 of ERISA) for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Plan or by the "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, of any entity which
is considered one employer with the Company under Section 4001 of ERISA or
Section 414 of the Code (an "ERISA AFFILIATE") as of the date hereof within the
12-month period ending on the date hereof or will be required to be filed in
connection with the transaction contemplated by this Agreement. Neither the
Company nor any subsidiary has engaged in a transaction with respect to any
Company Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject the Company or the Subsidiary to a
material tax or penalty imposed by either Section 4975 of the Code or Section
502(i) of ERISA.
(b) With respect to the Company Benefit Plans, no event has
occurred, and to the knowledge of the Company or the Subsidiary there exists no
condition or set of circumstances which in the aggregate are reasonably likely
to occur in connection with which the Company or the Subsidiary would be subject
to any liability that would have a Material Adverse Effect on the Company
(except liability for benefits claims and funding obligations payable in the
ordinary course) under ERISA, the Code or any other applicable law.
(c) Except as set forth in Section 4.12 of the Company Disclosure
Schedule, with respect to the Company Benefit Plans, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with generally accepted
accounting principles, on the financial statements of the Company or the
Subsidiary, which obligations are reasonably likely to have a Material Adverse
Effect on the Company.
(d) Neither the Company or the Subsidiary has any obligation for
retiree health and life benefits under any Company Benefit Plan, except as set
forth on Section 4.12 of the Company Disclosure Schedule.
Section 4.13 Title to Property. Except as set forth in Section 4.13 of the
Company Disclosure Schedule, the Company and the Subsidiary have good and
marketable title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the Company Balance Sheet or
acquired after the Company Balance Sheet Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Company Balance
Sheet Date in the ordinary course of business), or with respect to leased
properties and assets, valid leasehold interests in, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affect thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected on the Company
Balance Sheet. The plants, property and equipment of the Company and the
Subsidiary that are used in the operations of their businesses are in all
material respects in good operating condition and repair, subject to normal wear
and tear. All properties used in
22
<PAGE> 24
the operations of the Company and the Subsidiary are reflected in the Company
Balance Sheet to the extent generally accepted accounting principles require the
same to be reflected. Section 4.13 of the Company Disclosure Schedule identifies
each material parcel of real property owned or leased by the Company or the
Subsidiary.
Section 4.14 Intellectual Property.
(a) To the Company's knowledge, the Company and the Subsidiary own, or are
licensed or otherwise possess legally enforceable rights to use all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology,
know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and
object code form), and tangible or intangible proprietary information or
material ("COMPANY INTELLECTUAL PROPERTY") that are used in the business
of the Company and the Subsidiary as currently conducted, except to the
extent that the failure to have such rights have not had and would not
reasonably be expected to have a Material Adverse Effect on the Company.
(b) Section 4.14 of the Company Disclosure Schedule lists (i) all patents
and patent applications and all registered and unregistered trademarks,
trade names and service marks, registered and unregistered copyrights,
and maskworks, included in the Company Intellectual Property, including
the jurisdictions in which each such Company Intellectual Property right
has been issued or registered or in which any application for such
issuance and registration has been filed, (ii) all licenses, sublicenses
and other agreements as to which the Company is a party and pursuant to
which any person is authorized to use any Company Intellectual Property,
and (iii) all licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which the Company is authorized to
use any third party patents, trademarks or copyrights, including
software ("THIRD PARTY INTELLECTUAL PROPERTY") which are incorporated
in, are, or form a part of any Company product.
(c) To the Company's knowledge, there is no unauthorized use, disclosure,
infringement or misappropriation of any Company Intellectual Property
rights, any trade secret material to the Company or of the Subsidiary,
by any third party, including any employee or former employee of the
Company or any of its subsidiaries. To the Company's knowledge, there is
no unauthorized use, disclosure, infringement or misappropriation by the
Company or the Subsidiary of any Third Party Intellectual Property right
to the extent licensed by or through the Company or the Subsidiary.
Except as set forth in Section 4.14(c) of the Company Disclosure
Schedule, neither the Company nor the Subsidiary has entered into any
agreement to indemnify any other person against any charge of
infringement of any Third Party Intellectual Property, other than
indemnification provisions contained in sales agreements arising in the
ordinary course of business. Except as set forth in Section 4.14 of the
Company Disclosure Schedule, there are no royalties, fees or other
payments payable by the Company to any Person by reason of the
ownership, use, sale or disposition of Third Party Intellectual
Property.
23
<PAGE> 25
(d) Except as set forth in Section 4.14 of the Company Disclosure Schedule,
neither the Company nor the Subsidiary is nor will any of such party be
as a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, in breach of any
license, sublicense or other agreement relating to the Third Party
Intellectual Property or Third Party Intellectual Property rights, the
breach of which would have a Material Adverse Effect on the Company.
(e) To the Company's knowledge, all patents, registered trademarks, service
marks and copyrights held by the Company or the Subsidiary are valid and
subsisting. Except as set forth in Section 4.14 of the Company
Disclosure Schedule, neither the Company nor the Subsidiary (i) has been
sued in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other propriety right of any third
party; (ii) has knowledge that the manufacturing, marketing, licensing
or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party;
and (iii) has brought any action, suit or proceeding for infringement of
Company or Third Party Intellectual Property or breach of any license or
agreement involving Company or Third Party Intellectual Property against
any third party.
(f) Section 4.14 of the Company Disclosure Schedule sets forth a list of all
officers, employees and consultants of the Company or the Subsidiary who
have executed and delivered to the Company an agreement regarding the
protection of proprietary information and the assignment to the Company
of all Company Intellectual Property arising from services performed for
the Company by such persons.
(g) Except as set forth in Section 4.14 of the Company Disclosure Schedule,
all use, disclosure or appropriation by the Company or the Subsidiary of
the Company or Third Party Intellectual Property not otherwise protected
by patents, patent applications or copyright (such information as it
relates to either the Company or Intracel Parent, "Confidential
Information"), has been pursuant to the terms of a written agreement
between the Company and such third party or is otherwise lawful. Except
as set forth in Section 4.14 of the Company Disclosure Schedule, all
use, disclosure or appropriation by the Company or the Subsidiary of
Confidential Information not owned by the Company has been pursuant to
the terms of a written agreement between the Company and the owner of
such Confidential Information, or is otherwise lawful.
Section 4.15 Interested Party Transactions. Except as set forth in
Section 4.15 of the Company Disclosure Schedule, neither the Company nor the
Subsidiary is indebted to any director, officer, employee or agent of the
Company or any of its subsidiaries (except for amounts due as normal salaries
and bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to the Company or the Subsidiary.
Section 4.16 Insurance. The Company and the Subsidiary have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of the Company and the
Subsidiary. There is no material claim pending
24
<PAGE> 26
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
and the Subsidiary are otherwise in compliance with the terms of such policies
and bonds. The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
Section 4.17 Products.
(a) Except as set forth in Section 4.17 of the Company Disclosure Schedule,
there are no statements, citations, warning letters, FDA Forms 483, or
decisions by any governmental or regulatory body that any product
produced, manufactured, marketed or distributed at any time by the
Company or the Subsidiary ("COMPANY PRODUCT") is defective or fails to
meet any applicable standards promulgated by any such governmental or
regulatory body. There have been no recalls ordered by any such
governmental or regulatory body with respect to any Company Product. To
the knowledge of the Company, there is (i) no fact relating to any
Company Product that may give rise to a recall of any Company Product or
a duty to warn of a defect in any Company Product and (ii) no latent or
overt design, manufacturing or other defect in any Company Product.
(b) All Company Products used, marketed or distributed by the Company or
the Subsidiary in clinical investigations are subject to all applicable
licenses, registrations, approvals, clearances, and authorizations
required by local, state and federal agencies, foreign or domestic,
regulating the safety, effectiveness, and market clearance of medical
devices, which licenses, registrations, approval, clearances and
authorizations are held by the Company or the Subsidiary and were
obtained by the Company or the Subsidiary on or before the date when
same were required. Those licenses, registrations, approvals,
clearances, and authorizations will not be affected or impaired by the
Merger.
(c) The Company or the Subsidiary is in full possession of all supportive
materials and data substantiating representations made to the FDA in its
material filings therewith, including any and all testing data in the
possession or under the control of the Company or the Subsidiary,
whether or not submitted to the FDA. The Company Products perform in
compliance with the representations and performance specifications as
contained in said filings.
(d) There is no proceedings by the FDA or any other governmental agency,
including but not limited to a grand jury investigation, a 405 hearing,
a civil penalty proceeding brought at any time in the past relating to
the safety or efficacy of Company Products and, to the Company's
knowledge, there is no basis for such a proceeding.
Section 4.18 Change in Control. Except as set forth in Section 4.18 of the
Company Disclosure Schedule, neither the Company nor the Subsidiary is a party
to any contract, agreement or understanding which contains a "change in control"
provision or "potential change in control" provision.
Section 4.19 Environmental, Health, and Safety.
25
<PAGE> 27
(a) The Company and the Subsidiary (A) have complied with all applicable
Environmental, Health, and Safety Laws governing the Company or the
Subsidiary in all material respects (and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against any of them alleging any such failure to
comply), (B) have obtained and been in substantial compliance with all
of the terms and conditions of all material permits, licenses, and other
authorizations which are required under all applicable Environmental,
Health, and Safety Laws governing the Company or the Subsidiary, and (C)
have complied in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in the
Environmental, Health, and Safety Laws governing the Company or the
Subsidiary.
(b) To the knowledge of the Company, the Company and the Subsidiary have no
material liability (whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), there is no fact or
circumstance that with the passage of time, or occurrence of other
reasonably foreseeable events would give rise to any material liability,
and the Company and the Subsidiary have not handled or disposed of any
substance, arranged for the disposal of any substance, exposed any
employee or other individual to any substance or condition, or owned or
operated any property or facility in any manner that could give rise to
any material liability, for damage to any site, location, or body of
water (surface or subsurface), for any illness of or personal injury to
any employee or other individual, or for any reason under any
Environmental, Health, and Safety Law governing the Company or the
Subsidiary.
Section 4.20 Employment and Labor Matters. Section 4.20 of the Company
Disclosure Schedule contains a true, complete and accurate list of the names,
titles, annual compensation (including all bonuses and similar payments made
with respect to each such individual for the current and preceding fiscal years)
of all directors, officers and employees of the Company and the Subsidiary who
have an annual aggregate remuneration of $80,000 or more. The Company and the
Subsidiary have and currently are conducting their respective business in full
compliance with all laws relating to employment and employment practices, terms
and conditions of employment, wages and hours, affirmative action, and
nondiscrimination in employment. Except as disclosed in Section 4.20 of the
Company Disclosure Schedule, to the Company's knowledge, the relationships of
the Company and the Subsidiary with their respective employees are good; to the
Company's knowledge, there is, and during the past five years there has been, no
labor strike, dispute, slow-down, work stoppage or other labor difficulty
actually pending or threatened against or involving the Company or the
Subsidiary and to the Company's knowledge no attempt is currently being made or
during the past three years has been made to organize any employees of the
Company or the Subsidiary to form or enter a labor union or similar
organization. Section 4.20 of the Company Disclosure Schedule contains a list of
all grievances by employees during the past three years which have resulted in a
significant change in work practices or contract interpretation or terms or
resulted in arbitration.
26
<PAGE> 28
Section 4.21 Contracts. Section 4.21 of the Company Disclosure Schedule lists
all the material contracts and arrangements to which the Company or the
Subsidiary is a party or by which it is bound, or to which any of its assets or
properties is subject. The Company has delivered to Intracel Parent true and
complete copies of each document listed in Section 4.21 of the Company
Disclosure Schedule, and a written description of each oral arrangement so
listed. Except as disclosed in Section 4.21 of the Company Disclosure Schedule,
all such contracts and arrangements are in full force and effect, and neither
the Company nor the Subsidiary is in default under any of them, nor, to the
knowledge of the Company, is any other party to any such contract or arrangement
in default thereunder.
Section 4.22 Predominant Customers. Except as set forth on Section 4.22 of the
Company Disclosure Schedule, no single customer of the Company or the Subsidiary
accounts or accounted for over five percent (5%) of the total consolidated
revenues of the Company and the Subsidiary (the "COMPANY DOLLAR THRESHOLD")
during the twelve month period immediately preceding the date of this Agreement.
Section 4.23 Change in Customers or Vendors. Except as set forth on
Section 4.23 of the Company Disclosure Schedule, no customer or vendor whose
annual volume of purchases or sales during the Company fiscal year ended
December 31, 1996 exceeded the Company Dollar Threshold, has indicated to the
Company or the Subsidiary or to any of the Company or the Subsidiary's officers
or directors that it intends to cease doing business with the Company or the
Subsidiary or materially alter the amount or pricing of the business done with
the Company or the Subsidiary. To the knowledge of the Company, the relationship
of such customers and vendors will not be materially adversely affected by the
consummation of the transactions contemplated by this Agreement.
Section 4.24 Notes and Accounts Receivable. All notes and accounts receivable
of the Company and the Subsidiary are reflected properly on the Company
Financial Reports and Company Balance Sheet, are valid receivables which arose
in the ordinary course of business from bona fide transactions, subject to no
set-offs or counterclaims, subject only to the reserve for bad debts set forth
on the face of the Company Financial Reports and Company Balance Sheet.
Section 4.25 Questionable Payments. None of the Company or the Subsidiary nor
any of their respective directors, officers or other employees has: (i) made any
payments or provided services or other favors in the United States of America or
in any foreign country in order to obtain preferential treatment or
consideration by any Governmental Entity with respect to any aspect of the
business of the Company or the Subsidiary; or (ii) made any political
contributions which would not be lawful under the laws of the United States
(including the Foreign Corrupt Practices Act) or the foreign country in which
such payments were made. None of the Company or the Subsidiary or any of their
respective directors, officers or other employees nor, to the Company's
knowledge, any customer or supplier of the Company or the Subsidiary, has been
subject to any inquiry or investigation by any Governmental Entity in connection
with payments or benefits or other favors to or for the benefit of any
governmental or armed services official,
27
<PAGE> 29
agent, representative or employee with respect to any aspect of the business of
the Company or the Subsidiary or with respect to any political contribution.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
INTRACEL PARENT AND INTRACEL ACQUISITION SUB
Intracel Parent and Intracel Acquisition Sub represent and warrant to the
Company as follows:
Section 5.01 Organization. Intracel Parent and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Intracel Parent and each of its subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
in such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not have a Material Adverse Effect on Intracel Parent and
its subsidiaries, taken as a whole. Intracel Parent has heretofore delivered to
the Company accurate and complete copies of the charter and bylaws, as currently
in effect, of Intracel Parent and each of its subsidiaries.
Section 5.02 Capitalization. (a) The authorized capital stock of Intracel Parent
consists of (i) 3,000,000 shares of Preferred Stock, $.01 par value per share,
of which 730,000 shares have been designated Series A Preferred, 850,000 shares
have been designated Series A-1 Preferred, 155,000 shares have been designated
Series A-2 Preferred and 200,000 shares have been designated Series A-3
Preferred and (ii) 5,000,000 shares of Intracel Parent Common Stock. As of the
date hereof, 2,475,668 shares of Intracel Parent Common Stock were issued and
outstanding, 591,786 shares of Series A Preferred were issued and outstanding,
638,392 shares of Series A-1 Preferred were issued and outstanding, 42,624
shares of Series A-2 Preferred were issued and outstanding and 145,023 shares of
Series A-3 Preferred were issued and outstanding. All of the foregoing shares of
capital stock of Intracel Parent are validly issued, fully paid and
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. 400,000 shares of Intracel Parent Common
Stock have been reserved for issuance in the event options granted pursuant to
the 1989 and 1990-91 Stock Option Plans of Intracel Parent ("INTRACEL PARENT
STOCK PLANS") are exercised. As of the date hereof, 355,517 shares of Intracel
Parent Common Stock were issuable upon exercise of options pursuant to the
Intracel Parent Stock Plans. Section 5.02(a) of the disclosure schedule attached
hereto relating to Intracel Parent (the "INTRACEL PARENT DISCLOSURE SCHEDULE")
sets forth each other subscription, option, warrant, call, right, convertible
security or other agreement or commitment of any character obligating Intracel
Parent to issue, transfer or sell any security, and, as to each such security,
agreement or commitment, the average conversion or exercise price thereof, a
range of the conversion or exercise prices and the effects of the Merger and the
other transactions contemplated hereby on such security, agreement or
commitment, including pursuant to antidilution provisions thereof.
28
<PAGE> 30
All shares of Intracel Parent Shares which are to be issued pursuant to the
Merger or the other transactions contemplated hereby, will be, when issued in
accordance with the respective terms thereof, duly authorized, validly issued,
fully paid and nonassessable and free of any preemptive rights in respect
thereto. Except as set forth above or in Section 5.02(a) of the Intracel Parent
Disclosure Schedule or as contemplated hereby, there are not now, and at the
Effective Time there will not be, any shares of capital stock (or securities
substantially equivalent to capital stock) of Intracel Parent issued or
outstanding or any subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character obligating
Intracel Parent to issue, transfer or sell any of its securities.
(b) Section 5.02(b) of the Intracel Parent Disclosure Schedule
sets forth the name, jurisdiction of incorporation and capitalization of each
subsidiary of Intracel Parent. Except as disclosed in Section 5.02(b) of the
Intracel Parent Disclosure Schedule, Intracel Parent does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity or ownership interest in any business. All of
the outstanding shares of capital stock of each of Intracel Parent's
subsidiaries have been validly issued and are fully paid and nonassessable and,
except as set forth in Section 5.02(b) of the Intracel Parent Disclosure
Schedule, are owned either by Intracel Parent or another of its subsidiaries
free and clear of all liens, charges, claims or encumbrances. Except as set
forth in Section 5.02(b) of the Intracel Parent Disclosure Schedule, there are
not now, and at the Effective Time there will not be, any outstanding
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of any of Intracel Parent's subsidiaries, or
otherwise obligating Intracel Parent or any such subsidiary to issue, transfer
or sell any such securities. Except as set forth in Section 5.02(b) of the
Intracel Parent Disclosure Schedule, there are not now, and at the Effective
Time there will not be, any voting trusts or other agreements or understandings
to which Intracel Parent or any of its subsidiaries is a party or is bound with
respect to the voting of the capital stock of Intracel Parent or any of Intracel
Parent's subsidiaries. Except as set forth above or in Section 5.02(b) of the
Intracel Parent Disclosure Schedule, there are no persons or entities (other
than subsidiaries of Intracel Parent) in which Intracel Parent or any of its
subsidiaries has any voting rights or equity interests.
Section 5.03 Authority Relative to this Agreement. Each of Intracel Parent and
Intracel Acquisition Sub has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Intracel Parent and Intracel Acquisition Sub and by
Intracel Parent as the sole stockholder of Intracel Acquisition Sub and no other
corporate proceedings on the part of Intracel Parent or Intracel Acquisition Sub
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than the affirmative vote of a majority of each of the
Intracel Parent Common Stock, Series A Stock, Series A-1 Stock, Series A-2 Stock
and Series A-3 Stock entitled to vote on the amendment to the Certificate of
Incorporation of Intracel Parent contemplated by this Agreement). This Agreement
has been duly and validly executed and delivered by each of Intracel Parent and
29
<PAGE> 31
Intracel Acquisition Sub and constitutes a valid and binding agreement of each
of Intracel Parent and Intracel Acquisition Sub, enforceable against each of
Intracel Parent and Intracel Acquisition Sub in accordance with its terms,
subject as to enforcement to bankruptcy, reorganization, moratorium, insolvency
or other laws of general applicability relating to or affecting creditors rights
and to general equity principles.
Section 5.04 Consents and Approvals; No Violations. Except for applicable
requirements of the Securities Act, state securities laws and the filing and
recordation of a Certificate of Merger, as required by the GCL, and such other
filings, permits, authorizations, consents or approvals which if not obtained or
made would not individually or in the aggregate have a Material Adverse Effect
on Intracel Parent, no filing with, and no permit, authorization, consent or
approval of, any Governmental Entity, is necessary for the consummation by
Intracel Parent or Intracel Acquisition Sub of the transactions contemplated by
this Agreement. Except as set forth in Section 5.04 of the Intracel Parent
Disclosure Schedule, neither the execution and delivery of this Agreement by
Intracel Parent or Intracel Acquisition Sub nor the consummation by Intracel
Parent or Intracel Acquisition Sub of the transactions contemplated hereby nor
compliance by Intracel Parent or Intracel Acquisition Sub with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the charter or bylaws of Intracel Parent or any of its
subsidiaries, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
license, contract, agreement or other instrument or obligation to which Intracel
Parent or any of its subsidiaries is a party or by which any of them or any of
their properties or assets may be bound or (iii) violate any material order,
writ, injunction, decree, statute, treaty, rule or regulation applicable to
Intracel Parent, any of its subsidiaries or any of their properties or assets,
except in the case of (ii) or (iii) for violations, breaches or defaults which
are not in the aggregate material to the business, operations or financial
condition of Intracel Parent and its subsidiaries taken as a whole and which
will not prevent or delay the consummation of the transactions contemplated
hereby.
Section 5.05 Financial Statements. Intracel Parent's unaudited consolidated
financial statements dated December 31, 1996 ("INTRACEL PARENT FINANCIAL
REPORTS") attached to Section 5.05 of the Intracel Parent Disclosure Schedule
and unaudited consolidated interim financial statements dated June 30, 1997
fairly present, in conformity with generally accepted accounting principles
applied on a consistent basis (except as may be indicated in the notes thereto),
the consolidated financial position of Intracel Parent and its subsidiaries as
of the dates thereof and their consolidated results of operations and cash flows
for the periods then ended (subject to normal year-end adjustments in the case
of any unaudited interim financial statements). For purposes of this Agreement,
"INTRACEL PARENT BALANCE SHEET" means the consolidated balance sheet of the
Company as of June 30, 1997 and "INTRACEL PARENT BALANCE SHEET DATE" means June
30, 1997.
Section 5.06 Absence of Certain Changes. Except as set forth in the Intracel
Parent Financial Reports, including the Intracel Parent Balance Sheet, or
Section 5.06 of the Intracel Parent Disclosure Schedule, and except as
contemplated by this Agreement, since June 30, 1997 neither Intracel Parent nor
any of its subsidiaries has taken any of the actions set forth in Sections
6.01(a)
30
<PAGE> 32
to (h), suffered any adverse changes in its business, operations or financial
condition which are material to Intracel Parent and its subsidiaries taken as a
whole (other than changes generally affecting the industries in which Intracel
Parent operates, including changes due to actual or proposed changes in law or
regulation) or entered into any transaction, or conducted its business or
operations, other than in the ordinary and usual course of business and
consistent with past practice.
Section 5.07 No Undisclosed Liabilities. Except as and to the extent set forth
in the Intracel Parent Financial Reports, the Intracel Parent Balance Sheet or
Section 5.07 of the Intracel Parent Disclosure Schedule, neither Intracel Parent
nor any of its subsidiaries had on the date of such Intracel Parent Financial
Report or on the Intracel Parent Balance Sheet Date any material liabilities
required by generally accepted accounting principles to be reflected on a
consolidated balance sheet of Intracel Parent and its subsidiaries. Except as
and to the extent set forth in Section 5.07 of the Intracel Parent Disclosure
Schedule, since June 30, 1997 neither Intracel Parent nor any of its
subsidiaries has incurred any liabilities material to the business, operations
or financial condition of Intracel Parent and its subsidiaries taken as a whole,
except liabilities incurred in the ordinary and usual course of business and
consistent with past practice and liabilities incurred in connection with this
Agreement.
Section 5.08 No Default. Except as set forth in Section 5.08 of the Intracel
Parent Disclosure Schedule, neither Intracel Parent nor any of its subsidiaries
is in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (i) its charter or its bylaws, (ii) any material note,
bond, mortgage, indenture, license, contract, agreement or other instrument or
obligation to which Intracel Parent or any of its subsidiaries is a party or by
which they or any of their properties or assets may be bound or (iii) to the
knowledge of Intracel Parent, any material order, writ, injunction, decree,
statute, rule or regulation applicable to Intracel Parent or any of its
subsidiaries, which defaults or violations would have a Material Adverse Effect
on Intracel Parent or which would prevent or delay the consummation of the
transactions contemplated hereby.
Section 5.09 Litigation. Except as disclosed in Section 5.09 of the Intracel
Parent Disclosure Schedule, there is no action, suit, proceeding or, to the best
knowledge of Intracel Parent, review or investigation pending or, to the best
knowledge of Intracel Parent, threatened involving Intracel Parent or any of its
subsidiaries, at law or in equity, or before any Governmental Entity which are
reasonably likely to have a Material Adverse Effect on Intracel Parent.
Section 5.10 Compliance with Applicable Law. Intracel Parent and its
subsidiaries hold all material permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective business (the "INTRACEL PARENT PERMITS"), except for failures
to hold such Intracel Parent Permits which would not have a Material Adverse
Effect on the Intracel Parent. Intracel Parent and its subsidiaries are in
compliance with the terms of the Intracel Parent Permits, except where the
failure so to comply would not have a Material Adverse Effect on the Intracel
Parent. The businesses of Intracel Parent and its subsidiaries are not being
conducted in violation of any applicable law, ordinance,
31
<PAGE> 33
rule, regulation, decree or order of any Governmental Entity, except for
violations which or in the aggregate do not and would not have a Material
Adverse Effect on Intracel Parent.
Section 5.11 Taxes. Except as set forth in Section 5.11 of the Intracel Parent
Disclosure Schedule, Intracel Parent and each of its subsidiaries has duly filed
all federal, state, local and foreign tax returns required to be filed by it,
and Intracel Parent and each of its subsidiaries has duly paid, caused to be
paid or made adequate provision for the payment of all Taxes shown to be due in
respect of the periods covered by such tax returns and has made adequate
provision for payment of all Taxes anticipated to be payable in respect of all
calendar periods since the periods covered by such returns. All deficiencies and
assessments asserted as a result of any examinations or other audits, known to
Intracel Parent, by federal, state, local or foreign taxing authorities have
been paid, fully settled or adequately provided for in the Intracel Parent
Financial Reports, and no issue or claim has been asserted for Taxes by any
taxing authority for any prior period, the adverse determination of which would
result in a deficiency which would have a Material Adverse Effect on Intracel
Parent, other than those heretofore paid or provided for. Except as set forth in
Section 5.11 of the Intracel Parent Disclosure Schedule, there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any federal or foreign income tax return of Intracel Parent or its
subsidiaries.
Section 5.12 ERISA. (a) With respect to each employee benefit plan (including,
without limitations, any "employee benefit plan," as defined in Section 3(3) of
ERISA), and any material bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, insurance or other plan, arrangement or understanding and any
employment or change in control agreements (all the foregoing being herein
called the "INTRACEL PARENT BENEFIT PLANS"), maintained or contributed to by
Intracel Parent or any of its subsidiaries as of the date hereof, Intracel
Parent has made available to the Company a true and correct copy of, where
applicable, (i) the most recent annual report (Form 5500) filed with the IRS,
(ii) such Intracel Parent Benefit Plan, (iii) each trust agreement and group
annuity contract, if any, relating to such Intracel Parent Benefit Plan and (iv)
the most recent actuarial report or valuation relating to a Intracel Parent
Benefit Plan subject to Title IV of ERISA. All Intracel Parent Benefit Plans are
set forth on Section 5.12(a) of the Intracel Parent Disclosure Schedule. None of
the Intracel Parent Benefit Plans are multiemployer plans within the meaning of
Section 3(37) of ERISA or have been at any time since September 26, 1980. Each
of the Plans covered by ERISA (a) has been operated in all material respects in
accordance with ERISA, (b) has met the minimum funding standards of Section 412
of the Code and (c) which is intended to be qualified under Section 401(a) of
the Code, has received or applied for a favorable determination letter from the
IRS, and Intracel Parent is not aware of any circumstances likely to result in a
revocation of such determination letter. No notice of "reportable event" (within
the meaning of Section 4043 of ERISA) for which the 30-day reporting requirement
has not been waived, has been required to be filed for any Plan or by the
single-employer of an ERISA Affiliate as of the date hereof, within the 12-month
period ending on the date hereof or will be required to be filed in connection
with the transaction contemplated by this Agreement. Neither Intracel Parent nor
any subsidiary has engaged in a transaction with respect to any Intracel Parent
Benefit Plan that, assuming the taxable period of such transaction expired as of
the date hereof, would subject the Intracel Parent
32
<PAGE> 34
or any of its subsidiaries to a material tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA.
(b) With respect to the Intracel Parent Benefit Plans, no event
has occurred, and to the knowledge of Intracel Parent or any of its
subsidiaries, there exists no condition or set of circumstances which in the
aggregate are reasonably likely to occur in connection with which Intracel
Parent or any of its subsidiaries would be subject to any liability that would
have a Material Adverse Effect on Intracel Parent, (except liability for
benefits claims and funding obligations payable in the ordinary course), under
ERISA, the Code or any other applicable law.
(c) Except as set forth in Section 5.12(c) of the Intracel Parent
Disclosure Schedule, with respect to the Intracel Parent Benefit Plans, there
are no funded benefit obligations for which contributions have not been made or
properly accrued and there are no unfunded benefit obligations which have not
been accounted for by reserves, or otherwise properly footnoted in accordance
with generally accepted accounting principles, on the financial statements of
Intracel Parent or any of its subsidiaries, which obligations are reasonably
likely to have a Material Adverse Effect on Intracel Parent.
(d) Neither Intracel Parent nor any of its subsidiaries has any
obligations for retiree health and life benefits under any Intracel Parent
Benefit Plan, except as set forth in Section 5.12(d) of the Intracel Parent
Disclosure Schedule.
Section 5.13 Title to Property. Except as set forth in Section 5.13 of the
Intracel Parent Disclosure Schedule, Intracel Parent and its subsidiaries have
good and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Intracel Parent
Balance Sheet or acquired after the Intracel Parent Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of
since the Intracel Parent Balance Sheet Date in the ordinary course of
business), or with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt
which is reflected on the Intracel Parent Balance Sheet. The plants, property
and equipment of Intracel Parent and its subsidiaries that are used in the
operations of their businesses are in all material respects in good operating
condition and repair, subject to normal wear and tear. All properties used in
the operations of Intracel Parent and its subsidiaries are reflected in the
Intracel Parent Balance Sheet to the extent generally accepted accounting
principles require the same to be reflected. Section 5.13 of the Intracel Parent
Disclosure Schedule identifies each material parcel of real property owned or
leased by Intracel Parent or any of its subsidiaries.
Section 5.14 Intellectual Property.
(a) To Intracel Parent's knowledge, Intracel Parent and its subsidiaries
own, or are licensed or otherwise possess legally enforceable rights to
use all patents, trademarks, trade names, service marks, copyrights, and
any applications therefor, maskworks, net lists,
33
<PAGE> 35
schematics, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs or applications (in
both source code and object code form), and tangible or intangible
proprietary information or material ("Intracel Parent Intellectual
Property") that are used in the business of Intracel Parent and its
subsidiaries as currently conducted, except to the extent that the
failure to have such rights have not had and would not reasonably be
expected to have a Material Adverse Effect on Intracel Parent.
(b) Section 5.14(b) of the Intracel Parent Disclosure Schedule lists (i) all
patents and patent applications and all registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, and maskworks, included in the Intracel Parent Intellectual
Property, including the jurisdictions in which each such Intracel Parent
Intellectual Property right has been issued or registered or in which
any application for such issuance and registration has been filed, (ii)
all licenses, sublicenses and other agreements as to which Intracel
Parent is a party and pursuant to which any person is authorized to use
any Intracel Parent Intellectual Property, and (iii) all licenses,
sublicenses and other agreements as to which Intracel Parent is a party
and pursuant to which Intracel Parent is authorized to use any Third
Party Intellectual Property rights which are incorporated in, are, or
form a part of any Intracel Parent product.
(c) To the knowledge of Intracel Parent, there is no unauthorized use,
disclosure, infringement or misappropriation of any Intracel Parent
Intellectual Property rights, any trade secret material to Intracel
Parent or any of its subsidiaries, by any third party, including any
employee or former employee of Intracel Parent or any of its
subsidiaries. To the knowledge of Intracel Parent, there is no
unauthorized use, disclosure, infringement or misappropriation by
Intracel Parent or any of its subsidiaries of any Third Party
Intellectual Property right to the extent licensed by or through
Intracel Parent or any of its subsidiaries. Except as set forth in
Section 5.14(c) of the Intracel Parent Disclosure Schedule, neither
Intracel Parent nor any of its subsidiaries has entered into any
agreement to indemnify any other person against any charge of
infringement of any Third Party Intellectual Property, other than
indemnification provisions contained in sales agreements arising in the
ordinary course of business. Except as set forth in Section 5.14(c) of
the Intracel Parent Disclosure Schedule, there are no royalties, fees or
other payments payable by Intracel Parent or any of its subsidiaries to
any Person by reason of the ownership, use, sale or disposition of Third
Party Intellectual Property.
(d) Except as set forth in Section 5.14(d) of the Intracel Parent Disclosure
Schedule, neither Intracel Parent nor any of its subsidiaries is nor
will any of such parties be as a result of the execution and delivery of
this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement
relating to the Intracel Parent Intellectual Property or Third Party
Intellectual Property Rights, the breach of which would have a Material
Adverse Effect on Intracel Parent.
(e) To Intracel Parent's knowledge, all patents, registered trademarks,
service marks and copyrights held by Intracel Parent and any of its
subsidiaries are valid and subsisting.
34
<PAGE> 36
Except as set forth in Section 5.14(e) of the Intracel Parent Disclosure
Schedule, neither Intracel Parent nor any of its subsidiaries (i) has
been sued in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third
party; (ii) has knowledge that the manufacturing, marketing, licensing
or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party;
and (iii) has brought any action, suit or proceeding for infringement of
Intracel Parent or Third Party Intellectual Property or breach of any
license or agreement involving Intracel Parent Intellectual Property
against any third party.
(f) Section 5.14(f) of the Intracel Parent Disclosure Schedule sets forth a
list of all officers, employees and consultants of Intracel Parent or
any of its subsidiaries who have executed and delivered to Intracel
Parent an agreement regarding the protection of proprietary information
and the assignment to Intracel Parent of all Intracel Parent
Intellectual Property arising from services performed for Intracel
Parent by such persons.
(g) Except as set forth in Section 5.14(g) of the Intracel Parent Disclosure
Schedule, all use, disclosure or appropriation by Intracel Parent or any
of its subsidiaries of Confidential Information has been pursuant to the
terms of a written agreement between Intracel Parent or such subsidiary,
and such third party or is otherwise lawful. Except as set forth in
Section 5.14(g) of the Intracel Parent Disclosure Schedule, all use,
disclosure or appropriation by Intracel Parent or any of its
subsidiaries of Confidential Information not owned by Intracel Parent or
any of its subsidiaries has been pursuant to the terms of a written
agreement between Intracel Parent or such subsidiary, and the owner of
such Confidential Information, or is otherwise lawful.
Section 5.15 Interested Party Transactions. Except as set forth in
Section 5.15 of the Intracel Parent Disclosure Schedule, neither Intracel Parent
nor any of its subsidiaries is indebted to any director, officer, employee or
agent of Intracel Parent or any of its subsidiaries (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to Intracel Parent or any of its subsidiaries.
Section 5.16 Insurance. Intracel Parent and each of its subsidiaries have
policies of insurance and bonds of the type and in amounts customarily carried
by persons conducting businesses or owning assets similar to those of Intracel
Parent and its subsidiaries. There is no material claim pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and Intracel Parent and
its subsidiaries are otherwise in compliance with the terms of such policies and
bonds. Intracel Parent has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
Section 5.17 Products.
(a) Except as set forth in Section 5.17 of the Intracel Parent Disclosure
Schedule, there are no statements, citations, warning letters, FDA Forms
483, or decisions by any governmental
35
<PAGE> 37
or regulatory body that any product produced, manufactured, marketed or
distributed at any time by Intracel Parent or any of its subsidiaries
("INTRACEL PARENT PRODUCT") is defective or fails to meet any applicable
standards promulgated by any such governmental or regulatory body. There
have been no recalls ordered by any such governmental or regulatory body
with respect to any Intracel Parent Product. To the knowledge of
Intracel Parent, there is (i) no fact relating to any Intracel Parent
Product that may give rise to a recall of any Intracel Parent Product or
a duty to warn of a defect in any Intracel Parent Product and (ii) no
latent or overt design, manufacturing or other defect in any Intracel
Parent Product.
(b) All Intracel Parent Products used, marketed or distributed by Intracel
Parent or any of its subsidiaries in clinical investigations are subject
to all applicable licenses, registrations, approvals, clearances, and
authorizations required by local, state and federal agencies, foreign or
domestic, regulating the safety, effectiveness, and market clearance of
medical devices, which licenses, registrations, approval, clearances and
authorizations are held by Intracel Parent or one of its subsidiaries
and were obtained by Intracel Parent or such subsidiary on or before the
date when same were required. Those licenses, registrations, approvals,
clearances, and authorizations will not be affected or impaired by the
Merger.
(c) Intracel Parent and one of its subsidiaries is in full possession of
all supportive materials and data substantiating representations made to
the FDA in its material filings therewith, including any and all testing
data in the possession or under the control of Intracel Parent, whether
or not submitted to the FDA. The Intracel Parent Products perform in
compliance with the representations and performance specifications as
contained in said filings.
(d) There is no proceeding by the FDA or any other governmental agency,
including but not limited to a grand jury investigation, a 405 hearing,
a civil penalty proceeding brought at any time in the past relating to
the safety or efficacy of Intracel Parent Products and, to Intracel
Parent's knowledge, there is no basis for such a proceeding.
Section 5.18 Interim Operations of Intracel Acquisition Sub. Intracel
Acquisition Sub was formed solely for the purpose of engaging in the
transactions contemplated hereby, has engaged in no other business activities
and has conducted its operations only as contemplated hereby.
Section 5.19 Change in Control. Except as set forth in Section 5.19 of the
Intracel Parent Disclosure Schedule, neither Intracel Parent nor any of its
subsidiaries is a party to any contract, agreement or understanding which
contains a "change in control" or "potential change in control" provision.
Except as set forth in the Intracel Parent Financial Reports or Section 5.19 of
the Intracel Parent Disclosure Schedule, there are no agreements or
understandings between Intracel Parent and its subsidiaries, on the one hand,
and any affiliates of Intracel Parent (other than subsidiaries of Intracel
Parent), on the other hand.
Section 5.20 Environmental, Health, and Safety.
36
<PAGE> 38
(a) Intracel Parent and its subsidiaries (A) have complied with all
applicable Environmental, Health, and Safety Laws governing Intracel
Parent and its subsidiaries in all material respects (and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them
alleging any such failure to comply), (B) have obtained and been in
substantial compliance with all of the terms and conditions of all
material permits, licenses, and other authorizations which are required
under all applicable Environmental, Health, and Safety Laws governing
Intracel Parent and its subsidiaries, and (C) have complied in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in the Environmental, Health, and Safety
Laws governing Intracel Parent and its subsidiaries.
(b) To the knowledge of Intracel Parent, Intracel Parent and its
subsidiaries have no material liability (whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due), there is
no fact or circumstance that with the passage of time, or occurrence of
other reasonably foreseeable events would give rise to any material
liability, and Intracel Parent and its subsidiaries have not handled or
disposed of any substance, arranged for the disposal of any substance,
exposed any employee or other individual to any substance or condition,
or owned or operated any property or facility in any manner that could
give rise to any material liability, for damage to any site, location,
or body of water (surface or subsurface), for any illness of or personal
injury to any employee or other individual, or for any reason under any
Environmental, Health, and Safety Law governing Intracel Parent and its
subsidiaries.
Section 5.21 Employment and Labor Matters. Section 5.21 of the Intracel Parent
Disclosure Schedule contains a true, complete and accurate list of the names,
titles, annual compensation (including all bonuses and similar payments made
with respect to each such individual for the current and preceding fiscal years)
of all directors, officers and employees of Intracel Parent and its subsidiaries
who have an annual aggregate remuneration of $80,000 or more. Intracel Parent
and its subsidiaries have and currently are conducting their respective
businesses in full compliance with all laws relating to employment and
employment practices, terms and conditions of employment, wages and hours,
affirmative action, and nondiscrimination in employment. Except as disclosed in
Section 5.21 of the Intracel Parent Disclosure Schedule, to Intracel Parent's
knowledge, the relationships of Intracel Parent and its subsidiaries with their
respective employees are good; to Intracel Parent's knowledge, there is, and
during the past five years there has been, no labor strike, dispute, slow-down,
work stoppage or other labor difficulty actually pending or threatened against
or involving Intracel Parent and its subsidiaries and, to Intracel Parent's
knowledge, no attempt is currently being made or during the past three years has
been made to organize any employees of Intracel Parent and its subsidiaries to
form or enter a labor union or similar organization. Section 5.21 of the
Intracel Parent Disclosure Schedule contains a list of all grievances by
employees during the past three years which have resulted in a significant
change in work practices or contract interpretation or terms or resulted in
arbitration.
37
<PAGE> 39
Section 5.22 Contracts. Section 5.22 of the Intracel Parent Disclosure Schedule
lists all the material contracts and arrangements to which Intracel Parent or
any of its subsidiaries is a party or by which it is bound, or to which any of
its assets or properties is subject. Intracel Parent has delivered to the
Company true and complete copies of each document listed in Section 5.22 of the
Intracel Parent Disclosure Schedule, and a written description of each oral
arrangement so listed. Except as disclosed in Section 5.22 of the Intracel
Parent Disclosure Schedule, all such contracts and arrangements are in full
force and effect, and neither Intracel Parent nor any of its subsidiaries is in
default under any of them, nor, to the knowledge of Intracel Parent, is any
other party to any such contract or arrangement in default thereunder.
Section 5.23 Predominant Customers. Except as set forth on Section 5.23 of
the Intracel Parent Disclosure Schedule, no single customer of Intracel Parent
or any of its subsidiaries accounts or accounted for over five percent (5%) of
the total consolidated revenues of Intracel Parent and its subsidiaries (the
"Intracel Dollar Threshold") during the twelve (12) month period immediately
preceding the date of this Agreement.
Section 5.24 Change in Customers or Vendors. Except as set forth on Section
5.24 of the Intracel Parent Disclosure Schedule, no customer or vendor whose
annual volume of purchases or sales during Intracel Parent's fiscal year ended
December 31, 1996 exceeded the Intracel Dollar Threshold, has indicated to
Intracel Parent or any of its subsidiaries, or to any of their respective
officers or directors that it intends to cease doing business with Intracel
Parent or such subsidiary, or materially alter the amount or pricing of the
business done with Intracel Parent or such subsidiary, respectively. To the
knowledge of Intracel Parent, the relationship of such customers and vendors
will not be materially adversely affected by the consummation of the
transactions contemplated by this Agreement.
Section 5.25 Notes and Accounts Receivable. All notes and accounts receivable
of Intracel Parent and its subsidiaries are reflected properly on the Intracel
Parent Financial Reports and Intracel Parent Balance Sheet, are valid
receivables which arose in the ordinary course of business from bona fide
transactions, subject to no set-offs or counterclaims, subject only to the
reserve for bad debts set forth on the face of the Intracel Parent Financial
Reports and Intracel Parent Balance Sheet.
Section 5.26 Questionable Payments. None of Intracel Parent, its subsidiaries,
or any of their respective directors, officers or other employees has: (i) made
any payments or provided services or other favors in the United States of
America or in any foreign country in order to obtain preferential treatment or
consideration by any Governmental Entity with respect to any aspect of the
business of Intracel Parent and its subsidiaries, or (ii) made any political
contributions which would not be lawful under the laws of the United States
(including the Foreign Corrupt Practices Act) or the foreign country in which
such payments were made. None of Intracel Parent, its subsidiaries, or any of
their respective directors, officers or other employees nor, to Intracel
Parent's knowledge, any customer or supplier of Intracel Parent or any of its
subsidiaries, has been subject to any inquiry or investigation by any
Governmental Entity in connection with payments or benefits or other favors to
or for the benefit of any governmental or
38
<PAGE> 40
armed services official, agent, representative or employee with respect to any
aspect of the business of Intracel Parent or its subsidiaries or with respect to
any political contribution.
ARTICLE VI
COVENANTS
Section 6.01 Covenants of the Company and Intracel Parent. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, the Company and Intracel
Parent each agree as to itself and its subsidiaries that (except as expressly
contemplated or permitted by this Agreement, Section 6.01 of the Company
Disclosure Schedule or the Intracel Parent Disclosure Schedule, as the case may
be, or to the extent that the other party shall otherwise consent in writing):
(a) Each party and its subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course, consistent with
past practice and (i) use its best efforts to preserve its business
intact, keep available the services of all of its present officers,
employees, agents and representatives, and preserve the goodwill of all
suppliers, customers, clients and others having business relations with
it or any of its subsidiaries; (ii) maintain its corporate existence and
good standing in its state of incorporation; (iii) keep and maintain in
good condition, repair and working order all buildings, offices, stores
and other structures and all machinery, tools, equipment, fixtures and
other property of it and its subsidiaries and observe and conform to all
material terms and conditions upon or under which any of their
properties is held; and (iv) continue and maintain in full force and
effect all insurance now maintained and promptly proceed with the
repair, restoration or replacement of any asset or property damaged or
destroyed by fire or other casualty after the date hereof, whether
insured or uninsured, subject to the rights, if any, of the lessors or
mortgagees thereof.
(b) Except for such transaction disclosed in the appropriate party's
Disclosure Schedule, no party shall, nor shall any party permit any of
its subsidiaries to, nor shall any party or subsidiary propose to, (i)
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of any of
its capital stock, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock or (iii) repurchase, redeem or otherwise acquire, or
permit any subsidiary to repurchase, redeem or otherwise acquire, any of
its securities or any securities of its subsidiaries.
(c) No party shall, nor shall any party permit any of its subsidiaries to,
authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including,
without limitation, stock appreciation rights), except as required
pursuant to the agreements and instruments
39
<PAGE> 41
outstanding on the date hereof or disclosed in Sections 4.02 and 5.02,
or amend in any material respect any of the terms of any such securities
or agreements outstanding on the date hereof, other than the issuance of
Company Shares or shares of Intracel Parent Shares, as the case may be,
upon the exercise of stock options pursuant to Company Stock Plan or
Intracel Parent Stock Plans and upon the exercise or conversion of other
Intracel Parent and Company options, warrants or rights, in each case
outstanding on the date of this Agreement and in accordance with their
present terms.
(d) No party shall amend or propose to amend its charter or bylaws.
(e) No party shall, nor shall any party permit any of its subsidiaries to,
acquire, sell, lease, encumber, transfer or dispose of any assets
outside the ordinary course of business, consistent with past practice,
or any assets which are material to such party and its subsidiaries
taken as a whole, except pursuant to obligations in effect on the date
hereof, or enter into any commitment or transaction outside the ordinary
course of business, consistent with past practice.
(f) No party shall, nor shall any party permit any of its subsidiaries to,
incur any indebtedness for borrowed money (which shall not be deemed to
include entering into credit agreements, lines of credit or similar
arrangements until borrowings are made under such arrangements) or
guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of such party or any
of its subsidiaries or guarantee (or become liable for) any debt of
others or make any loans, advances or capital contributions or mortgage,
pledge or otherwise encumber any material assets or create or suffer any
material lien thereupon other than in each case in the ordinary course
of business consistent with prior practice.
(g) No party shall, nor shall any party permit any of its subsidiaries to
pay, discharge or satisfy any claims, liabilities or obligations in
excess of $350,000 (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of any party and its consolidated
subsidiaries or incurred in the ordinary course of business consistent
with past practice.
(h) No party shall change any of the accounting principles or practices used
by it (except as required by generally accepted accounting principles).
(i) No party shall, nor shall any party permit any of its subsidiaries to,
agree to take any of the foregoing actions or take or agree to take any
action that would or is reasonably likely to result in any of its
representations and warranties set forth in this Agreement being untrue
or in any of the conditions to the Merger set forth in Article VII not
being satisfied.
40
<PAGE> 42
(j) Each of the parties shall give prompt notice to the other party of: (i)
any notice of, or other communication relating to, a default or event
which, with notice or the lapse of time or both, would become a default,
received by it or any of its subsidiaries subsequent to the date of this
Agreement and prior to the Effective Time, under any agreement,
indenture or instrument material to the financial condition, properties,
businesses or results of operations of it and its subsidiaries, taken as
a whole, to which it or any of its subsidiaries is a party or is
subject; (ii) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, which
consent, if required, would breach the representations contained in
Articles IV and V; and (iii) any material adverse change in the
financial condition, properties, businesses, results of operations or
prospects of it and its subsidiaries, taken as a whole.
(k) The parties shall consult with each other before issuing any press
releases or otherwise making public statements with respect to the
transactions contemplated hereby and in making any filings with any
federal or state governmental or regulatory agency or with any national
securities exchange with respect thereto.
Section 6.02 Additional Covenants of the Company and Intracel Parent.
(a) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time,
each of the Company and Intracel Parent agrees as to itself and its
subsidiaries that it will not, without the prior written consent of the
other party, except as contemplated by this Agreement or required by
law, (i) enter into, adopt, amend or terminate any Company Benefit Plan
or Intracel Parent Benefit Plan, as the case may be, or other employee
benefit plan or any agreement, arrangement, plan or policy between the
Company or Intracel, as the case may be, and one or more of its
directors or executive officers or (ii) except for normal increases in
the ordinary course of business consistent with past practice that, in
the aggregate, do not result in a material increase in benefits or
compensation expense to the Company or Intracel, as the case may be,
increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any
plan and arrangement as in effect as of the date hereof or enter into
any contract, agreement, commitment or arrangement to do any of the
foregoing.
(b) (i) At the Effective Time, each outstanding option to purchase Company
Shares (a "COMPANY STOCK OPTION") under the Company Stock Option Plan,
whether vested or unvested, shall be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable under such
Company Stock Option, the same number of shares of Intracel Parent
Common Stock as the holder of such Company Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised
such option in full immediately prior to the Effective Time (not taking
into account whether or not such option was in fact exercisable), at a
price per share equal to (1) the exercise price for the Company Stock
Option divided by (2) the Common Conversion Ratio. In the case of any
Company Stock Option to which Section 421 of the Code
41
<PAGE> 43
applies by reason of its qualification under any of Sections 422 and 424
of the Code ("INCENTIVE STOCK OPTIONS"), the option price, the number of
shares purchasable pursuant to such option and the terms and conditions
of exercise of such option shall comply with Section 424(a) of the Code;
(ii) as soon as practicable after the Effective Time, Intracel Parent
shall deliver to the holders of the Company Stock Options set forth in
Section 6.02(b) (i) appropriate notices setting forth such holders'
rights pursuant thereto and such Company Stock Options, including that
the grants or awards pursuant to the Company Stock Option Plan, shall
continue in effect on the same terms and conditions (including further
antidilution provisions, and subject to the adjustments required by this
Section 6.02(b) after giving effect to the Merger). Intracel Parent
shall comply with the terms of such Company Stock Options and ensure, to
the extent required by, and subject to the provisions of, any such
Company Stock Option Plan, that the Company Stock Options which
qualified as incentive stock options prior to the Effective Time
continue to qualify as incentive stock options after the Effective Time.
(c) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time,
subject to the terms and conditions of this Agreement, each of the
parties hereto agrees to use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective without limitation, (i) such actions as
may be required to be taken under the Securities Act and applicable
state securities laws in connection with the issuances contemplated
hereby, and (ii) the preparation and filing of all other forms,
registrations and notices required to be filed to consummate the
transactions contemplated hereby and the taking of such actions as are
necessary to obtain any requisite approvals, consents, orders,
exemptions, waivers by any public or private third party. Each party
shall promptly consult with the other with respect to, provide any
necessary information with respect to and provide the other (or its
counsel) copies of, all filings made by such party with any Governmental
Entity in connection with this Agreement and the transactions
contemplated hereby.
Section 6.03 No Solicitation. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, none of the Company, Intracel Parent or any of their respective
subsidiaries, affiliates, officers, directors, representatives or agents shall,
directly or indirectly, solicit, initiate or encourage (including by way of
furnishing information) any person, entity or group concerning any merger, sale
of substantial assets outside the ordinary course of business, sale of shares of
capital stock or similar transaction involving the Company, Intracel Parent or
any of their respective subsidiaries or divisions (other than the transactions
contemplated by this Agreement). During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, the Company shall promptly advise Intracel Parent, and
Intracel Parent shall promptly advise the Company, of any such inquiries or
proposals which are proposed by any third parties on an unsolicited basis.
42
<PAGE> 44
Section 6.04 Access to Information. Upon reasonable notice and subject to
restrictions contained in confidentiality agreements to which such party is
subject (from which such party shall use reasonable efforts to be released), the
Company and Intracel Parent shall each (and shall cause each of their respective
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access, during normal business
hours during the period prior to the earlier of the termination of this
Agreement and the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of the Company and
Intracel Parent shall (and shall cause each of their respective subsidiaries to)
furnish promptly to the other all information concerning its business,
properties and personnel as such other party may reasonably request. Unless
otherwise required by law or court order, the parties will hold any such
information which is nonpublic in confidence until such time as such information
otherwise becomes publicly available through no wrongful act of either party,
and in the event of termination of this Agreement for any reason each party
shall promptly return all nonpublic documents obtained from any other party, and
any copies or summaries made of such documents, to such other party.
Section 6.05 Stockholders Meetings. Each of the Company and Intracel Parent
shall either duly call, give notice of, convene and hold a meeting of its
stockholders or solicit the consents of its stockholders as promptly as
practicable for the purpose of voting, in the case of the Company, upon this
Agreement and related matters and, in the case of Intracel Parent, upon the
amendment to the Certificate of Incorporation of Intracel Parent and the
issuance of Intracel Parent Shares pursuant hereto. Intracel Parent and the
Company will, through their respective Board of Directors, recommend to their
respective stockholders approval of such matters and will coordinate and
cooperate with respect to the timing of such meetings or consent solicitations
and shall use their best efforts, if applicable, to hold such meetings on the
same day and as soon as practicable after the date hereof, and shall use their
best efforts to secure the approval of their stockholders for the transactions
contemplated herein.
Section 6.06 Brokers or Finders. Each of Intracel Parent and the Company
represents, as to itself, its subsidiaries and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement
except Vector Securities International, Inc., whose fees and expenses will be
paid (a) by the Company in accordance with the Company's agreement with such
firm (of which a copy has been delivered by the Company to Intracel Parent prior
to the date of this Agreement), and (b) by Intracel Parent in accordance with
Intracel Parent's agreement with such firm (of which a copy has been delivered
by Intracel Parent to the Company prior to the date of this Agreement), and each
of Intracel Parent and the Company agree to indemnify and hold the other
harmless from and against any and all claims, liabilities or obligations with
respect to any other fees, commissions or expenses asserted by any person on the
basis of any act or statement alleged to have been made by such party or its
affiliate.
Section 6.07 Consents, Approvals and Filings. The Company and Intracel Parent
will make and cause their respective subsidiaries to make all necessary filings,
as soon as practicable, including, without limitation, those required under the
Securities Act and applicable state
43
<PAGE> 45
securities laws, in order to facilitate prompt consummation of the transactions
contemplated by this Agreement. In addition, the Company and Intracel Parent
will each use their best efforts, and will cooperate fully with each other (i)
to comply as promptly as practicable with all governmental requirements
applicable to the transactions contemplated by this Agreement and (ii) to obtain
as promptly as practicable all necessary permits, orders or other consents of
Governmental Entities and consents, waivers and approvals of all third parties
necessary for the consummation of the transactions contemplated by this
Agreement and to enable each of the Company and Intracel Parent to conduct and
operate its business substantially as presently conducted. Each of the Company
and Intracel Parent shall use reasonable efforts to provide such information and
communications to Governmental Entities as such Governmental Entity may
reasonably request.
ARTICLE VII
CONDITIONS
Section 7.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of the following conditions:
(a) This Agreement shall have been approved and adopted by the affirmative
vote of the holders of a majority of the outstanding Company Common
Stock, a majority of the outstanding Company Series A Preferred and a
majority of the outstanding Company Series B Preferred, and the issuance
of Intracel Parent Shares pursuant to the Merger, the amendment of the
Certificate of Incorporation of Intracel Parent and the other terms of
this Agreement shall have been approved by the affirmative vote of the
Intracel Parent shareholders in accordance with the provisions of
Delaware Law and the respective certificate of incorporation and bylaws
of each of the Company and Intracel Parent.
(b) Other than the filing provided for by Section 2.01, all authorizations,
consents, orders or approvals of, or declarations or filings with, or
expirations or terminations of waiting periods imposed by, any
Governmental Entity (other than the filing of a Form D under the
applicable regulations promulgated under the Securities Act), and all
required third party consents, the failure to obtain which would have a
Material Adverse Effect on Intracel Parent and its subsidiaries,
including the Surviving Corporation and its subsidiaries, taken as a
whole, shall have been filed, occurred or been obtained. Intracel Parent
shall have received all state securities or Blue Sky permits and other
authorizations necessary to issue the Intracel Parent Shares pursuant to
the Merger and the other terms of this Agreement.
(c) No statute, rule, regulation, executive order, decree or injunction
which prohibits the consummation of the Merger, or limits or restricts
the operation of Intracel Parent following the Merger, shall have been
enacted, entered, promulgated or enforced by any court or governmental
authority and be in effect.
44
<PAGE> 46
(d) The Amended and Restated Certificate of Incorporation of Intracel
Parent shall have been filed with the Secretary of State of the State of
Delaware.
(e) Mr. Hanna shall have delivered the letter in substantially the form of
Exhibit B hereto.
(f) The Shareholders Agreement in substantially the form of Exhibit C hereto
shall have been duly executed and delivered by each of the parties
thereto.
(g) The Registration Rights Agreement in substantially the form of
Exhibit D hereto shall have been duly executed and delivered by each of
the parties thereto.
(h) The Employment Agreements between Intracel Parent and each of Simon
McKenzie and Michael Hanna, respectively, in a form mutually agreeable
to each such respective party,in substantially the form of Exhibit E
hereto, shall have been duly executed and delivered by each of the
parties thereto.
(i) Intracel Parent and the Company shall have received opinions from
Sullivan & Cromwell and Morrison & Foerster, LLP, each dated at the
Effective Time and addressed to Intracel Parent and the Company, stating
that the Merger will qualify as a reorganization under section 368(a) of
the Code. In rendering such opinions, each counsel shall be entitled to
require and to rely upon representations and agreements contained in
certificates from Intracel Parent, the Company and such other parties as
they shall deem reasonably necessary.
Section 7.02 Conditions of Obligations of Intracel Parent and Intracel
Acquisition Sub. The obligations of Intracel Parent and Intracel Acquisition Sub
to effect the Merger are further subject to the satisfaction at or prior to the
Closing Date of the following conditions, unless waived by Intracel Parent and
Intracel Acquisition Sub:
(a) The representations and warranties of the Company set forth in this
Agreement shall be true and correct as of the date of this Agreement,
and shall also be true in all material respects (except for such changes
as are contemplated by the terms of this Agreement and such changes as
would be required to be made in the exhibits to this Agreement if such
schedules were to speak as of the Closing Date) on and as of the Closing
Date with the same force and effect as though made on and as of the
Closing Date, except if and to the extent any failures to be true and
correct would not, in the aggregate, have a Material Adverse Effect on
the Company and its subsidiaries taken as a whole.
(b) From the date of this Agreement through the Closing Date, except as set
forth in Section 4.05 of the Company Disclosure Schedule, the Company
shall not have suffered any adverse changes in its business, operations
or financial condition which are material to the Company and its
subsidiaries taken as a whole (other than changes generally affecting
the industries in which the Company operates, including changes due to
actual or proposed changes in law or regulation, or changes relating to
the transactions contemplated by this Agreement, including the change in
control contemplated hereby).
45
<PAGE> 47
(c) The Company shall have performed all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, in
all material respects, other than the filing of the Certificate of
Merger.
(d) At the Closing, the Company shall have furnished Intracel Parent with
copies of (i) resolutions duly adopted by the Board of Directors of the
Company approving the execution and delivery of this Agreement and all
other necessary or proper corporate action to enable the Company to
comply with the terms of this Agreement, (ii) the resolutions duly
adopted by the holders of Company Common Stock, Company Series A
Preferred and Company Series B Preferred approving and adopting this
Agreement and the Merger, such resolutions to be certified by the
Secretary or Assistant Secretary of the Company and (iii) a Certificate
of the Secretary of the Company setting forth the capitalization of the
Company on the Closing Date, immediately prior to the Effective Time, as
specified in Section 4.02.
(e) At the Closing, the Company shall have furnished Intracel Parent with
an opinion, dated the Closing Date, of counsel to the Company, in form
and substance satisfactory to Intracel Parent and its counsel, to the
effect that:
(i) the Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of
Delaware;
(ii) the Subsidiary has been duly incorporated and is an existing
corporation in good standing under the laws of the State of
Delaware;
(iii) all of the outstanding Company Shares have been duly authorized
and validly issued and are fully paid and nonassessable and none
of such issued Company Shares were issued in violation of any
preemptive rights of shareholders of the Company;
(iv) this Agreement has been duly authorized, executed and delivered
by the Company and this Agreement constitutes a valid and
legally binding obligation of the Company enforceable in
accordance with its terms, subject to bankruptcy, fraudulent
transfer, reorganization, moratorium, insolvency and similar
laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and
(v) all regulatory consents, authorizations, approvals and filings
required to be obtained or made by the Company prior to the
Effective Time under the Federal laws of the United States or
the General Corporation Law of the State of Delaware for the
consummation of the transactions contemplated by this Agreement
by the Company, have been made or obtained.
In rendering the foregoing opinion (the "COMPANY PRIMARY OPINION"), such
counsel may rely on certificates of officers and other agents of the Company and
public officials as to matters of fact and, as to matters relating to the law of
jurisdictions other than New York and the General Corporation Law of the State
of Delaware, upon opinions of counsel of such other jurisdictions reasonably
satisfactory to Intracel Parent and its counsel, provided such reliance is
46
<PAGE> 48
expressly noted in the Company Primary Opinion and the opinions of such other
counsel and the certificates of such officers, agents and public officials
relied on are attached to the Company Primary Opinion. Notwithstanding the
foregoing, such counsel shall not be required to express an opinion with respect
to any matters relating to FDA consents, authorizations, approvals or filings;
(f) The Company shall have issued shares of Company Series B
Preferred to Mentor Corporation substantially in accordance with the terms set
forth in the Strategic Alliance Terms Sheet previously delivered to Intracel
Parent.
(g) All actions, proceedings, instruments and documents required
to carry out this Agreement, or incidental hereto, and all other legal matters
shall have been approved by counsel to Intracel Parent, and such counsel shall
have received all documents, certificates and other papers reasonably requested
by it in connection therewith.
Section 7.03 Conditions of Obligations of the Company. The obligation of the
Company to effect the Merger is further subject to the satisfaction at or prior
to the Closing Date of the following conditions, unless waived by the Company:
(a) The representations and warranties of Intracel Parent and Intracel
Acquisition Sub set forth in this Agreement shall be true and correct as
of the date of this Agreement, and shall also be true in all material
respects (except for such changes as are contemplated by the terms of
this Agreement and such changes as would be required to be made in the
exhibits to this Agreement if such schedules were to speak as of the
Closing Date) on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date, except if and to
the extent any failures to be true and correct would not, in the
aggregate, have a Material Adverse Effect on Intracel Parent.
(b) From the date of this Agreement through the Closing Date, except as set
forth in Section 5.06 of the Intracel Parent Disclosure Schedule,
Intracel Parent shall not have suffered any adverse changes in its
business, operations or financial condition which are material to
Intracel Parent and its subsidiaries taken as a whole (other than
changes generally affecting the industries in which Intracel Parent
operates, including changes due to actual or proposed changes in law or
regulation)
(c) Intracel Parent and Intracel Acquisition Sub shall have performed all
obligations required to be performed by it under this Agreement at or
prior to the Closing Date in all material respects, other than the
filing of the Certificate of Merger.
(d) At the Closing, Intracel Parent and Intracel Acquisition Sub shall have
furnished the Company with copies of (i) resolutions duly adopted by
their respective Boards of Directors approving the execution and
delivery of this Agreement and all other necessary or proper corporate
action to enable them to comply with the terms of this Agreement, (ii)
the resolutions duly adopted by the shareholders of Intracel Parent
approving the issuance of Intracel Parent Shares and the amendment to
the Certificate of Incorporation of Intracel Parent, such resolutions to
be certified by the Secretary or Assistant Secretary of Intracel
47
<PAGE> 49
Parent, (iii) the resolutions duly adopted by the sole shareholder of
Intracel Acquisition Sub approving and adopting this Agreement and the
Merger, (iv) a certificate of the Secretary of Intracel Parent setting
forth the capitalization of Intracel Parent on the Closing Date,
immediately prior to the Effective Time, as specified in Section 5.02
and (v) audited Intracel Parent Financial Reports.
(e) At the Closing, Intracel Parent shall have furnished the Company with
an opinion, dated the Closing Date, of counsel to the Intracel Parent
and Intracel Acquisition Sub, in form and substance satisfactory to the
Company and its counsel, to the effect that:
(i) Each of Intracel Parent, Intracel Acquisition Sub and Bartels
Inc. is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of their
respective incorporation;
(ii) the Intracel Parent Shares to be issued under the Agreement (the
"Subject Shares") have been duly authorized and, upon
consummation of the transactions contemplated by the Agreement,
will be validly issued, fully paid and nonassessable, and such
issuance is not subject to any preemptive rights of shareholders
of Intracel Parent;
(iii) this Agreement has been duly authorized, executed and delivered
by Intracel Parent and Intracel Acquisition Sub and constitutes
the legal, valid and binding obligation of each, enforceable
against Intracel Parent and Intracel Acquisition Sub in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws
relating to or affecting the rights of creditors generally,
including, without limitation, laws relating to fraudulent
transfers or conveyances, preferences, and equitable
subordination;
(iv) no registration with, consent or approval of, notice to, or other
action by, any governmental entity of the United States and the
General Corporation Law of the State of Delaware is required on
the part of Intracel Parent or Intracel Acquisition Sub for the
execution, delivery or performance of this Agreement by Intracel
Parent or Intracel Acquisition Sub, or if required, such
registration has been made, such consent or approval has been
obtained, such notice has been given or such appropriate action
has been taken; and
(v) none of the transactions contemplated by this Agreement will
require registration under Section 5 of the Securities Act of
1933, as amended.
In rendering the foregoing opinion (the "INTRACEL PRIMARY OPINION"), such
counsel may rely on certificates of officers and other agents of the Company,
Intracel Parent or Intracel Acquisition Sub, the stockholders of such entities,
and public officials as to matters of fact and, as to matters relating to the
law of jurisdictions other than New York and the General Corporation Law of the
State of Delaware, upon opinions of counsel of such other jurisdictions
reasonably satisfactory to Intracel Parent and its counsel, provided such
reliance is expressly noted in the Intracel Primary Opinion and the opinions of
such other counsel and the certificates of such officers, agents and public
officials relied on are attached to the Intracel Primary
48
<PAGE> 50
Opinion. Notwithstanding the foregoing, such counsel shall (i) be permitted, in
connection with rendering the opinion set forth in clause (v), to assume that
the information statement delivered to the Company's shareholders complies with
Rule 502 promulgated under the Securities Act and (ii) not be required to
express an opinion with respect to any matters relating to FDA consents,
authorizations, approvals or filings.
(f) Intracel Parent shall have furnished to the Company evidence
that Intracel Parent and each of its subsidiaries has filed all federal, state,
local and foreign tax returns required to be filed by it, that the aggregate
amounts of all taxes owed pursuant to such returns shall in no event exceed
$10,000 and that any penalties imposed or to be imposed for filing such returns
late shall not be material to Intracel Parent.
(g) Intracel Parent shall have furnished to the Company a copy of
Intracel Parent's audited consolidated financial statements for the year ended
December 31, 1996 as audited by Ernst & Young LLP (the "Audited Financials").
Such Audited Financials shall not be substantially different than the Intracel
Parent Financial Reports attached to the Intracel Parent Disclosure Schedule,
and shall contain an unqualified opinion by Ernst & Young LLP.
(h) Intracel Parent shall have furnished to the Company an amendment
(the "Amendment") to each of the following agreements, in a form reasonably
satisfactory to the Company: (i) the Loan Documents (as such term is defined in
the Credit Agreement, dated as of November 16, 1995, as amended, among Intracel
Parent, Credit Anstalt Bankverien, as agent, and the lenders party thereto) (the
"CreditAnstalt Agreements"); (ii) the Secured Promissory Note, dated December
27, 1995, as amended, by Intracel Parent in favor of Northstar Advantage High
Total Return Fund (the "Northstar Agreement"); and (iii) the Secured Promissory
Note, dated June 11, 1996, by Intracel Parent in favor of CoreStates Enterprise
Fund (the "CoreStates Agreement" and, together with the CreditAnstalt Agreements
and the Northstar Agreement, the "Credit Agreements"). Such Amendment shall
expressly waive compliance by Intracel Parent with all of the covenants
(including all affirmative and negative covenants) included in each of the
Credit Agreements until December 31, 1998, except that the Amendment may contain
such covenants as are reasonably acceptable to the Company.
(i) Intracel Parent shall have furnished to the Company, in a form
reasonably satisfactory to the Company, the renewal of the License Agreement,
dated as of June 1, 1994, between Thomas Jefferson University and Intracel
Parent.
(j) Intracel Parent shall have issued shares of Intracel Parent
Common Stock to CoreStates Enterprise Fund in the manner described in the
Intracel Parent Disclosure Schedule.
(k) All actions, proceedings, instruments and documents required to
carry out this Agreement, or incidental hereto, and all other legal matters
shall have been approved by counsel to the Company, and such counsel shall have
received all documents, certificates and other papers reasonably requested by it
in connection therewith.
49
<PAGE> 51
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.01 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the matters presented
in connection with the Merger by the stockholders of the Company or Intracel
Parent:
(a) by mutual consent of Intracel Parent and the Company;
(b) by either Intracel Parent or the Company if the Merger shall not have
been consummated before January 31, 1998 (unless the failure to
consummate the Merger by such date shall be due to the action or failure
to act of the party seeking to terminate this Agreement);
(c) by either Intracel Parent or the Company if any permanent injunction or
other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and non-appealable;
(d) by either party if any required approval of the stockholders of Intracel
Parent or the Company shall not have been obtained by reason of the
failure to obtain the required vote pursuant to a written consent of
shareholders, or at a duly held meeting of stockholders or at any
adjournment thereof;
(e) by Intracel Parent if there has been a material breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of the Company and such breach has not been cured
five business days prior to the Closing Date, after notice to the
Company by Intracel Parent; or
(f) by the Company if there has been a material breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of Intracel Parent or Intracel Acquisition Sub and
such breach has not been cured five business days prior to the Closing
Date, after notice to Intracel Parent by the Company.
Section 8.02 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.01 hereof, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party hereto
or its affiliates, directors, officers or stockholders; provided, however, that
not withstanding the foregoing, nothing contained in this Section 8.02 shall
relieve any party from liability for any breach of this Agreement by such party.
Section 8.03 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of the Company or of Intracel Parent, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
50
<PAGE> 52
Section 8.04 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
POST CLOSING COVENANTS
In filing federal tax returns at any time, each of Intracel Parent, the
Company and Intracel Acquisition Sub will take consistent filing positions to
the effect that, for federal income tax purposes, the Merger qualifies as a
"reorganization" within the meaning of Section 368(a) of the Code, and no
shareholder is required to recognize income gain or loss with respect thereto.
ARTICLE X
MISCELLANEOUS
Section 10.01 Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time.
Section 10.02 Notices. All notices and other communications hereunder shall
be in writing (and shall be deemed given upon receipt) if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Intracel Parent or Intracel Acquisition Sub, to
Intracel Corporation
1871 N.W. Gilman Blvd.
Issaquah, WA 98027
Fax: (425) 391-0416
with a copy to
Joseph Bartlett, Esq.
Morrison & Foerster, LLP
1290 Avenue of the Americas
New York, NY 10104
Fax: (212) 468-7900
and
51
<PAGE> 53
(b) if to the Company, to
PerImmune Inc.
1330 Piccard Drive
Rockville, Maryland 20850
Fax: (301) 840-2161
with a copy to
Edwin Williamson, Esq.
Sullivan & Cromwell
1701 Pennsylvania Ave., NW
Washington, D.C. 20006
Fax: (202) 293-6330
Section 10.03 Descriptive Headings. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
Section 10.04 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 10.05 Entire Agreement; Assignment. This Agreement and the documents and
instruments and other agreements to be executed on the Closing Date (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof (other than any confidentiality agreement between the
parties; any provisions of such agreements which are inconsistent with the
transactions contemplated by this Agreement being waived hereby) and (b) shall
not be assigned by operation of law or otherwise, provided that Intracel Parent
may cause Intracel Acquisition Sub to assign its rights and obligations to
Intracel Parent or any other wholly owned subsidiary of Intracel Parent, but no
such assignment shall relieve Intracel Acquisition Sub of its obligations
hereunder if such assignee does not perform such obligations.
Section 10.06 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable principles of conflicts of law.
Section 10.07 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
52
<PAGE> 54
Section 10.08 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
Section 10.09 Publicity. Except as otherwise required by law or the rules of
any national securities exchange, for so long as this Agreement is in effect,
neither the Company nor Intracel Parent shall, or shall permit any of its
subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to the transactions contemplated by this
Agreement without prior consultation with the other party.
Section 10.10 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
53
<PAGE> 55
IN WITNESS WHEREOF, the Company, Intracel Parent and Intracel Acquisition
Sub have caused this Agreement to be signed by their respective officers
thereunto duly authorized as of the date first written above.
PERIMMUNE HOLDINGS, INC.
By
----------------------------------
Name:
Title:
INTRACEL CORPORATION
By
----------------------------------
Name:
Title:
INTRACEL ACQUISITION SUB, INC.
By
----------------------------------
Name:
Title:
54
<PAGE> 1
Exhibit 10.7
INTRACEL CORPORATION
EMPLOYMENT AGREEMENT
Agreement made as of this 2nd day of January, 1998, by and among Michael
G. Hanna, Jr. of Frederick, Maryland ("Employee") and Intracel Corporation (the
"Company").
PREAMBLE
In connection with the closing ("Closing") of the merger (the "Merger")
of PerImmune Holdings, Inc. ("PerImmune") with a wholly owned subsidiary of the
Company, the Board of Directors of the Company recognizes Employee's potential
contribution to the growth and success of the Company and desires to assure the
Company of Employee's employment in an executive capacity as President (Chief
Scientific Officer) and to compensate him therefor. Employee wants to be
employed by the Company and to commit himself to serve the Company on the terms
herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties, the parties agree as follows:
1. Definitions
"Benefits" shall mean all the fringe benefits approved by the Board from
time to time and established by the Company for the benefit of employees
generally and/or for key employees of the Company as a class, including, but not
limited to, regular holidays, vacations, absences resulting from illness or
accident, health insurance, disability and medical plans (including dental and
prescription drug), group life insurance, and pension, profit-sharing and stock
bonus plans or their equivalent.
"Board" shall mean the Board of Directors of the Company, together with
an executive committee thereof (if any), as same shall be constituted from time
to time.
"Cause" for termination shall mean (i) Employee's final conviction of a
felony involving a crime of moral turpitude, (ii) acts of Employee which, in the
judgment of the Board, constitute willful fraud on the part of Employee in
connection with his duties under this Agreement, including but not limited to
misappropriation or embezzlement in the performance of duties as an employee of
the Company, or the willful engagement in conduct materially injurious to the
Company and in violation of the covenants contained in this Agreement, or (iii)
gross misconduct in connection with the performance of the Employee's duties
hereunder, including but not limited to the willful failure of Employee either
to (a) continue to obey lawful written instructions of the Board which are
consistent with Employee's responsibilities under this Agreement after thirty
(30) days notice in writing of Employee's failure to do so and the Board's
intention to terminate Employee if such failure is not corrected, or (b) correct
any conduct of Employee which constitutes a material breach of this Agreement
after thirty (30) days notice in
<PAGE> 2
writing of Employee's failure to do so and the Board's intention to terminate
Employee if such failure is not corrected. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by the Board, based
upon the advice of counsel for the Company or upon the instructions of the
Company's chief executive officer or another senior officer of the Company shall
be conclusively presumed to be done, or omitted to be done, by Employee in good
faith and in the best interests of the Company. Cause shall not exist unless and
until the Company has delivered to Employee a copy of a resolution duly adopted
by a majority of the entire Board (excluding Employee if Employee is a Board
member) at a meeting of the Board called and held for such purpose, finding that
in the good faith opinion of the Board, an event set forth above has occurred
and specifying the particulars thereof in detail. The Company must notify
Executive of any event constituting Cause within ninety (90) days following the
Company's knowledge of its existence; provided, that the failure to so notify
the Employee shall not be deemed to nullify the existence of Cause.
"Chairman" shall mean that individual designated by the Board from time
to time as its chairman, to preside over meetings of the Board.
"Chief Scientific Officer" shall mean the individual having
responsibility to the Board for direction and management of the scientific
activities of the Company and who reports and is accountable only to the Board.
For purposes of this Agreement, the Chief Scientific Officer shall also carry
the title, "President (Chief Scientific Officer)".
"Common Stock" shall mean the common stock, par value $.0001 per share,
of the Company or a successor in interest to the Company.
"Company" shall mean Intracel Corporation, a Delaware corporation, or
its successor together with such subsidiaries of the Company as may from time to
time exist.
"Disability" shall mean a written determination by a physician mutually
agreeable to the Company and Employee (or, in the event of Employee's total
physical or mental disability, Employee's legal representative) that Employee is
physically or mentally unable to perform his duties as President (Chief
Scientific Officer) under this Agreement and that such disability can reasonably
be expected to continue for a period of six (6) consecutive months.
"Employee" shall mean Michael Hanna and, if the context requires, his
heirs, personal representatives, and permitted successors and assigns.
"Employment Period" shall mean the period of the Employee's employment
hereunder which commences on the date hereof and shall continue for the term of
this Agreement.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency thereto.
2
<PAGE> 3
"MAA" shall mean Market Authorization Authority (Europe).
"Person" shall mean any natural person, incorporated entity, limited or
general partnership, business trust, association, agency (governmental or
private), division, political sovereign, or subdivision or instrumentality,
including those groups identified as "persons" in Sections 13(d)(3) and 14(d)(2)
of the Securities Exchange Act of 1934.
"Shares" shall mean shares of Common Stock of the Company that Employee
owns from time to time.
"Territory" shall mean any state of the United States and any equivalent
section or area of any country in which the Company has revenue-producing
customers or activities.
2. Position and Responsibilities.
2.1. Position. During the term of this Agreement, Employee shall serve as
Chairman of the Board and President (Chief Scientific Officer) and in such
additional management position(s) as the Board shall designate. In this capacity
Employee shall, subject to the bylaws of the Company, and to the direction of
the Board, serve the Company by performing such duties and carrying out such
responsibilities as are normally related to the position of Chairman of the
Board and President (Chief Scientific Officer) in accordance with the standards
of the industry. Without limiting the foregoing, Employee shall report directly
to the Board of Directors and will have primary responsibility for (1) all
research and development activities of the Company, including any and all
required governmental or regulatory filings, (2) employment and termination of
any key research and development employees, (3) entering into agreements by and
on behalf of the Company relating to the foregoing, subject to any plans and
budgets adopted by the Board of Directors relating thereto and (4) until such
time as a Chief Operating Officer for the Company is hired, overseeing the
manufacturing operation of the Company's Rockville, Maryland facility and shall
also be responsible for implementing the Company's integration plan for
research, development and manufacturing operations. The Board shall either vote,
or recommend to the shareholders of the Company, as appropriate, that during the
term of employment pursuant to this Agreement: (i) Employee be nominated for
election as a director of the Company at each meeting of shareholders held for
the election of directors of the Company and as Chairman of the Board at the
appropriate meetings of the Board; (ii) Employee be elected to and continue to
serve in the office of Chairman of the Board and President (Chief Scientific
Officer) of the Company and such of its subsidiaries as the Employee may select
(and such other office, if any, as shall be denominated that of the Chairman of
the Board or President (Chief Scientific Officer) of the Company or such
subsidiary in the Company's or such subsidiary's Bylaws or other constituent
instruments); (iii) Employee be elected to and continue to serve on the Board of
each subsidiary of the Company; (iv) if the Board of the Company or any of its
subsidiaries shall appoint an executive committee (or similar committee
authorized to exercise the general powers of the Board), Employee be elected to
and continue to serve on such committee; and (v) neither the Company nor any of
its subsidiaries shall confer on any other
3
<PAGE> 4
officer or employee of the Company authority, responsibility, powers or
prerogatives superior or equal to the authority, responsibility, prerogatives
and powers vested in Employee hereunder.
2.2. Best Efforts Covenant. During the term of this Agreement, Employee will, to
the best of his ability, devote his full professional and business time and best
efforts to the performance of his duties for the Company and its subsidiaries
and affiliates, other than due to Disability or vacation.
2.3. Exclusivity Covenant. During the Agreement's term, Employee will not
undertake or engage in any other employment, occupation or business enterprise
other than a business enterprise in which Employee does not actively participate
and acting as a partner in Brooklawn Limited Partnership. Further, Employee
agrees not to acquire, assume, or participate in, directly or indirectly, any
position, investment, or interest in the Territory adverse or antagonistic to
the Company, its business or prospects, financial or otherwise, or take any
action towards any of the foregoing. The provisions of this Section 2.3 and 2.4
shall not prevent Employee from owning shares of any competitor of the Company
so long as such shares (i) do not constitute more than 5% of the outstanding
equity of such competitor, or (ii) are regularly traded on a recognized exchange
or listed for trading by NASDAQ in the over-the-counter market.
2.4. Post-Employment Noncompetition Covenant. Except with the prior written
consent of the Board, Employee shall not engage in activities in the Territory
either on Employee's own behalf or that of any other business organization,
which are in direct or indirect competition with the Company for a period of one
(1) year subsequent to Employee's voluntary withdrawal from employment with the
Company, or the Company's termination of Employee's employment for Cause;
provided, that the foregoing shall not apply if Employee is terminated for
reasons other than Cause. It is understood and agreed that nothing in this
Section 2.4 shall prevent the Employee from owning 5% or less of the outstanding
equity of any competitor or owning any outstanding equity of any competitor so
long as such shares are regularly traded on a recognized exchange or listed for
trading by NASDAQ in the over the counter market. Employee and the Company
expressly declare that the territorial and time limitations contained in this
Section and the definition of "Territory" are entirely reasonable at this time
and are properly and necessarily required for the adequate protection of the
business and intellectual property of the Company. If such territorial or time
limitations, or any portions thereof, are deemed to be unreasonable by a court
of competent jurisdiction, whether due to passage of time, change of
circumstances or otherwise, Employee and the Company agree to a reduction of
said territorial and/or time limitations to such areas and/or periods of time as
said court shall deem reasonable.
For a period of one year subsequent to Employee's voluntary withdrawal
from employment with the Company, or the Company's termination of Employee's
employment for Cause, or if this Agreement terminates after the end of the
Initial Period (as defined), Employee will not without the express prior written
approval of the Board (i) directly or indirectly, in one or a series of
transactions, recruit, solicit or otherwise induce or influence any proprietor,
partner, stockholder, lender, director, officer, employee, sales agent, joint
venturer, investor, lessor,
4
<PAGE> 5
supplier, customer, agent, representative or any other person which has a
business relationship with the Company or had a business relationship with the
Company within the twenty-four (24) month period preceding the date of the
incident in question, to discontinue, reduce, or modify such employment, agency
or business relationship with the Company, or (ii) employ or seek to employ or
cause any business organization in direct or indirect competition with the
Company to employ or seek to employ any person or agent who is then (or was at
any time within six months prior to the date the Employee or the competitive
business employs or seeks to employ such person) employed or retained by the
Company; provided, that the foregoing shall not apply if Employee is terminated
for reasons other than Cause. Notwithstanding the foregoing, nothing herein
shall prevent the Employee from providing a letter of recommendation to an
employee with respect to a future employment opportunity.
2.5. Confidential Information. Employee recognizes and acknowledges that the
Company's trade secrets and proprietary information and know-how, as they may
exist from time to time ("Confidential Information"), are valuable, special and
unique assets of the Company's business, access to and knowledge of which are
essential to the performance of Employee's duties hereunder. Employee will not,
during or after the term of his employment by the Company, in whole or in part,
disclose such secrets, information or know-how to any Person for any reason or
purpose whatsoever, nor shall Employee make use of any such property for his own
purposes or for the benefit of any Person (except the Company) under any
circumstances during or after the term of his employment, provided that after
the term of his employment these restrictions shall not apply to such secrets,
information and know-how which are then in the public domain (provided that
Employee was not responsible, directly or indirectly, for such secrets,
information or processes entering the public domain without the Company's
consent). Employee shall have no obligation hereunder to keep confidential any
Confidential Information if and to the extent disclosure of any thereof is
specifically required by law; provided, however, that in the event disclosure is
required by applicable law, the Employee shall provide the Company with prompt
notice of such requirement, prior to making any disclosure, so that the Company
may seek an appropriate protective order. Employee agrees to hold as the
Company's property all memoranda, books, papers, letters, customer lists,
processes, computer software, records, financial information, policy and
procedure manuals, training and recruiting procedures and other data, and all
copies thereof and therefrom, in any way relating to the Company's business and
affairs, whether made by him or otherwise coming into his possession, and on
termination of his employment, or on demand of the Company at any time, to
deliver the same to the Company. Employee agrees that he will not use or
disclose to other employees of the Company, during the term of this Agreement,
confidential information belonging to his former employers.
Employee shall use his best efforts to prevent the removal of any
Confidential Information from the premises of the Company, except as required in
his normal course of employment by the Company. Employee shall use his best
efforts to cause all persons or entities to whom any Confidential Information
shall be disclosed by him hereunder to observe the terms and conditions set
forth herein as though each such person or entity was bound hereby.
5
<PAGE> 6
2.6. [Intentionally Omitted]
2.7. Records, Files. All records, files, drawings, documents, equipment and the
like relating to the business of the Company which are prepared or used by
Employee during the term of his employment under this Agreement shall be and
shall remain the sole property of the Company.
2.8. Equitable Relief. Employee acknowledges that his services to the Company
are of a unique character which give them a special value to the Company.
Employee further recognizes that violations by Employee of any one or more of
the provisions of this Section 2 may give rise to losses or damages for which
the Company cannot be reasonably or adequately compensated in an action at law
and that such violations may result in irreparable and continuing harm to the
Company. Employee agrees that, therefore, in addition to any other remedy which
the Company may have at law and equity, including the right to withhold any
payment of compensation under Section 4 of this Agreement, the Company shall be
entitled to injunctive relief to restrain any violation, actual or threatened,
by Employee of the provisions of this Agreement.
3. Compensation.
3.1. Minimal Annual Compensation. The Company shall pay to Employee for the
services to be rendered hereunder a base salary at an annual rate of two hundred
thousand dollars ($200,000) ("Minimum Annual Compensation"). There shall be an
annual review for merit by the Board and an increase as deemed appropriate to
reflect the value of services by Employee. At no time during the term of this
Agreement shall Employee's annual base salary fall below Minimum Annual
Compensation. In addition, if the Board increases Employee's annual compensation
at any time during the term of this Agreement, such increased annual
compensation shall become a floor below which Employee's compensation shall not
fall at any future time during the term of this Agreement and shall become
"Minimum Annual Compensation".
Employee's salary shall be payable in periodic installments in
accordance with the Company's usual practice for similarly situated employees of
the Company.
3.2. Incentive Compensation. In addition to Minimum Annual Compensation,
Employee shall be entitled to receive payments under the Company's incentive
compensation and/or bonus program(s) (as in effect from time to time), if any,
in such amounts as are determined by the Board to be appropriate for similarly
situated employees of the Company. In addition, without limiting the generality
of the foregoing, Employee shall be paid the following bonuses with respect to
calendar year 1998: (i) $50,000 if the Company's initial cancer center commences
treatment of its first patient prior to December 31, 1998 and (ii) $50,000 if
Humaspect receives FDA or MAA final approval prior to September 30, 1998.
3.3. Participating in Benefits. Employee shall be entitled to all Benefits for
as long as such Benefits may remain in effect and/or any substitute or
additional Benefits made available in the future to similarly situated employees
of the Company, subject to and on a basis consistent with
6
<PAGE> 7
the terms, conditions and overall administration of such Benefits adopted by the
Company. Benefits paid to Employee shall not be deemed to be in lieu of other
compensation to Employee hereunder as described in this Section 3.
3.4. Specific Benefits.
During the term of this Agreement (and thereafter to the extent this
Agreement shall require):
(a) Employee shall be entitled to six (6) weeks of paid vacation time per year,
to be taken at times mutually acceptable to the Company and Employee.
(b) The Company shall provide fully paid accident and health insurance for
Employee and his family with limits and extent of coverage similar to that
provided by Employee's previous employer.
(c) The Company shall obtain at its expense (subject to Employee's insurability)
an insurance policy on the life of Employee, subject to the last sentence of
this Section 3.04(c), in the face amount of $2,000,000 that provides it is fully
funded after no more than five (5) years of premium payments. Employee shall
have the exclusive right to designate the beneficiaries of such policy and
change such beneficiaries from time to time. Such policy and the proceeds and
cash value thereof shall be the sole property of Employee, and the Company shall
not retain any benefit therein. The Company shall not be obligated to pay
premiums for such insurance in excess of $15,000 per annum.
(d) Employee shall be entitled to sick leave benefits during the employment
period in accordance with the customary policies of the Company for its
executive officers, but in no event less than one (1) month per year.
(e) In recognition of the necessity of the use of an automobile to the efficient
and expeditious performance of Employee's services, duties and obligations to
and on behalf of the Company, the Company shall provide to Employee, at the
Company's sole cost and expense, a car to be chosen by Employee. In addition
thereto, the Company shall bear the expense of insurance, fuel and maintenance
therefor.
(f) In addition to the vacation provided pursuant to Section 3.04(a) hereof,
Employee shall be entitled to not less than ten (10) paid holidays (other than
weekends) per year, generally on such days on which the New York Stock Exchange
is closed to trading.
(g) Employee shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him (in accordance with the policies and
procedures established by the Company or the Board for the similarly situated
employees of the Company) in performing services hereunder.
7
<PAGE> 8
(h) The Company shall pay the reasonable costs of preparation, by a professional
of Employee's choosing, of Employee's annual and estimated federal income tax
and Maryland State income tax returns in an amount not to exceed $1,000.
(i) The Company shall pay the reasonable costs of Employee's personal financial
planning by a professional of Employee's choosing in an amount not to exceed
$1,000.
(j) Employee shall be eligible to participate during the Employment Period in
Benefits not inconsistent or duplicative of those set forth in this Section 3.04
as the Company shall establish or maintain for its employees or executives
generally.
4. Termination.
4.1. Termination by Company for Other Than Cause. If during the term of this
Agreement the Company terminates the employment of Employee and such termination
is not for Cause, then, subject to the provisions hereof, the Company shall pay
to Employee an amount equal to the monthly portion of the Employee's Minimum
Annual Compensation multiplied by thirty six (36). To the extent that Employee
is not fully vested in retirement Benefits from any pension, profit sharing or
any other retirement plan or program (whether tax qualified or not) maintained
by the Company, the Company or the successor to the Company shall pay directly
to Employee the difference between the amounts which would have been paid to
Employee had he been fully vested on the date that his employment terminated and
the amounts actually paid or payable to Employee pursuant to such plans or
programs. In addition, the Company shall pay to Employee the remaining payments
of Minimum Annual Compensation under Section 3.1 relating to periods during
which Employee was employed by the Company, payments of vacation accrued
pursuant to Section 3.4 but not yet paid, and reimbursement of prior expenses
under Section 3.4. The Company shall also continue to provide, for a period of
three (3) years following Employee's termination, Employee (and Employee's
dependents, if applicable) with the same level of medical, dental, accident,
disability and life insurance benefits upon substantially the same terms and
conditions (including contributions required by Employee for such benefits) as
existed immediately prior to Employee's termination; provided, that, if Employee
cannot continue to participate in the Company plans providing such benefits, the
Company shall otherwise provide such benefits on the same after-tax basis as if
continued participation had been permitted. Notwithstanding the foregoing, in
the event Employee becomes reemployed with another employer and becomes eligible
to receive welfare benefits from such employer, the welfare benefits described
herein shall be secondary to such benefits during the period of Employee's
eligibility, but only to the extent that the Company reimburses Employee for any
increased cost and provides any additional benefits necessary to give Employee
the benefits provided hereunder.
4.2. Constructive Discharge. A "Constructive Discharge" shall be deemed to occur
if the Company assigns Employee any duties, or reduces Employee's duties, to
levels inconsistent with
8
<PAGE> 9
the position or positions listed in Section 2.1, fails to comply with the
provisions of Section 3, or engages in any other material breach of the terms of
this Agreement, and Employee may at his option terminate his employment and such
termination shall be considered to be a termination of Employee's employment by
the Company for reasons other than "Cause" for all purposes under this
Agreement.
4.3. Termination by the Company for Cause. The Company shall have the right to
terminate the employment of Employee for Cause. Effective as of the date that
the employment of Employee terminates by reason of Cause, this Agreement, except
for Sections 2.4 through 2.8, shall terminate and no further payments of the
compensation described in Section 3 (except for such remaining payments of
Minimum Annual Compensation under Section 3.1 relating to periods during which
Employee was employed by the Company, Benefits which are required by applicable
law to be continued, and reimbursement of prior expenses under Section 3.4)
shall be made.
4.4. [Intentionally omitted]
4.5. [Intentionally omitted]
4.6. Termination on Account of Employee's Disability. If Employee ceases to
perform services for the Company because he is suffering from a medically
determinable Disability and is therefore incapable of performing such services,
the Company shall continue to pay Employee an amount equal to two-thirds (2/3)
of Employee's Minimum Annual Compensation as in effect on the date of Employee's
cessation of services by reason of Disability less any amounts paid to Employee
as Workers Compensation, Social Security Disability benefits (or any other
disability benefits paid to Employee as federal, state, or local disability
benefits) and any amounts paid to Employee as disability payments under any
disability plan or program for a period ending on the earlier of: (a) the date
that Employee again becomes employed in a significant manner and on a
substantially full-time basis (in which case Employee shall be entitled to
receive the Minimum Annual Compensation without any adjustment); or (b) the date
that Employee attains normal retirement age, as such age is defined in a
retirement plan maintained by the Company.
4.7. All amounts payable to Employee under this Section 4 shall be payable in
one lump sum, not discounted, as soon as practicable after the event giving rise
to the payment and in no event later than twenty days after such termination.
4.8. Limitation on Payments by the Company
(a) Notwithstanding anything in this Agreement to the contrary, in the event it
shall be determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company (or
any of its affiliated entities) or any entity which effectuates a change of
control (or any of its affiliated entities) to or for the benefit of
9
<PAGE> 10
Employee (whether pursuant to the terms of this Agreement or otherwise) (the
"Payments") would be subject to the excise tax (the "Excise Tax") under Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the
amounts payable to Employee under this Agreement shall be the greater of (i) or
(ii), where (i) is the Payment, as reduced by the Excise Tax and (ii) is the
Payment, reduced to the maximum amount as will result in no portion of the
Payments being subject to the Excise Tax (the "Safe Harbor Cap"). For purposes
of reducing the Payments to the Safe Harbor Cap, only amounts payable to
Employee under this Agreement (and no other Payments) shall be reduced, unless
consented to by Employee.
(b) All determinations required to be made under this Section 4.8 shall be made
by the public accounting firm that is retained by the Company and reasonably
acceptable to the Employee (the "Accounting Firm"). If payments are reduced to
the Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to
Employee that he is not required to report any Excise Tax on his federal income
tax return. All fees, costs and expenses (including, but not limited to, the
costs or retaining experts) of the Accounting Firm shall be borne by the
Company. The determination by the Accounting Firm shall be binding upon the
Company and Employee (except as provided in paragraph (c) below).
(c) If payments are reduced to the Safe Harbor Cap as provided in Section
4.8(a)(ii) and if it is established pursuant to a final determination of a court
or an Internal Revenue Service (the "IRS") proceeding which has been finally and
conclusively resolved, that Payments have been made to, or provided for the
benefit of, Employee by the Company, which are in excess of the limitations
provided in this Section 4.8(a)(ii) (hereinafter referred to as an "Excess
Payment"), such Excess Payment shall be deemed for all purposes to be a loan to
Employee made on the date Employee received the Excess Payment and Employee
shall repay the Excess Payment to the Company on demand, together with interest
on the Excess Payment at the applicable federal rate (as defined in Section
1274(d) of the Code) from the date of Employee's receipt of such Excess Payment
until the date of such repayment. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the determination, it is
possible that Payments which will not have been made by the Company should have
been made (an "Underpayment"), consistent with the calculations required to be
made under this Section 4.8(a). In the event that it is determined (i) by the
Accounting Firm, the Company (which shall include the position taken by the
Company, or together with its consolidated group, on its federal income tax
return) or the IRS or (ii) pursuant to a determination by a court, that an
Underpayment has occurred, the Company shall pay an amount equal to such
Underpayment to Employee within ten (10) days of such determination together
with interest on such amount at the applicable federal rate from the date such
amount would have been paid to Employee until the date of payment.
5. Company Stock.
5.1. Right of Employee to Sell Shares to the Company upon Death, Disability, or
Involuntary Termination Without Cause.
10
<PAGE> 11
(a) Put Option. If Employee at any time prior to the date three (3) years from
the date of this Agreement shall die, become Disabled, or be terminated without
Cause, Employee shall have the right and option (the "Put Option") to sell any
or all of the Shares to the Company at a price per Share equal to Fair Value (as
defined) as of the date of exercise of the Put Option by the Employee.
(b) Fair Value. For purposes of this Agreement, the Fair Value of a Share of
Common Stock of the Company, as of any date, is as follows: if market quotations
are readily available, a Share shall be valued at the last trade on the exchange
on which such Shares are primarily traded or, if not traded on an exchange, at
the closing bid price (or average of bid prices) last quoted by an established
over-the-counter quotation service. If the Shares are not publicly traded, then
a Share shall be valued by the Board, after considering all pertinent factors
and all appropriate information and data, including liquidity; without limiting
the generality of the foregoing, the Board shall consider and take into account
published guidelines, including those sponsored by the National Venture Capital
Association or any committee thereof. The Board may employ outside experts and
independent consultants at the expense of the Company to assist in the valuation
process; provided, however, that notwithstanding the above calculation, in no
event will Fair Value of a Share of Common Stock be less than the par value of
such Share.
(c) Exercise of Put Option and Closing. Employee may exercise the Put Option by
delivering to the Company written notice of exercise within sixty days after the
death, Disability or termination of the employment of Employee giving rise to
the Put Option as set forth in Section 5.1 (a) above. Such notice shall specify
the number of Shares to be sold. If and to the extent the Put Option is not so
exercised within such sixty-day period, the Put Option shall automatically
expire and terminate effective upon the expiration of such sixty days period. At
the time of delivery of notice of the exercise of the Put Option, Employee shall
tender to the Company at its principal offices the certificate or certificates
representing the Shares which the Company is obligated to purchase, duly
endorsed by Employee or with duly endorsed stock powers attached thereto, all in
form suitable for the transfer of such Shares to the Company. The date of
exercise of the Put Option shall be deemed to be the date the Company receives
notice of exercise from the Employee. Upon receipt thereof, the Company shall
indicate to the Employee the determination of the Fair Value of a Share as of
the date of exercise of the Put Option, and in the event the Employee does not
agree with such determination, the Employee shall have two (2) days to elect by
written notice to the Company not to proceed with the exercise of the Put
Option.
Within ten (10) days of its receipt of the notice and such Shares, the
Company shall deliver to Employee the amount of the Fair Value of a Share as of
the date of exercise of the Put Option multiplied by the number of Shares being
sold. The purchase price may be payable, at the option of the Company, in
cancellation of all or a portion of any outstanding indebtedness of Employee to
the Company or in cash (by bank or cashier's check) or both.
11
<PAGE> 12
(d) Right of Company to Delay Payment. If at any time the Company is unable to
repurchase Shares pursuant to the provisions of this Section 5 pursuant to the
provisions of applicable law or otherwise, or if it is determined by the Board
in their good-faith judgment that the payment of the entire purchase price of
such Shares pursuant to this Section 5 would be deleterious to the financial
position of the Company, the Company may elect to issue to the Employee a
promissory note for the unpaid portion of such purchase price (but not any
amounts then payable by the cancellation of outstanding indebtedness of Employee
to the Company). In the event that the Company determines that it is to issue
such a promissory note, it shall provide notice thereof to the Employee, and the
Employee shall thereupon have the right upon written notice to the Company
within two (2) days of his receipt of such notice to elect not to exercise the
Put Option. The promissory note shall contain the following terms: such deferred
portion of the purchase price shall thereafter be payable in three (3) equal
annual installments beginning on the date on which such purchase price was to be
paid but for the effect of this paragraph (d). The outstanding amount of such
installments shall bear interest at a floating rate equal to 2% per annum plus
the base rate announced from time to time by the New York, New York office of
Citibank, N.A. as its base rate for commercial loans, and such interest shall be
payable annually in arrears on each date that an installment of principal is
owing. The Company may prepay its obligations under this paragraph (d) in whole
or in part at any time, with such prepayments being applied first to interest
accrued but unpaid to the date of such prepayment and thereafter to installments
of principal in inverse order of their maturity. For so long as any interest or
principal remains owing under this paragraph (d), the Company shall not make any
distribution or dividend to the holders of its Common Stock.
(e) Termination of Put Option. The Put Option shall terminate upon the closing
of an underwritten public offering pursuant to an effective registration
statement pursuant to the Securities Act of 1933, as amended covering the
offering and sale of Common Stock.
6. Miscellaneous.
6.1. Assignment. This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of each of the parties hereto and
shall also bind and inure to the benefit of any successor or successors of the
Company in a reorganization, merger or consolidation and any assignee of all or
substantially all of the Company's business and properties, but, except as to
any such successor of the Company, neither this Agreement nor any rights or
benefits hereunder may be assigned by the Company or Employee. The Company
agrees that in connection with any business combination, it will cause any
successor entity to the Company unconditionally to assume and for any parent
corporation in such business combination to guarantee, by written instrument
delivered to Employee (or his beneficiary or estate), all of the obligations of
the Company hereunder. Failure of the Company to obtain such assumption and
guarantee prior to the effectiveness of any such business combination, shall be
a material breach of this Agreement and shall constitute a termination not for
Cause by the Company hereunder and shall entitle Employee to compensation and
other benefits from the Company in the same amount and on the same terms as
Employee would be entitled hereunder if
12
<PAGE> 13
Employee's employment were terminated pursuant to Section 4.1 hereof. For
purposes of implementing the foregoing, the date on which any such business
combination becomes effective shall be deemed the date of termination pursuant
to Section 4.1. If Employee shall die while any amounts would be payable to
Employee hereunder had Employee continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to such person or persons appointed in writing by employee to receive
such amounts or, if no person is so appointed, to Employee's estate.
6.2. Term. Except as otherwise provided, the term of this Agreement shall endure
until the earlier of (i) three years from the date of this Agreement (the
"Initial Period") or (ii) the Employee's employment with the Company is
terminated by either party on 30 days notice, the consequences of such
termination as provided herein. Following such three year period, the parties
shall negotiate this Agreement annually. To the extent termination benefits
depend on a certain number of months, the first and last months shall be counted
as whole months.
6.3. Governing Law. This Agreement shall be construed in accordance with and
governed for all purposes by the laws of the State of New York.
6.4. Interpretation. In case any one or more of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
6.5. Notice. Any notice required or permitted to be given hereunder shall be
effective when received and shall be sufficient if in writing and if personally
delivered or sent by prepaid cable,
13
<PAGE> 14
telex or registered air mail, return receipt requested, to the party to receive
such notice at its address set forth at the end of this Agreement or at such
other address as a party may by notice specify to the other.
6.6. Amendment and Waiver. This Agreement may not be amended, supplemented
or waived except by a writing signed by the party against which such amendment
or waiver is to be enforced. The waiver by any party of a breach of any
provision of this Agreement shall not operate to, or be construed as a waiver
of, any other breach of that provision nor as a waiver of any breach of another
provision.
6.7. Binding Effect. Subject to the provisions of Section 4 hereof, this
Agreement shall be binding on the successors and assigns of the parties hereto.
6.8 Survival of Rights and Obligations. All rights and obligations of
Employee or the Company arising during the term of this Agreement shall
continue to have full force and effect after the termination of this Agreement
unless otherwise provided herein.
6.9 Reimbursement of Expenses. If any contest or dispute shall arise under
this Agreement involving termination of Employee's employment with the Company
or involving the failure or refusal of the Company to perform fully in
accordance with the terms hereof, the Company shall reimburse Employees, on a
current basis, for all reasonable legal fees and expenses, if any, incurred by
Employee in connection with such contest or dispute if Employee is successful
in such contest or dispute.
INTRACEL CORPORATION
By /s/ [SIG]
---------------------------
/s/ MICHAEL G. HANNA, JR.
-----------------------------
Michael G. Hanna, Jr.
14
<PAGE> 1
Exhibit 10.8
INTRACEL CORPORATION
EMPLOYMENT AGREEMENT
Agreement made as of this 2nd day of January, 1998, by and among Simon
McKenzie of Seattle, Washington ("Employee") and Intracel Corporation (the
"Company").
PREAMBLE
In connection with the closing ("Closing") of the merger (the "Merger")
of PerImmune Holdings, Inc. ("PerImmune") with a wholly owned subsidiary of the
Company, the Board of Directors of the Company recognizes Employee's potential
contribution to the growth and success of the Company and desires to assure the
Company of Employee's employment in an executive capacity as Vice-Chairman of
the Board and Chief Executive Officer and to compensate him therefor. Employee
wants to be employed by the Company and to commit himself to serve the Company
on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties, the parties agree as follows:
1. Definitions
"Benefits" shall mean all the fringe benefits approved by the
Board from time to time and established by the Company for the benefit of
employees generally and/or for key employees of the Company as a class,
including, but not limited to, regular holidays, vacations, absences resulting
from illness or accident, health insurance, disability and medical plans
(including dental and prescription drug), group life insurance, and pension,
profit-sharing and stock bonus plans or their equivalent.
"Board" shall mean the Board of Directors of the Company,
together with an executive committee thereof (if any), as same shall be
constituted from time to time.
"Cause" for termination shall mean (i) Employee's final
conviction of a felony involving a crime of moral turpitude, (ii) acts of
Employee which, in the judgment of the Board, constitute willful fraud on the
part of Employee in connection with his duties under this Agreement, including
but not limited to misappropriation or embezzlement in the performance of duties
as an employee of the Company, or the willful engagement in conduct materially
injurious to the Company and in violation of the covenants contained in this
Agreement, or (iii) gross misconduct in connection with the performance of the
Employee's duties hereunder, including but not limited to the willful failure of
Employee either to (a) continue to obey lawful written instructions of the Board
which are consistent with Employee's responsibilities under this
<PAGE> 2
Agreement after thirty (30) days notice in writing of Employee's failure to do
so and the Board's intention to terminate Employee if such failure is not
corrected, or (b) correct any conduct of Employee which constitutes a material
breach of this Agreement after thirty (30) days notice in writing of Employee's
failure to do so and the Board's intention to terminate Employee if such failure
is not corrected. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board, based upon the advice of
counsel for the Company or upon the instructions of the Company's chairman of
the board or another senior officer of the Company shall be conclusively
presumed to be done, or omitted to be done, by Employee in good faith and in the
best interests of the Company. Cause shall not exist unless and until the
Company has delivered to Employee a copy of a resolution duly adopted by a
majority of the entire Board (excluding Employee if Employee is a Board member)
at a meeting of the Board called and held for such purpose, finding that in the
good faith opinion of the Board, an event set forth above has occurred and
specifying the particulars thereof in detail. The Company must notify Executive
of any event constituting Cause within ninety (90) days following the Company's
knowledge of its existence; provided that the failure to so notify the Employee
shall not be deemed to nullify the existence of Cause.
"Chairman" shall mean the individual designated by the Board from
time to time as its chairman, to preside over meetings of the Board.
"Chief Executive Officer" shall mean the individual having
responsibility to the Board for direction and management of the executive and
operational affairs of the Company and who reports and is accountable only to
the Board.
"Common Stock" shall mean the common stock, par value $.0001 per
share, of the Company or a successor in interest to the Company.
"Company" shall mean Intracel Corporation, a Delaware
corporation, or its successor together with such subsidiaries of the Company as
may from time to time exist.
"Disability" shall mean a written determination by a physician
mutually agreeable to the Company and Employee (or, in the event of Employee's
total physical or mental disability, Employee's legal representative) that
Employee is physically or mentally unable to perform his duties of Chief
Executive Officer under this Agreement and that such disability can reasonably
be expected to continue for a period of six (6) consecutive months.
"Employee" shall mean Simon McKenzie and, if the context
requires, his heirs, personal representatives, and permitted successors and
assigns.
"Employment Period" shall mean the period of the Employee's
employment hereunder which commences on the date hereof and shall continue for
the term of this Agreement.
2
<PAGE> 3
"Person" shall mean any natural person, incorporated entity,
limited or general partnership, business trust, association, agency
(governmental or private), division, political sovereign, or subdivision or
instrumentality, including those groups identified as "persons" in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934.
"Shares" shall mean shares of Common Stock of the Company that
the Employee owns from time to time.
"Territory" shall mean any state of the United States and any
equivalent section or area of any country in which the Company has
revenue-producing customers or activities.
2. Position and Responsibilities.
2.1. Position. During the term of this Agreement, Employee shall
serve as Chief Executive Officer and Vice-Chairman of the Board and in such
additional management position(s) as the Board shall designate. In this capacity
Employee shall, subject to the bylaws of the Company, and to the direction of
the Board, serve the Company by performing such duties and carrying out such
responsibilities as are normally related to the position of Chief Executive
Officer and Vice-Chairman of the Board in accordance with the standards of the
industry. Without limiting the foregoing, Employee shall report directly to the
Board of Directors and will have primary responsibility for (1) leading Company
efforts to develop and implement a strategic plan and maximize shareholder
value, (2) forming alliances and raising funding for the Company and (3)
overseeing all Company matters, including finance, administration, and
operations; provided, however, that Dr. Michael G. Hanna, Jr. shall have the
interim operational responsibilities described in Section 2.1(4) of his
Employment Agreement. The Board shall either vote, or recommend to the
shareholders of the Company, as appropriate, that during the term of employment
pursuant to this Agreement: (i) Employee be nominated for election as a director
of the Company at each meeting of shareholders held for the election of
directors of the Company; (ii) Employee be elected to and continue to serve in
the office of Chief Executive Officer and Vice-Chairman of the Board of the
Company and such of its subsidiaries as the Employee may select (and such other
office, if any, as shall be denominated that of the Chief Executive Officer and
Vice-Chairman of the Board of the Company or such subsidiary in the Company's or
such subsidiary's Bylaws or other constituent instruments); (iii) Employee be
elected to and continue to serve on the Board of each subsidiary of the Company,
(iv) if the Board of the Company or any of its subsidiaries shall appoint an
executive committee (or similar committee authorized to exercise the general
powers of the Board), Employee be elected to and continue to serve on such
committee; and (v) neither the Company nor any of its subsidiaries shall confer
on any other officer or employee of the Company authority, responsibility,
powers or prerogatives superior or equal to the authority, responsibility,
prerogatives and powers vested in Employee hereunder.
2.2. Best Efforts Covenant. During the term of this Agreement,
Employee will, to the best of his ability, devote his full professional and
business time and best efforts to
3
<PAGE> 4
the performance of his duties for the Company and its subsidiaries and
affiliates, other than due to Disability or vacation.
2.3. Exclusivity Covenant. During the Agreement's term, Employee
will not undertake or engage in any other employment, occupation or business
enterprise other than a business enterprise in which Employee does not actively
participate. Further, Employee agrees not to acquire, assume, or participate in,
directly or indirectly, any position, investment, or interest in the Territory
adverse or antagonistic to the Company, its business or prospects, financial or
otherwise, or take any action towards any of the foregoing. The provisions of
this Section 2.3 and 2.4 shall not prevent Employee from owning shares of any
competitor of the Company so long as such shares (i) do not constitute more than
5% of the outstanding equity of such competitor, or (ii) are regularly traded on
a recognized exchange or listed for trading by NASDAQ in the over-the-counter
market.
2.4. Post-Employment Noncompetition Covenant. Except with the
prior written consent of the Board, Employee shall not engage in activities in
the Territory either on Employee's own behalf or that of any other business
organization, which are in direct or indirect competition with the Company for a
period of one (1) year subsequent to Employee's voluntary withdrawal from
employment with the Company, or the Company's termination of Employee's
employment for Cause; provided, that the foregoing shall not apply if Employee
is terminated for reasons other than Cause. It is understood and agreed that
nothing in this Section 2.4 shall prevent the Employee from owning 5% or less of
the outstanding equity of any competitor or owning any outstanding equity of any
competitor so long as such shares are regularly traded on a recognized exchange
or listed for trading on NASDAQ in the over the counter market. Employee and the
Company expressly declare that the territorial and time limitations contained in
this Section and the definition of "Territory" are entirely reasonable at this
time and are properly and necessarily required for the adequate protection of
the business and intellectual property of the Company. If such territorial or
time limitations, or any portions thereof, are deemed to be unreasonable by a
court of competent jurisdiction, whether due to passage of time, change of
circumstances or otherwise, Employee and the Company agree to a reduction of
said territorial and/or time limitations to such areas and/or periods of time as
said court shall deem reasonable.
For a period of one year subsequent to Employee's voluntary
withdrawal from employment with the Company, or the Company's termination of
Employee's employment for Cause, or if this Agreement terminates after the end
of the Initial Period (as defined), Employee will not without the express prior
written approval of the Board (i) directly or indirectly, in one or a series of
transactions, recruit, solicit or otherwise induce or influence any proprietor,
partner, stockholder, lender, director, officer, employee, sales agent, joint
venturer, investor, lessor, supplier, customer, agent, representative or any
other person which has a business relationship with the Company or had a
business relationship with the Company within the twenty-four-(24) month period
preceding the date of the incident in question, to discontinue, reduce, or
modify such employment, agency or business relationship with the Company, or
(ii) employ or seek to
4
<PAGE> 5
employ or cause any business organization in direct or indirect competition with
the Company to employ or seek to employ any person or agent who is then (or was
at any time within six months prior to the date the Employee or the competitive
business employs or seeks to employ such person) employed or retained by the
Company; provided, that the foregoing shall not apply if Employee is terminated
for reasons other than Cause. Notwithstanding the foregoing, nothing herein
shall prevent the Employee from providing a letter of recommendation to an
employee with respect to a future employment opportunity.
2.5. Confidential Information. Employee recognizes and
acknowledges that the Company's trade secrets and proprietary information and
know-how, as they may exist from time to time ("Confidential Information"), are
valuable, special and unique assets of the Company's business, access to and
knowledge of which are essential to the performance of Employee's duties
hereunder. Employee will not, during or after the term of his employment by the
Company, in whole or in part, disclose such secrets, information or know-how to
any Person for any reason or purpose whatsoever, nor shall Employee make use of
any such property for his own purposes or for the benefit of any Person (except
the Company) under any circumstances during or after the term of his employment,
provided that after the term of his employment these restrictions shall not
apply to such secrets, information and know-how which are then in the public
domain (provided that Employee was not responsible, directly or indirectly, for
such secrets, information or processes entering the public domain without the
Company's consent). Employee shall have no obligation hereunder to keep
confidential any Confidential Information if and to the extent disclosure of any
thereof is specifically required by law; provided, however, that in the event
disclosure is required by applicable law, the Employee shall provide the Company
with prompt notice of such requirement, prior to making any disclosure, so that
the Company may seek an appropriate protective order. Employee agrees to hold as
the Company's property all memoranda, books, papers, letters, customer lists,
processes, computer software, records, financial information, policy and
procedure manuals, training and recruiting procedures and other data, and all
copies thereof and therefrom, in any way relating to the Company's business and
affairs, whether made by him or otherwise coming into his possession, and on
termination of his employment, or on demand of the Company at any time, to
deliver the same to the Company. Employee agrees that he will not use or
disclose to other employees of the Company, during the term of this Agreement,
confidential information belonging to his former employers.
Employee shall use his best efforts to prevent the removal of any
Confidential Information from the premises of the Company, except as required in
his normal course of employment by the Company. Employee shall use his best
efforts to cause all persons or entities to whom any Confidential Information
shall be disclosed by him hereunder to observe the terms and conditions set
forth herein as though each such person or entity was bound hereby.
2.6. [Intentionally Omitted]
5
<PAGE> 6
2.7. Records, Files. All records, files, drawings, documents,
equipment and the like relating to the business of the Company which are
prepared or used by Employee during the term of his employment under this
Agreement shall be and shall remain the sole property of the Company.
2.8. Equitable Relief. Employee acknowledges that his services to
the Company are of a unique character which give them a special value to the
Company. Employee further recognizes that violations by Employee of any one or
more of the provisions of this Section 2 may give rise to losses or damages for
which the Company cannot be reasonably or adequately compensated in an action at
law and that such violations may result in irreparable and continuing harm to
the Company. Employee agrees that, therefore, in addition to any other remedy
which the Company may have at law and equity, including the right to withhold
any payment of compensation under Section 4 of this Agreement, the Company shall
be entitled to injunctive relief to restrain any violation, actual or
threatened, by Employee of the provisions of this Agreement.
3. Compensation.
3.1. Minimal Annual Compensation. The Company shall pay to
Employee for the services to be rendered hereunder a base salary at an annual
rate of two hundred thousand dollars ($200,000) ("Minimum Annual Compensation").
There shall be an annual review for merit by the Board and an increase as deemed
appropriate to reflect the value of services by Employee. At no time during the
term of this Agreement shall Employee's annual base salary fall below Minimum
Annual Compensation. In addition, if the Board increases Employee's annual
compensation at any time during the term of this Agreement, such increased
annual compensation shall become a floor below which Employee's compensation
shall not fall at any future time during the term of this Agreement and shall
become "Minimum Annual Compensation".
Employee's salary shall be payable in periodic installments in
accordance with the Company's usual practice for similarly situated employees of
the Company.
3.2. Incentive Compensation. In addition to Minimum Annual
Compensation, Employee shall be entitled to receive payments under the Company's
incentive compensation and/or bonus program(s) (as in effect from time to time),
if any, in such amounts as are determined by the Board to be appropriate for
similarly situated employees of the Company. In addition, without limiting the
generality of the foregoing, Employee shall be paid the following bonuses with
respect to calendar year 1998: (i) $50,000 if a private placement of the
Company's equity securities aggregating not less than $3 million is consummated
by December 31, 1998 and (ii) $50,000 if a public offering of the Company's
equity securities registered under the Securities Act of 1933, as amended
aggregating not less than $20 million is consummated by December 31, 1998.
6
<PAGE> 7
3.3. Participating in Benefits. Employee shall be entitled to all
Benefits for as long as such Benefits may remain in effect and/or any substitute
or additional Benefits made available in the future to similarly situated
employees of the Company, subject to and on a basis consistent with the terms,
conditions and overall administration of such Benefits adopted by the Company.
Benefits paid to Employee shall not be deemed to be in lieu of other
compensation to Employee hereunder as described in this Section 3.
3.4. Specific Benefits.
During the term of this Agreement (and thereafter to the extent
this Agreement shall require):
(a) Employee shall be entitled to four (4) weeks of paid
vacation time per year, to be taken at times mutually acceptable to the Company
and Employee.
(b) The Company shall provide fully paid accident and
health insurance for Employee and his family with limits and extent of coverage
similar to that provided by Employee's previous employer.
(c) [Intentionally Omitted]
(d) Employee shall be entitled to sick leave benefits
during the employment period in accordance with the customary policies of the
Company for its executive officers, but in no event less than one (1) month per
year.
(e) In recognition of the necessity of the use of an
automobile to the efficient and expeditious performance of Employee's services,
duties and obligations to and on behalf of the Company, the Company shall
provide to Employee, at the Company's sole cost and expense, a car to be chosen
by Employee. In addition thereto, the Company shall bear the expense of
insurance, fuel and maintenance therefor.
(f) In addition to the vacation provided pursuant to
Section 3.04(a) hereof, Employee shall be entitled to not less than ten (10)
paid holidays (other than weekends) per year, generally on such days on which
the New York Stock Exchange is closed to trading.
(g) Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by him (in accordance with
the policies and procedures established by the Company or the Board for the
similarly situated employees of the Company) in performing services hereunder,
including, without limiting the generality of the foregoing, $75,000
representing the reasonable cost and expenses associated with Employee's move to
Seattle, Washington.
7
<PAGE> 8
(h) The Company shall pay the reasonable costs of
preparation, by a professional of Employee's choosing, of Employee's annual and
estimated federal income tax and Washington State income tax returns in an
amount not to exceed $ 1,000.
(i) The Company shall pay the reasonable costs of
Employee's personal financial planning by a professional of Employee's choosing
in an amount not to exceed $1,000.
(j) Employee shall be eligible to participate during the
Employment Period in Benefits not inconsistent or duplicative of those set forth
in this Section 3.04 as the Company shall establish or maintain for its
employees or executives generally.
4. Termination.
4.1. Termination by Company for Other Than Cause. If during the
term of this Agreement the Company terminates the employment of Employee and
such termination is not for Cause, then, subject to the provisions hereof, the
Company shall pay to Employee an amount equal to the monthly portion of the
Employee's Minimum Annual Compensation multiplied by thirty-six (36). To the
extent that Employee is not fully vested in retirement Benefits from any
pension, profit sharing or any other retirement plan or program (whether tax
qualified or not) maintained by the Company, the Company or the successor to the
Company shall pay directly to Employee the difference between the amounts which
would have been paid to Employee had he been fully vested on the date that his
employment terminated and the amounts actually paid or payable to Employee
pursuant to such plans or programs. In addition, the Company shall pay to
Employee the remaining payments of Minimum Annual Compensation under Section 3.1
relating to periods during which Employee was employed by the Company, payments
of vacation accrued pursuant to Section 3.4 but not yet paid, and reimbursement
of prior expenses under Section 3.4. The Company shall also continue to provide,
for a period of three (3) years following Employee's termination, Employee (and
Employee's dependents, if applicable) with the same level of medical, dental,
accident, disability and life insurance benefits upon substantially the same
terms and conditions (including contributions required by Employee for such
benefits) as existed immediately prior to Employee's termination; provided,
that, if Employee cannot continue to participate in the Company plans providing
such benefits, the Company shall otherwise provide such benefits on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event Employee becomes reemployed with
another employer and becomes eligible to receive welfare benefits from such
employer, the welfare benefits described herein shall be secondary to such
benefits during the period of Employee's eligibility, but only to the extent
that the Company reimburses Employee for any increased cost and provides any
additional benefits necessary to give Employee the benefits provided hereunder.
4.2. Constructive Discharge. A "Constructive Discharge" shall be
deemed to occur if the Company assigns Employee any duties, or reduces
Employee's duties, to levels
8
<PAGE> 9
inconsistent with the position or positions listed in Section 2. 1, fails to
comply with the provisions of Section 3, or engages in any other material breach
of the terms of this Agreement, and Employee may at his option terminate his
employment and such termination shall be considered to be a termination of
Employee's employment by the Company for reasons other than "Cause" for all
purposes under this Agreement.
4.3. Termination by the Company for Cause. The Company shall have
the right to terminate the employment of Employee for Cause. Effective as of the
date that the employment of Employee terminates by reason of Cause, this
Agreement, except for Sections 2.4 through 2.8, shall terminate and no further
payments of the Compensation described in Section 3 (except for such remaining
payments of Minimum Annual Compensation under Section 3.1 relating to periods
during which Employee was employed by the Company, Benefits which are required
by applicable law to be continued, and reimbursement of prior expenses under
Section 3.4) shall be made.
4.4. [Intentionally omitted].
4.5. Termination on Account of Employee's Death.
(a) In the event of Employee's death during the term of
this Agreement:
(1) This Agreement shall terminate except as provided
in this Section; and
(2) The Company shall pay to Employee's beneficiary
or beneficiaries (or to his estate if he fails to make such designation) an
amount equal to the monthly portion of Employee's Minimum Annual Compensation as
in effect on the date of his death multiplied by forty-eight (48).
(b) Employee may designate one or more beneficiaries for
the purposes of this Section by making a written designation and delivering such
designation to a Vice President, Chief Financial Officer or the Treasurer of the
Company. If Employee makes more than one such written designation, the
designation last received before Employee's death shall control.
4.6. Termination on Account of Employee's Disability. If Employee
ceases to perform services for the Company because he is suffering from a
medically determinable Disability and is therefore incapable of performing such
services, the Company shall continue to pay Employee an amount equal to
two-thirds (2/3) of Employee's Minimum Annual Compensation as in effect on the
date of Employee's cessation of services by reason of Disability less any
amounts paid to Employee as Workers Compensation, Social Security Disability
benefits (or any other disability benefits paid to Employee as federal, state,
or local disability
9
<PAGE> 10
benefits) and any amounts paid to Employee as disability payments under any
disability plan or program for a period ending on the earlier of: (a) the date
that Employee again becomes employed in a significant manner and on a
substantially full-time basis (in which case Employee shall be entitled to
receive Minimum Annual Compensation without any adjustment); or (b) the date
that Employee attains normal retirement age, as such age is defined in a
retirement plan maintained by the Company.
4.7. All amounts payable to Employee under this Section 4 shall
be payable in one lump sum, not discounted, as soon as practicable after the
event giving rise to the payment and in no event later than twenty days after
such termination.
4.8. Limitation on Payments by the Company
(a) Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any payment, award, benefit
or distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates a change of control (or any of its affiliated entities) to or
for the benefit of Employee (whether pursuant to the terms of this Agreement or
otherwise) (the "Payments") would be subject to the excise tax (the "Excise
Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), then the amounts payable to Employee under this Agreement shall be the
greater of (i) or (ii), where (i) is the Payment, as reduced by the Excise Tax
and (ii) is the Payment, reduced to the maximum amount as will result in no
portion of the Payments being subject to the Excise Tax (the "Safe Harbor Cap").
For purposes of reducing the Payments to the Safe Harbor Cap, only amounts
payable to Employee under this Agreement (and no other Payments) shall be
reduced, unless consented to by Employee.
(b) All determinations required to be made under this
Section 4.8 shall be made by the public accounting firm that is retained by the
Company and reasonably acceptable to the Employee (the "Accounting Firm"). If
payments are reduced to the Safe Harbor Cap, the Accounting Firm shall provide a
reasonable opinion to Employee that he is not required to report any Excise Tax
on his federal income tax return. All fees, costs and expenses (including, but
not limited to, the costs or retaining experts) of the Accounting Firm shall be
borne by the Company. The determination by the Accounting Firm shall be binding
upon the Company and Employee (except as provided in paragraph (c) below).
(c) If payments are reduced to the Safe Harbor Cap as
provided in Section 4.8(a)(ii) and if it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that Payments have been made
to, or provided for the benefit of, Employee by the Company, which are in excess
of the limitations provided in this Section 4.8(a)(ii) (hereinafter referred to
as an "Excess Payment"), such Excess Payment shall be deemed for all purposes to
be a loan to Employee made on the date Employee received the Excess Payment and
Employee shall repay
10
<PAGE> 11
the Excess Payment to the Company on demand, together with interest on the
Excess Payment at the applicable federal rate (as defined in Section 1274(d) of
the code) from the date of Employee's receipt of such Excess Payment until the
date of such repayment. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the determination, it is possible that
Payments which will not have been made by the Company should have been made (an
"Underpayment"), consistent with the calculations required to be made under this
Section 4.8(a). In the event that it is determined (i) by the Accounting Firm,
the Company (which shall include the position taken by the Company, or together
with its consolidated group, on its federal income tax return) or the IRS or
(ii) pursuant to a determination by a court, that an Underpayment has occurred,
the Company shall pay an amount equal to such Underpayment to Employee within
ten (IO) days of such determination together with interest on such amount at the
applicable federal rate from the date such amount would have been paid to
Employee until the date of payment.
5. Company Stock.
5.1. Warrants and/or Options. The Company shall forthwith grant
to Employee options and/or warrants (the "Options") to acquire that number of
shares of the Company's common stock ("Option Stock") as shall be necessary to
vest in Employee aggregate ownership, assuming the exercise of all Options and
taking into account Employee's then current holdings of capital stock of the
Company (including all options, warrants and other securities convertible or
exchangeable into capital stock of the Company), of at least six (6) percent of
the Company's outstanding common stock post the Merger on a "fully diluted
basis" (as such term is defined in that certain Agreement and Plan of
Reorganization pursuant to which the Merger was consummated), the exercise price
of such Options to be in each case not greater than $4.50 per Share; provided,
however, that in the event the Company's independent public accountants
determine that such option price would result in the Company's incurring
additional compensation expense from a Securities and Exchange Commission
accounting standpoint, then such option price shall be increased to such amount
as such independent public accountants determine would not result in such an
expense to the Company.
5.2. Tax Changes. If any change(s) in the Federal income tax laws
materially affect the tax treatment of Employee with respect to the Option or
the Option Stock, the parties agree to negotiate in good faith to reach an
agreement which will take advantage of, or minimize the disadvantages of, such
changes,
5.3. Right of Employee to Sell Shares to the Company upon Death,
Disability, or Involuntary Termination Without Cause.
(a) Put Option. If Employee at any time prior to the date
three (3) years from the date of this Agreement shall die, become Disabled, or
be terminated without Cause, Employee shall have the right and option (the "Put
Option") to sell any or all of the
11
<PAGE> 12
Shares to the Company at a price per Share equal to Fair Value (as defined) as
of the date of exercise of the Put Option by the Employee.
(b) Fair Value. For purposes of this Agreement, the Fair
Value of a Share of Common Stock of the Company, as of any date, is as follows:
if market quotations are readily available, a Share shall be valued at the last
trade on the exchange on which such Shares are primarily traded or, if not
traded on an exchange, at the closing bid price (or average of bid prices) last
quoted by an established over-the-counter quotation service. If the Shares are
not publicly traded, then a Share shall be valued by the Board, after
considering all pertinent factors and all appropriate information and data,
including liquidity; without limiting the generality of the foregoing, the Board
shall consider and take into account published-guidelines, including those
sponsored by the National Venture Capital Association or any committee thereof.
The Board may employ outside experts and independent consultants at the expense
of the Company to assist in the valuation process; provided, however, that
notwithstanding the above calculation, in no event will Fair Value of a Share of
Common Stock be less than the par value of such Share.
(c) Exercise of Put Option and Closing. Employee may
exercise the Put Option by delivering to the Company written notice of exercise
within sixty days after the death, Disability, or termination of the employment
of Employee giving rise to the Put Option as set forth in Section 5.3(a) above.
Such notice shall specify the number of Shares to be sold. If and to the extent
the Put Option is not so exercised within such sixty-day period, the Put option
shall automatically expire and terminate effective upon the expiration of such
sixty days period. At the time of delivery of notice of the exercise of the Put
Option, Employee shall tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company is
obligated to purchase, duly endorsed by Employee or with duly endorsed stock
powers attached thereto, all in form suitable for the transfer of such Shares to
the Company. The date of exercise of the Put Option shall be deemed to be the
date the Company receives notice of exercise from the Employee. Upon receipt
thereof, the Company shall indicate to the Employee the determination of the
Fair Value of a Share as of the date of exercise of the Put Option, and in the
event the Employee does not agree with such determination, the Employee shall
have two (2) days to elect by written notice to the Company not to proceed with
the exercise of the Put Option.
Within ten (1O) days of its receipt of the notice and such
Shares, the Company shall deliver to Employee the amount of the Fair Value as of
the date of exercise of the Put Option of a Share multiplied by the number of
Shares being sold. The purchase price may be payable, at the option of the
Company, in cancellation of all or a portion of any outstanding indebtedness of
Employee to the Company or in cash (by bank or cashier's check) or both.
(d) Right of Company to Delay Payment. If at any time the
Company is unable to repurchase Shares pursuant to the provisions of this
Section 5 pursuant to the provisions of applicable law or otherwise, or if it is
determined by the Board of Directors of the Company in their good-faith judgment
that the payment of the entire purchase price of such
12
<PAGE> 13
Shares pursuant to this Section 5 would be deleterious to the financial position
of the Company, the Company may elect to issue to the Employee a promissory note
for the unpaid portion of such purchase price (but not any amounts then payable
by the cancellation of outstanding indebtedness of Employee to the Company). In
the event that the Company determines that it is to issue such a promissory
note, it shall provide notice thereof to the Employee, and the Employee shall
thereupon have the right upon written notice to the Company within two (2) days
of his receipt of such notice to elect not to exercise the Put Option. The
promissory note shall contain the following terms: such deferred portion of the
purchase price shall thereafter be payable in three (3) equal annual
installments beginning on the date on which such purchase price was to be paid
but for the effect of this paragraph (d). The outstanding amount of such
installments shall bear interest at a floating rate equal to 2% per annum plus
the base rate announced from time to time by the New York, New York office of
Citibank, N.A. as its base rate for commercial loans, and such interest shall be
payable annually in arrears on each date that an installment of principal is
owing. The Company may prepay its obligations under this paragraph (d) in whole
or in part at any time, with such prepayments being applied first to interest
accrued but unpaid to the date of such prepayment and thereafter to installments
of principal in inverse order of their maturity. For so long as any interest or
principal remains owing under this paragraph (d), the Company shall not make any
distribution or dividend to the holders of its Common Stock.
(e) Termination of Put Option. The Put Option shall
terminate upon the closing of an underwritten public offering pursuant to an
effective registration statement pursuant to the Securities Act of 1933, as
amended, covering the offering and sale of Common Stock.
6. Miscellaneous.
6.1. Assignment. This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of each of the parties
hereto and shall also bind and inure to the benefit of any successor or
successors of the Company in a reorganization, merger or consolidation and any
assignee of all or substantially all of the Company's business and properties,
but, except as to any such successor of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or Employee. The
Company agrees that in connection with any business combination, it will cause
any successor entity to the Company unconditionally to assume and for any parent
corporation in such business combination to guarantee, by written instrument
delivered to Employee (or his beneficiary or estate), all of the obligations of
the Company hereunder. Failure of the Company to obtain such assumption and
guarantee prior to the effectiveness of any such business combination, shall be
a material breach of this Agreement and shall constitute a termination not for
Cause by the Company hereunder and shall entitle Employee to compensation and
other benefits from the Company in the same amount and on the same terms as
Employee would be entitled hereunder if Employee's employment were terminated
pursuant to Section 4.1 hereof. For purposes of implementing the foregoing, the
date on which any such business combination becomes effective
13
<PAGE> 14
shall be deemed the date of termination pursuant to Section 4. 1. If Employee
shall die while any amounts would be payable to Employee hereunder had Employee
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by employee to receive such amounts or, if no person is so
appointed, to Employee's estate.
6.2. Term. Except as otherwise provided, the term of this
Agreement shall endure until the earlier of (i) four years from the date of this
Agreement (the "Initial Period") or (ii) the Employee's employment with the
Company is terminated by either party on 30 days notice, the consequences of
such termination as provided herein. Following such three year period, the
parties shall negotiate this Agreement annually. To the extent termination
benefits depend on a certain number of months, the first and last months shall
be counted as whole months.
6.3. Governing Law. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of New
York.
6.4. Interpretation. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
6.5. Notice. Any notice required or permitted to be given
hereunder shall be effective when received and shall be sufficient if in writing
and if personally delivered or sent by prepaid cable, telex or registered air
mail, return receipt requested, to the party to receive such notice at its
address set forth at the end of this Agreement or at such other address as a
party may by notice specify to the other.
6.6. Amendment and Waiver. This Agreement may not be amended,
supplemented or waived except by a writing signed by the party against which
such amendment or waiver is to be enforced. The waiver by any party of a breach
of any provision of this Agreement shall not operate to, or be construed as a
waiver of, any other breach of that provision nor as a waiver of any breach of
another provision.
6.7. Binding Effect. Subject to the provisions of Section 4
hereof, this Agreement shall be binding on the successors and assigns of the
parties hereto.
6.8. Survival of Rights and Obligations. All rights and
obligations of Employee or the Company arising during the term of this Agreement
shall continue to have full force and effect after the termination of this
Agreement unless otherwise provided herein.
14
<PAGE> 15
6.9. Reimbursement of Expenses. If any contest or dispute shall
arise under this Agreement involving termination of Employee's employment with
the Company or involving the failure or refusal of the Company to perform fully
in accordance with the terms hereof, the Company shall reimburse Employee, on a
current basis, for all reasonable legal fees and expenses, if any, incurred by
Employee in connection with such contest or dispute if Employee is successful in
such contest or dispute.
INTRACEL CORPORATION
By
-------------------------------
/s/ SIMON McKENZIE
----------------------------------
Simon McKenzie
15
<PAGE> 1
EXHIBIT 10.9
10 February 1998
Mr. Daniel S. Reale
1243 Adams Street, #309
Dorchester, MA 02124
Dear Dan:
Following our previous discussions and our most recent meeting we would like to
extend to you the following offer of employment with Intracel Corporation:
Salary: $200,000/ annually plus bonus
Title: President OncoVax Division
Supervision/ Simon R. McKenzie, CEO
Reporting:
Start Date: March 9, 1998
Responsibilities: World-wide responsibility for the establishment and operation
of hospital-based cancer centers for the treatment of colon
cancer patients with the Company's active specific
immunotherapy (OncoVax).
Incentive You will receive 100,000 Incentive Stock Options at an
Stock Options: exercise price of $750/share to vest in accordance with the
following:
At Commencement of
Employment 25%
At 1st Anniversary 25%
At 2nd Anniversary 25%
At 3rd Anniversary 25%
Accelerated Vesting. If you achieve your first year's
objectives, you will also vest 50% of the Year 2 Options. If
you achieve your second year's objectives, you will also vest
100% of the Year 3 Options.
<PAGE> 2
Mr. Daniel S. Reale
10 February 1998
Page Two
Performance Bonus A bonus up to 50% of your annual salary will be paid
Incentives: in connection with the establishment of the planned
number of cancer centers. An additional bonus of up to
50% of your annual salary will be paid in connection
with the number of patients treated at the established
cancer centers.
Performance A performance review will be completed six months
Review: following commencement of employment with the Company
and annually, thereafter.
Vacation: Three weeks per year.
Other Benefits: You will become eligible for participation in the
following benefits following a 90-day waiting period:
[ ] The Company's Health Plan
[ ] The Cafeteria Plan and Trust
[ ] 401K Plan
Severance: 6 months
Housing Expenses: The Company will reimburse you for all moving expenses
as and when they are incurred. The Company will work
with you to provide reasonable assistance, if
necessary, in connection with your relocation to the
Rockville area. Company agrees to extend a $40,000
advance for such costs.
At the commencement of your employment, you will also be required to sign an
Employment and Confidentiality Agreement under the terms of which you will
agree, amongst other things, that everything you develop at Intracel will be
the sole property of the Company and that you will not disclose any
confidential or proprietary information to third parties.
As a condition of employment, you must meet the requirements of the Immigration
Reform and Control Act of 1986. Employment is also contingent upon submitting
to a drug screening test, for which a negative result is required.
Please review the terms of this offer carefully, call me with any questions,
and if you are in agreement with these terms of employment, please return a
signed duplicate copy of this offer letter to me indicating your acceptance. By
signing this letter, you will agree that this
<PAGE> 3
Mr. Daniel S. Reale
10 February 1998
Page Three
letters contains the entire agreement between Intracel Corporation and yourself
and that you have not been offered, either verbally or in writing, any
additional inducements or been made any other promises relating to your
employment with the Company.
We are looking forward to a long and mutually rewarding relationship.
Sincerely yours,
Simon R. McKenzie
Chief Executive Officer
SRM:gcm
Acceptance:
2/20/98 /s/ DANIEL S. REALE
- ----------- ------------------------------
Date Daniel S. Reale
<PAGE> 1
EXHIBIT 10.13
PREFERRED STOCK
PURCHASE AGREEMENT
between
INTRACEL CORPORATION
and
NORTHSTAR HIGH TOTAL RETURN FUND
Dated as of March 12, 1997
<PAGE> 2
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I THE SERIES A-2 PREFERRED.............................................1
SECTION 1.1. Issuance, Sale and Delivery of the Series A-2 Preferred........................1
SECTION 1.2. Closing Date...................................................................1
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................1
SECTION 2.1. Organization, Qualifications and Corporate Power...............................2
SECTION 2.2. Authorization of Agreements, etc...............................................2
SECTION 2.3. Validity.......................................................................3
SECTION 2.4. Authorized Capital Stock.......................................................3
SECTION 2.5. Financial Statements...........................................................4
SECTION 2.5A. Absence of Undisclosed Liabilities and Changes.................................5
SECTION 2.6. Events Subsequent to the Date of the Balance Sheet.............................5
SECTION 2.7. Litigation; Compliance with Law................................................5
SECTION 2.8. Title to Properties............................................................6
SECTION 2.9. Leasehold Interests............................................................6
SECTION 2.10. Insurance......................................................................6
SECTION 2.11. Taxes..........................................................................7
SECTION 2.12. Other Agreements...............................................................7
SECTION 2.13. Patents, Trademarks, etc.......................................................8
SECTION 2.14. Loans and Advances.............................................................9
SECTION 2.15. Assumptions, Guaranties, etc. of Indebtedness of Other Persons.................9
SECTION 2.16. Significant Customers and Suppliers............................................9
SECTION 2.17. Governmental Approvals.........................................................9
SECTION 2.18. Accuracy of Statements........................................................10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 2.19. Employment Relations..........................................................10
SECTION 2.20. Compensation of Key Employees.................................................10
SECTION 2.21. Environmental Compliance......................................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................10
SECTION 3.1. Purchase of Series A-I Preferred..............................................10
SECTION 3.2. Authority.....................................................................11
SECTION 3.3. Projections...................................................................11
ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER.....................11
SECTION 4.1. Opinion of Company's Counsel..................................................12
SECTION 4.2. Representations and Warranties to be True and Correct.........................12
SECTION 4.3. Performance...................................................................12
SECTION 4.4. All Proceedings to be Satisfactory............................................12
SECTION 4.5. Supporting Documents..........................................................12
SECTION 4.6. Legal Fees....................................................................13
SECTION 4.7. Certificate of Designation....................................................13
SECTION 4.8. Consents......................................................................13
ARTICLE V COVENANTS OF THE COMPANY............................................13
SECTION 5.1. Financial Statements, Reports, etc............................................13
SECTION 5.2. Corporate Existence...........................................................15
SECTION 5.3. Properties, Business, Insurance...............................................15
SECTION 5.4. Inspection, Consultation and Advice...........................................15
SECTION 5.5. Restrictive Agreements Prohibited.............................................15
SECTION 5.6. Board of Directors Meetings...................................................16
SECTION 5.7. Compliance with Laws..........................................................16
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 5.8. Keeping of Records and Books of Account.......................................16
SECTION 5.9. Maintaining Nature of Business................................................16
SECTION 5.10. Obligations and Taxes.........................................................16
SECTION 5.11. Further Issuances of Series A-I Preferred.....................................16
SECTION 5.12. Notices......................................................................16
SECTION 5.13. Environmental Matters.........................................................17
SECTION 5.14. The Exchange Notes; Security Interest; Guaranty...............................18
SECTION 5.15. Waivers.......................................................................18
SECTION 5.17. Further Assurances............................................................19
ARTICLE VI MISCELLANEOUS......................................................19
SECTION 6.1. Expenses......................................................................19
SECTION 6.2. Survival of Agreements........................................................19
SECTION 6.3. Brokerage.....................................................................19
SECTION 6.4. Parties in Interest...........................................................20
SECTION 6.5. Notices; Payment of Dividends.................................................20
SECTION 6.6. Replacement of Certificates...................................................20
SECTION 6.7. Governing Law.................................................................21
SECTION 6.8. Entire Agreement..............................................................21
SECTION 6.9. Submission to Jurisdiction; Waivers...........................................21
SECTION 6.10. Counterparts..................................................................21
SECTION 6.11. Amendments....................................................................22
SECTION 6.12. Severability..................................................................22
SECTION 6.13. Titles and Subtitles..........................................................22
SCHEDULE I....................................................................24
</TABLE>
<PAGE> 5
PREFERRED STOCK PURCHASE AGREEMENT, dated as of March 12, 1997 between Intracel
Corporation, a Massachusetts corporation (the "Company") and Northstar High
Total Return Fund (the "Purchaser").
WHEREAS, the Company wishes to issue and sell to the Purchaser an
aggregate of 40,000 shares (the "Shares") of the Company's Series A-2 Preferred
Stock, no par value (the "Series A-2 Preferred"), of which 155,000 shares are
authorized, for an aggregate purchase price of $4,000,000, which shares shall be
issued to the Purchaser in the amount and for the consideration set forth across
from the Purchaser's name as set forth on Schedule I hereto; and
WHEREAS, the Purchaser wishes to purchase the Series A-2 Preferred on
the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties hereto agree as follows:
ARTICLE I
THE SERIES A-2 PREFERRED
SECTION 1.1. Issuance, Sale and Delivery of the Series A-2 Preferred.
The Company agrees to issue and sell to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, the Shares.
SECTION 1.2. Closing Date. The closing of the sale and purchase of the
Shares (the "Closing"), will take place at the offices of Morrison & Foerster
LLP, 1290 Avenue of the Americas, New York, NY 10104, at 10:00 a.m., New York
time, as of the date hereof, or at such other place, time and date as may be
otherwise mutually agreed in writing by the parties hereto. The date on which
the Closing occurs is referred to herein as the "Closing Date". At the Closing,
the Company shall issue and deliver to the Purchaser a stock certificate or
certificates in definitive form, registered in the name of the Purchaser,
representing the Series A-2 Preferred being purchased by it at the Closing, as
indicated on Schedule I hereto. The parties hereto agree that the Shares as are
to be purchased by the Purchaser shall be delivered to the Purchaser's
designated custodian for delivery to the Purchaser's funding agent which shall,
upon receipt of such certificate, release for delivery the Notes (as hereinafter
defined) to be delivered by Purchaser pursuant to Schedule I hereto and wire
transfer immediately available funds in the amount of the cash consideration to
be paid by the Purchaser in accordance with Schedule I for such Shares to the
account of the Company previously designated by it.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the Closing
Date that:
<PAGE> 6
SECTION 2.1. Organization, Qualifications and Corporate Power. The
Company is a corporation duly organized (originally under the name of Boston
Biological Technologies, Inc.), validly existing and in good standing under the
laws of the Commonwealth of Massachusetts; Bartels, Inc. (the Company's wholly
owned subsidiary)("Bartels") is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware; and each of the
Company and Bartels is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification, except where the
failure so to qualify will not have a material adverse effect on the business,
operations, property or financial condition of the Company or Bartels,
respectively. Each of the Company and Bartels has the power and authority to own
and hold its properties and to carry on its business as now conducted and as
proposed to be conducted, to execute, deliver and perform this Agreement, and to
issue, sell and deliver the Series A-2 Preferred. The Company has no direct or
indirect subsidiaries, other than Bartels and the Company's ownership of
forty-five percent of the membership interests of the German-American Institute
for AIDS Research GmbH, a limited liability company formed under the laws of
Germany.
SECTION 2.2. Authorization of Agreements, etc. (a) The execution and
delivery by the Company of this Agreement, the performance by the Company of its
obligations hereunder and the issuance, sale and delivery of the Series A-2
Preferred have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Articles of Organization of the Company, as amended (the
"Charter") or the By-laws of the Company, as amended, or any provision of any
indenture, agreement or other instrument to which either the Company or Bartels
is a party or by which either the Company or Bartels or any of its properties or
assets is bound, or conflict with, result in a breach of or constitute (whether
with or without notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or Bartels other
than the Company's loan agreement with the Massachusetts Business Development
Corporation ("MBDC"), consent from which the Purchaser hereby expressly waives;
provided, however, that the Company shall either obtain the consent of MBDC to
the transactions contemplated by this Agreement by the date which is 60 days
after the Closing Date or, in the event the Company fails to obtain such consent
by such date, pay all amounts due under such loan agreement.
(b) The Series A-2 Preferred has been duly authorized and, when
issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable with no personal liability attaching to the
ownership thereof and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company.
The issuance, sale or delivery of the Series A-2 Preferred is not
subject to any preemptive right of stockholders of the Company or to any
right of first refusal or other right in favor of any person.
2
<PAGE> 7
(c) Except as set forth in Schedule 2.2(c), there is no party
without whose consent the Company could not pay dividends in cash to the
Purchaser as provided under the terms of the Series A-2 Preferred.
SECTION 2.3. Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and
moratorium laws and other similar laws of general application affecting
enforcement of creditors' rights generally and (ii) the availability of
equitable remedies, including specific performance, which may be limited by
equitable principles of general applicability (regardless of whether enforcement
is sought in a proceeding in equity or at law).
SECTION 2.4. Authorized Capital Stock. The authorized capital stock of
(a) the Company consists of (i) 3,000,000 shares of Preferred Stock, no par
value per share (the "Preferred Stock"), of which 730,000 shares have been
designated Series A Preferred and 850,000 shares which have been designated
Series A-1 Preferred and 155,000 shares will have been designated Series A-2
Preferred in connection with this Closing and (ii) 5,000,000 shares of common
stock, no par value per share (the "Common Stock") and (b) Bartels consists of
1,000 shares of common stock, par value $.01 per share. Immediately prior to the
Closing, all of the capital stock of Bartels which is issued and outstanding
will be owned by the Company, 1,983,593 shares of Common Stock will be
outstanding, all of which will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
557,653 shares of Series A Preferred will be outstanding pursuant to the
Convertible Stock Purchase Agreement, dated July 22, 1994, by and among the
Company and the Purchasers set forth on Schedule I thereto (the "1994 Stock
Purchase Agreement") and 601,569 shares of Series A-1 Preferred will be
outstanding pursuant to the Convertible Stock Purchase Agreement, dated as of
September 22, 1995 by and among the Company and the Purchasers set forth on
Schedule I thereto (the "1995 Stock Purchase Agreement") and 136,658 shares of
Series A-1 Preferred will be issued and outstanding pursuant to a Convertible
Preferred Stock Purchase Agreement dated November 16, 1995, between the Company
and Creditanstalt American Corporation and 40,000 shares of Series A-2 Preferred
will be issued on even date herewith pursuant to this Agreement. No other shares
of capital stock of the Company or Bartels have been issued or reserved for
issuance, except 385,000 shares of Common Stock reserved for issuance in the
event options granted pursuant to the 1989 and 1990-1991 Stock Option Plans of
the Company are exercised, 730,000 shares of Common Stock reserved for issuance
in the event of the conversion of the shares of Series A Preferred Stock and
52,000 shares of Common Stock reserved for issuance in the event of the exercise
of the Series A Warrant, both having been granted pursuant to the 1994 Stock
Purchase Agreement, 850,000 shares of Common Stock reserved for issuance in the
event of the conversion of the shares of Series A-I Preferred Stock granted
pursuant to the 1995 Stock Purchase Agreement, 86,462 shares of Common Stock
reserved for issuance in the event of the exercise of warrants granted pursuant
to the Warrant Agreement, dated September 22, 1995, between the Company and
Dublind Investments, L.L.C., 91,177 shares of Common Stock reserved for issuance
in the event of the exercise of the warrants granted pursuant to the Warrant
Agreement, dated November 16, 1995, between the Company and Creditanstalt
Bankverein ("Creditanstalt"), 94,010 shares of Common Stock reserved for
3
<PAGE> 8
issuance in the event of exercise of the warrants granted pursuant to the Series
A-II Warrant and Note Purchase Agreement, dated December 27, 1995, between the
Company and Purchaser, 159,073 shares of Common Stock reserved for issuance in
the event of exercise of the warrants granted pursuant to the Note and Series
A-III Warrant Purchase Agreement, dated June 11, 1996 between the Company and
CoreStates Enterprise Fund, a division of CoreStates Bank, N.A. ("CoreStates")
and 79,537 shares of Common Stock reserved for issuance in the event of the
exercise of the Warrant granted pursuant to the Note and Series A-IV Warrant
Purchase Agreement, dated June 21, 1996 between the Company and Purchaser (the
"Note Agreement"). The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the Series A
Preferred Stock, the Series A-1 Preferred Stock and the Series A-2 Preferred
Stock are as set forth in both of the Certificates of Vote of Directors
Establishing a Series of a Class of Stock, and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws. Except as
provided for in the Charter, the Company has no obligation (contingent or other)
to purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. This Section 2.4 sets forth the aggregate number of outstanding
warrants, options, agreements, convertible securities or other commitments
pursuant to which the Company is or may become obligated to issue any shares of
its capital stock or other securities of the Company. Except as set forth above
in this Section 2.4, there are no preemptive or similar rights to purchase or
otherwise acquire shares of capital stock of the Company pursuant to any
provisions of law, the Charter or By-laws of the Company, in each case as
amended to the date hereof, or any agreement to which the Company is a party or
otherwise. Except as set forth above in this Section 2.4, or as contemplated
herein, immediately upon consummation at the Closing of the transactions
contemplated hereby there will be no agreement, restriction or encumbrance (such
as a right of first refusal, right of first offer, proxy, voting agreement,
voting trust, bring-along or come-along rights) with respect to the sale or
voting of any shares of capital stock of the Company (whether outstanding or
issuable upon conversion or exercise of outstanding securities) of which the
Company has knowledge.
SECTION 2.5. Financial Statements. The Company has furnished to the
Purchaser the audited balance sheet of the Company for the six months ended
December 31, 1995 (the "Balance Sheet") and the related audited statements of
income, stockholders' equity and cash flows of the Company for the six months
ended December 31, 1995, and the balance sheet of the Company as of September
30, 1996 and the related statements of income, stockholders' equity and cash
flows of the Company as of September 30, 1996. All such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the financial position of the Company as
of December 31, 1995 and September 30, 1996, respectively, and the results of
its operations and cash flows as of December 31, 1995 and September 30, 1996,
respectively. Except as set forth on Schedule 2.12, since the date of the
Balance Sheet, (i) there has been no change in the assets, liabilities or
financial condition of the Company from that reflected in the Balance Sheet
except for changes in the ordinary course of business which in the aggregate
have not been materially adverse and (ii) none of the business, financial
condition, operations or property of the Company have been materially adversely
4
<PAGE> 9
affected by any occurrence or development, individually or in the aggregate,
whether or not insured against.
SECTION 2.5A. Absence of Undisclosed Liabilities and Changes. Except as
set forth on Schedule 2.5A attached hereto, as of the date hereof, (a) the
Company had no liabilities of any nature (matured or unmatured, fixed or
contingent) which were not provided for on the balance sheet of the Company as
of such date, except for (i) liabilities which, individually and in the
aggregate, were not material to the financial condition of the Company or (ii)
liabilities incurred in the ordinary course of the Company's business and not
required to be so provided for under generally accepted accounting principles,
and (b) all reserves established by the Company and set forth on such balance
sheet were adequate in all material respects. There are no loss contingencies
(as such term is used in Statement of Financial Accounting Standards No. 5
("Statement No. 5") issued by the Financial Accounting Standards Board in March
1975) which are not adequately provided for in such balance sheet as required by
Statement No. 5.
SECTION 2.6. Events Subsequent to the Date of the Balance Sheet. Except
as set forth in the attached Schedule 2.6, since the date of the Balance Sheet,
except as contemplated by this Agreement, neither the Company nor Bartels has
(i) issued any stock, bond or other corporate security, (ii) borrowed any amount
or incurred or become subject to any liability (absolute, accrued or
contingent), except current liabilities incurred and liabilities under contracts
entered into in the ordinary course of business, (iii) discharged or satisfied
any lien or encumbrance or incurred or paid any obligation or liability
(absolute, accrued or contingent) other than current liabilities shown on the
Balance Sheet and current liabilities incurred since the date of the Balance
Sheet in the ordinary course of business, (iv) declared or made any payment or
distribution to stockholders or purchased or redeemed any share of its capital
stock or other security, (v) mortgaged, pledged or subjected to lien any of its
assets, tangible or intangible, other than liens of current real property taxes
not yet due and payable, (vi) sold, assigned or transferred any of its tangible
assets except in the ordinary course of business, or canceled any debt or claim,
(vii) sold, assigned, transferred or granted any exclusive license with respect
to any material patent, trademark, trade name, service mark, copyright, trade
secret or other intangible asset other than in the ordinary course of business,
(viii) suffered any material loss of property or waived any right of substantial
value, (ix) made any change in officer compensation except in the ordinary
course of business and consistent with past practice, (x) made any material
change in the manner of business or operations of the Company or Bartels,
respectively, (xi) entered into any transaction except in the ordinary course of
business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
SECTION 2.7. Litigation; Compliance with Law. Except as set forth in the
attached Schedule 2.6, there is no material (i) action, suit, claim, proceeding
or investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company or Bartels, respectively, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding relating to the Company or Bartels, respectively, pending
under a collective bargaining agreement or otherwise or (iii) governmental
inquiry pending or, to
5
<PAGE> 10
the knowledge of the Company, threatened against or affecting the Company or
Bartels, respectively (including, without limitation, any inquiry as to the
qualification of the Company or Bartels, respectively, to hold or receive any
license or permit). The Company has not received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to its
business, financial condition, operations or property. The Company is not in
default with respect to any order, writ, injunction or decree known to or served
upon the Company of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no material action or suit by the Company pending
or threatened against others. Each of the Company and Bartels has complied in
all material respects with all laws, rules, regulations and orders applicable to
its business, operations, properties, assets, products and services, and each of
the Company and Bartels has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted, except where the failure to own or possess such permits, licenses
or authorizations could not, either singly or in the aggregate, have a material
adverse effect on the business, operations, properties or financial condition of
the Company.
SECTION 2.8. Title to Properties. Except in instances that, either
singly or in the aggregate, could not have a material adverse effect on the
business, operations, properties or financial condition of the Company, and
except as disclosed in Schedule 2.8 hereof, each of the Company and Bartels has
good and marketable title to its properties and assets reflected on the Balance
Sheet (other than properties and assets disposed of in the ordinary course of
business since the date of the Balance Sheet), and all such properties and
assets are free and clear of mortgages, pledges, security interests, liens,
charges, claims, restrictions and other encumbrances, except for liens for
current taxes not yet due and payable and minor imperfections of title, if any,
not material in nature or amount and not materially detracting from the value or
materially impairing the use of the property subject thereto or impairing the
operations or proposed operations of the Company or Bartels, respectively.
SECTION 2.9. Leasehold Interests. Each lease or agreement to which the
Company or Bartels, respectively, is a party under which it is a lessee of any
property, real or personal (a list of all leases being attached hereto as
Schedule 2.9), is a valid and subsisting agreement without any material default
of the Company or Bartels, respectively, thereunder and, to the knowledge of the
Company, without any material default thereunder of any other party thereto. No
event has occurred and is continuing which, with due notice or lapse of time or
both, would constitute a default or event of default by the Company or Bartels,
respectively, under any such lease or agreement or, to the knowledge of the
Company, by any other party thereto.
SECTION 2.10. Insurance. The Company holds valid policies covering all
of the insurance required to be maintained by it under Section 5.3. Schedule
2.10 lists all insurance policies which the Company maintains with respect to
its businesses, properties and employees. Such policies are in full force and
effect and the Company has received no notice of termination from the insurance
carriers. Such policies, with respect to their amounts, deductibles and types of
coverage, are adequate in the reasonable commercial judgment of the Company to
insure against risks to which the Company and its respective businesses are
subject. Since the date of
6
<PAGE> 11
the Balance Sheet, there has been no material adverse change in the Company's
relationship with its insurers or in the premiums payable pursuant to such
policies.
SECTION 2.11. Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns, foreign, Federal, state, county and local,
required to be filed by it, and the Company has paid all taxes shown to be due
by such returns and extensions as well as all other taxes, assessments and
governmental charges which have become due or payable, including, without
limitation, all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors and third parties. All such taxes with respect to
which the Company has become obligated have been paid and adequate reserves have
been established for all taxes accrued but not yet payable. No deficiency
assessment with respect to or proposed adjustment of the Company's foreign,
Federal, state, county or local taxes is pending or, to the knowledge of the
Company, threatened. There is no tax lien in favor of any foreign, Federal,
state, county or local authority, outstanding against the assets, properties or
business of the Company. Neither the Company nor any of its stockholders has
ever filed a consent pursuant to Section 341(f) of the internal Revenue Code of
1986, as amended (the "Code"), relating to collapsible corporations.
SECTION 2.12. Other Agreements. Except as set forth in the attached
Schedule 2.12, neither the Company nor Bartels is a party to or otherwise bound
by any written or oral contract or instrument or other restriction which
individually or in the aggregate could materially adversely affect the business,
financial condition, operations or property of the Company. Except as set forth
in the attached Schedule 2.12, or as a result of the transactions contemplated
in this Agreement, neither the Company nor Bartels is a party to or otherwise
bound by any written or oral:
(a) distributor, dealer, manufacturer's representative or sales
agency contract or agreement which is not terminable on less than ninety
(90) days' notice without cost or other liability to the Company;
(b) sales contract which entitles any customer to a rebate or
right of set-off, to return any product to the Company after acceptance
thereof or to delay the acceptance thereof, or which varies in any
material respect from the Company's standard form contracts;
(c) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of
its employees);
(d) contract or other commitment with any supplier containing any
provision permitting any party other than the Company or Bartels to
renegotiate the price or other terms, or containing any pay-back or
other similar provision, upon the occurrence of a failure by the Company
or Bartels to meet its obligations under the contract when due or the
occurrence of any other event;
7
<PAGE> 12
(e) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its
normal operating requirements;
(f) contract for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not
terminable on notice without cost or other liability to the Company,
except normal severance arrangements and accrued vacation pay;
(g) agreement or indenture relating to the borrowing of money or
to the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any asset of the Company or Bartels;
(h) guaranty of any obligation for borrowed money or otherwise;
(i) agreement, or group of related agreements with the same party
or any group of affiliated parties, under which the Company or Bartels
has advanced or agreed to advance money or has agreed to lease any
property as lessee or lessor;
(j) agreement or obligation (contingent or otherwise) to issue,
sell or otherwise distribute or to repurchase or otherwise acquire or
redeem any share of its capital stock or any of its other equity
securities;
(k) assignment, license or other agreement with respect to any
form of intangible property or Intellectual Property or the development
or use thereof;
(l) agreement under which it has granted any person any
registration rights;
(m) agreement under which it has limited or restricted its right
to compete with any person in any respect; or
(n) other contract or group of related contracts with the same
party involving more than $50,000 or continuing over a period of more
than one year from the date or dates thereof (including renewals or
extensions optional with another party), which contract or group of
contracts is not terminable by the Company or Bartels without penalty
upon notice of thirty (30) days or less, but excluding any contract or
group of contracts with a customer of the Company or Bartels for the
sale, lease or rental of the Company's or Bartels' products or services
if such contract or group of contracts was entered into by the Company
or Bartels in the ordinary course of business.
SECTION 2.13. Patents, Trademarks, etc. Set forth in Schedule 2.13 is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company or
Bartels, or of which the Company or Bartels is a licensor or licensee or in
which the Company or Bartels has any right, and in each case a brief description
of the nature of such right. Except as set forth on Schedule 2.13, each of the
Company and Bartels owns or
8
<PAGE> 13
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names, copyrights, manufacturing processes, formulas, trade
secrets and know-how (collectively, "Intellectual Property") necessary to the
conduct of its business as presently conducted, and no claim is pending or, to
the knowledge of the Company, threatened to the effect that the operations of
the Company or Bartels infringe upon or conflict with the rights of any other
person under any Intellectual Property, and to the knowledge of the Company
there is no basis for any such claim. No claim is pending or to the knowledge of
the Company threatened to the effect that any such Intellectual Property owned
or licensed by the Company or Bartels, or which the Company or Bartels otherwise
has the right to use, is invalid or unenforceable by the Company, and to the
knowledge of the Company there is no basis for any such claim. To the knowledge
of the Company, all technical information developed by and belonging to the
Company or Bartels, as applicable, which has not been patented, has been kept
confidential. The Company has not granted or assigned to any other person or
entity any right to manufacture, have manufactured, assemble or sell any
products or proposed products of the Company and to the knowledge of the Company
no other person or entity has asserted any such right.
SECTION 2.14. Loans and Advances. Except as set forth on Schedule 2.14,
neither the Company nor Bartels has any outstanding loans or advances to any
person and is not obligated to make any such loans or advances, except, in each
case, for advances to employees of the Company or Bartels in respect of
reimbursable business expenses anticipated to be incurred by them in connection
with their performance of services for the Company or Bartels.
SECTION 2.15. Assumptions, Guaranties, etc. of Indebtedness of Other
Persons. Neither the Company nor Bartels has assumed, guaranteed, endorsed or
otherwise become directly or contingently liable on any indebtedness of any
other person (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in a debtor, or otherwise to assure a creditor
against loss), except for guaranties by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business.
SECTION 2.16. Significant Customers and Suppliers. No customer which
accounted for 10% or more of the Company's sales or revenues during the periods
covered by the financial statements referred to in Section 2.5 or which has been
significant to the Company thereafter has terminated, materially reduced or
threatened to terminate or materially reduce its purchases from the Company. As
of the date of this Agreement, there is no supplier to the Company which is a
sole-source supplier.
SECTION 2.17. Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchaser set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement and the issuance, sale and delivery of the Series A-2 Preferred,
other than filings pursuant to state securities laws in connection with the sale
of the Series A-2 Preferred.
9
<PAGE> 14
SECTION 2.18. Accuracy of Statements. Neither this Agreement nor any
Schedule, Exhibit, statement, list, document, certificate or other information
furnished by or on behalf of the Company to the Purchaser in connection with
this Agreement or any of the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading.
SECTION 2.19. Employment Relations. (a) The Company is in material
compliance with applicable federal, state or other applicable laws, domestic or
foreign, respecting employment and employment practices, safety, terms and
conditions of employment and wages and hours.
(b) The Company does not maintain or contribute to any employee
benefit plan ("Employee Benefit Plan") within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is subject to ERISA but which is not in substantial
compliance with ERISA, or which has incurred any material liability to
the Pension Benefit Guaranty Company ("PBGC") in connection with any
Employee Benefit Plan covering any employees of the Company or any of
its subsidiaries or ceased operations at any facility or withdrawn from
any such Plan in a manner which could subject it to material liability
under Section 462(f), 4063 or 4064 of ERISA, and knows of no facts or
circumstances which might give rise to any material liability of the
Company to the PBGC under Title IV of ERISA.
SECTION 2.20. Compensation of Key Employees. Schedule 2.20 sets forth
the aggregate compensation (salaries, wages and bonuses) paid by the Company to
its four most highly compensated employees for the 1996 fiscal year and the
amount of such compensation scheduled to be paid to such employees for the 1997
fiscal year.
SECTION 2.21. Environmental Compliance. The Company is in compliance
with all applicable laws relating to environmental matters in each jurisdiction
where it is presently engaged in a material manufacturing business, except for
such failures to comply which, in the aggregate, could reasonably be expected
not to have a material adverse effect on the Company. The Company is not subject
to any liability under any such environmental laws, that, in the aggregate for
all such liabilities, could be reasonably expected to have a material adverse
effect on the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as of the Closing
Date that:
SECTION 3.1. Purchase of Series A-2 Preferred. (a) It is an "accredited
investor" within the meaning of Rule 501 under the Securities Act and was not
organized for the specific purpose of acquiring the Series A-2 Preferred.
10
<PAGE> 15
(b) It has sufficient knowledge and experience in investing
in companies in a similar stage of development to the Company so as to
be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof.
(c) It has had an opportunity to discuss the Company's business,
management and financial condition with the Company's management.
(d) It is purchasing the Series A-2 Preferred for its own account
for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof.
(e) It understands that (i) the Series A-2 Preferred has not been
registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the Series A-2 Preferred must be held
indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration requirements,
(iii) the Series A-2 Preferred will bear a legend to such effect and
(iv) the Company will make a notation on its transfer ledger to such
effect.
SECTION 3.2. Authority. It has all requisite power and authority to
execute, deliver and perform this Agreement, and has taken all necessary action
to authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement on the
Closing Date will constitute, the legal, valid and binding obligation of the
Purchaser, enforceable in accordance with its terms, except (i) to the extent
that enforceability may be limited by bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and (ii) that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceedings therefor may be brought.
SECTION 3.3. Projections. It understands that any and all financial
projections and other estimates delivered to it were based on the Company's
experience in the industry and on assumptions of fact and opinion which the
Company believes to have been, and to be, reasonable. It understands that the
Company cannot and does not assure or guarantee the attainment of such
projections or other estimates.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligation of the Purchaser to purchase and pay for the Series A-2
Preferred being purchased by it on the Closing Date is, at its option, subject
to the satisfaction of the Purchaser and its counsel, on or before the Closing
Date, of the following conditions:
11
<PAGE> 16
SECTION 4.1. Opinion of Company's Counsel. The Purchaser shall have
received from Morrison & Foerster LLP, counsel for the Company, an opinion dated
the Closing Date, in the form attached as Exhibit B and otherwise satisfactory
in form and scope to the Purchaser and its counsel as to such other matters as
the Purchaser or its counsel may reasonably request.
SECTION 4.2. Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of such Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President of the Company shall have certified to such effect to the Purchaser in
writing.
SECTION 4.3. Performance. The Company shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date, and the President of the Company shall
have certified to the Purchaser in writing to such effect and to the further
effect that all of the conditions set forth in this Article IV have been
satisfied.
SECTION 4.4. All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchaser and its counsel, and the Purchaser and its
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
SECTION 4.5. Supporting Documents. At the Closing, the Purchaser and
its counsel shall have received copies of the following documents:
(a) (i) the Charter, certified as of a recent date by the
Secretary of State of the Commonwealth of Massachusetts and (ii) a
certificate of said Secretary dated as of a recent date as to the due
incorporation and subsistence of the Company and listing all documents
of the Company on file with said Secretary;
(b) a certificate of the Clerk or an Assistant Clerk of the
Company dated the Closing Date and certifying: (i) that attached thereto
is a true and complete copy of the By-laws of the Company as in effect
on the date of such certification; (ii) that attached thereto is a true
and complete copy of all resolutions adopted by the Board of Directors
of the Company authorizing the execution, delivery and performance of
this Agreement, the issuance, sale and delivery of the Series A-2
Preferred and that all such resolutions are in full force and effect and
are all the resolutions adopted in connection with the transactions
contemplated by this Agreement; (iii) that the Charter has not been
amended since the date of the last amendment referred to in the
certificate delivered pursuant to clause (a)(ii) above, except as
contemplated by Exhibit A; and (iv) to the incumbency and specimen
signature of each officer of the Company executing this Agreement or any
of the stock certificates representing the Series A-2 Preferred and any
certificate or instrument furnished pursuant hereto, and a certification
by another officer of the Company as to the
12
<PAGE> 17
incumbency and signature of the officer signing the certificate referred
to in this clause (b); and
(c) such additional supporting documents and other information
with respect to the operations of the Company as the Purchaser or its
counsel may reasonably request.
(d) Legal Fees. At the Closing, the Company shall pay the
reasonable fees and expenses of Reboul, MacMurray, Hewitt, Maynard &
Kristol incurred for Northstar in connection with the transactions
contemplated by this Agreement.
SECTION 4.6. Certificate of Designation. The Certificate of Vote of
Directors Establishing a Series or a Class of Stock with respect to the Series
A-2 Preferred in substantially the form of Exhibit A (the "Certificate of
Designation") shall have been filed with the Secretary of State of
Massachusetts.
SECTION 4.7. Consents. Except with respect to the consent of MBDC, the
obtaining of which consent the Purchaser has expressly waived, the written
consent of Creditanstalt Bankverein and any other party without whose consent
the Company could not effect the transactions contemplated hereby or pay cash
dividends to the Purchaser in respect of the Shares as provided for in the
Certificate of Designation shall have been received in form and substance
satisfactory to the Purchaser and its counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that so long as the
Purchaser (or an affiliate thereof) owns at least 25 % of the shares of Series
A-2 Preferred purchased by the Purchaser:
SECTION 5.1. Financial Statements, Reports, etc. The Company shall
furnish to each holder of Series A-2 Preferred:
(a) as soon as available, but in any event within 90 days after
the end of each fiscal year of the Company, a copy of the consolidated
balance sheet of the Company and its subsidiaries with which it is
consolidated for financial statement purposes ("Subsidiaries") as at the
end of such year and the related consolidated statements of income,
stockholders' equity and cash flows for such year, setting forth in each
case comparisons to the figures for the previous year, reported on
without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by Ernst & Young or
other independent certified public accountants of nationally recognized
standing;
(b) as soon as available, but in any event not later than 30 days
after the end of each month of each fiscal year of the Company, the
unaudited consolidated balance sheet
13
<PAGE> 18
of the Company and its Subsidiaries as at the end of such month and the
related unaudited consolidated statements of income, stockholders'
equity and cash flows of the Company and its Subsidiaries for such month
and the portion of the fiscal year through the end of such month,
setting forth in each case comparisons to the figures for the previous
year certified by an executive officer of the Company (a "Responsible
Officer") as being fairly stated in all material respects (subject to
normal year-end audit adjustments);
(c) all such financial statements shall be complete and correct
in all material respects and shall be prepared in reasonable detail and
in accordance with GAAP applied consistently throughout the periods
reflected therein and with prior periods (except as approved by such
accountants or officer, as the case may be, and disclosed therein) and
shall be accompanied by a management discussion and analysis in respect
of the fiscal periods reported on therein;
(d) concurrently with the delivery of the financial statements
referred to in clause (a) above, a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default (as such terms are
defined in the notes (the "Notes") issued pursuant to the Note
Agreement), except as specified in such certificate;
(e) concurrently with the delivery of the financial statements
referred to in clause (a) or clause (b) above, a certificate of a
Responsible Officer stating that, to the best of such officer's
knowledge, the Company during such period and as of the date of such
certificate has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement
to be observed, performed or satisfied by it, and that such officer has
obtained no knowledge of any Default or Event of Default during such
period or on or prior to the date of such certificate except as
specified in such certificate;
(f) not later than 30 days prior to the end of each fiscal year
of the Company, a copy of the projections by the Company for the
operating budget and cash flow budget of the Company and its
Subsidiaries for the succeeding fiscal year, such projections to be
accompanied by a certificate of a Responsible Officer to the effect that
such projections have been prepared on the basis of sound financial
planning practice and that such officer has no reason to believe they
are incorrect or misleading in any material respect;
(g) within 5 days after the same are sent, copies of all
financial statements and reports which the Company sends to its other
stockholders, and within 5 days after the same are filed, copies of all
financial statements and reports which the Company may make to, or file
with, the Securities and Exchange Commission or any successor or
analogous governmental authority;
(h) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations
14
<PAGE> 19
or financial affairs given to the Company by its independent certified
public accountants (and not otherwise contained in other materials
provided hereunder);
(i) during the month of October in each calendar year, a report
of a reputable insurance broker with respect to the Company's insurance;
(j) promptly, and in any case within five business days
thereafter, written notice of the commencement of any action, suit or
proceeding before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting
the Company or any of its Subsidiaries, and of any material adverse
development in connection with any of the foregoing, in each case
described in reasonable detail (including a description of the parties,
the venue and the nature of the claim); and
(k) promptly, such additional financial and other information as
the holder of Series A-2 Preferred may from time to time reasonably
request.
SECTION 5.2. Corporate Existence. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
SECTION 5.3. Properties, Business, Insurance. The Company shall maintain
with financially sound and reputable insurers, insurance against such casualties
and contingencies and of such types and in such amounts and with such deductible
as are customary for companies similarly situated, including but not limited to
fire and other risks insured against by extended coverage, product liability
insurance, key person insurance and public liability insurance against claims
for personal injury or death or property damage occurring upon, in, about or in
connection with the use of any properties owned, occupied or controlled by the
Company, which insurance shall be deemed by the Company to be sufficient; and
maintain workers' compensation insurance and such other insurance as may be
required by law. The Company shall keep all property useful and necessary in its
business in good working order and condition in accordance with industry
standards and applicable law.
SECTION 5.4. Inspection, Consultation and Advice. The Company shall
permit the Purchaser at the expense of the Purchaser (unless occasioned by a
default by the Company of its obligations under this Agreement, or the terms of
the Series A-2 Preferred Stock, and then at the Company's expense), to visit and
inspect any of the properties of the Company, examine its books and take copies
and extracts therefrom, discuss the finances and accounts of the Company with
its officers, employees and public accountants (and the Company hereby
authorizes said accountants to discuss with the Purchaser such finances and
accounts), and consult with and advise the management of the Company and its
independent certified public accountants as to its finances and accounts, all at
reasonable times and upon reasonable notice.
SECTION 5.5. Restrictive Agreements Prohibited. The Company shall not
become a party to any agreement which by the terms thereof or as a result of the
performance thereof restricts the Company's performance of, or ability to
perform, this Agreement or the Charter.
15
<PAGE> 20
SECTION 5.6. Board of Directors Meetings. The Company shall use its
best efforts to ensure that meetings of its Board of Directors are held at least
semi-annually.
SECTION 5.7. Compliance with Laws. The Company shall comply with all
applicable laws, rules, regulations and orders, and each of its Contractual
Obligations (as defined in the Notes), in each case to the extent any such
noncompliance could materially adversely affect its business or condition,
financial or otherwise.
SECTION 5.8. Keeping of Records and Books of Account. The Company shall
keep adequate records and books of account, in which complete entries will be
made in accordance with generally accepted accounting principles consistently
applied, reflecting all financial transactions of the Company, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.9. Maintaining Nature of Business. The Company will remain in
the business of researching and developing, manufacturing and distributing
biotechnology and healthcare products.
SECTION 5.10. Obligations and Taxes. The Company shall pay when due all
of its indebtedness and obligations promptly and in accordance with their terms
and pay and discharge promptly all taxes, assessments and governmental charges
or levies imposed upon it or its income or profits or in respect of its
properly, before the same shall become in default, as well as all lawful claims
for labor and supplies or otherwise which, if unpaid, might become a lien or
charge upon such properties or any part thereof, provided, however, that the
Company shall not be required to pay and discharge or to cause to be paid and
discharged any indebtedness, obligation, tax, assessment, charge, levy or claim
so long as the validity or amount thereof shall be contested in good faith by
appropriate proceedings and the Company shall have set aside on its books such
reserves as may be required by generally accepted accounting principles with
respect to any such tax, assessment, charge, levy or claim so contested.
SECTION 5.11. Further Issuances of Series A-2 Preferred. The Company
shall not, directly or indirectly, issue, offer to sell, effect any sale or
otherwise dispose of by any means any shares of Series A-2 Preferred or rights
to acquire such shares or securities convertible into or exchangeable for such
shares without the prior written consent of the majority of the holders of the
Series A-2 Preferred.
SECTION 5.12. Notices. The Company shall promptly give notice to each
holder of Series A-2 Preferred of:
(a) the occurrence of any Default or Event of Default;
(b) any (1) default or event of default under any Contractual
Obligation of the Company or any of its Subsidiaries or (2) litigation,
investigation or proceeding which may exist at any time between the
Company or any of its Subsidiaries and any Governmental Authority (as
such term is defined in the Notes), which in either case, if
16
<PAGE> 21
not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect (as such term
is defined in the Notes);
(c) any litigation or proceeding affecting the Company or any of
its Subsidiaries in which the amount involved is $250,000 or more and
not covered by insurance or in which injunctive or similar relief is
sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Company knows or has reason to know thereof:
(1) the occurrence or expected occurrence of any Reportable Event (as
such term is defined in the Notes) with respect to any Plan, a failure
to make any required contribution to a Plan (as such term is defined in
the Notes), the creation of any Lien in favor of the PBGC (as such term
is defined in the Notes) or a Plan or any withdrawal from, or the
termination, Reorganization or Insolvency (as such terms are defined in
the Notes) of, any Multiemployer Plan (as such term is defined in the
Notes) or (2) the institution of proceedings or the taking of any other
action by the PBGC or the Company or any Commonly Controlled Entity (as
such term is defined in the Notes) or any Multiemployer Plan with
respect to the withdrawal from, or the terminating, Reorganization or
Insolvency of, any Plan;
(e) any material adverse change in the business, operations,
property, condition (financial or otherwise) or prospects of the Company
and its Subsidiaries taken as a whole;
(f) any application or registration relating to any material
patent or trademark of the Company or any of its Subsidiaries becoming
abandoned or dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States
Patent and Trademark Office or any court or tribunal in any country)
regarding the Company's or Bartels' ownership of any material patent or
trademark or its right to register the same or to keep and maintain the
same.
Each notice pursuant to this Section 5.12 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Company proposes to take with respect
thereto.
SECTION 5.13. Environmental Matters. (a) The Company shall comply with,
and ensure compliance by all tenants and subtenants, if any, with, all
applicable Environmental Laws (as such term is defined in the Notes) and obtain
and comply with and maintain, and ensure that all tenants and subtenants obtain
and comply with and maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws.
(b) Conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions
required under Environmental Laws and promptly comply with all lawful
orders and directives of all Governmental Authorities regarding
Environmental Laws.
17
<PAGE> 22
SECTION 5.14. The Exchange Notes; Security Interest; Guaranty. (a)
Immediately upon the issuance by the Company of one or more notes (the "Exchange
Notes") pursuant to the Certificate of Designation (which Exchange Notes shall
be in substantially the form of Exhibit C hereto), the Company and Bartels agree
to execute such agreements and other documents such that payment of the Exchange
Notes is guaranteed by Bartels and the Exchange Notes are secured by all of the
assets of the Company (including all intellectual property and the assets and
stock of subsidiaries formed after the date of this Agreement), with the
obligation of Bartels under the aforementioned guaranty to be secured by all of
the assets of Bartels (including all intellectual property), all the extent
practicable, to the same extent (limited only to the extent not then currently
possible) as payment of the Notes has been guaranteed and secured pursuant to
the:
(i) Junior Subordinated Security Agreement between the
Company, Bartels and Purchaser dated as of June 21, 1996;
(ii) Junior Subordinated Pledge Agreement between the
Company and Purchaser dated as of June 21, 1996;
(iii) Junior Subordinated subsidiary Guaranty by Bartels
in favor of Purchaser, as Lender, dated as of June 21, 1996;
(iv) Agreement (Patent) between the Company, as Grantor,
and Purchaser, as Lender, dated as of June 21, 1996;
(v) Agreement (Trademark) between the Company, as Grantor,
and Purchaser as Lender, dated as of June 21, 1996;
(vi) Agreement (Patent) between Bartels, as Grantor, and
Purchaser, as Lender, dated as of June 21, 1996;
(vii) Agreement (Trademark) between Bartels, as Grantor,
and Purchaser, as Lender, dated as of June 21, 1996;
(b) The Company and Bartels further agree to immediately take all
action necessary to perfect such security interests; provided, however,
that the preceding undertaking by the Company and Bartels shall not be
deemed to be a covenant by either of them that such security interests
shall have the same priority as those that have been heretofore securing
payment of the Notes.
SECTION 5.15. Waivers. The Company agrees that it will not enter into a
waiver with respect to a default under an agreement for borrowed money if such
waiver provides that cash dividends may not be paid under the terms of the
Certificate of Designation after the date on which the default has been cured
(other than a deemed cure of such default by reason of the existence of the
waiver).
18
<PAGE> 23
SECTION 5.16. Payment of Dividends. The Company agrees to pay all
dividends due to Northstar High Total Return Fund as follows:
For cash payments:
CTC NJ
ABA No. 031207526
BNF=TRUST
OBI=NORTHSTAR HIGH TOTAL RETURN FUND
For payments in kind:
Custodial Trust Corp.
101 Carnegie Center
Princeton, NJ 08540
Attn.: Ms. Ann Pedersen
SECTION 5.17. Further Assurances. The Company and the Purchaser hereby
agree to take such further action as shall be commercially and reasonably
necessary to provide each party hereto with the benefits intended to be granted
by this Agreement to such party.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Expenses. (a) Except to the extent provided in Section
4.6, each party hereto will pay its own expenses in connection with the
transactions contemplated hereby whether or not such transactions shall be
consummated.
(b) The Company will also pay, and will save the Purchaser
harmless from, any and all liabilities with respect to any taxes, and
interest and penalties thereon (other than taxes which are measured
solely by the income of the Purchaser), which may be payable in respect
of the execution and delivery of this Agreement, or the issue of the
Series A-2 Preferred Stock.
SECTION 6.2. Survival of Agreements. Unless otherwise expressly stated
herein, or in any certificate or instrument delivered to the Purchaser pursuant
thereto, all covenants and agreements, made herein, or any certificate or
instrument delivered to the Purchaser pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement, and the
issuance, sale and delivery of the shares of the Series A-2 Preferred. All
statements contained in any certificate or other instrument delivered by the
Company hereunder or thereunder or in connection herewith or therewith shall be
deemed to constitute representations and warranties made by the Company.
SECTION 6.3. Brokerage. Each party hereto will indemnify and hold
harmless the other against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements,
19
<PAGE> 24
arrangements or understandings made or claimed to have been made by such party
with any third party.
SECTION 6.4. Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting the Purchaser shall inure to the benefit of any and all subsequent
holders from time to time of shares of Series A-2 Preferred.
SECTION 6.5. Notices; Payment of Dividends. All notices, requests,
consents and other communications hereunder shall be in writing and shall be
delivered in person or mailed by certified or registered mail, return receipt
requested, or telexed in the case of non U.S. residents, addressed as follows:
(a) if to the Company, at Intracel Corporation, 1871 N.W.
Gilman Blvd., Issaquah, WA 98027, Attention: Simon R. McKenzie, with a
copy to Joseph W. Bartlett, Morrison & Foerster LLP, 1290 Avenue of the
Americas, New York, New York 10104; and
(b) if to the Purchaser, at the address set forth beneath the
Purchaser's name; or, in any such case, at such other address or
addresses as shall have been furnished in writing by such party to the
others.
So long as the Purchaser or any affiliate of the Purchaser, or a nominee
of either, shall be the holder of Series A-2 Preferred, and in addition to any
provision contained in the Articles of Organization with respect to the method
of payment of dividends, the Company will pay all dividends on Series A-2
Preferred owned by such person by the method and at the addresses specified for
such purposes on the attached Schedule I, or by such other method or at such
other address as such person shall have specified to the Company in writing for
such purposes. The Company shall accord the benefits of this paragraph to any
institutional purchaser which shall have purchased shares of Series A-2
Preferred directly from the Purchaser or an affiliate of the Purchaser.
SECTION 6.6. Replacement of Certificates. Upon receipt of evidence
reasonable satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificate evidencing ownership of shares of Series A-2
Preferred by the Purchaser or an affiliate of the Purchaser, or a nominee of
either (a "Certificate" for purposes of this Section 6.6) and, in the case of
loss, theft or destruction of any Certificate upon delivery of an indemnity bond
in such reasonable amount as the Company may determine (but if such holder is an
insurance company, an unsecured indemnity agreement from such holder shall
suffice) or, in the case of mutilation upon surrender of such Certificate for
cancellation to the Company at its principal office, the Company at its expense
will execute and deliver in lieu thereof a new Certificate for the same number
of shares as were evidenced by such lost, stolen, destroyed or mutilated
Certificate which
20
<PAGE> 25
shall be in such form and tenor as not to cause any loss of accrued dividends on
the shares evidenced by the lost, stolen, destroyed or mutilated Certificate.
SECTION 6.7. Governing Law. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the State of New York,
regardless of the jurisdiction of creation or domicile of the Company or its
successors or of the Purchaser (without giving effect to such jurisdiction's
choice of law principles that would result in the application of any law other
than that of the State of New York), except that the filing, perfection, effect
of perfection and enforcement of security interests and liens in other
jurisdictions shall be governed by the laws of the applicable jurisdictions in
accordance with the Uniform Commercial Code as then in effect under the laws of
the respective state of reference.
SECTION 6.8. Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 6.9. Submission to Jurisdiction; Waivers. Each of the Company
and the Purchaser hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive
general jurisdiction of the Courts of the State of New York, the courts
of the United States of America for the Southern District of New York,
and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) agrees that service or process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Company at its address set forth in Section 6.5 or at
such other address of which the Purchaser shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.
SECTION 6.10. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21
<PAGE> 26
SECTION 6.11. Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds of the outstanding shares of the
Series A-2 Preferred.
SECTION 6.12. Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.13. Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
22
<PAGE> 27
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
<TABLE>
<S> <C>
INTRACEL CORPORATION
[Corporate Seal] By:
-------------------------------------------
Name: Simon R. McKenzie
Title: President and Chief Executive
Officer
Attest: By:
-------------------------------------------
Name:
Title:
- -----------------------------------
Name: Cheryl Cataldo SOLELY FOR PURPOSES OF SECTION 5.14
Title: Clerk BARTELS, INC.
By:
-------------------------------------------
Name:
Title:
PURCHASER:
NORTHSTAR HIGH TOTAL RETURN FUND
By:
-------------------------------------------
Name: Thomas Ole Dial
Title: Vice President
Address: 2 Pickwick Plaza, c/o Thomas Ole
Dial, Greenwich, CT 06803
Attention: Michael Graves
copy to: Karen Wiedemann, Esq,
Reboul, MacMurray, Hewitt,
Maynard & Kristol
45 Rockefeller Plaza
New York, New York
</TABLE>
23
<PAGE> 1
EXHIBIT 10.14
================================================================================
NOTE AND SERIES A- WARRANT
PURCHASE AGREEMENT
between
INTRACEL CORPORATION
and
NORTHSTAR ADVANTAGE HIGH TOTAL RETURN FUND
Dated as of June 21, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I
THE SECURITIES
1.1. Issuance, Sale and Delivery of the Securities.......................................1
1.2. Closing; Purchase Price; Purchase Price Allocation..................................1
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1. Organization, Qualifications and Corporate Power....................................2
2.2. Authorization of Agreements, etc....................................................2
2.3. Validity............................................................................3
2.4. Authorized Capital Stock............................................................3
2.5. Financial Statements................................................................4
2.5A. Absence of Undisclosed Liabilities and Changes......................................5
2.6. Events Subsequent to the Date of the Balance Sheet..................................5
2.7. Litigation; Compliance with Law.....................................................6
2.8. Title to Properties.................................................................6
2.9. Leasehold Interests.................................................................6
2.10. Taxes...............................................................................7
2.11. Other Agreements....................................................................7
2.12. Patents, Trademarks, etc............................................................8
2.13. Loans and Advances..................................................................9
2.14. Assumptions, Guaranties, etc. of Indebtedness of Other Persons......................9
2.15. Significant Customers and Suppliers.................................................9
2.16. Governmental Approvals..............................................................9
2.17. Accuracy of Statements.............................................................10
2.18. Insurance..........................................................................10
2.19. Employment Relations...............................................................10
2.20. Compensation of Key Employees......................................................10
2.21. Environmental Compliance...........................................................10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
3.1. Purchase of Securities.............................................................11
3.2. Authority..........................................................................11
3.3. Projections........................................................................12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
4.1. Opinion of Company's Counsel.......................................................12
4.2. Representations and Warranties to be True and Correct..............................12
4.3. Performance........................................................................12
4.4. All Proceedings to be Satisfactory.................................................12
4.5. Supporting Documents...............................................................12
4.6. Fees of Purchaser..................................................................13
4.7. Warrant............................................................................14
4.8. Note and Other Loan Documents......................................................14
ARTICLE V
COVENANTS OF THE COMPANY
5.1. Reserve for Warrant Shares.........................................................14
5.2. Corporate Existence................................................................14
5.3. Restrictive Agreements Prohibited..................................................14
5.4. Compliance with Laws...............................................................15
5.5 Senior Indebtedness................................................................15
ARTICLE VI
REGISTRATION RIGHTS
6.1. Piggyback Registration.............................................................15
6.2. Registration Procedures............................................................17
6.3. Expenses...........................................................................19
6.4. Indemnification and Contribution...................................................19
6.5. Rule 144 Reporting.................................................................22
6.6. Termination of Piggyback Registration Rights.......................................22
6.7. Material Non-Public Information....................................................22
ARTICLE VII
MISCELLANEOUS
7.1. Expenses...........................................................................23
7.2. Survival of Agreements.............................................................23
7.3. Brokerage..........................................................................23
7.4. Parties in Interest................................................................23
7.5. Notices............................................................................23
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
7.6. Governing Law......................................................................24
7.7. Entire Agreement...................................................................24
7.8. Counterparts.......................................................................24
7.9. Amendments.........................................................................24
7.10. Severability.......................................................................24
7.11. Titles and Subtitles...............................................................24
</TABLE>
iii
<PAGE> 5
SCHEDULES
EXHIBITS
Exhibit A - Note
Exhibit B - Warrant
Exhibit C - Opinion of Counsel for the Company
<PAGE> 6
NOTE AND SERIES A- WARRANT PURCHASE AGREEMENT (this "Agreement"), dated as of
June 21, 1996, between Intracel Corporation, a Massachusetts corporation (the
"Company") and Northstar Advantage High Total Return Fund, a Massachusetts
business trust (the "Purchaser").
PREAMBLE:
WHEREAS, the Company wishes to issue and sell to the Purchaser (i) the Company's
secured promissory note, in the principal amount of $2,000,000, substantially in
the form attached hereto as Exhibit A (the "Note"), and (ii) the Series A-
Common Stock Warrant, substantially in the form attached hereto as Exhibit B
(the "Warrant") to purchase up to 79,537 shares of common stock, no par value
per share (the "Warrant Shares"), of the Company (the Note and the Warrant shall
collectively be referred to as the "Securities"); and
WHEREAS, the Purchaser wishes to purchase the Securities on the terms
and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties hereto agree as follows:
ARTICLE I
THE SECURITIES
SECTION 1.1. Issuance, Sale and Delivery of the Securities. The Company
agrees to issue, sell and deliver to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, at the closing (the "Closing"), the (i)
Note and (ii) the Warrant.
SECTION 1.2. Closing; Purchase Price; Purchase Price Allocation. The
Closing shall take place at the offices of Morrison & Foerster LLP, 1290 Avenue
of the Americas, New York, NY 10104, at 10:00 a.m., New York time on June 21,
1996, or at such other place, date and time as may be otherwise mutually agreed
in writing by the parties hereto. The date on which the Closing actually occurs
is referred to herein as the "Closing Date." At the Closing, the Company shall
issue and deliver to the Purchaser the Note, in substantially the form attached
hereto as Exhibit A, and the Warrant, in substantially the form attached hereto
as Exhibit B. As payment in full for the Securities, and against delivery of the
Securities on the Closing Date, the Purchaser shall transfer the sum of
$1,960,000 by wire transfer of immediately available funds to such account or
accounts as the Company may direct. The Company and the Purchaser agree that
$100,000 of the aggregate consideration for the Securities shall be allocated to
the Warrants, and that the balance of such aggregate consideration shall be
allocated to the Note.
<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the Closing
Date that:
SECTION 2.1. Organization, Qualifications and Corporate Power. The
Company is a corporation duly organized (originally under the name of Boston
Biological Technologies, Inc.), validly existing and in good standing under the
laws of the Commonwealth of Massachusetts, Bartels, Inc. (the Company's
wholly-owned subsidiary) ("Bartels") is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and each
of the Company and Bartels is duly licensed or qualified to transact business as
a foreign corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification, except where the
failure so to qualify will not have a material adverse effect on the business,
operations, property or financial condition of the Company or Bartels,
respectively. Each of the Company and Bartels has the power and authority to own
and hold its properties and to carry on its business as now conducted and as
proposed to be conducted, and the Company has the power and authority to
execute, deliver and perform this Agreement and the "Other Loan Documents" (as
defined in Section 4.8) (and, with respect to Bartels, the Security Agreement
and the Bartels Guaranty), to issue, sell and deliver the Note and the Warrant,
and to issue and deliver the Warrant Shares upon the exercise of the Warrant.
The Company has no subsidiaries, other than Bartels and the Company's ownership
of forty-five percent of the membership interests of German-American Institute
for AIDS Research GmbH, a limited liability company formed under the laws of
Germany.
SECTION 2.2. Authorization of Agreements, etc. (a) The execution and
delivery by the Company of this Agreement and the Other Loan Documents (and,
with respect to Bartels, the Security Agreement and the Bartels Guaranty), the
performance by the Company of its obligations hereunder and thereunder (and,
with respect to Bartels, the Security Agreement and the Bartels Guaranty), the
issuance, sale and delivery of the Note and the Warrant, and the issuance, sale
and delivery of the Warrant Shares upon the exercise of the Warrant, have been
duly authorized by all requisite corporate action and will not violate any
provision of law, any order of any court or other agency of government (except
that the issuance of the Warrant Shares may require filings under one or more
state securities laws, all of which filings will be made by the Company within
the requisite time period), the Articles of Organization of the Company, as
amended (the "Charter") or the By-laws of the Company, as amended (the
"By-laws") (or, with respect to Bartels, its Certificate of Incorporation or
By-laws), or any provision of any indenture, agreement or other instrument to
which either the Company or Bartels is a party or by which either the Company or
Bartels or any of its properties or assets is bound, or conflict with, result in
a breach of or constitute (whether with or without notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company or Bartels.
2
<PAGE> 8
(b) The Warrant has been authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company except as set
forth in this Agreement. The Warrant Shares have been duly authorized
and reserved for issuance upon exercise of the Warrant, and, when so
issued, will be duly authorized, validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company except as set
forth in this Agreement. Neither the issuance, sale or delivery of the
Warrant, nor the issuance or delivery of the Warrant Shares is subject
to any preemptive right of stockholders of the Company or to any right
of first refusal or other right in favor of any person, except as set
forth in Article VI of this Agreement.
SECTION 2.3. Validity. Each of this Agreement, the Note, the Other Loan
Documents, and the Warrant has been (or at the Closing, shall be) duly executed
and delivered by the Company and, where applicable, Bartels, and constitute the
legal, valid and binding obligation of the Company, and, where applicable,
Bartels, enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium
laws and other similar laws of general application affecting enforcement of
creditors' rights generally and (ii) the availability of equitable remedies
including specific performance may be limited by equitable principles of general
applicability (regardless of whether enforcement is sought in a proceeding in
equity or at law).
SECTION 2.4. Authorized Capital Stock. The authorized capital stock of
(a) the Company consists of (i) 3,000,000 shares of preferred stock, no par
value per share (the "Preferred Stock"), of which 730,000 shares have been
designated "Series A Preferred" and 850,000 shares designated "Series A-I
Preferred" and (ii) 5,000,000 shares of common stock (the "Common Stock") and
(b) Bartels consists of 1,000 shares of common stock, par value $.01 per share.
Immediately prior to the Closing, all of the capital stock of Bartels which is
issued and outstanding will be owned by the Company, 1,983,450 shares of Common
Stock will be issued and outstanding all of which will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof, 525,492 shares of Series A Preferred Stock will be
issued and outstanding pursuant to the Convertible Stock Purchase Agreement,
dated July 22, 1994, by and among the Company and the Purchasers set forth on
"Schedule I" thereto (the "1994 Stock Purchase Agreement"), 566,874 shares of
Series A-I Preferred will be issued and outstanding pursuant to the Convertible
Stock Purchase Agreement, dated September 22, 1995, by and among the Company and
the purchasers set forth on "Schedule I" thereto (the "1995 Stock Purchase
Agreement") and 128,775 shares of Series A-I Preferred will be issued and
outstanding pursuant to a Convertible Preferred Stock Purchase Agreement, dated
November 16, 1995, between the Company and Northstar American Corporation. No
other shares of capital stock of the Company or Bartels have been issued or
reserved for issuance, except 385,000 shares of Common Stock reserved for
issuance in the event options granted pursuant to the 1989 and 1990-1991 Stock
Option Plans of the Company are exercised, 730,000 shares of Common Stock
reserved for issuance in the event of the conversion
3
<PAGE> 9
of the shares of Series A Preferred Stock and 52,000 shares of Common Stock
reserved for issuance in the event of the exercise of the Series A Warrant, both
having been granted pursuant to the 1994 Stock Purchase Agreement, 850,000
shares of Common Stock reserved for issuance in the event of the conversion of
the shares of Series A-I Preferred Stock granted pursuant to the 1995 Stock
Purchase Agreement, 86,462 shares of Common Stock reserved for issuance in the
event of the exercise of warrants granted pursuant to the Warrant Agreement,
dated September 22, 1995, between the Company and Dublind Investments, L.L.C.,
91,177 shares of Common Stock reserved for issuance in the event of the exercise
of the warrants granted pursuant to the Warrant Agreement, dated November 16,
1995, between the Company and Creditanstalt Bankverein ("Creditanstalt"), 94,010
shares of Common Stock reserved for issuance in the event of exercise of the
warrants granted pursuant to the Series A-II Warrant and Note Purchase
Agreement, dated December 27, 1995, between the Company and Purchaser, 159,073
shares of Common Stock reserved for issuance in the event of exercise of the
warrants granted pursuant to the Note and Series A-III Warrant Purchase
Agreement, dated June 11, 1996 between the Company and CoreStates Enterprise
Fund, a division of CoreStates Bank, N.A. ("CoreStates") and 79,537 shares of
Common Stock reserved for issuance in the event of the exercise of the Warrant
granted pursuant to this Agreement. The designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of the Series A
Preferred Stock and the Series A-I Preferred Stock are as set forth in both of
the Certificates of Vote of Directors Establishing a Series of a Class of Stock,
and all such designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and enforceable and in
accordance with all applicable laws. Except as provided for in the Charter, the
Company has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. This Section 2.4
sets forth the aggregate number of outstanding warrants, options, agreements,
convertible securities or other commitments pursuant to which the Company is or
may become obligated to issue any shares of its capital stock or other
securities of the Company. Except as set forth above in this Section 2.4, there
are no preemptive or similar rights to purchase or otherwise acquire shares of
capital stock of the Company pursuant to any provisions of law, the Charter or
By-laws of the Company, in each case as amended to the date hereof, or any
agreement to which the Company is a party or otherwise. Except as set forth
above in this Section 2.4, or as contemplated herein, immediately upon
consummation at the Closing of the transactions contemplated hereby there will
be no agreement, restriction or encumbrance (such as a right of first refusal,
right of first offer, proxy, voting agreement, voting trust, bring-along or
come-along rights) with respect to the sale or voting of any shares of capital
stock of the Company (whether outstanding or issuable upon conversion or
exercise of outstanding securities) of which the Company has knowledge.
SECTION 2.5. Financial Statements . The Company has furnished to the
Purchaser the audited balance sheet of the Company for the year ended June 30,
1995 (the "Balance Sheet") and the related audited statements of income,
stockholders' equity and cash flows of the Company for the year ended June 30,
1995 and the balance sheet of the Company as of March 31, 1996 and the related
statements of income, stockholders' equity and cash flows of the Company as of
March 31, 1996. All such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied and fairly
present
4
<PAGE> 10
the financial position of the Company as of June 30, 1995 and March 31, 1996
respectively, and the results of its operations and cash flows as of June 30,
1995 and March 31, 1996 respectively. Since the date of the Balance Sheet, (i)
there has been no change in the assets, liabilities or financial condition of
the Company from that reflected in the Balance Sheet except for changes in the
ordinary course of business which in the aggregate have not been materially
adverse and (ii) none of the business, financial condition, operations or
property of the Company have been materially adversely affected by any
occurrence or development, individually or in the aggregate, whether or not
insured against.
SECTION 2.5A. Absence of Undisclosed Liabilities and Changes. Except as
set forth on Schedule 2.5A attached hereto, as of the date hereof, (a) the
Company had no liabilities of any nature (matured or unmatured, fixed or
contingent) which were not provided for on the balance sheet of the Company as
of such date, except for (i) liabilities which, individually and in the
aggregate, were not material to the financial condition of the Company or (ii)
liabilities incurred in the ordinary course of the Company's business and not
required to be so provided for under generally accepted accounting principles ,
and (b) all reserves established by the Company and set forth on such balance
sheet were adequate in all material respects. There are no loss contingencies
(as such term is used in Statement of Financial Accounting Standards No. 5
("Statement No. 5") issued by the Financial Accounting Standards Board in March
1975) which are not adequately provided for in such balance sheet as required by
Statement No. 5.
SECTION 2.6. Events Subsequent to the Date of the Balance Sheet. Except
as set forth in the attached Schedule 2.6 or as contemplated by this Agreement,
since the date of the Balance Sheet neither the Company nor Bartels has (i)
issued any stock, bond or other corporate security, (ii) borrowed any amount or
incurred or become subject to any liability (absolute, accrued or contingent),
except current liabilities incurred and liabilities under contracts entered into
in the ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the ordinary
course of business, (iv) declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its capital stock or other
security, (v) mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, other than liens of current real property taxes not yet
due and payable, (vi) sold, assigned or transferred any of its tangible assets
except in the ordinary course of business, or canceled any debt or claim, (vii)
sold, assigned, transferred or granted any exclusive license with respect to any
material patent, trademark, trade name, service mark, copyright, trade secret or
other intangible asset other than in the ordinary course of business, (viii)
suffered any material loss of property or waived any right of substantial value,
(ix) made any change in officer compensation except in the ordinary course of
business and consistent with past practice, (x) made any material change in the
manner of business or operations of the Company or Bartels, respectively, (xi)
entered into any transaction except in the ordinary course of business or as
otherwise contemplated hereby or (xii) entered into any commitment (contingent
or otherwise) to do any of the foregoing.
5
<PAGE> 11
SECTION 2.7. Litigation; Compliance with Law. There is no material (i)
action, suit, claim, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company or Bartels,
respectively, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding relating to
the Company or Bartels, respectively, pending under a collective bargaining
agreement or otherwise or (iii) governmental inquiry pending or to the knowledge
of the Company, threatened against or affecting the Company or Bartels,
respectively, (including, without limitation, any inquiry as to the
qualification of the Company or Bartels, respectively, to hold or receive any
license or permit). The Company has not received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to its
business, financial condition, operations or property. The Company is not in
default with respect to any order, writ, injunction or decree known to or served
upon the Company of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no material action or suit by the Company pending
or threatened against others. Each of the Company and Bartels has complied in
all material respects with all laws, rules, regulations and orders applicable to
its business, operations, properties, assets, products and services, and each of
the Company and Bartels has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted, except where the failure to own or possess such permits, licenses
or authorizations could not, either singly or in the aggregate, have a material
adverse effect on the business, operations, properties or financial condition of
the Company.
SECTION 2.8. Title to Properties. Except in instances that, either
singly or in the aggregate, could not have a material adverse effect on the
business, operations, properties or financial condition of the Company, and
except as disclosed in Schedule 2.8 hereof, each of the Company and Bartels has
good and marketable title to its properties and assets reflected on the Balance
Sheet (other than properties and assets disposed of in the ordinary course of
business since the date of the Balance Sheet), and all such properties and
assets are free and clear of mortgages, pledges, security interests, liens,
charges, claims, restrictions and other encumbrances, except for liens for
current taxes not yet due and payable and minor imperfections of title, if any,
not material in nature or amount and not materially detracting from the value or
materially impairing the use of the property subject thereto or impairing the
operations or proposed operations of the Company or Bartels, respectively.
SECTION 2.9. Leasehold Interests. Each lease or agreement to which the
Company or Bartels, respectively, is a party under which it is a lessee of any
property, real or personal (a list of all such leases being attached hereto as
Schedule 2.9), is a valid and subsisting agreement without any material default
of the Company or Bartels, respectively, thereunder and, to the knowledge of the
Company, without any material default thereunder of any other party thereto. No
event has occurred and is continuing which, with due notice or lapse of time or
both, would constitute a default or event of default by the Company or Bartels,
respectively, under any such lease or agreement or, to the knowledge of the
Company, by any other party thereto.
6
<PAGE> 12
SECTION 2.10. Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns, Federal, state, county and local, required to
be filed by it, and the Company has paid all taxes shown to be due by such
returns and extensions as well as all other taxes, assessments and governmental
charges which have become due or payable, including, without limitation, all
taxes which the Company is obligated to withhold from amounts owing to
employees, creditors and third parties. All such taxes with respect to which the
Company has become obligated have been paid and adequate reserves have been
established for all taxes accrued but not yet payable. No deficiency assessment
with respect to or proposed adjustment of the Company's Federal, state, county
or local taxes is pending or, to the knowledge of the Company, threatened. There
is no tax lien in favor of any Federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company. Neither
the Company nor any of its stockholders has ever filed a consent pursuant to
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to collapsible corporations.
SECTION 2.11. Other Agreements. Except as set forth in the attached
Schedule 2.11, neither the Company nor Bartels is a party to or otherwise bound
by any written or oral contract or instrument or other restriction which
individually or in the aggregate could materially adversely affect the business,
financial condition, operations or property of the Company. Except as set forth
in the attached Schedule 2.11, or as a result of the transactions contemplated
in this Agreement, the Note, the Other Loan Documents, or the Warrant, neither
the Company nor Bartels is a party to or otherwise bound by any written or oral:
(a) distributor, dealer, manufacturer's representative or sales
agency contract or agreement which is not terminable on less than ninety
(90) days' notice without cost or other liability to the Company or
Bartels;
(b) sales contract which entitles any customer to a rebate or
right of set-off, to return any product to the Company or Bartels after
acceptance thereof or to delay the acceptance thereof, or which varies
in any material respect from the Company's or Bartels' standard form
contracts;
(c) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of
its or Bartels' employees);
(d) contract or other commitment with any supplier containing any
provision permitting any party other than the Company or Bartels to
renegotiate the price or other terms, or containing any pay-back or
other similar provision, upon the occurrence of a failure by the Company
or Bartels to meet its obligations under the contract when due or the
occurrence of any other event;
(e) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its
normal operating requirements;
(f) contract for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings), on a full-time or
7
<PAGE> 13
consulting basis which is not terminable on notice without cost or other
liability to the Company or Bartels, except normal severance
arrangements and accrued vacation pay;
(g) agreement or indenture relating to the borrowing of money or
to the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any asset of the Company or Bartels;
(h) guaranty of any obligation for borrowed money or otherwise;
(i) agreement, or group of related agreements with the same party
or any group of affiliated parties, under which the Company or Bartels
has advanced or agreed to advance money or has agreed to lease any
property as lessee or lessor;
(j) agreement or obligation (contingent or otherwise) to issue,
sell or otherwise distribute or to repurchase or otherwise acquire or
retire any share of its capital stock or any of its other equity
securities;
(k) assignment, license or other agreement with respect to any
form of intangible property or Intellectual Property (as defined in
Section 2.12) or the development or use thereof;
(l) agreement under which it has granted any person any
registration rights;
(m) agreement under which it has limited or restricted its right
to compete with any person in any respect; or
(n) other contract or group of related contracts with the same
party involving more than $50,000 or continuing over a period of more
than one year from the date or dates thereof (including renewals or
extensions optional with another party), which contract or group of
contracts is not terminable by the Company or Bartels without penalty
upon notice of thirty (30) days or less, but excluding any contract or
group of contracts with a customer of the Company or Bartels for the
sale, lease or rental of the Company's or Bartels' respective products
or services if such contract or group of contracts was entered into by
the Company or Bartels, respectively, in the ordinary course of
business.
SECTION 2.12. Patents, Trademarks, etc. Set forth in Schedule 2.12 is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company or
Bartels, or of which the Company or Bartels is a licensor or licensee or in
which the Company or Bartels has any right, and in each case a brief description
of the nature of such right. Except as set forth in Schedule 2.12, each of the
Company and Bartels owns or possesses adequate licenses or other rights to use
all patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets and know-how (collectively, "Intellectual
8
<PAGE> 14
Property") necessary to the conduct of its business as conducted, and no claim
is pending or, to the knowledge of the Company, threatened to the effect that
the operations of the Company or Bartels infringe upon or conflict with the
rights of any other person under any Intellectual Property, and to the knowledge
of the Company there is no basis for any such claim. No claim is pending or, to
the knowledge of the Company, threatened to the effect that any such
Intellectual Property owned or licensed by the Company or Bartels, or which the
Company or Bartels otherwise has the right to use, is invalid or unenforceable
by the Company or Bartels, as applicable, and to the knowledge of the Company
there is no basis for any such claim. To the knowledge of the Company, all
technical information developed by and belonging to the Company or Bartels, as
applicable, which has not been patented has been kept confidential. The Company
has not granted or assigned to any other person or entity any right to
manufacture or assemble any products or proposed products of the Company, other
than to its affiliates, and to the knowledge of the Company no other person or
entity has asserted any such right.
SECTION 2.13. Loans and Advances. Except as set forth on Schedule 2.13,
neither the Company nor Bartels has any outstanding loans or advances to any
person and is not obligated to make any such loans or advances, except, in each
case, for advances to employees of the Company or Bartels in respect of
reimbursable business expenses anticipated to be incurred by them in connection
with their performance of services for the Company or Bartels.
SECTION 2.14. Assumptions, Guaranties, etc. of Indebtedness of Other
Persons. Neither the Company nor Bartels has assumed, guaranteed, endorsed or
otherwise become directly or contingently liable on any indebtedness of any
other person (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in a debtor, or otherwise to assure a creditor
against loss), except for guaranties by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business.
SECTION 2.15. Significant Customers and Suppliers. No customer which
accounted for 10% or more of the Company's sales or revenues during the periods
covered by the financial statements referred to in Section 2.5 or which has been
significant to the Company thereafter has terminated, materially reduced or
threatened to terminate or materially reduce its purchases from the Company. As
of the date of this Agreement, there is no supplier to the Company which is a
sole-source supplier.
SECTION 2.16. Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchaser set forth in Article III hereof,
no registration or filing with, or consent or approval of or other action by,
any Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Note, the Other Loan Documents or the Warrant (and, with
respect to Bartels, the Security Agreement or Bartels Guaranty), or the
issuance, sale and delivery of the Warrant Shares upon exercise of the Warrant,
other than (i) filings pursuant to state securities laws in connection with the
issuance and sale of the Warrant and (ii) with respect to the registration
rights provisions contained in Article VI of this Agreement, the registration of
the shares covered thereby with the Securities and Exchange
9
<PAGE> 15
Commission or any successor regulatory entity (the "Commission") and filings
pursuant to state securities laws.
SECTION 2.17. Accuracy of Statements. Neither this Agreement nor any
Schedule, Exhibit, statement, list, document, certificate or other information
furnished by or on behalf of the Company to the Purchaser in connection with
this Agreement or any of the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading.
SECTION 2.18. Insurance. Schedule 2.18 lists all insurance policies
which the Company maintains with respect to its businesses, properties and
employees. Such policies are in full force and effect and the Company has
received no notice of termination from the insurance carriers. Such policies,
with respect to their amounts and types of coverage, are adequate in the
reasonable commercial judgment of the Company to insure against risks to which
the Company and its respective businesses. Since the date of the Balance Sheet,
there has been no material adverse change in the Company's relationship with its
insurers or in the premiums payable pursuant to such policies.
SECTION 2.19. Employment Relations. (a) The Company is in material
compliance with applicable federal, state or other applicable laws, domestic or
foreign, respecting employment and employment practices, safety, terms and
conditions of employment and wages and hours.
(b) The Company does not maintain or contribute to any employee
benefit plan ("Employee Benefit Plan") within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is subject to ERISA but which is not in substantial
compliance with ERISA, or which has incurred any material liability to
the Pension Benefit Guaranty Company ("PBGC") in connection with any
Employee Benefit Plan covering any employees of the Company or any of
its subsidiaries or ceased operations at any facility or withdrawn from
any such Plan in a manner which could subject it to material liability
under Section 462(f), 4063 or 4064 of ERISA, and knows of no facts or
circumstances which might give rise to any material liability of the
Company to the PBGC under Title IV of ERISA.
SECTION 2.20. Compensation of Key Employees. Schedule 2.20 sets forth
the aggregate compensation (salaries, wages and bonuses) paid by the Company to
its four most highly compensated employees for the 1995 fiscal year and the
amount of such compensation scheduled to be paid to such employees for the 1996
fiscal year.
SECTION 2.21. Environmental Compliance. The Company is in compliance
with all applicable laws relating to environmental matters in each jurisdiction
where it is presently engaged in a material manufacturing business, except for
such failures to comply which, in the aggregate, could reasonably be expected
not to have a material adverse effect on the Company. The Company is not subject
to any liability under any such environmental laws, that, in the
10
<PAGE> 16
aggregate for all such liabilities, could be reasonably expected to have a
material adverse effect on the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as of the Closing
Date that:
SECTION 3.1. Purchase of Securities. (a) It is an "accredited investor"
within the meaning of Rule 501 under the Securities Act of 1933, as amended (the
"Securities Act") and was not organized for the specific purpose of acquiring
the Note or the Warrant.
(b) It has sufficient knowledge and experience in investing in
companies in a similar stage of development to the Company so as to be
able to evaluate the risks and merits of its investment in the Company
and it is able financially to bear the risks thereof.
(c) It has had an opportunity to discuss the Company's business,
management and financial condition with the Company's management.
(d) It is acquiring the Note and the Warrant for its own account
for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof.
(e) It understands that (i) the Note, the Warrant and, upon
exercise thereof, the Warrant Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act pursuant to Section
4(2) thereof or Rule 505 or 506 promulgated under the Securities Act,
(ii) the Note, the Warrant and, upon exercise thereof, the Warrant
Shares must be held indefinitely unless a subsequent disposition thereof
is registered under the Securities Act or is exempt from such
registration, (iii) the Note, the Warrant and, upon exercise thereof,
the Warrant Shares will bear a legend to such effect and (iv) the
Company will make a notation on its transfer books to such effect.
SECTION 3.2. Authority. It has all requisite power and authority to
execute, deliver and perform this Agreement, the Note, the Other Loan Documents,
and the Warrant and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement, the Note, the Other Loan Documents,
and the Warrant and the consummation of the transactions contemplated hereby and
thereby. This Agreement, the Note, the Other Loan Documents, and the Warrant on
the Closing Date will constitute the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with their terms, except (i) to the extent
that enforceability may be limited by bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and (ii) that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceedings therefor may be brought.
11
<PAGE> 17
SECTION 3.3. Projections. It understands that any and all financial
projections and other estimates delivered to it were based on the Company's
experience in the industry and on assumptions of fact and opinion which the
Company believes to have been, and to be, reasonable. It understands that the
Company cannot and does not assure or guarantee the attainment of such
projections or other estimates.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser to purchase and pay for the Note and
the Warrant, both being purchased by it on the Closing Date, are, at its option,
subject to the satisfaction of the following conditions on or before such
Closing Date:
SECTION 4.1. Opinion of Company's Counsel. The Purchaser shall have
received from Morrison & Foerster LLP, counsel for the Company, an opinion dated
the Closing Date, in the form attached hereto as Exhibit C.
SECTION 4.2. Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II hereof shall be true,
complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date,
and the President of the Company shall have certified to such effect to the
Purchaser in writing.
SECTION 4.3. Performance. The Company shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date, and the President of the Company shall
have certified to the Purchaser in writing to such effect and to the further
effect that all of the conditions set forth in this Article IV have been
satisfied.
SECTION 4.4. All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transaction
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchaser and its counsel, and the Purchaser and its
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
SECTION 4.5. Supporting Documents. At the Closing, the Purchaser shall
have received copies of the following documents:
(a) (i) the Charter, certified as of a recent date by the
Secretary of State of the Commonwealth of Massachusetts and (ii)
a certificate (A) of said Secretary dated as of a recent date as
to the due incorporation and subsistence of the Company, and
listing all documents of the Company on file with said Secretary
and (B) from the Secretary of State of the State of Delaware
dated as of a recent
12
<PAGE> 18
date as to the due incorporation and subsistence of Bartels, and
listing all documents of Bartels on file with said Secretary;
(b) a certificate of the Clerk or an Assistant Clerk of
the Company dated the Closing Date and certifying: (i) that
attached thereto is a true and complete copy of all resolutions
adopted by the Board of Directors (the "Company Board") or the
stockholders of the Company authorizing the execution, delivery
and performance of this Agreement and the Other Loan Documents,
the issuance, sale, delivery, and performance of the Note and the
Warrant, and the reservation, issuance and delivery of the
Warrant Shares upon the exercise of the Warrant, and that all
such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by this Agreement; (ii) that the Charter has not
been amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (a)(ii) above; and
(iii) to the incumbency and specimen signature of each officer of
the Company executing this Agreement, the Note, the Other Loan
Documents, and the Warrant and any certificate or instrument
furnished pursuant hereto, and a certification by another officer
of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this clause (b);
(c) the Purchaser shall have received an undated stock
power for each certificate representing shares of stock pledged
pursuant to the Junior Subordinated Pledge Agreement, dated as of
the Closing Date, between the Company and the Purchaser (the
"Subordinated Pledge Agreement"),executed in blank by a duly
authorized officer of the pledge thereof;
(d) the Purchaser shall have received evidence in form and
substance satisfactory to it that all filings, recordings,
registrations and other actions, including, without limitation,
the filing of duly executed financing statements on Form UCC-1,
necessary or, in the opinion of the Purchaser, desirable to
perfect the security interests created by the Other Loan
Documents and required by the Other Loan Documents have been
completed;
(e) a certificate from the Secretary or Assistant
Secretary of Bartels to the effect of the certificate deliverable
by the Company pursuant to clause (b) above; and
(f) such additional supporting documents and other
information with respect to the operations of the Company as the
Purchaser or its counsel may reasonably request.
SECTION 4.6. Fees of Purchaser. The Company shall have paid, in
accordance with Section 8.1, the reasonable legal and other fees and
disbursements of the Purchaser, as invoiced.
13
<PAGE> 19
SECTION 4.7. Warrant. The Company shall have issued the Warrant to the
Purchaser.
SECTION 4.8. Note and Other Loan Documents. The Purchaser shall have
received (i) the Note executed and delivered by a duly authorized officer of the
Company, and (ii) each of the following documents, each executed and delivered
by a duly authorized officer or representative of each of the parties thereof
and each dated as of the Closing Date: (A) the Junior Subordinated Security
Agreement between the Company, Bartels and the Purchaser (the "Security
Agreement"); (B) the Intercreditor and Subordination Agreement between the
Company, the Purchaser, CoreStates and Creditanstalt; (C) the Subordinated
Pledge Agreement; (D) the Junior Subordinated Subsidiary Guaranty (the "Bartels
Guaranty"); (E) the Agreement (Intracel Trademark) between the Company and the
Purchaser; (F) the Agreement (Intracel Patent) between the Company and the
Purchaser; (G) the Agreement (Bartels Patent) between Bartels and the Purchaser;
and (H) the Agreement (Bartels Trademark) between Bartels and the Purchaser
(collectively, the "Other Loan Documents").
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that until the
Warrant is exercised in full or until the Warrant expires, whichever event
occurs first (other than the covenant in Section 5.5, which shall only survive
until the Note is repaid in full):
SECTION 5.1. Reserve for Warrant Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the exercise of the Warrant for Warrant
Shares, such number of its duly authorized shares of Common Stock as shall be
sufficient to effect the exercise of the Warrant. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the exercise of the Warrant, or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon the exercise of the Warrant.
SECTION 5.2. Corporate Existence. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
SECTION 5.3. Restrictive Agreements Prohibited. The Company shall not
become a party to any agreement which by the terms thereof or as a result of the
performance thereof restricts the Company's performance of this Agreement, the
Note, the Other Loan Documents or the Warrant.
14
<PAGE> 20
SECTION 5.4. Compliance with Laws. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which could
materially adversely affect its business or condition, financial or otherwise.
SECTION 5.5. Senior Indebtedness. The Company shall not incur any
indebtedness which is senior or pari passu in right of payment to the Note,
without first obtaining the consent of the Purchaser (which shall not be
unreasonably withheld) except for: (a) indebtedness existing on the Closing
Date; (b) any debt acquired or assumed in connection with an acquisition,
provided that such indebtedness is secured only by the assets so acquired; and
(c) any refinancings of indebtedness of the type described in (a) and (b) above,
provided that such refinancings do not result in an increase in the principal
amount of such loan, with respect to Creditanstalt, in excess of the original
principal amount of such indebtedness (and such amount in excess of the then
outstanding principal amount thereunder shall be amortized from and after July
1, 2001) and, with respect to CoreStates, in excess of the then outstanding
principal amount thereunder.
ARTICLE VI
REGISTRATION RIGHTS
SECTION 6.1. Piggyback Registration.
(a) If at any time or from time to time, the Company shall
determine to register any of its securities, for its own account or the
account of any of its shareholders, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a
transaction of the type described in Rule 145(a) as promulgated under
the Exchange Act, a transaction relating solely to the sale of debt or
convertible debt instruments or a registration on any form (other than
Form S-1, S-2 or S-3, or their successor forms) which does not include
substantially the same information as would be required to be included
in a registration statement covering the sale of Registrable Stock, the
Company will:
(i) give to the holder of Registrable Stock written notice
thereof as soon as practicable prior to filing the registration
statement; and
(ii) include in such registration and in any underwriting
involved therein, all the Registrable Stock specified in a
written request or requests, made within fifteen (15) days after
receipt of such written notice from the Company, by the holder of
Registrable Stock, except as set forth in subsection (b) below.
(b) If the registration is for a registered public offering
involving an underwriting, the Company shall so advise the holder of
Registrable Stock as a part of the written notice given pursuant to
subsection (a)(i). In such event, the right of the holder of Registrable
Stock to registration pursuant to this Article VI shall be conditioned
upon the holder's participation in such underwriting to the extent
provided herein. If the holder of
15
<PAGE> 21
Registrable Stock proposes to distribute its securities through such
underwriting, it shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Article VI, if the managing
underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may
limit the number of Shares of Registrable Stock to be included in the
registration and underwriting, or may exclude Registrable Stock entirely
from such registration if the registration is the first registered
offering for the sale of the Company's securities to the general public,
or a registered offering pursuant to Section 3 of the Registration
Rights Agreement dated July 22, 1994 between the Company and each of the
purchasers of shares of the Series A Convertible Preferred Stock of the
Company named therein, Section 3 of the Registration Rights Agreement
dated September 22, 1994 between the Company and each of the purchasers
of shares of the Series A-I Convertible Preferred Stock of the Company
named therein, Section 9 of the Series A-I Warrant issued by the Company
to Dublind Investments, L.L.C. on September 22, 1995, Section 9 of the
Series A-I Warrant granted by the Company to Creditanstalt on November
21, 1995, Section 9 of the Series A-II Warrant granted by the Company to
the Purchaser or Article VI of the Note and Series A-III Warrant
Purchase Agreement between the Company and CoreStates dated as of June
11, 1996 (provided that no shares held by officers of the Company, other
than shares subject to other registration rights granted by the Company
that may be owned by officers, are included in the registration and
underwriting). The Company shall so advise the holder of Registrable
Stock and the other holders distributing their securities through such
underwriting, and the number of shares of securities that may be
included in the registration and underwriting shall be allocated among
the holder of Registrable Stock and other holders in proportion, as
nearly as practicable, to the respective amounts of Registrable Stock
held by the Holder and other securities held by other holders at the
time of filing the registration statement. If the Holder disapproves of
the terms of any such underwriting, if may elect to withdraw therefrom
by written notice to the Company and the managing underwriter. Any
Registrable Stock excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(c) As used in this Article VI the following terms, unless the
context otherwise requires, have the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Registrable Stock" shall mean the Warrant Shares, but
only so long as such shares continue to be Restricted Stock. Any such
shares shall continue to be Restricted Stock until such time as such
shares (i) have been disposed of in accordance with a registration
statement which has become effective under the Securities Act or
16
<PAGE> 22
(ii) have been publicly sold in compliance with Rule 144 (or any similar
provision then in force) under the Securities Act.
(d) If requested in writing by the underwriter or underwriters
for the initial underwritten public offering of securities of the
Company, the holder of Registrable Stock shall agree not to sell
publicly any shares of Registrable Stock or any other shares of Common
Stock (other than Registrable Stock or other shares of Common Stock
being registered in such offering), without the consent of such
underwriter or underwriters, for a period of not more than 120 days
following the effective date of the registration statement relating to
such initial public offering.
SECTION 6.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 6.1 to effect the registration of any
shares of Registrable Stock under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Stock and use its best efforts to cause
such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as
hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period specified in paragraph (a) above and
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Stock covered by such registration
statement in accordance with the holder's intended method of disposition
as set forth in such registration statement for such period;
(c) furnish to the holder of Registrable Stock and to each
underwriter such number of copies of the registration statement and
prospectus included therein (including each preliminary prospectus) as
such persons reasonably may request in order to facilitate the public
sale or other disposition of the Registrable Stock covered by such
registration statement;
(d) use its best efforts to register or qualify the Registrable
Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdiction as the holder of Registrable Stock
or, in the case of an underwritten public offering, the managing
underwriter reasonably shall request; provided, however, that the
Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where
it is not so qualified or to consent to general service of process in
any such jurisdiction;
(e) use its best efforts to list the Registrable Stock covered by
such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
17
<PAGE> 23
(f) in addition to its obligations under Section 6.2 hereof,
immediately notify the holder of Registrable Stock and each underwriter
under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement,
as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) if the offering is underwritten, at the request of the holder
of Registrable Stock, furnish on the date that Registrable Stock is
delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for
the purposes of such registration, addressed to the underwriters and to
the holder of Registrable Stock, stating that such registration
statement has become effective under the Securities Act and that (A) to
the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Securities Act, (B) the registration statement, the related prospectus
and each amendment or supplement thereof comply as to form in all
material respects with the requirements of the Securities Act (except
that such counsel need not express any opinion as to financial
statements or other financial data contained therein) and (C) to such
other effects as reasonably may be requested by counsel for the
underwriters or by the Holder or its counsel and (ii) a letter dated
such date from the independent public accountants retained by the
Company, addressed to the underwriters and to the holder of Registrable
Stock, stating that they are independent public accountants within the
meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information
as to the period ending no more than five business days prior to the
date of such letter) with respect to such registration as such
underwriters reasonably may request; and
(h) make available for inspection by the holder of Registrable
Stock, by any underwriter participating in any distribution pursuant to
such registration statement, and by any attorney, accountant or other
agent retained by the holder of Registrable Stock or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors
and employees to supply all information reasonably requested by the
holder of Registrable Stock and any underwriter, attorney, accountant or
agent in connection with such registration statement.
For purposes of this Agreement, the period of distribution, if not
otherwise described in the Registration Statement of Registrable Stock in a firm
commitment underwritten public offering, shall be deemed to extend until each
underwriter has completed the distribution of all securities purchased by it,
and the period of distribution of Registrable Stock in any other
18
<PAGE> 24
registration shall be deemed to extend until the earlier of the sale of all
Registrable Stock covered thereby or 120 days after the effective date thereof.
In connection with each registration hereunder, the holder of
Registrable Stock will furnish to the Company in writing such information with
respect to itself and the proposed distribution by it as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Section 6.1 covering an
underwritten public offering, the Company and the holder of Registrable Stock
agree to enter into a written agreement with the managing underwriter selected
in the manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
SECTION 6.3. Expenses. All expenses incurred by the Company in complying
with Section 6.1, including all registration and filing fees, printing expenses,
fees and disbursements of counsel and independent public accountants for the
Company, reasonable fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance and reasonable fees and
disbursements of one counsel for the sellers of Registrable Stock, but excluding
any Selling Expenses, are called "Registration Expenses". "Selling Expenses"
shall include only such underwriting discounts and selling commissions
applicable to the sale of any Registrable Stock which would not have been
incurred in the absence of the registration and sale of the Registrable Stock.
The Company will pay all Registration Expenses in connection with each
registration statement filed pursuant to Section 6.1; provided, however, that in
connection with a registration statement filed under Section 6.1, the Company
shall not be obligated to pay fees and expenses (including counsel fees)
incurred in connection with complying with state securities laws in any state in
which the Company is not otherwise registering for sale any of the shares the
Company proposes to sell in the offering. All Selling Expenses in connection
with each registration statement filed pursuant to Section 6.1 shall be borne by
the participating sellers in proportion to the number of shares sold by each, or
by such participating sellers as they may agree.
SECTION 6.4. Indemnification and Contribution
(a) In the event of a registration of any of the Registrable
Stock under the Securities Act pursuant to Section 6.1, the Company will
indemnify and hold harmless the holder of Registrable Stock, each
underwriter of Registrable Stock and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or
several, to which the holder of Registrable Stock, underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
19
<PAGE> 25
statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Stock was
registered under the Securities Act pursuant to Section 6.1, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are 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, and will reimburse the holder of Registrable Stock, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case if and to
the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with information
furnished by the holder of Registrable Stock, underwriter or controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any Registrable Stock under
the Securities Act pursuant to Section 6.1, the holder of Registrable
Stock will indemnify and hold harmless the Company, each person, if any,
who controls the Company within the meaning of the Securities Act, each
officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls
any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which such Registrable Stock was registered under the Securities
Act pursuant to Section 6.1, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are 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, and will reimburse the
Company and each such officer, director, underwriter and controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Holder will be liable
hereunder in any such case only if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to
the holder of Registrable Stock, as such, furnished in writing to the
Company by the holder of Registrable Stock specifically for the use in
such registration statement or prospectus; provided, further, that the
liability of the holder of Registrable Stock shall be limited to the
proportion of any such loss, claim, damage, liability or expense which
is equal to the proportion that the public offering price of the
Registrable Stock sold by the holder of Registrable Stock under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds
received by the holder of
20
<PAGE> 26
Registrable Stock from the sale of Registrable Stock covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but
the omission so to notify the indemnifying party shall not relieve it
from any liability which it may have to such indemnified party other
then under this Section 6.4 and shall only relieve it from any liability
which it may have to such indemnified party under this Section 6.4 if
and to the extent the indemnifying party is prejudiced by such omission.
In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with
counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
this Section 6.4 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so
selected; provided, however, that, 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 there may be
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the
indemnified party reasonably may be considered by the indemnified party
to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and
to assume such legal defenses and otherwise to participate in the
defense of such action, with reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. No indemnifying party,
in defense of any such action, shall, except with the consent of each
indemnified party, consent to the entry of any judgment or enter into
any settlement (i) which does not include as an unconditional term
thereof the giving, by the claimant or plaintiff, to such indemnified
party of a release from all liability in respect to such action or (ii)
which involves any relief against the indemnified party other than the
payment of money which is to be paid in full by the indemnifying party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i)
the holder of Registrable Stock exercising rights under this Agreement,
or any controlling person of the holder of Registrable Stock, makes a
claim for indemnification pursuant to this Section 6.4 but it is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section
6.4 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of the holder of
Registrable Stock or any such controlling person in circumstances for
which indemnification is provided under this
21
<PAGE> 27
Section 6.4; then, and in each such case, the Company and such holder
will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such
proportion so that the holder of Registrable Stock is responsible for
the portion represented by the percentage that the public offering price
of its Registrable Stock offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, and the Company is responsible for the remaining portion;
provided, however, that, in any such case, (A) the holder of Registrable
Stock will not be required to contribute any amount in excess of the
public offering price of all such Registrable Stock sold by the holder
of Registrable Stock pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
SECTION 6.5. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of Registrable Stock to the public without registration, at
all times after 90 days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall have become
effective (or the Company shall otherwise have become subject to the periodic
reporting requirements of the Exchange Act), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Registrable Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and
the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the
Company as such holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing such holder to sell any
Registrable Stock without registration.
SECTION 6.6. Termination of Piggyback Registration Rights. The
obligations of the Company to register shares of Registrable Stock under Section
6.1 shall terminate on April 1, 2005, unless such obligations terminate earlier
in accordance with the terms of the Warrant.
SECTION 6.7. Material Non-Public Information. Notwithstanding any
provision of this Agreement to the contrary, the Company's obligation to file a
registration statement, or cause such registration statement to become and
remain effective, shall be suspended for a period not to exceed 30 days (and for
periods not exceeding, in the aggregate, 60 days in any 24-month period) if
there exists at the time material non-public information relating to the Company
which, in the reasonable opinion of the Company, should not be disclosed.
22
<PAGE> 28
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby whether or not such
transactions shall be consummated; provided, however, that the Company shall pay
the reasonable legal and other fees and disbursements of the Purchaser, as
invoiced.
SECTION 7.2. Survival of Agreements. Unless otherwise expressly stated
herein, in the Warrant or in any certificate or instrument delivered pursuant to
or in connection therewith, all covenants and agreements made herein, in the
Warrant, or any certificate or instrument delivered to the Purchaser pursuant to
or in connection with this Agreement or the Warrant shall survive the execution
and delivery of this Agreement, the Warrant and the issuance and delivery of the
Warrant Shares from the date of this Agreement until the Warrant is exercised in
full or until the Warrant expires, whichever event occurs first; provided,
however, that the representations and warranties contained in the Note or the
Other Loan Documents shall survive until all amounts due under the Note shall be
paid in full. All statements contained in any certificate or other instrument
delivered by the Company hereunder or thereunder or in connection herewith or
therewith shall be deemed to constitute representations and warranties made by
the Company.
SECTION 7.3. Brokerage. Each party hereto will indemnify and hold
harmless the other against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 7.4. Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting the Purchaser shall inure to the benefit of any and all subsequent
holders from time to time of the Note, the Warrant or the Warrant Shares.
SECTION 7.5. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person or
mailed by certified or registered mail, return receipt requested, as follows:
(a) if to the Company, at Intracel Corporation, 359
Allston Street, Cambridge, MA 02349, Attention: President, with a
copy to Joseph W. Bartlett, Esq., Morrison & Foerster LLP, 1290
Avenue of the Americas, New York, NY 10104; and
(b) if to the Purchaser, at the address set forth beneath
the Purchaser's name on the signature page to this Agreement,
with a copy to
23
<PAGE> 29
Karen C. Wiedemann, Esq., Reboul, MacMurray, Hewitt, Maynard &
Kristol, 45 Rockefeller Plaza, New York, NY 10111.
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
SECTION 7.6. Governing Law. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the State of New York,
regardless of the jurisdiction of creation or domicile of the Company or its
successors or of the Purchaser (without giving effect to its choice of law
principles).
SECTION 7.7. Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 7.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 7.9. Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the Purchaser.
SECTION 7.10. Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 7.11. Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
24
<PAGE> 30
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
INTRACEL CORPORATION
[Corporate Seal] By:_______________________
Name:
Title:
Attest:
__________________________
Name:
Title:
NORTHSTAR ADVANTAGE
HIGH TOTAL RETURN FUND
By:______________________________
Name:
Title:
Address: c/o Thomas Ole Dial
2 Pickwick Plaza
Greenwich, CT 06830
Attn: Michael Graves
25
<PAGE> 1
EXHIBIT 10.15
================================================================================
NOTE AND SERIES A-III WARRANT
PURCHASE AGREEMENT
between
INTRACEL CORPORATION
and
CORESTATES ENTERPRISE FUND, A DIVISION OF
CORESTATES BANK, N.A.
Dated as of June 11, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I
THE SECURITIES
1.1. Issuance, Sale and Delivery of the Securities.......................................1
1.2. Closing; Purchase Price; Purchase Price Allocation..................................1
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1. Organization, Qualifications and Corporate Power....................................2
2.2. Authorization of Agreements, etc....................................................2
2.3. Validity............................................................................3
2.4. Authorized Capital Stock............................................................3
2.5. Financial Statements................................................................4
2.5A. Absence of Undisclosed Liabilities and Changes......................................5
2.6. Events Subsequent to the Date of the Balance Sheet..................................5
2.7. Litigation; Compliance with Law.....................................................5
2.8. Title to Properties.................................................................6
2.9. Leasehold Interests.................................................................6
2.10. Taxes...............................................................................6
2.11. Other Agreements....................................................................7
2.12. Patents, Trademarks, etc............................................................8
2.13. Loans and Advances..................................................................9
2.14. Assumptions, Guaranties, etc. of Indebtedness of Other Persons......................9
2.15. Significant Customers and Suppliers.................................................9
2.16. Governmental Approvals..............................................................9
2.17. Accuracy of Statements..............................................................9
2.18. Insurance..........................................................................10
2.19. Employment Relations...............................................................10
2.20. Compensation of Key Employees......................................................10
2.21. Environmental Compliance...........................................................10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
3.1. Purchase of Securities.............................................................11
3.2. Authority..........................................................................11
3.3. Projections........................................................................11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
4.1. Opinion of Company's Counsel.......................................................12
4.2. Representations and Warranties to be True and Correct..............................12
4.3. Performance........................................................................12
4.4. All Proceedings to be Satisfactory.................................................12
4.5. Supporting Documents...............................................................12
4.6. Fees of Purchaser..................................................................13
4.7. Warrant............................................................................13
4.8. Note and Other Loan Documents......................................................13
4.9. Commitment Fee.....................................................................14
ARTICLE V
COVENANTS OF THE COMPANY
5.1. Reserve for Warrant Shares.........................................................14
5.2. Corporate Existence................................................................14
5.3. Restrictive Agreements Prohibited..................................................14
5.4. Compliance with Laws...............................................................14
5.5 Senior Indebtedness................................................................14
ARTICLE VI
REGISTRATION RIGHTS
6.1. Piggyback Registration.............................................................14
6.2. Registration Procedures............................................................16
6.3. Expenses...........................................................................18
6.4. Indemnification and Contribution...................................................19
6.5. Rule 144 Reporting.................................................................21
6.6. Termination of Piggyback Registration Rights.......................................22
6.7. Material Non-Public Information....................................................22
ARTICLE VII
BOARD OBSERVATION RIGHTS
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE VIII
MISCELLANEOUS
8.1. Expenses...........................................................................22
8.2. Survival of Agreements.............................................................22
8.3. Brokerage..........................................................................23
8.4. Parties in Interest................................................................23
8.5. Notices............................................................................23
8.6. Governing Law......................................................................23
8.7. Entire Agreement...................................................................23
8.8. Counterparts.......................................................................23
8.9. Amendments.........................................................................23
8.10. Severability.......................................................................24
8.11. Titles and Subtitles...............................................................24
</TABLE>
iii
<PAGE> 5
SCHEDULES
EXHIBITS
Exhibit A - Note
Exhibit B - Warrant
Exhibit C - Opinion of Counsel for the Company
<PAGE> 6
NOTE AND SERIES A-III WARRANT PURCHASE AGREEMENT (this "Agreement"),
dated as of June 11, 1996, between Intracel Corporation, a Massachusetts
corporation (the "Company") and CoreStates Enterprise Fund, a division of
CoreStates Bank, N.A. (the "Purchaser").
PREAMBLE:
WHEREAS, the Company wishes to issue and sell to the Purchaser (i) the
Company's secured promissory note, in the principal amount of $4,000,000
substantially in the form attached hereto as Exhibit A (the "Note"), and (ii)
the Series A-III Common Stock Warrant, substantially in the form attached hereto
as Exhibit B (the "Warrant") to purchase up to 159,073 shares of common stock,
no par value per share (the "Warrant Shares"), of the Company (the Note and the
Warrant shall collectively be referred to as the "Securities"); and
WHEREAS, the Purchaser wishes to purchase the Securities on the terms
and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties hereto agree as follows:
ARTICLE I
THE SECURITIES
SECTION 1.1. Issuance, Sale and Delivery of the Securities. The Company
agrees to issue, sell and deliver to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, at the closing (the "Closing"), the (i)
Note and (ii) the Warrant.
SECTION 1.2. Closing; Purchase Price; Purchase Price Allocation. The
Closing shall take place at the offices of Morrison & Foerster LLP, 1290 Avenue
of the Americas, New York, NY 10104, at 10:00 a.m., New York time on June 11,
1996, or at such other place, date and time as may be otherwise mutually agreed
in writing by the parties hereto. The date on which the Closing actually occurs
is referred to herein as the "Closing Date." At the Closing, the Company shall
issue and deliver to the Purchaser the Note, in substantially the form attached
hereto as Exhibit A, and the Warrant, in substantially the form attached hereto
as Exhibit B. As payment in full for the Securities, and against delivery of the
Securities on the Closing Date, the Purchaser shall transfer the sum of
$4,000,000 by wire transfer of immediately available funds to such account or
accounts as the Company may direct. The Company and the Purchaser agree that
$200,000 of the aggregate consideration for the Securities shall be allocated to
the Warrants, and that the balance of such aggregate consideration shall be
allocated to the Note.
<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the Closing
Date that:
SECTION 2.1. Organization, Qualifications and Corporate Power. The
Company is a corporation duly organized (originally under the name of Boston
Biological Technologies, Inc.), validly existing and in good standing under the
laws of the Commonwealth of Massachusetts, Bartels, Inc. (the Company's
wholly-owned subsidiary) ("Bartels") is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and each
of the Company and Bartels is duly licensed or qualified to transact business as
a foreign corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification, except where the
failure so to qualify will not have a material adverse effect on the business,
operations, property or financial condition of the Company or Bartels,
respectively. Each of the Company and Bartels has the power and authority to own
and hold its properties and to carry on its business as now conducted and as
proposed to be conducted, and the Company has the power and authority to
execute, deliver and perform this Agreement and the "Other Loan Documents" (as
defined in Section 4.8) (and, with respect to Bartels, the Security Agreement
and the Bartels Guaranty), to issue, sell and deliver the Note and the Warrant,
and to issue and deliver the Warrant Shares upon the exercise of the Warrant.
The Company has no subsidiaries, other than Bartels and the Company's ownership
of forty-five percent of the membership interests of German-American Institute
for AIDS Research GbmH, a limited liability company formed under the laws of
Germany.
SECTION 2.2. Authorization of Agreements, etc. (a) The execution and
delivery by the Company of this Agreement and the Other Loan Documents (and,
with respect to Bartels, the Security Agreement and the Bartels Guaranty), the
performance by the Company of its obligations hereunder and thereunder (and,
with respect to Bartels, the Security Agreement and the Bartels Guaranty), the
issuance, sale and delivery of the Note and the Warrant, and the issuance, sale
and delivery of the Warrant Shares upon the exercise of the Warrant, have been
duly authorized by all requisite corporate action and will not violate any
provision of law, any order of any court or other agency of government (except
that the issuance of the Warrant Shares may require filings under one or more
state securities laws, all of which filings will be made by the Company within
the requisite time period), the Articles of Organization of the Company, as
amended (the "Charter") or the By-laws of the Company, as amended (the
"By-laws") (or, with respect to Bartels, its Certificate of Incorporation or
By-laws), or any provision of any indenture, agreement or other instrument to
which either the Company or Bartels is a party or by which either the Company or
Bartels or any of its properties or assets is bound, or conflict with, result in
a breach of or constitute (whether with or without notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company or Bartels.
2
<PAGE> 8
(b) The Warrant has been authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company except as set
forth in this Agreement. The Warrant Shares have been duly authorized
and reserved for issuance upon exercise of the Warrant, and, when so
issued, will be duly authorized, validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company except as set
forth in this Agreement. Neither the issuance, sale or delivery of the
Warrant, nor the issuance or delivery of the Warrant Shares is subject
to any preemptive right of stockholders of the Company or to any right
of first refusal or other right in favor of any person, except as set
forth in Article VI of this Agreement.
SECTION 2.3. Validity. Each of this Agreement, the Note, the Other Loan
Documents, and the Warrant has been (or at the Closing, shall be) duly executed
and delivered by the Company and, where applicable, Bartels, and constitute the
legal, valid and binding obligation of the Company, and, where applicable,
Bartels, enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance and moratorium
laws and other similar laws of general application affecting enforcement of
creditors' rights generally and (ii) the availability of equitable remedies
including specific performance may be limited by equitable principles of general
applicability (regardless of whether enforcement is sought in a proceeding in
equity or at law).
SECTION 2.4. Authorized Capital Stock. The authorized capital stock of
(a) the Company consists of (i) 3,000,000 shares of preferred stock, no par
value per share (the "Preferred Stock"), of which 730,000 shares have been
designated "Series A Preferred" and 850,000 shares designated "Series A-I
Preferred" and (ii) 5,000,000 shares of common stock (the "Common Stock") and
(b) Bartels consists of 1,000 shares of common stock, par value $.01 per share.
Immediately prior to the Closing, all of the capital stock of Bartels which is
issued and outstanding will be owned by the Company, 1,983,450 shares of Common
Stock will be issued and outstanding all of which will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof, 525,492 shares of Series A Preferred Stock will be
issued and outstanding pursuant to the Convertible Stock Purchase Agreement,
dated July 22, 1994, by and among the Company and the Purchasers set forth on
"Schedule I" thereto (the "1994 Stock Purchase Agreement"), 566,874 shares of
Series A-I Preferred will be issued and outstanding pursuant to the Convertible
Stock Purchase Agreement, dated September 22, 1995, by and among the Company and
the purchasers set forth on "Schedule I" thereto (the "1995 Stock Purchase
Agreement") and 128,775 shares of Series A-I Preferred will be issued and
outstanding pursuant to a Convertible Preferred Stock Purchase Agreement, dated
November 16, 1995, between the Company and Northstar American Corporation. No
other shares of capital stock of the Company or Bartels have been issued or
reserved for issuance, except 385,000 shares of Common Stock reserved for
issuance in the event options granted pursuant to the 1989 and 1990-1991 Stock
Option Plans of the Company are exercised, 730,000 shares of Common Stock
reserved for issuance in the event of the conversion
3
<PAGE> 9
of the shares of Series A Preferred Stock and 52,000 shares of Common Stock
reserved for issuance in the event of the exercise of the Series A Warrant, both
having been granted pursuant to the 1994 Stock Purchase Agreement, 850,000
shares of Common Stock reserved for issuance in the event of the conversion of
the shares of Series A-I Preferred Stock granted pursuant to the 1995 Stock
Purchase Agreement, 86,462 shares of Common Stock reserved for issuance in the
event of the exercise of warrants granted pursuant to the Warrant Agreement,
dated September 22, 1995, between the Company and Dublind Investments, L.L.C.,
91,177 shares of Common Stock reserved for issuance in the event of the exercise
of the warrants granted pursuant to the Warrant Agreement, dated November 16,
1995, between the Company and Creditanstalt Bankverein ("Creditanstalt"), 94,010
shares of Common Stock reserved for issuance in the event of exercise of the
warrants granted pursuant to the Series A-II Warrant and Note Purchase
Agreement, dated December 27, 1995, between the Company and Northstar Advantage
High Total Return Fund ("Northstar"), and 159,073 shares of Common Stock
reserved for issuance in the event of the exercise of the Warrant granted
pursuant to this Agreement. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the Series A
Preferred Stock and the Series A-I Preferred Stock are as set forth in both of
the Certificates of Vote of Directors Establishing a Series of a Class of Stock,
and all such designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and enforceable and in
accordance with all applicable laws. Except as provided for in the Charter, the
Company has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. This Section 2.4
sets forth the aggregate number of outstanding warrants, options, agreements,
convertible securities or other commitments pursuant to which the Company is or
may become obligated to issue any shares of its capital stock or other
securities of the Company. Except as set forth above in this Section 2.4, there
are no preemptive or similar rights to purchase or otherwise acquire shares of
capital stock of the Company pursuant to any provisions of law, the Charter or
By-laws of the Company, in each case as amended to the date hereof, or any
agreement to which the Company is a party or otherwise. Except as set forth
above in this Section 2.4 or as contemplated herein, immediately upon
consummation at the Closing of the transactions contemplated hereby there will
be no agreement, restriction or encumbrance (such as a right of first refusal,
right of first offer, proxy, voting agreement, voting trust, bring-along or
come-along rights) with respect to the sale or voting of any shares of capital
stock of the Company (whether outstanding or issuable upon conversion or
exercise of outstanding securities) of which the Company has knowledge.
SECTION 2.5. Financial Statements. The Company has furnished to the
Purchaser the audited balance sheet of the Company for the year ended June 30,
1995 (the "Balance Sheet") and the related audited statements of income,
stockholders' equity and cash flows of the Company for the year ended June 30,
1995 and the balance sheet of the Company as of March 31, 1996 and the related
statements of income, stockholders' equity and cash flows of the Company as of
March 31, 1996. All such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied and fairly
present the financial position of the Company as of June 30, 1995 and March 31,
1996 respectively, and the results of its operations and cash flows as of June
30, 1995 and March 31, 1996 respectively. Since the date of the Balance Sheet,
(i) there has been no change in the assets, liabilities or financial
4
<PAGE> 10
condition of the Company from that reflected in the Balance Sheet except for
changes in the ordinary course of business which in the aggregate have not been
materially adverse and (ii) none of the business, financial condition,
operations or property of the Company have been materially adversely affected by
any occurrence or development, individually or in the aggregate, whether or not
insured against.
SECTION 2.5A. Absence of Undisclosed Liabilities and Changes. Except as
set forth on Schedule 2.5A attached hereto, as of the date hereof, (a) the
Company had no liabilities of any nature (matured or unmatured, fixed or
contingent) which were not provided for on the balance sheet of the Company as
of such date, except for (i) liabilities which, individually and in the
aggregate, were not material to the financial condition of the Company or (ii)
liabilities incurred in the ordinary course of the Company's business and not
required to be so provided for under generally accepted accounting principles ,
and (b) all reserves established by the Company and set forth on such balance
sheet were adequate in all material respects. There are no loss contingencies
(as such term is used in Statement of Financial Accounting Standards No. 5
("Statement No. 5") issued by the Financial Accounting Standards Board in March
1975) which are not adequately provided for in such balance sheet as required by
Statement No. 5.
SECTION 2.6. Events Subsequent to the Date of the Balance Sheet. Except
as set forth in the attached Schedule 2.6 or as contemplated by this Agreement,
since the date of the Balance Sheet neither the Company nor Bartels has (i)
issued any stock, bond or other corporate security, (ii) borrowed any amount or
incurred or become subject to any liability (absolute, accrued or contingent),
except current liabilities incurred and liabilities under contracts entered into
in the ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the ordinary
course of business, (iv) declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its capital stock or other
security, (v) mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, other than liens of current real property taxes not yet
due and payable, (vi) sold, assigned or transferred any of its tangible assets
except in the ordinary course of business, or canceled any debt or claim, (vii)
sold, assigned, transferred or granted any exclusive license with respect to any
material patent, trademark, trade name, service mark, copyright, trade secret or
other intangible asset other than in the ordinary course of business, (viii)
suffered any material loss of property or waived any right of substantial value,
(ix) made any change in officer compensation except in the ordinary course of
business and consistent with past practice, (x) made any material change in the
manner of business or operations of the Company or Bartels, respectively, (xi)
entered into any transaction except in the ordinary course of business or as
otherwise contemplated hereby or (xii) entered into any commitment (contingent
or otherwise) to do any of the foregoing.
SECTION 2.7. Litigation; Compliance with Law. There is no material (i)
action, suit, claim, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company or Bartels,
respectively, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency
5
<PAGE> 11
or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to
the Company or Bartels, respectively, pending under a collective bargaining
agreement or otherwise or (iii) governmental inquiry pending or to the knowledge
of the Company, threatened against or affecting the Company or Bartels,
respectively, (including, without limitation, any inquiry as to the
qualification of the Company or Bartels, respectively, to hold or receive any
license or permit). The Company has not received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to its
business, financial condition, operations or property. The Company is not in
default with respect to any order, writ, injunction or decree known to or served
upon the Company of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no material action or suit by the Company pending
or threatened against others. Each of the Company and Bartels has complied in
all material respects with all laws, rules, regulations and orders applicable to
its business, operations, properties, assets, products and services, and each of
the Company and Bartels has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted, except where the failure to own or possess such permits, licenses
or authorizations could not, either singly or in the aggregate, have a material
adverse effect on the business, operations, properties or financial condition of
the Company.
SECTION 2.8. Title to Properties. Except in instances that, either
singly or in the aggregate, could not have a material adverse effect on the
business, operations, properties or financial condition of the Company, and
except as disclosed in Schedule 2.8 hereof, each of the Company and Bartels has
good and marketable title to its properties and assets reflected on the Balance
Sheet (other than properties and assets disposed of in the ordinary course of
business since the date of the Balance Sheet), and all such properties and
assets are free and clear of mortgages, pledges, security interests, liens,
charges, claims, restrictions and other encumbrances, except for liens for
current taxes not yet due and payable and minor imperfections of title, if any,
not material in nature or amount and not materially detracting from the value or
materially impairing the use of the property subject thereto or impairing the
operations or proposed operations of the Company or Bartels, respectively.
SECTION 2.9. Leasehold Interests. Each lease or agreement to which the
Company or Bartels, respectively, is a party under which it is a lessee of any
property, real or personal (a list of all such leases being attached hereto as
Schedule 2.9), is a valid and subsisting agreement without any material default
of the Company or Bartels, respectively, thereunder and, to the knowledge of the
Company, without any material default thereunder of any other party thereto. No
event has occurred and is continuing which, with due notice or lapse of time or
both, would constitute a default or event of default by the Company or Bartels,
respectively, under any such lease or agreement or, to the knowledge of the
Company, by any other party thereto.
SECTION 2.10. Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns, Federal, state, county and local, required to
be filed by it, and the Company has paid all taxes shown to be due by such
returns and extensions as well as all other taxes, assessments and
6
<PAGE> 12
governmental charges which have become due or payable, including, without
limitation, all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors and third parties. All such taxes with respect to
which the Company has become obligated have been paid and adequate reserves have
been established for all taxes accrued but not yet payable. No deficiency
assessment with respect to or proposed adjustment of the Company's Federal,
state, county or local taxes is pending or, to the knowledge of the Company,
threatened. There is no tax lien in favor of any Federal, state, county or local
taxing authority, outstanding against the assets, properties or business of the
Company. Neither the Company nor any of its stockholders has ever filed a
consent pursuant to Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), relating to collapsible corporations.
SECTION 2.11. Other Agreements. Except as set forth in the attached
Schedule 2.11, neither the Company nor Bartels is a party to or otherwise bound
by any written or oral contract or instrument or other restriction which
individually or in the aggregate could materially adversely affect the business,
financial condition, operations or property of the Company. Except as set forth
in the attached Schedule 2.11, or as a result of the transactions contemplated
in this Agreement, the Note, the Other Loan Documents, or the Warrant, neither
the Company nor Bartels is a party to or otherwise bound by any written or oral:
(a) distributor, dealer, manufacturer's representative or sales
agency contract or agreement which is not terminable on less than ninety
(90) days' notice without cost or other liability to the Company or
Bartels;
(b) sales contract which entitles any customer to a rebate or
right of set-off, to return any product to the Company or Bartels after
acceptance thereof or to delay the acceptance thereof, or which varies
in any material respect from the Company's or Bartels' standard form
contracts;
(c) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of
its or Bartels' employees);
(d) contract or other commitment with any supplier containing any
provision permitting any party other than the Company or Bartels to
renegotiate the price or other terms, or containing any pay-back or
other similar provision, upon the occurrence of a failure by the Company
or Bartels to meet its obligations under the contract when due or the
occurrence of any other event;
(e) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its
normal operating requirements;
(f) contract for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings), on a full-time or consulting basis which is not
terminable on notice without cost or other liability to the Company or
Bartels, except normal severance arrangements and accrued vacation pay;
7
<PAGE> 13
(g) agreement or indenture relating to the borrowing of money or
to the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any asset of the Company or Bartels;
(h) guaranty of any obligation for borrowed money or otherwise;
(i) agreement, or group of related agreements with the same party
or any group of affiliated parties, under which the Company or Bartels
has advanced or agreed to advance money or has agreed to lease any
property as lessee or lessor;
(j) agreement or obligation (contingent or otherwise) to issue,
sell or otherwise distribute or to repurchase or otherwise acquire or
retire any share of its capital stock or any of its other equity
securities;
(k) assignment, license or other agreement with respect to any
form of intangible property or Intellectual Property (as defined in
Section 2.12) or the development or use thereof;
(l) agreement under which it has granted any person any
registration rights;
(m) agreement under which it has limited or restricted its right
to compete with any person in any respect; or
(n) other contract or group of related contracts with the same
party involving more than $50,000 or continuing over a period of more
than one year from the date or dates thereof (including renewals or
extensions optional with another party), which contract or group of
contracts is not terminable by the Company or Bartels without penalty
upon notice of thirty (30) days or less, but excluding any contract or
group of contracts with a customer of the Company or Bartels for the
sale, lease or rental of the Company's or Bartels' respective products
or services if such contract or group of contracts was entered into by
the Company or Bartels, respectively, in the ordinary course of
business.
SECTION 2.12. Patents, Trademarks, etc. Set forth in Schedule 2.12 is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company or
Bartels, or of which the Company or Bartels is a licensor or licensee or in
which the Company or Bartels has any right, and in each case a brief description
of the nature of such right. Except as set forth in Schedule 2.12, each of the
Company and Bartels owns or possesses adequate licenses or other rights to use
all patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets and know-how (collectively, "Intellectual
Property") necessary to the conduct of its business as conducted, and no claim
is pending or, to the knowledge of the Company, threatened to the effect that
the operations of the Company or Bartels infringe upon or conflict with the
rights of any other person under any Intellectual Property, and to the knowledge
8
<PAGE> 14
of the Company there is no basis for any such claim. No claim is pending or, to
the knowledge of the Company, threatened to the effect that any such
Intellectual Property owned or licensed by the Company or Bartels, or which the
Company or Bartels otherwise has the right to use, is invalid or unenforceable
by the Company or Bartels, as applicable, and to the knowledge of the Company
there is no basis for any such claim. To the knowledge of the Company, all
technical information developed by and belonging to the Company or Bartels, as
applicable, which has not been patented has been kept confidential. The Company
has not granted or assigned to any other person or entity any right to
manufacture or assemble any products or proposed products of the Company, other
than to its affiliates, and to the knowledge of the Company no other person or
entity has asserted any such right.
SECTION 2.13. Loans and Advances. Except as set forth on Schedule 2.13,
neither the Company nor Bartels has any outstanding loans or advances to any
person and is not obligated to make any such loans or advances, except, in each
case, for advances to employees of the Company or Bartels in respect of
reimbursable business expenses anticipated to be incurred by them in connection
with their performance of services for the Company or Bartels.
SECTION 2.14. Assumptions, Guaranties, etc. of Indebtedness of Other
Persons. Neither the Company nor Bartels has assumed, guaranteed, endorsed or
otherwise become directly or contingently liable on any indebtedness of any
other person (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in a debtor, or otherwise to assure a creditor
against loss), except for guaranties by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business.
SECTION 2.15. Significant Customers and Suppliers. No customer which
accounted for 10% or more of the Company's sales or revenues during the periods
covered by the financial statements referred to in Section 2.5 or which has been
significant to the Company thereafter has terminated, materially reduced or
threatened to terminate or materially reduce its purchases from the Company. As
of the date of this Agreement, there is no supplier to the Company which is a
sole-source supplier.
SECTION 2.16. Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchaser set forth in Article III hereof,
no registration or filing with, or consent or approval of or other action by,
any Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Note, the Other Loan Documents or the Warrant (and, with
respect to Bartels, the Security Agreement or Bartels Guaranty), or the
issuance, sale and delivery of the Warrant Shares upon exercise of the Warrant,
other than (i) filings pursuant to state securities laws in connection with the
issuance and sale of the Warrant and (ii) with respect to the registration
rights provisions contained in Article VI of this Agreement, the registration of
the shares covered thereby with the Securities and Exchange Commission or any
successor regulatory entity (the "Commission") and filings pursuant to state
securities laws.
9
<PAGE> 15
SECTION 2.17. Accuracy of Statements. Neither this Agreement nor any
Schedule, Exhibit, statement, list, document, certificate or other information
furnished by or on behalf of the Company to the Purchaser in connection with
this Agreement or any of the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading.
SECTION 2.18. Insurance. Schedule 2.18 lists all insurance policies
which the Company maintains with respect to its businesses, properties and
employees. Such policies are in full force and effect and the Company has
received no notice of termination from the insurance carriers. Such policies,
with respect to their amounts and types of coverage, are adequate in the
reasonable commercial judgment of the Company to insure against risks to which
the Company and its respective businesses. Since the date of the Balance Sheet,
there has been no material adverse change in the Company's relationship with its
insurers or in the premiums payable pursuant to such policies.
SECTION 2.19. Employment Relations. (a) The Company is in material
compliance with applicable federal, state or other applicable laws, domestic or
foreign, respecting employment and employment practices, safety, terms and
conditions of employment and wages and hours.
(b) The Company does not maintain or contribute to any employee
benefit plan ("Employee Benefit Plan") within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is subject to ERISA but which is not in substantial
compliance with ERISA, or which has incurred any material liability to
the Pension Benefit Guaranty Company ("PBGC") in connection with any
Employee Benefit Plan covering any employees of the Company or any of
its subsidiaries or ceased operations at any facility or withdrawn from
any such Plan in a manner which could subject it to material liability
under Section 462(f), 4063 or 4064 of ERISA, and knows of no facts or
circumstances which might give rise to any material liability of the
Company to the PBGC under Title IV of ERISA.
SECTION 2.20. Compensation of Key Employees. Schedule 2.20 sets forth
the aggregate compensation (salaries, wages and bonuses) paid by the Company to
its four most highly compensated employees for the 1995 fiscal year and the
amount of such compensation scheduled to be paid to such employees for the 1996
fiscal year.
SECTION 2.21. Environmental Compliance. The Company is in compliance
with all applicable laws relating to environmental matters in each jurisdiction
where it is presently engaged in a material manufacturing business, except for
such failures to comply which, in the aggregate, could reasonably be expected
not to have a material adverse effect on the Company. The Company is not subject
to any liability under any such environmental laws, that, in the aggregate for
all such liabilities, could be reasonably expected to have a material adverse
effect on the Company.
10
<PAGE> 16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as of the Closing
Date that:
SECTION 3.1. Purchase of Securities. (a) It is an "accredited investor" within
the meaning of Rule 501 under the Securities Act of 1933, as amended (the
"Securities Act") and was not organized for the specific purpose of acquiring
the Note or the Warrant.
(b) It has sufficient knowledge and experience in investing in
companies in a similar stage of development to the Company so as to be
able to evaluate the risks and merits of its investment in the Company
and it is able financially to bear the risks thereof.
(c) It has had an opportunity to discuss the Company's business,
management and financial condition with the Company's management.
(d) It is acquiring the Note and the Warrant for its own account
for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof.
(e) It understands that (i) the Note, the Warrant and, upon
exercise thereof, the Warrant Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act pursuant to Section
4(2) thereof or Rule 505 or 506 promulgated under the Securities Act,
(ii) the Note, the Warrant and, upon exercise thereof, the Warrant
Shares must be held indefinitely unless a subsequent disposition thereof
is registered under the Securities Act or is exempt from such
registration, (iii) the Note, the Warrant and, upon exercise thereof,
the Warrant Shares will bear a legend to such effect and (iv) the
Company will make a notation on its transfer books to such effect.
SECTION 3.2. Authority. It has all requisite power and authority to
execute, deliver and perform this Agreement, the Note, the Other Loan Documents,
and the Warrant and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement, the Note, the Other Loan Documents,
and the Warrant and the consummation of the transactions contemplated hereby and
thereby. This Agreement, the Note, the Other Loan Documents, and the Warrant on
the Closing Date will constitute the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with their terms, except (i) to the extent
that enforceability may be limited by bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and (ii) that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceedings therefor may be brought.
SECTION 3.3. Projections. It understands that any and all financial
projections and other estimates delivered to it were based on the Company's
experience in the industry and on assumptions of fact and opinion which the
Company believes to have been, and to be,
11
<PAGE> 17
reasonable. It understands that the Company cannot and does not assure or
guarantee the attainment of such projections or other estimates.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser to purchase and pay for the Note and
the Warrant, both being purchased by it on the Closing Date, are, at its option,
subject to the satisfaction of the following conditions on or before such
Closing Date:
SECTION 4.1. Opinion of Company's Counsel. The Purchaser shall have
received from Morrison & Foerster LLP, counsel for the Company, an opinion dated
the Closing Date, in the form attached hereto as Exhibit C.
SECTION 4.2. Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II hereof shall be true,
complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date,
and the President of the Company shall have certified to such effect to the
Purchaser in writing.
SECTION 4.3. Performance. The Company shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date, and the President of the Company shall
have certified to the Purchaser in writing to such effect and to the further
effect that all of the conditions set forth in this Article IV have been
satisfied.
SECTION 4.4. All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transaction
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchaser and its counsel, and the Purchaser and its
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
SECTION 4.5. Supporting Documents. At the Closing, the Purchaser shall
have received copies of the following documents:
(a) (i) the Charter, certified as of a recent date by the
Secretary of State of the Commonwealth of Massachusetts and (ii) a
certificate (A) of said Secretary dated as of a recent date as to the
due incorporation and subsistence of the Company, and listing all
documents of the Company on file with said Secretary and (B) from the
Secretary of State of the State of Delaware dated as of a recent date as
to the due incorporation and subsistence of Bartels, and listing all
documents of Bartels on file with said Secretary;
12
<PAGE> 18
(b) a certificate of the Clerk or an Assistant Clerk of the
Company dated the Closing Date and certifying: (i) that attached thereto
is a true and complete copy of all resolutions adopted by the Board of
Directors (the "Company Board") or the stockholders of the Company
authorizing the execution, delivery and performance of this Agreement
and the Other Loan Documents, the issuance, sale, delivery, and
performance of the Note and the Warrant, and the reservation, issuance
and delivery of the Warrant Shares upon the exercise of the Warrant, and
that all such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
this Agreement; (ii) that the Charter has not been amended since the
date of the last amendment referred to in the certificate delivered
pursuant to clause (a)(ii) above; and (iii) to the incumbency and
specimen signature of each officer of the Company executing this
Agreement, the Note, the Other Loan Documents, and the Warrant and any
certificate or instrument furnished pursuant hereto, and a certification
by another officer of the Company as to the incumbency and signature of
the officer signing the certificate referred to in this clause (b);
(c) the Purchaser shall have received an undated stock power for
each such certificate representing shares of stock pledged pursuant to
the Junior Subordinated Pledge Agreement, dated as of the Closing Date,
between the Company and the Purchaser (the "Subordinated Pledge
Agreement"),executed in blank by a duly authorized officer of the pledge
thereof;
(d) the Purchaser shall have received evidence in form and
substance satisfactory to it that all filings, recordings, registrations
and other actions, including, without limitation, the filing of duly
executed financing statements on Form UCC-1, necessary or, in the
opinion of the Purchaser, desirable to perfect the security interests
created by the Other Loan Documents and required by the Other Loan
Documents have been completed;
(e) a certificate from the Secretary or Assistant Secretary of
Bartels to the effect of the certificate deliverable by the Company
pursuant to clause (b) above; and
(f) such additional supporting documents and other information
with respect to the operations of the Company as the Purchaser or its
counsel may reasonably request.
SECTION 4.6. Fees of Purchaser. The Company shall have paid, in
accordance with Section 8.1, the reasonable legal and other fees and
disbursements of the Purchaser, as invoiced.
SECTION 4.7. Warrant. The Company shall have issued the Warrant to the
Purchaser.
SECTION 4.8. Note and Other Loan Document. The Purchaser shall have
received (i) the Note executed and delivered by a duly authorized officer of the
Company, and (ii) each of
13
<PAGE> 19
the following documents, each executed and delivered by a duly authorized
officer or representative of each of the parties thereof and each dated as of
the Closing Date: (A) the Junior Subordinated Security Agreement between the
Company, Bartels and the Purchaser (the "Security Agreement"); (B) the
Intercreditor and Subordination Agreement between Creditanstalt, Northstar,
Purchaser and the Company; (C) the Subordinated Pledge Agreement; (D) the Junior
Subordinated Subsidiary Guaranty (the "Bartels Guaranty"); (E) the Agreement
(Intracel Trademark) between the Company and the Purchaser; (F) the Agreement
(Intracel Patent) between the Company and the Purchaser; (G) the Agreement
(Bartels Patent) between Bartels and the Purchaser; and (H) the Agreement
(Bartels Trademark) between Bartels and the Purchaser (collectively, the "Other
Loan Documents").
SECTION 4.9. Commitment Fee. The Purchaser shall have received from the
Company, in the form of a cash payment, a commitment fee in the amount of
$80,000.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that until the
Warrant is exercised in full or until the Warrant expires, whichever event
occurs first (other than the covenant in Section 5.5, which shall only survive
until the Note is repaid in full):
SECTION 5.1. Reserve for Warrant Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the exercise of the Warrant for Warrant
Shares, such number of its duly authorized shares of Common Stock as shall be
sufficient to effect the exercise of the Warrant. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the exercise of the Warrant, or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon the exercise of the Warrant.
SECTION 5.2. Corporate Existence. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
SECTION 5.3. Restrictive Agreements Prohibited. The Company shall not
become a party to any agreement which by the terms thereof or as a result of the
performance thereof restricts the Company's performance of this Agreement, the
Note, the Other Loan Documents or the Warrant.
14
<PAGE> 20
SECTION 5.4. Compliance with Laws. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which could
materially adversely affect its business or condition, financial or otherwise.
SECTION 5.5. Senior Indebtedness. The Company shall not incur any
indebtedness which is senior or pari passu in right of payment to the Note,
without first obtaining the consent of the Purchaser (which shall not be
unreasonably withheld) except for: (a) indebtedness existing on the Closing
Date; (b) any debt acquired or assumed in connection with an acquisition,
provided that such indebtedness is secured only by the assets so acquired; and
(c) any refinancings of indebtedness of the type described in (a) and (b) above,
provided that such refinancings do not result in an increase in the principal
amount of such loan, with respect to Creditanstalt, in excess of the original
principal amount of such indebtedness (and such amount in excess of the then
outstanding principal amount thereunder shall be amortized from and after July
1, 2001) and, with respect to Northstar, in excess of the then outstanding
principal amount thereunder.
ARTICLE VI
REGISTRATION RIGHTS
SECTION 6.1. Piggyback Registration.
(a) If at any time or from time to time, the Company shall
determine to register any of its securities, for its own account or the
account of any of its shareholders, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a
transaction of the type described in Rule 145(a) as promulgated under
the Exchange Act, a transaction relating solely to the sale of debt or
convertible debt instruments or a registration on any form (other than
Form S-1, S-2 or S-3, or their successor forms) which does not include
substantially the same information as would be required to be included
in a registration statement covering the sale of Registrable Stock, the
Company will:
(i) give to the holder of Registrable Stock written notice
thereof as soon as practicable prior to filing the registration
statement; and
(ii) include in such registration and in any underwriting
involved therein, all the Registrable Stock specified in a
written request or requests, made within fifteen (15) days after
receipt of such written notice from the Company, by the holder of
Registrable Stock, except as set forth in subsection (b) below.
(b) If the registration is for a registered public offering
involving an underwriting, the Company shall so advise the holder of
Registrable Stock as a part of the written notice given pursuant to
subsection (a)(i). In such event, the right of the holder of Registrable
Stock to registration pursuant to this Article VI shall be conditioned
upon the holder's participation in such underwriting to the extent
provided herein. If the holder of
15
<PAGE> 21
Registrable Stock proposes to distribute its securities through such
underwriting, it shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Article VI, if the managing
underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may
limit the number of Shares of Registrable Stock to be included in the
registration and underwriting, or may exclude Registrable Stock entirely
from such registration if the registration is the first registered
offering for the sale of the Company's securities to the general public,
or a registered offering pursuant to Section 3 of the Registration
Rights Agreement dated July 22, 1994 between the Company and each of the
purchasers of shares of the Series A Convertible Preferred Stock of the
Company named therein, Section 3 of the Registration Rights Agreement
dated September 22, 1994 between the Company and each of the purchasers
of shares of the Series A-I Convertible Preferred Stock of the Company
named therein, Section 9 of the Series A-I Warrant issued by the Company
to Dublind Investments, L.L.C. on September 22, 1995, Section 9 of the
Series A-I Warrant granted by the Company to Creditanstalt on November
21, 1995 or Section 9 of the Series A-II Warrant granted by the Company
to Northstar (provided that no shares held by officers of the Company,
other than shares subject to other registration rights granted by the
Company that may be owned by officers, are included in the registration
and underwriting). The Company shall so advise the holder of Registrable
Stock and the other holders distributing their securities through such
underwriting, and the number of shares of securities that may be
included in the registration and underwriting shall be allocated among
the holder of Registrable Stock and other holders in proportion, as
nearly as practicable, to the respective amounts of Registrable Stock
held by the Holder and other securities held by other holders at the
time of filing the registration statement. If the Holder disapproves of
the terms of any such underwriting, if may elect to withdraw therefrom
by written notice to the Company and the managing underwriter. Any
Registrable Stock excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(c) As used in this Article VI the following terms, unless the
context otherwise requires, have the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Registrable Stock" shall mean the Warrant Shares, but
only so long as such shares continue to be Restricted Stock. Any such
shares shall continue to be Restricted Stock until such time as such
shares (i) have been disposed of in accordance with a registration
statement which has become effective under the Securities Act or (ii)
have been publicly sold in compliance with Rule 144 (or any similar
provision then in force) under the Securities Act.
16
<PAGE> 22
(d) If requested in writing by the underwriter or underwriters
for the initial underwritten public offering of securities of the
Company, the holder of Registrable Stock shall agree not to sell
publicly any shares of Registrable Stock or any other shares of Common
Stock (other than Registrable Stock or other shares of Common Stock
being registered in such offering), without the consent of such
underwriter or underwriters, for a period of not more than 120 days
following the effective date of the registration statement relating to
such initial public offering.
SECTION 6.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 6.1 to effect the registration of any
shares of Registrable Stock under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Stock and use its best efforts to cause
such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as
hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period specified in paragraph (a) above and
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Stock covered by such registration
statement in accordance with the holder's intended method of disposition
as set forth in such registration statement for such period;
(c) furnish to the holder of Registrable Stock and to each
underwriter such number of copies of the registration statement and
prospectus included therein (including each preliminary prospectus) as
such persons reasonably may request in order to facilitate the public
sale or other disposition of the Registrable Stock covered by such
registration statement;
(d) use its best efforts to register or qualify the Registrable
Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdiction as the holder of Registrable Stock
or, in the case of an underwritten public offering, the managing
underwriter reasonably shall request; provided, however, that the
Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where
it is not so qualified or to consent to general service of process in
any such jurisdiction;
(e) use its best efforts to list the Registrable Stock covered by
such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
(f) in addition to its obligations under Section 6.2 hereof,
immediately notify the holder of Registrable Stock and each underwriter
under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the
17
<PAGE> 23
Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(g) if the offering is underwritten, at the request of the holder
of Registrable Stock, furnish on the date that Registrable Stock is
delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for
the purposes of such registration, addressed to the underwriters and to
the holder of Registrable Stock, stating that such registration
statement has become effective under the Securities Act and that (A) to
the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Securities Act, (B) the registration statement, the related prospectus
and each amendment or supplement thereof comply as to form in all
material respects with the requirements of the Securities Act (except
that such counsel need not express any opinion as to financial
statements or other financial data contained therein) and (C) to such
other effects as reasonably may be requested by counsel for the
underwriters or by the Holder or its counsel and (ii) a letter dated
such date from the independent public accountants retained by the
Company, addressed to the underwriters and to the holder of Registrable
Stock, stating that they are independent public accountants within the
meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information
as to the period ending no more than five business days prior to the
date of such letter) with respect to such registration as such
underwriters reasonably may request; and
(h) make available for inspection by the holder of Registrable
Stock, by any underwriter participating in any distribution pursuant to
such registration statement, and by any attorney, accountant or other
agent retained by the holder of Registrable Stock or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors
and employees to supply all information reasonably requested by the
holder of Registrable Stock and any underwriter, attorney, accountant or
agent in connection with such registration statement.
For purposes of this Agreement, the period of distribution, if not
otherwise described in the Registration Statement of Registrable Stock in a firm
commitment underwritten public offering, shall be deemed to extend until each
underwriter has completed the distribution of all securities purchased by it,
and the period of distribution of Registrable Stock in any other registration
shall be deemed to extend until the earlier of the sale of all Registrable Stock
covered thereby or 120 days after the effective date thereof.
18
<PAGE> 24
In connection with each registration hereunder, the holder of
Registrable Stock will furnish to the Company in writing such information with
respect to itself and the proposed distribution by it as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Section 6.1 covering an
underwritten public offering, the Company and the holder of Registrable Stock
agree to enter into a written agreement with the managing underwriter selected
in the manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
SECTION 6.3. Expenses. All expenses incurred by the Company in complying
with Section 6.1, including all registration and filing fees, printing expenses,
fees and disbursements of counsel and independent public accountants for the
Company, reasonable fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance and reasonable fees and
disbursements of one counsel for the sellers of Registrable Stock, but excluding
any Selling Expenses, are called "Registration Expenses". "Selling Expenses"
shall include only such underwriting discounts and selling commissions
applicable to the sale of any Registrable Stock which would not have been
incurred in the absence of the registration and sale of the Registrable Stock.
The Company will pay all Registration Expenses in connection with each
registration statement filed pursuant to Section 6.1; provided, however, that in
connection with a registration statement filed under Section 6.1, the Company
shall not be obligated to pay fees and expenses (including counsel fees)
incurred in connection with complying with state securities laws in any state in
which the Company is not otherwise registering for sale any of the shares the
Company proposes to sell in the offering. All Selling Expenses in connection
with each registration statement filed pursuant to Section 6.1 shall be borne by
the participating sellers in proportion to the number of shares sold by each, or
by such participating sellers as they may agree.
SECTION 6.4. Indemnification and Contribution
(a) In the event of a registration of any of the Registrable
Stock under the Securities Act pursuant to Section 6.1, the Company will
indemnify and hold harmless the holder of Registrable Stock, each
underwriter of Registrable Stock and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or
several, to which the holder of Registrable Stock, underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Stock was
registered under the Securities Act pursuant to Section 6.1, any
preliminary prospectus or final prospectus contained therein,
19
<PAGE> 25
or any amendment or supplement thereof, or arise out of or are 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, and will reimburse the holder of Registrable
Stock, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any
such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity
with information furnished by the holder of Registrable Stock,
underwriter or controlling person in writing specifically for use in
such registration statement or prospectus.
(b) In the event of a registration of any Registrable Stock under
the Securities Act pursuant to Section 6.1, the holder of Registrable
Stock will indemnify and hold harmless the Company, each person, if any,
who controls the Company within the meaning of the Securities Act, each
officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls
any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which such Registrable Stock was registered under the Securities
Act pursuant to Section 6.1, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are 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, and will reimburse the
Company and each such officer, director, underwriter and controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Holder will be liable
hereunder in any such case only if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to
the holder of Registrable Stock, as such, furnished in writing to the
Company by the holder of Registrable Stock specifically for the use in
such registration statement or prospectus; provided, further, that the
liability of the holder of Registrable Stock shall be limited to the
proportion of any such loss, claim, damage, liability or expense which
is equal to the proportion that the public offering price of the
Registrable Stock sold by the holder of Registrable Stock under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds
received by the holder of Registrable Stock from the sale of Registrable
Stock covered by such registration statement.
20
<PAGE> 26
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but
the omission so to notify the indemnifying party shall not relieve it
from any liability which it may have to such indemnified party other
then under this Section 6.4 and shall only relieve it from any liability
which it may have to such indemnified party under this Section 6.4 if
and to the extent the indemnifying party is prejudiced by such omission.
In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with
counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
this Section 6.4 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so
selected; provided, however, that, 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 there may be
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the
indemnified party reasonably may be considered by the indemnified party
to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and
to assume such legal defenses and otherwise to participate in the
defense of such action, with reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. No indemnifying party,
in defense of any such action, shall, except with the consent of each
indemnified party, consent to the entry of any judgment or enter into
any settlement (i) which does not include as an unconditional term
thereof the giving, by the claimant or plaintiff, to such indemnified
party of a release from all liability in respect to such action or (ii)
which involves any relief against the indemnified party other than the
payment of money which is to be paid in full by the indemnifying party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i)
the holder of Registrable Stock exercising rights under this Agreement,
or any controlling person of the holder of Registrable Stock, makes a
claim for indemnification pursuant to this Section 6.4 but it is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section
6.4 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of the holder of
Registrable Stock or any such controlling person in circumstances for
which indemnification is provided under this Section 6.4; then, and in
each such case, the Company and such holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that the
holder of Registrable Stock is
21
<PAGE> 27
responsible for the portion represented by the percentage that the
public offering price of its Registrable Stock offered by the
registration statement bears to the public offering price of all
securities offered by such registration statement, and the Company is
responsible for the remaining portion; provided, however, that, in any
such case, (A) the holder of Registrable Stock will not be required to
contribute any amount in excess of the public offering price of all such
Registrable Stock sold by the holder of Registrable Stock pursuant to
such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
SECTION 6.5. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of Registrable Stock to the public without registration, at
all times after 90 days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall have become
effective (or the Company shall otherwise have become subject to the periodic
reporting requirements of the Exchange Act), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Registrable Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and
the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the
Company as such holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing such holder to sell any
Registrable Stock without registration.
SECTION 6.6. Termination of Piggyback Registration Rights. The
obligations of the Company to register shares of Registrable Stock under Section
6.1 shall terminate on April 1, 2005, unless such obligations terminate earlier
in accordance with the terms of the Warrant.
SECTION 6.7. Material Non-Public Information. Notwithstanding any
provision of this Agreement to the contrary, the Company's obligation to file a
registration statement, or cause such registration statement to become and
remain effective, shall be suspended for a period not to exceed 30 days (and for
periods not exceeding, in the aggregate, 60 days in any 24-month period) if
there exists at the time material non-public information relating to the Company
which, in the reasonable opinion of the Company, should not be disclosed.
22
<PAGE> 28
ARTICLE VII
BOARD OBSERVATION RIGHTS
From and after the Closing Date, and so long as the Note remains
outstanding, the Purchaser shall be entitled to have a representative present at
all meetings (including, without limitation, those conducted by telephone) of
the Company Board (and the Purchaser shall be given copies of all minutes and
consents to action of the Company Board) and to receive all notices required by
the Charter or the By-laws to be given to members of the Company Board;
provided, however, that all rights provided for in this Article VII shall lapse
when all obligations under the Note have been satisfied.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby whether or not such
transactions shall be consummated; provided, however, that the Company shall pay
the reasonable legal and other fees and disbursements of the Purchaser, as
invoiced.
SECTION 8.2. Survival of Agreements. Unless otherwise expressly stated
herein, in the Warrant or in any certificate or instrument delivered pursuant to
or in connection therewith, all covenants and agreements made herein, in the
Warrant, or any certificate or instrument delivered to the Purchaser pursuant to
or in connection with this Agreement or the Warrant shall survive the execution
and delivery of this Agreement, the Warrant and the issuance and delivery of the
Warrant Shares from the date of this Agreement until the Warrant is exercised in
full or until the Warrant expires, whichever event occurs first; provided,
however, that the representations and warranties contained in the Note or the
Other Loan Documents shall survive until all amounts due under the Note shall be
paid in full. All statements contained in any certificate or other instrument
delivered by the Company hereunder or thereunder or in connection herewith or
therewith shall be deemed to constitute representations and warranties made by
the Company.
SECTION 8.3. Brokerage. Each party hereto will indemnify and hold
harmless the other against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 8.4. Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and
23
<PAGE> 29
agreements benefiting the Purchaser shall inure to the benefit of any and all
subsequent holders from time to time of the Note, the Warrant or the Warrant
Shares.
SECTION 8.5. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person or
mailed by certified or registered mail, return receipt requested, as follows:
(a) if to the Company, at Intracel Corporation, 359 Allston
Street, Cambridge, MA 02349, Attention: President, with a copy to Joseph
W. Bartlett, Esq., Morrison & Foerster LLP, 1290 Avenue of the Americas,
New York, NY 10104; and
(b) if to the Purchaser, at the address set forth beneath the
Purchaser's name on the signature page to this Agreement, with a copy to
Lee Hitchner, Esq., Pepper, Hamilton & Scheetz, 3000 Two Logan Square,
Philadelphia, PA 19103
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
SECTION 8.6. Governing Law. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the Commonwealth of
Pennsylvania, regardless of the jurisdiction of creation or domicile of the
Company or its successors or of the Purchaser (without giving effect to its
choice of law principles).
SECTION 8.7. Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 8.9. Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the Purchaser.
SECTION 8.10. Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 8.11. Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
24
<PAGE> 30
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
INTRACEL CORPORATION
[Corporate Seal] By:___________________________________
Name: Simon R. McKenzie
Title: President
Attest:
_____________________________
Name: Cheryl Cataldo
Title: Clerk
CORESTATES ENTERPRISE FUND, A DIVISION
OF CORESTATES BANK, N.A.
By:___________________________________
Name:
Title:
Address: 1345 Chestnut Street
Philadelphia, PA 19107
25
<PAGE> 1
EXHIBIT 10.16
================================================================================
NOTE AND WARRANT
PURCHASE AGREEMENT
between
INTRACEL CORPORATION,
NORTHSTAR HIGH YIELD FUND
AND
NORTHSTAR HIGH TOTAL RETURN FUND II
Dated as of April 1, 1998
================================================================================
<PAGE> 2
NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement"), dated as of
April 1, 1998, by and among Intracel Corporation, a Delaware corporation (the
"Company"), Northstar High Yield Fund and Northstar High Total Return Fund II
(each, a "Purchaser" and, together, the "Purchasers").
PREAMBLE
WHEREAS, the Company wishes to issue and sell to the Purchasers (i) the
Company's promissory notes, in the original aggregate principal amount of
$8,000,000, such promissory notes being substantially in the form attached
hereto as Exhibit A-1 and Exhibit A-2 (each, a "Note" and, collectively, the
"Notes"), and (ii) the Common Stock Warrants, substantially in the form attached
hereto as Exhibit B-1 and Exhibit B-2 (each, a "Warrant" and, collectively, the
"Warrants"), to purchase in the aggregate up to 98,132 shares of common stock,
$.0001 par value per share (the "Warrant Shares"), of the Company (the Notes and
the Warrants shall collectively be referred to as the "Securities").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties hereto agree as follows:
ARTICLE I
THE SECURITIES
SECTION 1.1. Issuance, Sale and Delivery of the Securities. The Company
hereby agrees to issue, sell and deliver to: (a) Northstar High Yield Fund, and
Northstar High Yield Fund hereby agrees to purchase from the Company, at the
closing (the "Closing") for the purchase price of $4,000,000, a Note in the
original principal amount of $4,000,000 and a Warrant to purchase 49,066 Warrant
Shares and (b) Northstar High Total Return Fund II, and Northstar High Total
Return Fund II hereby agrees to purchase from the Company, at the Closing for
the purchase price of $4,000,000, a Note in the original principal amount of
$4,000,000 and a Warrant to purchase 49,066 Warrant Shares.
SECTION 1.2. Closing; Purchase Price; Purchase Price Allocation. The
Closing shall take place at the offices of Morrison & Foerster LLP, 1290 Avenue
of the Americas, New York, NY 10104, at 10:00 a.m., New York time, on the date
hereof, or at such other place, date and time as may be otherwise mutually
agreed in writing by the parties hereto. The date on which the Closing actually
occurs is referred to herein as the "Closing Date." At the Closing, the Company
shall issue and deliver to the Purchasers the Notes in the aggregate original
principal amount of $8,000,000 and the Warrants to purchase 98,132 Warrant
Shares in the aggregate. As payment in full for the Securities, and against
delivery of the Securities on the Closing Date, the Purchasers shall transfer
the sum of $8,000,000 by wire transfer of immediately available funds to such
account or accounts as the Company may direct in writing. The Company and the
Purchasers agree that 3.57% of the aggregate consideration for the Securities
shall be allocated to the Warrants (one-half of such amount being allocated to
each of the Warrants), and that the
<PAGE> 3
balance of such aggregate consideration shall be allocated to the Notes
(one-half of such amount being allocated to each of the Notes).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company (and for purposes of this Article II, unless the context
requires otherwise, the term "the Company" shall be deemed to include all
wholly-owned subsidiaries of Intracel Corporation) represents and warrants to
the Purchasers as of the Closing Date that:
SECTION 2.1. Organization, Qualifications and Corporate Power. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, and the Company is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification, except where the failure so to qualify will not have a material
adverse effect on the business, operations, property or financial condition of
the Company. The Company has the power and authority to own and hold its
properties and to carry on its business as now conducted and as proposed to be
conducted, and the Company has the power and authority to execute, deliver and
perform this Agreement and to issue, sell and deliver the Notes and the
Warrants, and to issue and deliver the Warrant Shares upon the exercise of the
Warrants.
SECTION 2.2. Authorization of Agreements, etc.
(a) The execution and delivery by the Company of this Agreement
and the performance by the Company of its obligations hereunder, the
issuance, sale and delivery of the Notes and the Warrants, and the
issuance, sale and delivery of the Warrant Shares upon the exercise of
the Warrants, have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court
or other agency of government (except that the issuance of the Warrant
Shares may require filings under one or more state securities laws, all
of which filings will be made by the Company within the requisite time
period), the Amended and Restated Certificate of Incorporation of the
Company (the "Charter") or the By-laws of the Company, as amended (the
"By-laws") or any provision of any indenture, agreement or other
instrument to which either the Company is a party or by which either the
Company or any of its properties or assets is bound, or conflict with,
result in a breach of or constitute (whether with or without notice or
lapse of time or both) a default under any such indenture, agreement or
other instrument, or result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company.
(b) The Warrants have been authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges,
2
<PAGE> 4
restrictions, claims and encumbrances imposed by or through the Company
except as set forth in this Agreement. The Warrant Shares have been duly
authorized and reserved for issuance upon exercise of the Warrants, and,
when so issued, will be duly authorized, validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company except as set
forth in this Agreement. Neither the issuance, sale or delivery of the
Warrants, nor the issuance or delivery of the Warrant Shares is subject
to any preemptive right of stockholders of the Company or to any right
of first refusal or other right in favor of any person.
SECTION 2.3. Validity. Each of this Agreement, the Notes, and the
Warrants have been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance and moratorium laws and other similar laws
of general application affecting enforcement of creditors' rights generally and
(ii) the availability of equitable remedies including specific performance may
be limited by equitable principles of general applicability (regardless of
whether enforcement is sought in a proceeding in equity or at law).
SECTION 2.4. Authorized Capital Stock. The authorized capital stock of
the Company consists of 25,000,000 shares of common stock, $.0001 par value (the
"Common Stock"), and 5,000,000 shares of preferred stock ("Preferred Stock"). As
of March 30, 1998, 10,917,256 shares of Common Stock were issued and
outstanding, all of which are validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof. The
Company has authorized 730,000 shares of Series A Convertible Preferred Stock,
$.0001 par value per share (the "Series A Preferred"). As of March 30, 1998, a
total of 603,624 shares of Series A Preferred were issued and outstanding. The
Company has authorized 850,000 shares of Series A-1 Convertible Preferred Stock,
$.0001 par value per share (the "Series A-1 Preferred"). As of March 30, 1998, a
total of 651,171 shares of Series A-1 Preferred were issued and outstanding. The
Company has authorized 155,000 shares of Series A-2 Preferred Stock, $.0001 par
value per share (the "Series A-2 Preferred"). As of March 30, 1998, a total of
45,482 shares of Series A-2 were issued and outstanding. The Company has
authorized 200,000 shares of Series A-3 Convertible Preferred Stock, $.0001 par
value per share (the "Series A-3 Preferred"). As of March 30, 1998, 147,922
shares of Series A-3 Preferred were issued and outstanding. The Company has
authorized 100 shares of Series B-1 Convertible Preferred Stock, $.0001 par
value per share (the "Series B-1 Preferred"). As of March 30, 1998, 100 shares
of Series B-1 Preferred are outstanding. The Company has authorized 120 shares
of Series B-2 Convertible Preferred Stock, $.0001 par value per share (the
"Series B-2 Preferred"). As of March 30, 1998, 120 shares of Series B-2
Preferred are outstanding.
SECTION 2.5. Financial Statements . The Company has furnished to the
Purchaser the unaudited balance sheets of the Company and PerImmune Holdings,
Inc. ("PerImmune") for the fiscal year ended December 31, 1997 (the "Balance
Sheet") and the related unaudited statements of income, stockholders' equity and
cash flows of the Company and PerImmune for the fiscal year ended December 31,
1997. All such financial statements have been prepared in
3
<PAGE> 5
accordance with generally accepted accounting principles consistently applied
and fairly present the financial position of the Company and PerImmune as of
December 31, 1997, and the results of their respective operations and cash flows
as of December 31, 1997. Except as set forth in Schedule 2.5 hereto, since the
date of the Balance Sheet, (i) there has been no change in the assets,
liabilities or financial condition of the Company or PerImmune from that
reflected in the Balance Sheet except for changes in the ordinary course of
business which in the aggregate have not been materially adverse and (ii) none
of the business, financial condition, operations or property of the Company or
PerImmune have been materially adversely affected by any occurrence or
development, individually or in the aggregate, whether or not insured against.
SECTION 2.6. Absence of Undisclosed Liabilities and Changes. Except as
set forth on Schedule 2.6 attached hereto, as of the date hereof, (a) the
Company had no liabilities of any nature (matured or unmatured, fixed or
contingent) which were not provided for on the Balance Sheet, except for (i)
liabilities which, individually and in the aggregate, were not material to the
financial condition of the Company or (ii) liabilities incurred in the ordinary
course of the Company's business and not required to be so provided for under
generally accepted accounting principles, and (b) all reserves established by
the Company or PerImmune and set forth on such balance sheet were adequate in
all material respects. There are no loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5 ("Statement No. 5") issued by
the Financial Accounting Standards Board in March 1975) which are not adequately
provided for in such balance sheet as required by Statement No. 5.
SECTION 2.7. Events Subsequent to the Date of the Balance Sheet. Except
as set forth in the attached Schedule 2.7 or as contemplated by this Agreement,
since the date of the Balance Sheet the Company has not (i) issued any stock,
bond, note or other corporate security, (ii) borrowed any amount or incurred or
become subject to any liability (absolute, accrued or contingent), except
current liabilities incurred and liabilities under contracts entered into in the
ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the ordinary
course of business, (iv) declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its capital stock or other
security, (v) mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, other than liens of current real property taxes not yet
due and payable, (vi) sold, assigned or transferred any of its tangible assets
except in the ordinary course of business, or canceled any debt or claim, (vii)
sold, assigned, transferred or granted any exclusive license with respect to any
material patent, trademark, trade name, service mark, copyright, trade secret or
other intangible asset other than in the ordinary course of business, (viii)
suffered any material loss of property or waived any right of substantial value,
(ix) made any change in officer compensation except in the ordinary course of
business and consistent with past practice, (x) made any material change in the
manner of business or operations of the Company, (xi) entered into any
transaction except in the ordinary course of business or as otherwise
contemplated hereby or (xii) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
4
<PAGE> 6
SECTION 2.8. Litigation; Compliance with Law. There is no material (i)
action, suit, claim, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding relating to the Company, pending under a collective
bargaining agreement or otherwise or (iii) governmental inquiry pending or to
the knowledge of the Company, threatened against or affecting the Company,
(including, without limitation, any inquiry as to the qualification of the
Company, to hold or receive any license or permit). The Company has not received
any opinion or memorandum or legal advice from legal counsel to the effect that
it is exposed, from a legal standpoint, to any liability or disadvantage which
may be material to its business, financial condition, operations or property.
The Company is not in default with respect to any order, writ, injunction or
decree known to or served upon the Company of any court or of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign. There is no material action or
suit by the Company pending or threatened against others. The Company has
complied in all material respects with all laws, rules, regulations and orders
applicable to its business, operations, properties, assets, products and
services, and the Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted, except where the failure to own or possess such permits, licenses
or authorizations could not, either singly or in the aggregate, have a material
adverse effect on the business, operations, properties or financial condition of
the Company.
SECTION 2.9. Title to Properties. Except in instances that, either
singly or in the aggregate, could not have a material adverse effect on the
business, operations, properties or financial condition of the Company, and
except as disclosed in Schedule 2.9 hereof, the Company has good and marketable
title to its properties and assets reflected on the Balance Sheet (other than
properties and assets disposed of in the ordinary course of business since the
date of the Balance Sheet), and all such properties and assets are free and
clear of mortgages, pledges, security interests, liens, charges, claims,
restrictions and other encumbrances, except for liens for current taxes not yet
due and payable and minor imperfections of title, if any, not material in nature
or amount and not materially detracting from the value or materially impairing
the use of the property subject thereto or impairing the operations or proposed
operations of the Company.
SECTION 2.10. Leasehold Interests. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal
(a list of all such leases being attached hereto as Schedule 2.10), is a valid
and subsisting agreement without any material default of the Company, thereunder
and, to the knowledge of the Company, without any material default thereunder of
any other party thereto. No event has occurred and is continuing which, with due
notice or lapse of time or both, would constitute a default or event of default
by the Company, under any such lease or agreement or, to the knowledge of the
Company, by any other party thereto.
SECTION 2.11. Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax
5
<PAGE> 7
returns, Federal, state, county, local and foreign, required to be filed by it,
and the Company has paid all taxes shown to be due by such returns and
extensions as well as all other taxes, assessments and governmental charges
which have become due or payable, including, without limitation, all taxes which
the Company is obligated to withhold from amounts owing to employees, creditors
and third parties. All such taxes with respect to which the Company has become
obligated have been paid and adequate reserves have been established for all
taxes accrued but not yet payable. No deficiency assessment with respect to or
proposed adjustment of the Company's Federal, state, county or local taxes is
pending or, to the knowledge of the Company, threatened. There is no tax lien in
favor of any Federal, state, county or local taxing authority, outstanding
against the assets, properties or business of the Company.
SECTION 2.12. Other Agreements. Except as set forth in the attached
Schedule 2.12, the Company is not a party to or otherwise bound by any written
or oral contract or instrument or other restriction which individually or in the
aggregate could materially adversely affect the business, financial condition,
operations or property of the Company. Except as set forth in the attached
Schedule 2.12, or as a result of the transactions contemplated in this
Agreement, the Notes, or the Warrants, the Company is not a party to or
otherwise bound by any written or oral:
(a) distributor, dealer, manufacturer's representative or sales
agency contract or agreement which is not terminable on less than ninety
(90) days' notice without cost or other liability to the Company;
(b) sales contract which entitles any customer to a rebate or
right of set-off, to return any product to the Company after acceptance
thereof or to delay the acceptance thereof, or which varies in any
material respect from the Company's standard form contracts;
(c) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of
its employees);
(d) contract or other commitment with any supplier containing any
provision permitting any party other than the Company to renegotiate the
price or other terms, or containing any pay-back or other similar
provision, upon the occurrence of a failure by the Company to meet its
obligations under the contract when due or the occurrence of any other
event;
(e) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its
normal operating requirements;
(f) contract for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings), on a full-time or consulting basis which is not
terminable on notice without cost or other liability to the Company
except normal severance arrangements and accrued vacation pay;
6
<PAGE> 8
(g) agreement or indenture relating to the borrowing of money or
to the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any asset of the Company;
(h) guaranty of any obligation for borrowed money or otherwise;
(i) agreement, or group of related agreements with the same party
or any group of affiliated parties, under which the Company has advanced
or agreed to advance money or has agreed to lease any property as lessee
or lessor;
(j) agreement or obligation (contingent or otherwise) to issue,
sell or otherwise distribute or to repurchase or otherwise acquire or
retire any share of its capital stock or any of its other equity
securities;
(k) assignment, license or other agreement with respect to any
form of intangible property or Intellectual Property (as defined in
Section 2.13) or the development or use thereof;
(l) agreement under which it has granted any person any
registration rights;
(m) agreement under which it has limited or restricted its right
to compete with any person in any respect; or
(n) other contract or group of related contracts with the same
party involving more than $500,000 or continuing over a period of more
than one (1) year from the date or dates thereof (including renewals or
extensions optional with another party), which contract or group of
contracts is not terminable by the Company without penalty upon notice
of thirty (30) days or less, but excluding any contract or group of
contracts with a customer of the Company for the sale, lease or rental
of the Company's products or services if such contract or group of
contracts was entered into by the Company in the ordinary course of
business.
Except as set forth in Schedule 2.12, there are no material defaults by the
Company or, to the Company's knowledge, by any other party to any of the
foregoing agreements.
SECTION 2.13. Patents, Trademarks, etc. Set forth in Schedule 2.13 is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company, or
of which the Company is a licensor or licensee or in which the Company has any
right, and in each case a brief description of the nature of such right. Except
as set forth in Schedule 2.13, the Company owns or possesses adequate licenses
or other rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names, copyrights,
manufacturing processes, formulae, trade secrets and know-how (collectively,
"Intellectual Property") necessary to the conduct of its business as conducted,
and no claim is pending or, to the knowledge of the Company, threatened to the
effect
7
<PAGE> 9
that the operations of the Company infringe upon or conflict with the rights of
any other person under any Intellectual Property, and to the knowledge of the
Company there is no basis for any such claim. No claim is pending or, to the
knowledge of the Company, threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and to the
knowledge of the Company there is no basis for any such claim. To the knowledge
of the Company, all technical information developed by and belonging to the
Company which has not been patented has been kept confidential. Except as set
forth in Schedule 2.13, the Company has not granted or assigned to any other
person or entity any right to manufacture or assemble any products or proposed
products of the Company, other than to its affiliates, and to the knowledge of
the Company no other person or entity has asserted any such right.
SECTION 2.14. Loans and Advances. Except as set forth on Schedule 2.14,
the Company does not have any outstanding loans or advances to any person and is
not obligated to make any such loans or advances, except, in each case, for
advances to employees of the Company in respect of reimbursable business
expenses anticipated to be incurred by them in connection with their performance
of services for the Company.
SECTION 2.15. Assumptions, Guaranties, etc. of Indebtedness of Other
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in a debtor, or otherwise to assure a creditor against loss),
except for guaranties by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
SECTION 2.16. Significant Customers and Suppliers. No customer which
accounted for 10% or more of the Company's sales or revenues during the periods
covered by the financial statements referred to in Section 2.5 or which has been
significant to the Company thereafter has terminated, materially reduced or
threatened to terminate or materially reduce its purchases from the Company. As
of the date of this Agreement, there is no supplier to the Company which is a
sole-source supplier.
SECTION 2.17. Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III
hereof, no registration or filing with, or consent or approval of or other
action by, any Federal, state or other governmental agency or instrumentality is
or will be necessary for the valid execution, delivery and performance by the
Company of this Agreement, the Notes or the Warrants, or the issuance, sale and
delivery of the Warrant Shares upon exercise of the Warrants, other than filings
pursuant to state securities laws in connection with the issuance and sale of
the Notes and Warrants.
SECTION 2.18. Accuracy of Statements. Neither this Agreement nor any
Schedule, Exhibit, statement, list, document, certificate or other information
furnished by or on behalf of the Company to the Purchasers in connection with
this Agreement or any of the transactions contemplated hereby contains any
untrue statement of a material
8
<PAGE> 10
fact or omits to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.
SECTION 2.19. Insurance. Schedule 2.19 lists all insurance policies
which the Company maintains with respect to its businesses, properties and
employees. Such policies are in full force and effect and the Company has
received no notice of termination from the insurance carriers. Such policies,
with respect to their amounts and types of coverage, are adequate in the
reasonable commercial judgment of the Company to insure against risks to which
the Company and its respective businesses. Since the date of the Balance Sheet,
there has been no material adverse change in the Company's relationship with its
insurers or in the premiums payable pursuant to such policies.
SECTION 2.20. Employment Relations.
(a) The Company is in material compliance with applicable
federal, state or other applicable laws, domestic or foreign, respecting
employment and employment practices, safety, terms and conditions of
employment and wages and hours.
(b) The Company does not maintain or contribute to any employee
benefit plan ("Employee Benefit Plan") within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is subject to ERISA but which is not in substantial
compliance with ERISA, or which has incurred any material liability to
the Pension Benefit Guaranty Company ("PBGC") in connection with any
Employee Benefit Plan covering any employees of the Company or any of
its subsidiaries or ceased operations at any facility or withdrawn from
any such Plan in a manner which could subject it to material liability
under Section 462(f), 4063 or 4064 of ERISA, and knows of no facts or
circumstances which might give rise to any material liability of the
Company to the PBGC under Title IV of ERISA.
SECTION 2.21. Compensation of Key Employees. Schedule 2.21 sets forth
the aggregate compensation (salaries, wages and bonuses) paid by the Company to
its four most highly compensated employees for the 1997 fiscal year and the
amount of such compensation scheduled to be paid to such employees for the 1998
fiscal year.
SECTION 2.22. Environmental Compliance. The Company is in compliance
with all applicable laws relating to environmental matters in each jurisdiction
where it is presently engaged in a material manufacturing business, except for
such failures to comply which, in the aggregate, could reasonably be expected
not to have a material adverse effect on the Company. The Company is not subject
to any liability under any such environmental laws, that, in the aggregate for
all such liabilities, could be reasonably expected to have a material adverse
effect on the Company.
9
<PAGE> 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers represents and warrants to the Company as of the
Closing Date that:
SECTION 3.1. Purchase of Securities.
(a) It is an "accredited investor" within the meaning of Rule 501
under the Securities Act of 1933, as amended (the "Securities Act") and
was not organized for the specific purpose of acquiring the Note or the
Warrant.
(b) It has sufficient knowledge and experience in investing in
companies in a similar stage of development to the Company so as to be
able to evaluate the risks and merits of its investment in the Company
and it is able financially to bear the risks thereof.
(c) It has had an opportunity to discuss the Company's business,
management and financial condition with the Company's management.
(d) It is acquiring the respective Note and Warrant for its own
account for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof.
(e) It understands that (i) its respective Note, Warrant and,
upon exercise thereof, Warrant Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act pursuant to Section
4(2) thereof, (ii) its respective Note, Warrant and, upon exercise
thereof, Warrant Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt
from such registration, (iii) its respective Note, Warrant and, upon
exercise thereof, Warrant Shares will bear a legend to such effect and
(iv) the Company will make a notation on its transfer books to such
effect.
SECTION 3.2. Authority. It has all requisite power and authority to
execute, deliver and perform this Agreement, and to purchase its respective Note
and Warrant and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement, and the purchase of its respective
Note and Warrant and the consummation of the transactions contemplated hereby
and thereby. This Agreement on the Closing Date will constitute the legal, valid
and binding obligations of such Purchaser, enforceable in accordance with their
terms, except (i) to the extent that enforceability may be limited by
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceedings therefor may be brought.
10
<PAGE> 12
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligations of each of the Purchasers to purchase and pay for the
Notes and the Warrants being purchased by it on the Closing Date, are, at its
option, subject to the satisfaction of the following conditions on or before
such Closing Date:
SECTION 4.1. Supporting Documents. At the Closing, the Purchasers shall
have received copies of the following documents:
(a) (i) the Charter, certified as of a recent date by the
Secretary of State of the State of Delaware and (ii) a certificate of
said Secretary dated as of a recent date as to the due incorporation and
subsistence of the Company; and
(b) a certificate of the Secretary or an Assistant Secretary of
the Company dated the Closing Date and certifying: (i) that attached
thereto is a true and complete copy of all resolutions adopted by the
Board of Directors (the "Company Board") or the stockholders of the
Company authorizing the execution, delivery and performance of this
Agreement, the issuance, sale, delivery, and performance of the Notes
and the Warrants, and the reservation, issuance and delivery of the
Warrant Shares upon the exercise of the Warrants, and that all such
resolutions are in full force and effect and are all the resolutions
adopted in connection with the transactions contemplated by this
Agreement; (ii) that the Charter has not been amended since the date of
the certified Charter delivered pursuant to clause (a)(i) above; and
(iii) to the incumbency and specimen signature of each officer of the
Company executing this Agreement, the Notes, and the Warrants and any
certificate or instrument furnished pursuant hereto, and a certification
by another officer of the Company as to the incumbency and signature of
the officer signing the certificate referred to in this clause (b).
SECTION 4.2. Fees of Purchasers. The Company shall have paid, in
accordance with Section 7.1, the reasonable legal and other fees and
disbursements of the Purchasers, as invoiced in an aggregate amount not to
exceed $15,000.00.
SECTION 4.3. Warrants. The Company shall have issued the Warrants to the
Purchasers.
SECTION 4.4. Notes. The Purchasers shall have received the Notes
executed and delivered by a duly authorized officer of the Company.
11
<PAGE> 13
ARTICLE V
PAYMENT FOR PURCHASE OF NOTE AND WARRANT
Simultaneously with the satisfaction of the obligations of the Company
as set forth in Article IV of this Agreement, the Purchasers shall transfer to
the Company the aggregate sum of $8,000,000, as specified in Section 1.2 of this
Agreement.
ARTICLE VI
COVENANTS
SECTION 6.1. Piggyback Registration.
(a) As used in this Article VI the following terms, unless the
context otherwise requires, have the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Registrable Stock" shall mean the Warrant Shares, but
only so long as such shares continue to be Restricted Stock. Any such
shares shall continue to be "Restricted Stock" until such time as such
shares (i) have been disposed of in accordance with a registration
statement which has become effective under the Securities Act or (ii)
have been publicly sold in compliance with Rule 144 (or any similar
provision then in force) under the Securities Act.
(b) If at any time or from time to time, the Company shall
determine to register any of its securities, for its own account or the
account of any of its shareholders, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a
transaction of the type described in Rule 145(a) as promulgated under
the Exchange Act, a transaction relating solely to the sale of debt or
convertible debt instruments or a registration on any form (other than
Form S-1, S-2 or S-3, or their successor forms) which does not include
substantially the same information as would be required to be included
in a registration statement covering the sale of Registrable Stock, the
Company will:
(i) give to the holder of Registrable Stock written notice
thereof as soon as practicable prior to filing the registration
statement; and
(ii) include in such registration and in any underwriting
involved therein, all the Registrable Stock specified in a written
request or requests, made within fifteen (15) days after receipt of such
written notice from the Company, by the holder of Registrable Stock,
except as set forth in subsection (C) below.
12
<PAGE> 14
(c) If the registration is for a registered public offering
involving an underwriting, the Company shall so advise the holder of
Registrable Stock as a part of the written notice given pursuant to
subsection (B)(i). In such event, the right of the holder of Registrable
Stock to registration pursuant to this Article VI shall be conditioned
upon the holder's participation in such underwriting to the extent
provided herein. If the holder of Registrable Stock proposes to
distribute its securities through such underwriting, it shall (together
with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Article VI, if the managing underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten,
the managing underwriter may limit the number of Shares of Registrable
Stock to be included in the registration and underwriting, or may
exclude Registrable Stock entirely from such registration if the
registration is the first registered offering for the sale of the
Company's securities to the general public, or a registered offering
pursuant to Section 3 of the Registration Rights Agreement dated July
22, 1994 between the Company and each of the purchasers of shares of the
Series A Convertible Preferred Stock of the Company named therein,
Section 3 of the Registration Rights Agreement dated September 22, 1994
between the Company and each of the purchasers of shares of the Series
A-I Convertible Preferred Stock of the Company named therein, Section 9
of the Series A-I Warrant issued by the Company to Dublind Investments,
L.L.C. on September 22, 1995, Section 9 of the Series A-I Warrant
granted by the Company to Creditanstalt on November 21, 1995, Section 9
of the Series A-II Warrant granted by the Company to the Purchaser or
Article VI of the Note and Series A-III Warrant Purchase Agreement
between the Company and CoreStates dated as of June 11, 1996 (provided
that no shares held by officers of the Company, other than shares
subject to other registration rights granted by the Company that may be
owned by officers, are included in the registration and underwriting).
The Company shall so advise the holder of Registrable Stock and the
other holders distributing their securities through such underwriting,
and the number of shares of securities that may be included in the
registration and underwriting shall be allocated among the holder of
Registrable Stock and other holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Stock held by the
Holder and other securities held by other holders at the time of filing
the registration statement. If the Holder disapproves of the terms of
any such underwriting, if may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. Any Registrable
Stock excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
(d) If requested in writing by the underwriter or underwriters
for the initial underwritten public offering of securities of the
Company, the holder of Registrable Stock shall agree not to sell
publicly any shares of Registrable Stock or any other shares of Common
Stock (other than Registrable Stock or other shares of Common Stock
being registered in such offering), without the consent of such
underwriter or underwriters, for a period of not more than 128 days
following the effective date of the registration statement relating to
such initial public offering.
13
<PAGE> 15
SECTION 6.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 6.1 to effect the registration of any
shares of Registrable Stock under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Stock and use its best efforts to cause
such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as
hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period specified in paragraph (a) above and
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Stock covered by such registration
statement in accordance with the holder's intended method of disposition
as set forth in such registration statement for such period;
(c) furnish to the holder of Registrable Stock and to each
underwriter such number of copies of the registration statement and
prospectus included therein (including each preliminary prospectus) as
such persons reasonably may request in order to facilitate the public
sale or other disposition of the Registrable Stock covered by such
registration statement;
(d) use its best efforts to register or qualify the Registrable
Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdiction as the holder of Registrable Stock
or, in the case of an underwritten public offering, the managing
underwriter reasonably shall request; provided, however, that the
Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where
it is not so qualified or to consent to general service of process in
any such jurisdiction;
(e) use its best efforts to list the Registrable Stock covered by
such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
(f) in addition to its obligations under Section 6.2 hereof,
immediately notify the holder of Registrable Stock and each underwriter
under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement,
as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) if the offering is underwritten, at the request of the holder
of Registrable Stock, furnish on the date that Registrable Stock is
delivered to the underwriters for sale
14
<PAGE> 16
pursuant to such registration: (i) an opinion dated such date of counsel
representing the Company for the purposes of such registration,
addressed to the underwriters and to the holder of Registrable Stock,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement,
the related prospectus and each amendment or supplement thereof comply
as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as
to financial statements or other financial data contained therein) and
(C) to such other effects as reasonably may be requested by counsel for
the underwriters or by the Holder or its counsel and (ii) a letter dated
such date from the independent public accountants retained by the
Company, addressed to the underwriters and to the holder of Registrable
Stock, stating that they are independent public accountants within the
meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information
as to the period ending no more than five business days prior to the
date of such letter) with respect to such registration as such
underwriters reasonably may request; and
(h) make available for inspection by the holder of Registrable
Stock, by any underwriter participating in any distribution pursuant to
such registration statement, and by any attorney, accountant or other
agent retained by the holder of Registrable Stock or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors
and employees to supply all information reasonably requested by the
holder of Registrable Stock and any underwriter, attorney, accountant or
agent in connection with such registration statement.
For purposes of this Agreement, the period of distribution, if not
otherwise described in the Registration Statement of Registrable Stock in a firm
commitment underwritten public offering, shall be deemed to extend until each
underwriter has completed the distribution of all securities purchased by it,
and the period of distribution of Registrable Stock in any other registration
shall be deemed to extend until the earlier of the sale of all Registrable Stock
covered thereby or 120 days after the effective date thereof.
In connection with each registration hereunder, the holder of
Registrable Stock will furnish to the Company in writing such information with
respect to itself and the proposed distribution by it as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Section 6.1 covering an
underwritten public offering, the Company and the holder of Registrable Stock
agree to enter into a written agreement with the managing underwriter selected
in the manner herein provided in such form
15
<PAGE> 17
and containing such provisions as are customary in the securities business for
such an arrangement between such underwriter and companies of the Company's size
and investment stature.
SECTION 6.3. Expenses. All expenses incurred by the Company in complying
with Section 6.1, including all registration and filing fees, printing expenses,
fees and disbursements of counsel and independent public accountants for the
Company, reasonable fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance and reasonable fees and
disbursements of one counsel for the sellers of Registrable Stock, but excluding
any Selling Expenses, are called "Registration Expenses". "Selling Expenses"
shall include only such underwriting discounts and selling commissions
applicable to the sale of any Registrable Stock which would not have been
incurred in the absence of the registration and sale of the Registrable Stock.
The Company will pay all Registration Expenses in connection with each
registration statement filed pursuant to Section 6.1; provided, however, that in
connection with a registration statement filed under Section 6.1, the Company
shall not be obligated to pay fees and expenses (including counsel fees)
incurred in connection with complying with state securities laws in any state in
which the Company is not otherwise registering for sale any of the shares the
Company proposes to sell in the offering. All Selling Expenses in connection
with each registration statement filed pursuant to Section 6.1 shall be borne by
the participating sellers in proportion to the number of shares sold by each, or
by such participating sellers as they may agree.
SECTION 6.4. Indemnification and Contribution
(a) In the event of a registration of any of the Registrable
Stock under the Securities Act pursuant to Section 6.1, the Company will
indemnify and hold harmless the holder of Registrable Stock, each
underwriter of Registrable Stock and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or
several, to which the holder of Registrable Stock, underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Stock was
registered under the Securities Act pursuant to Section 6.1, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are 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, and will reimburse the holder of Registrable Stock, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case if and to
the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue
16
<PAGE> 18
statement or omission or alleged omission so made in conformity with
information furnished by the holder of Registrable Stock, underwriter or
controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any Registrable Stock under
the Securities Act pursuant to Section 6.1, the holder of Registrable
Stock will indemnify and hold harmless the Company, each person, if any,
who controls the Company within the meaning of the Securities Act, each
officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls
any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which such Registrable Stock was registered under the Securities
Act pursuant to Section 6.1, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are 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, and will reimburse the
Company and each such officer, director, underwriter and controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Holder will be liable
hereunder in any such case only if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to
the holder of Registrable Stock, as such, furnished in writing to the
Company by the holder of Registrable Stock specifically for the use in
such registration statement or prospectus; provided, further, that the
liability of the holder of Registrable Stock shall be limited to the
proportion of any such loss, claim, damage, liability or expense which
is equal to the proportion that the public offering price of the
Registrable Stock sold by the holder of Registrable Stock under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds
received by the holder of Registrable Stock from the sale of Registrable
Stock covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but
the omission so to notify the indemnifying party shall not relieve it
from any liability which it may have to such indemnified party other
then under this Section 6.4 and shall only relieve it from any liability
which it may have to such indemnified party under this Section 6.4 if
and to the extent the indemnifying party is prejudiced by such omission.
In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement
17
<PAGE> 19
thereof, the indemnifying party shall be entitled to participate in and,
to the extent it shall wish, to assume and undertake the defense thereof
with counsel reasonably satisfactory to such indemnified party, and,
after notice from the indemnifying party to such indemnified party of
its election so to assume and undertake the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
this Section 6.4 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so
selected; provided, however, that, 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 there may be
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the
indemnified party reasonably may be considered by the indemnified party
to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and
to assume such legal defenses and otherwise to participate in the
defense of such action, with reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. No indemnifying party,
in defense of any such action, shall, except with the consent of each
indemnified party, consent to the entry of any judgment or enter into
any settlement (i) which does not include as an unconditional term
thereof the giving, by the claimant or plaintiff, to such indemnified
party of a release from all liability in respect to such action or (ii)
which involves any relief against the indemnified party other than the
payment of money which is to be paid in full by the indemnifying party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i)
the holder of Registrable Stock exercising rights under this Agreement,
or any controlling person of the holder of Registrable Stock, makes a
claim for indemnification pursuant to this Section 6.4 but it is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section
6.4 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of the holder of
Registrable Stock or any such controlling person in circumstances for
which indemnification is provided under this Section 6.4; then, and in
each such case, the Company and such holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that the
holder of Registrable Stock is responsible for the portion represented
by the percentage that the public offering price of its Registrable
Stock offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, and the
Company is responsible for the remaining portion; provided, however,
that, in any such case, (A) the holder of Registrable Stock will not be
required to contribute any amount in excess of the public offering price
of all such Registrable Stock sold by the holder of Registrable Stock
pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be
18
<PAGE> 20
entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
SECTION 6.5. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of Registrable Stock to the public without registration, at
all times after 90 days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall have become
effective (or the Company shall otherwise have become subject to the periodic
reporting requirements of the Exchange Act), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Registrable Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and
the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the
Company as such holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing such holder to sell any
Registrable Stock without registration.
SECTION 6.6. Termination of Piggyback Registration Rights. The
obligations of the Company to register shares of Registrable Stock under Section
6.1 shall terminate on March 31, 2003, unless such obligations terminate earlier
in accordance with the terms of the Warrant.
SECTION 6.7. Material Non-Public Information. Notwithstanding any
provision of this Agreement to the contrary, the Company's obligation to file a
registration statement, or cause such registration statement to become and
remain effective, shall be suspended for a period not to exceed 30 days (and for
periods not exceeding, in the aggregate, 60 days in any 24-month period) if
there exists at the time material non-public information relating to the Company
which, in the reasonable opinion of the Company, should not be disclosed.
SECTION 6.8. Security Interest; Further Assurances. As collateral
security for all of the obligations of the Company to the Purchasers hereunder
and under the Notes, the Company hereby pledges and assigns to the Purchasers
and grants to the Purchasers, to the maximum extent permissible subject to the
liens disclosed on Schedule 2.9 hereof, a continuing security interest in and to
all of the Company's right, title and interest in, to and under, the
"Collateral" (as such term is defined in the Junior Subordinated Security
Agreement dated as of June 21, 1996 by the Company and Bartels, Inc., in favor
of Northstar High Total Return Fund then known as Northstar Advantage High Total
Return Fund) and the Company agrees, upon the written request of the Purchasers,
(a) to promptly execute and deliver (i) a security agreement or agreements, (ii)
UCC-1 financing Statements, and (iii) all such other documents and instruments,
in each case
19
<PAGE> 21
in form and substance reasonably satisfactory to the Purchasers; and (b) to take
all such other actions; as the Purchasers shall reasonably request in connection
with the perfection of the security interest granted hereby. The parties agree
that such security interest shall be, to the extent permissible, a first
priority interest, and otherwise shall be the highest priority not inconsistent
with the liens listed on Schedule 2.9 hereof. The Company also agrees that,
during the period between the date hereof and the date on which such security
interest has been perfected to the reasonable satisfaction of the Purchasers, it
shall not (and shall not permit any of its subsidiaries to) grant, create or
permit to exist, any mortgage, pledge, security interest, lien, charge, claim or
other encumbrance on any of the Collateral except for (i) those set forth on
Schedule 2.9 hereof and (ii) those of a nature not required to be listed on said
Schedule. Notwithstanding anything in this Section 6.8 to the contrary, nothing
herein shall be deemed to require the Company to take any action which would be
in violation of or create a default under any other agreement of the Company or
any of its subsidiaries.
ARTICLE VI
MISCELLANEOUS
SECTION 7.1. Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby whether or not such
transactions shall be consummated; provided, however, that the Company shall pay
the reasonable legal and other fees and disbursements of the Purchasers, as
invoiced, in an aggregate amount not to exceed $15,000.00.
SECTION 7.2. Brokerage. Each party hereto will indemnify and hold
harmless any other party hereto against and in respect of any claim for
brokerage or other commissions relative to this Agreement or to the transactions
contemplated hereby, based in any way on agreements, arrangements or
understandings made or claimed to have been made by such party with any third
party.
SECTION 7.3. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, sent by next
day or overnight mail or delivery or sent by telecopy (with verbal confirmation
of receipt), as follows:
(a) if to the Company, at Intracel Corporation, 1871 N.W. Gilman
Blvd., Issaqua, Washington 98027, Attn: Chief Executive Officer, with a
copy to Joseph W. Bartlett, Esq., Morrison & Foerster LLP, 1290 Avenue
of the Americas, New York, NY 10104; and
(b) if to the Purchasers, c/o Northstar Investment Management
Corporation, Two Pickwick Plaza, Greenwich, CT 06830, Attn.: Michael
Graves, with a copy to Karen Wiedemann, Esq, Reboul, MacMurray, Hewitt,
Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111.
20
<PAGE> 22
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
SECTION 7.4. Governing Law. This Agreement shall be construed in
accordance with, and governed by, the internal laws of the State of New York as
permitted by Section 5-401 of the New York General Obligations Law (or any
similar successor provision) without giving effect to any choice of law rule
that would cause the application of the laws of any jurisdiction other than the
internal laws of the State of New York. The parties hereto irrevocably waive, to
the fullest extent they may do so under applicable law, trial by jury. Except as
otherwise provided herein, all disputes among or between the parties hereto
arising out of, connected with, related to or incidental to the transactions
contemplated by or the relationship established between them in connection with
this Agreement, and whether arising in contract, tort, equity or otherwise, may
be resolved by state and federal courts located in the City of New York, New
York, and each party hereto consents and submits to the jurisdiction of any
state or federal court located within such county and state. Each party hereto
waives in all disputes any objection that it may have to the location of the
court considering the dispute. Each party hereto agrees that the other parties
hereto shall have the right to proceed against it in a court in any location to
enable such party to enforce a judgment or other court order entered in favor of
such party. Each party hereto waives any objection that it may have to the
location of the court in which such party has commenced a proceeding of the type
described in the immediately preceeding sentence.
SECTION 7.5. Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 7.6. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 7.7. Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the Purchasers.
SECTION 7.8. Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 7.9. Titles and Subtitles. The titles and subtitles used in this
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
21
<PAGE> 23
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
INTRACEL CORPORATION
By:________________________________
Name: Simon R. McKenzie
Title: Chief Executive Officer
NORTHSTAR HIGH YIELD FUND
By:_______________________
Name:
Title:
NORTHSTAR HIGH TOTAL RETURN FUND II
By:________________________________
Name:
Title:
22
<PAGE> 1
EXHIBIT 10.17
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") dated September 30,
1997, is made by the WASHINGTON ECONOMIC DEVELOPMENT FINANCE AUTHORITY, a
public body corporate and politic with perpetual corporate succession,
constituting an instrumentality of the State of Washington, as issuer
("Issuer"), INTRACEL CORPORATION (the "Borrower"), a Delaware corporation
qualified to do business in Washington having its principal place of business
and chief executive office at 2005 Northwest Sammamish Road, Issaquah,
Washington 98027, and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware
corporation (the "Lender"), having its principal office at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018.
WHEREAS, the Issuer is authorized under the laws of the State, including
Revised Code of Washington Chapter 43.163 (the "Act"), to issue nonrecourse
revenue bonds in the name of the Issuer and loan the proceeds of such bonds to
eligible borrowers to finance "project costs" (as defined in RCW
43.163.010(12)), which includes, among other things, the acquisition of
equipment; and
WHEREAS, the definition of "bonds" under RCW 43.163.010(2) also includes
notes, lines of credit and other financial arrangements, and, in relation
thereto, the Issuer is authorized to enter into "financing documents" (as
defined in RCW 43.163.010(9)) necessary or convenient for purposes of financing
project costs; and
WHEREAS, in accordance with the Act, Issuer proposes to issue its Economic
Development Revenue Bond, Series 1997-E (Intracel Corporation Project) (the
"Bond") to Lender, the borrowings under which shall be loaned by the Issuer to
Borrower in two installments and used by Borrower to finance all or a portion
of the Project (as hereinafter defined) pursuant to this Agreement; and
WHEREAS, Borrower proposes to borrow the proceeds of the Loan (as
hereinafter defined) upon the terms and conditions set forth herein to finance
all or a portion of the Project, which shall be located entirely within
Issaquah, Washington; and
WHEREAS, Borrower shall make Loan Payments (as hereinafter defined)
directly to the Debt Service Fund established in the name of Lender, as
assignee of Issuer and as holder of the Bond; and
WHEREAS, this Agreement shall not be deemed to constitute a debt or
liability or moral obligation of the Issuer or the State or any political
subdivision thereof, or a pledge of the faith and credit of the Issuer or the
State or any political subdivision thereof, but shall be a special obligation
payable solely from the Loan Payments payable hereunder by Borrower to Lender,
as assignee of Issuer;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and in consideration of the premises contained in this
Agreement, Lender, Issuer and Borrower agree as follows:
- --------------------------------------------------------------------------------
1 - LOAN AND SECURITY AGREEMENT
<PAGE> 2
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, and shall be equally applicable to both the singular and
plural forms of the terms defined:
SECTION 1.1. DEFINED TERMS.
Bond means the Washington Economic Development Finance Authority
Economic Development Revenue Bond, Series 1997-E (Intracel Corporation Project),
in the form attached hereto as Exhibit B.
Bond Counsel means any nationally recognized counsel experienced in
matters for municipal law acceptable to Issuer and Lender.
Business Day shall mean any day other than a Saturday, Sunday or
public holiday or the equivalent for banks in New York City.
Code means the Internal Revenue Code of 1986, as amended, and United
States Treasury Regulations promulgated thereunder.
Collateral means the collateral pledged by Borrower to Lender to
secure the Loan, as described in Section 2 and Exhibit D hereof.
Debt Service Fund means Account No. 55-75427 ABA Routing Number
071-000-013, at The First National Bank of Chicago, into which Borrower will
make payments as required by this Agreement. The Debt Service Fund shall
constitute a special fund pursuant to RCW 43.163.130(3). Amounts deposited by
Borrower into the Debt Service Fund shall be applied towards Obligations
due hereunder.
Determination of Taxability means any determination, decision or
decree by the Commissioner of Internal Revenue, or any District Director of
Internal Revenue or any court of competent jurisdiction, or an opinion obtained
by Lender of counsel qualified in such matters, that an Event of Taxability
shall have occurred. A Determination of Taxability also shall be deemed to have
occurred on the first to occur of the following:
(a) the date when Borrower files any statement, supplemental
statement, or other tax schedule, return or document, which discloses that an
Event of Taxability shall have occurred; or
(b) the effective date of any federal legislation enacted after the
date of this Agreement or promulgation of any income tax regulation or ruling
by the Internal Revenue Service that causes an Event of Taxability after the
date of this Agreement.
Event of Default shall mean any event specified in Section 6 of this
Loan.
Event of Taxability means: (i) any act, failure to act or use of the
proceeds of the Loan, (ii) any change in the use of the Project, (iii) any
misrepresentation or inaccuracy in any of the representations, warranties or
covenants contained in this Agreement or the Tax Regulatory Agreement by Issuer
or Borrower, or (iv) the enactment of any federal legislation after the date of
this Agreement
- --------------------------------------------------------------------------------
2 - LOAN AND SECURITY AGREEMENT
<PAGE> 3
or the promulgation of any income tax regulation or ruling by the Internal
Revenue Service after the date of this Agreement, any one or more of which
causes the interest on the Bond to become includable in Lender's gross income
for federal income tax purposes.
GAAP shall mean generally accepted accounting principles in the
United States of America, as in effect from time to time.
Gross-Up Rate means, with respect to any Interest payment (including
payments made prior to the Event of Taxability), the rate necessary to
calculate an additional payment in an amount sufficient such that the sum of
the Interest payment plus the additional payments would, after reduced by the
federal tax (including interest and penalties) actually imposed thereon, equal
the amount of the Interest payment.
Interest means the portion of any payment from Borrower designated as
and comprising interest on the Loan and on the Bond.
Issuer means the Washington Economic Development Finance Authority, a
public body corporate and politic with perpetual corporate succession,
constituting an instrumentality of the State, acting as issuer under this
Agreement.
Loan means the loan from Issuer to Borrower pursuant to this
Agreement.
Loan Documents shall mean, collectively, this Agreement, the Bond, and
each other document, agreement, certificate and instrument executed by the
Borrower and delivered to the Lender in connection herewith and therewith, as
the same may be modified, extended, restated or supplemented from time to time.
Loan Payments means the loan payments payable by Borrower pursuant to
the provisions of this Agreement as specifically set forth in Exhibit B hereto.
As provided in Section 3 hereof, Loan Payments shall be payable by Borrower
directly to Lender, as assignee of Issuer and holder of the Bond, in the amounts
of Principal and Interest due on the Loan.
Material Adverse Change shall mean, with respect to any Person, a
material adverse change in the business, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of such Person and
its subsidiaries, taken as a whole.
Material Adverse Effect shall mean, with respect to any Person, a
material adverse effect on the business, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of such Person and
its subsidiaries, taken as a whole.
Obligations shall mean all indebtedness, obligations and liabilities
of the Borrower under this Agreement, whether on account of Principal,
Interest, indemnities, fees (including, without limitation, attorneys' fees,
remarketing fees, origination fees, collection fees and all other
professionals' fees), costs, expenses, taxes or otherwise.
- --------------------------------------------------------------------------------
3 - LOAN AND SECURITY AGREEMENT
<PAGE> 4
Opinion of Bond Counsel means a written opinion of Bond Counsel
addressed to Issuer and Lender that the action proposed to be taken will not
adversely affect the validity of the Bond or the exclusion from gross income
for federal income tax purposes of Interest of the Bond.
Person shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (including any division, agency or
department thereof), and the successors, heirs and assigns of each.
Principal means the portion of any payment from Borrower designated as
and comprising part or all of the principal of the Loan and the Bond.
Project means the acquisition and installation of equipment to be used
in connection with Borrower's operation, which project is described in Exhibit
A hereto.
Project Costs means the costs of completing the Project, including
costs of issuance of the Bond, which Project Costs are set forth in Exhibit A
hereto.
Resolution means, collectively, Resolution No. W-96-013, dated December
10, 1996, and Resolution No. W-97-021, dated September 10, 1997, adopted by the
Issuer and pursuant to which the Bond will be issued and this Agreement will be
authorized.
Retained Rights means the Issuer's rights to receipt of fees,
reimbursement of costs, and indemnification as set forth in this Agreement.
State means the State of Washington.
Tax Regulatory Agreement means the Tax Regulatory Agreement of even
date herewith among Borrower, Issuer and Lender, as such Tax Regulatory
Agreement may be amended from time to time in accordance with its terms.
UCC means the Uniform Commercial Code as adopted and in effect in the
State.
SECTION 1.2 EXHIBITS. The following exhibits are attached hereto and
made a part hereof:
Exhibit A: Form of Schedule of Project Loan Payments describing the
Project and setting forth the Loan Payments and
Prepayment Prices.
Exhibit B: Form of Bond.
Exhibit C: Forms of Requisition.
Exhibit D: Description of Collateral Pledged to Secure Loan.
Exhibit E: Form of opinion of counsel to Borrower.
Exhibit F: Form of opinion of Bond Counsel.
- -------------------------------------------------------------------------------
4 - LOAN AND SECURITY AGREEMENT
<PAGE> 5
2. CREATION OF SECURITY INTEREST; COLLATERAL. The Borrower hereby
assigns and grants to the Lender a lien on and security interest in, all the
Borrower's right, title and interest in and to all the following collateral (the
"Collateral"), to secure the payment and performance of all the Obligations. The
Collateral consists of all equipment set forth on Exhibit D hereto (the
"Equipment"), together with all present and future additions, parts,
accessories, attachments, substitutions, repairs, improvements and repairs,
improvements and replacements thereof or thereto, and any and all proceeds
thereof, including, without limitation, proceeds of insurance. Borrower intends
that the security interest granted herein shall have first priority over all
others.
3. FINANCING OF PROJECT AND TERMS OF LOAN.
3.1 BORROWING; ISSUANCE OF BOND; AGREEMENT TO CONSTITUTE
CONTRACT. To provide funds to pay for Project Costs, Issuer hereby agrees to
borrow an amount of up to $1,500,000 from Lender and loan the proceeds of that
borrowing to Borrower. Such borrowing shall only be pursuant to requisitions
submitted by Borrower to Issuer in the form attached hereto as Exhibit C2. As
evidence of this indebtedness, Issuer will issue its Washington Economic
Development Finance Authority Economic Development Revenue Bond, Series 1997-E
(Intracel Corporation Project). This Agreement shall constitute a contract
between Issuer, Borrower and Lender, as holder of the Bond. The parties
covenant that they will abide by the terms of this Agreement and the Bond.
3.2 DESCRIPTION OF THE BOND. The Bond shall be issued as a
single bond in registered form as set forth in Exhibit B attached hereto. The
Bond shall mature, and Principal of, premium (if any) and Interest on the Bond
shall be payable as set forth herein. A single Bond will be issued to avoid the
execution of individual bonds or promissory notes for each advance by the Lender
to the Issuer for the benefit of the Borrower. The Bond and all obligations of
Issuer under or with respect to the Bond and this Agreement are limited
obligations of Issuer payable solely out of the Loan Payments made by Borrower
for deposit to the Debt Service Fund and other Collateral specifically pledged
hereunder. No recourse shall be had against any other properties, funds or
assets of Issuer for the payment of any amounts owing with respect to the Bond
or this Agreement. The Bond, this Agreement and the obligations of Issuer under
or with respect thereto do not constitute or create a charge against Issuer or
create an indebtedness of Issuer within the meaning of any constitutional debt
limitation. Holders of the Bond shall have no right to compel the payment of any
amounts owing under or with respect to the Bond or this Agreement out of any
funds or other assets of Issuer or the State. Issuer's agents, including the
person(s) executing this Agreement or the Bond, shall not be subject to any
personal liability for any reason relating to the issuance of the Bond or the
performance of any obligations under or with respect to this Agreement.
IN ACCORDANCE WITH RCW 43.163.140(1), THE BOND IS NOT A GENERAL, SPECIAL OR
MORAL OBLIGATION OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF, NOR A
PLEDGE OF THE FAITH AND CREDIT OF THE STATE OR ANY POLITICAL SUBDIVISION
THEREOF. THE BOND IS A SPECIAL NONRECOURSE REVENUE OBLIGATION OF THE ISSUER,
SECURED BY AND PAYABLE SOLELY FROM THE SPECIAL FUND OR FUNDS CREATED BY THE
ISSUER FOR THEIR REPAYMENT. THE ISSUER HAS NO TAXING POWER.
- -------------------------------------------------------------------------------
5 - LOAN AND SECURITY AGREEMENT
<PAGE> 6
3.3 ACQUISITION OF PROJECT. Borrower shall acquire the Project and
shall bear the risk with respect to any loss or claim relating to any portion of
the Project and shall be liable in respect of its duties and obligations in
accordance with any contract entered into in connection with the Project, and
neither Lender nor Issuer shall assume any such liability or risk of loss.
3.4 LOAN. Issuer hereby agrees, subject to the terms and conditions
of this Agreement and the Resolution, to borrow from Lender and loan to Borrower
an amount of $1,500,000 for the purpose of financing Project Costs. Issuer's
obligation to Lender shall be evidenced by the Bond described in Section 3.2
above. The borrowing and the Loan will be in two installments, the first of
which will be in an aggregate principal amount of $713,339.49 and will take
place on the date of execution and delivery of this Agreement. The second
installment will be for the balance and will take place on or about November 25,
1997 (but not later than December 1, 1997); provided, however, that the second
installment shall not be funded unless and until Issuer has received a written
statement from Bond Counsel that the average life of the Bond will not be
greater than 120% of the reasonably expected useful life of (1) the assets to be
financed with such installment, and (2) the assets financed with proceeds
derived from the first installment. Borrower hereby agrees, subject to the terms
and conditions of this Agreement, to borrow such amount from Issuer and to pay
all Obligations hereunder. Lender will advance funds necessary to make Loan
installments directly to Borrower pursuant to requisitions submitted by Issuer
and Borrower, which requisitions shall be in the forms of Exhibits C1 and C2
attached hereto. Issuer's obligation to issue the Bond, Lender's obligation to
provide financing for the Loan, and Borrower's obligation to repay the Loan,
shall commence on the date hereof.
3.5 INTEREST. The principal amount of the Bond and the Loan
hereunder outstanding from time to time shall bear interest (computed on the
basis of actual days elapsed in a 360-day year) as follows. Interest on the
first Loan installment and that portion of the Bond relating thereto shall
accrue from September 30, 1997 at a rate of 10.946%. Interest on the second Loan
installment and that portion of the Bond relating thereto shall accrue from the
date that funds are advanced by Lender to Issuer and loaned by Issuer to
Borrower at an interest rate to be established by Lender of not less than ten
percent (10%) and not greater than twelve percent (12%). Notwithstanding the
foregoing, upon any Determination of Taxability, Interest shall accrue at the
Gross-Up Rate.
3.6 PAYMENTS. Loan Payments and other payments shall be made by
Borrower directly to Lender, as Issuer's assignee and holder of the Bond.
Borrower shall pay Loan Payments in the amounts and on the dates set forth in
Exhibit A hereto.
As security for its obligation to pay the principal of, premium, if any, and
interest on the Bond, Issuer assigns to Lender all of Issuer's right to receive
Loan Payments from Borrower hereunder, all of Issuer's rights hereunder (except
for Retained Rights). Lender agrees to accept Loan Payments and other payments
made by Borrower hereunder (and proceeds, if any, of the Collateral) in
satisfaction of Issuer's corresponding obligations on the Bond. No provision,
covenant or agreement contained in this Agreement or any obligation herein
imposed on Issuer, or the breach thereof, shall constitute or give rise to or
impose upon Issuer a pecuniary liability, a charge upon its general credit or a
pledge of its general revenues. Issuer has no taxing power. In making the
agreements, provisions and covenants set forth in this Agreement, Issuer has not
obligated itself except with respect to its representations and warranties
herein and the application by Issuer of the Loan Payments to be paid by
Borrower. All amounts required to be paid by Borrower hereunder shall be paid in
lawful money of the United States of America by
- --------------------------------------------------------------------------------
6 - LOAN AND SECURITY AGREEMENT
<PAGE> 7
corporate check or wire transfer to the Debt Service Fund. No recourse shall be
had by Lender or Borrower for any claim based on this Agreement or the Tax
Regulatory Agreement against Issuer or any director, officer, employee or agent
of Issuer alleging personal liability, on the part of such person, unless such
claim is based on the willful dishonesty of or intentional violation of law by
such person.
3.7 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Business Day, such
payment may be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of interest or the fees
hereunder, as the case may be.
3.8 LOAN PAYMENTS TO BE UNCONDITIONAL. The obligations of Borrower
to make the Loan Payments required hereunder and to make other payments
hereunder and to perform and observe the covenants and agreements contained
herein shall be absolute and unconditional in all events, without abatement,
diminution, deduction, setoff or defense for any reason, including (without
limitation) any failure of the Project to be completed, any defects,
malfunctions, breakdowns or infirmities in the Project or any accident,
condemnation, destruction or unforeseen circumstances. Notwithstanding any
dispute between Borrower and any of Issuer, Lender, or any other person,
Borrower shall make all Loan Payments when due and shall not withhold any Loan
Payments pending final resolution of such dispute, nor shall Borrower assert any
right of set-off or counterclaim against its obligation to make such payments
required under this Agreement.
3.9 PREPAYMENT. Borrower shall have the right to prepay the Loan
and direct Issuer to optionally redeem the Bond in full. The prepayment amount
shall be paid by Borrower to Lender in an amount equal to the present value of
all remaining unpaid Loan Payments discounted at a rate of six percent (6%) per
annum.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ISSUER. Issuer
represents, warrants and covenants for the benefit of Lender and Borrower, as
follows:
(a) Issuer is a public body corporate and politic with perpetual
corporate succession, constituting an instrumentality of the State.
(b) Issuer is authorized under the laws of the State to enter into
this Agreement, the Tax Regulatory Agreement and the transactions contemplated
hereby, to issue the Bond and to perform all of its obligations hereunder.
(c) Issuer has duly authorized the execution and delivery of this
Agreement, the Bond and the Tax Regulatory Agreement under the terms and
provisions of the resolution of its governing body or by other appropriate
official approval, and further represents, covenants and warrants that all
requirements have been met and procedures have occurred in order to ensure the
enforceability of this Agreement, the Bond and the Tax Regulatory Agreement
against Issuer.
(d) The officer of Issuer executing this Agreement and any related
documents has been duly authorized to execute and deliver this Agreement, the
Bond and the Tax Regulatory Agreement and such related documents under the terms
and provisions of a resolution of Issuer's governing body, or by other
appropriate official action.
- --------------------------------------------------------------------------------
7 - LOAN AND SECURITY AGREEMENT
<PAGE> 8
(e) This Agreement, the Bond and the Tax Regulatory Agreement are
legal, valid and binding obligations of Issuer, enforceable in accordance with
their respective terms, except to the extent limited by bankruptcy,
reorganization or other laws of general application relating to effecting the
enforcement of creditors' rights.
(f) Issuer has assigned to Lender all of Issuer's rights in the
Project and this Agreement (except for Retained Rights) including the assignment
of all rights in the security interest granted to Issuer by Borrower.
(g) Issuer will not pledge, mortgage or assign this Agreement or its
duties and obligations hereunder to any person, firm or corporation, except as
provided under the terms hereof.
(h) Issuer will submit or cause to be submitted to the Secretary of
the Treasury a Form 8038 (or other information reporting statement) at the time
and in the form required by the Code.
(i) The financing of the Project has been approved by the
"applicable elected representative" (as defined in Section 147(f) of the Code)
of Issuer after a public hearing held upon reasonable notice.
5. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
5.1 GOOD STANDING; QUALIFIED TO DO BUSINESS. The Borrower (a) is
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (b) has the requisite power and authority to own its
properties and assets and to transact the businesses in which it is presently,
or proposes to be, engaged and (c) is duly qualified and authorized to do
business in the State and is in good standing in every jurisdiction in which the
failure to be so qualified could have a Material Adverse Effect on (i) the
Borrower, (ii) the Borrower's ability to perform its obligations under the Loan
Documents or (iii) the rights of the Lender hereunder.
5.2 DUE EXECUTION, ETC. The execution, delivery and performance by
the Borrower of each of the Loan Documents to which it is a party are within the
powers of the Borrower, do not contravene the original documents, if any, of the
Borrower, and do not (a) violate any law or regulation, or any order or decree
of any applicable court or governmental authority, (b) conflict with or
result in a breach of, or constitute a default under, any material indenture,
mortgage or deed of trust or any material lease, agreement or other instrument
binding on the Borrower or any of its properties, or (c) require the consent,
authorization by or approval of or notice to or filing or registration with any
governmental authority or other Person, other than those that have been obtained
or made. This Agreement is, and each of the other Loan Documents to which the
Borrower is or will be a party, when delivered hereunder or thereunder, will be,
the legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency or similar laws affecting creditors' right, generally
and by general principles of equity.
5.3 SOLVENCY; NO LIENS. The Borrower is solvent, is paying its debts
as they become due and has sufficient capital to conduct its business; the fair
saleable value of the Borrower's assets is in excess of the total amount of its
liabilities (including contingent liabilities) as they become absolute and
- --------------------------------------------------------------------------------
8 - LOAN AND SECURITY AGREEMENT
<PAGE> 9
matured; the security interests granted herein constitute and shall at all times
constitute the first and only liens on the Collateral (subject to subordinated
liens therein in accordance with any subordination agreement approved by
Lender); and the Borrower is, or will be at the time additional Collateral is
acquired by it, the absolute owner of the Collateral with full right to pledge,
sell, consign, transfer and create a security interest therein, free and clear
of any and all claims or liens in favor of any other Person.
5.4 NO JUDGMENTS, LITIGATION. No judgments are outstanding against
the Borrower nor is there now pending or, to the best of the Borrower's
knowledge after diligent inquiry, threatened any litigation, contested claim, or
governmental proceeding by or against the Borrower except judgments and pending
or threatened litigation, contested claims and governmental proceedings which
would not, in the aggregate, have a Material Adverse Effect on the Borrower.
5.5 NO DEFAULTS. The Borrower is not in default under any material
contract, lease, or commitment to which it is a party or by which it is bound or
the Borrower has received duly executed waivers for any of such defaults in form
and substance satisfactory to the Issuer and Lender. The Borrower knows of no
dispute regarding any contract, lease, or commitment to which the Borrower is a
party which could have a Material Adverse Effect on the Borrower.
5.6 COLLATERAL LOCATIONS. On the date hereof, the Collateral is
located at the place or places of business specified in Exhibit D hereto.
5.7 NO EVENTS OF DEFAULT. No Event of Default has occurred and is
continuing nor has any event occurred which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default.
5.8 NO LIMITATION ON LENDER'S RIGHTS. Except as permitted herein,
none of the Collateral is subject to contractual obligations that may restrict
or inhibit the Lender's rights or abilities to sell or dispose of the Collateral
or any part thereof after the occurrence of an Event of Default.
5.9 PERFECTION AND PRIORITY OF SECURITY INTEREST. This Agreement
creates a valid and, upon completion of all required filings of financing
statements, a perfected and first priority and security interest in the
Collateral, securing the payment of all the Obligations.
5.10 MODEL AND SERIAL NUMBERS. Exhibit D hereto sets forth the true
and correct model number and serial number of each item of equipment that
constitutes Collateral.
6. COVENANTS OF THE BORROWER.
6.1 EXISTENCE, ETC. The Borrower will maintain its existence and its
current yearly accounting cycle; shall maintain in full force and effect all
licenses, bonds, franchises, leases, trademarks, patents, contracts and other
rights where the failure to so maintain would have a Material Adverse Effect;
shall continue in, and limit its operations to, the same general lines of
business as those presently conducted by it; and shall comply with all
applicable laws and regulations of any federal, state or local governmental
authority, except for such laws and regulations the violations of which would
not, in the aggregate, have a Material Adverse Effect on the Borrower.
- --------------------------------------------------------------------------------
9 - LOAN AND SECURITY AGREEMENT
<PAGE> 10
6.2 NOTICE TO THE LENDER. As soon as possible, and in any event within
five days after the Borrower learns of the following, the Borrower will give
written notice to the Lender of (a) any proceeding instituted or threatened to
be instituted by or against the Borrower in any federal, state, local or foreign
court or before any commission or other regulatory body (federal, state, local
or foreign), (b) the occurrence of any Material Adverse Change with respect to
the Borrower and (c) the occurrence of any Event of Default or event or
condition which, with notice or lapse of time or both, would constitute an Event
of Default, together with a statement of the action which the Borrower has taken
or proposes to take with respect thereto.
6.3 MAINTENANCE OF BOOKS AND RECORDS. The Borrower will maintain books and
records pertaining to the Collateral in such detail, form and scope as the
Lender shall require in its commercially reasonable judgment. The Borrower
agrees that the Lender or its agents (at Lender's cost and expense so long as no
Event of Default shall have occurred and be continuing) may enter upon the
Borrower's premises at any time and from time to time during normal business
hours, and at any time on and after the occurrence of an Event of Default, for
the purpose of inspecting the Collateral and any and all records pertaining
thereto.
6.4 INSURANCE. The Borrower will maintain insurance on the Collateral
under such policies of insurance, with such insurance companies, in such amounts
and covering such risks as are at all times reasonably satisfactory to the
Lender. All such policies shall be made payable to the Lender, in case of loss,
under a standard non-contributory "lender" or "secured party" clause and are to
contain such other provisions as the Lender may reasonably require to protect
the Lender's interests in the Collateral and to any payments to be made under
such policies. True copies of all original insurance policies are to be
delivered to the Lender, premium prepaid, with the loss payable endorsement in
the Lender's favor, and shall provide for not less than thirty days' prior
written notice to the Lender, of any material alteration, as determined in the
sole discretion of the Lender, or cancellation of coverage. If the Borrower
fails to maintain such insurance, the Lender may arrange for (at the Borrower's
expense and without any responsibility on the Lender's part for) obtaining the
insurance. Unless the Lender shall otherwise agree with the Borrower in writing,
the Lender shall have the sole right, in the name of the Lender or the Borrower,
to file claims under any insurance policies, to receive and give acquittance for
any payments that may be payable thereunder, and to execute any endorsements,
receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims under
any such insurance policies.
6.5 TAXES. The Borrower will pay, when due, all taxes, assessments, claims
and other charges (herein "taxes") lawfully levied or assessed against the
Borrower or the Collateral other than taxes that are being diligently contested
in good faith by the Borrower by appropriate proceedings promptly instituted and
for which an adequate reserve is being maintained by the Borrower in accordance
with GAAP. If any taxes remain unpaid after the date fixed for the payment
thereof, or if any lien shall be claimed therefor, and such taxes are not being
diligently contested in good faith by the Borrower, then, upon notice to the
Borrower, but on the Borrower's behalf, the Lender may pay such taxes, and the
amount thereof shall be included in the Obligations.
6.6 BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS; FEES ON COLLATERAL. The
Borrower will defend the Collateral against all claims and demands of all
Persons at any time claiming the same or any interest therein. Borrower will not
permit any notice creating or otherwise relating to
- --------------------------------------------------------------------------------
10 - LOAN AND SECURITY AGREEMENT
<PAGE> 11
liens on the Collateral or any portion thereof to exist or be on file in any
public office. The Borrower shall promptly pay, when due, all transportation,
storage and warehousing charges and license fees, registration fees,
assessments, charges, permit fees and taxes (municipal, state and federal)
which may now or hereafter be imposed upon the ownership, leasing, renting,
possession, sale or use of the Collateral, excluding, however, all taxes on or
measured by the Lender's income.
6.7 NO CHANGE OF LOCATION, STRUCTURE OR IDENTITY. The Borrower will
not (a) change the location of its chief executive office or establish any
place of business other than those specified herein or (b) move or permit the
movement of any Collateral from the location specified in Exhibit D hereto,
except that the Borrower may change its chief executive office, establish any
other place of business, and keep Collateral at other locations within the
United States provided that the Borrower has delivered to the Lender (i) prior
written notice thereof and (ii) duly executed financing statements and other
agreements and instruments (all in form and substance satisfactory to the
Lender) necessary to perfect and maintain in favor of the Lender a first
priority security interest in the Collateral. Notwithstanding anything to the
contrary in the immediately preceding sentence, the Borrower may keep any
Collateral consisting of motor vehicles or rolling stock at any location in the
United States provided that the Lender's security interest in any such
Collateral is conspicuously marked on the certificate of title thereof and the
Borrower has complied with the provisions of Section 4.9.
6.8 USE OF COLLATERAL; LICENSES. The Collateral shall be operated
by competent, qualified personnel in connection with the Borrower's business
purposes, for the purpose for which the Collateral was designed and in
accordance with applicable operating instructions, laws and government
regulations, and the Borrower shall use every reasonable precaution to prevent
loss or damage to the Collateral from fire and other hazards. The Collateral
shall not be used or operated for personal, family or household purposes. The
Borrower shall procure and maintain in effect all orders, licenses,
certificates, permits, approvals and consents required by federal, state or
local laws or by any governmental body, agency or authority in connection with
the delivery, installation, use and operation of the Collateral.
6.9 FURTHER ASSURANCES. The Borrower will, promptly upon request by
the Lender, execute and deliver any document required by the Lender (including,
without limitation, warehouseman or processor disclaimers, mortgagee waivers,
landlord disclaimers, or subordination agreements with respect to the
Obligations and the Collateral), give any notices, execute and file any
financing statements, mortgages or other documents (all in form and substance
reasonably satisfactory to the Lender), mark any chattel paper, deliver any
chattel paper or instruments to the Lender, and take any other actions that are
necessary or, in the commercially reasonable judgment of the Lender, desirable
to perfect or continue the perfection and priority of the Lender's security
interest in the Collateral, to protect the Collateral against the rights,
claims, or interests of any Persons, or to effect the purposes of this
Agreement. The Borrower hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Borrower where permitted
by law. A carbon, photographic or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. To the extent
required under this Agreement, the Borrower will pay all reasonable costs and
expenses (including attorneys' fees) incurred in connection with any of the
foregoing.
- -------------------------------------------------------------------------------
11-LOAN AND SECURITY AGREEMENT
<PAGE> 12
6.10 NO DISPOSITION OF COLLATERAL. The Borrower will not in any way
hypothecate or create or permit to exist any lien, security interest, charge or
encumbrance on or other interest in any of the Collateral, except for the lien
and security interest granted hereby, and the Borrower will not sell, transfer,
assign, pledge, collaterally assign, exchange or otherwise dispose of any of
the Collateral without written notice to and consent of the Lender and an
Opinion of Bond Counsel. In the event the Collateral, or any part thereof, is
sold, transferred, assigned, exchanged, or otherwise disposed of in violation
of these provisions, the security interest of the Lender shall continue in such
Collateral or part thereof notwithstanding such sale, transfer, assignment,
exchange or other disposition, and the Borrower will hold the proceeds thereof
in a separate account for the benefit of the Lender. Following such a sale, the
Borrower will transfer such proceeds to the Lender in kind.
6.11 NO LIMITATION ON LENDER'S RIGHTS. The Borrower will not enter
into any contractual obligations which may restrict or inhibit the Lender's
rights or ability to sell or otherwise dispose of the Collateral or any part
thereof.
6.12 PROTECTION OF COLLATERAL. The Lender shall have the right at any
time to make any payments and do any other acts the Lender may deem necessary to
protect its security interests in the Collateral, including, without limitation,
the rights to satisfy, purchase, contest or compromise any encumbrance, charge
or lien which, in the reasonable judgment of the Lender, appears to be prior to
or superior to the security interests granted hereunder, and appear in and
defend any action or proceeding purporting to affect its security interests in,
or the value of, any, of the Collateral. The Borrower hereby agrees to reimburse
the Lender for all reasonable payments made and reasonable expenses incurred in
connection with the enforcement of this Agreement including fees, expenses and
disbursements of attorneys and paralegals (including the allocated costs of
in-house counsel) acting for the Lender, including any of the foregoing payments
under, or acts taken to protect its security interests in, any of the
Collateral, which amounts shall be secured under this Agreement, and agrees it
shall be bound by any payment made or act taken by the Lender hereunder absent
the Lender's gross negligence or reckless or willful misconduct. The Lender
shall have no obligation to make any of the foregoing payments or perform any of
the foregoing acts.
6.13 DELIVERY OF ITEMS. The Borrower will promptly (but in no event
later than one Business Day) after its receipt thereof, deliver to the Lender
any documents or certificates of title issued with respect to any property
included in the Collateral, and any promissory notes, letters of credit or
instruments related to or otherwise in connection with any property included in
the Collateral, which in any such case come into the possession of the
Borrower, or shall cause the issuer thereof to deliver any of the same directly
to the Lender, in each case with any necessary endorsements in favor of the
Lender.
6.14 FUNDAMENTAL CHANGES. Without the prior written consent of the
Lender (which consent shall not be unreasonably withheld) and an Opinion of
Bond Counsel, the Borrower shall not merge or consolidate into any other
Person, or amend or modify its name, status or existence, or sell or otherwise
dispose of all or substantially all of its assets.
6.15 SALE OF ASSETS. Borrower will not sell, lease, assign, transfer
or otherwise dispose of any of the Collateral or any interest therein (whether
in one transaction or in a series of transactions) unless Borrower replaces
such Collateral with substitute property satisfactory to Lender in Lender's
sole discretion and such substitute property is substituted in this Agreement
and the related documents by
- --------------------------------------------------------------------------------
12-LOAN AND SECURITY AGREEMENT
<PAGE> 13
appropriate amendment prior to the date of such proposed sale. Borrower will
not sell, lease, assign, transfer or otherwise dispose of Project components
without an Opinion of Bond Counsel.
6.16 PLACE OF BUSINESS. Borrower will not permit any of the
Project to be moved outside the limits of Issaquah, Washington. Borrower will
not permit any of the Collateral or any records pertaining to the Collateral to
be moved outside the locations of such items on the date of issuance of the
Bond.
6.17 PROJECT A "MANUFACTURING FACILITY." Borrower owns or
will own the Project and intends to operate the Project, or cause the Project to
be operated, in conformance with the Act and as a "manufacturing facility,"
within the meaning of Section 144(a)(12)(C) of the Code, until the date on which
all of the Loan Payments have been fully paid.
6.18 TAX EXEMPT BORROWINGS. The aggregate authorized face
amount of the Bond allocated to any test-period beneficiary, when increased by
the outstanding tax-exempt facility-related bonds of such test-period
beneficiary, does not exceed $40,000,000, all within the meaning of Section
144(a)(10) of the Code. The aggregate amount of capital expenditures with
respect to any facilities located within Issaquah, Washington whose principal
user is the Borrower or an entity or person related to the Borrower to be paid
or incurred during the six-year period beginning September 30, 1994 and ending
September 30, 2000 shall not exceed $10,000,000, all within the meaning of
Section 144(a)(4) of the Code.
6.19 PRESERVATION OF TAX EXEMPT STATUS. Borrower will not
take any action that would cause the Interest on the Bond to become includable
in gross income of the holder thereof for federal income tax purposes under the
Code, and Borrower will take and will cause its officers, employees and agents
to take all affirmative actions legally within its power necessary to ensure
that such Interest does not become includable in gross income of the holder
thereof for federal income tax purposes under the Code (including, without
limitation, the calculation and payment of any rebate required to preserve such
exclusion).
6.20 ASSIST ISSUER. Borrower will aid and assist Issuer in
connection with preparing and submitting to the Secretary of the Treasury a Form
8038 (or other applicable information reporting statement) at the time and in
the form required by the Code.
6.21 TAX REGULATORY AGREEMENT. Borrower will comply fully at
all times with the Tax Regulatory Agreement, and Borrower will not take any
action, or omit to take any action, which, if taken or omitted, respectively,
would violate the Tax Regulatory Agreement.
7. FINANCIAL STATEMENTS. Until the payment and satisfaction in
full of all Obligations, the Borrower shall deliver to the Lender the following
financial information:
7.1 ANNUAL FINANCIAL STATEMENTS. As soon as available, but
not later than 120 days after the end of each fiscal year of the Borrower and
its consolidated subsidiaries, the consolidated balance sheet, income statement
and statements of cash flows and shareholders equity for the Borrower and its
consolidated subsidiaries (the "Financial Statements") for such year, reported
on by independent certified public accountants without an adverse
qualification; and
- -------------------------------------------------------------------------------
13-LOAN AND SECURITY AGREEMENT
<PAGE> 14
7.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available,
but not later than 60 days after the end of each of the first three fiscal
quarters in any fiscal year of the Borrower and its consolidated subsidiaries,
the Financial Statements for such fiscal quarter, together with a certification
duly executed by a responsible officer of the Borrower that such Financial
Statements have been prepared in accordance with GAAP and are fairly stated in
all material respects (subject to normal year-end audit adjustments and lack of
footnote disclosure).
8. EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to make any payment with
respect to Obligations as required hereunder when payable or within three
Business Days of when payable, whether at stated maturity, by acceleration or
otherwise;
(b) any representation or warranty made or deemed made by
the Borrower under or in connection with any Loan Document shall prove to have
been false or incorrect in any material respect when made;
(c) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in any Loan Document (other than as set forth
in Section 8(a)) to be performed or observed on its part, and such failure
remains unremedied for the later of thirty days from (i) the date on which the
Lender has given the Borrower written notice of such failure and (ii) the date
on which the Borrower knew or should have known of such failure;
(d) any material provision of any Loan Document to which
the Borrower is a party shall for any reason cease to be valid and binding on
the Borrower, or the Borrower shall so state in writing;
(e) dissolution, liquidation, winding up or cessation of
the Borrower's business, or the failure of the Borrower to pay its debts as
they mature; or the admission in writing by the Borrower of its inability to
pay its debts as they mature; or the calling of a meeting of the Borrower's
creditors for purposes of compromising any of the Borrower's debts;
(f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
ninety days following the commencement thereof, or any action by the Borrower
is taken authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made by
the Borrower, whether voluntary or involuntary, or the appointment of a
trustee, custodian, receiver or similar official for the Borrower authorizing
any such proceeding;
(h) the Borrower shall (i) default in the payment of
principal or interest on any indebtedness (other than the Obligations) in an
amount in excess of $100,000 beyond the period of grace, if any, provided in
the instrument or agreement under which such indebtedness was created; or (ii)
default
- -------------------------------------------------------------------------------
14-LOAN AND SECURITY AGREEMENT
<PAGE> 15
in the observance or performance of any other agreement or condition relating
to any such indebtedness beyond any grace period or contained in any instrument
or agreement relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is to cause, or
to permit the holder or holders of such indebtedness to cause, with the giving
of notice if required, such indebtedness to become due prior to its stated
maturity.
(i) the Borrower suffers or sustains a Material Adverse Change;
(j) any federal tax lien is filed of record against the Borrower and
is not bonded or discharged within three Business Days;
(k) any judgment in an amount in excess of $100,000 shall be rendered
against the Borrower which shall not be stayed, vacated, bonded or discharged
within sixty days;
(l) any material covenant, agreement or obligation made by the
Borrower and contained in or evidenced by any of the Loan Documents shall cease
to be enforceable, or shall be determined to be unenforceable, in accordance
with its terms; the Borrower shall deny or disaffirm the Obligations under any
of the Loan Documents or any liens granted in connection therewith; or any liens
granted on any of the Collateral in favor of the Lender shall be determined to
be void, voidable or invalid, or are not given the priority contemplated by this
Agreement;
(m) there is a change in the ownership of control of the Borrower; or
(n) an Event of Taxability shall occur.
9. REMEDIES. If any Event of Default shall have occurred and be
continuing:
(a) The Lender may, without prejudice to any of its other rights
under any Loan Document or applicable law, declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 8(f) hereof, in which case all Obligations shall automatically
become immediately due and payable without necessity of any declaration)
without presentment, representation, demand of payment or protest, which are
hereby expressly waived.
(b) The Lender may take possession of the Collateral and, for that
purpose may enter, with the aid and assistance of any person or persons, any
premises where the Collateral or any part thereof is, or may be placed, and
remove the same.
(c) The obligation of the Lender, if any, to give additional (or to
continue) financial accommodations of any kind to the Borrower shall
immediately terminate.
(d) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein (or in any other Loan
Document) or otherwise available to it, all the rights and remedies of a
secured party under the Uniform Commercial Code (the "UCC") whether or not the
UCC applies to the affected Collateral and also may (i) require the Borrower
to, and the Borrower hereby agrees that it will at its expense and upon request
of the Lender forthwith, assemble all or part of the Collateral as directed by
the Lender and make it available to the Lender at a place to be designated
- --------------------------------------------------------------------------------
15 - LOAN AND SECURITY AGREEMENT
<PAGE> 16
by the Lender that is reasonably convenient to both parties and (ii) without
notice except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Lender's offices
or elsewhere, for cash, on credit or for future delivery, and upon such other
terms as are commercially reasonable. The Borrower agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to the
Borrower of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The Lender
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Lender may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned.
(e) All cash proceeds received by the Lender in respect of any sale
of, collection from, or other realization upon all or any part of the
Collateral shall be applied by the Lender against the Obligations. Any surplus
of such cash or cash proceeds held by the Lender and remaining after the full
and final payment of all the Obligations shall be promptly paid over to the
Borrower or to such other Person to which the Lender may be required under
applicable law, or directed by a court of competent jurisdiction, to make
payment of such surplus.
10. MISCELLANEOUS PROVISIONS.
10.1 NOTICES. Except as otherwise provided herein, all notices,
approvals, consents, correspondence or other communications required or desired
to be given hereunder shall be given in writing and shall be delivered by
overnight courier, hand delivery or certified or registered mail, postage
prepaid, if to the Issuer, then to Washington Economic Development Finance
Authority, 2001 Sixth Avenue, Suite 2700, Seattle, WA 98121, Attn: Executive
Director, if to the Lender, then to Technology Finance Division, 406 Farmington
Avenue, Farmington, Connecticut 06032, Attention: Assistant Vice President,
Lease Administration, with a copy to the Lender at Riverway II, West Office
Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal
Department or such other address as shall be designated by the Lender to the
Borrower in accordance herewith, and if to the Borrower, then to 2005 Northwest
Sammamish Road, Issaquah, Washington 98027, Attention: Matthew L. Root, Chief
Financial Officer, or such other address as shall be designated by the Borrower
to the Lender in accordance herewith. All such notices and correspondence shall
be effective when received.
10.2 BORROWER REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Borrower shall remain liable, under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Lender of any of
the rights hereunder shall not release the Borrower from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) the Lender shall not have any obligation or liability under the contracts
and agreements included in the Collateral by reason of this Agreement, nor
shall the Lender be obligated to perform any of the obligations or duties of
the Borrower thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
10.3 LENDER APPOINTED ATTORNEY-IN-FACT. The Borrower hereby irrevocably
appoints the Lender the Borrower's attorney-in-fact, with full authority in the
place and stead of the Borrower and in the name of the Borrower or otherwise,
from time to time in the discretion of the Lender, to take any
- --------------------------------------------------------------------------------
16 - LOAN AND SECURITY AGREEMENT
<PAGE> 17
action and to execute any instrument which the Lender may deem necessary or
advisable to accomplish the purpose of this Agreement, including, without
limitation:
(a) to obtain and adjust insurance required to be paid to the Lender
hereunder;
(b) upon the occurrence and during the continuance of an Event of
Default, to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(c) to receive, indorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) or (b) above; and
(d) upon the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any proceedings
which the Lender may deem necessary or desirable for the collection of any of
the Collateral or otherwise to enforce the rights of the Lender with respect
to any of the Collateral.
10.4 HEADINGS. The headings in this Agreement are for purposes of
reference only and shall not affect the meaning or construction of any
provision of this Agreement.
10.5 ASSIGNMENTS. The Borrower shall not have the right to assign its
obligations under this Agreement or any interest therein. The Lender may not
assign its rights or delegate its obligations under the Bond or this Agreement
except as permitted by this Agreement and the Bond. The Bond may be transferred
by Lender if Lender delivers the following to Issuer: (i) an opinion of
nationally recognized bond counsel to Issuer to the effect that such transfer
and reregistration will not violate the registration requirements of federal or
State securities laws, and (ii) an investment letter in substantially the same
form as delivered to Issuer by Lender on the Closing Date executed by the
proposed new owner of the Bond. Any attempt by Lender to transfer any interest
in the Bond to any other person shall be void, and in such event Lender shall
defend, indemnify and hold harmless the Issuer against any claims relating to
any such transfer. In no event shall any transfer of the Bond result in the
Bond being owned by more than one owner. In addition to the foregoing, no such
transfer of the Bond or assignment of this Agreement by Lender shall be
effective unless and until Issuer and Borrower shall have received notice of
the transfer or assignment disclosing the name and address of the assignee or
subassignee. Upon receipt of notice of assignment, Borrower will reflect in a
book entry the assignee designated in such notice of assignment, and shall
agree to make all payments to the assignee designated in the notice of
assignment, notwithstanding any claim, defense, setoff or counterclaim
whatsoever (whether arising from a breach of this Agreement or otherwise) that
Issuer and Borrower may from time to time have against Lender or the assignee.
Borrower agrees to execute all documents, including notices of assignment and
chattel mortgages or financing statements, which may be reasonably requested by
Lender or its assignee to protect their interest in the Collateral and in this
Agreement. Notwithstanding the foregoing, Lender agrees that it will not make
any such assignment or transfer under this section to a direct competitor of
Borrower without Borrower's express written consent.
10.6 AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or waiver of any
provision of this Agreement and any consent to any departure by the Borrower
from any provision of this
- --------------------------------------------------------------------------------
17 - LOAN AND SECURITY AGREEMENT
<PAGE> 18
Agreement shall be effective only by a writing signed by the Issuer, Lender and
Borrower and shall bind and benefit the parties and their respective successors
and assigns, subject, in the case of the Borrower, to the first sentence of
Section 10.5. Acquiescence in a course of performance rendered under this
Agreement shall not be relevant in determining the meaning of this Agreement
even though the accepting or acquiescing party had knowledge of the nature of
the performance and opportunity for objection.
10.7 CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the indefeasible payment in full of the Obligations, (b)
be binding upon the Borrower and its successors and assigns and (c) inure,
together with the rights and remedies of the Issuer and Lender hereunder, to
the benefit of the Issuer and Lender and their respective successors,
transferees and assigns.
10.8 REINSTATEMENT. To the extent permitted by law, this Agreement
and the rights and powers granted to the Issuer and Lender hereunder and under
the Loan Documents shall continue to be effective or be reinstated if at any
time any amount received by the Issuer and Lender in respect of the Obligations
is rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
10.9 SURVIVAL OF PROVISIONS. All representations, warranties and
covenants of the Borrower contained herein shall survive the execution and
delivery of this Agreement, and shall terminate only upon the full and final
payment and performance by the Borrower of the Obligations secured hereby.
10.10 INDEMNIFICATION. The Borrower agrees to indemnify and hold
harmless the Lender and its directors, officers, agents, employees and counsel
from and against any and all costs, expenses, claims, or liability incurred by
the Lender or such Person hereunder and under any other Loan Document or in
connection herewith or therewith, unless such claim or liability shall be due
to willful misconduct or gross negligence on the part of the Lender or such
Person.
10.11 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF WASHINGTON WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
10.12 VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF WASHINGTON SITUATED IN KING COUNTY, OR OF THE UNITED
STATES OF AMERICA FOR THE WESTERN DISTRICT OF WASHINGTON, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION WITH
ANY SUCH ACTION OR PROCEEDING, (A) ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN
- --------------------------------------------------------------------------------
18 - LOAN AND SECURITY AGREEMENT
<PAGE> 19
SUCH RESPECTIVE JURISDICTIONS AND (B) THE RIGHT TO INTERPOSE ANY NONCOMPULSORY
SETOFF, COUNTERCLAIM OR CROSS-CLAIM. THE BORROWER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS FOR IT SPECIFIED IN SECTION 10
HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION, SUBJECT IN EACH
INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO RIGHTS AND REMEDIES.
10.13 DELAYS; PARTIAL EXERCISE OF REMEDIES. No delays or omission of
the Lender to exercise any right hereunder, whether before or after the
happening of any Event of Default, shall impair any such right or shall operate
as a waiver thereof or as a waiver of any such Event of Default. No single or
partial exercise by the Lender of any right or remedy shall preclude any other
or further exercise thereof, or preclude any other right or remedy.
10.14 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER IRREVOCABLY
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
10.15 ENTIRE AGREEMENTS. The Issuer, Borrower and Lender agree that
this Agreement and the Exhibits hereto are the complete and exclusive statement
and agreement between the parties with respect to the subject matter hereof,
superseding all proposals and prior agreements, oral or written, and all other
communications between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first set forth above and to be accepted by its duly authorized
officer.
- --------------------------------------------------------------------------------
19 - LOAN AND SECURITY AGREEMENT
<PAGE> 20
WASHINGTON ECONOMIC DEVELOPMENT
FINANCE AUTHORITY
By: /s/ WILLIAM A. GLASSFORD
-------------------------------
William A. Glassford, Chair
INTRACEL CORPORATION
By:
Name:
Title:
(FED ID NO. ###-##-####)
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
Name:
Title:
- --------------------------------------------------------------------------------
SIGNATURE PAGE
<PAGE> 21
WASHINGTON ECONOMIC DEVELOPMENT
FINANCE AUTHORITY
By:
-------------------------------
William A. Glassford, Chair
INTRACEL CORPORATION
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
Title:
(FED ID NO. ###-##-####)
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
Name:
Title:
- --------------------------------------------------------------------------------
SIGNATURE PAGE
<PAGE> 22
WASHINGTON ECONOMIC DEVELOPMENT
FINANCE AUTHORITY
By:
-------------------------------
William A. Glassford, Chair
INTRACEL CORPORATION
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
Title:
(FED ID NO. ###-##-####)
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ GARY P. MORO
-------------------------------
Name: Gary P. Moro
Title: Vice President
- --------------------------------------------------------------------------------
SIGNATURE PAGE
<PAGE> 1
EXHIBIT 10.18
WASHINGTON ECONOMIC DEVELOPMENT FINANCE AUTHORITY
ECONOMIC DEVELOPMENT REVENUE BOND
SERIES 1997-E
(INTRACEL CORPORATION PROJECT)
TAX CERTIFICATE AND REGULATORY AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Recitals and Covenants................................................. 1
SECTION 1. DEFINITIONS............................................... 2
SECTION 2. REPRESENTATIONS........................................... 2
(a) Authorization............................................. 2
(b) Purposes of the Bonds..................................... 2
(c) Purpose of Tax Certificates............................... 2
(d) Statement as to Facts, Estimates and Circumstances........ 3
(e) Responsible Person........................................ 3
SECTION 3. REASONABLE EXPECTATIONS OF THE AUTHORITY AND COMPANY AS
TO FACTS, ESTIMATES AND CIRCUMSTANCES............................ 4
(a) Application of Total Sale Proceeds........................ 4
(1) General.............................................. 4
(2) Costs of Issuance.................................... 4
(3) Project Amount....................................... 4
(b) No Replacement............................................ 4
(c) No Negative Pledges....................................... 4
(d) No Other Funds............................................ 4
(e) Debt Service Fund......................................... 4
(f) Rebate.................................................... 5
(g) No Overissuance........................................... 5
(h) Bond Yield................................................ 5
(i) Representations Establishing Eligibility for Temporary
Period.................................................. 6
(1) Completion Date...................................... 6
(2) Binding Obligations.................................. 6
(3) Due Diligence........................................ 6
(j) Yield Restrictions........................................ 6
(1) Costs of Issuance.................................... 6
(2) Debt Service Fund.................................... 6
(3) Project Amount....................................... 6
(4) Yield Reduction Payments............................. 6
(k) The Loan Agreement........................................ 7
(l) No Hedge Bonds............................................ 7
(m) Single Issue.............................................. 7
(n) Reimbursement of Prior Expenditures....................... 7
(1) Timing of Prior Expenditures......................... 7
(2) Reimbursable Expenditures............................ 8
(3) Anti-Abuse Rules..................................... 8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4. REBATE REQUIREMENT CALCULATIONS AND PAYMENT.............. 8
(a) General.................................................. 8
(b) Eighteen Month Exception................................. 8
(c) Rebate Requirement....................................... 9
(d) Future Value............................................. 10
(e) Allocation and Accounting Rules.......................... 10
(f) Relationship to Yield Restriction........................ 10
(g) Bond Debt Service Fund................................... 10
(h) Computation and Payment Dates............................ 10
(i) Procedure for Remittance................................. 11
(j) Recordkeeping Obligation................................. 11
(1) In General.......................................... 11
(2) Retention of Records................................ 12
SECTION 5. SEGREGATION OF PROCEEDS.................................. 12
SECTION 6. SURVIVAL ON DEFEASANCE OR OTHER PAYMENT.................. 12
SECTION 7. PRIVATE ACTIVITY BOND REQUIREMENTS....................... 12
(a) Notice................................................... 12
(d) Official Action.......................................... 13
(e) Volume Cap............................................... 13
(f) Costs of Issuance........................................ 13
(g) Prohibited Facilities.................................... 13
(h) No Refunding Bonds....................................... 13
(i) Economic Life of the Project............................. 13
(j) Acquisition of Land...................................... 14
(k) Acquisition of Existing Property......................... 14
(l) Ownership................................................ 14
(m) Qualifying Facilities.................................... 14
(n) Election of $10,000,000 Limit on Capital Expenditures.... 14
(o) Limitation on Capital Expenditures....................... 14
(p) $40,000,000 Limitation................................... 15
(q) Contiguous or Integrated Facilities...................... 15
(r) Principal Users.......................................... 15
SECTION 8. AMENDMENTS............................................... 15
SECTION 9. SUPPLEMENTATION OF THIS CERTIFICATE...................... 15
EXHIBIT A - OFFERING PRICE CERTIFICATE............................... 21
EXHIBIT B - THE PROJECT.............................................. 22
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
EXHIBIT C............................................................. 23
EXHIBIT D............................................................. 24
EXHIBIT E
</TABLE>
<PAGE> 5
TAX CERTIFICATE AND REGULATORY AGREEMENT
WASHINGTON ECONOMIC DEVELOPMENT FINANCE AUTHORITY
(THE "AUTHORITY")
INTRACEL CORPORATION (THE "COMPANY")
$1,500,000
ECONOMIC DEVELOPMENT REVENUE BOND
SERIES 1997-E
(INTRACEL CORPORATION)
In connection with the issuance by the Authority of its Revenue Bond,
Series 1997-E (Intracel Corporation ) (the "BONDS" or the "BOND"), in the
maximum aggregate principal amount of $1,500,000 authorized pursuant to its
Resolution No. 96-013 adopted by the Authority on December 10, 1996, and
Resolution No. W-97-021 adopted on September 10, 1997 (collectively, the
"RESOLUTIONS"), a Loan and Security Agreement (the"LOAN AGREEMENT") by and
between the Authority and Intracel Corporation (the "COMPANY"), dated as of
September 11, 1997, and in furtherance of the tax-related covenants and
representations of the Authority and the Company contained in the Loan
Agreement, the Authority and the Company and enter into the following tax
certificate and regulatory agreement (the "TAX CERTIFICATE").
RECITALS AND COVENANTS
WHEREAS, the Authority and the Company have covenanted that they will not
take any action or omit any action if it would cause the Bonds to become
"arbitrage bonds" within the meaning of Section 148 of the Internal Revenue
Code of 1986 as amended (the "CODE").
WHEREAS, the Authority and the Company hereby covenant that they will
comply with the provisions of this Tax Certificate.
WHEREAS, the Company has covenanted in the Loan Agreement to cause to be
paid to the United States all amounts required to be so paid pursuant to
Section 148(f) of the Code.
- --------------------------------------------------------------------------------
1 - TAX CERTIFICATE
<PAGE> 6
WHEREAS the Company has covenanted to operate the facilities financed with
the proceeds of the Bond so that the Bond is and remains a "qualified small
issue bond" under Section 144 of the Code.
WHEREAS, the Authority and the Company understand and acknowledge that the
opinion of Bond Counsel (as defined below) regarding the exclusion of the
interest on the Bonds from gross income for Federal income tax purposes is
rendered in reliance upon the representations and statements of fact, estimates
and expectations contained herein and assumes the Authority's and the Company's
continued compliance with the provisions of this Tax Certificate.
NOW, THEREFORE, pursuant to Section 1.148-2(b)(2) of the Treasury
Regulations, the Authority and the Company certify, covenant and agree as
follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein shall have the
meanings set forth herein or in Appendix One, attached hereto, or where not so
defined, shall have the meanings set forth in the Indenture and the Loan
Agreement.
SECTION 2. REPRESENTATIONS.
(a) AUTHORIZATION. The Bonds are being issued pursuant to the Constitution
and statutes of the State of Washington, specifically Washington Revised
Statutes Chapter 43.163, the Resolutions, the Indenture and the Loan Agreement.
(b) PURPOSES OF THE BONDS. The Bonds are being issued for the purposes of
(i) making a loan to the Company to finance a portion of the costs of the
acquisition, and equipping of new equipment for the manufacture of medical
diagnostic devices located in Issaquah, Washington (the "PROJECT") and (ii)
paying the costs of issuance of the Bonds. Interest will accrue on the Bonds
only with respect to the outstanding principal amount of the amount previously
drawn down, and the interest rate will be independently established for each
draw. The Company will draw down an amount of $1,500,000 in two installments of
$750,000 each.
(c) PURPOSE OF TAX CERTIFICATE. This Tax Certificate is made in part for
the purpose of establishing the Authority's reasonable expectations as to the
amount and use of proceeds of the Bonds. It is intended to be and may be relied
on for the purposes of Sections 103, and 141 through 150 of the Code and as a
certificate described in Treasury Regulations Section 1.148-2(b)(2). The Tax
Certificate is being executed and delivered as part of the record of proceedings
in connection with the issuance of the Bonds. The Authority and the Company
understand that, despite the representations and statements of expectation made
in this Tax Certificate, that the taking of any deliberate, intentional action
by the Authority, the Company, or the Lessee after the Delivery Date in order to
earn arbitrage will cause the Bond to be "arbitrage bonds" within the meaning of
Section 148 of the Code if such action, had it been expected on the Delivery
Date, would have caused the Bond to be arbitrage bonds and that an intent to
violate the
- --------------------------------------------------------------------------------
2 - Tax Certificate
<PAGE> 7
requirements of Section 141 or 148 of the Code is not necessary for an action
to be considered deliberate within the meaning of the Code. In addition, the
Authority and the Company understand that, despite the representations and
statements of expectation made in this Tax Certificate, the failure of the
Bonds to satisfy the requirements of Section 144 and 147 of the Code may cause
the bonds to fail to be "qualified small issue bonds," regardless of whether
the events giving rise to such failure are deliberate.
(d) STATEMENTS AS TO FACTS, ESTIMATES AND CIRCUMSTANCES. The facts
and estimates set forth in Section 3 of this Tax Certificate, on which the
Authority's and the Company's expectations as to the Bonds are based, are true
to the best of the knowledge and belief of the undersigned officers of the
Authority and the Company, and the Authority's and the Company's expectations
are reasonable. The Authority and the Company, understand that, for the purposes
of the Code, the statements of facts, estimates, representations and
expectations contained herein constitute evidence of the Authority's and the
Company's expectations but do not establish any conclusions of law or any
presumptions regarding either the Authority's or the Company's actual
expectations or their reasonableness.
The expectations of the Authority concerning the use of proceeds
derived from the sale of the Bond and other matters are based in whole or in
part upon representations of the Company and other parties set forth in this Tax
Certificate and in the exhibits hereto. The Authority is not aware of any facts
and circumstances that would cause it to question the accuracy or reasonableness
of any representation made in this Tax Certificate or in the exhibits hereto,
including those representations made by the Company. The expectations of the
Company concerning certain uses of proceeds derived from the sale of the Bonds
and other matters are based in whole or in part on representations of the
Authority and other parties set forth in this Tax Certificate and in the
exhibits hereto. The Company is not aware of any facts or circumstances that
would cause it to question the accuracy or reasonableness of any representation
made in this Tax Certificate or in the exhibits hereto, including those
representations made by the Authority.
(e) RESPONSIBLE PERSON. The undersigned are the persons charged with
the responsibility for executing the documents related to the issuance of the
Bonds, and have made due inquiry with respect to and are fully informed as to
the matters set forth in Section 3 of this Tax Certificate.
(f) SECURITY. The Bonds are special obligations payable solely from
loan payments pledged under the Loan Agreement between the Company and the
Authority. The Bonds do not constitute an indebtedness or lending of credit of
the Authority within the meaning of any constitutional or statutory limitation
and do not constitute nor give rise to a pecuniary liability of the Authority
or a charge against its general credit, but are payable solely out of Loan
Payments under the Loan Agreement.
- --------------------------------------------------------------------------------
3 - Tax Certificate
<PAGE> 8
SECTION 3. REASONABLE EXPECTATIONS OF THE AUTHORITY AND COMPANY AS TO
FACTS, ESTIMATES AND CIRCUMSTANCES. The Authority, the Company makes the
following representations and statements of fact, estimate and expectation on
the basis of which it is not expected that the proceeds of the Bonds will be
used in a manner that will cause the Bond to be "arbitrage bonds" within the
meaning of Section 148 of the Code.
(a) APPLICATION OF TOTAL SALE PROCEEDS.
(1) GENERAL. The maximum amount of Sale Proceeds to be received by
the Authority from the sale of the Bond is $1,500,000.
(2) COSTS OF ISSUANCE. The amount of the Sale Proceeds and the
investment earnings thereon from each draw to be used to pay costs of issuance
will not exceed 2% of the amount of such draw.
(3) PROJECT AMOUNT. A minimum amount of Sale Proceeds equal to 98%
of each draw will be used to pay Project Costs.
(b) NO REPLACEMENT. No portion of the amounts received from the sale of
the Bond will be used as a substitute for any other funds that would otherwise
be used as a source of financing for any portion of the cost of the Project or
that will be used to acquire, directly or indirectly, obligations producing a
yield in excess of the Bond Yield.
(c) NO NEGATIVE PLEDGES. There are no amounts held under any agreement to
maintain funds at a particular level for the direct or indirect benefit of the
holders of the Bonds, excluding for this purpose (i) amounts in which the
Authority, the Company, the Lessee (or a substantial beneficiary of the Bonds)
may grant rights that are superior to the rights of the holders of the Bonds
and (ii) amounts that do not exceed the reasonable needs for which they are
maintained and that may be spent without any substantial restriction other
than a requirement to replenish the amount by a testing date that may occur no
more frequently than every six (6) months.
(d) NO OTHER FUNDS. Other than the funds and accounts specifically
described in this Tax Certificate, no fund or account which secures or
otherwise relates to the Bonds have been established, nor are any such funds
or accounts expected to be established, pursuant to any instrument.
(e) DEBT SERVICE FUND. The Debt Service Fund is intended to achieve a
proper matching of revenues under the Loan Agreement and the scheduled annual
debt service on the Bonds (the "DEBT SERVICE FUND").
All amounts on deposit in the Debt Service Fund will be expended to pay
debt service on the Bonds within thirteen months of the date such amounts are
first received by the Authority.
- --------------------------------------------------------------------------------
4 - Tax Certificate
<PAGE> 9
The Debt Service Fund will be depleted at least once each year except for any
carryover amounts which will not exceed the greater of (i) the earnings in the
Debt Service Fund for the immediately preceding Bond Year or (ii) one-twelfth
of the principal and interest payments on the Bonds for the immediately
preceding Bond Year. The schedule of payment of interest on and principal of
the Bonds has been established on the basis of, and is intended to achieve, a
proper matching of revenues with debt service on the Bonds.
Neither the Authority nor the Company has created or established, or
expects to create or establish, any fund in connection with the Bonds that is
reasonably expected to be used to pay debt service on the Bonds other than Debt
Service Fund.
(f) REBATE. The Company shall be responsible for the calculation and
payment of the Rebate Requirement and any related penalties under Section
148(f) of the Code.
(g) NO OVERISSUANCE. The amount of the proceeds and the anticipated
investment earnings thereon, together with other amounts available for and
expected to be used for such purposes, do not exceed the amounts necessary to
accomplish the governmental purposes of the Bonds set forth in Section 2(b).
The Bonds will not remain outstanding longer than is otherwise reasonably
necessary to accomplish the governmental purposes of the Bonds, based on all
facts and circumstances. As reflected in Exhibit B, the Bonds have a weighted
average maturity that does not exceed 120 percent of the average reasonably
expected economic life of the Project.
(h) BOND YIELD. The yield on the Bonds will be computed separately for
each Computation Period. The yield on the Bonds for a Computation Period (the
"BOND YIELD") generally means that discount rate that, when used in computing
the present value on the first day of the Computation Period of all payments of
principal, interest and fees for qualified guarantees on the Bonds attributable
to the Computation Period produces an amount equal to the present value, using
the same discount rate on the first day of the Computation Period of the
aggregate issue prices of the Bonds (defined as the initial offering prices or
yields to the public, excluding bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters or wholesalers, at which
price or yield a substantial amount of such Bonds and maturity was sold), or the
deemed issue prices of the Bonds within the meaning of Treasury Regulations
Section 1.148-4(c)(2)(iv). For this purpose, any mandatory sinking fund payments
required to be made with respect to the Bonds shall be taken into account. The
present value of the aggregate issue prices of the Bonds cannot be determined
until the last draw by the Company of Proceeds of the Bonds. The Bond Yield for
a Computation Period will be affected if the Issuer or the Company either enters
into a hedging transaction with respect to the Bonds, within the meaning of
Treasury Regulations Section 1.148-4(h)(3) or, transfers, waives, modifies or
enters into any similar transaction affecting any right that is part of the
terms of a Bond. Prior to entering into any transaction described in the
immediately preceding sentence, the Authority and the Company, as the case may
be, shall inform Bond Counsel of its intent and
- --------------------------------------------------------------------------------
5 - Tax Certificate
<PAGE> 10
shall not enter into such transaction without receiving a prior written opinion
from Bond Counsel that such transaction will not adversely affect the exclusion
from gross income of interest on the Bonds.
(i) REPRESENTATIONS ESTABLISHING ELIGIBILITY FOR TEMPORARY PERIOD.
(1) COMPLETION DATE. The Company reasonably expects that Sale
Proceeds of the Bonds deposited in the Project Fund will be used to pay the
costs of the Project no later than September 11, 2000.
(2) BINDING OBLIGATIONS. The Company reasonably expects that,
within 6 months of the Delivery Date, it will spend (or enter into binding
obligations with third parties obligating the Company to spend) an amount equal
to at least 5 percent of the Sale Proceeds of the Bonds with respect to the
Project.
(3) DUE DILIGENCE. It is reasonably expected that work on the
Project and the allocation of the Sale Proceeds of the Bonds to expenditures
with respect thereto will proceed with due diligence.
(j) YIELD RESTRICTIONS. Any amounts on deposit in any account
established for the Bond will not be invested at a yield which exceeds the Bond
Yield, except as follows:
(1) COST OF ISSUANCE. Sale Proceeds of the Bonds to pay costs
of issuance and the investment earnings thereon may be invested without regard
to yield restriction for a three-year period beginning on the date hereof, and
are subject to the Rebate Requirement.
(2) DEBT SERVICE FUND. Amounts deposited in the Debt Service
Fund may be invested at an unrestricted yield for a period of 13 months from
the date of deposit of such amounts in the Debt Service Fund. Earnings on such
amounts that are retained in such fund may be invested at an unrestricted yield
for a period of 13 months from the date of receipt of the amount earned. Such
amounts are subject to the Rebate Requirement under the circumstances set forth
in Section 4(h) hereof.
(3) PROJECT AMOUNT. Sale Proceeds to be used to pay the costs
of the Project, and the investment earnings thereon, may be invested without
regard to yield restriction for a three-year period commencing on the date
hereof, and are subject to the Rebate Requirement.
(4) YIELD REDUCTION PAYMENTS. Notwithstanding any of the
provisions of this section 3(m) that require the investment of proceeds derived
from the sale of the Bonds and investment earnings thereon at a yield not in
excess of the Bond Yield, the yield on certain Nonpurpose Investments acquired
with proceeds of the Bonds will not be considered to be higher than the
applicable yield limitation described in this Section 3(m), if the Authority or
the Company makes "yield reduction payments" to the United States Treasury at
the times and in
- --------------------------------------------------------------------------------
6 - Tax Certificate
<PAGE> 11
the amounts described in section 1.148-5(c) of the Treasury Regulations. The
Company and the Authority covenant to retain and consult with Bond Counsel prior
to making any "yield reduction payments" pursuant to Section 1.148-5(c) of the
Treasury Regulations.
(k) THE LOAN AGREEMENT. The yield on the Loan Agreement, computed
without regard to qualified administrative costs incurred by the Authority and
paid by the Company, may not exceed the Bond Yield by more than .125%. For this
purpose, qualified administrative costs include costs or expenses paid, directly
or indirectly, to purchase, carry, sell or retire the Loan Agreement and costs
of issuing, carrying, or repaying the Bonds. Although actual payments by the
Company with respect to qualified administrative costs, such as, for instance
fees paid to the Authority, may be made at any time, for purposes of calculating
the yield on the Loan Agreement, a pro rata portion of each payment made by the
Company is treated as a reimbursement of reasonable administrative costs, such
that the present value of such payments does not exceed the present value of the
reasonable administrative costs paid by the Authority, using the yield on the
Bonds as the discount rate.
(l) NO HEDGE BONDS. The Authority and the Company expect that more
than 85% of the Net Sale Proceeds of the Bonds will be expended for the purposes
of the Resolution and the Bonds no later than September 11, 2000. In addition,
not more than 50% of the proceeds of the Bond will be invested in Nonpurpose
Investments having a substantially guaranteed yield for 4 years or more.
(m) SINGLE ISSUE. No other obligations of the Authority (i) are
reasonably expected to be paid from substantially the same source of funds as
the Bonds (determined without regard to guarantees from unrelated parties), (ii)
are being sold at substantially the same time as the Bonds (i.e., within
fourteen days of September 11, 1997, the delivery date of the Bonds.
(n) REIMBURSEMENT OF PRIOR EXPENDITURES. A portion of the proceeds
of the Bond to be applied to the cost of the Project may be used to reimburse
the Company for expenditures on the Project, previously incurred and paid, in
anticipation of the issuance of the Bond (the "PRIOR EXPENDITURES"). The Company
represents the following with respect to such reimbursement.
(1) TIMING OF PRIOR EXPENDITURES. All of the Prior Expenditures
either (A) were incurred no earlier than sixty (60) days prior to December 10,
1996, (B) constitute preliminary expenditures in an amount not exceeding 20% of
the $1,500,000.00 of maximum Sale Proceeds identified in Section 3(a)(1), above
(or $300,000), or (C) do not exceed an amount in excess of the lesser of
$100,000 or 5 percent of the Sale Proceeds. For this purpose, "preliminary
expenditures" include architectural, engineering, surveying, soil testing and
similar costs incurred prior to commencement of acquisition and construction of
the Project, other than land acquisition, site preparation and similar costs
incident to commencement of construction.
- --------------------------------------------------------------------------------
7 - Tax Certificate
<PAGE> 12
(2) REIMBURSABLE EXPENDITURES. The Prior Expenditures are either (i)
capital expenditures (within the meaning of Section 1.150-1(b) of the Treasury
Regulations), (ii) costs of issuance of the Bond, or (iii) working capital
expenditures for extraordinary, nonrecurring items that are not customarily
payable from current revenues. None of the Prior Expenditures were incurred for
day-to-day operating expenses of the Company.
(3) ANTI-ABUSE RULES. None of the proceeds of the Bond being used to
reimburse the Company for Prior Expenditures will be used, directly or
indirectly, within one year of the Delivery Date, in a manner that result in
the creation of Replacement Proceeds, other than amounts deposited in a bona
fide debt service fund.
SECTION 4. REBATE REQUIREMENT CALCULATIONS AND PAYMENT. The Authority and
the Company have been advised by Bond Counsel that the following provisions and
procedures also apply to the proceeds of the Bonds.
(a) GENERAL. Certain Gross Proceeds of the Bonds will be exempt from the
Rebate Requirement described in Section 4(c) hereof if the Bonds satisfy the
requirements of Section 4(b) hereof.
(b) EIGHTEEN MONTH EXCEPTION. The Rebate Requirement described in Section
4(d) hereof shall not apply to the Gross Proceeds of the Bonds if the following
percentages (the "QUALIFYING EXPENDITURES") of such Gross Proceeds are expended
for the governmental purposes of the Bonds by the last day of each of the
periods identified below (the "QUALIFYING DATES"). The governmental purposes of
the Bonds includes (A) payments of interest on but no payments of principal of
the Bonds, (B) payments of interest on other obligations of the Authority issued
for the benefit of the Company, which interest either (i) accrues on such other
obligations during a one-year period including the Delivery Date, (ii) is a
capital expenditure as defined in Treasury Regulations Section 1.150-1(b), or
(iii) is a de minimis Working Capital Expenditure, and (C) payments of costs of
issuance made from earnings on Gross Proceeds. For this purpose, Gross Proceeds
has the meaning set forth in Appendix One to this Certificate, except that it
does not include (i) amounts held in a bona fide debt service fund, (ii) amounts
held in a reasonably required reserve or replacement fund, and (iii) amounts
that, as of the Delivery Date, are not reasonably expected to be Gross Proceeds,
but that become Gross Proceeds after the end of the eighteen-month period.
- --------------------------------------------------------------------------------
8 - Tax Certificate
<PAGE> 13
Required Percentage Expenditure
of Gross Proceeds Qualifying Date
----------------- ---------------
15% March __, 1998
60% September __, 1998
100% March __, 1999
The Qualifying Expenditures as of the last of the Qualifying Dates set forth
above will be treated as made if, as of the third such date, all such Gross
Proceeds have been spent for the governmental purposes of the Bonds, except for
a Reasonable Retainage not exceeding 5 percent of the Gross Proceeds as of such
date, and 100% of the Gross Proceeds are actually spent for the governmental
purposes of the Bonds within the 30-month period beginning on the Delivery Date.
A failure to satisfy the final spending requirements will be disregarded if the
Authority and the Company exercise due diligence to complete the Project and the
amount of the failure does not exceed the lesser of 3 percent of the issue price
of the Bonds or $250,000. For purposes of determining whether the above
Qualifying Expenditures have been made as of the first two Qualifying Dates, the
Authority and Company shall include any earnings reasonably expected by the
Authority and the Company as of the Delivery Date to be generated for the entire
18-month spending period. For purposes of determining whether the Qualifying
Expenditures have been made as of the third and any subsequent Qualifying Dates,
the Authority and the Company shall include only actual investment earnings
generated as of such date. In the event any of the Qualifying Expenditures are
not made as and when required, all Gross Proceeds of the Bonds shall be subject
to the Rebate Requirement set forth in Section 4(c) of this Tax Certificate. In
the event the Bonds satisfy all requirements described in this Section 4(b)
necessary to qualify for the exemption from the Rebate Requirement, the
Authority, at the request of the Company, may nevertheless subsequently elect to
disregard the available exemption from the Rebate Requirement provided in this
Section 4(b) and to satisfy the Rebate Requirement with respect to all Gross
Proceeds of the Bonds. Notwithstanding the above, Gross Proceeds of the Bonds
shall not be eligible for the exemption from the Rebate Requirement described in
this Section 4(b) unless the Rebate Requirement set forth in Section 4(d) is met
for Gross Proceeds of such issue not required to be spent within the 18-month
spending period (other than earnings on amounts in the Debt Service Fund).
(c) REBATE REQUIREMENT. The Rebate Requirement as of any Computation
Date, subject to such modifications as may be made by Treasury Regulations or
rulings, is an amount equal to the excess (if any) of the future value of all
Nonpurpose Receipts over the future value of all Nonpurpose Payments. All
future values are computed as of the Computation Date using an interest rate
equal to the Bond Yield.
_______________________________________________________________________________
9 - Tax Certificate
<PAGE> 14
(d) FUTURE VALUE. The future value of a Nonpurpose Receipt or Payment is
calculated using the following formula:
FV = PV (1 + i)(n)
where FV = The future value of the Nonpurpose Receipt or
Payment;
PV = The amount of the Nonpurpose Receipt or Payment;
i = Bond Yield for the Computation Period divided by
the number of compounding intervals in a Bond Year;
and
n = The number of compounding intervals from the date
of the Nonpurpose Receipt or Payment through the
Computation Date.
(e) ALLOCATION AND ACCOUNTING RULES. Generally, investments are
allocated to the Bond for the period that (1) begins on the date Gross Proceeds
are allocated to the Bond and to the investment, and (2) ends on the date such
Gross Proceeds cease to be allocated to the Bond or to the investment.
(f) RELATIONSHIP TO YIELD RESTRICTION. Subject to Section 4(g) hereof,
the requirements of this Section 4 relating to the Rebate Requirement of the
Code apply to all Gross Proceeds, regardless of whether such amounts are
subject to yield restriction or are unrestricted as to yield. Thus, an amount
of Gross Proceeds may be "unrestricted as to yield" but will, notwithstanding
that characterization, be subject to the Rebate Requirement of the Code.
Similarly, an amount of Gross Proceeds may be "restricted as to yield" but
will, notwithstanding that characterization, also be subject to the Rebate
Requirement of the Code.
(g) BOND DEBT SERVICE FUND. Earnings on amounts in the Debt Service Fund
will be exempt from rebate in any calendar year in which the aggregate
investment earnings on amounts in such fund are less than $100,000. In the
event that the aggregate earnings on amounts in such fund for a calendar year
exceed $100,000, pursuant to Treasury Regulations Section 1.148-3(k) earnings
on amounts in the Debt Service Fund for such year either may or may not be
included in the calculation of the Rebate Requirement, at the election of the
Authority.
(h) COMPUTATION AND PAYMENT DATES. The Rebate Requirement, net of the
Computation Date Credit, must be computed by the Company as of each Installment
Computation Date and as of the Final Computation Date. Rebate installments of
an amount which, when added to the future value of all previous rebate payments
made with respect to the Bond, equals at least 90 percent of the Rebate
Requirement, must be paid by the Company on behalf of the Authority no later
than the date 60 days after each Installment Computation Date.
_______________________________________________________________________________
10 - Tax Certificate
<PAGE> 15
The final rebate payment of an amount which, when added to the future value of
all previous rebate payments made with respect to the Bond, equals 100 percent
of the Rebate Requirement as of the Final Computation Date, must be paid by the
Company to the Department of Treasury no later than the date 60 days after the
Final Computation Date.
(i) PROCEDURE FOR REMITTANCE. Each payment to be made by the Company
pursuant to this Section shall be filed with the Internal Revenue Service
Center, Philadelphia, Pennsylvania 19255 on or before the date payment is due,
and shall be accompanied by Internal Revenue Service Form 8038-T, executed by
the Authority.
(j) RECORDKEEPING OBLIGATION.
(1) IN GENERAL. The Issuer shall maintain, or cause to be
maintained, records adequate to determine the Rebate Requirement with respect
to any Gross Proceeds under their control. Such records will include, but are
not necessarily limited to, information regarding the following with respect to
each and every investment acquired with Gross Proceeds:
(i) the purchase price;
(ii) nominal rate of interest;
(iii) amount of accrued interest purchased
(included in purchase price);
(iv) par or face amount;
(v) purchase date;
(vi) maturity date;
(vii) amount of original issue discount or premium
(if any);
(viii) type of Investment Property;
(ix) frequency of periodic payments;
(x) period of compounding;
(xi) date of disposition;
(xii) amount realized on the disposition
(including accrued interest);
- --------------------------------------------------------------------------------
11 - Tax Certificate
<PAGE> 16
(xiii) market price data sufficient to establish
that the purchase price was equal to the fair
market value on the date of acquisition or,
if earlier, on the date of a binding contract
to acquire such Investment Property; and
(xiv) market price data sufficient to establish the
fair market value of any Nonpurpose
Investment as of any Computation Date, and as
of the date such Nonpurpose Investment
becomes allocable to, or ceases to be
allocable to, Gross Proceeds.
(2) RETENTION OF RECORDS. The Company agrees to retain records of
the determinations and the manner in which the Rebate Requirement was
calculated required by this Section 4 until six years after the retirement of
the last obligation of the Bonds or for such other period as the Treasury
Department may, by regulations or rulings, provide.
SECTION 5. SEGREGATION OF PROCEEDS. In order to perform the calculations
required by the Code, it is necessary to separately account for all of the
Gross Proceeds and each specific investment acquired therewith. To that end,
the Authority, the Company and the Lessee agree to establish separate
sub-accounts or to take other accounting measures in order to account fully and
with specificity for all Gross Proceeds and each investment acquired therewith.
SECTION 6. SURVIVAL ON DEFEASANCE OR OTHER PAYMENT. Notwithstanding
anything in this Tax Certificate or the Resolutions to the contrary, the
obligation of the Company to remit the Rebate Requirement to the United States
Department of Treasury and to comply with all other requirements contained in
this Tax Certificate shall survive the defeasance or payment in full of the
Bonds.
SECTION 7. PRIVATE ACTIVITY BOND REQUIREMENTS
(a) NOTICE. On July 29, 1997, and July 30, 1997, respectively, the
Authority caused to be published in the Daily Journal of Commerce and the
Eastside Journal, notices of a public hearing to be held by the Authority
regarding issuance of the Bonds to finance the costs of the Project and
certain related expenses.
(b) HEARING. On August 13, 1997, the Authority held the
aforementioned public hearing. At this hearing, all interested persons were
invited and given an opportunity to comment upon the nature and location of
the facilities comprising the Project and the financing thereof with the
proceeds derived from the sale of the Bonds.
- --------------------------------------------------------------------------------
12 - Tax Certificate
<PAGE> 17
(c) APPROVAL BY APPLICABLE ELECTED REPRESENTATIVE. Following the
hearing, and pursuant to Section 147(f) of the Code, the Governor of the State,
being the "applicable elected representative" of the Authority within the
meaning of Section 147(f)(2)(E) of the Code, approved the issuance of
$1,500,000.00 aggregate principal amount of Bonds for the purpose of financing
the costs of the Project and certain related costs.
(d) OFFICIAL ACTION. The Authority represents that on December 10,
1996 and September 10, 1997, the Authority adopted its resolutions (the
"INDUCEMENT RESOLUTIONS") stating its findings as to the public benefits of the
Project and its intention to issue its industrial development revenue bonds to
assist in the financing of the Project. The Inducement Resolutions state the
Authority's intent to issue revenue bonds for the purpose of financing the
Project. The Inducement Resolutions were intended to constitute a declaration
of official intent by the Authority within the meaning of Sections 1.1150-2 and
1.103-8(a)(5) of the Treasury Regulations.
(e) VOLUME CAP. The Authority and the Company represent that the
Bond is subject to the private activity bond volume cap requirements of Section
146 of the Code. The Lieutenant Governor of the State of Washington has
confirmed allocation of the 1997 private activity volume cap in the amount of
$1,500,000.00 for the Project.
(f) COSTS OF ISSUANCE. The Authority and the Company represent that
no more than 2% of each draw of Sale Proceeds of the Bonds of the proceeds of
the Bond will be used directly or indirectly to pay Costs of Issuance.
(g) PROHIBITED FACILITIES. The Authority and the Company represent
that none of the proceeds of the Bond will be used to finance any airplane,
skybox or other private luxury box, health club facility, facility primarily
used for gambling, store the principal business of which is the sale of
alcoholic beverages for consumption off premises, private or commercial golf
course, country club, massage parlor, tennis club, skating facility (including
roller skating, skate board and ice skating), racquet sports facility
(including any handball or racquet ball court), hot tub facility, suntan
facility, race track, automobile sales or service facility, retail food or
beverage facility or entertainment facility.
(h) NO REFUNDING BONDS. The Authority and the Company represent that
none of the proceeds of the Bond will be used (directly or indirectly) to pay
any principal on, interest of or call premium on any bonds or obligations of
the Authority or the Company.
(i) ECONOMIC LIFE OF THE PROJECT. The Company represents that the
average reasonably expected economic life of the Project is at least _____
years. The weighted average maturity of the Bonds is _____ years. The weighted
average maturity of the Bonds therefore does not exceed 120% of the average
reasonably expected economic life of the Project. For this purpose, land
represents less than twenty-five percent (25%) of the proceeds of the Bond
- --------------------------------------------------------------------------------
13 - Tax Certificate
<PAGE> 18
and, therefore, was not taken into account in determining the average economic
life of the Project financed with the proceeds of the Bonds.
(j) ACQUISITION OF LAND. The Authority and the Company represent
that no more than 25% of the Sale Proceeds of the Bonds and the investment
earnings thereon will be used, directly or indirectly, to finance the
acquisition of land or any interest therein.
(k) ACQUISITION OF EXISTING PROPERTY. The Company represents that no
property (or any interest therein) will be acquired by the Company with
proceeds of the Bonds unless the first use of such property was pursuant to
such acquisition.
(l) OWNERSHIP. The Company represents, warrants and covenants that
the Project is and will be owned for federal tax purposes exclusively by the
Company. The portion of the Project financed with proceeds of the Bond is not
expected to be sold or otherwise disposed of, in whole or in part, other than
as permitted pursuant to the Loan Agreement and except due to normal wear, tear
and obsolescence, before payment in full of the Bonds.
(m) QUALIFYING FACILITIES. Substantially all (95%) of the proceeds
of the Bonds will be used to provide qualifying manufacturing facilities within
the meaning of Section 144(a) of the Code and Treasury Regulations promulgated
thereunder. All of the costs of the Project, as set forth in Exhibit C attached
hereto, were paid or incurred after December 10, 1996 and were or will be
charged to the capital accounts of land or property subject to the allowance
for depreciation for federal income tax purposes. No more than 25% of the Sale
Proceeds of the Bonds and the investment earnings thereon will be spent on
"ancillary facilities" within the meaning of Section 144(a)(12)(C) of the Code.
(n) ELECTION OF $10,000,000 LIMIT ON CAPITAL EXPENDITURES. The
Authority hereby elects to have the provisions of Section 144(a)(4) of the Code
apply to the Bond. There are no outstanding issues the proceeds of which have
been or will be used primarily with respect to facilities (i) the principal
user or users of which are or will be the same or related persons and (ii)
which are located in the incorporated municipality of Issaquah, in King County,
Washington.
(o) LIMITATION ON CAPITAL EXPENDITURES. The aggregate amount of
capital expenditures (other than those paid or reimbursed out of the proceeds
of the Bond) paid or incurred during the six-year period beginning on
September __, 1994, with respect to (a) the Project, and (b) any other property
located within the corporate limits of Issaquah, Washington (including property
moved to another location), with respect to which the Company, the Lessee or
any "related person" to the Company has been a "principal user" at any time
during the six-year period beginning on September __, 1994, will not exceed
$10,000,000. The total capital expenditures to date made within this period in
the city of Issaquah is $_______, as set forth on Exhibit , D, attached hereto.
- --------------------------------------------------------------------------------
14 - Tax Certificate
<PAGE> 19
(p) $40,000,000 LIMITATION. As set forth in Exhibit E, attached hereto,
the Company and any "related person" to the Company (within the meaning of
Section 147(b)(3) of the Code) are not the beneficiaries of outstanding
tax-exempt governmental obligations in an amount which, together with the
face amount of the Bonds allocated to such persons, would exceed $40,000,000.
The Company will not allow any person to become a beneficiary of the Bonds if
the amount allocated to such person, together with other outstanding tax-exempt
governmental obligations allocated to such person, would exceed $40,000,000.
The Company will not become a beneficiary of other outstanding tax-exempt
governmental obligations if the amount allocated to it thereunder would cause
it to exceed such $40,000,000 limitation with respect to the Bonds.
(q) CONTIGUOUS OR INTEGRATED FACILITIES. Neither the Company nor any
"related person" to the Company (within the meaning of Section 147(b)(3) of the
Code) will be a "principal user" of any facilities that (i) are located outside
of the corporate limits of Bellevue, Washington and (ii) would be considered
"contiguous or integrated" (within the meaning of Section
1.103-10(b)(2)(ii)(e) of the Treasury Regulations) with the Project.
(r) PRINCIPAL USERS. The Company will be the exclusive owner and operator
of the Project. Accordingly the Company will be the only "principal users" of
the Project. For purposes of this Tax Certificate, the term "principal user"
has the meaning ascribed thereto for purposes of Section 103(b)(6)(C) of the
Internal Revenue Code of 1954, as amended (the "1954 CODE") and the final and
proposed Treasury Regulations promulgated thereunder.
SECTION 8. AMENDMENTS. Notwithstanding any other provision herein, the
covenants and obligations contained herein may be and shall be deemed modified
to the extent the Authority secures a written opinion of Bond Counsel that any
action required hereunder is no longer required or that some further action is
required in order to maintain the exclusion of the interest component payable on
the Bond from gross income for purposed of Federal income taxation.
SECTION 9. SUPPLEMENTATION OF THIS CERTIFICATE. The Authority understands
the need to supplement this Tax Certificate periodically to reflect further
developments in the Federal income tax laws governing the exclusion from gross
income for
- --------------------------------------------------------------------------------
15 - Tax Certificate
<PAGE> 20
Federal income tax purposes of the interest component payable on the Bond and
will periodically seek the advice of Bond Counsel as to the propriety of
seeking the review of and supplements to this Tax Certificate from Bond
Counsel.
Date: September __, 1997 WASHINGTON ECONOMIC DEVELOPMENT
FINANCE AUTHORITY
By:
-------------------------------
William A. Glassford, Chair
INTRACEL CORPORATION
By:
--------------------------------
Title:
-----------------------------
- --------------------------------------------------------------------------------
16 - Tax Certificate
<PAGE> 1
EXHIBIT 10.19
STOCK PURCHASE AGREEMENT
By and Between
ORGANON
TEKNIKA CORPORATION
and
PERIMMUNE HOLDINGS, INC.
<PAGE> 2
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of this 1st day
of July, 1996 by and between Organon Teknika Corporation, a Delaware
corporation ("Shareholder"), and PerImmune Holdings, Inc., a Delaware
corporation ("Purchaser");
WITNESSETH
WHEREAS, Shareholder owns all of the issued and outstanding shares of the
capital stock of PerImmune, Inc., a Delaware corporation (the "Company");
WHEREAS, Shareholder desires to sell, and the Purchaser desires to
purchase, all of the issued and outstanding shares of the capital stock of the
Company pursuant to this Agreement; and
WHEREAS, in connection with the transactions contemplated herein,
Shareholder has agreed to transfer to the Company certain assets held in the
name of Shareholder or its Affiliates and currently used in the PerImmune
Business (as defined herein).
WHEREAS, in connection with transactions contemplated herein, the parties
intend for Shareholder and the Company to enter into certain agreements
governing the relationship between the Company and Shareholder and their
respective Affiliates (as defined herein) subsequent to the consummation of the
transactions contemplated herein.
NOW, THEREFORE, in consideration of the respective covenants and
representations and warranties contained herein, the parties hereto hereby
agree as follows:
1. DEFINITIONS
As used in this Agreement, the terms defined below shall have the
respective meanings hereinafter specified (such meanings to be equally
applicable to the singular and plural forms thereof).
"Action" means any action, suit, arbitration, proceeding or investigation
by or before any Governmental Authority.
"Affiliate" means, with respect to any entity, any other entity which
directly or indirectly controls, is controlled by, or is under common control
with such entity, where the term "control" means the ownership, directly or
indirectly, of more than fifty percent (50%) of the equity capital or the right
or power in fact to direct the management of such entity.
"Affiliated Group" means an affiliated group of corporations within the
meaning of Code Section 1504(a) or, for purposes of any state, local or foreign
Tax matters, any consolidated, combined, or unitary group of corporations
within the meaning of the corresponding provisions of tax law for the state or
other jurisdiction in question.
1
<PAGE> 3
"Ancillary Agreements" means the Services Agreement and the Letter
Agreement.
"ANRP" has the meaning set forth in Section 6.8 of the Agreement.
"Bank Accounts" means all bank and similar accounts, lock boxes and safe
deposit boxes holding cash generated by the Company ordinarily used in
connection with the PerImmune Business.
"Cessation Date" has the meaning set forth in Section 6.8 of the Agreement.
"Claim" has the meaning set forth in Section 9.4(d) of the Agreement.
"Claim Notice" has the meaning set forth in Section 9.4(d) of the
Agreement.
"Closing" has the meaning set forth in Section 3.1 of the Agreement.
"Closing Agreements" means the Credit Facility, the Working Capital
Facility, the Intellectual Property Security Agreement, the Fixed Asset
Security Agreement and the Ancillary Agreements.
"Closing Balance Sheet" means the balance sheet of the Company as of June
30, 1996 attached hereto as Exhibit G.
"Closing Book Value" means an amount equal to $9,234,935.
"Closing Date" has the meaning set forth in Section 3.1 of this Agreement.
"COBRA continuation coverage" has the meaning set forth in Section 6.8 of
the Agreement.
"Code" means the Internal Revenue Code of 1986, as amended. All citations
to the Code or to the regulations promulgated thereunder shall include any
amendments or any substitute or successor provisions thereto.
"Continuation Period" has the meaning set forth in Section 6.8 of the
Agreement.
Continuation Plans" has the meaning set forth in Section 6.8 of the
Agreement.
"CPR" has the meaning set forth in Section 10.11 of the Agreement.
"Credit Facility" has the meaning set forth in Section 6.10 of the
Agreement.
"Damages" has the meaning set forth in Section 9.4(a) of the Agreement.
"Effective Date" means July 1, 1996.
2
<PAGE> 4
"Employee Plan" means any plan, program, agreement, policy or arrangement
(a "plan") maintained or contributed to by Shareholder, the Company or any
ERISA Affiliate, or any successor thereto, whether or not reduced to writing,
for the benefit of, or pursuant to which the Company, or any Successor thereto,
has any liability with respect to, current or former employees, that is (i) an
"employee benefit plan" (within the meaning of Section 3(3) of ERISA), or (ii)
any other benefit arrangement providing for pension or retirement benefits,
profit sharing, deferred compensation, severance pay, medical, dental,
hospitalization, disability benefits, death benefits, life insurance, stock
bonus, stock purchase, stock option, restricted stock, stock appreciation
rights, fringe benefits, or similar benefits, including, without limitation,
the Akzo Nobel, Inc., Incentive Savings Plan (401k).
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment,
building or use restriction, conditional sales agreement, encumbrance or
other right of third parties, whether voluntarily incurred or arising by
operation of law, and includes, without limitation, any agreement to give any
of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Pension Plan" has the meaning set forth in Section 4.7.
"ERISA Affiliates" means any entity which is (or at any relevant time was)
a member of a "controlled group of corporations" with, under "common control"
with, or a member of an "affiliated service group" with, the Company as
defined in Section 414(b), (c), (m) or (o) of the Code.
"Excluded Liability" means any liability arising out of DCAA audits of
periods ending on or prior to December 31, 1994.
"Fixed Asset Security Agreement" means the Fixed Asset Security Agreement
by and between the Company and Shareholder substantially in the form attached
hereto at Exhibit F.
"GAAP" means United States generally accepted accounting principles
applied consistently with the principles used to prepare the historical
financial statement of the Company.
"Government Contracts" shall mean any bid, quotation, proposal, contract,
agreement, work authorization, lease, commitment or sale or purchase order of
the Company that is with the United States Government, or any state, local or
foreign government, including, among other things, all contracts and work
authorizations to supply goods and services to the United States Government.
"Governmental Authority" means any government or political subdivision or
department thereof, any governmental or regulatory body, commission, board,
bureau, agency or instrumentality, or any court, in each case whether domestic
or foreign, federal, state or local.
3
<PAGE> 5
"Indemnitees" has the meaning set forth in Section 9.4(b) of the Agreement.
"Intellectual Property Agreement" means the Intellectual Property
Agreement by and between Purchaser and Akzo Nobel Pharma International, B.V.
substantially in the form attached hereto as Exhibit B.
"Intellectual Property Security Agreement" means the Intellectual Property
Security Agreement by and between Purchaser, the Company, Akzo Nobel Pharma
International, B.V. and Shareholder substantially in the form attached hereto
as Exhibit E.
"Intercompany Accounts Payment" has the meaning set forth in Section 6.11
of the Agreement.
"ISP" has the meaning set forth in Section 6.8 of the Agreement.
"Law" means any domestic or foreign, federal, state or local statute, law,
ordinance, rule or regulation.
"Letter Agreement" means the Letter Agreement by and between the Company
and Shareholder substantially in the form attached hereto as Exhibit C.
"Order" means any judgment, order, writ, injunction, decree, stipulation
or award entered or rendered by any Governmental Authority.
"Owned Assets" means all assets, interests and rights of any kind, whether
tangible or intangible, real or personal, owned by the Company prior to the
transfer of the Transferred Assets to the Company pursuant to this Agreement.
"Parent" has the meaning set forth in Section 4.8(c) of the Agreement.
"Parent Affiliated Group" has the meaning set forth in Section 4.8(d).
"Pension Plan" has the meaning set forth in Section 6.8.
"PerImmune Books and Records" means (a) all records and lists of the
Company pertaining to the PerImmune Business as it was conducted by the Company
prior to the Closing, (b) all records and lists of the Company pertaining to
the PerImmune Business, customers, suppliers, personnel of the Company as of
the Closing and (c) all books, ledgers, files, reports, plans, drawings and
operating records of every kind maintained by the Company and pertaining to the
PerImmune Business as it was conducted by the Company prior to the Closing.
"PerImmune Business" means the business of research, development and the
commercialization of clinical and therapeutic applications for vaccine-based
active specific immunotherapy and the research, development, clinical and
therapeutic application and manufacturing of human monoclonal antibodies,
non-specific immunotherapy and in-vitro diagnostics, as well as contract
research and product sales, as currently conducted and proposed to be conducted
by the Company.
4
<PAGE> 6
"Permitted Encumbrances" means (i) materialmen's, mechanics',
carriers', workmen's, repairmen's or other like liens arising in the ordinary
course of Shareholder's or the Company's business for amounts not yet due or
which are being contested in good faith by appropriate proceedings as to which
adequate reserves have been established; and (ii) liens for current taxes not
yet due or any taxes being contested in good faith by appropriate proceedings
as to which adequate reserves have been established.
"PerImmune Liabilities" means (i) all liabilities reflected on the
Closing Balance Sheet and (ii) all liabilities arising from the conduct of the
PerImmune Business by the Company on or after December 31, 1994 but not
including any Excluded Liability.
"Post-Closing Partial Period" has the meaning set forth in Section
9.5(a) of the Agreement.
"Pre-Closing Partial Record" has the meaning set forth in Section
9.5(a) of the Agreement.
"Purchase Price" has the meaning set forth in Section 2.1 of the
Agreement.
"Purchase Price Allocation Schedule" has the meaning set forth in
Section 9.5(e) of the Agreement.
"Purchase Price Note" has the meaning set forth in Section 2.2(a) of
the Agreement.
"Purchaser" means PerImmune Holdings, Inc.
"Purchaser Indemnitees" has the meaning set forth in Section 9.4(a)
of the Agreement.
"Returns" means all returns, declarations, reports, statements, and
other documents required to be filed in respect of Taxes by or with respect to
the Company or any Affiliated Group that includes the Company, and the term
"Return" means any one of the foregoing Returns.
"Services Agreement" means the Services Agreement by and between the
Company and Shareholder substantially in the form attached hereto as Exhibit D.
"Settlement Dividend" has the meaning set forth in Section 6.11.
"Shareholder" means Organon Teknika Corporation.
"Shareholder Indemnitees" has the meaning set forth in Section 9.4(b)
of the Agreement.
5
<PAGE> 7
"Shareholder's Books and Records" means all records and lists of
Shareholder and its respective Affiliates relevant to the PerImmune Business as
it was conducted prior to the Closing, (b) all records and lists of
Shareholders and its respective Affiliates relevant to the PerImmune Business,
customers, suppliers, personnel of such persons and (c) all books, ledgers,
files, reports, plans, drawings and operating records of every kind maintained
by Shareholder and its respective Affiliates relevant to the PerImmune Business
as it was conducted prior to the Closing.
"Shares" has the meaning set forth in Section 2.1 of the Agreement.
"Taxes" means all federal, state, local, foreign, and other net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees, assessments, or charges of any
kind whatever, together with any interest and any penalties, additions to tax,
or additional amounts with respect thereto, and the term "Tax" means any one of
the foregoing Taxes.
"Third Party Notice" has the meaning set forth in Section 9.4(d) of
the Agreement.
"Transferred Assets" means all assets, interests and rights of any
kind, whether tangible or intangible, real or personal, held by Shareholder or
any Affiliate of Shareholder which are used exclusively in or for the benefit
of the PerImmune Business, excluding the Owned Assets, but including, without
limitation:
(a) Shareholder's rights, title and interest in and under the License
Agreement (Lipoprotein (a) Immunoassay) dated as of July 24, 1994 by and
between Arch Development Corporation and Organon Teknika Corporation;
(b) all claims, causes of action, claim in action, rights of recovery
and rights of set off of any kind, including without limitation, any liens
or any rights to payment or to enforce payment in connection with any
transaction on or prior to the Closing Date, to the extent arising from or
relating to the PerImmune Business; and
(c) rights under insurance policies and programs covering risks
pertaining to the PerImmune Business with respect to occurrences or claims
arising on or prior to the Closing Date.
"Working Capital Facility" has the meaning set forth in Section
6.11(b) of the Agreement.
6
<PAGE> 8
2. PURCHASE AND SALE
2.1. Purchase and Sale of Stock. Subject to and upon the terms and
conditions contained herein, Shareholder agrees to sell, assign, transfer and
convey at the Closing to Purchaser, and Purchaser agrees to purchase at the
Closing from Shareholder, all of the issued and outstanding shares of the
capital stock of the Company (the "Shares"). The total purchase price (the
"Purchase Price") that Purchaser shall pay to Shareholder for the Shares is
equal to the Closing Book Value.
2.2. Payment of Purchase Price. On the Closing Date, Purchaser will
deliver to Shareholder in payment of the Purchase Price a promissory note which
shall have a maturity of two years from the Closing Date, subject to prepayment
as set forth therein. Such promissory note shall accrue interest from the
Closing Date at a fixed rate per annum equal to eight percent (8%) (which
interest shall be added to the principal balance semi-annually and thereafter
shall accrue interest at the stated rate) and shall have such other terms as
set forth in Exhibit A (the "Purchase Price Note").
3. CLOSING
3.1. Closing. Subject to the terms and conditions of this Agreement, the
purchase and sale of the Shares (the "Closing") shall take place at 10:00 a.m.
on the date five (5) business days following the date on which the conditions to
the Closing set forth in Articles 7 and 8 of this Agreement have been fulfilled
or waived and either Purchaser, on the one hand, or Shareholder, on the other
hand, shall have notified the other party of such fulfillment or waiver, or on
such other date as may be agreed to by Purchaser and Shareholder (the "Closing
Date") at the offices of Latham & Watkins, 1001 Pennsylvania Avenue, N.W., 13th
Floor, Washington, D.C. or at such other place as may be agreed to by Purchaser
and Shareholder.
3.2. Deliveries by Shareholder at Closing.
At Closing, Shareholder shall deliver or cause to be delivered:
(a) to Purchaser, all certificates representing the Shares, duly
endorsed for transfer or accompanied by instruments of transfer reasonably
satisfactory in form and substance to Purchaser;
(b) to Purchaser, certified copies of resolutions of the board of
directors of Shareholder authorizing Shareholder to enter into and perform
its obligations under this Agreement;
(c) to Purchaser, evidence of the resignations described in Section
6.7;
(d) to Purchaser, all corporate minute books and stock records for
the Company;
7
<PAGE> 9
(e) to the Company, all documents, certificates or instruments as
are necessary to effect the transfer of the Transferred Assets to the
Company;
(f) to the Company, such documents as are necessary to transfer to
persons designated by Purchaser, authorization to draw from, and have
access to, the Bank Accounts in the name of PerImmune, and
(g) all such other documents and instruments as Purchaser or its
counsel shall reasonably request to consummate or evidence the
transactions contemplated hereby.
3.3 Deliveries by Purchaser at Closing
At Closing, Purchaser shall deliver to Shareholder:
(a) the Purchase Price Note;
(b) certified copies of resolutions of the board of directors of
Purchaser authorizing Purchaser to enter into and perform its obligations
under this Agreement; and
(c) all such other documents and instruments as Shareholder or its
counsel shall reasonably request to consummate or evidence the
transactions contemplated hereby.
3.4. Certificates. At Closing, Purchaser and Shareholder shall deliver the
certificates and other documents described in Section 7.3 and 8.3.
3.5 Consents. At Closing, Shareholder shall deliver all government
authorizations and other third party consents identified on Schedule 4.4.
3.6 Ancillary Agreements. At Closing, Shareholder and the Company shall
enter into the Ancillary Agreements.
3.7 Credit Facility; Working Capital Facility. At Closing, the Company
and Shareholder shall enter into the Credit Facility and the Working Capital
Facility as contemplated in Section 6.10 and Section 6.11, respectively.
3.8 Form of Document and Instruments. All of the documents and
instruments delivered at Closing shall be in form and substance, and shall be
executed and delivered in a manner, reasonably satisfactory to the parties'
respective counsel.
3.9 Tax Form. At Closing, Purchaser shall, and Shareholder shall cause
Parent to, execute a Form 8023-A -- "Corporate Qualified Stock Purchases."
8
<PAGE> 10
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Shareholder represents and warrants to Purchaser that:
4.1 Organization
(a) Shareholder is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite power and authority to own, lease and operate its properties, to
carry on its business as it is now being conducted and to enter into this
Agreement and the Closing Agreements to which it is a party and perform
its obligations thereunder.
(b) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, has all
requisite power and authority to own, lease and operate its properties,
to carry on its business as it is now being conducted and to enter into
this Agreement and Closing Agreements to which it is a party and perform
its obligations thereunder, and is duly qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary.
4.2. Capitalization of the Company.
(a) Schedule 4.2 sets forth the number of authorized, issued and
outstanding shares of capital stock of the Company. All of the issued and
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, were
not issued in violation of any law or of the preemptive rights of any
stockholder, and are owned beneficially and of record by Shareholder free
and clear of any Encumbrance, except or Permitted Encumbrances.
(b) There are no outstanding subscriptions, options, warrants,
rights, convertible securities, calls, commitments, or agreements to
purchase, issue or sell capital stock or other securities of the Company
other than as contemplated by this Agreement.
4.3 Authorization. Shareholder has all necessary corporate power and
authority to execute and deliver this Agreement and the Closing Agreements to
which it is a party and to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by Shareholder of this Agreement and the Closing
Agreements to which it is a party have been duly authorized by the board of
directors of Shareholder. This Agreement has been duly executed and delivered by
Shareholder and, on the Closing Date, the Closing Agreements to which it is a
party will have been duly executed and delivered by Shareholder, and do not
require any approval of the stockholders of Shareholder. This Agreement
constitutes, and on the Closing Date, each Closing Agreement to which
Shareholder is a party will constitute, the legal, valid and binding obligation
of Shareholder enforceable against Shareholder in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar
9
<PAGE> 11
laws affecting the rights and remedies of creditors generally and general
principles of equity, regardless of whether applied in equity or at law.
4.4. No Conflict; Approvals. Except as set forth on Schedule 4.4 hereto,
the execution, delivery and performance by Shareholder of this Agreement and
the Closing Agreements to which Shareholder is a party and the consummation of
the transactions contemplated hereby and thereby will not result in any
material violation of or conflict with, constitute a material default (with or
without notice of the lapse of time) under, or give rise to a right of
termination, cancellation, or acceleration of, or result in the imposition of
any Encumbrance under, or require any consent or authorization under, (i) the
Certificate of Incorporation or Bylaws of Shareholder or the Company or (ii)
any note, bond, debt instrument, mortgage, indenture or other material
contract, agreement, instrument or other document to which Shareholder or the
Company is a party or any Law or Order by which Shareholder or the Company may
be bound.
4.5 Litigation. Except as set forth on Schedule 4.5 hereto, there are no
Actions pending or, to the knowledge of Shareholder, threatened by or before
any Governmental Authority, and there are no Orders outstanding against
Shareholder, the Company or their respective Affiliates that (a) relate to the
ownership of the Shares by Shareholder, or (b) may reasonably be expected to
restrain, enjoin or otherwise prevent consummation of the transactions
contemplated by this Agreement or permit such consummation only subject to any
material condition or restriction applicable to Purchaser, or (c) may
reasonably be expected to materially and adversely affect the Company.
4.6 Material Properties; Title to Assets.
(a) Except as indicated on Schedule 4.6, upon consummation of the
transfer of the Transferred Assets pursuant to Section 6.6, the Company will
hold (i) good title to all Owned Assets and Transferred Assets of a type that
would be recorded on a balance sheet prepared in accordance with GAAP; and (ii)
valid leases under which it enjoys peaceful and undisturbed possession of real
or tangible personal property leased by it, in each case free and clear of all
Encumbrances except Permitted Encumbrances. There are no pending or, to the
Shareholder's knowledge, threatened condemnation proceedings relating to any
real property occupied by the Company.
(b) The Transferred Assets, the Owned Assets and the assets
transferred to Purchaser pursuant to the Intellectual Property Agreement
constitute all of the assets necessary to conduct the PerImmune Business
substantially as it has been conducted prior to Closing.
4.7 ERISA and Employee Plans.
(a) Schedule 4.7 contains a list of each Employee Plan and each
trust (including trusts intended to qualify under Section 501(a) of the Code
and trusts intended to qualify under Section 501(c)(9) of the Code) related
thereto.
10
<PAGE> 12
(b) The Company has no liability, present or future, actual or
contingent, by reason of any contribution or obligation to contribute of the
Company or any ERISA Affiliate to any multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA).
(c) Each Employee Benefit Plan has been established, maintained and
administered, in all material respects, in compliance with its terms and with
all applicable laws and regulations, including without limitation, ERISA and
the Code.
(d) the Company has provided, or will have provided, to individuals
entitled thereto, all required notices within the applicable time period and
coverage pursuant to Section 4908B of the Code with respect to any "qualifying
event" (as defined Section 4980B(f)(3) of the Code) occurring prior to and
including the Closing Date with respect to any employee or former employee of
the Company.
(e) With respect to each Employee Plan which is an "employee pension
benefit plan" as defined in Section 3(2) of ERISA (each an "ERISA Pension
Plan"): (i) neither any ERISA Pension Plan nor any fiduciary with respect
thereto has engaged in any prohibited transaction in violation of Sections 404
or 406 of ERISA or any "prohibited transaction," as defined in Section
4975(c)(1) of the Code, or has otherwise violated the provisions of Part 4 of
Title I, Subtitle B of ERISA; (ii) the Company has not knowingly participated in
a violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of
any Employee Plan and has not been assessed any civil penalty under Section
502(1) of ERISA; (iii) all filings, disclosure and reports as to each ERISA
Pension Plan required to be made to any governmental agency or ERISA Pension
Plan participant or beneficiary have been timely made; (iv) as of the last day
of the last plan year of each such ERISA Pension Plan and as of the Closing
Date, the fair market value of the assets of the ERISA Pension Plan is not less
than the present value of the accrued benefits (vested and unvested and
including ancillary benefits) of such ERISA Pension Plan; (v) no "accumulated
funding deficiency" (for which an excise tax is due or would be due in the
absence of a waiver) as defined in Section 412 of the Code or as defined in
Section 302(a)(2) of ERISA, whichever may apply, has been incurred with respect
to any ERISA Pension Plan with respect to any plan year, whether or not waived;
and (vi) neither the Company nor any ERISA Affiliate has any liability, present
or future, actual or contingent, under Title IV of ERISA (other than
contributions and PBGC premiums due in the ordinary course); and (vii) no filing
has been made by the Company or any ERISA Affiliate to, and no proceeding has
been commenced by the Pension Benefit Guaranty Corporation to, terminate any
ERISA Pension Plan.
(f) None of the Company, any ERISA Affiliate or any Employee Plan has any
present or future obligation to make any payment to, or with respect to any
present or former employee of the Company or any ERISA Affiliate pursuant to,
any retiree medical benefit plan, or other retiree Employee Plan, and no
condition exists which would prevent the Company from amending or terminating
any such benefit plan or Employee Plan.
(g) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company (with respect to its relationship
with such
11
<PAGE> 13
entity) that, individually or collectively, provides for the payment by the
Company of any amount (i) that is not deductible under Section 162(a)(1) or 404
of the Code or (ii) that is an "excess parachute payment" pursuant to Section
280G of the Code.
(h) No event has occurred in connection with which the Company or any
ERISA Affiliate or any Employee Plan, directly or indirectly, could be subject
to any material liability (A) under any statute, regulation or governmental
order relating to any Employee Plans or (B) pursuant to any obligation of the
Company to indemnify any person against liability incurred under any such
statute, regulation or order as they relate to the Employee Plans.
(i) Neither the execution and delivery of this Agreement by the Company
nor the consummation of the transactions contemplated hereby will result in the
acceleration or creation of any rights of any person to benefits under any
Employee Plan (including, without limitation, the acceleration of the vesting
or exercisability of any stock options, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of any benefits
under any ERISA Pension Plan or the acceleration or creation of any rights
under any severance, parachute or change in control agreement).
4.8 Taxes.
Except as set forth on Schedule 4.8:
(a) Filing of Returns. There have been properly completed and filed on a
timely basis and in correct form all Returns required to be filed on or prior to
the date hereof. As of the time of filing, the foregoing Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities, status, or other matters of or affecting the Company or any other
information required to be shown thereon.
(b) Payment of Taxes. With respect to all amounts in respect of Taxes
imposed on the Company or for which the Company is or could be liable, whether
to taxing authorities (as, for example, under law) or to other persons or
entities (as, for example, under tax allocation agreements), with respect to
all taxable periods or portions of periods ending on or before the Closing
Date, all applicable tax laws and agreements have been fully complied with, and
all such amounts required to be paid to taxing authorities or others on or
before the date hereof have been or will be timely paid by Shareholder or its
Affiliates.
(c) Tax History.
(i) Since its incorporation on December 20, 1994, the Company has
been a member of an affiliated group filing a consolidated federal U.S. tax
return. The common parent of this affiliated group is and has been Akzo
Nobel Inc. ("Parent"). The Company was first active and first joined in the
consolidated Return for all of tax year 1995. Because of the election
described in section
12
<PAGE> 14
9.5(e), the Company will join in the consolidated return of Parent
for a short tax year ending on the Closing Date. The Parent
Affiliated Group is currently under audit by the Internal Revenue
Service for tax years 1990 to 1993. Years prior to 1990 are closed
under the federal statute of limitations.
(ii) The Company will file an income tax Return in the State of
Maryland for tax year 1995 and will file a short period Return in the
State of Maryland for the short tax year ending on the Closing Date
as the result of the election described in Section 9.5(e). The
Maryland statute of limitations has not expired for tax year 1995.
Neither the Company nor Parent has been contacted by the State of
Maryland regarding an audit examination. The Company has not filed
(or been required to file) income tax Returns in any other state.
(d) Section 338(h)(10) Qualification. Parent is the common parent of
the affiliated group within the meaning of Section 1504(a) of the Code
that includes Shareholder and the Company (the "Parent Affiliated Group");
Parent will file a consolidated federal income tax Return that includes
Shareholder and the Company for the tax period that includes the Closing
Date; Parent will not be a target corporation within the meaning of
Section 338 of the Code for the Taxable Year that includes the Closing
Date; and Parent is eligible to make an election under Section 338(h)(10)
of the Code with respect to the Company.
4.9. Accounts. Schedule 4.9 sets forth an accurate and complete list of
each Bank Account, together with the names of all persons authorized to draw
from or to have access to Bank Accounts in the name of PerImmune.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Shareholder that:
5.1. Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
all requisite power and authority to own, lease and operate its properties, to
carry on its business as it is now being conducted and to enter into this
Agreement and the Closing Agreements to which it is a party and perform its
obligations thereunder.
5.2. Authorization. Purchaser has all necessary corporate power and
authority to execute and deliver this Agreement and the Closing Agreements to
which it is a party and to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by Purchaser of this Agreement and the Closing
Agreements to which it is a party have been duly authorized by the board of
directors of Purchaser. This Agreement has been duly executed and delivered by
Purchaser, and, on the Closing Date, the Closing Agreements to which it is a
party will have been duly executed by Purchaser and do not require any approval
of the stockholders of Purchaser. This Agreement constitutes, and on the
Closing Date each Closing Agreement to which Purchaser
13
<PAGE> 15
is a party will constitute, the legal, valid and binding obligation of Purchaser
enforceable against Purchaser in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights and remedies of creditors
generally and general principles of equity, regardless of whether applied in
equity or at law.
5.3. No Conflicts; Approvals. Except as forth on Schedule 5.3 hereto, the
execution, delivery and performance by Purchaser of this Agreement and the
Closing Agreements to which Purchaser is a party and the consummation of the
transactions contemplated hereby and thereby will not result in any material
violation of or conflict with, constitute a material default (with or without
notice or the lapse of time) under, or give rise to a right of termination,
cancellation, or acceleration of, or result in the imposition of any
Encumbrance under, or require any consent or authorization under, (i) the
Certificate of Incorporation or Bylaws of Purchaser, or (ii) any note, bond,
debt instrument, mortgage, indenture or other material contract, agreement,
instrument or other document to which the Purchaser is a party or any Law or
Order by which Purchaser may be bound.
5.4. Litigation. Except as set forth on Schedule 5.4 hereto, there are no
Actions pending or, to the knowledge of Purchaser, threatened by or before any
Governmental Authority, and there are no Orders outstanding against Purchaser
that may reasonably be expected to restrain, enjoin or otherwise prevent
consummation of the transactions contemplated by this Agreement or permit such
consummation only subject to any material condition or restriction applicable
to the Shareholder.
6. COVENANTS
Shareholder and Purchaser each covenants as follows:
6.1. Further Assurances. Each of the parties hereto agrees, both
before and after the Closing, (i) to use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement, (ii) to execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder, and
(iii) to cooperate with each other in connection with the foregoing, including
using their respective reasonable efforts (A) to obtain all necessary waivers,
consents and approvals from Governmental Authorities and from third parties,
including, without limitation, consents to the transfer to the Company of the
Transferred Assets, (B) to obtain all necessary permits as are required to be
obtained under any federal, state, local or foreign law or regulations, (C) to
effect all necessary registrations and filings, including, without limitation,
submissions of information requested by Governmental Authorities and (D) to
fulfill all conditions to this Agreement.
6.2. No Solicitation. From the date hereof through the Closing or the
earlier termination of this Agreement, Shareholder shall not, and shall use all
reasonable efforts to cause its Affiliates and representatives (including,
without limitation, investment bankers, attorneys and
14
<PAGE> 16
accountants) not to, directly or indirectly, enter into, solicit, initiate or
continue any discussions or negotiations with, or encourage or agree to any
inquiries or proposals by, or participate in any negotiations with, or provide
any information to, or otherwise cooperate in any other way with, any person,
other than Purchaser and its representatives, concerning any sale of all or any
substantial portion of the Company's assets or the PerImmune Business
(including the Transferred Assets), or of any shares of capital stock of the
Company, or any merger, consolidation, liquidation, dissolution or similar
transaction involving the Company.
6.3. Notification of Certain Matters. From the date hereof through the
Closing, Shareholder shall give prompt notice to Purchaser and Purchaser shall
give prompt notice to Shareholder of (a) the occurrence, or failure to occur,
of any event which occurrence or failure would be likely to cause any of
Shareholder's and Purchaser's respective representations or warranties
contained in this Agreement to be untrue or inaccurate in any material respect
and (b) any material failure of Shareholder and Purchaser to comply with or
satisfy any of its respective covenants, conditions or agreements to be
complied with or satisfied by it under this Agreement; provided, however, that
such disclosure shall not be deemed to cure any breach of a representation,
warranty, covenant or agreement, or to satisfy any condition.
6.4. Conduct of the Company Prior to the Closing. Prior to the Closing,
Shareholder shall cause the Company to conduct its business only in the
ordinary and regular course (that is, reasonably consistent with past custom
and practice), except as otherwise approved in writing by Purchaser. Without
limiting the generality of the preceding sentence, except as otherwise approved
in writing by Purchaser, Shareholder shall not permit the Company to:
(a) Amend the Company's charter documents;
(b) Issue or purchase any shares of its capital stock or grant any
options, warrants, subscriptions, commitments or other rights of any character
to acquire any of its capital stock;
(c) Declare or pay any dividend, or make any other distribution or
payment, with respect to its capital stock, other than the Settlement Dividend;
(d) Amend or terminate any of the Company's agreements, except in
the ordinary course of business or as provided for in the Letter Agreement;
(e) Make any capital expenditure or guarantee or incur any
indebtedness or other liabilities, except in the ordinary course of business;
(f) Enter into any agreement, except in the ordinary course of
business;
(g) Sell, lease, license, transfer, pledge or assign any of the
Owned Assets or the Transferred Assets, except in the ordinary course of
business; or
15
<PAGE> 17
(h) Alter the manner of keeping the Company's books, accounts or
records except for alterations mutually agreed to by Shareholder and
Purchaser made in connection with the settlement of intercompany accounts
as provided in Section 6.11(a).
6.5. Tax Matters.
(a) Termination of Existing Tax-Sharing Agreements. All tax-sharing
agreements or similar agreements with respect to or involving the Company
shall be terminated prior to the Closing Date, and, after the Closing
Date, the Company shall not be bound thereby or have liability thereunder
for amounts due in respect of period prior to the Closing Date.
(b) Tax Elections. No new elections with respect to Taxes or any
changes in current elections with respect to Taxes affecting the Company
shall be made after the date of this Agreement without prior written
consent of Purchaser.
(c) Clearance Certificate. As a condition precedent to the
consummation of the transactions contemplated by this Agreement,
Shareholder shall provide Purchaser with a clearance certificate or
similar document(s) that may be required by any state taxing authority
in order to relieve Purchaser of any obligation to withhold any portion of
the Purchase Price.
(d) FIRPTA Certificate. As a condition precedent to the consummation
of the transactions contemplated by this Agreement, Shareholder shall
furnish Purchaser an affidavit, stating, under penalty of perjury, that
the indicated number is the transferor's United States taxpayer
identification number and that the transferor is not a foreign person,
pursuant to Section 1445(b)(2) of the Code.
(e) Cooperation and Records Retention.
(i) Shareholder shall, at the expense of Shareholder, prepare
all Returns in respect of Taxes for the Company for taxable years or
periods ending on or before the Closing Date. Such Returns shall
include Returns for the short taxable period ending on or before the
Closing Date which may arise as the result of the election described
in Section 9.5(e). The Company and Purchaser shall cooperate with
Shareholder to supply any and all information reasonably requested to
complete such Returns. Information necessary to complete Returns for
the short period ending on or before the Closing Date will be supplied
by March 15, 1997. Such short period Return information shall be based
upon an actual closing of the Company's financial books and records as
of the Closing Date, rather than a pro ration of financial data for
the period which straddles the Closing Date. When requested by
Shareholder, the Company and/or Purchaser (as appropriate) shall sign
any such Returns, which will then be filed by Shareholder in a timely
manner. Shareholder shall provide Purchaser a reasonable opportunity
to review any such Return prior to signing such Return.
16
<PAGE> 18
(ii) The Company shall, at the expense of the Company, prepare
all Returns in respect of Taxes for the Company for taxable years or
periods ending after the Closing Date. Such Returns shall include
Returns for the short taxable period beginning after the Closing Date
which may arise as the result of the election described in Section
9.5(e). Shareholder shall cooperate with the Company to supply any and
all information reasonably requested by the Company to complete such
Returns.
(iii) Shareholder and Purchaser shall (i) each provide the other,
and Purchaser shall cause the Company to provide Shareholder, with
such assistance as may reasonably be requested by any of them in
connection with the preparation of any Return, audit, or other
examination by any taxing authority or judicial or administrative
proceedings relating to liability for Taxes, (ii) each retain and
provide the other, and Purchaser shall cause the Company to retain
and provide the other, and Purchaser shall cause the Company to retain
and provide Shareholder with, any records or other information that
may be relevant to such Return, audit or examination, proceeding, or
determination, and (iii) each provide the other with any final
determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any
Return of the other for any period. Without limiting the generality of
the foregoing, Purchaser shall retain, and shall cause the Company to
retain, and Shareholder shall retain, until the applicable statutes of
limitation (including any extensions) have expired, copies of all
Returns, supporting work schedules, and other records or information
relating to Taxes in respect of the Company or the PerImmune Business
that may be relevant to such returns for all tax periods or portions
thereof ending before or including the Closing Date and shall not
destroy or otherwise dispose of any such records without first
providing the other party with a reasonable opportunity to review and
copy the same.
6.6 Transfer of Assets. Immediately prior to the Closing, Shareholder
shall assign, transfer and convey to the Company all the Transferred Assets.
6.7 Resignation of Directors. Shareholder shall cause all members of the
Board of Directors of the Company to resign, effective immediately upon the
Closing.
6.8 Employee Benefit Matters.
(a) Continuation of Participation in Employee Plans and Transition
(i) Effective on and as of the Closing Date, Shareholder shall
permit Company to continue participation in, the Akzo Nobel Incentive
Savings Plan (the "ISP"); the Akzo Nobel Retirement Plan (the "ANRP");
and all other welfare plans (medical, dental, disability, etc.), in
which Company participated prior to the Closing Date (collective, the
"Continuation Plans") through November 30, 1996 (the "Continuation
Period"). During the Continuation Period, all employees of
17
<PAGE> 19
Company shall be permitted to participate in the Continuation Plans as
if Company remained a subsidiary of Shareholder. Participation of
Company in each Continuation Plan shall, however, end prior to
November 30, 1996 upon Company's providing notice to Shareholder of
Company's desire to cease its participation in any one or all of the
Continuation Plans.
(ii) Company shall reimburse Shareholder for any costs
advanced on Company's behalf with respect to its continuation in the
Continuation Plans; actual third party expenses; and out-of-pocket
costs incurred by Shareholder as the result of Company's continuation
in the Continuation Plans. Such reimbursement shall be made within 30
days of receipt by Company of Shareholder's detailed invoice.
(iii) Shareholder shall cooperate with Company in its
establishment of benefit plans for Company employees by providing
Company with such employee census, benefit calculations, service data,
claims experience and other similar data as Company shall reasonably
request.
(b) COBRA
Company shall be responsible and liable for continuation coverage to
Company employees and their qualified beneficiaries in compliance with the
provisions of Code Section 49808 and ERISA Section 601 et seq. (herein referred
to as "COBRA continuation coverage") with respect to whom a qualifying event
occurs after the Closing Date, and Company agrees to indemnify and hold
Shareholder harmless from any claims for COBRA continuation coverage made by or
on behalf of such employees and their qualified beneficiaries. Shareholder
shall retain all obligations and liabilities to provide COBRA continuation
coverage to employees and former employees of Shareholder and Company and their
qualified beneficiaries (i) who are receiving COBRA continuation coverage at
the Closing or (ii) with respect to whom a qualifying event occurred on or
prior to the Closing and for which the applicable election period for COBRA
continuation coverage has not expired as of the Closing Date, and Shareholder
agrees to indemnify and hold Company harmless from any claims for COBRA
continuation coverage made by or on behalf of such employees and their
qualified beneficiaries.
(c) Pension Plan
(i) As soon as practical after the Closing Date and prior
to November 30, 1996, Company shall determine if it will adopt a
defined benefit plan for its employees. If no such plan is adopted,
following the date of Company's cessation of participation in the ANRP
(the "Cessation Date"), Shareholder will freeze past accrued benefits
as of the Cessation Date for Company's employee members under the
terms of the ANRP.
(ii) If Company establishes a defined benefit plan (the
Company's "Pension Plan"), Shareholder shall transfer or cause to be
transferred from the ANRP to the trustee of the Pension Plan cash or
marketable securities in an
18
<PAGE> 20
amount equal to the present value of the benefits accrued, through the
Cessation Date under the ANRP, using the ANRP' regular actuarial
assumptions for ERISA funding purposes, except substituting 7% as the
interest rate to be used as part of such assumptions; subject to
meeting the requirements of Code Section 4.14(l). Such amount shall be
further adjusted by Shareholder's actuary, taking into account benefit
payments made subsequent to the Cessation Date; actual return on trust
assets from the Cessation Date to the date assets are actually
transferred. The transfer shall be made on the latest of (A) 120 days
after being notified of Company's decision to establish a defined
benefit plan; (B) 30 days after the filing of notification with the
Internal Revenue Service of such transfer; (C) the receipt by
Shareholder of an opinion by Company's legal counsel verifying that
the Pension Plan meets the requirements of Code Section 401(a), and
that the Pension Plan's related trust is exempt from taxes under Code
Section 501(a); or (D) the completion of Company's actuary review and
acceptance of the calculations performed by Shareholder's actuary in
determining asset transfer amount.
(d) Savings Plan Asset Transfer or Distribution
Shareholder shall transfer or cause to be transferred to the trustee of
any Company qualified defined contribution plan cash or marketable securities
in an amount equal to the account balances as of the date of such transfer of
Company employees in the ISP within the latest of 60 days following the Closing
Date; 30 days after the filing of notification with the IRS of such transfer;
or the receipt by Shareholder of an opinion by Company's legal counsel
verifying that such plan meets the requirements of Code Section 401(a) or
401(k), and that the Plan's related trust is exempt from taxes under Code
Section 501(a).
(e) Nothing contained in this Agreement shall confer upon any
Company employee any rights with respect to continuance of employment by
Company, nor shall anything herein restrict Company in the exercise of its
independent business judgment in modifying any of the terms and conditions
of the employment of the Company employees. No provision of this Agreement
shall create any third party beneficiary rights in any Company employee,
any beneficiary or dependents thereof, or any collective bargaining
representative thereof, with respect to the compensation, terms and
conditions of employment of benefits that may be provided to any Company
employee by Company or under any benefit plan which Company may maintain.
(f) Purchaser recognizes and acknowledges that Company has assumed
and is responsible for payment of all benefits accrued or claimed by its
employees under any of the Employee Plans, including benefits attributable
to any prior employment with Shareholder, (and specifically including any
severance and accrued vacation) and that, except for the transfer of funds
from the ANRP and ISP as provided in (c) and (d) above, Shareholder shall
have no responsibility or liability with respect to any such benefits or
payments to any Company employee.
19
<PAGE> 21
6.9 Government Contracts; Novation. Schedule 6.9 sets forth all
Government Contracts used in the PerImmune Business. As promptly as
practicable, the Company will enter into a novation agreement or agreements
with the United States Government with respect to the Government Contracts, to
the extent so required. Shareholder and Purchaser will cooperate fully with the
Company in obtaining the novation of all such Government Contracts, to the
extent required.
6.10 Purchase Price Note. At or prior to the Closing, Shareholder will
enter into a credit facility (the "Credit Facility") pursuant to which
Shareholder agrees to loan to the Company up to $3,600,000 (at a rate of
$720,000 per month for five months). The initial advance shall be made on the
later of August 1, 1996 or the Closing Date, and each advance thereafter shall
be made on the first day of the month. Borrowings under the Credit Facility
shall accrue interest from the date of advance at a fixed rate per annum equal
to eight percent (8%). The outstanding principal balance under the Credit
Facility (including all accrued and unpaid interest) shall be due and payable
on December 31, 1996, provided that (i) in the event that, prior to such date,
the Company has procured a commitment for financing to be used, in part, to
repay the amounts due under the Credit Facility, then the final maturity date
shall be extended for a period of time necessary to consummate such financing,
such period not to extend beyond January 31, 1997, and (ii) in the sole
discretion of Shareholder, the final maturity may be extended for up to three
additional months during which time Shareholder will loan to the Company up to
an additional $1,800,000 pursuant to advances not to exceed $600,000 per month,
which advances will be evidenced by a promissory note. The outstanding
principal balance outstanding under the Credit Facility (including all accrued
and unpaid interest) is subject to prepayment under the terms set forth in the
Credit Facility and shall be secured by a pledge of certain assets of the
Company.
6.11 Current Accounts of PerImmune.
(a) Settlement of Intercompany Accounts. Prior to the Closing Date,
Shareholder shall cause the Company to declare and pay to Shareholder a
dividend (the "Settlement Dividend") in the amount of $2,871,532
representing the sum of (i) the balance of cash reflected on the Closing
Balance Sheet, and (ii) the balance of the intercompany account receivable
account on the Closing Balance Sheet less (iii) the Company's intercompany
accounts payable to OTC and its Affiliate. Upon payment of the Settlement
Dividend, the balance of the Company's intercompany account(s) receivable
from, and intercompany accounts payable to, Shareholder and its Affiliate
shall be deemed paid in full and reduced to zero.
(b) Working Capital Facility. On the Closing Date, Shareholder and
the Company shall enter into a working capital facility (the "Working
Capital Facility") pursuant to which Shareholder agrees to loan to the
Company up to $2,871,532. Borrowings under the Working Capital Facility
shall be at the request of the Company and subject to the approval of
Shareholder. The parties agree that the purpose of the Working Capital
Facility is to provide for the Company's working capital needs during the
period of time covered by the Working Capital Facility, and that the
approval of Shareholder shall not unreasonably be withheld. Borrowings
under the Working Capital Facility shall accrue
20
<PAGE> 22
interest from the date of advance at a fixed rate per annum equal to eight
percent (8%). The outstanding principal balance under the Working Capital
Facility (including all accrued and unpaid interest) shall be due and
payable on the date twelve (12) months following the Closing Date and
shall be secured by a pledge of certain assets of Purchaser. On the
Closing Date, Shareholder shall transfer to the Company $2,000,000 in
immediately available funds as an advance on the Closing Date under the
Working Capital Facility.
(c) July Current Accounts. On the Closing Date, Shareholder shall
transfer to the Company, in immediately available funds, an amount equal
to all cash received by Shareholder and its Affiliates from or on behalf
of the Company or in respect of the PerImmune Business from and after the
Effective Date but on or prior to the Closing Date (net of amounts paid
by Shareholder and its Affiliates during such period to or on behalf of the
Company or in respect of the PerImmune Business in the ordinary course of
business consistent with past practices). In the event that the amount
calculated pursuant to this paragraph shall be less than zero, then the
Company shall be deemed to have made a request for, and Shareholder shall
be deemed to have approved, effective the Closing Date, borrowing under
the Working Capital Facility in the amount necessary to reduce such
negative balance to zero, but not to exceed the total amount of permitted
borrowing thereunder. Any borrowings under the Working Capital Facility
pursuant to this Section 6.11(c) shall be in addition to amounts advanced
on the Closing Date pursuant to the last sentence of Section 6.11(b).
(d) Further Assurances. From and after the Closing Date, Shareholder
shall, and shall cause its Affiliates to, promptly transfer to the Company
all amounts received by Shareholder and such Affiliates in respect of, or
relating to the PerImmune Business (including all payments made by
PerImmune's customers). Shareholder shall, and shall cause its
Affiliates to promptly transfer to (and not pay) any request for payment
from third parties in respect of, or related to the PerImmune Business.
6.12. Property and Casualty Insurance. Shareholder shall cause the
liabilities and obligations of the Company of a type currently covered by the
master casualty insurance program of Shareholder or its Affiliate which are
incurred prior to Closing to be administered by Shareholder, or such Affiliate,
consistent with past practice.
7. CONDITIONS TO SHAREHOLDER'S OBLIGATIONS
The obligations of Shareholder to effect the Closing are subject to
the satisfaction, on or prior to the Closing, of each of the following
conditions, any of which may be waived by Shareholder.
7.1 Representations, Warranties and Covenants. All representations and
warranties of Purchaser contained in this Agreement shall be true and correct
in all material respects at and as
21
<PAGE> 23
of the date of this Agreement and at and as of the Closing, except as and to
the extent that the facts and conditions upon which such representations and
warranties are based are expressly required or permitted to be changed by the
terms hereto; and Purchaser shall have performed and satisfied all material
agreements and covenants required hereby to be performed by it prior to the
Closing.
7.2. No Proceeding or Litigation. No Action by any Governmental Authority
or other Person shall have been instituted which would reasonably be expected
to materially damage Shareholder if the transactions contemplated hereunder are
consummated.
7.3. Certificates. Purchaser shall furnish Shareholder with such
certification of its duly authorized officers and others to evidence compliance
with the conditions set forth in this Article 7 as may be reasonably requested
by Shareholder.
7.4. Corporate Documents. Shareholder shall have received from Purchaser
resolutions adopted by the board of directors of Purchaser, approving this
Agreement, the Purchase Price Note, the Closing Agreements to which it is a
party and the transactions contemplated hereby and thereby, certified by
Purchaser's corporate secretary, as applicable.
7.5. Consents. All governmental consents necessary to effect the Closing,
and all third party consents to the transactions contemplated hereby (including
with respect to the conveyance of the Transferred Assets) shall have been
obtained (it being understood that pursuant to Section 6.9 hereof the necessary
consent or approval for the novation of certain of the Government Contracts
need not be obtained prior to the Closing).
7.6. Other Agreements. Purchaser shall have executed and delivered the
Closing Agreements in the forms attached as exhibits hereto.
8. CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to consummate the transactions provided
for hereby are subject to the satisfaction, on or prior to the Closing, of each
of the following conditions, any of which may be waived by Purchaser:
8.1. Representations, Warranties and Covenants. All representations and
warranties of Shareholder contained in this Agreement shall be true and
correct in all material respects at and as of the date of this Agreement and at
and as of the Closing except as and to the extent that the facts and conditions
upon which such representations and warranties are based are expressly required
or permitted to be changed by the terms hereof; and Shareholder shall have
performed and satisfied all material agreements and covenants required hereby
to be performed by it prior to the Closing.
8.2. No Proceedings or Litigation. No Action by any Governmental Authority
or other Person shall have been instituted which would reasonably be expected
to materially damage Purchaser if the transactions contemplated hereby are
consummated.
22
<PAGE> 24
8.3. Certificates. Shareholder shall furnish Purchaser with such
certificates of its duly authorized officers and others to evidence compliance
with the conditions set forth in this Article 8 as may be reasonably requested
by Purchaser.
8.4. Corporate Documents. Purchaser shall have received from Shareholder
resolutions adopted by the board of directors of Shareholder, approving this
Agreement, the Closing Agreements to which it is a party, and the transactions
contemplated hereby and thereby, certified by Shareholder's corporate
secretary, as applicable.
8.5. Consents. All governmental consents necessary to effect the Closing,
and all third party consents to the transactions contemplated hereby (including
with respect to the conveyance of the Transferred Assets) shall have been
obtained (it being understood that pursuant to Section 6.9 hereof the necessary
consent or approval for the novation of certain of the Government Contracts
need not be obtained prior to the Closing).
8.6. Other Agreements. Shareholder shall have executed and delivered the
Closing Agreements in the forms attached as exhibits hereto.
9. ACTIONS BY SHAREHOLDER AND PURCHASER AFTER THE CLOSING
9.1. Further Actions. On and after the Closing Date, Purchaser and
Shareholder will take all appropriate actions and execute all documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to confirm or effect Purchaser's ownership, possession and control
(in accordance with this Agreement) of the shares and the Company's ownership,
possession and control (in accordance with this Agreement) of the Transferred
Assets, including but not limited to the novation of Government Contracts used
in the PerImmune Business, if required, and transfer of monies received by
Shareholder and its Affiliates after the Closing Date from PerImmune customers
and intended for PerImmune.
9.1. Survival of Representations and Warranties. The representations and
warranties of Shareholder, on the one hand, and Purchaser, on the other hand,
contained herein, and all claims and causes of action with respect thereto,
shall survive the Closing Date, to the extent herein set forth: (a) with
respect to the representations and warranties in Sections 4.2 and 4.6(a) hereof
for an indefinite period, (b) with respect to the representations and
warranties in Section 4.7 and 4.8 hereof until 60 days after the expiration of
the applicable statute of limitations (with extensions); (c) with respect to
all other representations and warranties until the date two years from the
Closing Date. The termination of the representations and warranties provided
herein shall not affect the rights of a party in respect of any Claim made by
such party in a writing received by the other party prior to the expiration of
the applicable survival period provided herein.
9.3. Books and Records.
(a) Purchaser agrees that it will cooperate with and make available
to Shareholder, during normal business hours, all PerImmune Books and
Records, and PerImmune employees (without substantial disruption of
employment) which are
23
<PAGE> 25
necessary or useful in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other
matter requiring any such PerImmune Books and Records (including such
employees) for any reasonable business purpose; it being understood that
all PerImmune Books and Records shall be maintained by Purchaser for
three (3) years following the Closing. Except as otherwise required in
Section 9.4, Shareholder shall bear all of the out-of-pocket costs and
expenses (including, without limitation, attorney's fees, but excluding
reimbursement for salaries and employee benefits) reasonably incurred in
connection with providing such PerImmune Books and Records.
Notwithstanding the foregoing, Purchaser shall retain all PerImmune Books
and Records relevant to any Return until sixty (60) days following the
expiration of the relevant statute of limitations.
(b) Shareholder agrees that it will cooperate with and make
available to Purchaser, during normal business hours, all Shareholder's
Books and Records, and employees of Shareholders or the Affiliates
(without substantial disruption of employment) which are necessary or
useful in connection with any tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any
such Shareholder's Books and Records, (including such) employees for any
reasonable business purpose; it being understood that all Shareholder's
Books and Records shall be maintained by Shareholder for three (3) years
following the Closing. Except as otherwise required in Section 9.4,
Purchaser shall bear all of the out-of-pocket costs and expenses
(including, without limitation, attorney's fees, but excluding
reimbursement for salaries and employee benefits) reasonably incurred in
connection with providing such Shareholder's Books and Records.
Notwithstanding the foregoing, Shareholder shall retain all Shareholder's
Books and Records relevant to any Return until sixty (60) days following
the expiration of the relevant statute of limitations.
9.4. Indemnification
(a) By Shareholder. Shareholder shall indemnify, save and hold
harmless Purchaser, the Company, their respective Affiliates and
subsidiaries, and their respective directors, officers, shareholders and
employees (the "Purchaser Indemnitees") from and against any and all costs,
losses, Taxes, liabilities, damages, lawsuits, deficiencies, claims,
demands, and expenses (whether or not arising out of third-party claims),
including, without limitation, reasonable attorneys' fees and all
reasonable amounts paid in investigation, defense or settlement of any of
the foregoing herein (collectively, "Damages") incurred in connection
with, arising out of or resulting from (i) any breach of any
representation, warranty, covenant or agreement made by Shareholder in
this Agreement; (ii) any Excluded Liability and any liability or
obligation of Shareholder or its Affiliate that does not relate to
operations of the Company or the PerImmune Business; and (iii) any
liability arising from Shareholder's responsibility for Taxes pursuant to
Section 9.5, provided, however, that Shareholder shall not be liable to
the Purchaser Indemnitees in respect of a breach of a representation or
warranty made by Shareholder in this Agreement which was true as of the
date of this Agreement but which is rendered inaccurate by events beyond
the control of Shareholder occurring between the date of this
24
<PAGE> 26
Agreement and the Closing, to the extent that Shareholder has notified
Purchaser of such breach in writing prior to the Closing and Purchaser has
effected the Closing with knowledge of such breach.
(b) By Purchaser. Purchaser shall indemnify, save and hold harmless
Shareholder, Affiliates and subsidiaries, and their respective directors,
officers, shareholders and employees (the "Shareholder Indemnitees") and,
together with the Purchaser Indemnitees, the "Indemnitees") from and
against any and all Damages incurred in connection with, arising out of or
resulting from (i) any breach of any representation, warranty, covenant or
agreement made by Purchaser in this Agreement; and (ii) any PerImmune
Liabilities and (iii) any liability arising from Purchaser's
responsibility for Taxes pursuant to Section 9.5.
(c) Damages. The term "Damages" as used in this Section 9.4 is not
limited to matters asserted by third parties, but includes Damages
incurred or sustained by an Indemnitee in the absence of third party
claims. Payments by an Indemnitee or amounts for which such Indemnitee is
indemnified hereunder shall not necessarily be a condition precedent to
recovery.
(d) Defense of Claims. If a claim for Damages (a "Claim") is to be
made by an Indemnitee, such Indemnitee shall, subject to Section 9.2, give
written notice (a "Claim Notice) to the indemnifying party as soon as
practicable after such Indemnitee becomes aware of any fact, condition or
event which may give rise to Damages or which indemnification may be
sought under this Section 9.4. If any lawsuit or enforcement action is
filed against any Indemnitee hereunder, notice thereof (a "Third Party
Notice") shall be given to the indemnifying party as promptly as
practicable (and in any event within fifteen (15) calendar days after the
service of the citation or summons). The failure of any indemnified party
to give timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the indemnifying party demonstrates
actual damage caused by such failure. After receipt of a Third Party
Notice, if the indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be obligated under the
terms of its indemnity hereunder in connection with such lawsuit or
action, then the indemnifying party shall be entitled, if it so elects,
(i) to take control of the defense and investigation of such lawsuit or
action, (ii) to employ and engage attorneys of its own choice to handle
and defend the same, at the indemnifying party's cost, risk and expense
unless the named parties to such action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party has
been advised in writing by counsel that there may be one or more legal
defenses available to such indemnified party that are different from or
additional to those available to the indemnifying party, and (iii) to
compromise or settle such claim, which compromise or settlement shall be
made only with the written consent of the indemnified party, such consent
not to be unreasonably withheld. The indemnified party shall cooperate in
all reasonable respects with the indemnifying party and such attorneys in
the investigation, trial and defense of such lawsuit or action and any
appeal arising therefrom; and the indemnified party may, at its own cost,
participate in the investigation, trial and defense of
25
<PAGE> 27
such lawsuit or action and any appeal arising therefrom and appoint its
own counsel therefor, at its own cost. The parties shall also cooperate
with each other in any notifications to insurers. If the indemnifying
party fails to assume the defense of such claim within fifteen (15)
calendar days after receipt of the Third Party Notice, the indemnified
party against which such claim has been asserted will (upon delivering
notice to such effect to the indemnifying party) have the right to
undertake the defense, compromise or settlement of such claim and the
indemnifying party shall have the right to participate therein at its own
cost; provided, however, that such claim shall not be compromised or
settled without the written consent of the indemnifying party, which
consent shall not be unreasonably withheld. In the event the indemnified
party assumes the defense of the claim the indemnified party will keep the
indemnifying party reasonably informed of the progress of any such
defense, compromise or settlement.
(e) Limitation on Indemnities. (i) No claim may be made against an
indemnifying party for indemnification pursuant to either Section 9.4(a)(i)
or Section 9.4(b)(i) with respect to any individual item of Damage, or any
series of related items of Damage not exceeding $15,000, until the
aggregate dollar amount of all Damages indemnifiable pursuant to this
Section 9.4 exceeds $50,000. The indemnification of obligations of
Shareholders pursuant to Section 9.4(a)(i) and the indemnification of
obligations of Purchaser pursuant to Section 9 .4(b)(i), shall each be
effective only until the dollar amount paid in respect of the Damages
indemnified against under such clause of this Agreement aggregates to an
amount equal to $8,500,000; and (ii) Purchaser shall not be entitled to
indemnification based upon the breach of any representation or warranty of
Shareholder if, as of the Closing, Purchaser had actual knowledge of facts
that cause such representation or warranty to be untrue. For purposes of
the foregoing, the parties intend only that the actual knowledge of Michael
G. Hanna, Jr., and of senior management and laboratory directors of
PerImmune on the Closing Date shall be imputed to Purchaser. Such persons
shall not be personally liable to Shareholder under the provisions of the
preceding sentence. Shareholder shall not be entitled to indemnification
based upon the breach of any representation or warranty of Purchaser if, as
of Closing, Shareholder or any of its senior management personnel had
actual knowledge of facts that cause such representation and warranty to be
untrue.
(f) Brokers and Finders. Pursuant to the provisions of this Section
9.4, each of Purchaser and Shareholder shall indemnify, hold harmless and
defend the other party from the payment of any and all broker's and
finder's expenses, commissions, fees or other forms of compensation which
may be due or payable from or by the indemnifying party, or may have been
earned by any third party acting on behalf of the indemnifying party in
connection with the negotiation and execution hereof and the consummation
of the transactions contemplated hereby.
26
<PAGE> 28
9.5. Responsibility for Taxes.
(a) Division of Responsibility. Shareholder shall be responsible for
(and shall indemnify and hold harmless Purchaser, the Company, and each
of their respective Affiliates, successors and assigns from and against)
all Taxes (i) with respect to all tax periods of the Company ending on or
prior to the Closing Date, (ii) with respect to any tax period of the
Company beginning before the Closing Date and ending after the Closing
Date, but only with respect to the portion of such period up to and
including the Closing Date (such portion, a "Pre-Closing Partial
Period"), or (iii) payable as a result of a material breach of any
representation or warranty set forth in Section 4.8 of this Agreement,
except in each case to the extent that the liability for such Taxes is
reflected on the Closing Balance Sheet. Purchaser and the Company shall be
responsible for (and shall jointly and severally indemnify and hold
harmless Shareholder, and its Affiliates, successors and assigns from and
against) all Taxes (i) with respect to all tax periods of the Company
beginning after the Closing Date, and (ii) with respect to any tax period
of the Company beginning before the Closing Date and ending after the
Closing Date, but only with respect to the portion of such period
commencing after the Closing Date (such portion, a "Post-Closing Partial
Period").
(b) Effect of Carryovers and Carrybacks. For purposes of this
Section 9.5, Tax or Taxes shall include the amount of Taxes which would
have been paid but for the application of any credit or net operating or
capital loss deduction attributable to periods beginning after the Closing
Date or to any Post-Closing Partial Period, but shall not include amounts
which would have been paid but for the application of any credit or net
operating or capital loss deductions attributable to periods ending on
or prior to the Closing Date or to any Pre-Closing Partial Period.
(c) Allocation Between Partial Periods. With respect to any tax
period of the Company beginning before the Closing Date and ending after
the Closing Date, any Taxes for such period shall be apportioned between
the Pre-Closing Partial Period and the Post-Closing Partial Period based,
in the case of real and personal property Taxes, on a per diem basis and,
in the case of other Taxes, on the actual activities, taxable income or
taxable loss of the Company and its subsidiaries, if any, during such
Pre-Closing Partial Period and such Post-Closing Partial Period.
(d) Post-Closing Audits and Other Proceedings. Shareholder, on the
one hand, and Purchaser, on the other hand, agree to give prompt notice to
each other of any proposed adjustment to Taxes for periods ending on or
prior to the Closing Date or any Pre-Closing Partial Period. Shareholder
and Purchaser shall cooperate with each other in the conduct of any audit
or other proceedings involving Company for such periods and each may
participate at its own expense, provided each party hereto shall have the
right to control the conduct of any such audit or proceeding for which
such party (i) agrees that any resulting Tax is covered by the indemnity
provided in Section 9.5(a) of this Agreement, and (ii) demonstrates its
ability to make such indemnity payment. Notwithstanding the foregoing,
Shareholder may not settle or otherwise resolve any such
27
<PAGE> 29
claim, suit or proceeding without the consent of Purchaser, such consent
not to be unreasonably withheld and Purchaser may not settle or otherwise
resolve any such claim, suit or proceeding without the consent of
Shareholder, such consent not to be unnecessarily withheld.
(e) Section 338(h)(10) Election. Shareholder shall cause Parent to
join with Purchaser in making and Purchaser agrees to join Parent in
making an election under Section 338(h)(10) of the Code and any
corresponding elections permitted under state, local or foreign law with
respect to the acquisition of the Company and, if no election may be made
pursuant to such state, local or foreign law under an election
corresponding to Code Section 338(h)(10), elections corresponding to
Section 338(a) and 338(g) of the Code, provided as to such jurisdiction
Shareholder is not also subject to tax on the gain realized upon the sale
of the capital stock of the Company. Purchaser and Parent shall exchange
completed and executed copies of Internal Revenue Service Form 8023-A,
required Schedules thereto, and any similar state, local and foreign
forms at or prior to the Closing. Shareholder and Purchaser agree that as
soon as practicable after Closing, they shall allocate the Purchase Price
and all other capitalized costs among the Company's assets for income tax
purposes in accordance with an allocation schedule (the "Purchase Price
Allocation Schedule") proposed by Purchaser and reasonably acceptable to
Shareholder, which shall be delivered by Purchaser to Shareholder. In
connection therewith, Shareholder and Purchaser shall discuss the
allocation of the Purchase Price and other capitalized costs among the
Company's assets and attempt in good faith to reach agreement with respect
thereto. Shareholder and Purchaser acknowledge that for United States
federal income tax purposes (and for purposes of state, local or foreign
taxes in jurisdictions which permit elections analogous to the election
permitted under Section 338(h)(10) of the Code) the acquisition of the
stock will be treated by the parties as if it is a sale of the assets of
the Company to a new corporation owned by Purchaser, followed by a
complete liquidation of the Company to a new corporation owned by
Purchaser, followed by a complete liquidation of the Company. The parties
agree to report the transaction in a manner consistent with this treatment.
9.6 Confidentiality.
(a) Shareholder and its Affiliates have obtained confidential
information relating to the business, operations and assets (including
the Transferred Assets) of the Company. Following the Closing, Shareholder
and its Affiliates shall treat such information as confidential and shall
preserve the confidentiality thereof, not duplicate or use such
information and instruct their employees who have had access to such
information to keep confidential and not to use any such information
unless such information (i) is now or is hereafter disclosed, through no
act or omission of Shareholder or its Affiliates, in a manner making it
available to the general public or (ii) is required by law to be disclosed.
(b) Purchaser, the Company and their respective Affiliates have
obtained confidential information relating to the business operations and
assets of Shareholder. Following the Closing, Purchaser, the Company and
their respective Affiliates shall treat
28
<PAGE> 30
such information as confidential and shall preserve and confidentiality
thereof, not duplicate or use such information and instruct their
employees who have had access to such information to keep confidential and
not to use any such information unless such information (i) is now or is
hereafter disclosed through no act or omission of Purchaser, the Company
or their Affiliates, in a manner making it available to the general public
or (ii) is required by law to be disclosed.
10. MISCELLANEOUS
10.1. Termination.
(a) This Agreement may be terminated at any time prior to Closing;
(i) By mutual written consent of Shareholder and Purchaser;
(ii) By Purchaser, or Shareholder if the Closing shall not have
occurred on or before August 31, 1996; provided however, that this
provision shall not be available to Purchaser, if Shareholder has the
right to terminate this Agreement under clause (iv) of this Section
10.1(a); and this provision shall not be available to Shareholder if
Purchaser has the right to terminate this Agreement under clause
(iii) of this Section 10.1;
(iii) By Purchaser if there is a material breach of any
representation or warranty set forth in Article 4 hereof or any
covenant or agreement to be complied with or performed by Shareholder
pursuant to the terms of this Agreement, provided that Purchaser may
not terminate this Agreement prior to the Closing if Shareholder has
not had an adequate opportunity to cure such failure;
(iv) By Shareholder if there is a material breach of any
representation or warranty set forth in Article 5 hereof or of any
covenant or agreement to be complied with or performed by Purchaser
pursuant to the terms of this Agreement; provided that Shareholder
may not terminate this Agreement prior to the Closing if Purchaser
has not had an adequate opportunity to cure such failure.
(b) In the Event of Termination. In the event of termination of this
Agreement;
(i) Each party will redeliver all documents, work papers and
other material of any other party relating to the transactions
contemplated hereby, whether so obtained before or after the
execution hereof to the party furnishing the same;
(ii) The provisions of Section 9.6 shall continue in full force
and effect; and
29
<PAGE> 31
(iii) No party hereto shall have any liability or further
obligation to any other party relating to the transactions contemplated hereby,
provided that no such termination shall relieve any party from liability for a
willful breach of this Agreement.
10.2. Assignment. Neither this Agreement, the Closing Agreements nor any
of the rights or obligations hereunder or thereunder may be assigned by any
party without the prior written consent of the other parties thereto, which
consent will not unreasonably be withheld; except that either party may assign
all such rights and obligations to an Affiliate or to a successor in interest
which shall assume all obligations and liabilities of such party under this
Agreement (provided that no assignment shall release the assigning party from
responsibility for its obligations hereunder) and Purchaser may, without such
consent, assign all such rights to any lender as collateral security. Subject to
the foregoing, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns, and no
other Person shall have any right benefit or obligation under this Agreement as
a third party beneficiary or otherwise.
10.3. Notices. All notices under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered,
when transmitted if transmitted by telecopy, electronic or digital transmission
method provided that such transmission is confirmed by telephone; the day after
it is sent, if sent for next day delivery to a domestic address by overnight
mail; and upon receipt, if sent by certified or registered mail return receipt
requested. In each case notice shall be sent to:
If to Shareholder, addressed to:
Organon Teknika Corporation
100 Akzo Avenue
Durham N.C. 27712
Attention: President
With a copy to:
Organon Teknika N.V.
Veedijk 58
2300 Turnhout
Belgium
Attention: General Counsel
30
<PAGE> 32
If to Purchaser or the Company, addressed to:
Perlmmune, Inc.
1330 Piccard Drive
Rockville, ND 20850-4396
Attention: Michael G. Hanna, Ph.D.
With a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W., Suite 1300
Washington, D.C. 20004
Attention: Bruce E. Rosenblum
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
10.4. Choice of Law. This Agreement shall be construed, interpreted and
the right of the parties determined in accordance with the internal law, and
not the law of conflicts, of the State of Maryland.
10.5. Entire Agreement; Amendments and Waivers. This Agreement, the
Closing Agreements, together with all exhibits and schedules hereto and
thereto, and the Purchase Price Note constitute the entire agreement among the
parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. This Agreement may not be amended or supplemented
except by an instrument in writing signed on behalf of each of the parties
hereto. No modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
10.6. Multiple Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.7. Expenses. Except as otherwise specified in this Agreement, each
party hereto shall pay its own legal accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
10.8. Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such
31
<PAGE> 33
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement or any other such instrument.
10.9. Titles. The titles, captions or headings of the Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
10.10. Publicity. Any party issuing a press release regarding the
transactions contemplated hereby must have the prior written consent of the
other party.
10.11. Arbitration.
(a) Notwithstanding anything herein to the contrary, in the
event that there shall be a dispute among the parties after the Closing arising
out of or relating to this Agreement, including, without limitation, the
indemnities provided in Article 9 the parties agree to attempt to settle any
such disputes in a amicable manner. Should the parties fail to resolve such a
dispute within three (3) months following written notice thereof, such dispute
shall, upon request of the contesting party, be submitted to an arbitrator
jointly agreed to by the parties. If a single arbitrator cannot be agreed upon
within thirty (30) days, each party shall elect one arbitrator and the two
arbitrators will select a third arbitrator.
(b) Arbitration shall be conducted in accordance with rules
and procedures of the Center for Public Resources ("CPR"), subject to the
following terms:
(i) the arbitration shall be held at a mutually
agreeable location in the vicinity of Washington, D.C.
(ii) the arbitrator(s) shall be independent, impartial
third parties, having no direct or indirect personal or financial relationship
to any of the parties of the dispute, each of whom has agreed to accept an
appointment as arbitrator(s) on the terms set forth in this Section.
(iii) within thirty (30) days after the selection of the
arbitrator(s), each party shall submit a description of the matter to be
arbitrated to said arbitrator(s).
(iv) from the date the arbitrator(s) is/are in
possession of both parties' submitted material, the arbitrator(s) shall have
sixty (60) days in which to hear the parties and fifteen (15) days thereafter
to render a decision.
(v) time periods set forth in this Section 10.11 may be
altered only mutual consent of the parties.
(vi) the arbitrator(s) shall announce the award in
writing accompanied by written findings of facts in support of the award and
any relevant conclusions of law. Any award issued as a result of such
arbitration shall be final and binding
32
<PAGE> 34
between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought.
(vii) the fees of the arbitrator(s) and any other costs and fees
associated with the arbitration shall be paid in accordance with the
decision of the arbitrator(s), except that the prevailing party shall
pay no more than one-half of such costs.
10.12. Assets Held for Shareholder and Affiliates. Purchaser hereby
acknowledges and agrees that all biological materials, products, technology,
files, records and documentation, including but not limited to data for
regulatory purposes, relating to (i) the TICE(R)BCG product line (including but
not limited to the master seed lot) (ii) any and all food diagnostics and HIV
diagnostics in the possession of the Company at the Closing Date and (iii) any
and all cell lines/antibodies set forth on Schedule 1.1(a) are the property of
Shareholders and/or its Affiliates and will not be deemed included in the Owned
Assets or the Transferred Assets.
10.13. Non-Competition. Taking into consideration that prior to the
Closing, the Company has been engaged in the manufacture and development of
food diagnostics and HIV diagnostics on behalf and for the account of
Shareholder and its Affiliates, and will under the Services Agreement continue
to provide services to the Shareholder and its Affiliates relating thereto,
Purchaser hereby covenants and agrees that Purchaser either directly or through
an Affiliate including the Company, will for the longer of (i) a period of five
(5) years from the Closing Date or (ii) as long as the Company continues to
provide services to the Shareholder or its Affiliates in the field of food
diagnostics or HIV diagnostics, not compete with Shareholder or its Affiliates
in the field of food diagnostics and/or HIV diagnostics, as appropriate.
33
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first written above.
PERIMMUNE HOLDINGS, INC.
By:/s/ MICHAEL G. HANNA JR.
---------------------------
Name: Michael G. Hanna Jr.
Title: President
ORGANON TEKNIKA CORPORATION
By:
-----------------------------
Name:
Title:
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first written above.
PERIMMUNE HOLDINGS, INC.
By:
---------------------------
Name:
Title:
ORGANON TEKNIKA CORPORATION
By: /s/ ROBERT S. TIMMONS
-----------------------------
Name: R.S. Timmons
Title: President
<PAGE> 1
EXHIBIT 10.20
LICENSE AGREEMENT
THIS AGREEMENT, effective as of June 1, 1994, ("Effective Date"), by and between
THOMAS JEFFERSON UNIVERSITY ("TJU"), a not-for-profit corporation, formed under
the laws of the Commonwealth of Pennsylvania, and having its principal place of
business at 11th and Walnut Streets, Philadelphia, Pennsylvania 19107, and
INTRACEL Corporation ("INTRACEL"), a corporation organized under the laws of the
Commonwealth of Massachusetts, and having its principal place of business at 359
Allston Street, Cambridge, MA 02139.
WITNESSETH
WHEREAS, TJU is engaged in programs of research in the medical and
health fields, and its personnel have invented methods of intracellular
immunization ("the Invention");
WHEREAS, INTRACEL has filed U.S. Patent Application Serial No.
08/099,870, filed on July 30, 1993, entitled "Intracellular Immunization" ("the
Basic Application");
WHEREAS, INTRACEL is willing to transfer rights in the Basic Application
to TJU, pursuant to the terms of this Agreement;
WHEREAS, TJU has the right to grant the licenses set forth herein below;
WHEREAS, INTRACEL and TJU are parties to a research agreement dated
April 9, 1993, which is being extended concurrently with the execution of this
Agreement, under which INTRACEL is funding research at TJU in the laboratory of
Dr. Roger Pomerantz related to the Invention ("the Research Agreement");
WHEREAS, INTRACEL does not now make or sell any products which embody
the Invention, but desires to do so;
WHEREAS, INTRACEL plans to have the capability to manufacture, market,
and distribute products embodying the Invention;
WHEREAS, INTRACEL desires to receive from TJU licenses to commercially
manufacture and sell products embodying the Invention and TJU is willing to
grant INTRACEL and its affiliates (as hereinafter defined) such licenses.
<PAGE> 2
-2-
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
1.01. The term "Patent Rights" shall mean the Basic Application and any
patent application filed on any invention made in the course of the Research
Agreement, and any divisions, continuations, continuations-in-part, or foreign
counterparts thereof, or any Letters Patent issuing thereon or reissue,
extension or reexamination thereof
1.02. The term "Valid Claim" shall mean a claim of an issued patent or
pending patent application within Patent Rights so long as such claim shall not
have been disclaimed by TJU or shall not have been held invalid in an unappealed
or unappealable decision rendered by a tribunal of proper jurisdiction. Any such
claim finally held invalid shall be considered canceled from the Patent Rights,
effective as of the date such claim is finally held invalid by a tribunal of
proper jurisdiction in an unappealable decision.
1.03. The term "Product(s)" shall mean products covered by a Valid Claim
in the country of use or sale, or any other products, the normal and customary
use of which, or the use of which pursuant to the associated labeling, are
employed in the performance of processes covered by a Valid Claim in the country
of use or sale, or as one or more claimed elements or claimed components in a
product covered by a Valid Claim in the country of use or sale.
1.04. The term "Affiliate(s)" as applied to INTRACEL shall mean any
individual or company, in whatever country organized, directly or indirectly,
controlling, controlled by, or under common control with INTRACEL. The term
control" means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person, whether through
the ownership of voting securities, by contract or otherwise .
1.05. The term "Net Sales Price" shall mean the gross billing price of
any Product, as invoiced to the customer, less:
a. invoice price credited or rebates on returns and allowances,
b. transportation and delivery charges or allowances,
c. customs, duties, and charges,
d. sales, use, excise, value-added and other taxes or other
<PAGE> 3
-3-
governmental charges measured by sales.
Transfer of a Product to an Affiliate for sale by the Affiliate to a customer
shall not be considered a sale; in the case of such a transfer, the Net Sales
Price shall be based on the gross billing price of the Product by the Affiliate
as invoiced to its customer.
1.06. The term "Agreement Year" shall mean the yearly period beginning
on the Effective Date and each succeeding year thereafter for the term of the
Agreement.
ARTICLE II - GRANT OF LICENSES
2.01. ABT hereby irrevocably transfers all rights, title, and interest
in the Basic Application to TJU, and agrees to execute all documents necessary
to perfect this transfer, including an assignment document to be recorded in the
U.S. Patent and Trademark Office. This paragraph shall survive termination of
this Agreement.
2.02. TJU hereby grants to INTRACEL an exclusive worldwide right and
license under Patent Rights to make, have made, use, and sell Products, and to
grant to the purchaser of Products the right to use such purchased Products in
accordance with Patent Rights. TJU retains the right to practice under Patent
Rights for its own research purposes.
2.03. TJU hereby grants to INTRACEL, subject to TJU's approval, the
right to grant sublicenses under Patent Rights to any parties, provided however
that such sublicenses are reduced to writing, contain provisions at least as
favorable to TJU as those contained in this Agreement, and are submitted to TJU
at least thirty (30) days in advance of signing for TJU's review and approval,
which shall not be unreasonably withheld. Regardless of the terms of such
sublicense, INTRACEL shall remain jointly and separately liable to TJU under the
present Agreement for all obligations, including royalties, under this Agreement
as if the sales of Products were made directly by INTRACEL under this Agreement.
2.04. The rights granted to INTRACEL hereunder are subject to any prior
rights which the U.S. Government (or any of its agencies) may have in or to the
Patent Rights, as a result of 35 U.S.C. 200 et seq. or otherwise.
<PAGE> 4
-4-
ARTICLE III - PAYMENTS
3.01. In consideration of the rights and licenses herein granted to it,
INTRACEL shall pay to TJU a royalty of two percent (2%) on the Net Sales Price
of Products sold by INTRACEL, its affiliates, or its sublicensees. Royalties on
sales of Products are payable by INTRACEL until the last patent under Patent
Rights, embodying a Valid Claim, expires in all jurisdictions where the Products
are made, used, or sold.
3.02. INTRACEL shall pay to TJU license fee payments of one hundred
thousand dollars ($100,000) per year, upon receiving from the Food and Drug
Administration ("FDA") a New Drug Approval ("NDA") to market a Product, and at
the beginning of each Agreement Year following such NDA, which shall be
creditable in full against running royalties payable pursuant to paragraph 3.01
for the respective Agreement Year.
ARTICLE IV - BOOKS OF ACCOUNTS AND REPORTS
4.01. INTRACEL shall keep and shall require its Affiliates and
sublicensees to keep complete and accurate records of the sales of each Product
and all data necessary for the computation of payments to be made to TJU
hereunder. TJU shall have the right to nominate an independent Certified Public
Accountant who shall have access to INTRACEL's records and those of its
Affiliates and sublicensees during reasonable business hours for the purpose of
verifying the payments made under this Agreement, but this right may not be
exercised more than once in any year, and the accountant shall disclose to TJU
only information relating to the accuracy of the payment report and the payments
made in accordance with this Agreement, and the reasons for any discrepancy.
4.02. Payments hereunder, when due, shall be made within thirty (30)
days of the end of each Agreement Year quarter for the sales of each Product
sold during that quarter. Such payments to TJU shall be accompanied by a
statement showing all sales of Products, including the total Net Sales Price of
the Products sold by INTRACEL, its Affiliates and its sublicensees, and such
other particulars as are necessary for the account of the payments to be made
pursuant to this Agreement. Payment of the amount due shall accompany such
statement.
4.03. All royalties hereunder shall be payable by INTRACEL to TJU in
United States dollars by check or checks to the order of "Thomas Jefferson
University".
<PAGE> 5
-5-
4.04. To the extent sales may have been made by INTRACEL in a foreign
country, such royalty payment shall be made in United States dollars on the
basis of conversion, from the currency of such foreign country, at the rate of
exchange quoted by New York Clearing House Banks for outbound telegraphic
transfers, on the last business day of the Agreement Year quarter when the sales
occurred, and shall be paid at the time and in the manner set forth above,
provided however, that royalties based on sales in any foreign country shall be
payable to TJU subject to the exchange rate and only after deducting for
exchange and all other charges due foreign governments, including withholding
taxes, arising from the origin and transmittal of such royalties, and further
provided that the foregoing is subject to the right of INTRACEL to make payment
of royalties in any country where the currency is blocked and where legal
conversions of the currency billed cannot be made into United States dollars by
depositing such royalty payments in TJU's name in a bank designated by TJU
within such country.
4.05. INTRACEL shall pay interest to TJU on overdue payments at the rate
of twelve percent (12%) per year.
ARTICLE V - FDA CLEARANCE
5.01. INTRACEL shall, at its own expense, obtain all necessary
clearances from governmental agencies to market each Product. Said request for
market clearance shall be filed with the necessary governmental agencies by
INTRACEL as soon as reasonably practical after a commercial embodiment of such
Product is developed by or for INTRACEL. TJU agrees to cooperate with INTRACEL
and to provide reasonable assistance where appropriate in obtaining any such
clearance. INTRACEL shall indemnify, defend, and hold harmless TJU, its
trustees, officers, staff and agents from any and all liability, judgments or
expenses arising from failure to obtain any such clearance or violation of any
governmental regulation related to the Product(s).
ARTICLE VI - PERFORMANCE
6.01. INTRACEL shall use its best efforts to develop and market
Products. At the end of each Agreement Year, INTRACEL shall provide TJU with a
written report detailing INTRACEL's efforts to develop and market Products
during that year.
<PAGE> 6
-6-
6.02. Concurrent with execution of this Agreement, INTRACEL and TJU
shall extend the Research Agreement for an additional two year period covering
the first two Agreement Years of this Agreement, under which INTRACEL shall
fund research at TJU in the laboratory of Dr. Roger Pomerantz, related to the
Invention, at levels of at least four hundred thousand dollars ($400,000) per
year. Should the Research Agreement be terminated prior to the end of the second
Agreement Year of this Agreement, then INTRACEL shall pay to TJU a license fee
payment upon termination of the Research Agreement of fifty thousand dollars
($50,000), which shall be creditable in full against future royalties payable
pursuant to paragraph 3.01.
6.03. During each Agreement Year, beginning with the third, until an NDA
is received from the FDA approval to market a Product, if INTRACEL is not
conducting clinical trials of a Product during that Agreement Year, INTRACEL
shall either fund research at TJU in the laboratory of Dr. Roger Pomerantz,
related to the Invention, at funding levels mutually agreeable to the parties,
or shall pay to TJU a license fee payment at the beginning of that Agreement
Year of fifty thousand dollars ($50,000) per year, which shall be creditable in
full against future royalties payable pursuant to paragraph 3.01.
ARTICLE VII - PATENT PROSECUTION AND LITIGATION
7.01. All reasonable costs, incurred prior to and after the Effective
Date of this Agreement relating to Patent Rights, including all costs incurred
by TJU relating to the preparation, filing and prosecution, issuance,
reissuance, reexamination, interference and maintenance shall be reimbursed by
INTRACEL. TJU shall endeavor to insure that all patent applications, office
actions, and responses to office actions concerning such Patent Rights shall be
provided to INTRACEL. TJU shall endeavor not to irrevocably alter the scope of
patent coverage within such Patent Rights without prior review by INTRACEL; any
such modification shall not, however, require the approval of INTRACEL and
INTRACEL shall not control the prosecution of the Patent Rights. In the event
INTRACEL wishes to relieve itself of any obligation to pay for the future
reasonable expenses of preparation, filing, prosecution, issuance, reissuance,
reexamination, interference or maintenance of any Patent Rights submitted to
INTRACEL by TJU under this paragraph, it may provide TJU with one-hundred and
twenty (120) days notice of such decision, whereupon TJU may assume such costs
and thereafter those Patent Rights for which INTRACEL elects not to cover patent
costs shall be the sole property of TJU and not be subject to the right and
licenses provided for in ARTICLE II. INTRACEL shall be responsible for all
<PAGE> 7
-7-
reasonable expenses incurred prior to, or as a result of irrevocable action
taken prior to, the effective date of such decision.
7.02. INTRACEL shall take all appropriate steps to ensure that, if
eligible, TJU will be able to obtain patent term extensions) pursuant to 35
U.S.C.156 et seq., as appropriate. INTRACEL shall keep TJU fully informed with
respect to its submissions to governmental authorities for regulatory review for
Products which may be eligible for patent term extension. INTRACEL acknowledges
that time is of the essence with respect to submission of the application for
patent term extension. INTRACEL shall send written notice to TJU within three
(3) business days of the date a Product receives permission under the provision
of the law under which the applicable regulatory review period occurred for
commercial marketing or use ("Approval Date"). INTRACEL shall provide all
necessary information in its possession and reasonable assistance in preparing
an application, if TJU is eligible, for patent term extension in compliance with
35 U.S.C. 156 et. seq. and any applicable governmental regulations within thirty
(30) days after Approval Date. INTRACEL agrees to cooperate fully with TJU in
preparing such application for patent term extension. If eligible, TJU shall
file, in their own name, such application for patent term extension. INTRACEL,
if requested, agrees to join in such application for patent term extension.
INTRACEL shall fully support such application and shall provide such information
as may reasonably be requested in support of the application by TJU or by the
government.
7.03. In the event either party becomes aware of a suspected
infringement of any patent under which INTRACEL is licensed hereunder, it shall
promptly notify the other party of such suspected infringement. The parties
shall commence discussions within ninety (90) days of said notification for the
purpose of jointly evaluating said suspected infringement and for the purpose of
determining what action shall be taken by the parties or either of them with
respect thereto. If no agreement is reached as to the existence or non-existence
of an infringement concerning any patent licensed to INTRACEL hereunder, the
question of the existence of a sufficient degree of infringement to justify the
institution of legal action shall be decided by an arbitrator who is an
independent patent attorney selected by mutual agreement who shall hear and
decide the question based only on oral argument lasting less than one day. The
parties shall equally share the arbitrator's expenses. If the arbitrator
concludes that the information and evidence then available are insufficient to
conclude that there is such infringement sufficient to justify institution of
legal action, no action shall be brought by either party unless and until newly
discovered evidence resulting in
<PAGE> 8
-8-
agreement between the parties or a contrary arbitrator's decision, is obtained.
7.04. In the event there is agreement as to the existence of an
infringement, or such is decided by the arbitrator, INTRACEL, in the first
instance, shall have the first right to take such actions, including
sublicensing or the institution of litigation, which it deems necessary in order
to abate the infringement, and shall have the right to name TJU as a party
plaintiff, if necessary, to the maintenance of such action.
7.05. The parties recognize that the scope and/or validity of any TJU
patent under the Patent Rights involved in litigation is likely to be raised as
an issue by any actual or alleged infringer, and that an adverse decision
relating to that patent might significantly reduce the royalties due and payable
by INTRACEL under this Agreement. The parties further recognize that any
litigation enforcing that subject patent is likely to involve document
production, deposition testimony, discovery responses, and trial appearances by
TJU and/or its inventors and other personnel. Accordingly, in the event that
INTRACEL initiates and controls any litigation where the scope or validity of
any TJU patent licensed hereunder is in issue, INTRACEL agrees to reimburse TJU
for its reasonable expenses of every kind and character necessarily incurred by
TJU and its personnel in connection with the litigation, including reasonable
consultation fees for TJU's inventors and other personnel who are called to
provide deposition and/or trial testimony in connection with the litigation and
including TJU's reasonable legal expenses necessarily incurred in connection
with that litigation. In connection with such litigation, TJU may select their
own counsel to consult with lead trial counsel of INTRACEL's choice, to advise
TJU concerning the progress of the ongoing litigation and to otherwise represent
TJU and its personnel in connection with the litigation. INTRACEL shall also
reimburse TJU for such other reasonable expenses, including out-of-pocket
disbursements for travel, stenographers fees, photocopying, etc. as may be
necessarily incurred by TJU in connection with the litigation. In the event
INTRACEL institutes and controls any litigation involving any TJU patent
licensed hereunder, INTRACEL shall also hold TJU free, clear and harmless from
any and all damages which may be assessed against TJU on account of any
provision of the patent or antitrust laws, or otherwise, unless such damages
arise out of acts or omissions attributed solely to TJU, and in which INTRACEL
has not been found to be a joint tortfeasor, or if TJU has intentionally,
willfully or wantonly caused or contributed to the events on which said damages
are based.
7.06. If INTRACEL does not bring suit against the alleged infringer,
<PAGE> 9
-9-
according to the provisions of Paragraph 7.04, within one hundred twenty (120)
days after agreement concerning infringement is reached or the arbitrator so
decides, TJU shall have the right, but not the obligation, to take such action
as it deems appropriate to abate the infringement, including bringing suit for
such infringement, joining INTRACEL as a party plaintiff, if necessary, to
maintain such action. Provided that TJU has first brought a lawsuit against the
alleged infringer to abate the infringement, TJU shall be permitted to settle
the lawsuit by licensing the alleged infringer. In the event TJU licenses the
infringer, TJU shall share any amounts received from that license equally with
INTRACEL, after deductions of TJU's expenses in connection with such action.
a. In the event litigation is instituted by TJU, INTRACEL shall have the
right to be represented by counsel of its own selection, at its own expense and
shall be provided an opportunity to consult on all matters of significance
relating to the preparation and prosecution of the case for trial.
7.07. In any event, the party bringing or controlling the litigation
shall diligently prosecute the litigation. In the event either party is
dissatisfied with such litigation, consultation shall be had to determine
whether the control and/or costs of the litigation should be shared with or
transferred to the other party.
7.08. In the event that any such litigation is successful, and amounts
collected is a consequence thereof, such amounts shall be divided between TJU
and INTRACEL in accordance with the relative percentage of cost disbursed by
each party in connection therewith, except that if INTRACEL shall have expended
more than ninety-three (93%) of the litigation costs, INTRACEL shall first
receive full credit for all unreimbursed costs which it has expended, then and
thereafter TJU shall receive seven percent (7%) of the proceeds, if any, in
excess of such costs. In the event the litigation is settled, an amount shall be
deducted from the proceeds of that settlement sufficient to reimburse the
parties for all legal expenses and costs incurred and paid by the parties in
connection with such litigation, whereupon the remainder shall be divided
equally between the parties. If the settlement is insufficient to permit full
reimbursement of both parties' costs and expenses, the settlement shall be
divided between TJU and INTRACEL in accordance with the relative percentage of
costs and expenses disbursed by each party in connection with the litigation.
ARTICLE VIII - INDEMNIFICATION AND INSURANCE
8.01. INTRACEL hereby waives any claim against TJU and agrees to
<PAGE> 10
-10-
indemnify, defend, and hold harmless, TJU, its trustees, officers, staff and
agents from all liabilities, demands, damages, expenses and losses (including
attorneys' fees) arising out of, or in connection with this Agreement
(collectively the "Indemnified Losses"), including without limitation
Indemnified Losses resulting from any use, sale, or other disposition of
Products, and any claim that INTRACEL's use, sale, or other disposition of
Products infringes or violates any patent or other intellectual property rights.
The indemnification rights contained herein are in addition to all rights which
TJU may have at law, in equity, or otherwise.
8.02. Prior to the first human use of any Product, INTRACEL shall obtain
and maintain commercial general liability insurance, including commercial
liability, products liability, and completed operations insurance coverage in
the minimum amounts of five million dollars ($5,000,000) per loss, including
coverage for any and all prior acts arising from the sale of Products and
contractual liability coverage which, by virtue of the aforementioned
indemnification clause, makes the above identified indemnities named as
additional insureds under this coverage. Evidence of extended reporting period
coverage at original policy limits, if applicable, in the event either the
insured or insurer cancels must also be provided. A certificate of insurance
evidencing such coverage will be provided to TJU prior to the first human use of
Products.
<PAGE> 11
-11-
ARTICLE IX - DURATION AND TERMINATION
9.01. Unless sooner terminated as herein provided, this Agreement shall
continue in effect until the expiration of the last to expire patent of the
Patent Rights.
9.02. This Agreement and all rights and licenses granted hereunder to
INTRACEL may sooner be terminated, as follows:
a. By INTRACEL, at any time giving TJU one hundred twenty (120) days
advance written notice thereof, by paying all amounts due, including unpaid
license fees and minimum and earned royalties on the Products sold, prior to the
effective date of termination, and by thereafter ceasing to sell Products.
b. By TJU effective immediately on written notice to INTRACEL if
INTRACEL:
i. files or has filed against it a petition under the Federal Bankruptcy
Act, or
ii. makes an assignment for the benefit of creditors or has a receiver
appointed for it, or otherwise takes advantage of laws designed for the relief
of debtors, all to the extent permitted by the Bankruptcy Reform Act of 1978.
c. BY TJU upon written notice in the event INTRACEL shall fail to make
any royalty or other payment due hereunder, including any minimum royalty
payment, provided however that INTRACEL shall have sixty (60) days from said
notice to cure such default by making all such payments.
d. Should a party hereto fail to perform any material covenant of this
Agreement on its part to be performed, then upon written notice of such failure
from the other party, the party in breach or default shall have ninety (90) days
from the date of notice to correct the breach or default, and upon failure to do
so, the party not in breach or default may cancel and terminate this Agreement
upon written notice, unless this Agreement shall require other remedies.
ARTICLE X - MISCELLANEOUS
10.01. This Agreement constitutes the entire understanding between the
parties with respect to the obligations of the parties hereto, and supersedes
and
<PAGE> 12
-12 -
replaces all prior agreements, understandings, writings and discussions between
the parties relating to the subject matter of this Agreement.
10.02. This Agreement may be amended and any of its terms or conditions
may be waived only by a written instrument executed by the parties or, in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect its right at a later time to enforce the same. No waiver by either
party of any condition or term in any one or more instances shall be construed
as a further or continuing waiver of such condition or term or of any other
condition or term.
10.03. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
permitted assignees. The term INTRACEL as used herein shall be deemed to include
its Affiliates unless the context clearly requires otherwise.
10.04. Any delays in or failure of performance by either party under
this Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to acts of God; acts, regulations or laws of
any government; strikes or other concerted acts of workers; fires; floods;
explosions; riots; illness; death; incapacity; disability; wars; rebellion and
sabotage; and any time for performance hereunder shall be extended by the actual
time of delay caused by such occurrence.
10.05. INTRACEL and TJU shall not use the name of the other or the
names of any of the other's staff members, employees or students or any
adaptation thereof in any advertising, promotional or sales literature to the
extent such use might imply a relationship between the parties or approval or
endorsement by TJU of any Product or method described in any such literature
without the prior written approval of the other party, which will not be
unreasonably withheld.
10.06. Any notice required or permitted to be given hereunder shall be
deemed sufficient if mailed by registered or certified mail (return receipt
requested) or delivered by hand to the party to whom such notice is required or
permitted to be given.
All notices to TJU shall be addressed as follows:
<PAGE> 13
-13-
THOMAS JEFFERSON UNIVERSITY
OFFICE OF TECHNOLOGY TRANSFER
1020 LOCUST ST.
PHILADELPHIA, PA 19107
ATTENTION: DIRECTOR
AU notices to INTRACEL shall be addressed as follows:
INTRACEL CORPORATION
359 ALLSTON STREET
CAMBRIDGE, MA 02139
ATTENTION: PRESIDENT
10.07. INTRACEL and its sublicensees, if any, shall comply with all
Federal and foreign jurisdiction laws in respect of patent marking, if any, but
the selection, location and particulars of such marking shall be at INTRACEL's
discretion.
10.08. In the event of any unresolvable dispute, difference, or question
arising between the parties in connection with this Agreement or any clause or
the construction thereof, or the rights, duties or liabilities of either party,
or the scope or validity of any patent licensed hereunder, the matter shall be
submitted for arbitration in accordance with the Patent Arbitration Rules of the
American Arbitration Association. A single arbitrator shall be appointed by
agreement of the parties to resolve all such disputes, differences or questions.
The arbitrator shall be guided by the contents of this Agreement in arriving at
a decision to resolve the dispute, but may rely on extrinsic evidence where
appropriate and/or necessary. The parties shall share the cost of the
arbitration unless, in the arbitrator's opinion, the position advanced by one of
the parties, or the nature or manner of presenting it, is such that it would be
unfair to so apportion such expenses, in which case the arbitrator may apportion
such expenses differently. In cases where validity or scope of a patent is in
issue, either party shall have the right to elect to have the arbitration
conducted by three arbitrators, each party selecting one and those arbitrators
selecting the third.
10.09. This Agreement shall not be assignable by any party without the
others' written consent.
10.10. If any provisions of this Agreement are or become invalid, are
<PAGE> 14
-14-
ruled illegal by any court of competent jurisdiction or unenforceable under
current applicable law from time to time in effect during the term hereof, then
in that event, it is the intention of the parties that the remainder of this
Agreement shall not be affected thereby.
10.11. This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the Commonwealth of Pennsylvania.
THE PARTIES have duly executed this Agreement as of the date first above
written.
FOR TJU: FOR INTRACEL:
/s/ JUSSI J. SAUKKONEN /s/ SIMON R. McKENZIE
- ------------------------------- ------------------------------------
JUSSI J. SAUKKONEN, M.D. SIMON R. McKENZIE
DEAN, COLLEGE OF GRADUATE STUDIES & PRESIDENT & CEO
VICE PRESIDENT FOR SPECIAL PROGRAMS
June 29, 1994 July 1, 1994
- ------------------------------- ------------------------------------
DATE DATE
<PAGE> 15
[INTRACEL LETTERHEAD]
January 24,1997
Dr. Roger Pomerantz
Thomas Jefferson University
Jefferson Medical College
329 D Jefferson Alumni Hall
1020 Locust Street
Philadelphia, PA 19107-6799
Dear Dr. Pomerantz:
We would like to extend our April 9, 1993 Research Agreement (as amended by our
July 1, 1994 Letter Agreement) for a further period of two (2) years from July
15, 1996. The following terms and conditions apply to the current extension:
1. Within thirty (30) days of the date of this letter, Thomas Jefferson
University ("the University") and Intracel Corporation ("the Company")
will agree upon a written research protocol ("the Protocol") for the
period of this extended Agreement.
The work described in the Protocol shall be carried out by the University for
the Company, under your scientific control, provided the Protocol is given prior
approval and that on-going reviews by all appropriate and necessary authorities
are in accordance with all applicable laws and regulations. The University shall
obtain the aforesaid necessary or appropriate written evidence of all requisite
review and approval, including that of the Institutional Animal Care and Use
Committee (IACUC) and the Institutional Biosafety and Institutional Review Board
(IRB). The Protocol may be amended from time to time upon written agreement of
the parties hereto and with the written approval of any authority that is
required to approve the amendment.
2. In consideration of your performance of the Protocol, the Company shall
pay the University $800,000 in accordance with Appendix B attached to
this Letter Agreement. Payments are subject to the submission of
satisfactory progress reports as specified in the following Paragraph 3.
3. The University shall submit to the Company written progress reports at
the end of each quarter detailing the progress made during the quarter
and any resulting amendments or alterations required to the Protocol.
<PAGE> 16
4. All inventions made by the University in performing the Protocol shall
be subject to the License Agreement between the University and the
Company dated June 1, 1994.
5. Subject to Paragraph 6 hereof, results of the Protocol may be published
to the scientific community provided that the Company's patent rights
and/or patenting opportunities set forth in Paragraph 4 are not
compromised and the Company is allowed to review and suggest revisions
to any proposed publication for sixty (60) days prior to submission for
publication.
6. The University and the Company agree to maintain in confidence for a
period of three (3) years from the date of termination of this Agreement
all confidential information received from the other party. Such
obligation of confidentiality shall not apply to any information which,
at the time of disclosure, was in the possession of the receiving party,
was generally available to the public or thereafter becomes generally
available to the public through a source other than the receiving party,
was rightfully obtained from a third party, or was developed by or for
the receiving party independent of any disclosure under this Agreement.
In addition to the above exclusions, the receiving party shall have the
right to disclose the disclosing party's confidential information, if
the receiving party is required to do so by the order of any
governmental authority or by final judicial order.
7. The Company agrees to indemnify, defend, and hold harmless, the
University, its trustees, officers, staff and agents from all
liabilities, demands, damages, expenses and losses which do not arise
from the negligence of the University in the performance of the
Protocol. This paragraph shall apply with the proviso that the
University promptly notifies the Company in writing after the University
receives notice of any claim and the University fully cooperates with
the Company in the defense of any such claim.
8. Neither party will employ or use the name of the other party or its
employees in any form for public distribution without the prior written
consent of the other party.
9. The University shall at all times during the performance of this
Agreement be and remain an independent contractor and not an employee,
agent or joint venturer of or with the Company.
10. This Agreement is not assignable by either party except that the Company
may assign this Agreement to its affiliates without the prior consent of
the University.
2
<PAGE> 17
11. Either party may terminate this Agreement upon ninety (90) days written
notice to the other party if:
(a) Dr. Roger Pomerantz is unable or unwilling to continue as the
Principal Investigator; or
(b) In the opinion of either party, based upon a reasonable
interpretation of results of studies performed in carrying out
the Protocol, a clinically effective anti-HIV product cannot be
developed in a timely fashion.
In the event of cancellation of this Agreement pursuant to Paragraph 11, the
University shall be paid for uncancellable obligations properly incurred in
accordance with the Budget and Payment Schedule prior to the date of any notice
of termination. In the event of cancellation, the University shall promptly
transfer to the Company all ongoing experiments data and copies of data
generated under this Agreement.
12. The validity and interpretation of this Agreement shall be governed by
the laws of the State of Washington.
13. This Agreement constitutes the entire understanding between the parties
with respect to their obligations hereto. This Agreement supersedes all
prior understandings among the parties, written and oral, and may not be
modified except by written amendment executed by the parties.
14. Any and all notices required to be provided under this Agreement shall
be sent to the addresses below, unless otherwise previously indicated in
writing by either of the parties:
To the University: Associate Dean of Scientific Affairs
Jefferson Medical College
1020 Locust Street, M-5 JAH
Philadelphia, PA 19107
To the Company: Simon R. McKenzie
Chairman & CEO
Intracel Corporation
1871 N.W. Gilman Boulevard
Issaquah, WA 98027
3
<PAGE> 18
If the terms are satisfactory, please sign both copies and return them at your
earliest convenience. A fully executed copy will be returned to you.
Sincerely,
[SIG]
Matthew L. Root
Chief Financial Officer
On Behalf of:
Simon R. McKenzie
Chairman & CEO
ACCEPTED FOR THE COMPANY ACCEPTED FOR THE UNIVERSITY
By /s/ MATTHEW L. ROOT By /s/ THOMAS WUDARSKI
------------------------------- -------------------------------
Matthew L. Root
Title: Chief Financial Officer
On Behalf of:
Simon R. McKenzie Thomas Wudarski
Title: Chairman & CEO Title: MANAGER, RESEARCH ADM
---------------------------
Dated: January 24, 1997 Dated: 2/10/97
------------------------------- ---------------------------
[SIG]
4
<PAGE> 19
[INTRACEL LETTERHEAD]
January 31, 1997
Mr. Al Bono
Laboratory Coordinator
Division of Infectious Diseases
Thomas Jefferson University
329D Jefferson Alumni Hall
1020 Locust Street
Philadelphia, PA 19107
Dear Mr. Bono:
Pursuant to our discussions, and in the interest of continuing our mutually
beneficial arrangements, Intracel Corporation herein proposes an arrangement to
supplement the Letter Agreement dated January 27,1997.
Specifically, in order to cover certain outside expenses associated with the
joint programs currently underway, Intracel agrees to assume the liability of
currently outstanding invoices due to Magenta Corporation by Thomas Jefferson
University for an amount not to exceed $156,025.
While this commitment by Intracel to the Magenta Corporation work is herein
limited, all three of the parties referenced recognize that the reasonable
cooperation of the parties is required. Further commitments can be reached by
additional Letter Agreements.
Sincerely yours,
/s/ SIMON R. McKENZIE
- -----------------------------
Simon R. McKenzie
Chairman & CEO
Accepted & Agreed by Accepted & Agreed by
Intracel Corporation Thomas Jefferson University
By: SIMON R. McKENZIE By: /s/ ROGER J. POMERANTE
- ------------------------------- -------------------------------
Simon R. McKenzie
Chairman & CEO
Dated: January 31, 1997 Dated: 1/31/97
<PAGE> 20
[INTRACEL LETTERHEAD]
July 15, 1996
Dr. Roger Pomerantz
Thomas Jefferson University
Jefferson Medical College
329 D Jefferson Alumni Hall
1020 Locust Street
Philadelphia, PA 19107-6799
Dear Dr. Pomerantz:
We would like to extend our April 9, 1993 Research Agreement (as amended by our
July 1, 1994 letter agreement) for a further period of two (2) years from July
15, 1996 on the following terms and conditions:
1. Within thirty (30) days of the date of this letter, Thomas Jefferson
University ("the University") and Intracel Corporation ("the Company") will
agree upon a written research protocol ("the Protocol") for the period of this
extended agreement.
The work described in the Protocol shall be carried out by the University for
the Company, under your scientific control, provided the Protocol is given prior
approval and that on-going reviews by all appropriate and necessary authorities
are in accordance with all applicable laws and regulations. The University shall
obtain the aforesaid necessary or appropriate written evidence of all requisite
review and approval, including that of the Institutional Animal Care and Use
Committee (IACUC) and the Institutional Biosafety and Institutional Review Board
(IRB). The Protocol may be amended from time to time upon written agreement of
the parties hereto and with the written approval of any authority that is
required to approve the amendment.
2. In consideration of your performance of the Protocol, the Company shall pay
the University $800,000 in accordance with Appendix B attached to this letter
agreement. Payments are subject to the submission of satisfactory progress
reports as specified in the following Paragraph 3.
3. The University shall submit to the Company written progress reports at the
end of each quarter detailing the progress made during the quarter and any
resulting amendments or alterations required to the Protocol.
4. All inventions made by the University in performing the Protocol shall be
subject to the License Agreement between the University and the Company dated
June 1, 1994.
5. Subject to Paragraph 6 hereof, results of the Protocol may be published to
the scientific community provided that the Company's patent rights and/or
patenting opportunities set forth in Paragraph 4 are not compromised and the
Company is allowed to review and suggest revisions to any proposed publication
for sixty days (60) prior to submission for publication.
<PAGE> 21
6. The University and the Company agree to maintain in confidence for a period
of three (3) years from the date of termination of this Agreement all
confidential information received from the other party. Such obligation of
confidentiality shall not apply to any information which, at the time of
disclosure, was in the possession of the receiving party, was generally
available to the public or thereafter becomes generally available to the public
through a source other than the receiving party, was rightfully obtained from a
third party, or was developed by or for the receiving party independent of any
disclosure under this Agreement. In addition to the above exclusions, the
receiving party shall have the right to disclose the disclosing party's
confidential information, if the receiving party is required to do so by the
order of any governmental authority or by final judicial order.
7. The Company agrees to indemnify, defend, and hold harmless, the University,
its trustees, officers, staff and agents from all liabilities, demands, damages,
expenses and losses which do not arise from the negligence of the University in
the performance of the Protocol. This paragraph shall apply with the proviso
that the University promptly notifies the Company in writing after the
University receives notice of any claim and the University fully cooperates with
the Company in the defense of any such claim.
8. Neither party will employ or use the name of the other party or its employees
in any form for public distribution without the prior written consent of the
other party.
9. The University shall at all times during the performance of this Agreement be
and remain an independent contractor and not an employee, agent or joint
venturer of or with the Company.
10. This Agreement is not assignable by either party except that the Company may
assign this agreement to its affiliates without the prior consent of the
University.
11. Either party may terminate this Agreement upon ninety (90) days written
notice to the other party if:
(a) Dr. Roger Pomerantz is unable or unwilling to continue as the
Principal Investigator; or
(b) In the opinion of either party, based upon a reasonable
interpretation of results of studies performed in carrying out
the Protocol, a clinically effective anti-HIV product cannot be
developed in a timely fashion.
In the event of a cancellation of this Agreement pursuant to Paragraph 11, the
University shall be paid for uncancellable obligations properly incurred in
accordance with the Budget and Payment Schedule prior to the date of any notice
of termination. In the event of cancellation, the University shall promptly
transfer to the Company all ongoing experiments data and copies of data
generated under this Agreement.
12. The validity and interpretation of this Agreement shall be governed by the
laws of the Commonwealth of Massachusetts.
<PAGE> 22
13. This Agreement constitutes the entire understanding between the parties
with respect to their obligations hereto. This Agreement supersedes all prior
understandings among the parties, written and oral, and may not be modified
except by written amendment executed by the parties.
14. Any and all notices required to be provided under this Agreement shall be
sent to the addresses below, unless otherwise previously indicated in writing
by either of the parties:
To the University: Joseph R. Sherwin, Ph.D.
Associate Dean of Scientific Affairs
Jefferson Medical College
1020 Locust Street, M-5 JAH
Philadelphia, PA 19107
To the Company: Simon R. McKenzie
President and Chief Executive Officer
Intracel Corporation
359 Allston Street
Cambridge, MA 02139
If the terms are satisfactory, please sign both copies and return them at your
earliest convenience. A fully executed copy will be returned to you.
Sincerely,
Simon R. McKenzie
President & CEO
ACCEPTED FOR THE COMPANY ACCEPTED FOR THE UNIVERSITY
By: /s/ SIMON R. MCKENZIE By:
--------------------------- -------------------------
Simon R. McKenzie
Title: President & CEO Title:
----------------------
Date: July 15, 1996 Date:
------------------------ ----------------------
<PAGE> 23
[INTRACEL LETTERHEAD]
July 1, 1994
Dr. Roger Pomerantz
Thomas Jefferson University
Jefferson Medical College
329 D Jefferson Alumni Hall
1020 Locust Street
Philadelphia, PA 19107-6799
Dear Dr. Pomerantz:
We would like to extend our April 9, 1993 Research Agreement for a period of
two (2) years from July 15, 1994 on the following terms and conditions:
1. Within thirty (30) days of the date of this letter, Thomas Jefferson
University ("the University") and Intracel Corporation ("the Company") will
agree upon a written research protocol ("the Protocol") for the period of this
extended agreement.
The work described in the Protocol shall be carried out by the University for
the Company, under your scientific control, provided the Protocol is given prior
approval and that on-going reviews by all appropriate and necessary authorities
are in accordance with all applicable laws and regulations. The University
shall obtain the aforesaid necessary or appropriate written evidence of all
requisite review and approval, including that of the Institutional Animal Care
and Use Committee (IACUC) and the Institutional Biosafety and Institutional
Review Board (IRB). The Protocol may be amended from time to time upon written
agreement of the parties hereto and with the written approval of any authority
that is required to approve the amendment.
2. In consideration of your performance of the Protocol, the Company shall
pay the University $800,000 in accordance with Appendix B attached to this
letter agreement. Payments are subject to the submission of satisfactory
progress reports as specified in the following Paragraph 3.
3. The University shall submit to the Company written progress reports at the
end of each quarter detailing the progress made during the quarter and any
resulting amendments or alterations required to the Protocol.
4. All inventions made by the University in performing the Protocol shall be
subject to the License Agreement between the University and the Company dated
June 1, 1994.
5. Subject to Paragraph 6 hereof, results of the Protocol may be published
to the scientific community provided that the Company's patent rights and/or
patenting opportunities set forth in Paragraph 4 are not compromised and the
Company is allowed to review and suggest revisions to any proposed publication
for sixty days (60) prior to submission for publication.
<PAGE> 24
6. The University and Company agrees to maintain in confidence for a period of
three (3) years from the date of termination of this Agreement all confidential
information received from the other party of this Agreement. Such obligation of
confidentiality shall not apply to any information which, at the time of
disclosure, was in the possession of the receiving party, was generally
available to the public or thereafter becomes generally available to the public
through a source other than the receiving party, was rightfully obtained from a
third party, or was developed by or for the receiving party independent of any
disclosure under this Agreement. In addition to the above exclusions, the
receiving party shall have the right to disclose the disclosing party's
confidential information, if the receiving party is required to do so by the
order of any governmental authority or by final judicial order.
7. The Company agrees to indemnify, defend, and hold harmless, the University,
its trustees, officers, staff and agents from all liabilities, demands, damages,
expenses and losses which do not arise from the negligence of the University in
the performance of the Protocol. This paragraph shall apply with the proviso
that the University promptly notifies the Company in writing after the
University receives notice of any claim and the University fully cooperates with
the Company in the defense of any such claim.
8. Neither party will employ or use the name of the other party or its
employees in any form for public distribution without the prior written consent
of the other party.
9. The University shall at all times during the performance of this Agreement
be and remain an independent contractor and not an employee, agent or joint
venturer of or with the Company.
10. This Agreement is not assignable by either party except that the Company
may assign this agreement to its affiliates without the prior consent of the
University.
11. Either party may terminate this Agreement upon ninety (90) days written
notice to the other party if:
(a) Dr. Roger Pomerantz is unable or unwilling to continue as the
Principal Investigator; or
(b) In the opinion of either party, based upon a reasonable
interpretation of results performed in carrying out the Protocol, a
clinically effective anti-HIV product cannot be developed in a timely
fashion.
In the event of a cancellation of this Agreement pursuant to Paragraph 11, the
University shall be paid for uncancellable obligations properly incurred in
accordance with the Budget and Payment Schedule prior to the date of any notice
of termination. In the event of cancellation, the University shall promptly
transfer to the Company all ongoing experiments data and copies of data
generated under this Agreement.
12. The validity and interpretation of this Agreement shall be governed by the
laws of the Commonwealth of Massachusetts.
13. This Agreement constitutes the entire understanding between the parties
with respect to their obligations hereto. This Agreement supersedes all prior
2
<PAGE> 25
understandings among the parties, written and oral, and may not be modified
except by written amendment executed by the parties.
14. Any and all notices required to be provided under this Agreement shall be
sent to the addresses below, unless otherwise previously indicated in writing
by either of the parties:
To the University: Joseph R. Sherwin, Ph.D.
Associate Dean of Scientific Affairs
Jefferson Medical College
1020 Locust Street, M-5 JAH
Philadelphia, PA 19107
To the Company: Simon R. McKenzie
President and Chief Executive Officer
Intracel Corporation
359 Allston Street
Cambridge, MA 02139
If the terms are satisfactory, please sign both copies and return them at your
earliest convenience. A fully executed copy will be returned to you.
Sincerely,
/s/ SIMON R. MCKENZIE
- ---------------------
Simon R. McKenzie
President & CEO
ACCEPTED FOR THE COMPANY ACCEPTED FOR THE UNIVERSITY
By: /s/ SIMON R. MCKENZIE By: /s/ JOSEPH R. SHERWIN
--------------------- ----------------------------
Title: Simon R. McKenzie Title: Joseph R. Sherwin, Ph.D.
Associate Dean of Scientific Affairs
Date: 7/6/1994 Date: 7/25/94
3
<PAGE> 26
[AMERICAN BIO-TECHNOLOGIES, INC. LETTERHEAD]
April 9, 1993
Dr. Roger Pomerantz
Thomas Jefferson University
Jefferson Medical College
329 D Jefferson Alumni Hall
1020 Locust Street
Philadelphia, PA 19107-6799
Dear Dr. Pomerantz,
This letter of Agreement confirms our mutual interests and understandings with
respect to a research project initiated by American Bio-Technologies, Inc. and
entitled INTRACEL, the scope of which is outlined in the attached research
protocol ("the Protocol").
1. The work described in the Protocol (the Study) shall be carried out by Thomas
Jefferson University (University) for American Bio-Technologies, Inc. (Company),
under your scientific control, provided the Protocol is given prior approval and
that on-going reviews by all appropriate and necessary authorities are in
accordance with all applicable laws and regulations. The University shall obtain
the aforesaid necessary or appropriate written evidence of all requisite review
and approval, including that of the Institutional Animal Care and Use Committee
(IACUC), Institutional Biosafety and Institutional Review Board (IRB). The
Protocol may be amended from time to time upon written agreement of the parties
hereto and with the written approval of the authority that is required to
approve the amendment.
2. This study shall begin upon receipt by ABT of satisfactory in vitro data from
your laboratory and shall not extend beyond 12 months unless agreed to in
writing by the parties hereto.
5. In consideration of performance of the Study, the Company shall pay the
University in accordance with the attached Budget (Appendix A) an amount not to
exceed $222,750. Payments are subject to the submission of satisfactory reports
as specified in Paragraph 4 and should be made payable to Thomas Jefferson
University.
4. The University shall furnish the Company reports resulting from the Study as
specified in the Protocol. The University shall also provide the Company
periodic reports concerning the Study.
5. Should any invention be made arising out of the Study by an employee of the
University beyond the immediate scope of this Agreement and the Protocol, the
University as assignee pursuant to its Patent Policy, will offer the Company
first opportunity to enter into an exclusive license agreement to practice such
invention. The terms of the license shall be established by negotiation, but in
any case shall be royalty bearing and shall be for the life of the patent and
shall be on terms no less favorable to the Company than terms offered then or
thereafter to other licensees for other comparable technologies.
<PAGE> 27
2
6. Subject to Section 7 hereof, results of the Study may be published to the
scientific community provided that the Company's patent rights and/or patenting
opportunities set forth in Paragraph 5 are not compromised and the Company is
allowed to review and suggest revisions to any proposed publication for sixty
days (60) prior to submission for publication.
7. The University agrees to maintain in confidence for a period of three (3)
years from the date of termination of this Agreement all confidential
information received from the company or developed under the terms of this
Agreement. Such obligation of confidentiality shall not apply to any information
which, at the time of disclosure, was in the possession of the University, was
generally available to the public or thereafter becomes generally available to
the public through a source other than the University, was rightfully obtained
from a third party, or was developed by or for the University independent of any
disclosure under this Agreement. In addition to the above exclusions, the
University shall have the right to disclose the Company's confidential
information, if the University is required to do so by the order of any
governmental authority or by final judicial order.
8. The Company agrees to indemnify, defend, and hold harmless, the University,
its trustees, officers, staff and agents from all liabilities, demands, damages,
expenses and losses arising out of, or in connection with Study except to the
extent that such liabilities, demands, damages, expenses and losses arise from
the negligence of the University. This paragraph shall apply with the proviso
that (a) the University promptly notifies the Company in writing after the
University receives notice of any claim and (b) the University fully cooperates
with the Company in the defense of any such claim.
9. Neither party shall employ or use the name of the other party or its
employees in any form for public distribution without prior written consent.
10. The University shall at all times during the performance of this Agreement
be and remain as an independent contractor and not as an employee, agent, or
joint venturer of or with the Company.
11. This Agreement is not assignable by either party except that the Company may
assign this agreement to its affiliates without prior consent of the University.
12. The party may terminate this Agreement upon ninety (90) days written notice
to the other party. The University shall be paid for uncancellable obligations
properly incurred in accordance with the Budget and Payment Schedule prior to
the date of notice of termination. In the event of cancellation, the University
shall promptly transfer to the Company all ongoing experiments data and copies
of data generated under this Agreement.
13. The validity and interpretation of this Agreement shall be governed by the
laws of the Commonwealth of Massachusetts.
14. This Agreement constitutes the entire understanding between the parties with
respect to their obligations hereto. This Agreement supersedes all prior
understandings among the parties, written and oral, and may not be modified
except by written amendment executed by the parties.
15. Any and all notices required to be provided under this Agreement shall be
sent to the addresses below, unless otherwise previously indicated in writing by
either of the parties:
To the University,: Joseph R. Sherwin, Ph.D.
Associate Dean of Scientific Affairs
Jefferson Medical College
1020 Locust Street, M-5 JAH
Philadelphia, PA 19107
<PAGE> 28
To the Company: American Bio-Technologies, Inc.
359 Allston Street
Cambridge, MA 02139
If the terms are satisfactory, please sign both copies and return them at your
earliest convenience. A fully executed copy will be returned to you.
Sincerely
/s/ SIMON R. MC KENZIE
Simon R. McKenzie
President
ACCEPTED FOR THE COMPANY ACCEPTED FOR THE UNIVERSITY
By:/s/ SIMON R. MC KENZIE By: /s/ JOSEPH R. SHERWIN
------------------------------- ------------------------------------
JOSEPH R. SHERWIN, PH.D.
ASSOCIATE DEAN OF SCIENTIFIC AFFAIRS
Title: Simon R. McKenzie Title:
------------------------------- ---------------------------------
Date: April 9, 1993 Date: 4/12/93
----------------------------------
<PAGE> 1
Exhibit 10.21
PRODUCT DEVELOPMENT AND LICENSE AGREEMENT
This Agreement is made and entered into as of the day of , 1997, by
and between the PERIMMUNE, a Delaware Corporation ("PERIMMUNE"), maintaining an
office at 1330 Piccard Drive, Rockville, Maryland 20850-4396 and SIGMA
DIAGNOSTICS, INC. "SIGMA", a Missouri corporation maintaining an office at 545
South Ewing Avenue, St. Louis, Missouri 63103.
WHEREAS, SIGMA desires to develop diagnostic assays useful for detecting
lipoprotein(a), Lp(a), and PERIMMUNE represents that it has the technical
expertise to develop hybridoma cell lines that produce antibodies for use in
such assay;
WHEREAS, SIGMA desires to grow such cell lines and harvest monoclonal
antibodies from said cell lines and to make, use and sell products manufactured
using such antibodies and desires to obtain the exclusive, worldwide rights to
harvest such antibodies and make, use and sell such products; and
WHEREAS, PERIMMUNE is willing to grant SIGMA such rights and license on
the terms and conditions set forth herein.
NOW THEREFORE, for and in consideration of the foregoing and the mutual
covenants and agreements contained herein, and certain other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following defined terms shall have the
meaning set forth in this Article 1.
1.1 "Affiliate" means any entity directly or indirectly controlling,
controlled by, or under common control with SIGMA. "Control" as used in this
Section 1.1 means the ownership of fifty percent (50%) or more of the entity in
question.
1.2 "Agreement" means this Agreement including all Exhibits attached to
this Agreement together with any written amendments of any of the foregoing.
1.3 "Approvals" means any or all approvals, registrations, licenses,
authorizations, visas or permits required by any governmental authority or
agency in order to import, offer for sale, sell, market, manufacture, have made
or use each Licensed Product.
1.4 "Cell Line Growth Information" means all information necessary to
establish a Licensed Cell Line in SIGMA'S possession which is growing and
producing Licensed Antibody in the quantity and with the properties reasonably
required by SIGMA. Cell Line Growth Information is not included in PERIMMUNE
Information.
<PAGE> 2
1.5 "Date Of This Agreement" means the date first set forth above and is
the Effective Date of this Agreement.
1.6 "Improvements" means all modifications, variations and revisions and
new models of the Licensed Product and/or the Licensed Antibodies, Licensed
Biologicals or Licensed Cell Lines licensed under this Agreement developed by
the parties hereto which relates or has consequence with respect to the Licensed
Product in any of the following ways: (1) improves the Licensed Products
performance; (2) reduces the cost of materials or components for the Licensed
Products; (3) reduces production, manufacturing or associated costs of the
Licensed Products; (4) increases the durability or continuous performance
characteristics of the Licensed Products; (5) expands the applications to which
the Licensed Product may be put; (6) increases or enhances the marketability or
commercial aspect of the Licensed Product; or (7) would, if implemented, replace
or displace the Licensed Product in one or more material commercial markets for
Licensed Products. Improvements may be patentable or unpatentable, and if
patentable, need not be patented.
1.7 "Licensed Antibody" means any antibody, fragment, derivative, or
conjugate thereof developed or discovered by PERIMMUNE or jointly by PERIMMUNE
and SIGMA during the Research and Development Period of this Agreement,
including without limitation, any glycosylated antibody specifically
immunoreactive with non-repetitive apolipoprotein(a) domains and not
immunoreactive with LDL or plasminogen with an affinity sufficient to be used in
a homogeneous turbidimetric assay having not more than a ten (10) minute
incubation period.
1.8 "Licensed Biological" means any biomaterial other than Licensed
Antibodies developed or discovered by PERIMMUNE or jointly by PERIMMUNE and
SIGMA during the Research and Development Period of this Agreement including,
without limitation, peptides and other biomaterial useful as a calibrator,
reference material or control.
1.9 "Licensed Cell Line" means the hybridoma cell line which will
produce the Licensed Antibody in the quantity reasonably required by SIGMA.
1.10"Licensed Patent" means any and all United States patents and patent
applications, all divisionals, continuations, continuations-in-part, reissues,
extensions or foreign counterparts thereof, now or hereafter owned or controlled
("controlled" being used in the sense of having the right to grant licensees
thereunder) by PERIMMUNE, covering the manufacture, use, sale, offer for sale
and/or importation of Licensed Antibodies, Licensed Biologicals, Licensed Cell
Lines, Licensed Products and/or Improvements.
1.11 "Licensed Product" means any product, including kits, which
comprises a Licensed Antibody.
2
<PAGE> 3
1.12 "Net Sales" means gross sales less, to the extent including in
gross sales, taxes, including sales taxes, duties, outward freight, insurance,
special handling and shipping charges, and to the extent actually allowed and
taken, discounts, non-affiliated brokers agents' commissions, returns and
allowances.
1.13 "Project Development" means research pertaining to the development
of Licensed Antibodies, Licensed Biologicals, Licensed Cell Lines and/or
Licensed Products performed during the Research and Development Period of this
Agreement.
1.14 "Project Funds" means those funds paid by SIGMA to PERIMMUNE for
the Project Development in accordance with this contract.
1.15 "Research and Development Period" shall mean the period commencing
on the Effective Date of this Agreement and terminating on the second
anniversary thereof.
1.16 "Project Team" means the individuals listed on Exhibit A attached
hereto and the research technicians under each of their direction and control
who are supported in whole or in part by the Project Funds.
1.18 "Information" means either PERIMMUNE Information, SIGMA
Information, Joint Project Information or Cell Line Information or any
combination of PERIMMUNE Information, SIGMA Information, Joint Information or
Cell Line Information, as the case may be.
1.19 "Joint Project Information" means, individually and collectively,
all manufacturing, analytical, and marketing information and technical know-how,
trade secrets and inventions conceived and/or reduced to practice and/or
acquired jointly by the parties during the Research Period of this Agreement and
for one (1) year thereafter and directed to the Licensed Antibodies, Licensed
Biologicals, Licensed Cell Lines, Licensed Patents and Licensed Products
including, but not limited to, specifications for ingredients and formulations,
information relating to regulatory and clinical work, testing or studies,
manufacturing methods and procedures.
1.20 "PERIMMUNE Information" means "PERIMMUNE Project Information" and
PERIMMUNE Ancillary Information."
(a) "PERIMMUNE Project Information" means, individually and
collectively, all manufacturing, analytical, and marketing information and
technical know-how, trade secrets and inventions conceived and/or reduced to
practice and/or acquired by PERIMMUNE during the Research Period of this
Agreement and for one (1) year thereafter and directed to the Licensed
Antibodies, Licensed Biologicals, Licensed Cell Lines, Licensed Patents and
Licensed Products including, but not limited to, specifications for ingredients
and formulations, information relating to regulatory and clinical work, testing
or studies, manufacturing methods and procedures.
3
<PAGE> 4
(b) "PERIMMUNE Ancillary Information" means, individually and
collectively, all manufacturing, analytical, and marketing information and
technical know-how, trade secrets and inventions directed to the Licensed
Antibodies, Licensed Biologicals, Licensed Cell Lines, Licensed Patents and
Licensed Products including, but not limited to, specifications for ingredients
and formulations, information relating to regulatory and clinical work, testing
or studies, manufacturing methods and procedures owned, controlled, conceived
and/or reduced to practice and/or acquired by PERIMMUNE before the date of this
Agreement.
1.21 "SIGMA Information" shall mean "SIGMA Project Information" and
"SIGMA Ancillary Information.
(a) "SIGMA Project Information" means, individually and collectively,
all manufacturing, analytical, and marketing information and technical know-how,
trade secrets and inventions conceived and/or reduced to practice and/or
acquired by SIGMA during the Research Period of this Agreement and for one (1)
year thereafter and directed to the Licensed Antibodies, Licensed Biologicals,
Licensed Cell Lines, Licensed Patents and Licensed Products including, but not
limited to, specifications for ingredients and formulations, information
relating to regulatory and clinical work, testing or studies, manufacturing
methods and procedures.
(b) "SIGMA Ancillary Information" means, individually and collectively,
all manufacturing, analytical, and marketing information and technical know-how,
trade secrets and inventions directed to the Licensed Antibodies, Licensed
Biologicals, Licensed Cell Lines, Licensed Patents and Licensed Products
including, but not limited to, specifications for ingredients and formulations,
information relating to regulatory and clinical work, testing or studies,
manufacturing methods and procedures owned, controlled, conceived and/or reduced
to practice and/or acquired by SIGMA before the date of this Agreement.
1.22 "SIGMA Patents" means any and all United States patents and patent
applications, all divisionals, continuations, continuations-in-part, reissues,
extensions or foreign counterparts thereof, now or hereafter owned or controlled
("controlled" being used in the sense of having the right to grant licensees
thereunder) by SIGMA, claiming an invention or inventions discovered or
developed solely by SIGMA or covering the manufacture, use, sale, offer for sale
and/or importation of Licensed Products and/or Improvements.
ARTICLE 11
RESEARCH AND DEVELOPMENT OF LICENSED CELL LINES
2.1 PROJECT DEVELOPMENT SCHEDULE. During the Research and Development
Period, the Project Team shall conduct Project Development on behalf of SIGMA in
accordance with the plan and schedule mutually agreed to by the parties hereto
and attached hereto as Exhibit B.
4
<PAGE> 5
2.2. PROJECT DEVELOPMENT REPORTING. A representative of the Project Team
shall advise SIGMA of the results of the Project Development and, at least once
every quarter during the Research Period, provide SIGMA with a written progress
report concerning the Research Project, provided however, PERIMMUNE shall notify
SIGMA as soon as reasonably possible of the reduction to practice of inventions
developed during Project Development and for a period of one (1) year
thereafter. At SIGMA'S request, a representative of the Project Team shall meet
with SIGMA from time to time to discuss the progress of the Project Development.
2.3 COMPLIANCE WITH REGULATIONS. All studies done in connection with the
Project Development shall be carried out in strict compliance with any
applicable Federal, state, or local laws, regulations or guidelines governing
the conduct of such research.
2.4 CHANGE IN PROJECT TEAM. PERIMMUNE shall promptly notify SIGMA of any
changes in the personnel comprising the Project Team.
ARTICLE III
PAYMENTS
3.1 PAYMENT SCHEDULE. SIGMA shall pay PERIMMUNE the Project Funds amount
of Three Hundred Forty Eight Thousand Dollars ($348,000) in the following
manner:
(a) on or before the Effective Date, SIGMA shall pay the sum of Eighty
Seven Thousand Dollars ($87,000);
(b) SIGMA shall make a second payment of Eighty Seven Thousand Dollars
$87,000 after PERIMMUNE provides SIGMA with proof that it has isolated
glycosylated monoclonal antibodies specifically immunoreactive with
non-repetitive apolipoprotein(a) domains and not immunoreactive with LDL
or plasminogen with an affinity consistent with a homogeneous
turbidimetric assay having not more than a ten (10) minute incubation
period;
(c) SIGMA shall make a third payment of Eighty Seven Thousand Dollars
$87,000 after PERIMMUNE has delivered to SIGMA ascites derived purified
monoclonal antibodies to SIGMA; and
(d) SIGMA shall make a final payment of Eighty Seven Thousand Dollars
$87,000 upon the delivery of a Licensed Cell Line. A Licensed Cell Line
will be considered delivered when it is in SIGMA'S possession and
growing and producing Licensed Antibody in the quantity and with the
properties reasonably required by SIGMA.
5
<PAGE> 6
3.2 RECOUPMENT OF PROJECT FUNDS. SIGMA shall recoup One Hundred Twenty
Four Thousand Dollars ($124,000) of the Project Funds paid to PERIMMUNE pursuant
to Section 3.1 hereof by withholding royalties due to PERIMMUNE pursuant to
Section 5.1 hereof. At PERIMMUNE's election, such election to be made prior to
the first royalty becoming due, SIGMA shall either: (a) retain one-third of the
total annual royalty due under Section 5.1 hereof until SIGMA has retained a
total of One Hundred Twenty Four Thousand Dollars $124,000; or (b) retain the
entire annual royalty due under Section 5.1 hereof, until SIGMA has retained a
total of One Hundred Twenty Four Thousand Dollars $124,000.
3.3 DIRECTION OF PAYMENTS. Payments under the terms of this Agreement
shall be made by check payable to:
PERIMMUNE, INC.
1350 Piccard Drive
Rockville, Maryland 20850-4396
Attn: Dr. Bryan Butman
ARTICLE IV
RIGHTS AND LICENSES
4.1 GRANT OF LICENSE. PERIMMUNE grants to SIGMA the exclusive worldwide,
right to use all Technical Information and Cell Line Growth Information which
PERIMMUNE furnishes SIGMA under this Agreement together with an exclusive right
to use Licensed Antibodies, Licensed Biologicals, Licensed Cell Lines and
Improvements thereto (such Improvements includes Improvements made or developed
solely by PERIMMUNE or jointly by PERIMMUNE and SIGMA) and an exclusive
worldwide license under Licensed Patents to: (a) use, possess and culture
Licensed Cell Lines to obtain Licensed Antibodies, or have Licensed Cell Lines
used, possessed and cultured to obtain Licensed Antibodies for SIGMA; (b) to
manufacture Licensed Products or have Licensed Products manufactured for SIGMA;
(c) to use and possess Licensed Antibodies, Licensed Biologicals, and Licensed
Products for all purposes; and (d) to distribute, market, import, sell and offer
for sale such Licensed Antibodies, Licensed Biologicals and/or Licensed Products
for all purposes to Affiliates and third parties together with the right to
extend to purchasers of Licensed Antibodies, Licensed Biologicals and/or
Licensed Products from SIGMA rights of the same scope as granted to SIGMA herein
to use, possess, distribute, market and sell such Licensed Antibodies, Licensed
Biologicals and/or Licensed Products.
4.2 RIGHT TO SUBLICENSE. SIGMA shall have the right to grant sublicenses
under this Agreement.
4.3 COMMERCIALIZATION. SIGMA shall commence marketing of a Licensed
Product as soon as reasonably feasible after establishing the Licensed Cell Line
from which said Licensed Antibody is obtained and obtaining the necessary
Approvals for Licensed Product in any country.
6
<PAGE> 7
4.4 SUPPLY AND TRANSFER OF MAB 2D1. If SIGMA desires to use anti-apo(a)
Mab 2D1 in a Licensed Product, PERIMMUNE agrees to sell and transfer Mab 2D1 to
SIGMA at a transfer price equal to the actual manufacturing cost of producing
Mab 2D1 plus ten percent (10%). PERIMMUNE shall keep true and accurate books and
records in such detail as to enable the transfer price of Mab 2D1 to be readily
computed. PERIMMUNE agrees, upon the request of SIGMA, to permit an independent
certified public accountant retained by SIGMA and to whom PERIMMUNE has no
reasonable objection, to have access during normal business hours to such books
and records relating to the transfer price of Mab 2D1 as may be necessary to
determine in respect of the transfer price for the most previous calendar year,
the correctness of such transfer price or to obtain information as to the
transfer price. Any such accountant shall agree in writing not to disclose any
information relating to the business of PERIMMUNE except that which should
properly be contained in any report to SIGMA due hereunder.
4.5 CELL LINE TRANSFER. If SIGMA demonstrates to PERIMMUNE at any time
during the term of this Agreement that SIGMA can manufacture Mab 2D1 for less
than the transfer price provided for in Section 4.4 hereof, PERIMMUNE shall
transfer the Mab 2D1 cell line together with any necessary licenses to SIGMA
and shall allow SIGMA to manufacture of Mab 2D1 for use in Licensed Products.
ARTICLE V
ROYALTIES/BOOKS AND RECORDS
5.1 ROYALTIES. SIGMA agrees to pay PERIMMUNE in United States dollars, a
royalty equal to seven percent (7%) of the Net Selling Price of the Licensed
Products covered by a claim in a Licensed Patent sold to third parties by or for
SIGMA or its Affiliates and its sublicensees. If a competing product equivalent
to a Licensed Product or a competing product comprising an antibody equivalent
to, or which competes with the epitope recognized by, a Licensed Antibody is
offered for sale by a third party, then the royalty rate payable on Licensed
Products shall be equal to three and one-half percent (3.5%) of the Net Selling
Price.
5.2 ROYALTY REPORTS AND PAYMENTS. SIGMA shall render an annual report to
PERIMMUNE within ninety (90) days after the end of each calendar year setting
forth the total of the Net Sales of Licensed Products sold by SIGMA during the
preceding calendar year and the amount of royalty due pursuant to Sections 5.1
hereof. SIGMA shall include with each report payment of the amount of royalty
shown by the report to be due minus the recoupment amount, if any, as provided
for in Section 3.2 hereof. All such reports, and all reports by accountants as
provided under Section 5.6 hereof, shall be maintained in confidence by
PERIMMUNE.
5.3 TIMING OF ROYALTIES ON SUBLICENSEE SALES. Royalties shall be payable
by SIGMA with respect to all of its sublicensees' Net Sales. Royalties shall not
become payable at the time of the sale, transfer or disposal among SIGMA and its
Affiliates or sublicensee, but shall become payable only when SIGMA or its
sublicensee sells such products to a third party.
7
<PAGE> 8
5.4 NO MULTIPLE ROYALTIES. No multiple royalties shall be payable
because any Licensed Product is covered by more than one patent or patent claim
of the Licensed Patents.
5.5 WITHHOLDINGS. Any income or other tax which SIGMA is required to
withhold and pay on behalf of PERIMMUNE with respect to the royalties payable
under this Agreement shall be deducted from such royalties prior to remittance
to PERIMMUNE.
5.6 INSPECTION OF RECORDS. SIGMA shall keep true and accurate books and
records in such detail as to enable the royalties payable hereunder to be
readily computed. SIGMA agrees, upon the request of PERIMMUNE, within one
hundred-twenty (120) days following the receipt by PERIMMUNE of the report
required by Section 5.2 hereof, to permit an independent certified public
accountant retained by PERIMMUNE and to whom SIGMA has no reasonable objection,
to have access during normal business hours to such books and records relating
to the Net Sales of Licensed Products as may be necessary to determine in
respect of the report for the most previous calendar year, the correctness of
such report or payment or to obtain information as to the amount payable to
PERIMMUNE in case of the failure of SIGMA to report. Any such accountant shall
agree in writing not to disclose any information relating to the business of
SIGMA except that which should properly be contained in any report to PERIMMUNE
due hereunder.
5.7 TERMINATION OF ROYALTY OBLIGATION. In the event that any Licensed
Cell Line furnished to SIGMA pursuant to Section 3.1 becomes available to third
parties for commercial purposes through an act of or failure to act by
PERIMMUNE, the obligations of SIGMA set forth in this Article V shall terminate.
ARTICLE VI
SUPPLY OF TECHNICAL INFORMATION AND PUBLICATION
6.1 REQUEST FOR CELL LINE INFORMATION. PERIMMUNE agrees to furnish to
SIGMA, within fifteen (15) days from the date of a notice of request for
Technical Information by SIGMA, all requested Cell Line Information. Requests
for Cell Line Information by SIGMA shall be made by notice of compliance with
Section 13.1 below.
6.2 CONFIDENTIALITY. With respect to any Information, as defined in 1.8
hereof, that is designated by the parties as its confidential information by a
written notice to the non-owning party within thirty (30) days after the first
written disclosure of that Information by either party to the other, the
non-owning party shall, until five (5) years from the date of the expiration or
termination of this Agreement: (a) take all reasonable steps to prevent
disclosure of such Information to any third party and (b) not utilize any of
such Information for any purpose other than the purposes of this Research
Project as provided herein; provided, however, that the foregoing obligations of
confidentiality and non-use shall not preclude disclosure of such information in
a patent application or in the prosecution of a patent application pursuant to
Section 7.6 hereof, or extend to any of such Information which a non-owing party
can show:
8
<PAGE> 9
(i) by the non-owning party's prior written records was already in the
non-owning party's possession prior to (confidentiality agreement date);
(ii) such Information became generally available to the public through
issuance or publication of a patent application in which the information
is disclosed pursuant to Section 7.6 hereof;
(iii) such Information otherwise is or becomes generally available to
public through non fault of the non-owning party;
(iv) such Information is received by the non-owning party in good faith
from a third party on a non-confidential basis without violating any
obligation of secrecy to the owner party relating to the Information
disclosed; or
(v) written consent to disclose such Information was given by the owning
party.
6.3 DISCLOSURE OF CONFIDENTIAL INFORMATION. All PERIMMUNE confidential
disclosures shall be sent to SIGMA to the attention of Vice President of
Administration. All SIGMA confidential disclosure shall be sent to PERIMMUNE to
the attention of Dr. Bryan Butman. The parties agree that Information designated
confidential shall be disclosed to a restricted number of employees and such
employees shall be made aware of the confidential nature of the Information. The
parties shall use efforts fully commensurate with those employed for the
protection of its own confidential information to protect the Information
disclosed pursuant to Section 6.2 hereof and this Section 6.3.
6.4 Ownership of PERIMMUNE Ancillary Information. PERIMMUNE Ancillary
Information is owned solely by PERIMMUNE.
6.5 Ownership of PERIMMUNE Project Information. PERIMMUNE Project
Information shall be owned by SIGMA.
6.6 Ownership of SIGMA Information. SIGMA Information is, or shall be,
owned solely by SIGMA.
6.7 Ownership of Joint Project Information. Joint Project Information
shall be owned by SIGMA.
ARTICLE VII
OWNERSHIP OF INVENTIONS AND PATENTS
7.1 Ownership of Licensed Patents. PERIMMUNE shall have sole and
exclusive ownership of the Licensed Patents subject to SIGMA'S exclusive
worldwide license as provided in Article IV hereof.
9
<PAGE> 10
7.2 Ownership of SIGMA Patents. SIGMA shall have sole and exclusive
ownership of all SIGMA Patents.
7.3 Ownership of PERIMMUNE Improvements. PERIMMUNE shall have sole and
exclusive ownership rights to any Improvements made solely by PERIMMUNE whether
patentable or unpatentable subject to SIGMA's exclusive worldwide license as
provided in Article IV hereof.
7.4 Ownership of SIGMA Improvements. SIGMA shall have sole and exclusive
ownership rights to any Improvements made solely by SIGMA whether patentable or
unpatentable.
7.5 Ownership of Joint Improvements. Any Improvements made jointly by
SIGMA and PERIMMUNE shall be jointly owned by the parties hereto, subject to
SIGMA'S exclusive worldwide license as provided in Article IV hereof.
7.6 Filing Patents. PERIMMUNE shall be responsible for the preparation,
filing and prosecution of Licensed Patents as well as all costs and fees
associated therewith. PERIMMUNE shall apply for, seek prompt issuance of and
maintain during the term of this Agreement the patents and patent applications
in all jurisdiction where patent protection is available. The preparation,
prosecution and maintenance of all Licensed Patents shall be the primary
responsibility of PERIMMUNE; provided however, that SIGMA shall be afforded
reasonable opportunities to advise PERIMMUNE and shall cooperate with PERIMMUNE
in such preparation, prosecution and maintenance. PERIMMUNE shall promptly
advise SIGMA of the grant, lapse, revocation, surrender, or any threatened
invalidation or of its intention to abandon any such patent, application or
foreign counterpart. If PERIMMUNE chooses not to seek patent protection covering
an invention relating to the Project Research or chooses not to pay maintenance
fees due on a Licensed Patent it shall notify SIGMA immediately of such
decision. Upon request by SIGMA after receiving such notice, PERIMMUNE shall
assign ownership of such invention or Licensed Patent to SIGMA and execute the
necessary documents to enable SIGMA to seek patent protection of such invention
or maintain such Licensed Patent.
10
<PAGE> 11
ARTICLE VIII
REGULATORY AFFAIRS
8.1 Approvals. SIGMA shall have the responsibility to carry out, at its
own expense, all further regulatory and clinical work, testing or studies
relating to the Licensed Products as required or advisable for obtaining
Approvals. Sigma shall hold the 510(k) approval for all Licensed Products.
8.2 Assistance in Gaining Approvals. PERIMMUNE agrees to provide
reasonable assistance to SIGMA in making such applications, submissions or
filings as may be required or advisable in obtaining the Approvals required for
any Licensed Product to enable SIGMA to make, have made, import, use, market and
sell such Licensed Product in any country. Such assistance shall be provided at
not charge to SIGMA.
8.3 Notice of Reports to Government Authorities. Each party shall
promptly notify the other party of any information coming to its attention
concerning experience with any Licensed Product for which records and reports
are filed with any governmental authority, but shall not be liable for any
unintentional failure to do so.
ARTICLE IX
INFRINGEMENT
9.1 Suits Against SIGMA. In the event that any suit, action or other
proceeding shall be brought or threatened against SIGMA and/or any of its
Affiliates involving any claim of patent infringement or other violation of
intellectual property rights relating to the manufacture, use or sale of a
Licensed Product:
(a) SIGMA shall promptly send to PERIMMUNE copies of all papers which
shall have been served in such suit, action, or other proceeding.
PERIMMUNE shall, at its cost, indemnify, defend and hold SIGMA, its
officers, employees and Affiliates, harmless against any such claim,
including legal expenses and reasonable attorney fees. SIGMA and its
Affiliates agree to cooperate fully with PERIMMUNE, and will on
reasonable notice make available any of its employees, officers,
managers, trustees, agents, and other representatives to testify when
requested by PERIMMUNE, and will, on reasonable notice, make available
to the attorneys for PERIMMUNE all relevant records, papers,
information, samples, specimens and the like under an agreed upon
protective order effective to protect SIGMA's proprietary information
against public disclosure and/or disclosure to competition of SIGMA. If,
as a result of any such threatened or actual suit, action or other
proceeding, SIGMA is obligated to pay royalties and/or damages to a
third party, PERIMMUNE shall pay such royalty or damages on behalf of
SIGMA.
11
<PAGE> 12
(b) SIGMA'S obligation to pay royalties under Article IV shall be
suspended pending resolution of such suit, action or other proceeding.
SIGMA'S obligations under Article IV shall remain suspended until such
suit, action or other proceeding is resolved by dismissal thereof
together with: (i) a release of SIGMA from any past liability for the
manufacture, use or sale of Licensed Products; and (ii) a release or
license of SIGMA for the future manufacture, use and sale of Licensed
Products.
9.2(a) Notice and Prosecution of Infringement. PERIMMUNE will promptly
notify SIGMA of any counterfeiting, imitation or passing off of any
Licensed Product or suspected infringement of any Licensed Patents by a
third party of which PERIMMUNE becomes aware. PERIMMUNE and SIGMA shall
discuss and attempt to mutually agree as to any action, legal or
otherwise, which should be taken with respect to such suspected
infringement. PERIMMUNE shall have the right to bring any action for
infringement of the Licensed Patents, but if it chooses not to do so, or
fails to do so within a reasonable period of time, SIGMA may do so and
may join PERIMMUNE as a party to any such action. SIGMA shall have the
right to bring actions for counterfeiting, imitation or passing off
which do not involve patent infringement. In any such action so
instituted, each party will cooperate with the party bringing the action
in all respects, will on reasonable notice make any of its employees,
officers, directors, managers, trustees, agents, and other
representatives available to testify when appropriate and necessary and,
on reasonable notice, and will make available as necessary all relevant
records, papers, information, samples and specimens. Any and all
expenses incurred in the enforcement of Licensed Patents, (including
reasonable attorney's fees) whether by PERIMMUNE or SIGMA, and any and
all money or recoveries received in connection therewith shall be borne
or retained by the party bringing the action.
(b) In the event of any counterfeiting of any Licensed Product or
infringement of any Licensed Patents by any third party, SIGMA'S
obligation to pay royalties under Article IV shall be suspended pending
abatement of such counterfeiting or infringement, either by final
judgment of a court of competent jurisdiction from which no timely
appeal has been taken or by actual cessation of the counterfeiting or
infringement pursuant to a written agreement between Licensor and the
counterfeiter or infringer.
ARTICLE X
PRODUCT LIABILITY
10.1 Products Liability. (a) Except as otherwise provided in Article IX,
SIGMA shall defend, indemnify and hold PERIMMUNE harmless from and
against any and all loss, claims, suits, proceedings, expenses,
recoveries and damages, including costs and attorney's fees arising out
of, based on, or caused by any use and/or sale of any Licensed Product
manufactured by SIGMA, except that, SIGMA shall have no obligation to
defend or indemnify or to hold PERIMMUNE harmless with respect to any
damages, losses or liabilities arising out of a negligent act of
PERIMMUNE.
12
<PAGE> 13
(b) PERIMMUNE shall defend, indemnify and hold SIGMA harmless from and
against any and all loss, claims, suits, proceedings, expenses,
recoveries and damages, including costs and attorney's fees arising out
of, based on, or caused by any use of Technical Information furnished to
SIGMA by PERIMMUNE, except that, PERIMMUNE shall have no obligation to
defend or indemnify or to hold SIGMA harmless with respect to any
damages, losses or liabilities arising out of a negligent act of SIGMA.
ARTICLE XI
TERM AND TERMINATION
11.1 Term. This Agreement shall be in full force and effect for an
initial term of five (5) years from the effective date hereof and will be
automatically extended for additional one (1) year terms unless SIGMA gives
written notice to PERIMMUNE terminating the automatic extension of this
Agreement at least thirty (30) days prior to the beginning of a renewal period
or unless sooner terminated as provided for in Section 11.2 hereof.
11.2 Termination. Notwithstanding anything herein to the contrary,
either party shall have the right to terminate this Agreement by giving written
notice to be given at least ninety (90) days prior to the effective date of
termination, in the event:
(a) of any material default of this Agreement by the other party which
continues in default for more than ninety (90) days, and if, after
receiving written notice of such default from the non-defaulting party,
the default is not cured or remedied within ninety (90) days;
(b) action is taken to dissolve the other party.
11.3 Conditions Upon Termination. Upon expiration or termination of this
Agreement for any reason, SIGMA:
(a) shall, within sixty (60) days from the date thereof, destroy all
Licensed Cell Lines or return them to PERIMMUNE; and
(b) shall have the right, for a period of one (1) year from the date
thereof, to sell all Licensed Products on hand, and to produce and sell
Licensed Products from Licensed Antibodies on hand, subject to the
obligations of SIGMA to submit reports and pay royalties, as provided
for in Articles IV and V hereof.
13
<PAGE> 14
ARTICLE XII
WARRANTIES
12.1 Representations and Warranties of SIGMA. SIGMA hereby makes the
following representations and warranties to PERIMMUNE, which representations and
warranties, together with all other representations and warranties of SIGMA in
this Agreement, are true and correct on the date hereof:
(a) SIGMA is a corporation duly organized, validly existing and in good
standing under the laws of the State of Missouri and has all requisite
corporate power and authority to enter into this Agreement and perform
its obligations hereunder.
(b) Neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated herein, will: (a) violate
or conflict with any provision of the Incorporation or By-laws of SIGMA,
as each may have been amended; (b) with or without the giving of notice
or the lapse of time or both (i) result in a breach of, or violate, or
be in conflict with or constitute a default under, or result in the
termination or cancellation of, or accelerate the performance required
under, any security instrument, mortgage, note, debenture, indenture,
loan, lease, contract, agreement or other instrument, to which SIGMA is
a party or by which it or any of its properties or assets may be bound
or affected, or (ii) result in the loss or adverse modification of any
lease, franchise, license or other contractual right or other
authorization granted to or otherwise held by SIGMA; (c) require the
consent of any party to any such agreement or commitment to which SIGMA
is a party or by which any of its properties or assets are bound; (d)
result in the creation or imposition of any lien, claim or encumbrance
upon any property or assets of SIGMA; or (e) require any consent,
approval, authorization, order, filing, registration or qualification of
or with any court or governmental authority or arbitrator to which SIGMA
is subject or by which any of its properties or assets may be bound or
affected.
(c) All action to authorize the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly taken, and this Agreement constitutes the valid and binding
obligation of SIGMA enforceable in accordance with its terms.
(d) There are no claims (relating to patent infringement or any other
matters), actions, suits, proceedings, arbitrations or investigations
pending or, to the best of SIGMA's knowledge, threatened, against SIGMA
which if adversely determined would adversely affect Licensed
Antibodies, Licensed Biologicals, Licensed Cell Lines, Licensed Products
or Licensed Patents (or the patentability thereof) or other technology
practiced by SIGMA, or SIGMA's ability to enter into or carry out this
Agreement or use of Licensed Antibodies, Licensed Biologicals, Licensed
Cell Lines, Licensed Products or Licensed Patents.
14
<PAGE> 15
12.2 Representations and Warranties of PERIMMUNE. PERIMMUNE hereby makes
the following representations and warranties to SIGMA, which representations and
warranties, together with all other representations and warranties of PERIMMUNE
in this Agreement, are true and correct on the date hereof:
(a) PERIMMUNE is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and has the power
and authority to enter into this Agreement and perform its obligations
hereunder;
(b) Neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated herein, will: (a) violate
or conflict with any provision of the Incorporation or By-laws of SIGMA,
as each may have been amended; (b) with or without the giving of notice
or the lapse of time or both (i) result in a breach of, or violate, or
be in conflict with or constitute a default under, or result in the
termination or cancellation of, or accelerate the performance required
under, any security instrument, mortgage, note, debenture, indenture,
loan, lease, contract, agreement or other instrument, to which PERIMMUNE
is a party or by which it or any of its properties or assets may be
bound or affected, or (ii) result in the loss or adverse modification of
any lease, franchise, license or other contractual right or other
authorization granted to or otherwise held by PERIMMUNE; (c) require the
consent of any party to any such agreement or commitment to which
PERIMMUNE is a party or by which any of its properties or assets are
bound; (d) result in the creation or imposition of any lien, claim or
encumbrance upon any property or assets of PERIMMUNE; or (e) require any
consent, approval, authorization, order, filing, registration or
qualification of or with any court or governmental authority or
arbitrator to which PERIMMUNE is subject or by which any of its
properties or assets may be bound or affected.
(c) All action to authorize the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly taken, and this Agreement constitutes the valid and binding
obligation of PERIMMUNE enforceable in accordance with its terms.
(d) There are no claims (relating to patent infringement or any other
matters), actions, suits, proceedings, arbitrations or investigations
pending or, to the best of PERIMMUNE's knowledge, threatened, against
PERIMMUNE which if adversely determined would adversely affect the
Licensed Antibodies, Licensed Biologicals, Licensed Cell Lines, Licensed
Products or Licensed Patents (or the patentability thereof) or other
technology practiced by PERIMMUNE, or PERIMMUNE's ability to enter into
or carry out this Agreement or use of Licensed Antibodies, Licensed
Biologicals, Licensed Cell Lines, Licensed Products or Licensed Patents.
15
<PAGE> 16
(e) As of the date hereof, PERIMMUNE warrants that (i) it has no
knowledge that the manufacture, use, importation or sale of any Licensed
Antibodies, Licensed Biologicals, Licensed Cell Lines, Licensed Products
or Licensed Patents under this Agreement either alone or in combination,
nor any method of using such Licensed Antibodies, Licensed Biologicals,
Licensed Cell Lines, Licensed Products or Licensed Patents infringes any
patent or other industrial property right of a third party; and (ii) it
has not received any notification from any third party alleging or
suggesting that the manufacture, use, importation or sale of any such
Licensed Antibodies, Licensed Biologicals, Licensed Cell Lines, Licensed
Products or Licensed Patents does or would infringe any patent or other
industrial property. PERIMMUNE shall disclose to SIGMA any information
regarding adverse patent rights which it is, or becomes, aware of
relating to Licensed Antibodies, Licensed Biologicals, Licensed Cell
Lines, Licensed Products or Licensed Patents.
ARTICLE XII
MISCELLANEOUS
13.1 Notices. Any notices or report or other communication permitted or
required under this Agreement shall be in writing and sent by certified mail,
express mail, Federal Express, postage paid, return receipt requested, addressed
to the party to whom the notice is to be given. All notices, reports or other
communications made hereunder shall be deemed to have been made on the date
postmarked. Changes in address shall be accomplished by a notice in compliance
with this Section 13.1. The current address for each party is as follows:
PERIMMUNE SIGMA DIAGNOSTICS, INC.
1330 Piccard Drive 545 South Ewing Avenue
Rockville, Maryland 20850-4396 St. Louis, Missouri 63103
Attn: Dr. Bryan Butman Attn: Vice President, Administration
13.2 Marking. SIGMA agrees to refer, in it sales literature and package
materials for Licensed Products, to the numbers of representative patent(s)
licensed under Licensed Patents.
13.3 Assignability. Neither this Agreement nor any agreement
incorporated herein nor any rights or obligations hereunder or thereunder may be
assigned by PERIMMUNE without prior written consent of SIGMA, and any attempted
assignment without SIGMA's prior written consent shall be void and of no effect.
This Agreement may be assigned by SIGMA and shall be binding upon and inure to
the benefit of the successor or assign of SIGMA.
13.4 Force Majeure. Neither party shall be liable in damages for, nor
shall this Agreement be terminable or cancelable by reason of any delay or
default in such party's performance hereunder if such default or delay is caused
by events beyond such party's reasonable control including, but not limited to,
acts of God, regulation or law or other action of any government or agency
thereof, war or insurrection, civil commotion, destruction or
16
<PAGE> 17
production facilities or materials by earthquake, fire, flood or storm, labor
disturbances, epidemic, or failure of suppliers, public utilities or common
carriers. Each party shall endeavor to resume its performance hereunder if such
performance is delayed or interrupted by reason of force majeure. Each party
shall notify the other, in writing, not less often than monthly, of the nature
and progress of such endeavors.
13.5 Severability. Should any part of this Agreement be held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provision shall be replaced
with a provision which accomplishes, to the extend possible, the original
business purpose of such part or provision in a valid and enforceable manner,
and the reminder of this Agreement shall remain binding upon the parties.
13.6 Waiver. Waiver by either party of a default or breach or a
succession of defaults or breaches, or any failure to enforce any right
hereunder shall not be deemed to constitute a waiver of any subsequent default
or breach with respect to the same or any other provision hereof, and shall not
deprive such party of any right to terminate this Agreement arising by reason of
any subsequent default or breach.
13.7 Dispute Resolution. In the event of any controversy or claim
arising under or in relation to this agreement, including any issue about
payment of amounts due, the parties shall, in good faith, attempt to resolve the
controversy or claim by negotiation. If the controversy or claim cannot be
resolved within sixty (60) days, then it shall be settled exclusively by
arbitration in accordance with the Arbitration Rules of American Arbitration
Associations (AAA) and shall be held in Washington D.C. There shall be three
arbitrators: one selected by the party who requests arbitration who shall notify
the other party of the person selected at the time that notice of arbitration is
sent; one selected by the other party within ten (10) days of receipt of notice
of arbitration and one selected by the parties jointly within ten (10) days
thereafter or, failing their agreement, selected pursuant to the rules of AAA.
No arbitrator shall be related to, employed by, or have at any time a
substantial ongoing business relationship with any party hereto or any of their
respective affiliates. The losing party in the arbitration shall reimburse the
prevailing party for all costs and expenses, including reasonable attorneys
fees, incurred in connection with the arbitration. The decision of the
arbitrators shall be final and binding on the parties and judgement upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. The provisions of this arbitration clause shall not be
applied to the determination of questions affecting validity or scope of any
trademarks, patents or other intellectual property.
13.8 Entire Agreement. This Agreement represents the entire
understanding between the parties as to the Date Of This Agreement with respect
to the subject matter hereof, and supersedes all prior agreements, negotiations,
understandings, representations, statements, and writings, between the parties
relating thereto. No modification, alteration, waiver or change in any of the
terms of this Agreement shall be valid or binding upon the parties hereto unless
made in writing and specifically referring to this Agreement and duly executed
by each of the parties hereto.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives as of the day and
year first written above.
PERIMMUNE SIGMA DIAGNOSTICS, INC.
By: /s/M. G. HANNA, JR. By: /S/ MICHAEL G. DOUGLAS
------------------------------- -------------------------------
Printed Name: M. G. Hanna, Jr. Printed Name: Michael G. Douglas
--------------------- ----------------------
Title: Pres & CEO Title: CEO
---------------------------- ----------------------------
18
<PAGE> 19
STATE OF Maryland )
)
COUNTY OF Montgomery )
On this 30th day of June, 1997, before me, a Notary Public, personally
appeared Michael G Hanna, Jr., to me known to be the persons described in and
who executed the foregoing assignment and acknowledged that he/she executed same
as his/her free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal the date and
year last above written.
[SIG]
-------------------------------
Notary Public
My commission expires: May 15, 1999
STATE OF Missouri )
)
COUNTY OF St. Louis )
On this 26th day of June, 1997, before me, a Notary Public, personally
appeared Michael G. Douglas to me known to be the persons described in and
executed the foregoing assignment and acknowledged that he/she executed same as
his/her free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal the date and
year last above written.
/s/ NANCY J. MEYERS
-------------------------------
Notary Public
My commission expires:
NANCY J. MEYERS
NOTARY PUBLIC- NOTARY SEAL
STATE OF MISSOURI
ST LOUIS COUNTY
MY COMMISSION EXPIRES: AUG 21, 2000
<PAGE> 1
EXHIBIT 10.23
DISTRIBUTION AGREEMENT BETWEEN PERIMMUNE, INC.,
AND MENTOR CORP.
This Exclusive Distribution Agreement (hereinafter the "Agreement") is
made in Rockville, Maryland, by and between PerImmune, Inc. (hereinafter
"PERIMMUNE"), a corporation existing under the laws of Delaware, and MENTOR
Corp. (hereinafter "MENTOR"), a corporation existing under the laws of
Minnesota.
WHEREAS, PERIMMUNE desires to sell and/or market its AuraTek-FDP Bladder
Cancer Diagnostic product and MENTOR desires to purchase PERIMMUNE's product
for resale to customers bearing a trademark or trade name and logo owned by
MENTOR; and
WHEREAS, the parties desire to enter into an agreement setting forth the
terms of their relationship;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties do hereby agree as follows:
1. Product. The product of PERIMMUNE covered by this Agreement is set forth
on Exhibit A attached hereto (hereinafter the "Product") and any future
modifications or improvements thereto. PERIMMUNE reserves the right to
modify the Product from time to time, and shall give MENTOR at least six
(6) months prior written notice before making changes to its
manufacturing process that would have an impact on any of PERIMMUNE's
product verifications or validations, or changes in raw materials that
would alter the operating principle of the Product or other changes that
could impact product labeling or promotional literature; provided,
however, that PERIMMUNE shall be required to provide MENTOR with only
reasonable advance notice where such modification is required to comply
with any applicable legal or regulatory requirement or the unanticipated
modification or unavailability of raw material.
2. Appointment and Acceptance. PERIMMUNE hereby grants MENTOR the exclusive
right to distribute the Products in the United States, and outside the
United States (the "Territory").
3. Term and Renewal. The term of this Agreement shall be for a period of
five (5) years, commencing on the Effective Date (the "Initial Term").
"Effective Date" means the date on which this Agreement is executed. This
Agreement shall automatically renew for additional and successive terms
of one (1) year unless either party provides written notice on
non-renewal at least six (6) months prior to the close of the Initial
Term or any anniversary date thereafter.
4. Terms of Sale.
(a) MENTOR shall fix the price of the individual Product sold hereunder.
On a monthly basis, MENTOR shall pay to PerImmune, in United States
Dollars, fifty
<PAGE> 2
percent (50%) of the Net Sales, as defined below, received by MENTOR
from the sale of the Product, less the Advances, as hereinafter
defined, paid by MENTOR to PerImmune during such month. For purposes
herein, "Advances" shall mean an amount equal to 25% of the list
price, per kit, paid by MENTOR to PerImmune within 30 days of
MENTOR's receipt of kits ordered by it. Unless MENTOR and PerImmune
otherwise agree in a writing signed by both of them, the payment and
other provisions set forth in this Agreement shall supersede those
of any subsequent purchase order, sales confirmation form or other
document hereafter sent by either party hereto to the other. For
purposes hereof, Net Sales shall mean the gross invoiced price for
the sales of the Products to Purchasers by MENTOR, its agents or
affiliates ("Gross Sales") less (a) any credits and allowances
granted by MENTOR to purchasers with respect to the Product,
including, without limitation, credits and allowances on account of
price adjustments, returns, discounts, and chargebacks, (b) any
sales, excise, value added, turnover or similar taxes, and (c)
transportation, insurance and handling expenses if separately
invoiced and directly chargeable to such sales.
(b) Within thirty (30) days after the end of each month MENTOR shall
submit a report to PERIMMUNE setting forth the (i) cumulative
number of kits purchased from PERIMMUNE through the end of the
preceding month (ii) 50% of net sales price for each such kit sold
through the end of the preceding month, (iii) the advances
previously paid for such kits. Each such report shall be
accompanied by payment of the difference between (ii) and (iii).
(c) Title and risk of loss shall pass to MENTOR upon release of Product
for shipment by PERIMMUNE to the designated carrier. All freight and
applicable insurance charges shall be the responsibility of MENTOR.
PERIMMUNE will be responsible for contracting freight services, in
accordance with Section 8(a) of this Agreement, for which MENTOR
will be billed on a shipment by shipment basis. Product is subject
to inspection and acceptance by MENTOR upon receipt. MENTOR shall be
deemed to have accepted all shipments of Product unless rejected for
non-conformity with the Quality Specifications, as hereinafter
defined, in accordance with Article 9 of this Agreement, within
twenty (20) working days after receipt of shipments from PERIMMUNE.
(d) Unless approved by MENTOR in writing, PERIMMUNE will not sell any
Product to MENTOR as of the effective date hereof that has less
than eighteen (18) months shelf-life from date of shipment by
PERIMMUNE.
5. Termination. Should any of the following events occur, the affected party
may terminate this Agreement by giving notice, in writing to be effective
on the date specified in the notice, namely,
2
<PAGE> 3
(a) failure to either party to observe any of the terms hereof to a material
extent and to remedy the same (where it is capable to being remedied)
after having received reasonable notice from the aggrieved party and a
reasonable opportunity to cure;
(b) either party becoming insolvent or having a receiver appointed of its
assets, or execution or distress levied upon its assets;
(c) an order being made or a resolution being passed for the winding up or
liquidation of either party;
(d) if PERIMMUNE discontinues manufacturing the product for valid business
reasons that cannot be remedied during the term of this Agreement then (i)
at the request of MENTOR, PERIMMUNE shall assist MENTOR in establishing an
alternative source of supply and shall transfer any necessary technology or
knowledge to MENTOR or its alternative supplier provided that MENTOR
reimburses PERIMMUNE the out-of-pocket costs of doing so (including salary
and benefits for time expended by PERIMMUNE employees, (ii) or if the
discontinuation occurs during the first three years MENTOR can receive the
return of its investment at its election. Nothing herein is intended to
permit PERIMMUNE to breach its obligation under the agreement.
6. Procedures on Termination. Upon termination or non-renewal of this
Agreement:
(a) MENTOR shall return to PERIMMUNE all literature which PERIMMUNE shall have
supplied to MENTOR and which is in its possession.
(b) the rights and duties of each party under this Agreement in respect of
performance prior to termination or non-renewal shall survive and be
enforceable in accordance with the terms of this Agreement.
(c) within thirty (30) days of receipt of PERIMMUNE's invoice therefor, MENTOR
will pay PERIMMUNE for all remaining inventory of Product for which MENTOR
has issued purchase orders to PERIMMUNE. Upon payment, PERIMMUNE will ship
such inventory to MENTOR at MENTOR's expense.
7. MENTOR's Duties. MENTOR shall:
(a) use best commercial efforts to advertise and promote the sale of the
Product in a manner calculated by MENTOR to yield benefit to the parties
hereto in light of the prevailing circumstances and to the extent to which
any products are at the relevant time competitive with other products.
MENTOR agrees that during the term of this Agreement, it will not market
any product using the same technology which detects the same analyte and
thereby directly competes with a Product.
3
<PAGE> 4
(b) submit its purchase orders to PERIMMUNE in writing or via facsimile, signed
by an authorized representative of MENTOR.
(c) pay all PERIMMUNE invoices in United States currency by company check.
(d) submit to PERIMMUNE a twelve (12) month forecast of purchases delivery
dates from PERIMMUNE for the Product in a format to be mutually determined
by the parties. Said forecast shall be submitted by MENTOR to PERIMMUNE
within thirty (30) days of commencement of the term of this Agreement, and
quarterly thereafter.
(e) obtain advance written authorization and a Returned Material Authorization
("RMA") prior to returning any of the Product.
(f) maintain a properly trained sales force of adequate size to represent and
promote the sale of the Product and provide instructions to customers in
the use of the Product. MENTOR shall be responsible for developing its own
marketing plan and system for dispensing the Product.
(g) carry in stock an inventory of Product sufficient to promptly fill the
orders of MENTOR's customers in the Territory.
(h) apply for and obtain all necessary licenses, permits and other
authorizations required by local law or regulation in relation to the
promotion, marketing, distribution and supply of the Product in any
jurisdiction or country in which MENTOR sells the Product.
(i) pay any import duty or like charge on the entry of the Product into the
Territory and any local or other applicable taxes.
(j) maintain separate and detailed accurate and complete records of all
transactions in respect of the Product, including, but not limited to, such
records as identify all customer purchases by Product and serial and/or lot
number, and possess the capability to notify all purchasers in the event of
a Product recall or corrective action.
(k) defray all expenses of and incidental to the distribution and sale of
Product hereunder incurred by MENTOR.
(l) make no contracts or commitments on behalf of PERIMMUNE or make any
promises or representations or give any warranties or guarantees with
respect to the Product except as herein expressly permitted or otherwise
incur any liability on behalf of PERIMMUNE without PERIMMUNE's prior
written consent, nor
4
<PAGE> 5
represent itself as agent or partner of PERIMMUNE.
(m) comply with all laws and regulations and requirements applicable to
a seller of in-vitro diagnostics products, and with all laws and
regulations and requirements of governmental agencies having
jurisdiction with the Territory.
(n) except as authorized in writing by PERIMMUNE, refrain absolutely
from using the trademark or trade name and logo of PERIMMUNE in
connection with the marketing, distribution and sale of any Product.
8. PERIMMUNE's Duties. PERIMMUNE shall:
(a) make reasonable best efforts, in good faith, to ship MENTOR's
orders for Product within thirty(30) days from date of order
receipt. MENTOR shall specify the method of shipment and insurance
and PERIMMUNE shall make reasonable best efforts, in good faith, to
comply with such specifications. If no such specification is made,
or if the specification cannot be reasonably complied with after
notice to MENTOR and an opportunity to resolve the issues
surrounding PERIMMUNE's alleged inability to comply, PERIMMUNE may
select a reasonable manner of shipment and insurance.
(b) at the time of shipment, the product will have a remaining shelf
life of not less than 16 months.
(c) will provide up to 12,000 units per year of product at PERIMMUNE's
cost plus shipping charges to be used by MENTOR for promotional
purposes at no reimbursement to MENTOR.
(d) comply with all laws and regulations and requirements applicable
to PERIMMUNE as a manufacturer of in-vitro diagnostic products.
(e) except as authorized in writing by MENTOR, refrain absolutely from
using the trademark or trade name and logo of MENTOR in connection
with the marketing, distribution and sale of any Product.
(f) provide reasonable technical assistance to MENTOR's personnel
necessary for the marketing of the Product.
(g) at PERIMMUNE's expense, provide MENTOR with written product inserts
relating to the Product's use, and with such amendments thereto as
subsequently become available.
(h) provide necessary documentation to assist MENTOR in meeting
requirements to
5
<PAGE> 6
register Products in the Territory, and where possible, allow MENTOR
to utilize prior registrations by PERIMMUNE.
(i) provide MENTOR with copies of the 510(k) premarket notifications
submitted for the Product, copies of current package insert for the
Product, copies of documents describing specifications for the
Product, and copies of all current and future correspondence with
the FDA pertaining to the Product. PERIMMUNE will comply with the
FDA's current GMP regulations in the manufacture of the Product, if
those regulations are modified to include components of finished
devices. If needed to comply with any change in the law or FDA's GMP
regulations or policies, MENTOR shall be given the right to inspect
PERIMMUNE's manufacturing facilities and GMP records pertaining to
the manufacture of the Product. If any action should be taken by the
FDA to restrict or prevent the distribution of any of the Product
for more than thirty (30) days, and such restriction is not due to
the negligence of MENTOR, then upon notice to PERIMMUNE, MENTOR
shall have the right to terminate this Agreement as to such Product.
PERIMMUNE shall replace any affected inventory of Product under
this section or refund to Mentor the purchase price it paid to
PERIMMUNE for such inventory if PERIMMUNE is unable to replace the
Product with comparable inventory. PERIMMUNE shall replace or
repurchase any affected inventory of Product which MENTOR replaces
or repurchases from MENTOR's customers, at the price MENTOR paid
PERIMMUNE for such inventory. IN NO CASE SHALL PERIMMUNE BE LIABLE
FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES.
(j) comply with the Federal Food, Drug, and cosmetic Act. The Product
comprising each shipment or other delivery hereafter made by
PERIMMUNE to, or on the order of, MENTOR, as of the date of such
shipment or delivery, shall be, on such date, not adulterated or
misbranded within the meaning of the Federal Food, Drug, and
Cosmetic Act.
9. Performance Standards.
(a) Quality Specifications and Characteristics. PERIMMUNE shall deliver
to MENTOR Product having the quality specifications agreed upon by
the parties as set forth in Exhibit B (the "Quality
Specifications").
(b) Certificate of Analysis. Concurrent with shipment, PERIMMUNE shall
fax to MENTOR a Certificate of Analysis, in the form set forth in
Exhibit B, for each lot of Product sold to MENTOR, confirming that
the Product meets the Quality Specifications.
(c) Product Acceptance. Within twenty (20) working days of receipt of
Product,
6
<PAGE> 7
MENTOR shall take and conduct analysis of samples of Product
delivered by PERIMMUNE. Should the result of an analysis of such
sample deviate from the Quality Specifications, MENTOR shall notify
PERIMMUNE in accordance with Article 4(c) hereof and immediately
thereafter provide PERIMMUNE with samples of the Product tested. If,
following a review of the test results and after conducting its own
tests of the sample, PERIMMUNE agrees that such sample does not
conform to the Quality Specifications, PERIMMUNE shall provide
MENTOR, free of any additional charge, with new deliveries of the
same quantity of the Product as the one from which the sample was
taken, or, in PERIMMUNE's discretion and at its cost, PERIMMUNE may
promptly reprocess the nonconforming Product to meet the Quality
Specifications. In either event, MENTOR shall return, at PERIMMUNE's
expense, the particular lot or shipment of the Product which does
not comply with the Quality Specifications if requested to do so by
PERIMMUNE.
10. PRODUCT RECALL.
(a) PERIMMUNE shall maintain an appropriate record of all claims made or
to be made regarding the Product's performance.
(b) Each party shall keep the other informed of any formal action
relating to any specific lot of Product sold to MENTOR hereunder by
an regulatory agency of any state, national government, or
government agency having jurisdiction.
(c) Should any governmental or corporate action require the recall or
field corrections or withholding from market of Product sold by
PERIMMUNE to MENTOR, MENTOR shall bear the reasonable, direct costs
and expenses of recall or field correction if such recall or field
correction is the result of any fault or omission attributable to
MENTOR and PERIMMUNE shall bear the cost of products and the actual
costs of replacing the Product if such recall or field correction is
the result of any fault or omission attributable to PERIMMUNE.
Should such recall or field correction result from the fault of both
parties, the parties shall share the costs of Products and the
actual cost of replacing the Products in proportion to their
respective degree of fault.
11. PRODUCT COMPLAINTS.
(a) Should either party experience any quality problem involving field
correction or recall of any specific lot(s) of Product supplied to
MENTOR by PERIMMUNE, such party will notify the other in writing by
facsimile within twenty-four (24) hours of the initiation of the
field correction or recall. Both parties will test retained samples
of lots in question and report its findings to the other within ten
(10) working days. Each party retains the right to correct field
problems arising
7
<PAGE> 8
out of its fault or omission as it deems appropriate, with or without
the concurrence of the other. All information about Product complaints
shall be considered "Confidential Information" under the terms of the
Agreement.
(b) Either party shall immediately notify the other party in writing should
it become aware of any defect or condition that renders any lot(s) of
Product supplied by PERIMMUNE to MENTOR in violation of the United
States Food, Drug and Cosmetic Act, or of a similar law of any
jurisdiction or country where the Product is sold. The parties shall
share with each other all data on confirmed lot specific Product
complaints including, but not limited to, complaints or information
regarding performance and/or allegations or reports of any negative
effect from the use or misuse of such affected lot of Product as soon as
such data is available. Each party will provide reasonable assistance to
the other in resolving customer complaints to the extent the complaint
arises out of any fault or omission of the party whose assistance is
requested. However, MENTOR shall have sole responsibility and authority
to interact directly with MENTOR's customers in the resolution of such
complaints and PERIMMUNE agrees that it will only interact with MENTOR
in such matters.
(c) PERIMMUNE shall evaluate and investigate all customer complaints in
connection with the Product which may be brought to its attention, in
writing, by MENTOR; provided such complaints have been confirmed by
MENTOR QA/QC or technical service personnel using the same standards for
confirmation which MENTOR's uses for products other than the PERIMMUNE
Product and which are believe in good faith by MENTOR to arise out of a
fault or omission attributable to PERIMMUNE. Within twenty (20) calendar
days following receipt from MENTOR of the original notification of each
such complaint, PERIMMUNE agrees to provide MENTOR with a written
interim or final complaint investigation report, using the same
standards for evaluation and investigation that PERIMMUNE uses for
products other than the Product. All such Product complaints reported to
PERIMMUNE by MENTOR shall be reviewed monthly by PERIMMUNE until
closure, and a summary report thereof will be provided by PERIMMUNE to
MENTOR.
(d) PERIMMUNE will report to MENTOR all data and/or information pertaining
to adverse reports on any lot of Product supplied by PERIMMUNE for
distribution by MENTOR which would have a materially adverse impact on
performance of the Product.
(e) Recalls or field notifications with respect to the Product, or any of
them, shall be the responsibility of the party whose fault or omission
necessitated such action, as described in Article 10(c).
8
<PAGE> 9
(f) Should there be a difference of opinion between PERIMMUNE and
MENTOR regarding a field notification or recall, MENTOR will
exercise the right to notify its customers without delay.
12. Warranties.
(a) PERIMMUNE warrants that the Product which is or will be the subject
of FDA cleared 510(k) premarket notifications have not been changed
or modified in design, components, method of manufacture or
intended use from the Product as described in those 510(k)
premarket notifications, and will notify MENTOR in advance of any
changes in accordance with Article 1.
(b) PERIMMUNE warrants that the Product manufactured and supplied under
this Agreement shall at the time of shipment meet the Quality
Control Specifications of PERIMMUNE which are attached to this
Agreement as Exhibit B. No claim under this warranty may be made
with respect to a unit of the Product if shipped or used after the
expiration of the shelf-life of the Product as determined by
PERIMMUNE. PERIMMUNE further warrants that prior to shipment to
MENTOR, all of its standard tests and quality control procedures
have been carried out in relation to each lot of the Product with
satisfactory results. The limited warranty to MENTOR set forth in
this Agreement shall control over any warranty provisions which may
be set forth in MENTOR's Product literature and MENTOR shall hold
PERIMMUNE harmless from any and all damages and expenses which
PERIMMUNE may incur as a result of unauthorized MENTOR warranties
or representations. PERIMMUNE MAKES NO WARRANTY EXPRESSED OR
IMPLIED WITH RESPECT TO THE PRODUCTS BEYOND THAT WHICH IS SET FORTH
IN THIS AGREEMENT INCLUDING THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR ANY PARTICULAR PURPOSE. Any warranty made by MENTOR to
its customers with respect to the Product shall not obligate
PERIMMUNE in any way.
(c) Upon its verification of any claim of defect or nonconformity of
any unit of the Product arising out of a fault or omission
attributable to PERIMMUNE, during the term of this Agreement,
PERIMMUNE will provide MENTOR with a replacement unit to the extent
necessary to honor PERIMMUNE's warranties contained in Section
12(a) hereof, or make good any shortages or non-completed
deliveries and shall pay all associated freight and insurance
associated therewith.
(d) PERIMMUNE's liability under any legal or equitable theory to any
person with respect to the Product and/or the relationship
described in this Agreement shall be limited to the replacement of
the unit, or if impractical, return of the purchase price paid by
MENTOR for such unit. PERIMMUNE shall in no event be liable to
MENTOR or any other person for any incidental or consequential
damages, lost
9
<PAGE> 10
profits, cost procurement of substitute goods or any indirect,
special, or consequential damages even if PERIMMUNE has been
informed of the possibility thereof.
(e) As of the date hereof, PERIMMUNE warrants that it has no knowledge
that the manufacture, use or sale of all or any of the Product under
this Agreement, nor any method of using such Product infringes on
any patent or other industrial property right of a third party, and
PERIMMUNE has not received any notification from any third party
alleging that the manufacture, use or sale of any such Product does
or would infringe any patent or other industrial property. PERIMMUNE
shall further disclose all information relating to the art of the
Product of which it is, or becomes, aware relating to intellectual
property, when PERIMMUNE recognizes necessary to do so.
13. Packaging and Intellectual Property. MENTOR shall be responsible for
packaging and labeling the Product. MENTOR will distribute the Product
only with all appropriate labeling, packaging, and Product literature
and only under MENTOR's applicable trademarks and trade names. MENTOR
recognizes PERIMMUNE's right, title and interest in its patents,
trademarks, trade names and copyrights, trade secrets and proprietary
information in connection with the Product, and MENTOR shall not claim
any ownership right thereto inconsistent with this Agreement, or dispute
the validity thereof. In the event any third party shall contest
PERIMMUNE's rights to its patents, trademarks, trade names or
copyrights, trade secrets or propriety rights, MENTOR shall, at
PERIMMUNE's sole expense, render reasonable assistance to PERIMMUNE in
defending such claims.
14. Compliance with other Agreements. Each party represents and warrants
that the execution and delivery by it of this Agreement and the
performance by it of its obligations hereunder will not, with or without
the giving of notice or the passage of time, violate any judgement,
writ, injunction or order of any court, arbitration or governmental
agency or conflict with, result in the breach of any provisions of, or
the termination of, or constitute a default under, any agreement to
which PERIMMUNE or MENTOR is a party or by which it is or may be bound.
15. Indemnity.
(a) Except as limited by the remainder of this paragraph, PERIMMUNE
hereby agrees to indemnify MENTOR against claims of third parties
for injuries to their persons arising from the use of Product
supplied by PERIMMUNE to MENTOR hereunder. This indemnity shall not
apply to, and PERIMMUNE shall not be liable for, claims for injuries
caused by or arising from:
1) any act or failure to act on the part of MENTOR, its employees,
10
<PAGE> 11
representatives, agents, or subsidiaries in packaging,
handling, storing or otherwise distributing such Product; or
2) any representation or warranty concerning the Product made by
or on behalf of MENTOR and not specifically authorized by
PERIMMUNE; or
3) claims where the use of the Product by any customer was not in
accordance with the use prescribed by PERIMMUNE; or
4) MENTOR'S failure to disseminate to purchasers or end-users
any Product Information which PERIMMUNE has made available to
MENTOR; or
5) claims where PERIMMUNE has not been notified in writing within
forty five (45) days of MENTOR's first notice of the claim; or
6) claims where MENTOR fails to furnish evidence in its
possession or fails to fully cooperate with PERIMMUNE in
preparing the defense; or
7) claims where PERIMMUNE is not given the option to assume the
sole defense of the claim at PERIMMUNE's expense; or
(b) PERIMMUNE shall indemnify MENTOR from any claims of patent
infringement relating to a Product subject to this Agreement
provided MENTOR gives PERIMMUNE notice within forty-five (45) days
of MENTOR's first notice of the claim, and permits PERIMMUNE to
assume the sole defense of the claim at PERIMMUNE's expense;
provided, however, that the claim is not based upon (i) the sale or
use of any Product in combination with any other product which is
not specifically authorized by PERIMMUNE in writing; (ii) the
application of any Product in any manner not specifically
authorized by PERIMMUNE in writing.
(c) MENTOR shall indemnify and hold PERIMMUNE harmless from and against
any third party action brought against PERIMMUNE and any loss
therefrom arising or related to this Agreement, except as may be
caused by the negligent or willful act of PERIMMUNE.
(d) Notwithstanding anything above to the contrary, in the event of a
third party claim arising out of this Agreement, in which neither
PERIMMUNE or MENTOR is in breach of this Agreement or is
negligent, each party shall pay its respective legal expenses and
damages caused by such claim.
16. Fees. MENTOR acknowledges that it will pay $500,000 (USD) to PERIMMUNE in
connection with this Agreement, unless MENTOR elects to take an equity
position in PERIMMUNE.
11
<PAGE> 12
17. Force Majeure. Neither party shall be responsible for any failure to
perform due to causes beyond its control. These causes shall include, but
not be limited to, fire, storm, flood, earthquake, explosion, wars,
riots, civil disorder, sabotage, quarantine restrictions, labor disputes,
labor shortages, transportation embargoes, or failure or delays or
disruption in manufacturing process, curtailment of or failure in
obtaining fuel or electrical power, or the acts of any governmental
authority, or instrumentalities, orders of any court or tribunal whether
foreign or domestic, exchange restrictions, acts of God, acts of the
Federal Government or any agency thereof, acts of any state or local
government or agency thereof, or shortage of materials or any similar or
dissimilar occurrence beyond the reasonable control of the party which is
prevented, interrupted or delayed in the performance of its obligations
hereunder. In no event shall PERIMMUNE be under any obligations to
purchase Products or similar products from any third party in order to
supply same to MENTOR hereunder. Any force majeure event shall not excuse
performance by the party but shall delay performance, unless such force
majeure continues for a period in excess of ninety (90) days. In such
event, the party seeking performance, as its sole and exclusive remedy,
may cancel its obligations under this Agreement.
18. Insurance. Each party shall keep in force during the term of this
Agreement product liability insurance in such amounts as may be customary
for like sized businesses undertaking like responsibilities to those
contemplated by this Agreement. Each party shall submit a certificate of
insurance to the other evidencing such coverage upon written request
therefor.
19. Confidentiality.
(a) Confidentiality Defined. For the purposes of this Agreement, the
term "Confidential Information" shall be any information embodying
concepts, ideas, techniques, proprietary information, know-how,
formulations, market data, customer lists, product specifications
and accounting date which:
(1) is disclosed by one party hereto to the other;
(2) is claimed by the disclosing party to be secret, confidential
and proprietary to the disclosing party; and
(3) if disclosed in writing, is marked by the disclosing party to
indicate its confidential nature or if disclosed orally as
confidential, is confirmed in writing by the disclosing party
to be confidential within ten (10) days following disclosure.
(b) Non-Disclosure. During the period that this Agreement remains in
effect and for a period of three (3) years following termination
thereof, each party (except as is explicitly otherwise required
hereby) shall keep confidential, shall not use for itself
12
<PAGE> 13
or for the benefit of others and shall not copy or allow to be
copied in whole or in part any Confidential Information disclosed to
such party by the other. The obligation of confidentiality imposed
upon the parties by the foregoing paragraph shall not apply with
respect to any alleged Confidential Information which:
(1) is known to the recipient thereof, as evidenced by said
recipient's written records, prior to receipt thereof from the
other party hereto;
(2) is disclosed to said recipient after the date hereof by the
third party who has the right to make such disclosures and who
does not violate any confidentiality agreement with the
affected party hereto;
(3) is or becomes a part of the public domain through no fault of
the said recipient; or
(4) is required by law or judicial or administrative process to be
disclosed.
(c) PERIMMUNE and MENTOR shall agree to keep confidential and not
disclose to third parties, the supply and working relationship under
this Agreement.
(d) Each party agrees to limit access to Confidential Information to
employees and agents having a need to know and to protect
Confidential Information to the same extent as it protects its own
trade secrets.
20. Appointment of Sub-Distributors. MENTOR may assign, sublicense, delegate,
or otherwise transfer the performance of the rights and obligations
hereunder to qualified and reputable sub-distributors, provided, however,
that: (I) MENTOR shall be liable to PERIMMUNE for the errors, negligent
acts and omissions of its sub-distributor's as if such errors, negligent
acts and omissions were its own, including any breach of any provision of
this Agreement by the sub-distributors; (ii) MENTOR shall have and retain
full control of any sub-distributors utilized, and shall be responsible
for the performance by any sub-distributor, and (iii) MENTOR shall not be
relieved of the responsibility for the proper performance and completion
of the sub-distributed portions of its obligations hereunder.
21. Successors. This agreement shall be binding upon the successors of
PERIMMUNE and MENTOR, including successors who acquire the business assets
of PERIMMUNE and MENTOR. In the event the Principal(s) of PERIMMUNE shall
sell all or a majority of the outstanding stock of PERIMMUNE, or in the
event PERIMMUNE sells the business relating to the manufacture and sale
for the Product, then the term of this Agreement may be extended
unilaterally by MENTOR for three (3) successive terms of one (1) year each
from the date of the transfer of the control of PERIMMUNE, or sale of the
Product business, or the date for termination under the Agreement,
whichever is the later, upon the
13
<PAGE> 14
terms of this Agreement. MENTOR shall give PERIMMUNE written notice of its
intent to extend the term of this Agreement within thirty (30) days after
PERIMMUNE advises MENTOR of the sale of PERIMMUNE's Product business and at
least ninety (90) days before the end of each one (1) year term.
22. Resolution of Disputes. In the event of any controversy or claim arising
under or in relation to this Agreement, including any issue about payment
of amounts due, the parties shall, in good faith, attempt to resolve the
controversy or claim by negotiation. If the controversy or claim cannot be
resolved within sixty (60) days, then either party shall be entitled to
initiate litigation to resolve the dispute unless the parties have
mutually agreed to arbitrate the dispute.
23. Notices. Any notice or other communication required or that shall be
given pursuant to this Agreement shall be deemed sufficient if delivered
personally, sent by facsimile, telegraph, or sent by certified, registered
or express mail, postage prepaid to the address or facsimile number set
forth below:
To PERIMMUNE:
PERIMMUNE, INC.
1330 Piccard Drive
Rockville, MD 20850-4396
Facsimile No: 301/840-2161
ATTN: President and CEO
MENTOR CORPORATION
5425 Hollister Avenue
Santa Barbara, CA 93111
Facsimile No: 805/967-3362
ATTN: Chairman of the Board, CEO
Either party may change the address to which notice to it is to be given,
as provided herein.
24. Entire Agreement. This Agreement and the exhibits referred to herein
constitute the entire Agreement between the parties and supersede all
prior proposals, communications, representations and agreements, whether
written or oral, with respect to the subject matter hereof. No change to
the written terms of this Agreement shall be made except by written
instrumentation executed by the parties hereto.
25. No Waiver. The failure of either party to enforce at any time any of the
provisions of this Agreement shall not be construed to be a waiver of
those provisions or of the right of that party thereafter to enforce those
provisions.
14
<PAGE> 15
26. Severability. If any provision of this Agreement is or becomes or is
deemed invalid, illegal or unenforceable in any jurisdiction in which the
Agreement is sought to be enforced, (a) such provision shall be deemed and
amended to conform to applicable laws of such jurisdiction so as to be
valid and enforceable or, if it cannot be so amended without materially
altering the intention of the parties, it shall be stricken; (b) the
validity, legality and enforceability of such provision will not in any
way be affected or impaired thereby in any other jurisdiction; and (c) the
remainder of this Agreement shall remain in full force and effect.
27. Headings. The headings of this Agreement are included only for ease of
reference and shall not affect the interpretation of this Agreement in any
manner.
28. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION ENFORCEABLE BY
EITHER PARTY.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers or authorized representatives.
PERIMMUNE, INC.
By: /s/ [SIG]
- ------------------------
Title: President & CEO
- ------------------------
Date: 6/16/97
- ------------------------
MENTOR CORPORATION
By: /s/ [SIG]
- ------------------------
Title: Chief Executive Officer
- ------------------------
Date: June 13, 1997
- ------------------------
15
<PAGE> 1
EXHIBIT 10.22
RESEARCH, COLLABORATION
AND
DISTRIBUTION AGREEMENT
This Agreement is made and entered into the 22nd day of December,
1997, by and between PerImmune, Inc., a Delaware corporation ("PERIMMUNE"),
maintaining an office at 1330 Piccard Drive, Rockville, Maryland 20850-4396 and
Mentor Corporation, a Minnesota corporation ("MENTOR") maintaining an office at
5425 Hollister Avenue, Santa Barbara, CA 93111.
RECITALS
WHEREAS, PERIMMUNE has developed and refined a method of treating
urological diseases and cancer with a keyhole limpet hemocyanin composition and
is the owner of all rights to proprietary technical information and the U.S.
Patent (as defined herein) related thereto;
WHEREAS, PERIMMUNE has advised MENTOR that PERIMMUNE believes
that it can, within a period of three (3) years at a cost of approximately Three
Million Dollars ($3,000,000): (a) implement and complete a Phase III clinical
testing program for the use of the Product (as defined herein) to treat
refractory bladder cancer, as clinically defined in the PERIMMUNE Phase I/II
protocol and clinical results previously provided to MENTOR ("Refractory Bladder
Cancer"), and (b) submit an application for the use of such Product to the
United States Food and Drug Administration (the "FDA") for the treatment of
Refractory Bladder Cancer;
WHEREAS, PERIMMUNE and MENTOR desire to enter into an arrangement
pursuant to which MENTOR will fund the costs of implementing and carrying out
the program described in the preceding recital, and pay certain fees to
PERIMMUNE as agreed milestones in such program are attained, and PERIMMUNE will
grant to MENTOR on the terms and conditions set forth in this agreement the
exclusive worldwide right to market, sell and distribute the Product for the
Indicated Uses (as defined herein);
WHEREAS, PERIMMUNE and MENTOR agree that, despite the diligent
efforts of PERIMMUNE and MENTOR, there can be no assurance that the objectives
of the Project Development Activities or the Project Objective (each as defined
herein) will be attained or that the Project Development Activities will result
in commercial use of the Product for any one or more Indicated Uses.
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants and agreements contained herein, and certain other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
1.1. "Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling or controlled by, or under common control
with, such specified Person.
1.2. "Approvals" means, with respect to any governmental authority or
agency, any or all approvals, clearances, registrations, licenses,
authorizations, visas or permits required by such governmental authority or
agency in order to import, export, offer for sale, sell, market, manufacture,
have made or use the Product.
1.3. "Competitive Product" means any product constituted from KLH (as
defined herein) that is used in the Indicated Uses.
1.4. "Effective Date" means the date of this Agreement as set forth
above.
1.5. "Indicated Uses" means the use of the Product in all uro-genital
applications, including but not limited to use as an injectable
bio-pharmaceutical to treat cancer of the bladder and prostate gland and
interstitial cystitis.
1.6. "Improvements" means all modifications, variations and revisions
and new models or versions of the Product developed by the parties hereto which
relates or has consequence with respect to the Product in any of the following
ways: (1) improves the Product's performance; (2) reduces the cost of materials
or components for the Product; (3) reduces production, manufacturing or
associated costs of the Product; (4) increases the life, durability or
continuous performance characteristics of the Product; (5) expands the
applications to which the Product may be put; (6) increases or enhances the
marketability or commercial aspect of the Product; or (7) would, if implemented,
replace or displace the Product in one or more material commercial markets for
the Product. Improvements may be patentable or unpatentable, and if patentable,
need not be patented.
1.7. "Net Sales" means the gross invoiced price for the sale of Product
to purchasers by MENTOR, its agents or Affiliates less (a) any credits and
allowances granted by MENTOR to purchasers with respect to the Product,
including, without limitation, credits and allowances on account of price
adjustments, returns, discounts and chargebacks, (b) any sales, excise,
value-added, turnover or similar taxes, and (c) transportation, insurance and
handling expenses if separately invoiced and directly chargeable to such sales.
1.8. "Person" means any individual, corporation, partnership,
association, trust, estate or other entity or organization, including any
governmental entity or authority.
1.9. "Product" means the keyhole limpet hemocyanin composition ("KLH"),
as more particularly described in the PERIMMUNE Phase I/II protocol and the U.S.
Patent (as defined herein), and any Improvements thereto.
2
<PAGE> 3
1.10. "Product Patents" means any and all United States patents and
patent applications, all divisionals, continuations, continuations-in-part,
re-issues, extensions or foreign counterparts thereof, now or hereafter owned or
controlled ("controlled" being used in the sense of having the right to grant
licenses thereunder) by PERIMMUNE, covering the manufacture, use, sale, offer
for sale and/or importation of the Product, including but not limited to, the
U.S. Patent No. 5,407,912 attached hereto as Exhibit B.
1.11. "Project Budget" means the budget attached as Exhibit A to this
Agreement, setting forth the estimated costs of carrying out the Project
Development Activities.
1.12. "Project Development Activities" means the program implemented
pursuant to the provisions of this Agreement in order to accomplish the
following objectives in the following order of priority: (a) the implementation
and completion of Phase III clinical testing of the Product for use in the
treatment of Refractory Bladder Cancer; (b) the preparation and filing of an
application with the FDA on or before June 30, 2000, for the approval by the FDA
of the use of the Product for the treatment of Refractory Bladder Cancer; (c)
obtaining FDA approval for the use of the Product for the treatment of
Refractory Bladder Cancer; and (d) identifying and establishing contractual
relationships with sources of supply for raw materials required to manufacture
the Product.
1.13. "Project Objective" means the issuance of an approval by the FDA
for the use of the Product in the treatment of Refractory Bladder Cancer.
1.14. "Product Information" means, individually and collectively, all
manufacturing, analytical and marketing information and technical know-how,
trade secrets and inventions owned, controlled, conceived and/or reduced to
practice and/or acquired (i) by PERIMMUNE before the date of this Agreement, or
(ii) by PERIMMUNE or MENTOR or jointly by the parties during the Research and
Development Period, and directed to the Product, (whether or not relating to any
Indicated Use), including, but not limited to, specifications for ingredients
and formulations, information relating to regulatory and clinical work, testing
or studies, manufacturing methods and procedures.
1.15. "Project Plan" means the research and development plan attached
hereto as Exhibit A, including the budget, time-lines and milestones reflected
in such Exhibit for carrying out the Project Development Activities.
1.16. "Quality Specifications" means the quality specifications for the
Product agreed upon by the Joint Committee, as such quality specifications shall
be modified from time to time by mutual agreement of the parties hereto.
1.17. "Research and Development Period" means the period commencing on
the Effective Date and continuing until the first to occur of either of the
following events: (a) the attainment of the Project Objective or (b) a joint
determination by the parties hereto that the Project should be discontinued.
3
<PAGE> 4
1.18. Target Period" means a period of thirty-six (36) months, measured
from the Effective Date.
1.19. "Vial" means a vial containing the quantity of the product that is
the standard dosage for a single treatment, which the parties hereto believe is
likely to be a quantity between two (2) and ten (10) mg.
1.20. "U.S. Patent" means United States Patent No. 5,407,912 attached
hereto as Exhibit B.
ARTICLE II
RESEARCH AND DEVELOPMENT
2.1. Joint Committee. Promptly upon execution of the Agreement,
PERIMMUNE and MENTOR shall form a Joint Research and Development Committee (the
"Joint Committee") comprising six (6) members for the purposes of implementing
and revising the Project Plan and coordinating the Project Development
Activities to be conducted by the Project Teams. Three members of the Joint
Committee (and their successors or replacements, if any) shall be appointed by
PERIMMUNE and three members (and their successors or replacements, if any) shall
be approved by MENTOR. All actions of the Joint Committee shall be by a majority
vote of all members.
2.2. Project Teams. In order to carry out its respective obligations
relating to the Project Development Activities, each of PERIMMUNE and MENTOR
shall assign a defined team of employees to perform the Project Development
Activities (each such team, a "Project Team" and, together, the "Project
Teams"). The initial PERIMMUNE Project Team shall comprise the individuals
listed on Exhibit C attached hereto and the research technicians under each of
their direction and control. The initial MENTOR Project Team shall comprise the
individuals listed on Exhibit D attached hereto and the research technicians
under each of their direction and control. PERIMMUNE and MENTOR each agree to
notify the other party of any change in the personnel comprising such party's
Project Team, which changes shall remain in the sole discretion of such party.
2.3. Project Development. PERIMMUNE will exercise due diligence in
carrying out the Project Development Activities at the time and in the manner
contemplated by the Project Plan, and endeavoring to achieve the Project
Objective. Each party shall furnish to the other materials, data, software,
specification, formulas or other information as may, in the sole judgment of the
Joint Committee, be reasonably necessary for the recipient of such information
to perform its Project Development Activities or other duties hereunder. Towards
this end, the PERIMMUNE Project Team shall periodically (which, in any event,
shall be at least once every calendar quarter) during the Research and
Development Period, provide to the MENTOR Project Team a written progress report
in form and substance established by the Joint Committee concerning the Project
Development Activities being conducted by the PERIMMUNE Project Team, which
report shall include a summary of the progress of the Project Development
Activities in relation to the then current Project Budget that has been approved
by the Joint Committee. Information relating to the Product provided to a party
hereunder shall be governed
4
<PAGE> 5
by Section 10.1. The parties agree that, despite the diligent efforts of the
parties, there can be no assurance that the objectives of the Project
Development Activities or the Project Objective will be attained or that the
Project Development Activities will result in commercial use of the Product for
any one or more Indicated Uses.
2.4. Compliance with Regulations. All activities, studies or other
efforts in furtherance of the Project Development Activities shall be carried
out pursuant to the Project Plan in strict compliance with any applicable United
States Federal, state or local laws, regulations or guidelines governing the
conduct of such activities, studies or efforts.
2.5. Project Development Costs. The costs and expense of the Project
Development Activities shall be borne and paid by the parties as follows:
2.5.1. Costs Payable by MENTOR. MENTOR shall pay (a) all
reasonable costs associated with the Project Development Activities as
reflected in the Project Budget, to the extent that such costs do not
exceed the sum of $3,000,000, plus (b) the costs of any additional work
requested by MENTOR that is not within the scope of the Project
Development Activities (e.g., preparing applications for Approvals of
the Product for additional Indicated Uses or for jurisdictions other
than the United States) and (c) the costs of carrying out additional
clinical testing or other work required by the FDA after the submission
of the application for Approval for the use of the Product to treat
Refractory Bladder Cancer, to the extent that such additional testing or
other work was not reasonably within the scope of or contemplated by the
Project Development Activities described in the Project Plan.
2.5.2. Costs Payable by PERIMMUNE. Subject to the obligations of
MENTOR set forth in Section 2.5.1, above, PERIMMUNE shall be responsible
for and shall pay all costs of the Project Development Activities to the
extent such costs exceed $3,000,000, including the costs that would
customarily be incurred by a manufacturer in the ordinary course of
business for the purpose of submitting an application for pre-marketing
approval to the FDA and prosecuting such application to completion and
the issuance of the Approval applied for.
2.5.3. Time and Manner of Payment. All amounts payable by MENTOR
to PERIMMUNE pursuant to this Section 2.5 shall be payable in advance by
wire transfer of same day funds on a quarterly basis. MENTOR shall pay
the estimated costs of the Project Development Activities for the period
beginning on the Effective Date of this Agreement and ending on March
31, 1998 concurrently with its execution of this Agreement. Thereafter,
MENTOR shall pay the estimated costs of the Project Development
Activities for the next calendar quarter within ten (10) days after the
start of such calendar quarter unless MENTOR is entitled to delay or
suspend the next quarterly payment as provided by Section 2.5.6 of this
Agreement. Amounts not expended during any quarter or year shall be
carried forward to succeeding periods, it being intended that
5
<PAGE> 6
(a) MENTOR shall be obligated to expend $3,000,000 during the Target
Period or until the Project Objective is attained, whichever occurs
first, and (b) any amounts up to $3,000,000 remaining unexpended after
the attainment of the Project Objective, shall be paid to PERIMMUNE as
an additional fee.
2.5.4. Limitation on Obligation. Except as expressly provided by
Section 2.5.1, above, MENTOR shall not be obligated to pay more than
$3,000,000 of the costs of the Project Development Activities, and
PERIMMUNE shall pay all costs and expenses in excess of such amount.
2.5.5. Use of Funds. PERIMMUNE shall use the funds paid by
MENTOR pursuant to Section 2.5.3, above, only for the payment of the
costs and expenses of the Project Development Activities. No portion of
any such funds shall be used (a) for the payment of PERIMMUNE's overhead
or general and administrative expenses, except to the extent that such
expenses have been properly allocated to the Project Development
Activities at the same rate at which such expenses are allocated to all
other projects and corporate activities of PERIMMUNE, or (b) for the
acquisition of capital equipment or other tangible personal property
having a useful life in excess of three (3) years.
2.5.6. Right of MENTOR to Suspend Payment. PERIMMUNE shall
provide to MENTOR from time to time such information as MENTOR may
reasonably request for the purpose of demonstrating that there are
sufficient funds remaining in the Project Budget and available to
PERIMMUNE to complete the Project Development Activities. MENTOR shall
be entitled to suspend payment of costs associated with the Project
Development Activities if (a) PERIMMUNE fails to submit the quarterly
report called for by Section 2.3 of this Agreement, or (b) any such
report evidences that (i) PERIMMUNE is not carrying out the Project
Development Activities in accordance with the terms and within the
period of time established by the Project Plan, or (ii) in MENTOR's
reasonable judgment, there will be insufficient funds available in the
Project Budget to attain the Project Objective within the Target Period.
Should MENTOR become entitled to suspend payments to PERIMMUNE
hereunder, then MENTOR shall not be required to resume payments until
PERIMMUNE has taken the corrective action necessary to eliminate the
cause of such suspension in payments.
ARTICLE III
DEVELOPMENT FEES PAYABLE TO PERIMMUNE
3.1. Payment Schedule. In addition to funding the cost of the Project
Development Activities provided in Section 2.5, MENTOR shall pay to PERIMMUNE as
a research and development fee, an aggregate amount equal to Three Million
Dollars ($3,000,000), payable upon the occurrence of the following events (each,
a "Milestone Event" and the payment in respect of each Milestone Event, a
"Milestone Payment"): (i) One Million Dollars ($1,000,000)
6
<PAGE> 7
upon the enrollment of the first patient in Phase III clinical trials under
protocols accepted by the United States Food and Drug Administration ("FDA") for
use of the Product for an Indicated Use, (ii) One Million Dollars ($1,000,000)
upon the enrollment of the last patient in such Phase III clinical trials, and
(iii) One Million Dollars ($1,000,000) upon obtaining FDA approval to market and
sell the Product for an Indicated Use.
3.2. Manner of Payment. PERIMMUNE shall provide to MENTOR written notice
of the satisfaction of each Milestone Event. Promptly upon receipt of such
written notice, and, in any event within five (5) days, thereafter, MENTOR shall
pay to PERIMMUNE, by wire transfer of same day funds, the Milestone Payment in
respect of such Milestone Event.
ARTICLE IV
OWNERSHIP OF INVENTIONS AND PATENTS
4.1. Ownership of Information. All Product Information is, or shall be,
owned solely by PERIMMUNE. Other than as may be set forth herein, MENTOR shall
have no rights in or to any Project Information.
4.2. License. PERIMMUNE hereby grants MENTOR a world-wide, royalty-free,
perpetual, non-exclusive license in the Product Information, the Product Patents
and the Approvals to make, use and sell the Product for use in the Indicated
Uses without any further duty or obligation to PERIMMUNE. MENTOR covenants that
it shall not exercise such license except upon the occurrence of one or more of
the circumstances set forth in Section 7.4(i), 7.4(ii), 7.4(iii) or 7.4(iv).
4.3. Ownership of Product Patents and Improvements. PERIMMUNE shall have
sole and exclusive ownership of the Product Patents and of any Improvements
(whether patentable or unpatentable) made or discovered by PERIMMUNE or MENTOR
separately or by the parties jointly. PERIMMUNE shall be responsible for the
preparation, filing and prosecution of Product Patents as well as all costs and
fees associated therewith. PERIMMUNE shall apply for, seek prompt issuance of
and maintain during the terms of this Agreement the Product Patents in all
jurisdictions where patent protection is available and where, in PERIMMUNE's
judgment, such patent protection is necessary or advisable given plans for
marketing the Product for one or more of the Indicated Uses. The preparation,
prosecution and maintenance of all Product Patents shall be the primary
responsibility of PERIMMUNE; provided however, that MENTOR shall be afforded
reasonable opportunities to advise PERIMMUNE and shall cooperate with PERIMMUNE
in such preparation, prosecution and maintenance. PERIMMUNE shall promptly
advise MENTOR of the grant, lapse, revocation, surrender, or any threatened
invalidation or of its intention to abandon any such patent, application or
foreign counterpart.
4.4. Infringement of Product Patents. PERIMMUNE and MENTOR shall each
promptly notify the other of any infringement of any Product Patent in any
jurisdiction which may come to its attention. PERIMMUNE shall promptly undertake
reasonable efforts to obtain a discontinuance of the aforesaid infringement or
unauthorized use. Any suit to obtain such discontinuance shall be brought by
PERIMMUNE in its name unless the law of the relevant forum requires otherwise.
7
<PAGE> 8
ARTICLE V
REGULATORY AFFAIRS
5.1. Approvals. PERIMMUNE shall hold the biological license application
("BLA") and all other Approvals for the Product.
5.2. Assistance in Gaining Approvals. PERIMMUNE shall exercise due
diligence in attempting to obtain and in maintaining in full force and effect
the Approval for the marketing and sale of the Product in the United States for
the treatment of Refractory Bladder Cancer. At MENTOR's request, PERIMMUNE shall
exercise due diligence in attempting to obtain and in maintaining in full force
and effect the Approvals for the marketing and sale of the Product (i) for
Indicated Uses other than Refractory Bladder Cancer in the United States and
(ii) for Indicated Uses in Canada, the member states of the European Community,
and in each other jurisdiction in which MENTOR desires to market and sell the
Product for the Indicated Uses, provided that, in each case, MENTOR shall bear
all costs, fees and other expenses required to be paid to regulatory authorities
for the purpose of applying for, obtaining or preserving such Approvals,
provided further that, in each case, if any application or submission required
to gain such Approvals requires additional clinical tests or data beyond the
clinical tests and data that are produced during the clinical tests required to
gain Approval for the marketing and sale of the Product in the United States,
MENTOR shall bear all costs of conducting additional clinical tests and
obtaining such additional clinical data, and provided further that, in each
case, MENTOR shall, at no charge to PERIMMUNE, provide reasonable assistance to
PERIMMUNE in making such applications, submissions or filings as may be required
or advisable to obtain such Approvals. Notwithstanding anything else herein to
the contrary, PERIMMUNE shall not be required to attempt to obtain any Approval
for the marketing or sale of the Product for Indicated Uses in any jurisdiction
if, in the reasonable judgment of PERIMMUNE, such efforts separably or in the
aggregate would affect PERIMMUNE's ability to attain the Project Objective.
5.3. Notice of Reports to Government Authorities. Each party shall
promptly notify the other party of any information coming to its attention
concerning experience with any Product for which records and reports are filed
with any governmental authority, but shall not be liable for any intentional
failure to do so.
ARTICLE VI
DISTRIBUTION
6.1. Appointment and Acceptance. PERIMMUNE hereby appoints MENTOR as its
exclusive worldwide distributor of the Product for the Indicated Uses during the
term of this Agreement and MENTOR agrees to act in this capacity, all subject to
the terms and conditions of this Agreement. During the term of this Agreement,
(a) neither PERIMMUNE nor any of its Affiliates shall market or distribute the
Product for use in the Indicated Uses, (b) PERIMMUNE shall not license any other
Person to market or distribute the Product for use in the Indicated Uses, (c)
PERIMMUNE shall not supply to any person other than MENTOR and its Affiliates
Product that indicates on its label or in any product information sheet or other
packaging accompanying the Product that the Product is suitable for use in the
Indicated Uses, and (d)
8
<PAGE> 9
PERIMMUNE shall not knowingly sell the Product to persons whom PERIMMUNE knows
or has reason to know will use the Product in the Indicated Uses or will
distribute or re-sell the Product for such uses.
6.2. Terms of Sale.
(a) MENTOR shall purchase its requirements for the Product during
the term of this Agreement solely from PERIMMUNE for a purchase price to be
calculated as set forth herein and PERIMMUNE shall use all reasonable best
efforts to supply all such requirements.
(b) Within thirty (30) days from the date of invoice for any
Product sold to MENTOR, MENTOR shall pay to PERIMMUNE an amount equal to Thirty
Dollars ($30) per Vial of the Product (such amount, the "Advance").
Additionally, within thirty (30) days of the close of each calendar quarter in
which MENTOR has purchased Product from PERIMMUNE pursuant hereto, MENTOR shall
pay to PERIMMUNE an amount equal to (i) thirty percent (30%) of MENTOR's
aggregate Net Sales (as defined herein) from the Product during the calendar
quarter (the "Percentage Sales Amount") less (ii) the aggregate amount equal to
(A) the number of Vials sold during such calendar quarter for which MENTOR has
paid to PERIMMUNE an Advance, multiplied by, (B) the Advance amount (such
aggregate amount, the "Quarterly Advance Amount"). In the event that the
Quarterly Advance Amount in respect of any calendar quarter shall exceed the
Percentage Sales Amount for such calendar quarter, then the amount payable to
PERIMMUNE pursuant to the preceding sentence shall be zero. Unless MENTOR and
PERIMMUNE otherwise agree in a writing signed by both of them, the payment and
other provisions set forth in this Agreement shall supersede those of any
subsequent purchase order, sales confirmation form or other document hereafter
sent by either party hereto to the other.
(c) Within thirty (30) days after the end of each calendar quarter
in which MENTOR has purchased any Product from PERIMMUNE, MENTOR shall submit a
report to PERIMMUNE certified by a financial officer of MENTOR and setting
forth, with respect to such calendar quarter, (i) the aggregate number of Vials
of Product purchased from PERIMMUNE, (ii) the aggregate number of Vials of
Product sold by MENTOR, (iii) 30% of MENTOR's aggregate Net Sales from the
Product and (iv) the aggregate Advances paid by MENTOR to PERIMMUNE with respect
to the Vials of the Product sold by MENTOR. Upon thirty (30) days notice to
MENTOR, PERIMMUNE shall have the right to examine the applicable books and
records of MENTOR in order to verify the payments made to PERIMMUNE pursuant to
Section 6.2(b) above. In the event that any such examination reveals that the
amount of such payments owed to PERIMMUNE for any calendar quarter shall be
different than the amount certified to PERIMMUNE with respect to such calendar
quarter and paid to PERIMMUNE pursuant to Section 6.2(b), then, any shortfall
shall promptly be paid to PERIMMUNE and, alternatively, any overpayment shall
promptly be re-paid to MENTOR, in each case, without interest on such payment.
For purposes of this Section 6.2(c), MENTOR shall maintain such books and
records for not less than three years after the relevant date.
9
<PAGE> 10
(d) Title and risk of loss with respect to the Product sold by
PERIMMUNE to MENTOR shall pass to MENTOR upon release of Product for shipment by
PERIMMUNE to the designated carrier. MENTOR shall specify the method of shipment
and insurance and all freight and applicable insurance charges shall be the
responsibility of MENTOR. PERIMMUNE will be responsible for contracting freight
services specified by MENTOR, for which MENTOR will be billed on a
shipment-by-shipment basis. The Product is subject to inspection and acceptance
by MENTOR upon receipt. MENTOR shall be deemed to have accepted each shipment of
the Product unless rejected for nonconformity with the Quality Specifications
(as defined herein) in accordance with Section 6.5 of this Agreement, within
twenty (20) working days after receipt of shipments from PERIMMUNE.
(e) Unless approved by MENTOR in writing, PERIMMUNE will not sell
any Product to MENTOR that has a shelf-life from the date of shipment by
PERIMMUNE that is less than the greater of (a) twelve (12) months or (b) such
longer period for which PERIMMUNE has obtained stability approval from the FDA.
6.3. MENTOR's Duties. MENTOR shall:
(a) use best commercial efforts to advertise and promote the sale
of the Product in a manner calculated by MENTOR to yield benefit to the parties
hereto. MENTOR agrees that during the term of this Agreement, it will not market
any Competitive Product.
(b) submit its purchase orders to PERIMMUNE in writing or via
facsimile, signed by an authorized representative of MENTOR.
(c) pay all PERIMMUNE invoices in United States currency by company
check or by electronic wire transfer to an account designated by PERIMMUNE.
(d) submit to PERIMMUNE a twelve (12) month forecast of purchases
of Product from PERIMMUNE and delivery dates for such Product, which forecast
shall not constitute a firm purchase commitment, in a format to be mutually
determined by the parties. Said forecast shall be submitted by MENTOR to
PERIMMUNE within thirty (30) days after gaining FDA approval for use in the
Indicated Uses, and quarterly thereafter. MENTOR shall place firm orders from
time to time for the purchase of the Product at least ninety (90) days in
advance of required delivery.
(e) obtain advance written authorization and a Returned Material
Authorization ("RMA") prior to returning any of the Product.
(f) maintain a properly trained sales force of adequate size to
represent and promote the sale of the Product and provide instructions to
customers in the use of the Product. MENTOR shall be responsible for developing
its own marketing plan and system for dispensing the Product.
(g) carry in stock an inventory of the Product sufficient to
promptly fill the orders of MENTOR's customers.
10
<PAGE> 11
(h) pay any import duty or like charge on the entry of the Product
into any jurisdiction and any local or other applicable taxes.
(i) maintain separate and detailed accurate and complete records of
all transactions in respect of the Product, including, but not limited to, such
records as identify all customer purchases by Product and serial and/or lot
number, and possess the capability to notify all purchasers in the event of a
Product recall or corrective action.
(j) defray all expenses of and incidental to the distribution and
sale of the Product hereunder incurred by MENTOR.
(k) make no contracts or commitments on behalf of PERIMMUNE or make
any promises or representations or give any warranties or guarantees with
respect to the Product except as herein expressly permitted or otherwise incur
any liability on behalf of PERIMMUNE without PERIMMUNE's prior written consent,
nor represent itself as agent or partner of PERIMMUNE.
(1) comply with all laws and regulations and requirements
applicable to a seller of bio-pharmaceutical products, and with all laws and
regulations and requirements of governmental agencies in any jurisdiction in
which it markets, distributes or sells the Product.
(m) except as authorized in writing by PERIMMUNE, refrain
absolutely from using the trademark or trade name and logo of PERIMMUNE in
connection with the marketing, distribution and sale of any Product.
6.4. PERIMMUNE's Duties. PERIMMUNE shall:
(a) make reasonable best efforts, in good faith, to deliver
MENTOR's firm orders for the Product within ninety (90) days from date of order
receipt, provided that if PERIMMUNE is unable to deliver such firm orders within
such ninety (90) day period, PERIMMUNE will give priority to the delivery of the
Product to MENTOR to deliver such firm order, over the delivery of the Product
to any other purchaser or distributor, until such firm orders are filled. MENTOR
shall specify the method of shipment and insurance and PERIMMUNE shall make
reasonable best efforts, in good faith, to comply with such specifications. If
no such specification is made, or if the specification cannot be reasonably
complied with after notice to MENTOR and an opportunity to resolve the issues
surrounding PERIMMUNE's alleged inability to comply, PERIMMUNE may select a
reasonable manner of shipment and insurance, the cost of which shall be the
responsibility of MENTOR as provided in Section 6.2(d).
(b) afford all purchase orders for the Product received from MENTOR
equal priority with PERIMMUNE's own supply requirements for (a) products that
PERIMMUNE distributes for its own account and (b) orders from distributors of
other products manufactured by or for PERIMMUNE. PERIMMUNE will ship all orders
for the Product and for other products manufactured by or for PERIMMUNE in the
priority in which such orders were received.
11
<PAGE> 12
(c) provide such amount of Product as MENTOR reasonably requests
for use by MENTOR for promotional purposes, to MENTOR, at PERIMMUNE's cost plus
shipping charges.
(d) comply with all laws and regulations and requirements
applicable to PERIMMUNE as a manufacturer of bio-pharmaceutical products.
(e) except as authorized in writing by MENTOR, refrain absolutely
from using the trademark or trade name and logo of MENTOR in connection with the
marketing, distribution and sale of any Product.
(f) supply the Product to MENTOR in Vials, pre-labeled with labels
of a design provided by MENTOR. MENTOR shall supply PERIMMUNE with camera-ready
artwork for such labels.
(g) provide reasonable technical assistance to MENTOR's personnel
necessary for the marketing of the Product.
(h) at PERIMMUNE's expense, provide MENTOR with written product
inserts relating to the Product's use, and with such amendments thereto as
subsequently become available.
(i) provide necessary documentation to assist MENTOR in meeting
requirements to register the Product in any jurisdiction where MENTOR reasonably
expects to market the product for sale, and, where possible, allow MENTOR to
utilize prior registrations by PERIMMUNE.
(j) provide MENTOR with copies of the BLA pre-market notifications
submitted for the Product, copies of current package inserts for the Product,
copies of documents describing specifications for the Product, and copies of all
current and future correspondence with the FDA pertaining to the Product for any
Indicated Use. PERIMMUNE will comply with the FDA's current good manufacturing
practices and regulations ("GMP") in the manufacture of the Product. If needed
to comply with any change in the law or FDA's GMP regulations or policies, or to
enable MENTOR to market and distribute the Product in any jurisdiction MENTOR
shall have the right to inspect PERIMMUNE's manufacturing facilities and GMP
records pertaining to the manufacture of the Product. If any action should be
taken by the FDA to restrict or prevent the distribution of the Product for any
Indicated Use for more than thirty (30) days, and such restriction is not due to
the negligence of MENTOR, then upon notice to PERIMMUNE, MENTOR shall have the
right to terminate this Agreement as to such use or uses of the Product.
PERIMMUNE shall replace any affected inventory of Product under this section or
refund to MENTOR the purchase price it paid to PERIMMUNE for such inventory if
PERIMMUNE is unable to replace the Product with comparable inventory. PERIMMUNE
shall replace or repurchase any affected inventory of Product which MENTOR
replaces or repurchases from MENTOR's customers, at the price MENTOR paid
PERIMMUNE for such inventory. IN NO CASE SHALL PERIMMUNE BE LIABLE FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES.
12
<PAGE> 13
(k) comply with the United States Food, Drug and Cosmetic Act. The
Product comprising each shipment or other delivery hereafter made by PERIMMUNE
to, or on the order of, MENTOR, as of the date of such shipment or delivery,
shall not, on such date be, adulterated or misbranded within the meaning of the
United States Food, Drug, and Cosmetic Act.
(l) use raw materials that comply with any applicable raw material
specification guidance documents promulgated by the FDA.
(m) use manufacturing procedures that comply with all applicable
GMP standards.
(n) provide MENTOR with Product that is suitable for use for its
intended purpose.
(o) issue an RMA to MENTOR promptly upon its receipt of a request
therefor, unless a reasonable basis exists for denying such request, it being
understood by the parties hereto that, the failure of MENTOR to reject a Product
within twenty (20) working days of receipt of the Product shall not constitute a
reasonable basis for denying such request.
(p) (i) consult with MENTOR regarding proposed changes to the
Product and/or the adaptation of the Product for additional applications within
the Indicated Uses, (ii) make such Improvements to the Product as may be
reasonably necessary to meet the needs of the market and to keep the Product
current and commercially acceptable, and (iii) make reasonable efforts
consistent with its available resources and its other contractual commitments
and business objectives to incorporate into the Product any features or
Improvements that are recommended by MENTOR as the result of its clinical
studies and its marketing and customer support activities, to the extent that
such Improvements are technically and economically feasible. MENTOR shall pay a
reasonable consulting fee and reasonable costs incurred by PERIMMUNE, in each
case, in an amount mutually agreeable to the parties, in connection with any
research or development activities that PERIMMUNE undertakes at the request of
MENTOR pursuant to this Section 6.4(p).
(q) if MENTOR exercises its right to terminate this Agreement
pursuant to Section 7.2.1, take reasonable steps, consistent with the orderly
termination of the Project, to reduce or eliminate as soon as reasonably
practicable the costs for which MENTOR will continue to be responsible under
Section 7.2 of this Agreement, to the extent that PERIMMUNE can do so without
breaching existing contractual obligations or otherwise incurring liability for
wrongful conduct.
6.5. Performance Standards.
(a) Quality Specifications and Characteristics. PERIMMUNE shall
deliver to MENTOR Product having the Quality Specifications.
13
<PAGE> 14
(b) Certificate of Analysis. Concurrent with shipment, PERIMMUNE
shall fax to MENTOR a Certificate of Analysis, in the form set forth in Exhibit
E hereto, of each lot of Product sold to MENTOR, confirming that the Product
meets the Quality Specifications.
(c) Product Acceptance. Within twenty (20) working days of receipt
of Product, MENTOR shall take and conduct analysis of sample of the Product
delivered by PERIMMUNE. Should the result of an analysis of such sample deviate
from the Quality Specifications, MENTOR shall notify PERIMMUNE in accordance
with Section 10.2 hereof and immediately thereafter provide PERIMMUNE with
samples of the Product tested. If, following a review of the test result and
after conducting its own tests of the sample, PERIMMUNE agrees that such sample
does not conform to the Quality Specifications, PERIMMUNE shall provide to
MENTOR, free of any additional charge, new deliveries of the same quantity of
the Product as the one from which the sample was taken, or in PERIMMUNE's
discretion and at its cost, PERIMMUNE may promptly reprocess the nonconforming
Product to meet the Quality Specifications. In either event, MENTOR shall
return, at PERIMMUNE's expense, the particular lot or shipment of the Product
which does not comply with the Quality Specifications if requested to do so by
PERIMMUNE.
6.6. Product Recall.
(a) Either party shall immediately notify the other party in
writing should it become aware of any defect or condition that renders any
lot(s) of Product supplied by PERIMMUNE to MENTOR in violation of the United
States Food, Drug and Cosmetic Act, or of a similar law of any jurisdiction or
country where the Product is sold. Should either party experience any quality
problem involving field correction or recall of any specific lot(s) of Product
supplied to MENTOR by PERIMMUNE, such party shall notify the other in writing by
facsimile within twenty-four (24) hours of the initiation of the field
correction or recall. Each party will test retained samples of lots in question
and report its findings to the other within ten (10) working days.
(b) Each party shall keep the other informed of any formal action
relating to any specific lot of Product sold to MENTOR hereunder by a regulatory
agency of any state, national government, or government agency having
jurisdiction.
(c) Should any governmental action or other circumstances require
the recall or field corrections or withholding from market of Product sold by
PERIMMUNE to MENTOR, each party retains the right and obligation to correct
field problems arising out of its fault or omission as it deems appropriate,
with or without the concurrence of the other. All information about complaints
concerning the Product shall be considered "Confidential Information" under the
terms of this Agreement. MENTOR shall bear all costs of complying or effecting
any recall or field correction, including the cost of the Product and the actual
costs of replacing the Product, that is the result of any fault or omission
attributable to MENTOR. PERIMMUNE shall bear all costs of complying or effecting
any recall or field correction, including the cost of the Product and the actual
costs of replacing the Product, that (i) is the result of any fault or omission
attributable to PERIMMUNE or (ii) results from the fault of neither party.
Should such recall or
14
<PAGE> 15
field correction result from the fault of both parties, the parties shall share
all costs of complying or effecting any recall or field correction, including
the costs of the Product and the actual cost of replacing the Product, in
proportion to their respective degree of fault.
6.7. Product Complaints.
(a) PERIMMUNE shall maintain an appropriate record of all claims
made or to be made regarding the Product's performance. The parties shall share
with each other all data on confirmed lot-specific Product complaints including,
but not limited to, complaints or information regarding performance and/or
allegations or reports of any negative effect from the use or misuse of such
affected lot of Product as soon as such data is available. Each party will
provide reasonable assistance to the other in resolving customer complaints to
the extent the complaint arises out of any fault or omission of the party whose
assistance is requested. However, MENTOR shall have sole responsibility and
authority to interact directly with MENTOR's customers in the resolution of such
complaints and PERIMMUNE agrees that it will only interact with MENTOR in such
matters.
(b) PERIMMUNE shall evaluate and investigate all customer
complaints in connection with the Product which may be brought to its attention,
in writing, by MENTOR, provided that such complaints (i) have been confirmed by
MENTOR's QA/QC or technical service personnel using the same standards for
confirmation which MENTOR uses for products other than the Product and (ii) are
believed in good faith by MENTOR to arise out of a fault or omission
attributable to PERIMMUNE. Within twenty (20) calendar days following receipt
from MENTOR of the original notification of each such complaint, PERIMMUNE
agrees to provide MENTOR with a written interim or final complaint investigation
report. All such Product complaints reported to PERIMMUNE by MENTOR shall be
reviewed monthly by PERIMMUNE until closure, and a summary report thereof will
be provided by PERIMMUNE to MENTOR.
(c) PERIMMUNE will report to MENTOR all data and/or information
pertaining to adverse reports on any lot of Product supplied by PERIMMUNE for
distribution by MENTOR which would have an adverse impact on performance of the
Product.
(d) Should there be a difference of opinion between PERIMMUNE and
MENTOR regarding whether a field notification or recall is necessary, MENTOR
will exercise the right to notify its customers without delay.
6.8. Packaging and Intellectual Property. MENTOR shall be responsible for
repackaging the Product in such form as is suitable and in compliance with all
applicable laws for resale in each jurisdiction in which the Product is sold.
MENTOR will distribute the Product only with all appropriate labeling, packaging
and Product literature and only under MENTOR's applicable trademarks and trade
names. MENTOR recognizes PERIMMUNE's right, title and interest in its patents
(including all Product Patents), trademarks, trade names and copyrights, trade
secrets and proprietary information in connection with the Product and MENTOR
shall not claim any ownership right thereto inconsistent with this Agreement, or
dispute the validity thereof. In the event any third party shall contest
PERIMMUNE's rights to its patents,
15
<PAGE> 16
trademarks, trade names or copyrights, trade secrets or proprietary rights,
MENTOR shall, at PERIMMUNE's sole expense, render reasonable assistance to
PERIMMUNE in defending such claims.
6.9. Product Modifications. PERIMMUNE reserves the right, from time to
time, to modify the Product or to make any Improvement, and shall give MENTOR at
least three (3) months prior written notice before making any Improvement or
change to its manufacturing process for the Product that would have an impact on
any of PERIMMUNE's product verifications or validations, or changes in raw
materials that would alter the use of the Product for any Indicated Use or other
change or Improvement that could impact product labeling or promotional
literature; provided, however, that PERIMMUNE shall be required to provide
MENTOR with only reasonable advance notice where such modification or
Improvement is required to comply with any applicable legal or regulatory
requirement or the unanticipated modification or unavailability of raw material.
6.10. Appointment of Sub-Distributors. MENTOR may assign, sublicense,
delegate, or otherwise transfer the performance of the rights and obligations
hereunder to qualified and reputable sub-distributors, provided, however, that:
(i) MENTOR shall be liable to PERIMMUNE for the errors, negligent acts and
omissions of its sub-distributors as if such errors, negligent acts and
omissions were its own, including any breach of any provision of this Agreement
by the sub-distributors; (ii) MENTOR shall have and retain full control of any
sub-distributor utilized, and shall be responsible for the performance by any
sub-distributor; and (iii) MENTOR shall not be relieved of the responsibility
for the proper performance and completion of the sub-distributed portions of its
obligations hereunder.
ARTICLE VII
TERM AND TERMINATION
7.1. Term. This Agreement shall be in full force and effect in each
applicable jurisdiction, and for each applicable Indication Use, for a period
commencing on the Effective Date and continuing for a period equal to ten (10)
years following the obtaining of the first Approval of the Product for such
Indicated Use in such jurisdiction, provided that, MENTOR shall have the right
to terminate this agreement with respect to any such Indicated Use in any such
jurisdiction at the expiration of five (5) years from the date of such Approval
in such jurisdiction by giving not less than one-hundred and eighty (180) days
written notice to PERIMMUNE of its intention to so terminate.
7.2. Termination.
7.2.1. Termination by MENTOR Without Cause. MENTOR shall be
entitled to terminate this Agreement without cause at any time prior to
attainment of the Project Objective by giving PERIMMUNE not less than
one-hundred and eighty (180) days prior written notice of intention to
terminate, specifying the effective date of termination, if MENTOR reasonably
concludes that the Project Objective cannot be attained within the Target
Period, for a reason other than excusable delay and events of force majeure, at
a cost that does not exceed the Project
16
<PAGE> 17
Budget as adjusted by the parties as described herein. Should MENTOR exercise
the termination right conferred by this Section 7.1, then:
(i) MENTOR shall remain liable for the payment of any costs or
expenses that PERIMMUNE reasonably incurs in the winding down and
terminating of the Project Development Activities, including amounts
payable pursuant to contracts and agreements entered into by PERIMMUNE
prior to receiving notice of intention to terminate, provided that
nothing in this Section 7.2.1(i) shall cause MENTOR to be liable for
obligations of PERIMMUNE under contracts with institutions acting as
investigators in the clinical trials conducted pursuant to this
Agreement, which obligations are inconsistent with current industry
practice in the conduct of clinical trials.
(ii) MENTOR shall not have the right to the return of any funds
previously expended by it pursuant to this Agreement; and
(iii) MENTOR shall have no rights in the Product or the Project
Information and PERIMMUNE shall be free to license the right to
manufacture, market and sell the Product to any other persons as
PERIMMUNE may select without further duty or obligation to MENTOR.
7.2.2. Termination by MENTOR With Cause. MENTOR shall be entitled
to terminate this Agreement for cause by giving PERIMMUNE written notice of
intention to terminate, specifying the effective date of termination not less
than ninety (90) days prior to the effective date of termination, upon the
occurrence of any of the following events:
(i) PERIMMUNE commits a material breach of its obligations under
this Agreement and such material breach remains uncured for a period of
ninety (90) days after written notice of such default, specifying the
nature thereof, has been given to PERIMMUNE, unless, prior to the
expiration of such ninety (90) day period, PERIMMUNE has commenced, and
thereafter pursues with diligence to completion, those actions necessary
to cure such default within a reasonable period of time.
(ii) PERIMMUNE becomes insolvent or has a receiver, liquidator,
trustee or assignee in bankruptcy or insolvency appointed, in each case
whether by the voluntary act or otherwise, and, in the case of any such
proceeding that is involuntary, if such proceeding is not terminated
within thirty (30) days thereafter.
(iii) An order is made or a resolution is passed for the winding
up or liquidation of PERIMMUNE.
7.2.3. Termination by PERIMMUNE With Cause. PERIMMUNE shall be
entitled to terminate this Agreement for cause by giving MENTOR written notice
of intention to
17
<PAGE> 18
terminate, specifying the effective date of termination not less than ninety
(90) days prior to the effective date of termination, upon the occurrence of any
of the following events:
(i) MENTOR commits a material breach of its obligations under
this Agreement and such material breach remains uncured for a period of
ninety (90) days after written notice of such default, specifying the
nature thereof, has been given to MENTOR, unless, prior to the
expiration of such ninety (90) day period, MENTOR has commenced, and
thereafter pursues with diligence to completion, those actions necessary
to cure such default within a reasonable period of time.
(ii) MENTOR becomes insolvent or has a receiver, liquidator,
trustee or assignee in bankruptcy or insolvency appointed, in each case
whether by the voluntary act or otherwise, and, in the case of any such
proceeding that is involuntary, if such proceeding is not terminated
within thirty (30) days thereafter.
(iii) An order is made or a resolution is passed for the winding
up or liquidation of MENTOR.
7.3. Procedures on Termination. Upon termination of this Agreement:
(a) each party shall return to the other party all Confidential
Information (as defined herein) which such other party shall have supplied to
the party and which is in the party's possession.
(b) the rights and duties of each party under this Agreement in
respect of performance prior to termination shall survive and be enforceable in
accordance with the terms of this Agreement.
(c) within thirty (30) days of receipt of PERIMMUNE's invoice
therefor, MENTOR will pay PERIMMUNE for all remaining inventory of the Product
for which MENTOR has issued purchase orders to PERIMMUNE. Upon payment,
PERIMMUNE will ship such inventory to MENTOR at MENTOR's expense, and MENTOR
shall be entitled to continue to market and sell the Product until MENTOR's
inventory of the Product has been disposed of.
(d) If this Agreement has been terminated by reason of a material
breach by PERIMMUNE, adjudicated as provided by Section 7.4(iv), PERIMMUNE shall
continue to be bound by the provisions of Section 6.1 of this Agreement for the
same period of time during which PERIMMUNE would have been bound had such
termination not occurred.
7.4. Procedures on PERIMMUNE's Discontinuance of Manufacture. MENTOR shall
have the right to exercise the license granted pursuant to Section 4.2, above,
if PERIMMUNE (i) abandons the Project Development Activities without the
concurrence of MENTOR; (ii) discontinues manufacturing the product for valid
business reasons that cannot be remedied within a reasonable period of time;
(iii) is otherwise unable to supply the requirements of
18
<PAGE> 19
MENTOR for the Product on forecasted delivery dates, as such requirements and
delivery dates are set forth in the twelve (12) month forecast of purchases
submitted by MENTOR to PERIMMUNE pursuant to Section 6.3(d) of this Agreement
for a period of two successive quarters; or (iv) is in material breach of this
Agreement, which material breach has been determined by a court of law, which
determination has become final and not subject to further appeal. Upon the
occurrence of any such event, PERIMMUNE shall transfer to MENTOR any necessary
technology, knowledge, know-how, and the rights to the Approvals for the Product
for use in the Indicated Uses, to the extent necessary or appropriate to enable
MENTOR or its alternate supplier to exercise the license granted under Section
4.2. MENTOR shall reimburse PERIMMUNE the reasonable out-of-pocket costs
PERIMMUNE incurs in doing so (including salary benefits for time expended by
PERIMMUNE employees) immediately upon receipt of an invoice therefor. If any
such event occurs before the issuance of an Approval for an Indicated Use, then
PERIMMUNE shall transfer to MENTOR all Project Information relating to such
Indicated Use.
ARTICLE VIII.
WARRANTIES
8.1. Representations and Warranties of MENTOR. MENTOR hereby makes the
following representations and warranties to PERIMMUNE, which representations and
warranties are true and correct on the date hereof:
(a) MENTOR is a corporation duly organized, validly existing and in
good standing under the laws of the state of Minnesota and has all requisite
corporate power and authority to enter into this Agreement and perform its
obligations hereunder.
(b) Neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated herein, will (a) violate or
conflict with any provision of the Certificate of Incorporation or By-laws of
MENTOR, each as in effect on the Effective Date; (b) with or without the giving
of notice or the lapse of time or both (i) result in a breach of, or violate, or
be in conflict with or constitute a default under, or result in the termination
or cancellation of, or accelerate the performance required under, any security
instrument, mortgage, note, debenture, indenture, loan, lease contract,
agreement or other instrument, to which MENTOR is a party or by which it or any
of its properties or assets may be bound or affected, or (ii) result in the loss
or adverse modification of any lease, franchise, license or other contractual
right or other authorization granted to or otherwise held by MENTOR; (c) require
the consent of any party to any such agreement or commitment to which MENTOR is
a party or by which any of its properties or assets are bound; (d) result in the
creation or imposition of any lien, claim or encumbrance upon any property or
assets of MENTOR; or (e) require any consent, approval, authorization, order,
filing, registration or qualification of or with any court or governmental
authority or arbitrator to which MENTOR is subject or by which any of its
properties or assets may be bound or affected, other than Approvals of the
Product for the Indicated Uses, as contemplated herein.
19
<PAGE> 20
(c) All action to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly taken, and this Agreement constitutes the valid and binding obligation of
MENTOR enforceable in accordance with its terms.
(d) There are no claims relating to patent infringement or any
other matters, actions, suits, proceedings, arbitrations or investigations
pending or, to the best of MENTOR's knowledge, threatened, against MENTOR which
if adversely determined would adversely affect MENTOR's ability to sell the
Product for any Indicated Use, or MENTOR's ability to conduct Product
Development or to enter into or carry out this Agreement.
8.2. Representations and Warranties of PERIMMUNE. PERIMMUNE hereby makes
the following representations and warranties to MENTOR, which representations
and warranties are true and correct on the date hereof
(a) PERIMMUNE is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware and has the power and
authority to enter into this Agreement and perform its obligations hereunder.
(b) Neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated herein, will (a) violate or
conflict with any provision of the Certificate of Incorporation or By-laws of
PERIMMUNE, each as in effect on the Effective Date; (b) with or without the
giving of notice or the lapse of time or both (i) result in a breach of, or
violate, or be in conflict with or constitute a default under, or result in the
termination or cancellation of, or accelerate the performance required under,
any security instrument, mortgage, note, debenture, indenture, loan, lease
contract, agreement or other instrument, to which PERIMMUNE is a party or by
which it or any of its properties or assets may be bound or affected, or (ii)
result in the loss or adverse modification of any lease, franchise, license or
other contractual right or other authorization granted to or otherwise held by
PERIMMUNE; (c) require the consent of any party to any such agreement or
commitment to which PERIMMUNE is a party or by which any of its properties or
assets are bound; (d) result in the creation or imposition of any lien, claim or
encumbrance upon any property or assets of PERIMMUNE; or (e) require any
consent, approval, authorization, order, filing, registration or qualification
of or with any court or governmental authority or arbitrator to which PERIMMUNE
is subject or by which any of its properties or assets may be bound or affected,
other than Approvals of the Product for the Indicated Uses, as contemplated
herein.
(c) All action to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly taken, and this Agreement constitutes the valid and binding obligation of
PERIMMUNE enforceable in accordance with its terms.
(d) There are no claims relating to patent infringement or any
other matters, actions, suits, proceedings, arbitrations or investigations
pending or, to the best of PERIMMUNE's knowledge, threatened, against PERIMMUNE
which if adversely determined
20
<PAGE> 21
would adversely affect the use of the Product for any Indicated Use, or
PERIMMUNE's ability to enter into or carry out this Agreement.
(e) PERIMMUNE, after having made a reasonable investigation and
obtaining the advice of its counsel, (i) has no knowledge that the manufacture,
use, importation or sale of the Product for the Indicated Uses under this
Agreement, either alone or in combination, infringes any patent or other
industrial property right of a third party; and (ii) has not received any
notification from any third party alleging or suggesting that the manufacture,
use, importation or sale of the Product does or would infringe any patent or
other industrial property. PERIMMUNE shall disclose to MENTOR any information
regarding adverse patent rights of which it is, or becomes, aware relating to
the Product.
ARTICLE IX.
INDEMNIFICATION
9.1. PERIMMUNE Indemnification. PERIMMUNE shall defend, indemnify and
hold harmless MENTOR and its directors, employees, representatives and agents
from and against all suits, claims, liabilities, damages, demands and costs
(including, but not limited to, reasonable legal expenses) ("Claims") incurred
as a result of:
(a) any claims of or on behalf of third parties for death or
personal injury resulting from the Product; provided, however, that this
indemnity shall not apply to, and PERIMMUNE shall not be liable for, any such
claim caused by or arising from:
(i) any act or failure on the part of MENTOR, its Affiliates, or
their respective employees, representatives, agents or subsidiaries (the
"MENTOR Parties") in packaging, handling, storing or otherwise
distributing the Product;
(ii) any representation or warranty concerning the Product made
by or on behalf of MENTOR or any MENTOR Party and not specifically
authorized by PERIMMUNE;
(iii) any claim resulting from the use of the Product by any
customer that was not in accordance with the use presented by PERIMMUNE;
(iv) MENTOR's failure to disseminate to purchasers or end-users
any Product information which PERIMMUNE has made available to MENTOR;
(v) any claim where PERIMMUNE has not been notified in writing
within forty five (45) days of MENTOR's first notice of this claim;
(vi) any claim where MENTOR fails to furnish evidence in its
possession or fails to fully cooperate with PERIMMUNE in preparing the
defense;
21
<PAGE> 22
(b) any claim that the Product or any activities hereunder infringe
the patent or other intellectual property rights of any third party provided
MENTOR gives PERIMMUNE notice within forty-five (45) days of MENTOR's first
notice of the claim; provided, however, that the claim is not based on (i) the
sale or use of the Product in combination with any other product which is not
specifically authorized by PERIMMUNE in writing; and
(c) PERIMMUNE's material breach of the terms of this Agreement.
9.2. MENTOR Indemnification. MENTOR shall defend, indemnify and hold
harmless PERIMMUNE and its directors, employees, representatives and agents from
and against all Claims incurred as a result of:
(a) MENTOR's material breach of the terms of this Agreement.
9.3. Indemnification Proceedings.
(a) Notice of Claims: Assumption of Defense. The party to be
indemnified ("the Indemnified Party") shall give prompt notice to the other
party ("the Indemnifying Party") of the assertion of any Claim in respect of
which indemnity may be sought hereunder (and in any event within fifteen (15)
calendar days after the service of the citation or summons). It is understood,
however, that the Indemnified Party shall be authorized and expected to take any
such prompt action as may be reasonably necessary in the circumstances of any
proceedings seeking an injunction or similar equitable relief against it. The
Indemnifying Party may, at its own expense (i) participate in the defense of any
Claim for which it is obligated to indemnify the Indemnified Party hereunder and
(ii) upon notice to the Indemnified Party at any time during the course of any
such Claim, assume the defense thereof; provided, however, that (i) the
Indemnifying Party's counsel is reasonably satisfactory to the Indemnified Party
and (ii) the Indemnifying Party shall, upon reasonable request, thereafter
consult with the Indemnified Party from time to time with respect to such Claim.
If the Indemnifying Party assumes such defense, the Indemnified Party shall have
the right (but not the duty) to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
Indemnifying Party. Whether or not the Indemnifying Party chooses to defend or
prosecute any such Claim, both parties hereto shall cooperate in the defense or
prosecution thereof.
(b) Settlement or Compromise. Any settlement or compromise made or
caused to be made by the Indemnified Party or the Indemnifying Party (as the
case may be) of any Claim shall be binding upon the Indemnifying Party or the
Indemnified Party (as the case may be) in the same manner as if a final judgment
or decree has been entered by a court of competent jurisdiction in the amount of
such settlement or compromise; provided however, that no obligation, restriction
or loss shall be imposed on an Indemnified Party as a result of such settlement
without its prior written consent which consent shall not be unreasonably
withheld, and such settlement shall include an unconditional release of the
Indemnified Party; and provided further, that the Indemnified Party shall not
make or cause to be made any such settlement or compromise without the prior
written consent of the Indemnifying Party, which consent shall not unreasonably
be withheld. The Indemnified Party will give the Indemnifying Party at least
thirty (30) days' prior written notice of any proposed settlement or compromise
of any Claim it itself is
22
<PAGE> 23
defending, during which time the Indemnifying Party may assume the defense of,
and responsibility for, such Claim and, if it does so, the proposed settlement
or compromise may not be made.
(c) Failure of Indemnifying Party to Act. In the event that the
Indemnifying Party does not elect to assume the defense of any claim or to cause
the same to be done, then any failure of the Indemnified Party to defend or
participate in the defense of any such claim or to cause the same to be done,
shall not relieve the Indemnifying Party of its obligations hereunder; provided
however, that the Indemnified Party shall have given the Indemnifying Party at
least thirty (30) days' notice of its proposed failure to defend or participate
and afford the Indemnifying Party the opportunity to assume defense thereof
prior to the end of such period.
(d) Procedure for Indemnification. Upon becoming aware of any claim
for indemnification, the Indemnified Party shall promptly give notice of such
claim (a "Claim Notice") to the Indemnifying Party and will provide, to the
extent possible and without prejudice to the rights of the Indemnified Party
hereunder, a good faith estimate of the amount the Indemnified Party reasonably
anticipates that it will be entitled to on account of indemnification by the
Indemnifying Party. If the Indemnifying Party does not object to such
indemnification claim within forty-five (45) days of receiving notice thereof,
the Indemnified Party shall be entitled to recover promptly the amount of such
claim (but such recovery shall not limit the amount of any additional
indemnification or other rights to which the Indemnified Party may be entitled
pursuant to this Article IX). If, however, the Indemnifying Party advises the
Indemnified Party that it disagrees with the Indemnified Party's claim, the
parties shall, for a period of forty five (45) days after the Indemnifying Party
advises the Indemnified Party of such disagreement, attempt to resolve the
difference. If the parties are unable to reach agreement within such forty five
(45) days, the disagreement shall be resolved pursuant to Section 10.8 hereof.
(e) Limitations. No claim for indemnification shall be valid unless
first made in writing within forty-five (45) days of the Indemnified Party's
first notice of such claim.
ARTICLE X
MISCELLANEOUS
10.1. Confidentiality.
(a) Confidentiality Defined. For the purposes of this Agreement,
the term "Confidential Information" shall be any information embodying concepts,
ideas, techniques, proprietary information, know-how, formulations, market data,
customer lists, product specifications and accounting data which:
(i) is disclosed by one party hereto to the other;
(ii) is claimed by the disclosing party to be secret,
confidential and proprietary to the disclosing party; and
23
<PAGE> 24
(iii) if disclosed in writing, is marked by the disclosing party
to indicate its confidential nature or, if disclosed orally as
confidential, is confirmed in writing by the disclosing party to be
confidential within ten (10) days following disclosure.
(b) Non-Disclosure. During the period that this Agreement remains
in effect and for a period of three (3) years following termination hereof, each
party (except as is explicitly otherwise required hereby) shall keep
confidential, shall not use for itself or for the benefit of others and shall
not copy or allow to be copied in whole or in part any Confidential Information
disclosed to such party by the other. The obligation of confidentiality imposed
upon the parties by the foregoing paragraph shall not apply with respect to any
alleged Confidential Information which:
(i) is known to the recipient thereof, as evidenced by said
recipient's written records, prior to receipt thereof from the other
party hereto;
(ii) is disclosed to said recipient after the date hereof by the
third party who has the right to make such disclosures and who does not
violate any confidentiality agreement with the affected party hereto;
(iii) is or becomes a part of the public domain through no fault
of the said recipient; or
(iv) is required by law or judicial or administrative process to
be disclosed.
(c) Non-Disclosure of Relationship. PERIMMUNE and MENTOR shall
agree to keep confidential and not disclose to third parties, the supply and
working relationship under this Agreement.
(d) Limited Use of Confidential Information. Each party agrees to
limit access to Confidential Information to employees and agents having a need
to know and to protect Confidential Information to the same extent as it
protects its own trade secrets.
10.2. Notices. Any notices or report or other communication permitted or
required under this Agreement shall be in writing and sent by certified mail,
express mail; Federal Express, postage paid, return receipt requested, addressed
to the party to whom the notice is to be given. All notices, reports or other
communications made hereunder shall be deemed to have been made on the date
postmarked. Changes in address shall be accomplished by a notice in compliance
with this Section 10.2. The current address for each party is as follows:
PERIMMUNE MENTOR Corporation
1330 Piccard Drive 5425 Hollister Avenue
Rockville, Maryland 20850-4396 Santa Barbara, California 93111
Attn: Dr. Bryan Butman Attn: Mr. Anthony Gette
24
<PAGE> 25
10.3. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of each of the parties and their respective heirs,
successors, assigns and legal representatives. Either party may freely assign
this Agreement to any Affiliate, and either party shall have the right to assign
its rights and licenses and to delegate its duties under this Agreement to any
third party who (a) purchases all or substantially all of the business assets of
the assignor or who succeeds to the business of the assignor by reason of a
merger or consolidation and (b) agrees to assume the duties and obligations of
the assignor hereunder. Except as expressly provided herein, no party hereto
shall have the right to transfer or assign its interest in this Agreement
without the prior written consent of the other party hereto, which consent may
not be unreasonably withheld. The assignment by either party of any rights under
this Agreement shall not relieve the assigning party from any of its obligations
under this Agreement.
10.4. Force Majeure. Neither party shall be liable in damages for, nor
shall this Agreement be terminable or cancelable by reason of any delay or
default in such party's performance hereunder if such default or delay is caused
by events beyond such party's reasonable control including, but not limited to,
acts of God, regulation or law or other action of any government of agency
thereof, war or insurrection, civil commotion, destruction or production
facilities or materials by earthquakes, fire, flood or storm, labor
disturbances. epidemic, or failure of supplies, public utilities or common
carriers. Each party shall endeavor to resume its performance hereunder if such
performance is delayed or interrupted by reason of force majeure. Each party
shall notify the other, in writing, not less often than monthly, of the nature
of progress of such endeavors.
10.5. Insurance. Each party shall keep in force during the term of this
Agreement, and for a period of three (3) years following its termination,
product liability insurance in such amounts as may be customary for like-sized
businesses undertaking like responsibilities to those contemplated by this
Agreement. Each party shall submit a certificate of insurance to the other
evidencing such coverage upon written request therefor.
10.6. Severability. Should any part of this Agreement be held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provision shall be replaced
with a provision which accomplishes, to the extent possible, the original
business purpose of such part or provision in a valid and enforceable manner,
and the remainder of this Agreement shall remain binding upon the parties.
10.7. Waiver. Waiver by either party of a default or breach or a
succession of defaults or breaches, or any failure to enforce any right
hereunder shall not be deemed to constitute a waiver of any subsequent default
or breach with respect to the same or any other provision hereof, and shall not
deprive such party of any right to terminate this Agreement arising by reason of
any subsequent default or breach.
10.8. Mediation. Unless the relief sought requires the exercise of the
equity powers of a court of competent jurisdiction, neither party shall commence
any action or proceeding to construe or enforce the terms and conditions of this
Agreement unless such party has first given
25
<PAGE> 26
written notice of its intention to do so and submitted such matter to
non-binding mediation if the other party desires to have the controversy
mediated. Any party who receives from the other party (a) a notice of default
under this Agreement, or a notice that such other party intends to submit a
controversy or dispute for adjudication, shall have a period of fifteen (15)
days after its receipt of such notice to request that the dispute or controversy
be submitted to mediation, and the failure of the recipient of any such notice
to make a written request for mediation within such fifteen (15) day period
shall be deemed to have waived its right to require that such matter be
submitted to mediation. The period during which any such matter is being
mediated shall not toll the period during which any party who is in default in
the performance of its obligations under this Agreement is obligated to remedy
or cure such default.
10.9. Venue and Jurisdiction. The parties hereto (a) mutually consent
and stipulate that any action or proceeding commenced to interpret or enforce
this Agreement or the rights and duties of the parties hereunder shall be
commenced and conducted in a state or federal court of competent jurisdiction
situated in the county or judicial district in which the defendant in such
action or proceeding has its corporate headquarters, (b) each waive any claim
that any such state or federal court is an inconvenient forum, and (c) each
irrevocably agrees that any and all actions or proceedings arising out of or
relative to this Agreement or from transactions contemplated herein shall be
exclusively heard only in such state or federal court.
10.10. Governing Law. This Agreement, the construction and enforcement
of its terms, and the interpretation of the rights and duties of the parties
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Maryland without regard to the choice of law rules utilized in that
jurisdiction.
10.11. Costs of Enforcement. Should any action or proceeding be
necessary to construe or enforce this Agreement, then the party prevailing in
any such action or proceeding shall be entitled to recover all court costs and
reasonable attorneys' fees, to be fixed by the court and taxed as part of any
judgment entered therein, and the costs and fees incurred in enforcing or
collecting any such judgment.
10.12. Entire Agreement. This Agreement represents the entire
understanding between the parties as of the Effective Date with respect to the
subject matter hereof, and supersedes all prior agreements, negotiations,
understandings, representations, statements, and writings, between the parties
relating thereto. No modification, alteration, waiver or change in any of the
terms of this Agreement shall be valid or binding upon the parties hereto unless
made in writing and specifically referring to this Agreement and duly executed
by each of the parties hereto.
26
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives as of the day and
year first written above.
PERIMMUNE, INC. MENTOR CORPORATION
By: /s/ M. G. HANNA, JR. By: /s/ CHRISTOPHER J. CONWAY
------------------------------- ---------------------------------
Name: M. G. Hanna, Jr. Name: Christopher J. Conway
Title: Chairman and CEO Title: Chairman/CEO
27
<PAGE> 1
EXHIBIT 10.24
INTELLECTUAL PROPERTY AGREEMENT
BY AND AMONG
AKZO NOBEL PHARMA INTERNATIONAL, B.V.
AND
PERIMMUNE HOLDINGS, INC.
<PAGE> 2
INTELLECTUAL PROPERTY AGREEMENT
This Intellectual Property Agreement (the "Agreement") is made this second
day of August, 1996 by and between Akzo Nobel Pharma International, B.V. (a
corporation formed under the laws of the Netherlands) ("Pharma") and PerImmune
Holdings, Inc., a Delaware corporation ("Holdings");
WITNESSETH
WHEREAS, Pharma is the beneficial owner of the Patents and Patent
Applications (each as defined herein), and is the legal and beneficial owner of
the Trademarks and Technical Information (each as defined herein);
WHEREAS, Akzo Nobel, N.V. a corporation formed under the Laws of the
Netherlands and the direct parent corporation of Pharma ("Parent"), holds
title, as legal owner, to the Patents and Patent Applications for the benefit
of Pharma;
WHEREAS, Pharma and Patent each wishes to sell, transfer and convey to
Holdings their respective rights in the Patents, Patent Applications, the
Trademarks and other technology rights and intellectual property owned by such
parties in exchange for the consideration set forth in this Agreement and used
and useful in the PerImmune Business (as defined herein);
NOW, THEREFORE, in consideration of the respective covenants and
representations and warranties hereafter specified it is hereby agreed between
the parties as follows:
1. Definitions
As used in this Agreement, the terms defined below shall have the
respective meanings hereinafter specified, it is hereby agreed between the
parties as follows:
"Affiliates" means, with respect to any entity, any other entity which
directly or indirectly controls, is controlled by, or is under common control
with such entity, where the term "control" means the ownership, directly or
indirectly, of more than fifty percent (50%) of the equity capital or the right
or power in fact to direct the management of such entity.
"Claim" has the meaning set forth in Section 5.3.
"Claim Notice" has the meaning set forth in Section 5.3.
"Damages" has the meaning set forth in Section 5.1.
<PAGE> 3
"Excluded Intellectual Property" means all biological materials, products,
technology, files, records and documentation, including but not limited to data
for regulatory processes, relating to (i) the TICE(R)BCG product line
(including but not limited to the master seed lot), (ii) any and all food
diagnostics and HIV diagnostics in the possession of PerImmune at the Closing
Date, and (iii) any and all cell lines/antibodies set forth on Schedule 1.1.
"Fair Market Value" means as of a given date, (i) the closing price of a
share of common stock on the principal exchange on which the common stock then
trades, if any, on the day previous to such date, or, if shares were not traded
on the day previous to such date, then on the next preceding trading day during
which a sale occurred; or (ii) if such common stock is not traded on an
exchange but is quoted on Nasdaq or a successor quotation system, (1) the last
sales price (if the common stock is then listed as a National Market Issue
under the Nasdaq National Market system) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the common stock
on the day previous to such date as reported by Nasdaq or such successor
quotation systems.
"Indemnitees" has the meaning set forth in Section 5.1.
"License Revenue" means consideration received by Holdings and its
Affiliates (including PerImmune) from third parties as a result of the
licensing by Holdings and its Affiliates (including PerImmune) of Patents,
Patent Applications and/or Technical Information with respect to a specified
Product or Products, including all license fees, royalties and milestone
payments, but excluding payments to fund research or other product development
expenses and costs ("R&D Payments").
"Net Sales" means the amounts invoiced or charged purchasers for Products
sold by Holdings or an Affiliate (including PerImmune) to a third party, less
costs of insurance incident to transportation; transportation and shipping
costs; excise, sales, luxury, gross receipt, turnover or similar taxes and
customs duties; trade and cash discounts; sales commissions; and allowances for
returns and uncollectible accounts. Neither License Revenues nor R&D Payments
shall be considered Net Sales for purposes of this Agreement.
"Patents" means those patents listed on Schedule 1.2(a) hereto and all
divisionals, continuations, continuations-in-part, reissues, renewals,
extensions or additives to any such patents, both U.S. and worldwide.
"Patent Applications" means the patent applications listed on Schedule
1.2(a) hereto, as well as any continuations, continuations-in-part, divisional
or reissue applications, reexamination certificates, or any corresponding
foreign patent applications based on such patent applications and on any
patents issuing worldwide from any of the foregoing.
"PerImmune Business" means the business of research, development and the
commercialization of clinical and therapeutic applications for vaccine-based
active specific immunotherapy and the research, development, clinical and
therapeutic application and manufacturing of human monoclonal antibodies,
non-specific immunotherapy and in-vitro
2
<PAGE> 4
diagnostics, as well as contract research and product sales, as currently
conducted and proposed to be conducted by PerImmune.
"PerImmune Indemnitees" has the meaning set forth in Section 5.1.
"Products" means individually or collectively, as the context indicates
(i) OncoSPECT (Colorectal), (ii) OncoSPECT (non-colorectal), (iii) active
specific immunotherapy (ASI), (iv) Apo-Tek cardiovascular tests and products,
(v) KLH and non-specific immunotherapy products, and (vi) other products
produced by Holdings and its Affiliates (including PerImmune) which are covered
by Patents, Patent Applications or patents or patent applications underlying
the Retained Patents License or make use of Technical Information transferred
hereunder to Holdings.
"Quarterly Payments Report" has the meaning set forth in Section 2.3(a).
"Retained Patents" means the patents list on Schedule 1.4.
"Retained Patents License" has the meaning set forth in Section 3(b).
"Taxes" means all federal, state, local, foreign, and other net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees, assessments, or charges of any
kind whatever, together with any interest and any penalties, additions to tax,
or additional amounts with respect thereto, and the term "Tax" means any one of
the foregoing Taxes.
"Technical Information" means all technical and commercial information,
specifications, processes, inventions, trade secrets, know how, methods and
techniques, and other materials primarily used in the PerImmune Business,
including models, designs and plans and including the underlying copyright in
works of authorship embodying the foregoing, all of which primarily relate to
the PerImmune Business as conducted by PerImmune on the date hereof, but not
including the Patents, Patent Applications, Trademarks or Excluded Intellectual
Property.
"Third Party Notice" has the meaning set forth in Section 5.3.
"Trademarks" means those trademarks and common law marks listed on
Schedule 1.5 hereto.
3
<PAGE> 5
2. Assignment of Intellectual Property Rights to PerImmune
2.1. Transfer.
(a) Assignment of Patents and Patent Applications. Pharma shall, and
shall cause Parent to, sell, assign, convey and deliver to Holdings, its
successors, assigns and legal representatives, such party's entire right,
title and interest in and to the Patents, the Patent Applications and all
rights and privileges relating thereto including but not limited to the
right to recover and take all such proceedings as may be necessary for the
recovery of damages or otherwise in respect of past, present or future
infringement of any Patent or patents(s) issuing from any Patent
Application;
(b) Assignment of Trademarks. Pharma hereby sells, assigns, conveys
and delivers to Holdings all of its individual rights, title and interest
in and to the Trademarks, including the goodwill of the business
represented by the scheduled trademarks, any registrations and
applications of the scheduled marks and any common law rights in the
scheduled marks.
(c) Assignment of Technical Information. Pharma hereby sells,
assigns, conveys and delivers to Holdings Pharma's right, title and
interest in and to all Technical Information held by Pharma.
2.2. Consideration.
(a) In consideration of the transfers, assignments and conveyances
provided for in Section 2.1, and subject to the limitations included
herein, Holdings agrees to make the following payments to Pharma:
(i) in respect of the Products listed on Schedule 2.2(a)(i),
the payments in each case in the amount set forth next to such Product
on Schedule 2.2(a)(i);
(ii) in respect of the Products listed on Schedule 2.2(a)(ii),
the payments in each case in the amount set forth next to such
Product on Schedule 2.2(a)(ii);
(iii) in respect of other Products covered by the Patents, the
Patent Applications, or patents issued to, or patent applications
filed by, Holdings subsequent to the date hereof, which are the direct
result of the technology owned by Holdings as of the date hereof or
transferred to Holdings hereunder (but excluding the Products set
forth in Schedule 2.2(a)(i) and Schedule 2.2(a)(ii)), payments equal
to 7.5% of Net Sales and 50% of License Revenue for such Products, as
applicable; and
(iv) in respect of all other Products of Holdings which are a
direct result of the technology owned by Holdings as of the date
hereof, but not otherwise
4
<PAGE> 6
covered by the provisions of 2.2(a)(i) through 2.2(a)(iii), payments
equal to 5% of Net Sales or 50% of License Revenue, as applicable.
(b) Each lump sum payment for a Product to be made by Holdings
pursuant to Section 2.2(a)(i) is payable in two equal installments: one-half
upon written notification to Holdings by the U.S. Food and Drug Administration
of its approval of such Product for commercial use and one-half upon written
notice of approval of such Product for commercial use in at least two of the
following four countries: France, Germany, United Kingdom and Italy. In the
event that PerImmune's common stock is publicly traded on a U.S. national
securities exchange or quoted on an automatic quotation system, each milestone
payment may, at the election of Pharma, be satisfied in shares of common stock
of PerImmune based upon the Fair Market Value of such common shares on the day
such payment is made.
(c) Holdings' obligation to make the payments referenced in Section
2.2(a)(ii) and Section 2.2(a)(iii) with respect to a particular Product remains
in effect with respect to any sale of that particular Product until the
expiration or termination of the last patent to expire or terminate directly
covering that particular product in any country of manufacture or sale.
Holdings' obligation to make payments contemplated in Section 2.2(a)(iv) with
respect to any Product expires on the earlier of: (i) ten years from the first
commercial introduction of any such Product or (ii) December 31, 2011.
(d) For purposes of this Section 2.2, Products shall be considered
sold upon the date invoiced.
(e) Payments made pursuant to Section 2.2(a)(ii) through 2.2(a)(iv)
in respect of Products returned to Holdings, may be credited against future
payments due and owing pursuant to such sections and credits for returned
Products shall be made in accordance with the Quarterly Payments Report.
(f) Holdings hereby agrees to diligently pursue development,
regulatory approval and commercialization of the Products listed on Schedule
2.2(a)(i).
2.3. Quarterly Payments Report: Audit
(a) Holdings shall, on or before the last day of February, May,
August and November of each year in which payments are payable thereunder,
furnish to Pharma a statement (the "Quarterly Payments Report"), certified by a
financial officer of Holdings, concerning the Net Sales and License Revenue of
Products by Licensee during the preceding calendar quarter in sufficient detail
to permit the computation of the payments due pursuant to Section 2.2(a)(i)
through 2.2(a)(iv) and shall accompany such statement by payment of the amount
of the payment due in the form of a check or confirmation of a wire transfer.
On or before the 30th day of April of each year, Holdings shall furnish to
Pharma at Pharma's request and expense, a comparable statement certified by
Holdings' firm of certified public accountants of the sales of Products during
the term of this
5
<PAGE> 7
Agreement for the calendar year ending on the preceding December 31, and shall
accompany such statement by payment of an amount equal to the excess, if any,
of the amount of payments shown to be due on such statement over the aggregate
amount of the four quarterly payments made in respect of such calendar year
pursuant to this Article, or, if the aggregate amount of such payments shall be
in excess of the amount of payment shown to be due on such statement, shall
take appropriate credit of the amount of such over-payment against payments
accruing after such December 31.
(b) Upon thirty (30) days notice to Holdings, Pharma shall
have the right to examine the applicable books and records of Holdings in order
to verify the Net Sales and License Revenue of Products for which payments are
made by Holdings to Pharma pursuant to Section 2.2(a). In the event that any
such examination reveals that the amount of such Net Sales or License Revenue
for any calendar quarter exceeded the amount certified to Pharma herein, the
actual amount of the Net Sales and License Revenue in respect of such calendar
quarter shall be increased for purposes of determining the Payments pursuant to
Section 2.2(c), and the shortfall shall immediately be paid to Pharma by
Holdings. Holdings shall be entitled to examine the work papers relating to any
such examination, and if any such examination reveals an overpayment to Pharma
by Holdings, the overpaid amount shall be refunded to Holdings, without
interest.
2.4 Withholding. Holdings and Pharma recognize that payments by
Holdings to Pharma of amounts described in this Agreement are not royalties,
but rather payments for the purchase of Patents and Patent Applications,
Trademarks and Technical Information. However, Pharma recognizes that Holdings
may be obligated under Section 881(a)(4) of the Internal Revenue Code of 1986,
as amended, or under another provision of law to withhold and pay over, or
otherwise pay, Taxes as a result of the payment by Holdings to Pharma of
amounts described in this Agreement. In connection with such withholding
obligations, Pharma shall be treated as if it were subject to such law and
shall not be accorded the benefit of any exemption or reduction in tax rate
permitted by such law unless Holdings shall have received such evidence, forms
or certificates satisfying Holdings that Pharma is not subject to such law or
is entitled to an exemption or reduction in tax rate. Specifically, Pharma
shall provide Holdings with a duly executed Form 1001 - Ownership, Exemption,
or Reduced Rate Certificate evidencing Pharma's qualification for treaty
exemption prior to the due date for any payments hereunder. Any amounts
withheld by Holdings and remitted to a taxing authority shall be deemed for all
purposes of this Agreement to have been paid by Holdings to Pharma.
2.5 For purposes of this Article 2, all references to "Holdings"
shall refer to either or both of Holdings and PerImmune, as the context
requires.
3. (a) License Back to Pharma. Holdings hereby grants to Pharma a
retained, transferable, non-exclusive, irrevocable, world-wide and royalty-free
license under the assigned Patents and Patent Applications set forth on
Schedule 1.2(b).
6
<PAGE> 8
(b) License to Retained Patents. Pharma hereby grants to Holdings a
non-transferable, non-exclusive, irrevocable, world-wide and royalty-free
license under the Retained Patents for use with PerImmune's human monoclonal
antibodies (the "Retained Patents License").
4. Representations and Warranties.
Pharma hereby represents and warrants to Holdings that:
4.1 Pharma is the beneficial owner of all Patents and Patent
Applications and the legal and beneficial owner of all Trademarks and
Technical Information with the authority to transfer to Holdings its interests
in such Patents, Patent Applications, Trademarks and Technical Information as
provided on Section 2.1.
4.2 Parent is the legal owner of all Patents and Patent Applications,
with the authority to transfer to PerImmune its interests in such Patents and
Patent Applications as provided in Section 2.1.
4.3 Pharma has full authority to cause Parent to assign to Holdings
Parent's interests in the Patents and the Patent Applications pursuant to
Section 2.1(a) and to grant the Retained Patents License. Neither Pharma nor
Parent has acted in any way that would interfere with Holdings' rights as
granted herein.
4.4 Except as set forth on Schedule 4.4, the Patents, Patent
Applications, and the Technological Information being transferred to Holdings
by Parent and Pharma under this Agreement and the Retained Patents License
together convey to Holdings legal and beneficial ownership of intellectual
property rights sufficient to permit Holdings to conduct the PerImmune
Business, substantially in the same manner as such business was conducted prior
to the date hereof.
4.5 Except as set forth on Schedule 4.5, no other person or entity
has or is asserting an ownership interest in any of the Products, and neither
Parent nor Pharma has had to pay or been requested to pay any royalty or
license fee which would be an obligation of Holdings after the date hereof to
any third party to make, use, sell or distribute, any of the Products.
4.6 Except as set forth on Schedule 4.6, the Trademarks represent all
marks registered in any jurisdiction worldwide which were used primarily by or
for the PerImmune Business prior to the date hereof.
4.7 Except as otherwise disclosed in Schedule 4.7, there has been no
claim against either Parent or Pharma or any of their Affiliates of any
infringement of any patent, trademark, patent application, trade name, trade
secret, copyright or other intellectual property rights of any third party
occurring from the operation of the PerImmune Business; provided, however, that
nothing in this Agreement shall constitute or be deemed a representation or
warranty that the manufacture, use or sale of any product under the Patents or
Patent Applications, the use of the Technical Information or the use of the
Trademarks are, or will be, free from infringement of any intellectual property
rights, including patents or trademarks, of third parties.
7
<PAGE> 9
5. Indemnification.
5.1 By Pharma. Pharma shall indemnify, save and hold harmless Holdings
and its respective Affiliates and subsidiaries, and their respective directors,
officers, shareholders and employees (the "PerImmune Indemnitees") from and
against any and all costs, losses, Taxes, liabilities, damages, lawsuits,
deficiencies, claims, demands, and expenses (whether or not arising out of
third-party claims), including, without limitation, reasonable attorneys' fees
and all reasonable amounts paid in investigation, defense or settlement of any
of the foregoing herein (collectively, "Damages") incurred in connection with,
arising out of or resulting from any breach of any representation, warranty,
covenant or agreement made by Pharma in, or in connection with, this Agreement
provided, however, that Pharma shall not be liable to the PerImmune Indemnitees
in respect of a breach of a representation or warranty made by Pharma in this
Agreement which was true as of the date of this Agreement but which is rendered
inaccurate by events beyond the control of Pharma occurring between the date of
this Agreement and the Closing, to the extent that Pharma has notified Holdings
of such breach in writing prior to the Closing and Holdings has effected the
Closing with knowledge of such breach.
5.2 Damages. The term "Damages" as used in this Section 5 is not limited
to matters asserted by third parties, but includes Damages incurred or
sustained by an Indemnitee in the absence of third party claims. Payments by an
Indemnitee or amounts for which such Indemnitee is indemnified hereunder shall
not necessarily be a condition precedent to recovery.
5.3 Defense of Claims. If a claim for Damages (a "Claim") is to be made
by an Indemnitee, such Indemnitee shall give written notice (a "Claim Notice")
to the indemnifying party as soon as practicable after such Indemnitee becomes
aware of any fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 5. If any lawsuit or
enforcement action is filed against any Indemnitee hereunder, notice thereof (a
"Third Party Notice") shall be given to the indemnifying party as promptly as
practicable (and in any event within fifteen (15) calendar days after the
service of the citation or summons). The failure of any indemnified party to
give timely notice hereunder shall not affect the rights to indemnification
hereunder, except to the extent that the indemnifying party demonstrates actual
damage caused by such failure. After receipt of a Third Party Notice, if the
indemnifying party shall acknowledge in writing to the indemnified party that
the indemnifying party shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the indemnifying
party shall be entitled, if it so elects, (i) to take control of the defense
and investigation of such lawsuit or action, (ii) to employ and engage
attorneys of its own choice to handle and defend the same, at the indemnifying
party's cost, risk and expense unless the named parties to such action or
proceeding include both the indemnifying party and the indemnified party and the
indemnified party has been advised in writing by counsel that there may be one
or more legal defenses available to such indemnified party that are different
from or additional to those available to the indemnifying party, and (iii) to
compromise or settle such claim, which compromise or settlement shall be made
only with the written consent of the indemnified party, such consent not to be
unreasonably withheld. The indemnified party shall cooperate in all reasonable
respects with the indemnifying party and such attorneys in the investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom;
and the indemnified party
8
<PAGE> 10
may, at its own cost, participate in the investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom and appoint its own
counsel therefor, at its own cost. The parties shall also cooperate with each
other in any notifications to insurers. If the indemnifying party fails to
assume the defense of such claim within fifteen (15) calendar days after
receipt of the Third Party Notice, the indemnified party against which such
claim has been asserted will (upon delivering notice to such effect to the
indemnifying party) have the right to undertake the defense, compromise or
settlement of such claim and the indemnifying party shall have the right to
participate therein at its own cost; provided, however, that such claim shall
not be compromised or settled without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. In the event the
indemnified party assumes the defense of the claim the indemnified party will
keep the indemnifying party reasonably informed of the progress of any such
defense, compromise or settlement.
5.4 Limitation on Indemnity. Holdings shall not be entitled to
indemnification based upon the breach of any representation or warranty of
Pharma if, as of the Closing, Holdings had actual knowledge of facts that cause
such representation or warranty to be untrue. For purposes of the foregoing,
the parties intend only that the actual knowledge of Michael G. Hanna, Jr. and
of senior management and laboratory directors of PerImmune on the Closing Date
shall be imputed to Holdings. Such persons shall not be personally liable to
Pharma under the provisions of the preceding sentence.
6. Miscellaneous
6.1 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder or thereunder may be assigned by any party without the
prior written consent of the other parties thereto, which consent will not
unreasonably be withheld; except that either party may, without such consent,
assign this Agreement and all such rights and obligations to an Affiliate or to
a successor in interest which shall assume all obligations and liabilities of
the assigning party under this Agreement and Holdings may (i) assign all such
rights to any lender as collateral security (provided that no assignment shall
release the assigning party from responsibility for its obligations hereunder)
or (ii) novate its rights and obligations hereunder to PerImmune and shall
thereafter be released from responsibility for its obligations thereunder. Upon
effecting such a novation, all references herein to Holdings shall be deemed to
refer to PerImmune, unless the context otherwise requires. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, and no
other Person shall have any right benefit or obligation under this Agreement as
a third party beneficiary or otherwise.
6.2 Further Assurances. Pharma shall, and shall cause Parent to, execute,
sign and deliver to Holdings all documents, and to perform all acts as are
reasonably required for the assignment of the Patents, Patent Applications,
Trademarks and Technical Information to PerImmune as contemplated hereunder,
including the timely filing of all documents necessary to reflect Holdings'
ownership of the Patents, the Patent Applications and the Trademarks in any
jurisdiction where such Patents, Patent Applications and Trademarks are
currently registered or filed.
9
<PAGE> 11
6.3 Notices. All notices under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered,
when transmitted if transmitted by telecopy, electronic or digital transmission
method provided that such transmission is confirmed by telephone, the day after
it is sent, if sent for next day delivery to a domestic address by overnight
mail or via private delivery service, and upon receipt, if sent by
international air courier service, certified or registered mail return receipt
requested. In each case notice shall be sent to:
If to Pharma, addressed to:
Akzo Nobel Pharma International B.V.
P.O. Box 20 5345 BH
Oss, The Netherlands
Attention: General Counsel
With a copy to:
Organon Teknika N.V.
Veedijk 58, 2300 Turnhout
Belgium
Attention: President
If to Holdings, addressed to:
PerImmune Holdings, Inc.
1330 Piccard Drive
Rockville, MD 20850-4396
Attention: Michael G. Hanna, Ph.D.
With a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W., Suite 1300
Washington, D.C. 20004
Attention: Bruce E. Rosenblum
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
6.4 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the internal law, and not
the law of conflicts, of the State of Maryland.
6.5 Jurisdiction. Pharma hereto irrevocably submits for the benefit of
PerImmune to the jurisdiction of the federal district courts located in the
State of Maryland in connection with any controversy, suit, action or
proceeding which may arise out of or in connection with this
10
<PAGE> 12
Agreement or the transactions contemplated hereby. Pharma hereto irrevocably
waives any objection which it might now or hereafter have to the courts
referred to in the preceding sentence being nominated as the forum to hear and
determine any controversy, suit, action or proceeding which may arise out of or
in connection with this Agreement or the transaction contemplated hereby, on
the basis of improper venue, inconvenient forum or otherwise, and agrees not to
claim that any such court is not a convenient or appropriate forum. The parties
agree hereby that nothing in this Section 6.5 is intended to alter the
agreement in Section 6.9.
6.6. Agent for Service of Process.
(a) In connection with this Agreement, Pharma hereto agrees that
the process by which any suit, action or proceeding is begun in the
federal district courts located in the State of Maryland may be served on
it by being delivered to Organon Teknika Corporation, 100 Akzo Avenue,
Durham, North Carolina 27712, and hereby irrevocably appoints such person
as its agent for the service of process in connection therewith. If the
appointment of the person mentioned in this Section 6.6 ceases to be
effective, Pharma shall immediately appoint a further person to accept
service of process on its behalf in Maryland and, failing such
appointment within five (5) days after notice thereof to Pharma, Holdings
shall be entitled to appoint such a person by notice to Pharma. Pharma
further irrevocably consents to the service of process out of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to
Pharma, at its address identified in Section 6.3, such service to become
effective ten (10) days after such mailing. Nothing contained herein
shall affect the right to serve process in any other manner permitted by
law.
(b) The submission to the jurisdiction of the courts referred to
above shall not (and shall not be construed so as to) limit the right of
Holdings hereto to take proceedings against Pharma with respect to this
Agreement in any other court of competent jurisdiction nor shall the
taking of proceedings in any one or more jurisdictions preclude the
taking of proceedings in any other jurisdiction (whether concurrently or
not) if and to the extent permitted by applicable law.
6.7. Multiple Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
6.8. Severability. The Parties hereto agree that the invalidity or
unenforceability of any of the provisions hereof shall not in any way affect
the validity or enforceability of any other provisions of this Intellectual
Property Agreement except those of which the invalidated or unenforceable
provisions comprise an integral part of or are otherwise clearly inseparable
from such other provisions.
11
<PAGE> 13
6.9 Arbitration
(a) Notwithstanding anything herein to the contrary, in the event
that there shall be a dispute among the parties after the Closing arising
out of or relating to this Agreement, including, without limitation, the
indemnities provided in Article 5 the parties agree to attempt to settle
any such disputes in a amicable manner. Should the parties fail to resolve
such a dispute within three (3) months following written notice thereof,
such dispute shall, upon request of the contesting party, be submitted to
an arbitrator jointly agreed to by the parties. If a single arbitrator
cannot be agreed upon within thirty (30) days, each party shall select one
arbitrator and the two arbitrators will select a third arbitrator.
(b) Arbitration shall be conducted in accordance with rules and
procedures of the Center for Public Resources ("CPR"), subject to the
following terms:
(i) the arbitration shall be held at a mutually agreeable
location in the vicinity of Washington, D.C.
(ii) the arbitrator(s) shall be independent, impartial third
parties, having no direct or indirect personal or financial
relationship to any of the parties of the dispute, each of whom has
agreed to accept an appointment as arbitrator(s) on the terms set
forth in this Section.
(iii) within thirty (30) days after selection of the
arbitrator(s), each party shall submit a description of the matter to
be arbitrated to said arbitrator(s).
(iv) from the date the arbitrator(s) is/are in possession of
both parties' submitted material, the arbitrator(s) shall have sixty
(60) days in which to hear the parties and fifteen (15) days
thereafter to render a decision.
(v) time period set forth in this Section 6.9 may be altered
only mutual consent of the parties.
(vi) the arbitrator(s) shall announce the award in writing
accompanied by written findings of fact in support of the award and
any relevant conclusions of law. Any award issued as a result of such
arbitration shall be final and binding between the parties thereto,
and shall be enforceable by any court having jurisdiction over the
party against whom enforcement is sought.
the fees of the arbitrator(s) and any other costs and fees associated
with the arbitration shall be paid in accordance with the decision of
the arbitrator(s), except that the prevailing party shall pay no
more than one-half of such costs.
12
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
PERIMMUNE HOLDINGS, INC.
By: /s/ MICHAEL G. HANNA, JR.
----------------------------------
Name: Michael G. Hanna, Jr.
Title: President
AKZO NOBEL PHARMA INTERNATIONAL, B.V.
By:
-----------------------------------
Name:
Title:
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
PERIMMUNE HOLDINGS, INC.
By:
----------------------------------
Name:
Title:
AKZO NOBEL PHARMA INTERNATIONAL, B.V.
By: [SIG]
-----------------------------------
Name: Dr. R.S. [ILLEGIBLE]
Title: Authorized Representative
<PAGE> 1
EXHIBIT 10.25
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement (the "Security Agreement")
is made and entered into as of this 13th day of August, 1996, by and among
PerImmune Holdings, Inc., whose address is 1330 Piccard Drive, Rockville,
Maryland 20850-4396 ("Holdings"), PerImmune, Inc. ("PerImmune"), Akzo Nobel
Pharma International, B.V., a corporation formed under the laws of the
Netherlands ("Pharma"), Organon Teknika Corporation ("OTC" together with
Pharma, the "Secured Parties") and Pharma, in its capacity as Collateral Agent
hereunder ("Collateral Agent").
RECITAL
WHEREAS, pursuant to that certain Promissory Note (the "Purchase Price
Note") dated as of August 2, 1996, made by Holdings pursuant to Section 2.2 of
the Stock Purchase Agreement, dated as of July 1, 1996 (as amended, modified or
supplemented from time to time) (the "Stock Purchase Agreement"), Holdings has
promised to pay to OTC an amount equal to Nine Million Two Hundred Thirty-four
Thousand Nine Hundred Thirty-five Dollars ($9,234,935).
WHEREAS, pursuant to a certain credit agreement, dated as of August 2,
1996 (as amended, modified or supplemented from time to time) (the "Credit
Agreement") between PerImmune and OTC, OTC has agreed to make to or for the
account of PerImmune certain loans up to Three Million Six Hundred Thousand
Dollars ($3,600,000) as may be increased by One Million Eight Hundred Thousand
Dollars ($1,800,000) in accordance with such Credit Agreement, to be evidenced
by PerImmune's Secured Promissory Note (the "Secured Note").
WHEREAS, pursuant to a certain working capital facility, dated as of
August 2, 1996 (as amended, modified or supplemented from time to time) (the
"Working Capital Facility") between PerImmune and OTC, OTC has agreed to make
to or for the account of PerImmune certain loans up to Two Million Eight
Hundred Seventy-one Thousand Five Hundred Thirty-two Dollars ($2,871,532) to be
evidenced by PerImmune's Working Capital Secured Note (the "Working Capital
Note").
WHEREAS, pursuant to a certain intellectual property agreement by and
between Holdings and Pharma dated as of August 2, 1996 (the "Intellectual
Property Agreement") whereby, in consideration of the transfer to Holdings of
certain patents and patent applications and other intellectual property,
Holdings has agreed to make to Pharma certain future payments.
WHEREAS, the parties hereto intend that the respective obligations of
Holdings under the Purchase Price Note and under the Intellectual Property
Agreement, and of PerImmune under the Credit Agreement and the Working Capital
Facility shall be secured by a pledge of Holdings' right, title and interest
in the Collateral (as defined herein).
1
<PAGE> 2
WHEREAS, the parties hereto intend that Pharma act as Collateral Agent for
the equal and ratable benefit of the Secured Parties.
AGREEMENT
Now therefore, in consideration of the above recitals and the agreement
hereinafter set forth, the parties hereto agree as follows:
1. Creation of Security Interest. In order to secure the payment and
performances of all Obligations, Holdings hereby grants to the Collateral
Agent, for the equal and ratable benefit of the Secured Parties, a security
interest in all of Holdings' right, title and interest in and to the collateral
described in Section 2 below (the "Collateral") in order to secure the payment
and performance of the respective obligations of PerImmune and Holdings to
Secured Parties described in Section 3 below.
2. Collateral.
(a) The Collateral under this Security Agreement shall mean (i)
those certain patents and patent applications set forth in Schedule A
attached hereto (including, without limitation, all divisions,
continuations, continuations-in-part, reissues, renewals or extensions
thereof) (the "Patents") and (ii) those certain trademarks set forth on
Schedule B attached hereto (including all goodwill of Holdings' business
connected with the use of, and symbolized by, any and all such trademarks)
(the "Trademarks").
(b) If, before the termination of this Agreement, Holdings shall
become entitled to the benefit of any patent or patent application for any
division, continuation, continuation-in-part, reissues, renewal or
extension of a Patent, the provisions of Section 1 shall automatically
apply thereto and Holdings shall give to the Collateral Agent prompt notice
thereof in writing. Holdings authorizes the Collateral Agent to modify this
Agreement by amending Schedule A to reflect the addition of such patents or
patent applications.
3. Secured Obligations of Debtor. The Collateral secures and shall
hereafter secure (i) the payment by PerImmune to OTC of all indebtedness now or
hereafter owed to OTC by PerImmune under the Credit Facility, the Secured Note,
the Working Capital Facility, the Working Capital Note and this Security
Agreement together with any interest thereon and extensions, modifications and
renewals thereof, and (ii) the payment of Holdings (a) to OTC of all
indebtedness owed to OTC under the Purchase Price Note, and (b) to Pharma of
all amounts due pursuant to Section 2.2(a)(i) and Section 2.2(b) of the
Intellectual Property Agreement prior to the termination of this Agreement and
(iii) performance by Holdings of all other obligations and the discharge of all
other liabilities to Secured Parties of every kind and character, direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, joint, several and joint and several, created under this
Security Agreement (together, the "Obligations"). All payments and performance
shall be in
2
<PAGE> 3
accordance with the terms under which said indebtedness, obligations and
liabilities were or are hereafter incurred or created.
4. The Collateral Agent. Pharma is hereby appointed as the
Collateral Agent to serve in such capacity until a successor is duly appointed.
The Collateral Agent hereby accepts such appointment and acknowledges that it
is acting in such capacity for the benefit of the Secured Parties.
5. Restrictions on Future Agreements. Holdings agrees that, except
as set forth in Section 8 hereof, until the Obligations shall have been
satisfied in full and this Agreement shall have been terminated, Holdings will
not, without the Collateral Agent's prior written consent, (a) enter into any
agreement that is inconsistent with Holdings' obligations under this Agreement
or (b) sell, pledge, license or assign its interest in any of the Collateral.
6. Defaults and Remedies
Holdings shall be in default under this Agreement upon the happening
of any of the following events:
(a) PerImmune fails to pay or perform any of the obligations
owed to OTC in accordance with the terms upon which such obligations were
incurred or created under the Secured Note or the Working Capital Note and such
failure continues thereafter for a period of thirty (30) days after such sum
becomes due and owing.
(b) Holdings fails to pay or perform any of the obligations
owed to OTC under the Purchase Price Note or to Pharma under Section 2.2(a)(i)
and Section 2.2(b) of the Intellectual Property Agreement in accordance with
the respective terms upon which such obligation was incurred or created and
such failure continues thereafter, in the case of the Purchase Price Note, for
a period of thirty (30) days after such sum becomes due and owing, and in the
case of payments under Section 2.2(a)(i) and Section 2.2(b) of the Intellectual
Property Agreement, for a period of thirty (30) days after written notice to
Holdings that such sums are due and owing.
(c) All or any portion of the Collateral is seized or levied by
writ of attachment, garnishment, execution or otherwise and such seizure or
levy is not released within fifteen (15) days thereof.
(d) PerImmune executes a general assignment for the benefit of
its credits, ceases to conduct its business in the ordinary course as it is now
conducted, convenes any meeting of its creditors, becomes insolvent, admits in
writing its insolvency or inability to pay its debts, or is unable to pay or is
generally not paying its debts as they become due.
(e) Holdings executes a general assignment for the benefit of
its creditors, ceases to conduct its business in the ordinary course as it is
now
3
<PAGE> 4
conducted, convenes any meeting of its creditors, becomes insolvent, admits
in writing its insolvency or inability to pay its debts, or is unable to
pay or is generally not paying its debts as they become due.
(f) A receiver, trustee, custodian or agent is appointed to take
possession of all or any substantial portion of PerImmune's assets.
(g) A receiver, trustee, custodian or agent is appointed to take
possession of all or any portion of the Collateral or all or any
substantial portion of Holdings' assets.
(h) Any case or proceeding is voluntarily commenced by PerImmune
under any provision of the Federal Bankruptcy Code or any other federal or
state law relating to debtor rehabilitation, insolvency, bankruptcy,
liquidation or reorganization, or any such case or proceeding is
involuntarily commenced against PerImmune.
(i) Any case or proceeding is voluntarily commenced by Holdings
under any provision of the Federal Bankruptcy Code or any other federal or
state law relating to debtor rehabilitation, insolvency, bankruptcy,
liquidation or reorganization, or any such case or proceeding is
involuntarily commenced against Holdings.
Upon such default hereunder, Collateral Agent, acting for the benefit of the
Secured Parties, shall have the remedies of a secured party under the
applicable Uniform Commercial Code and as set forth in Section 10, PerImmune or
Holdings, as appropriate, shall reimburse the Collateral Agent for all
reasonable costs and reasonable attorney's fees incurred by Collateral Agent in
pursuing any remedies, which costs and fees are also Obligations secured
hereunder.
7. Use and Pledge of Pledged Collateral. Unless an event of default
shall have occurred, Collateral Agent, on behalf of Secured Parties, shall from
time to time execute and deliver, upon written request of Holdings, any and all
instruments, certificates or other documents, in the form so requested,
necessary or appropriate in the reasonable judgment of Holdings to enable
PerImmune to continue to exploit, license, use, enjoy and protect the
Collateral throughout the world provided such instrument, certificate or
document does not conflict with nor diminish the rights of the Collateral Agent
or the Secured Parties hereunder and provided that Holdings gives adequate
assurance that the proceeds of the proposed transaction will be applied toward
any payment obligations that will be due and owing to Pharma under the
Intellectual Property Agreement as a result of such transaction. The parties
hereto each acknowledges that this Agreement is intended for the benefit of the
Collateral Agent on behalf of the Secured Parties and to grant a security
interest in and lien upon the Collateral and that, notwithstanding the
provisions of Section 10 hereof, shall not constitute or create a present
assignment of the Collateral.
8. Transfer of Collateral. The parties hereto each recognize and
acknowledge the right of Holdings under the Intellectual Property Agreement to
transfer and
4
<PAGE> 5
assign to PerImmune all of Holdings' rights, title and interest in the
Collateral, and the Collateral Agent and the Secured Parties agree to promptly
execute and deliver all further documents and instruments, and to take all
further actions that may be necessary or that Holdings or PerImmune may
request, in order to reflect or acknowledge such transfer. Upon consummation of
the transfer of the Collateral, PerImmune shall be bound by all terms of this
Agreement.
9. Termination of Agreement. This Security Agreement shall terminate
upon the earlier of (i) full and final payment and performance of all
indebtedness and obligations secured hereunder, and (ii) in the absence of a
default hereunder, two (2) years from the date of this Security Agreement
(provided that such term shall be extended for the length of any cure period if
an event has occurred which would constitute a default if not for the
additional time allowed for the cure period). At such time, Collateral Agent
shall promptly execute and deliver to Holdings all deeds, assignments and other
instruments (including termination statements on Form UCC-3 and documents
suitable for recordation in the United States Patent and Trademark Office, the
United States Copyright Office or similar domestic or foreign authority)
acknowledging the termination of this Agreement and the release of the security
interest in the Collateral created hereunder.
10. Conditional Assignment.
10.1 In order to induce the Secured Parties to provide funds and
credit as set forth above, Holdings has agreed to make the conditional
assignment described in this Section 10 to the Collateral Agent of the Patents
and the Trademarks to secure Holdings' and PerImmune's performance of their
Obligations pursuant to this Agreement.
10.2 Holdings hereby conditionally grants, assigns and conveys to the
Collateral Agent the entire right, title and interest in and to the Patents and
the Trademarks. The parties hereto acknowledge that the conditional assignment
pursuant to this Section 10.2 shall have no effect, and the Collateral Agent
shall have no ownership interest in the Patents and the Trademarks pursuant to
this Section 10.2, unless and until there shall have occurred an event of
default under Section 6 above. Upon termination of this Agreement pursuant to
Section 9 above, the conditional assignment pursuant to this Section 10.2 shall
be terminated, and thereafter shall not be given any effect. Upon the
occurrence of an event of default hereunder, any and all rights, residual,
inchoate, by license or of any kind, that Holdings may have in the Patents and
the Trademarks shall be deemed assigned to Collateral Agent, which shall then
have the entire right, title and interest in and to the Patents and the
Trademarks, free of any obligation to Holdings, by effect of this conditional
assignment.
10.3 If, before the Obligations shall have been satisfied in full,
Holdings shall become entitled to the benefit of any patent application or
patent for any reissue, division, continuation, renewal, extension, or
continuation-in-part of any Patent or any improvement on any Patent, the
provisions of Section 10.2 shall automatically apply thereto and Holdings shall
give to Collateral Agent prompt notice thereof in writing. Holdings
5
<PAGE> 6
authorizes Collateral Agent to modify this Agreement by amending Schedule A to
include any such future patents and patent applications.
11. Miscellaneous Provisions
11.1 Notices. Notices, requests and other communications hereunder
shall be in writing and may be delivered personally or sent by telegram, telex
or first class mail to the parties addressed as follows:
To PerImmune:
PerImmune, Inc.
1330 Piccard Drive
Rockville, MD 20850-4396
Attention: Michael G. Hanna, Jr.
To Holdings:
PerImmune Holdings, Inc.
1330 Piccard Drive
Rockville, MD 20850-4396
Attention: Michael G. Hanna, Jr.
To Pharma:
Akzo Nobel Pharma International, B.V.
P.O. Box 20 5345 BH
Oss, The Netherlands
Attn: General Counsel
To OTC:
Organon Teknika Corporation
100 Akzo Avenue
Durham, N.C. 27712
Attn: President
Such notices, requests and other communications sent as provided above shall be
effective when received by the addressee thereof, but if sent by registered or
certified mail, postage prepaid, shall be effective three (3) business days
after being deposited in the United States mail. The parties hereto may change
their addresses by giving notice thereof to the other parties hereto in
conformity with this section.
11.2 Headings. All headings have been inserted for convenience only
and shall not affect the meaning or interpretation of this Security Agreement
or any provision hereof.
6
<PAGE> 7
11.3 Governing Law. This Security Agreement shall be construed in
accordance with and all disputes hereunder shall be governed by the laws of the
State of Maryland.
11.4 Binding Agreement. All rights of Secured Parties hereunder
shall inure to the benefit of each of its successors and assigns. PerImmune
shall not assign any of its interest under this Security Agreement without the
prior written consent of Secured Parties.
11.5 Definitions. All terms not defined herein shall have the
meaning set forth in the applicable Uniform Commercial Code, except where the
context otherwise requires.
11.6 Entire Agreement. This Security Agreement, the Credit
Agreement, the Working Capital Agreement, the Purchase Price Note, the Secured
Note and the Working Capital Note executed in connection herewith, are intended
by the parties as a final expression of their agreement and are intended as a
complete and exclusive statement of the terms and conditions thereof.
11.7 Severability. If any provision of this Security Agreement
should be found to be invalid or unenforceable, all of the other provisions
shall nonetheless remain in full force and effect to the maximum extent
permitted by law.
11.8 Jurisdiction. Pharma (including in its capacity as Collateral
Agent) hereby irrevocably submits for the benefit of PerImmune and Holdings to
the jurisdiction of the federal district courts located in the State of
Maryland in connection with any controversy, suit, action or proceeding which
may arise out of or in connection with this Security Agreement and the
transactions contemplated hereby. Pharma (including in its capacity as
Collateral Agent) hereby irrevocably waives any objection which it might now or
hereafter have to the courts referred to in the preceding sentence being
nominated as the forum to hear and determine any controversy, suit, action or
proceeding which may arise out of or in connection with this Security Agreement
and the transactions contemplated hereby, on the basis of improper venue,
inconvenient forum or otherwise, and agrees not to claim that any such court is
not a convenient or appropriate forum.
11.9 Agent for Service of Process.
(a) In connection with this Security Agreement and the
transactions contemplated hereby, Pharma (including in its capacity as
Collateral Agent) hereby agrees that the process by which any suit, action
or proceeding is begun in the federal district courts located in the State
of Maryland may be served on it by being delivered to Organon Teknika
Corporation, 100 Akzo Avenue, Durham, N.C. 27712, Attn: President, and
hereby irrevocably appoints such person as its agent for the service of
process in connection therewith. If the appointment of the person
mentioned in this Section 11.9 ceases to be effective, Pharma shall
immediately appoint a further person to accept service of process on its
behalf in Maryland and, failing such
7
<PAGE> 8
appointment within five (5) days after notice thereof to Pharma, Holdings
or PerImmune shall be entitled to appoint such a person by notice to
Pharma. Pharma (including in its capacity as Collateral Agent) further
irrevocably consents to the service of process out of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, to Pharma, at the
address identified for it in Section 11.1, such service to become
effective ten (10) days after such mailing. Nothing contained herein shall
affect the right to serve process in any other manner permitted by law.
(b) The submission to the jurisdiction of the courts referred
to above shall not (and shall not be construed so as to) limit the right
of Holdings or PerImmune hereby to take proceedings against Pharma
(including in its capacity as Collateral Agent) with respect to this
Security Agreement and the transactions contemplated hereby in any other
court of competent jurisdiction nor shall the taking of proceedings in any
one or more jurisdictions preclude the taking of proceedings in any other
jurisdiction (whether concurrently or not) if and to the extent permitted
by applicable law.
Counterparts. This Security Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed as of the day and year first above written.
PerImmune, Inc.
By [SIG]
---------------------------
Title
---------------------------
PerImmune Holdings, Inc.
By [SIG]
---------------------------
Title
---------------------------
Akzo Nobel Pharma International, B.V.
By [SIG]
---------------------------
Title
---------------------------
Organon Teknika Corporation
By [SIG]
---------------------------
Title
---------------------------
Akzo Nobel Pharma International, B.V.
as Collateral Agent
By [SIG]
---------------------------
Title
---------------------------
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
Bartels, Inc.
PerImmune Holdings, Inc.
PerImmune, Inc.
<PAGE> 1
EXHIBIT 23.1
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Intracel Corporation's registration statement on
Form S-1 (File No. 333-_____) of our report dated April 24, 1998, except for the
second paragraph of Note 12 as to which the date is May 14, 1998 and the first
paragraph of Note 14 as to which the date is June 8, 1998, on our audit of the
1997 financial statements of Intracel Corporation. We also consent to the
reference to our firm under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
July 8, 1998
<PAGE> 1
EXHIBIT 23.2
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Intracel Corporation's registration statement on
Form S-1 (File No. 333-_____) of our report dated April 2, 1998, except for the
second paragraph of Note 14 as to which the date is June 8, 1998, on our audit
of the 1997 financial statements of Perimmune Holdings, Inc. and Subsidiary. We
also consent to the reference to our firm under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
McLean, Virginia
July 8, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
December 3, 1997, except for paragraph 3 of Note 6 and paragraph 9 of Note 10,
as to which the date is January 2, 1998, included in the Registration Statement
and related Prospectus of Intracel Corporation for the registration of shares
of its common stock to be filed with the Securities and Exchange Commission on
July 9, 1998.
Seattle, Washington
July 9, 1998
ERNST & YOUNG LLP
<PAGE> 1
EXIBIT 23.4
The Board of Directors
Intracel Corporation:
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Financial Data for PerImmune Holdings" and
"Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Baltimore, Maryland
July 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,974,629
<SECURITIES> 0
<RECEIVABLES> 2,063,249
<ALLOWANCES> 60,000
<INVENTORY> 1,821,013
<CURRENT-ASSETS> 8,197,385
<PP&E> 5,576,757
<DEPRECIATION> 2,397,798
<TOTAL-ASSETS> 28,041,595
<CURRENT-LIABILITIES> 8,598,723
<BONDS> 19,672,049
11,221,700
4
<COMMON> 537
<OTHER-SE> (9,306,689)
<TOTAL-LIABILITY-AND-EQUITY> 28,041,595
<SALES> 13,452,204
<TOTAL-REVENUES> 13,452,204
<CGS> 9,493,058
<TOTAL-COSTS> 9,493,058
<OTHER-EXPENSES> 9,843,187
<LOSS-PROVISION> 99,000
<INTEREST-EXPENSE> 2,496,418
<INCOME-PRETAX> (8,479,459)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,479,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,479,459)
<EPS-PRIMARY> (2.39)
<EPS-DILUTED> (2.39)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 732,989
<SECURITIES> 0
<RECEIVABLES> 3,004,788
<ALLOWANCES> 44,372
<INVENTORY> 2,176,892
<CURRENT-ASSETS> 8,693,998
<PP&E> 11,398,999
<DEPRECIATION> 6,210,917
<TOTAL-ASSETS> 45,645,925
<CURRENT-LIABILITIES> 12,870,037
<BONDS> 30,461,726
20,463,381
5
<COMMON> 1,092
<OTHER-SE> (16,392,573)
<TOTAL-LIABILITY-AND-EQUITY> 45,645,925
<SALES> 4,184,287
<TOTAL-REVENUES> 5,463,616
<CGS> 2,847,232
<TOTAL-COSTS> 3,841,136
<OTHER-EXPENSES> 44,212,267
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 788,019
<INCOME-PRETAX> (42,592,806)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,592,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,592,806)
<EPS-PRIMARY> (3.97)
<EPS-DILUTED> (3.97)
</TABLE>
