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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27750
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IMPATH INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3459685
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
521 WEST 57TH STREET 10019
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 698-0300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.005 PAR VALUE
TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of a specified date within the past 60 days.
<TABLE>
<S> <C>
Aggregate market value as of February 27, 1998................ $183,709,188
</TABLE>
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common Stock, $.005 par value, as of February 27, 1998........... 5,315,198
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are incorporated by
reference herein and the Part of the Form 10-K into which the document is
incorporated: None.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
IMPATH Inc. ("IMPATH" or the "Company") is a leader in providing critical
information essential for making medically optimal and cost-effective cancer
management decisions for individual cancer patients. The Company is focused
exclusively on the analysis of cancer, combining advanced technologies and
medical expertise to provide patient-specific diagnostic, prognostic and
treatment information to physicians involved in the treatment of cancer.
IMPATH believes that it currently performs more specialized analyses for
difficult to diagnose cancer cases than any other institution in the world.
The Company also believes that it is the leader in providing comprehensive
patient-specific prognostic information for cancer. For example, IMPATH
provided patient-specific prognostic information on over 20% of all breast
cancer cases in the U.S. in 1997. The Company's fastest growing business is
the analysis of lymphomas and leukemias, with IMPATH analyzing 12,464 of such
cases in 1997, representing an increase of 122% over 1996. Lymphoma/leukemia
analysis represents an area in which IMPATH's expertise and utilization of
sophisticated technologies are integrated to provide information for optimal
disease management.
The Company believes that its integration of patient-specific information
will be essential to a growing list of cancer diagnoses, most notably
prostate, colon, lung and bladder cancer. Furthermore, as an increased
understanding of the molecular basis of cancer leads to the development of new
evaluation methods and therapeutic tools, IMPATH expects that the information
it provides will become increasingly significant in optimizing the management
of all phases of cancer, including cancer predisposition, diagnosis,
prognosis, treatment determination and patient follow-up.
The Company believes that there are significant opportunities for increased
penetration of the cancer information market. IMPATH's goal is to be the
comprehensive information resource to the cancer care community. IMPATH has a
growing cancer database consisting of information on over 300,000 cases (the
largest database of diagnostic and prognostic cancer information in the
world); more than 85,000 of these cases were added in 1997 alone. The Company
believes that this database, along with IMPATH's strategy of linking patient-
specific information with clinical outcomes, will provide a powerful platform
for establishing optimal treatment pathways for patients with cancer.
The Company's revenues were $37.1 million in 1997, representing revenue
growth of 69% over 1996. In fact, the 1997 fiscal year was IMPATH's eighth
consecutive year of annual revenue growth in excess of 40%. Moreover, the
fourth quarter of 1997 represented IMPATH's sixteenth consecutive quarter of
record revenues. Income from operations and net income for 1997 were $5.8
million and $3.6 million, respectively, an increase of 119% and 78% over 1996.
Certain terms relating to the Company's business which are used in this
Annual Report on Form 10-K are explained in the Glossary included at the end
of this Item 1.
This Annual Report on Form 10-K contains forward-looking statements about
IMPATH's plans for expansion. IMPATH's ability to achieve its plans for
expansion is dependent on a variety of factors, many of which are outside of
management's control. Some of the most significant factors, alone or in
combination, would be the failure to manage the Company's growth successfully,
the failure to integrate the businesses acquired by IMPATH successfully, an
unanticipated slowdown in the health care industry (as a result of cost-
containment measures, changes in governmental regulation or other factors), an
unanticipated failure in the commercialization of IMPATH's cancer information
database or an unanticipated loss of business. Accordingly, there can be no
assurances that IMPATH will achieve its goals for expansion.
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CANCER INFORMATION MARKET
The market for cancer diagnosis, prognosis and treatment is significant and
growing. After heart disease, cancer is the leading cause of death in the
United States. Approximately eight million Americans alive today have been
diagnosed with cancer (excluding certain skin cancers). According to the
American Cancer Society, the estimated number of cancer cases diagnosed
annually in the United States (excluding certain skin cancers) grew from
approximately 530,000 in 1963 to approximately 1.4 million in 1997, an
increase of 164%. The growth in the number of cancer cases in the United
States is expected to accelerate as the leading edge of the "baby boom"
population approaches 55 years of age, the age at which the incidence of
cancer begins to rise sharply. Earlier diagnosis and better information have
led to more effective treatment and have increased the five-year survival rate
of cancer patients from 39% in 1963 to approximately 56% in 1997.
The National Cancer Institute estimates that the direct medical costs
associated with cancer will be approximately $37 billion in 1998. The Company
believes that these costs will increase rapidly as a result of the growth in
the number of cancer patients and the high cost of new therapies. Thus, the
Company anticipates that the demand for information regarding cancer and
cancer management will continue to increase.
The diagnosis, prognosis, treatment determination and follow-up of cancer
are extremely complex processes which require a multidisciplinary approach.
Among the key specialties involved in cancer management are pathology (for
diagnosis), surgery (for diagnosis and treatment), oncology (for treatment and
follow-up), radiology (for diagnosis and follow-up) and radiation oncology
(for treatment), as well as a number of other specialties for which cancer is
important, such as urology and gynecology.
IMPATH's potential market includes all physicians involved in the diagnosis
and treatment of cancer in the United States. This includes approximately
16,000 pathologists and more than 7,000 oncologists (excluding radiation
oncologists), as well as other specialists who treat cancer, such as surgeons
and gynecologists. Historically, pathologists have been the focus of the
Company's marketing efforts because they are responsible for providing the
information from which most cancer management decisions flow.
IMPATH's primary customers are the pathology departments of small- to
medium-sized community hospitals (100 to 500 beds), where most cancer is
diagnosed. Based upon statistics compiled by the American Hospital
Association, IMPATH believes that there are approximately 2,550 hospitals
which are potential users of IMPATH's services. These hospitals generally do
not perform their own sophisticated cancer analyses because the low case
volume per hospital does not justify establishing and maintaining the required
technological capabilities, facilities and expert medical staff.
Furthermore, health care providers increasingly are being organized into
managed care networks which emphasize cost containment. IMPATH believes that
these networks increasingly will outsource sophisticated cancer analysis in
order to optimize patient care and control costs. The care of the cancer
patient increasingly is being performed in outpatient settings, representing a
shift from traditional, hospital-based care. Certain evaluations, surgical
procedures and systemic treatments (e.g., chemotherapy) are now being
performed at outpatient facilities, and most patient follow-up is being
performed in outpatient settings rather than hospitals. These outpatient
facilities generally do not have the expertise and resources to provide the
information necessary for optimal cancer management.
In order to make optimal cancer management decisions, providers and payors
require information about the specific characteristics of a patient's cancer
(e.g., how aggressive it is and how it can best be treated). In the past,
patients have been treated based upon information gathered on entire classes
of disease rather than on the individual's cancer. With the development of new
targeted cancer therapies, patient-specific information has become critical to
cancer treatment decisions.
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COMPETITIVE ADVANTAGES OF IMPATH
IMPATH pioneered the marketing of patient-specific diagnostic and prognostic
information to medical professionals involved in cancer management. The
Company believes that it now performs more analyses of difficult to diagnose
cancer cases than any other institution in the world and that it is the leader
in providing comprehensive patient-specific prognostic information for cancer.
IMPATH has established its leadership and reputation in the cancer information
market through its extensive expertise, its integration of technological
advances, its emphasis on customer service and education and the cost-
effectiveness of its services. IMPATH believes that these factors, which
cannot be duplicated without substantial investments of time and capital,
provide it with significant advantages over existing and potential
competitors. In addition, as the value of the information provided by IMPATH
becomes more widely recognized among the participants in the cancer management
market, IMPATH expects its role in all phases of this market to become even
more important.
Expertise. IMPATH specializes in cancer tests that require a level of
medical knowledge and technical expertise not found in the average community
hospital and not readily accessible in academic medical centers. IMPATH
believes that its medical staff has more experience in providing comprehensive
tissue-based diagnostic and prognostic analyses of cancer than virtually any
other group of practitioners. IMPATH currently receives an average of 360
cases per day. The experience derived from such a volume of cases leads to
superior professional and technical expertise. This expertise is reflected in
IMPATH's database of more than 300,000 cancer cases analyzed to date, with
more than 85,000 cases added during 1997 alone. The Company is linking these
data to outcomes and cost information in order to demonstrate the value of
IMPATH's services to payors and to provide new cancer information services to
providers, payors, biopharmaceutical and large pharmaceutical companies and
clinical research organizations. See "--Company Strategy."
Comprehensive Technology Integration. IMPATH provides a comprehensive range
of cancer analyses using sophisticated technologies, including
immunohistochemistry, image analysis and flow cytometry, cytogenetics,
molecular pathology and serum analysis. These analyses are integrated through
in-house technical and medical expertise to provide a single source for
optimal patient-specific diagnostic, prognostic and treatment information,
which is not available from clinical laboratories, hospitals or academic
centers. In the past decade, many new evaluation methods and treatment
regimens have been developed as a result of the increased understanding of the
cellular and molecular biology of cancer. As new therapies targeting cancers
with specific biological characteristics emerge, IMPATH believes that the
demand for cancer information services that identify such characteristics will
increase substantially. IMPATH intends to continue to integrate technological
advances rapidly and effectively to meet this demand. See "--Technologies."
Customer Service and Education. IMPATH's medical staff and customer service
representatives emphasize quality of service, accuracy of results and speed of
turnaround. The medical staff provides frequent expert consultation and
generally returns results within 48 hours of receipt of a specimen. By
contrast, academic medical centers often require approximately 14 days to
return results and typically provide little consultation. In addition,
IMPATH's sales force focuses on educating clients as to the benefits of the
Company's services in managing cancer. In contrast, the sales forces of most
clinical laboratory companies market hundreds of disparate, cancer and non-
cancer test services, and IMPATH believes that sales personnel at these
companies have limited familiarity with the individual cancer tests offered.
Many academic institutions, which perform some of the same analyses as the
Company, typically do not have substantial marketing or customer service
resources, and the pathology laboratories at large regional hospitals are
generally dedicated to servicing only their affiliated physicians. The success
of IMPATH's focus on customer service and education is demonstrated not only
by the Company's rapidly growing case volume, but by the fact that IMPATH's
case volume from its long-term customers continues to grow. See "--Sales and
Marketing."
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Cost-Effectiveness. IMPATH provides physicians with diagnostic and
prognostic information necessary to determine the medically optimal therapy
for each patient's specific cancer. As a result, incorrect or unnecessary
treatments can often be avoided, along with the associated trauma, risk and
cost, and appropriate therapies can be implemented on a timely basis. In
addition, because of its high case volume, IMPATH benefits from significant
economies of scale which enable the Company to provide hospitals with a
valuable, cost-effective and expeditious alternative to establishing and
maintaining in-house pathology laboratories. IMPATH also believes that it
provides managed care networks and other payors with a source of sophisticated
cancer analyses which optimize patient care while controlling costs.
COMPANY STRATEGY
IMPATH's objective is to be the leading cancer information company and the
comprehensive resource for integrating all aspects of the management of cancer
information. The Company is pursuing the following strategies to achieve its
objective:
Increase market penetration of diagnostic and prognostic services. IMPATH
believes that it has a significant opportunity to continue to increase its
revenues and case volume from existing clients as well as through new
relationships with hospitals, physicians and payors. The Company intends to
continue to grow its core business by increasing the number of cases received
from existing clients, continuing to incorporate new technologies and
expanding the services it offers to the oncology outpatient market. Case
volume for 1994 was 33,618; in 1997 that figure increased to 87,884,
representing an average annual growth rate of 38.5%. In part as a result of
the more complex analyses per case required to assess tumor activity, the
Company's average revenue realization per case has increased as well. The
average revenue realization per case (excluding cytogenetic analyses) has
increased from approximately $298 in 1994 to approximately $422 in 1997,
representing an average annual increase of 12.3%.
Managed care networks represent an important business opportunity for the
Company because, in many cases, unnecessary treatment can be avoided and
significant cost savings can be achieved through the relatively inexpensive
services provided by the Company. An IMPATH case analysis typically costs
between $300 and $1,200 and contains information which can be critical for
physicians to avoid ineffective courses of therapy costing many thousands of
dollars. The Company intends to expand its presence in managed care by
aggressively marketing the cost-effectiveness and clinical benefits of its
services and assisting managed care companies in developing cancer treatment
protocols.
In order to implement this strategy, the Company intends to continue to
identify and incorporate new technologies and scientific developments and to
recruit and train medical, scientific, customer service and sales personnel to
meet the demands of its expanding business.
Pursue strategic acquisitions and alliances. The Company has successfully
completed the acquisition and integration of several complementary regional
businesses which have added to the breadth and depth of its technological
expertise and services, and believes that there are other similar acquisition
candidates, including companies with significant national and international
presences. The Company intends to continue to pursue selective acquisitions of
companies that will enhance its cancer management information database. These
acquisitions also may include companies involved in health care information
services and companies that have expertise in the evaluation of medical data
and cost analysis.
The Company also continues to target alliances that will broaden its
information services capabilities. IMPATH has entered into a joint venture,
IMPATH Registry L.L.C., with Medical Registry Services, Inc., a leading
developer of cancer registry software, to develop new software products for
oncologists and pathologists to evaluate and select optimal patient-specific
treatment pathways based on diagnostic and prognostic information.
Expand and enhance database. IMPATH believes that it has one of the most
significant knowledge bases related to the diagnosis, prognosis and treatment
of cancer. With more than 300,000 analyzed cases to date, IMPATH is rapidly
incorporating the diagnostic and prognostic information generated from the
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analysis of these cases into its cancer information database. In over 1,200
cases, the linked data corresponding to patient treatment regimens and
outcomes are incorporated into the database. IMPATH expects to continue to
link data obtained from diagnostic and prognostic analyses with therapy
choices and patient outcomes. The cancer database represents a comprehensive
resource for the management and treatment of certain cancers. In addition, as
the Company integrates cost information related to patient care into its
database, the Company believes that the database will become increasingly
valuable to the managed care industry. The Company intends to continue to
expand and enhance its database through internal analysis and through
strategic partnerships and joint ventures with oncology networks, hospital
groups, managed care companies and biopharmaceutical and large pharmaceutical
companies.
Provide information to the biopharmaceutical industry. IMPATH believes that
its resources will be valuable to the biopharmaceutical industry for
evaluating existing and emerging diagnostic and prognostic indicators for
targeted cancer therapies. The data would also permit a comparison of
development-stage therapeutics with existing therapies, from an effectiveness
and cost perspective. IMPATH's cancer database should also be a valuable
resource for pre-clinical drug development, where potential drug therapies are
screened and evaluated for specificity and potential market size.
Target international expansion. IMPATH believes that foreign markets
represent a significant opportunity for the Company to expand its cancer
information business. A principal focus of the Company's international
strategy will be selective acquisitions of established businesses providing
services similar to those provided by the Company. IMPATH also intends to
pursue this opportunity by partnering with international physician oncology
networks and hospital groups. These efforts initially will focus primarily on
select markets in Europe and South America and, once these relationships are
established, would expand into Southeast Asia, Japan, Canada and Australia.
These regions represent areas where sophisticated treatment technologies are
currently in use and which the Company believes would benefit from IMPATH's
services.
IMPATH'S ROLE IN THE CANCER MANAGEMENT PATHWAY
The management of cancer involves a series of distinct steps which must be
integrated in order to define a therapeutic strategy. At each step,
information critical to the decision-making process must be obtained in order
to make the optimal decision. Traditionally, the type of information applied
to the decision-making process has been limited, and related not to an
individual's cancer, but rather to an entire class of disease. IMPATH's core
business is providing, through the use of integrated advanced technology,
information unique to a particular patient with cancer.
IMPATH concentrates on the use of advanced technologies to address many of
the shortcomings of traditional methods of cancer assessment. The Company
believes that its services will be critical to the efficient coordination and
optimal implementation of all phases of the cancer management pathway.
Predisposition. In the large majority of cancers, genetic defects occur in
the course of an individual's life that may lead to the development of cancer.
However, in some cases an individual has an inherited predisposition for
developing certain types of cancer. It is possible that the genes responsible
for this inheritance pattern may be identified prior to the overt
manifestation of that cancer. In fact, it is believed that as many as 5% of
certain types of cancers are based at least in part on an inherited
predisposition. IMPATH currently possesses the technological expertise to
detect genetic defects associated with predisposition to certain cancers.
While very few predisposition genes have been identified to date (for example,
genes responsible for the inherited forms of breast cancer, ovarian cancer,
colon cancer and retinoblastoma), this is a very active area of research. As
these genes are identified, IMPATH will be in the position to screen for these
types of inheritable cancers.
Diagnosis. IMPATH's core diagnostic analyses provide information regarding
tumors that are difficult to diagnose using conventional pathology procedures.
Although most tumors can be diagnosed based on visual examination by the
pathologist, as many as 15% (180,000 per year in the U.S. alone) of all
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cancers defy specific classification by this method. This may result in
treatment decisions that are approximated, incorrect or ineffective leading to
unnecessary treatment, complications and increased cost. Traditionally, the
therapeutic approach to a patient with cancer has been based on a purely
morphological assessment of the origin of the cancer and the extent of spread,
i.e., the tumor's appearance under the microscope (for example, does it look
like colon cancer?) and the tumor's presence in various metastatic sites (such
as regional lymph nodes and bone marrow). While this type of morphological
assessment is well accepted, it has serious and critical limitations.
Specifically, morphological assessment is able to provide very little
information about the biological aggressiveness of an individual's cancer and
can provide virtually no meaningful information regarding the treatment to
which the patient's specific cancer will respond. IMPATH has shown that in a
majority of cases which defy standard classification, the use of advanced
technologies and the medical expertise provided by IMPATH lead to an accurate
diagnosis, thus ensuring optimization of therapy, greater predictability of
outcome, increased survival and decreased overall costs.
Prognostic Assessment. IMPATH's prognostic tests provide information to
pathologists and oncologists regarding the aggressiveness of a tumor. The
increase in knowledge of tumor biology and the development of new technologies
have made it increasingly important to determine the aggressiveness of an
individual cancer in order to treat that cancer more rationally. One breast
cancer may have a low biological aggressiveness, and may therefore have a very
low propensity to recur, while another breast cancer (which appears identical
under the microscope) may be very aggressive. These tumors should be treated
very differently, but may not be if these differences are not identified. For
example, post-surgical systemic treatment, such as chemotherapy, for a cancer
that has a very low rate of recurrence produces limited beneficial effects,
and may only expose the patient to the morbidity and expense of such
treatment. On the other hand, an aggressive cancer should be treated
aggressively at the earliest possible time in order to achieve maximal
therapeutic benefit. IMPATH's prognostic expertise differentiates such
difficult cases, providing the oncologist with the critical information
necessary to treat patients effectively and to reduce morbidity and costs.
Treatment Determination. Traditionally, therapeutic approaches to cancer
have been based solely on the diagnosis and stage (or extent) of disease. For
example, a patient with breast cancer is treated with a particular combination
of chemotherapeutic drugs not because it is known that the cancer in question
is likely to respond, but rather because a certain proportion of other breast
cancers have responded in the past to similar treatment. In an increasing
number of cancer cases, IMPATH provides information that can help to predict
the specific types of therapy to which a particular tumor will, or will not,
respond. For example, in the case of breast cancer, IMPATH provides critical
information for the determination of likely patient responses to specific
therapies (e.g., hormonal treatment and chemotherapy) before such therapies
are administered. This type of information is becoming increasingly available
for other types of tumors as well. Thus, therapies that are most likely to be
beneficial can be instituted at the earliest possible time, when the impact
will be the greatest. In addition, therapies which will have little effect can
be avoided, thus decreasing morbidity and expense and accelerating the
implementation of appropriate treatment. The Company believes that this type
of patient-specific information will become essential for optimal cancer
management.
Treatment Follow-up. Once a cancer has been diagnosed, assessed and treated,
the patient must often undergo many years of follow-up care involving multiple
patient contacts and repeat analyses. This care not only provides for the
treatment of therapeutic complications (often resulting from inappropriate
therapy due to inaccurate diagnosis and insufficient assessment) but is
designed to determine, at the earliest possible time, if a patient has
suffered a recurrence. IMPATH has the expertise to provide highly sensitive
patient monitoring in an increasing number of cancers. For example, the
Company is able to establish whether or not certain types of lymphomas have
recurred prior to their detection by any standard method, even sensitive
microscopic analysis. The identification of tumor recurrence at the earliest
possible time increases the likelihood of a beneficial therapeutic response.
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TECHNOLOGIES
Recent advances in immunology, biochemistry and molecular biology have
created new tools with tremendous potential in the management of cancer
patients. IMPATH specializes in cancer tests that require a sophisticated
level of medical knowledge and technical expertise that is beyond the
capability of pathology laboratories in the average community hospital. In
fact, the expertise required to develop and maintain a high quality immuno-
and molecular pathology laboratory is found in a relatively small number of
top level academic institutions. Furthermore, even the most sophisticated
medical centers perform only a small fraction of the tests that IMPATH
performs every day. This is extremely important, as increased experience
generally leads to superior professional and technical expertise. The average
community hospital pathologist does not see a substantial volume or range of
cases and, therefore, very rarely has the experience to choose the correct
testing methodology and to evaluate the data, or the technical support to
achieve high quality results. Even when these technologies exist at academic
medical centers, they typically exist in different departments (e.g.,
pathology, genetics and molecular biology). The Company believes that there is
usually no integration of information by these different departments, making
it more difficult for the referring physician to diagnose and provide optimal
treatment for a patient's specific cancer.
IMPATH addresses these issues by virtue of its extensive experience in
applying and performing analyses and by the background and expertise of its
medical staff. IMPATH currently receives an average of 360 cases a day.
Because of IMPATH's significant case volume, its professionals have been able
to expand their considerable experience, and have been able to develop
individual areas of expertise. IMPATH's consultants and in-house staff include
internationally known experts in immuno- and molecular pathology and highly
experienced technologists.
IMPATH continues to identify and incorporate sophisticated technologies and
analyses, consistent with the Company's goal of remaining at the forefront of
scientific advances in cancer analysis. IMPATH integrates these technologies
in order to provide comprehensive cancer information critical for optimal
cancer management. Importantly, these techniques also allow for the
identification of patients who will not benefit from certain types of therapy,
thus avoiding the cost, pain and side effects of unnecessary treatment.
The following chart summarizes the Company's use of technologies in its
analyses of cancer:
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FLOW
CYTOMETRY
CATEGORY OF ANALYSIS AND
AND IMMUNOHISTO- IMAGE MOLECULAR SERUM
TYPE OF CANCER CHEMISTRY ANALYSIS PATHOLOGY CYTOGENETICS ANALYSIS
-------------------- ------------ --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Predisposition.......... X
Diagnosis:
Difficult to Diagnose
Cancers............... X
Lymphoma/Leukemia...... X X X X
Prognosis/Treatment De-
termination:
Breast................. X X X
Lymphoma/Leukemia...... X X X X
Prostate............... X X X
Other (e.g., Colon,
Bladder, Ovarian)..... X X X
Follow-up:
Breast................. X X
Lymphoma/Leukemia...... X X
Prostate............... X X
Other (e.g., Colon,
Bladder, Ovarian)..... X X
</TABLE>
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Immunohistochemistry
Immunohistochemistry (IHC) is a technique wherein a monoclonal antibody is
used to identify disease-specific cellular antigens. A primary antibody to an
antigen of interest is incubated with test tissue sections followed by a
secondary antibody complex. If the antigen is present in tissue, the primary
antibody binds and the antigen-antibody reaction can be visually detected by a
color product. Because cell antigens are not absolutely tissue- or tumor-
specific, the immunopathologist must use panels of antibodies to construct a
"fingerprint" for identification. Immunohistochemistry is superior to standard
biochemical assays because it provides faster results, can be used on smaller
tissue samples, has less stringent requirements for specimen storage, and,
most importantly, predicts outcomes more accurately.
Flow Cytometry and Image Analysis
Various components of tumor cells can be quantified by flow cytometry and/or
image analysis. In flow cytometry, a cell sample is stained with appropriate
fluorochromes and passed through a flow chamber designed to align the stream
of cells so that they are individually struck by a focused laser beam. The
scattered light and fluorescent emissions are separated according to
wavelength by appropriate filters and mirrors and directed to detectors which
convert the emissions into electronic signals that are analyzed and stored for
future display by a computer. The data are displayed on a graph of frequency
(number of cells versus fluorescent energy) for a single parameter analysis or
as a scattergraph for a multi-parameter evaluation. The fluorochromes used to
stain cells in flow cytometry include compounds that bind to DNA and/or RNA,
but fluoresce at different wavelengths for each, or that can attach to
antibodies against cell surface antibodies. In image analysis, a pathologist
selects the area of the specimen to be examined, and a computerized instrument
using a microscope and camera then measures various components of tumor cells
based on staining intensity.
Molecular Pathology
The next generation of commercial diagnostic and prognostic testing is
generally expected to be based on molecular biology, since a disease or
condition may be associated with the presence of an abnormality in DNA or RNA.
A specimen may be tested for a particular disease or condition by finding and
marking this abnormality. Currently, the use of molecular pathology is
confined predominantly to academic centers. However, IMPATH already performs a
wide range of molecular pathology analyses, including in situ hybridization
(ISH). Similar to IHC except that a DNA probe is used rather than a monoclonal
antibody, in situ hybridization employs recombinant DNA technology with
labeled probes to locate and identify nucleic acid sequences within cells.
IMPATH also uses a DNA-based technology called Southern blotting that detects
genetic rearrangements that confirm abnormalities known to be present in
certain tumors. More recently, fluorescence has been used to label probes,
replacing the historical use of radioactive isotopes, in a technique called
fluorescence in situ hybridization (FISH). Another promising molecular
pathology technique already in use at IMPATH is the amplification of specific
DNA sequences by thermal cycling and subsequent electrophoresis, the most
sensitive method of detecting alteration in DNA.
Cytogenetics
Cytogenetic analysis evaluates the genetic changes that occur at the
chromosome level. Humans have 23 pairs of chromosomes, or 46 individual
chromosomes in every cell. Cytogenetic methods provide for the identification
of each individual chromosome using DNA-specific staining techniques to
produce the unique band pattern that is characteristic of each chromosome,
providing for the identification of chromosomal abnormalities like balanced
translocations, deletions and gene amplifications that are consistently
associated with certain cancers. The analysis involves the utilization of
fresh cells obtained from blood, bone marrow or tissue specimens which have
been cultured to enhance cell growth and division. The cells are then
harvested and prepared in such a manner that the chromosomes and the distinct
patterns of each can be seen through a microscope. The identification of
chromosome changes
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has become extremely useful in the diagnosis and prognostic assessment of
lymphomas, leukemias, soft tissue cancers (sarcomas) and pediatric cancers.
The scope of this technology is expected to expand to carcinomas (such as
colon, lung and prostate cancer) in the near future.
Serum Analysis
Blood serum markers are proteins circulating in the blood which are produced
in excess by malignant tumors. These serum proteins serve as an indicator of
tumor regression (decreased presence of markers) or tumor progression
(increased presence of markers). Because these proteins are present in minute
amounts, the technology required for detection relied, until recently, on an
immunochemical procedure involving the use of radioactive isotopes. Now,
however, a new generation of non-radioactive techniques is available to detect
blood serum markers employing, among other methods, chemiluminescence--a novel
system based on emitted light as an indicator of activity. IMPATH intends to
use its newly acquired serum technology to assist oncologists in patient
follow-up. For example, by monitoring levels of certain known markers, the
Company can help to confirm remission or the recurrence of ovarian and
prostate cancers.
CANCER MANAGEMENT THROUGH INFORMATION
Optimal management of cancer means the best outcome at the lowest possible
cost. At each step along a management pathway, the best choice is not
necessarily the lowest cost alternative, but one which leads to the best
outcome at the lowest overall cost. A patient with cancer has many treatment
options, at widely varying costs, ranging for example from no further
intervention to expensive experimental procedures such as bone marrow/stem
cell transplants; however, the choice of a more expensive option may lead to a
better outcome with fewer recurrences. This not only optimizes patient benefit
(an obvious advantage as health care will be increasingly evaluated on the
basis of outcome) but can actually lead to lower overall cost; the cost of
treating recurrent disease is generally far greater than initial post-surgical
interventions. Thus, outcomes and cost-effectiveness should be synergistic,
and not mutually exclusive. The key to cost-effectiveness is choosing the most
appropriate management pathway for the individual patient. This can only be
done through the use of information derived from a patient's tumor that
defines its biological uniqueness, and allows for identification of the most
appropriate therapeutic options.
Finally, cancer management is not static; approaches that represent current
best practices may well be added to or modified by new developments, a process
that has tremendous impetus in research institutions and biopharmaceutical
companies.
With more than 300,000 analyzed cases to date, IMPATH is rapidly
incorporating the diagnostic and prognostic information generated from its
analyses of cases into its cancer database. The demographics of these cases
are: 151,500 breast cancer prognostics and treatment profiles; 91,500 complex
cancer diagnoses; 41,500 lymphoma and leukemia classifications; and 37,500
analyses of other cancers (e.g., prostate, bladder, uterine).
In order to provide high quality and cost-effective cancer care, oncology
practices are consolidating into comprehensive coordinated cancer treatment
groups and managed care organizations are increasing their presence in the
oncology marketplace. IMPATH believes that it can provide these groups with
information that is critical in providing such care. IMPATH also believes that
the information it provides will become increasingly important to these groups
as the Company develops its outcomes-oriented database to provide information
for the optimal, cost-effective utilization of resources.
IMPATH believes that the use of its services will have two fundamental
impacts on cancer management: (1) optimization of patient-specific care, and
(2) the cost-effective delivery of that care. As a result, IMPATH expects to
become an increasingly significant factor in helping to establish quality
standards for these cancer management groups. IMPATH believes that it is well
positioned to become a vital component in the integrated management of cancer.
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APPLICATIONS OF IMPATH'S CANCER INFORMATION SERVICES
Presented below are examples of how the information provided by IMPATH can
be critical to optimal cancer management.
Breast Cancer Management--Risk Assessment and Evaluation of Therapeutic
Options
Breast cancer is the most common cancer in women in the United States.
Annually, more than 180,000 cases are diagnosed and over 44,000 women die of
this disease. While the incidence of breast cancer has been increasing, the
number of deaths resulting from this disease has been slowly but steadily
decreasing. It is now widely recognized that earlier detection (by mammography
and self examination) has played a significant role in decreased mortality.
However, a significant advancement in the management of breast cancer has been
the development of technologies that provide patient-specific information that
allows oncologists to optimize treatment for each individual woman's cancer.
Traditional analysis of breast cancer only assesses a patient based on what
a tumor has already done, i.e., its current size and whether it has
metastasized to regional lymph nodes. This approach does not provide
information specific to the individual patient, but can only assess how
populations of patients will fare. This approach to providing therapy in
breast cancer has traditionally been based on how breast cancer generally
responds to a particular regimen, and not the potential of a particular tumor
to respond to such therapy.
IMPATH's approach to breast cancer analysis is based on providing the most
patient-specific information possible through the use of sophisticated
technology. IMPATH provides information in two fundamental areas, from which
virtually all post-surgical management decisions can be based.
Risk Assessment. IMPATH provides information necessary to determine the
aggressiveness of a tumor, not based on an assessment of the current state of
the tumor, but rather on the specific cellular and molecular changes that take
place in that individual tumor. This information is critical for optimal
cancer management. For example, a patient with a tumor that has a very high
likelihood of producing overt metastases must be treated rapidly and
aggressively. On the other hand, a patient with a tumor that has very little
chance of developing metastasis is not likely to benefit from aggressive
systemic treatment, and may only suffer the complications and cost of such
treatment.
Assessment of Therapeutic Options. IMPATH uses some of the most significant
advances in the understanding of cancer to assess more accurately the
likelihood of response (or lack of responsiveness) of a tumor to a particular
type of systemic therapy. This allows for better, more cost-effective cancer
management, as patients can now be treated with the type of therapy to which
they are most likely to respond, and can avoid treatments to which they are
unlikely to respond.
Selected examples of how IMPATH assesses risk and therapeutic options are
set forth below:
Hormone Receptors. The presence of estrogen and progesterone receptors in
breast cancer identifies women who are more likely to respond to hormonal
manipulation of the tumor, a commonly used therapy. This important test is now
required by the American College of Surgeons. The hormonal receptor status, as
examined by IHC, has been shown to be better correlated with clinical outcome
than standard biochemical assays. Furthermore, smaller tumor specimens,
including fine needle aspirates (FNAs), which are obtained through a less
invasive, less painful and less costly procedure, can only be effectively
examined by IHC.
Oncogene Analyses. The Her-2/neu oncogene identifies tumors that are more
biologically aggressive and therefore require more intensive treatment. The
Her-2/neu oncogene may also identify breast cancers that are resistant to
certain types of chemotherapy.
Cell Proliferation/DNA Ploidy Analysis. Proliferative rate and ploidy have
been well documented as important prognostic indicators in many cancers,
including breast cancer and colon cancer. The ploidy compares the DNA content
of a tumor cell with that of a normal cell. The proliferative rate measures
the
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percentage of cells that are actively dividing. High proliferative rates and
abnormal DNA content have been strongly correlated with faster progression and
earlier recurrences. Using image analysis and flow cytometry, the DNA of the
tumor can be examined by IMPATH using tissue specimens, FNAs and other cell
specimens. IHC can also be used visually to evaluate cell proliferation.
Detection of Occult Bone Marrow and Lymph Node Micrometastases. The single
most reliable indicator of outcomes in most cancers is whether or not a tumor
has spread (metastasized). However, in many cases the conventional pathologic
examination is unable to detect tumor spread, even in patients who will
eventually suffer tumor metastases. The basis for the development of cancer
metastases is the presence of the undetected spread of tumor. Technology
developed by IMPATH's founders allows for the detection of the microscopic
spread of cancer prior to detection by conventional methods, including
sensitive microscopic examination. The detection of lymph node and bone marrow
micrometastases identifies patients at greatest risk for developing overt
metastatic disease and may identify those who will most benefit from
aggressive adjuvant chemotherapy. Furthermore, identifying those patients who
do not have lymph node (or bone marrow) micrometastases may indicate those who
will not require such therapy, and who thus can be spared the pain, side
effects and substantial costs of chemotherapy. IMPATH believes that it is one
of a limited number of companies currently offering tests for the detection of
micrometastases, and that the detection of occult lymph node and bone marrow
micrometastases will be important in identifying the risk of developing overt
metastases for a wide variety of cancers, including breast, lung, colon and
prostate cancer. Furthermore, in patients undergoing high-dose chemotherapy
followed by stem cell transplants from one location to another within the
patient's body, a correct assessment of tumor cells in the patient's bone
marrow may be important to evaluate accurately the response to therapy and to
avoid reinfusing a patient with cancerous cells.
Because of its unique approach to breast cancer, IMPATH believes that it is
the leader in providing the most comprehensive prognostic information
essential to the management of breast cancer. The Company provided patient-
specific prognostic information on over 20% of all such cases in the U.S. in
1997, more than 30% of cases diagnosed in the New York metropolitan area and
over 35% of cases diagnosed in Florida, the Company's largest markets. The
Company's specialized expertise in breast cancer has not only allowed it to
play a significant role in optimizing patient-specific breast cancer treatment
nationwide but has also allowed it to be well positioned to develop the most
comprehensive outcomes-focused database in breast cancer.
Lymphoma/Leukemia Management--Integration of Technology in Overall Cancer
Management
The value of IMPATH's integrated approach to providing cancer information is
demonstrated in the clinical management of hematopoietic malignancies, such as
lymphomas and leukemias, particularly as scientific advances improve our
understanding of these diseases. The clinical management of hematopoietic
malignancies requires a comprehensive approach that includes analysis by
hematopathologists and the use of advanced diagnostic and prognostic
technology. Most community hospitals do not have hematopathologists or the
technologies required for such analyses. The Company employs four
hematopathologists and uses molecular and cellular technology to diagnose and
classify these hematopoietic malignancies. Using the information from an
IMPATH analysis, a physician can tailor therapy to optimize the outcome for a
patient. These same technologies are applied to evaluate a patient's response
to therapy, and to evaluate the progression or remission of the disease.
Lymphoma. The clinical significance of IMPATH's diagnostic technology is
illustrated by the fact that during 1997, of the over 9,589 suspected lymphoma
cases sent to IMPATH for analysis, more than 12% were found to be an infection
or inflammation rather than cancer. Prior to the development of certain
technologies used by IMPATH, such cases may have been misdiagnosed as cancer.
In the cases identified by IMPATH as not being cancer, patients who were
suspected of having a hematopoietic malignancy were spared the trauma, risk
and cost associated with unnecessary treatment. Of the cases sent to IMPATH in
1997 that were in fact lymphomas, the technology applied by the Company
permitted an assignment of the "grade" of the lymphoma, a process recommended
by the International Lymphoma Study Group
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(1994). The grading of lymphomas is an important process that influences the
treatment decisions of physicians and can result in better outcomes for a
lymphoma patient.
Leukemia. Similar to lymphomas, leukemias represent a type of cancer where
the classification and grading of the disease provides critical information
that influences the selection of therapy, predicts the response to therapy and
indicates the likely outcomes for the patient. The characteristics that
distinguish the various types of leukemias can be identified by the technology
employed by IMPATH. For example, in many cases, chromosome abnormalities
identified by this technology permit the unequivocal assignment of the disease
to a particular class of leukemia. As new biological characteristics
associated with leukemia classes continue to be identified, the Company
believes that it is well positioned to incorporate into its analyses
additional tests to detect these characteristics.
Management of Other Cancers
Diagnostic, prognostic and therapeutic information is being integrated
increasingly into the management of other cancers. As medical research
progresses and as increasing numbers of treatment options evolve, IMPATH
believes that its expertise will play an increasing role in the decision
making processes for all cancers.
For example, prostate cancer, like breast cancer, is a disease that is
responsive to hormonal manipulation. As in the case of estrogen receptors in
breast cancer, the presence of androgen receptors in prostate cancer can now
be evaluated. IMPATH believes that this information will become increasingly
important in the treatment and management of prostate cancer. The growth rate
of the tumor is also critical; for instance, a 50-year old man with a rapidly
growing cancer must be treated differently than a 90-year old man with a very
slow-growing prostate cancer. IMPATH provides this information for prostate
and other cancers, including breast, colon and bladder cancers.
The determination of patient-specific characteristics in optimizing therapy
is becoming essential as more outcomes-related biological determinants are
defined. Important examples of this are mutations in tumor suppressor genes
and oncogenes (such as Her-2/neu). The presence of these mutations in a
patient with specific types of tumors (e.g., bladder, breast or colon)
identifies the biological aggressiveness of that individual's tumor. Other
characteristics help to establish the responsiveness to therapy. For example,
if a patient's cancer has the multi-drug resistance (MDR) receptor, his/her
tumor will be unresponsive to many forms of drug therapy including, for
example, taxol therapy for ovarian and other cancers.
Furthermore, the most significant problem in treating cancer is the
accurate, early assessment of disease dissemination, i.e., metastases. IMPATH
has a special expertise in identifying the presence of lymph node and bone
marrow micrometastases, often earlier than practitioners using conventional
methods. This analysis is now useful in the correct staging of prostate, colon
or lung cancers and increasingly in other types of cancers.
Information that establishes the biological aggressiveness of an
individual's tumor and predicts response to therapy for that particular
patient is crucial to optimizing outcome for that patient. IMPATH believes
that its expertise in this area, as well as its access to increasing numbers
of cancer specimens, will allow it to continue to expand its comprehensive
database for predicting outcomes in various types of cancer. The Company
believes that this database will be increasingly important to the medically
optimal and cost-effective management of the cancer patient.
SALES AND MARKETING
Sales Force. As of December 31, 1997, the Company's sales force consisted of
34 employees, including a Senior Vice President, Sales and Marketing, a
National Sales Manager, three full-time Regional Managers and 29 sales
representatives. The IMPATH sales force consists of highly trained individuals
with extensive scientific backgrounds and successful sales records with health
care companies. The sales force
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focuses on educating clients as to the benefits of the Company's services in
managing cancer. IMPATH believes that the technical and clinical knowledge of
its sales force distinguishes it from other companies.
Marketing Support. IMPATH supports its sales force with extensive customer
service and marketing programs. Due to the technical and scientific complexity
of IMPATH's business, the Company has established a strong interactive
relationship with its clients. This relationship serves to increase the
reliance of the client on IMPATH and is a significant tool for encouraging
business growth within the current customer base. The marketing process
emphasizes educating physicians regarding the development of new technologies
and the value of the information provided by IMPATH.
Customer Service. The Company emphasizes customer service, including the
provision of a comprehensive detailed report to the referring physician after
each analysis is completed. These reports serve to educate pathologists and
clinicians, many of whom may not be familiar with the analyses performed by
IMPATH, as well as to provide authoritative support for the accuracy and
validity of such analyses. In general, the Company returns its completed
analysis and report to the referring physician or clinician within 48 hours of
receipt of the tissue specimen, compared with approximately 14 days for
academic institutions. Further, the Company's medical staff provides frequent
expert consultation. The Company also employs several customer service
representatives, who are responsible for inquiries made by referring
physicians and provide support for the Company's sales staff. The success of
IMPATH's focus on customer service and education is demonstrated not only by
the Company's rapidly growing case volume, but by the fact that IMPATH's case
volume from its long-term customers continues to grow.
COMPETITION
The Company provides services in a segment of the health care industry that
is highly fragmented and extremely competitive. The Company's actual or
potential competitors include large university or teaching hospitals; large
clinical laboratories that have substantially greater financial, marketing and
logistical resources than the Company; special purpose clinical laboratories
that have limited test offerings and a highly focused product and marketing
strategy; and the Company's customers or potential customers who may choose to
perform services similar to those performed by the Company. It is anticipated
that competition will continue to increase due to such factors as the
perceived potential for commercial applications of biotechnology and the
continued availability of investment capital and government funding for
cancer-related research. There are several large clinical laboratory companies
which market a broad range of services nationally, and which have
substantially greater financial, selling, logistical and laboratory resources
than the Company. In addition, management has identified a number of
specialized clinical laboratories in the U.S. which have test offerings which
are less comprehensive than those of IMPATH and highly focused product and
marketing strategies.
REIMBURSEMENT
The Company typically bills third-party payors, such as private insurance
plans, managed care plans and Medicare, as well as hospitals, for its
services.
During 1995, 1996 and 1997, the Company received the following estimated
percentages of its total revenues for diagnostic and prognostic services from
the respective payors identified below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
PAYOR 1995 1996 1997
----- ------- ------- -------
<S> <C> <C> <C>
Hospitals........................................ 43% 37% 26%
Private Insurance/Managed Care................... 29 35 44
Medicare......................................... 24 25 25
Individual Patients.............................. 4 3 5
------- ------- -------
Total.......................................... 100% 100% 100%
======= ======= =======
</TABLE>
For a discussion of the changes in these percentages in 1997, see Item 7 of
this Annual Report on Form 10-K.
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Medicare is a federal health insurance program that provides health
insurance coverage for certain disabled persons, for persons aged 65 and older
and for certain persons with end-stage renal disease. Medicaid is the state-
administered and state- and federally-funded program for certain low-income
individuals. To date, the Company has derived no revenues from the Medicaid
program. As a participating provider, the Company bills Medicare for covered
services and accepts Medicare reimbursement as payment in full for its
services, subject to applicable co-payments and deductibles.
Revenues from analyses performed for other patients are derived principally
from other third-party payors, including commercial insurers, Blue Cross/Blue
Shield plans, health maintenance and preferred provider organizations and from
hospitals (who in turn usually bill any third-party payors or patients). With
respect to third-party payors, management has elected, to date, not to accept
reimbursement rates set by such non-governmental third-party payors as payment
in full. With respect to hospitals, management negotiates the terms of the
transaction applicable to each arrangement.
The Company currently receives Medicare reimbursement through three Medicare
carriers. Reimbursement rates for some services of the type or similar to the
type performed by the Company have been established by Medicare and some other
third-party payors, but have not been established for all services or by all
carriers with respect to any particular service. Most carriers, including
Medicare, do not cover services they determine to be experimental or
investigational, or otherwise not reasonable and necessary for diagnosis or
treatment. However, a formal coverage determination is made with respect to
relatively few new procedures. When such determinations do occur for Medicare
purposes, they most commonly are made by the local Medicare carrier which
processes claims for reimbursement within the carrier's geographic
jurisdiction. Medicare may retroactively audit and review its payments to the
Company, and may determine that certain payments for services must be
returned. With respect to other third-party payors, a positive coverage
determination, or reimbursement without such determination, by one or more
third-party payors does not assure reimbursement by other third-party payors.
Significant disapprovals of payment for any of the Company's services by
various carriers, reductions or delays in the establishment of reimbursement
rates, and carrier limitations on the coverage of the Company's services or
the use of the Company as a service provider could have a material adverse
effect on the Company's future revenues.
The services furnished by the Company are characterized for the purposes of
the Medicare program as physician pathology services. As of January 1, 1992,
all physician services, including pathology services, have been reimbursed by
Medicare based on a new methodology known as the resource-based relative value
scale ("RBRVS"), which was phased in over a four-year period. A Final Notice
updating the RBRVS payment methodology, published November 25, 1992, as well
as updates issued subsequently, have not had any significant effect on the
Company's reimbursement rates. Under the Balanced Budget Act of 1997, Congress
revised the RBRVS system to use a single conversion factor, rather than the
previous three, and to change the manner in which fees are updated. The
Company cannot predict what the potential impact of the change to the RBRVS
system will be on the Company's future Medicare reimbursement.
QUALITY ASSURANCE
IMPATH engages in a number of quality control procedures, many of which the
Company believes exceed industry norms. For instance, the Company does not buy
untested commercially available reagent test kits. Instead, each of IMPATH's
reagents is selected from various suppliers based on an exhaustive in-house
test of purity, batch-to-batch variability, potency and performance. IMPATH
believes that its quality review procedures are superior to other centers
performing similar analyses. In addition, the quality assurance program of the
Company's facilities includes close attention to the Company's Standard
Operating Procedures, continuing education and technical training of
technologists, statistical quality control of all analytical processes,
instrument maintenance, and regular inspection by governmental
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agencies and the College of American Pathologists (the "CAP"). The CAP is an
independent non-governmental organization of board-certified pathologists
which offers an accreditation program to which facilities can voluntarily
subscribe. The CAP accreditation program involves both periodic inspections of
the Company's facilities and participation in the CAP's proficiency testing
program for all categories in which its facilities seek to attain or maintain
accreditation. The Company's facilities are CAP accredited, certified by
Medicare, licensed by New York State, the City of New York and the States of
California and Arizona and licensed under the Clinical Laboratories
Improvement Act of 1967 ("CLIA"). The Company believes it has obtained all
licenses and permits required to operate its facilities. IMPATH follows the
quality control and quality assurance procedures established by CLIA, the CAP
and various New York State, California, Arizona and New York City agencies.
The Company's New York and California facilities are supervised by medical
directors whose qualifications meet all regulatory requirements. The Company's
Arizona facility is supervised by a laboratory director whose qualifications
meet all regulatory requirements governing the cytogenetics testing which is
performed at the facility. The primary role of the Company's medical directors
and laboratory director is to ensure the accuracy and quality of the Company's
analyses. As a further quality assurance procedure, the Company periodically
undergoes peer review with third-party facilities, including Norris Cancer
Center and Memorial Sloan-Kettering Cancer Center. In peer review,
particularly challenging diagnostic cases are referred by the Company to these
cancer centers for verification of antibody tests and IMPATH's diagnostic
conclusions. The results of these consultations are tabulated and discussed at
monthly quality assurance meetings at the Company's offices.
The Company also participates in a number of proficiency testing programs
under which, in general, the testing body submits pre-tested samples to a
facility in order to measure the facility's results against the known
proficiency test value. The proficiency programs are conducted by groups such
as the CAP and state and federal government regulatory agencies.
GOVERNMENT REGULATION
As a provider of health care related services, the Company is currently
subject to extensive and frequently changing federal, state and local
regulations governing licensure, billing, financial relationships, referrals,
conduct of operations, purchases of existing businesses, cost containment,
direct employment of licensed professionals by business corporations and other
aspects of the Company's business relationships. The various types of
regulatory activity affect the Company's business either by controlling its
growth, restricting licensure of the business entity or by controlling the
reimbursement for services provided.
Laboratory Licensure. The Company's facilities are certified or licensed
under the federal Medicare program and CLIA, as amended by the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA '88"). Licensure is
maintained under the clinical laboratory licensure laws of New York,
California and Arizona, where the Company's facilities are located. The
Company believes it has obtained all material laboratory licenses required for
its operations. In addition, the California facility is licensed by the
federal Nuclear Regulatory Commission and all three facilities are accredited
by the CAP.
The federal and state certification and licensure programs establish
standards for the day-to-day operation of facilities, including, but not
limited to, personnel and quality control. Compliance with such standards is
verified by periodic inspections by inspectors employed by federal or state
regulatory agencies. The Health Care Financing Administration conducts an on-
site survey every two years. In addition, federal regulatory authorities
require participation in a proficiency testing program approved by the
Department of Health and Human Services ("HHS") for each of the specialties
and subspecialties for which a facility seeks approval from Medicare and
licensure under CLIA '88 requires participation in proficiency testing
programs which involve actual testing of specimens by the facility that have
been prepared by an entity running an approved program for testing.
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The Final Rule implementing CLIA '88, published by HHS on February 28, 1992,
became effective September 1, 1992. This Final Rule covers all laboratories in
the United States, including the Company's facilities. The Company has
reviewed the Final Rule (and subsequent revisions thereto), including, among
other things, the rule's requirements regarding facility administration,
participation in proficiency testing, patient test management (including
patient preparation, proper specimen collection, identification, preservation,
transportation, processing and result reporting), quality control, quality
assurance and personnel, for the types of analyses undertaken by the Company,
and believes that it complies with these requirements. However, no assurances
can be given that the Company's facilities will pass all future inspections
conducted to ensure compliance with CLIA '88 or with any other applicable
licensure or certification laws.
Anti-Kickback/Self-Referral Regulations. The Social Security Act imposes
criminal penalties and exclusions from federal health care programs (including
Medicare) upon persons who make or receive kickbacks, bribes or rebates in
connection with a federal health care program (including Medicare). The anti-
kickback rules prohibit providers and others from soliciting, offering,
receiving or paying, directly or indirectly, any remuneration in return for
either making a referral for a service or item covered by a federal health
care program (including Medicare) or ordering any such covered service or
item. In order to provide guidance with respect to the anti-kickback rules,
the Office of the Inspector General ("OIG") issued final regulations outlining
certain "safe harbor" practices, which although potentially capable of
inducing prohibited referrals, would not be prohibited if all applicable
requirements are met. A relationship which fails to satisfy a safe harbor is
not necessarily illegal, but could be scrutinized on a case-by-case basis. In
February 1997, the OIG issued an interim rule regarding its recently mandated
proposals for accepting and issuing advisory opinions on the anti-kickback
rules.
Because the anti-kickback rules have been broadly interpreted, they could
limit the manner in which the Company conducts its business. The Company
believes that it currently complies with the anti-kickback rules in planning
its activities, and believes that its activities, even if not within a safe
harbor, do not violate the anti-kickback statute. However, no assurance can be
given regarding compliance in any particular factual situation. Exclusion of
the Company from the Medicare program could result in a significant loss of
reimbursement and have a significant adverse effect on the Company.
Under another provision, known as the "Stark" law or "self-referral"
prohibition, physicians who have an investment or compensation relationship
with an entity furnishing clinical laboratory services (including pathology
services) may not, subject to certain exceptions, refer clinical laboratory
analyses for Medicare patients to that entity. Similarly, facilities may not
bill Medicare or any other party for services furnished pursuant to a
prohibited referral. Violation of these provisions may result in disallowance
of Medicare claims for the affected analysis services, as well as the
imposition of civil monetary penalties and program exclusion. Under the Stark
law and the regulations implementing the law, a physician may make payments to
a clinical laboratory in exchange for the facility's provision of clinical
laboratory services and continue to refer Medicare patients to that
laboratory, without the payments meeting any particular pricing standards. The
Final Rule does make clear, however, that supplies or services, other than
clinical laboratory services, purchased by a physician from a clinical
laboratory must be at fair market value.
A number of states, including New York and California, have enacted
prohibitions similar to the Stark law covering referrals of non-Medicare as
well as Medicare business. These rules are very restrictive, prohibit
submission of claims for payment for prohibited referrals and provide for the
imposition of civil monetary and criminal penalties. The Company has no
prohibited relationships with any of its referrers. However, the Company is
unable to predict how these laws may be applied in the future, or whether the
federal government or states in which the Company operates will enact more
restrictive legislation or restrictions that could under certain circumstances
impact the Company's operations.
Any exclusion or suspension from participation in the Medicare program, any
loss of licensure or accreditation, or any inability to obtain any required
license or permit, whether arising from any action by
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HHS, any state or any other regulatory authority, would have a material
adverse effect on the Company's business. Any significant civil monetary or
criminal penalty resulting from such proceedings could have a material adverse
effect on the Company.
Fee-Splitting; Corporate Practice of Medicine. The laws of many states
prohibit physicians from sharing professional fees with non-physicians and
prohibit non-physician entities, such as the Company, from practicing medicine
(including pathology) and from employing physicians to practice medicine
(including pathology). The laws in most states regarding the corporate
practice of medicine have been subjected to limited judicial and regulatory
interpretation. The Company believes its current and planned activities do not
constitute fee-splitting or violate any prohibition against the corporate
practice of medicine. However, there can be no assurance that future
interpretations of such laws will not require structural or organizational
modifications of the Company's existing business. In addition, statutes in
certain states in which the Company does not currently operate could require
the Company to modify its structure.
Food and Drug Administration. The Food and Drug Administration ("FDA")
regulates certain monoclonal antibodies purchased by the Company but does not
currently regulate the analytical services which are the Company's principal
business. However, the FDA is currently reviewing issues concerning the use of
monoclonal antibodies for analytical services and the decisions the FDA
ultimately makes could impact the Company.
Other. Certain federal and state laws govern the handling and disposal of
medical specimens, infectious and hazardous wastes and radioactive materials.
Failure to comply could subject an entity covered by these laws to fines,
criminal penalties and/or other enforcement actions.
Pursuant to the Occupational Safety and Health Act, facilities have a
general duty to provide a workplace to their employees that is safe from
hazard. Over the past few years, the Occupational Safety and Health
Administration ("OSHA") has issued rules relevant to certain hazards that are
found in facilities such as the Company's. Failure to comply with these
regulations, other applicable OSHA rules or with the general duty to provide a
safe work place could subject an employer, including a facility employer such
as the Company, to substantial fines and penalties.
INSURANCE
The Company is presently covered by general liability insurance in the
amount of $6.0 million per occurrence and $7.0 million in the aggregate and
has obtained professional liability insurance in the amount of $6.0 million
per occurrence and $8.0 million in the aggregate for the Company's Medical
Directors and other physicians. The Company's liability insurance covers
claims relating to the handling and disposal of medical specimens and
infectious and hazardous waste, except in the event of malfeasance or fraud by
the Company. Management believes that these amounts and types of coverage are
adequate to protect the Company and its property against material loss.
EMPLOYEES
As of December 31, 1997, the Company had 249 full-time and 39 permanent
part-time employees, of which 52 were management, administrative and clerical
personnel, 43 were engaged primarily in marketing and sales activities and 193
were engaged in laboratory and related operations. None of the Company's
employees is covered by collective bargaining agreements. The Company believes
its employee relations are good.
18
<PAGE>
GLOSSARY
Adjuvant Chemotherapy: Therapeutic drugs used to inhibit and destroy cancer
cells in addition to conventional treatment (e.g., surgery).
Antibody: A protein molecule produced by the immune system that specifically
binds with an antigen.
Antigen: Any of a variety of materials that induce the body's immune system to
produce antibodies.
Cancer: A generic term for any kind of malignant tumor.
Clinical: Pertaining to the sign, symptoms and course of a disease.
Diagnosis: The process for deciding what disease is present.
DNA: Deoxyribonucleic acid. The biochemical constituents of genes in
chromosomes.
Electrophoresis: A method of analysis in which chemicals, usually proteins,
are separated one from another by their respective electrical charges.
Fine Needle Aspirate or FNA: Specimen acquired through insertion of a thin
needle into a lesion whereby cells are withdrawn using negative pressure.
Flow Cytometry: Method of analysis used to examine the staining of single cell
suspensions by focusing a laser beam on each cell and measuring the emitted
fluorescence.
Fluorochrome: Fluorescent light generated by excitation and emission of light
of specific wavelengths using molecules with fluorescent properties.
Hematopathologist: A pathologist specializing in the study of hematolymphoid
diseases, including hematopoietic malignancies.
Hematopoietic Malignancies: Cancer of the blood, lymph nodes, bone marrow and
related structures.
Her-2/neu: Oncoprotein (product of an oncogene); overexpression is a negative
prognostic and predictive indicator in certain cancers (primarily breast
cancer).
Hormone: A chemical substance produced by an organ which has a specific
regulatory effect on the activity of organs.
Immunohistochemistry or IHC: Technique that uses antibodies to identify and
mark antigens expressed by cells in tissues using specific enzymes (e.g.,
peroxidase alkaline phosphatase).
In Situ Hybridization: Use of labeled fragments of DNA (probes) that can bind
(hybridize) to specific, complementary sequences.
Lymph Nodes: Nodular structures scattered along the path of lymphatics. They
produce and store white blood cells and filter harmful substances out of
the system. They are often the first site of cancer metastases.
Lymphoma: Any neoplasm of lymphoid tissue origin.
Marker: A characteristic of any cell or cellular structure (e.g., a gene,
chromosome or enzyme).
Metastases: The spread of cancerous cells from the primary site of the
disease.
Micrometastases: Presence of a small number of tumor cells, particularly in
the lymph nodes and bone marrow, not readily detected by microscopic
examination.
19
<PAGE>
Monoclonal Antibody: An antibody produced by a single clone of cells
comprising a single species of antibody molecules. Reacts with only one
antigen (epitope).
Mutation: An event which changes the structure of DNA in chromosomes;
mutations can often be seen in cancer cells.
Neoplasm: The uncontrolled growth of cells resulting in a mass (tumor); often
refers to cancer.
Nucleic Acid Sequences: A family of substances of large molecular weight,
found in chromosomes, nucleoli, mitochondria and cytoplasm of all cells.
Occult Tumor: Clinically unidentified primary tumor with recognized
metastases.
Oncogene: Abnormal genes derived from proto-oncogenes (normal counterparts);
are associated with many cancers.
Oncology: The study of cancer.
Pathology: That branch of medicine which studies essential nature of disease,
especially the structural and functional changes in tissues and organs of
the body which cause or are caused by disease.
Ploidy: The number of chromosomal sets.
Prognostic: Referring to potential outcome of a disease.
Proliferation: Cell cycle kinetics, reproduction or multiplication of a cell.
Reagent: A substance used to detect, measure or react with another substance.
Receptor: A protein which specifically binds to another and mediates the
biological activity of the other.
Recombinant DNA: DNA resulting from the insertion into the chain, by chemical
or biological means, of a sequence of DNA (in whole or partial) not
originally in that chain.
RNA: Ribonucleic acid. A nucleic acid found in all living cells and one of the
major chemical constituents of nucleoli and ribosomes; involved in the
transmission of genetic information from DNA to proteins.
Sarcoma: A malignant neoplasm derived from connective tissues.
Scattergraph: A density graph of flow cytometry data where individual cells
are displayed as positive or negative for two antigens. The graph is
divided by x and y axes to define positive and negative. The density of
dots, color warmth and intensity is proportional to the number of cells per
unit area.
Serum: Fluid component of blood (noncellular).
Southern Blotting: A technique in which DNA is fragmented, electrophoresed and
reacted with labelled fragments of DNA (probes).
Specimen: Material sent in for evaluation, either tissue or cell suspensions
(i.e., body fluids).
Staining: To apply reagents to cells in order to impart color to specific
components.
Stem Cell Transplant: Progenitor (precursor) cells used for the bone marrow
rejuvenation.
Taxol: A chemotherapeutic agent (derived from the bark of the yew tree) having
broad anti-tumor activity.
Thermal Cycling: Cyclical heating and cooling in the presence of target DNA
and specific DNA primers.
Tumor: A swelling or enlargement; a growth or neoplasm, often referring to
cancer.
Tumor Suppressor Gene: A gene involved in the normal growth regulation of
cells. Abnormalities (mutations) of tumor suppressor genes are associated
with the cause and progression of cancer based on abnormal cell growth.
20
<PAGE>
ITEM 2. PROPERTIES.
The Company's main facility and executive offices are located at 521 West
57th Street, New York, New York, where the Company leases approximately 28,700
square feet of space under a 12 1/2-year lease expiring in November 2009. The
lease provides for minimum aggregate annual rental payments of approximately
$344,000. The Company is also required to pay for repairs, property taxes and
insurance relating to this facility.
The Company's California facility and offices are located at 5230 Pacific
Concourse Drive, Los Angeles, California, where the Company has entered into a
lease expiring November 2000 for approximately 16,400 square feet of space.
This facility commenced operations in December 1995. The lease provides for
minimum annual rental payments of approximately $281,000. The Company is also
required to pay for repairs, property taxes and insurance relating to this
facility.
The Company's Arizona facility and offices are located at 810 E. Hammond
Avenue, Phoenix, Arizona, where the Company leases approximately 11,200 square
feet of space under a lease which expires September 2006. The Company
commenced operations at this facility in January 1997, when it completed the
acquisition of certain assets of Oncogenetics, Inc. The lease provides for
minimum annual rental payments of approximately $70,000. The Company is also
responsible for all maintenance, property taxes and insurance relating to the
facility.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of these legal
proceedings will have a material adverse effect on the Company's financial
position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "IMPH." The following table sets forth the range of high and low bid
prices per share for the Common Stock for the period from February 21, 1996
(the first day the Common Stock was publicly traded) through March 6, 1998.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1996
First Quarter (beginning February 21, 1996).................. $15 3/4 $12 3/4
Second Quarter............................................... 18 14
Third Quarter................................................ 17 3/4 10 3/4
Fourth Quarter............................................... 18 3/4 10 1/2
FISCAL 1997
First Quarter................................................ 20 7/8 15 3/4
Second Quarter............................................... 27 5/8 17 1/4
Third Quarter................................................ 32 1/2 21 7/8
Fourth Quarter............................................... 34 5/8 22 1/2
FISCAL 1998
First Quarter (through March 6, 1998)........................ 37 1/4 29 3/4
</TABLE>
On March 6, 1998, the last sale price of the Common Stock as reported on the
Nasdaq National Market was $34.50.
As of January 31, 1998, there were approximately 58 record holders of the
Common Stock.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial and operating
data of the Company as of December 31 in each of 1993 through 1997 and for
each of the years in the five-year period ended December 31, 1997. The
consolidated statement of operations and consolidated balance sheet data have
been derived from the Company's consolidated financial statements, which have
been audited by KPMG Peat Marwick LLP, independent certified public
accountants. Such consolidated balance sheets as of December 31, 1996 and 1997
and statements of operations for each of the years in the three-year period
ended December 31, 1997 and the notes thereto are included in Item 14(a) of
this Annual Report on Form 10-K. The historical consolidated financial data
should be read in conjunction with and are qualified in their entirety by
reference to the consolidated financial statements of the Company and the
related notes thereto and to Item 7 of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERA-
TIONS DATA:
Total revenues..................... $ 7,042 $10,014 $14,714 $21,965 $37,063
Salaries and related costs....... 4,162 4,682 6,830 9,432 15,056
Selling, general and administra-
tive............................ 3,805 4,351 6,863 9,895 16,222
------- ------- ------- ------- -------
Total operating expenses........... 7,967 9,033 13,693 19,327 31,278
------- ------- ------- ------- -------
Income (loss) from operations...... (925) 981 1,021 2,638 5,785
Other income (expense)............. 2 (15) 22 1,030 716
------- ------- ------- ------- -------
Income (loss) before income tax ex-
pense............................. (923) 966 1,043 3,668 6,501
Income tax expense................. 19 98 -- 1,621 2,852
------- ------- ------- ------- -------
Net income (loss).................. (942) 868 1,043 2,047 3,649
Accrued dividends on Preferred
Stock(1).......................... (371) (427) (478) (82) --
------- ------- ------- ------- -------
Net income (loss) available to com-
mon
stockholders...................... $(1,313) $ 441 $ 565 $ 1,965 $ 3,649
======= ======= ======= ======= =======
Per common and common equivalent
share:
Basic:
Net income per common share(1).. $ 0.36 $ 0.41 $ 0.68
======= ======= =======
Weighted average common and
common equivalent shares
outstanding(2)................. 2,921 4,961 5,398
======= ======= =======
Dilutive:
Net income per common share
assuming dilution(1)........... $ 0.31 $ 0.38 $ 0.63
======= ======= =======
Weighted average common and
common equivalent shares
outstanding assuming
dilution(2).................... 3,371 5,404 5,809
======= ======= =======
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SELECTED OPERATING DA-
TA:
Number of cases reported........... 24,812 33,618 43,287 55,539 87,884
Number of hospitals served......... 959 1,021 1,118 1,360 1,670
Number of oncology practices
served............................ -- -- -- -- 141
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................. $ 1,736 $ 2,500 $3,622 $30,768 $21,951
Total assets..................... 3,152 4,144 9,261 37,581 46,342
Long-term liabilities, net of
current portion................. 124 249 1,130 1,430 2,726
Redeemable preferred stock....... 5,979 6,407 -- -- --
Total stockholders' equity
(deficiency).................... (3,741) (3,266) 5,655 33,638 38,309
</TABLE>
- --------
(1) Reflects dividends accrued on the Preferred Stock. Dividends accrued prior
to February 10, 1995 were forgiven in conjunction with the issuance of
Series D Preferred Stock. Dividends accrued from February 10, 1995 in the
amount of $560,000 were paid and ceased to accrue upon conversion of the
Preferred Stock on February 26, 1996.
(2) Weighted average shares outstanding give effect to the conversion of the
outstanding shares of Preferred Stock into shares of Common Stock in
accordance with the terms thereof on February 26, 1996 and reflect the 1-
for-2.8218735 reverse split of the outstanding shares of Common Stock.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto included in Item 14(a) of this Annual Report on Form 10-K.
OVERVIEW
IMPATH was founded in 1988 and has become a leader in providing critical
information essential for making medically optimal and cost-effective cancer
management decisions for individual cancer patients. The Company is focused
exclusively on the analysis of cancer, combining advanced technologies and
medical expertise to provide patient-specific diagnostic, prognostic and
treatment information to physicians involved in the treatment of cancer. With
expected medical cost increases attributable to the growth in the number of
cancer patients and the high cost of new therapies, the Company anticipates
significant and growing demand for cancer management information. IMPATH has
established its leadership and reputation through its extensive expertise, its
integration of technological advances, its emphasis on customer service and
education and the cost-effectiveness of its services.
The Company's revenues, which have increased an average of approximately 50%
annually since 1993, have been derived from performing specialized cancer
analyses for which IMPATH typically bills various third-party payors, such as
private insurance plans, managed care plans and governmental programs (e.g.,
Medicare), as well as hospitals and individual patients. Over the last few
years, the Company has experienced increased pressures on reimbursement and
expects such pressures to cause reduced unit pricing for diagnostic and
prognostic analyses in future periods. Despite those pressures, the Company
has experienced increasing average reimbursement trends due to changes in its
services and payor mix and application of new technologies. See "Risk
Factors--Reimbursement" and "Business--Reimbursement."
The following table sets forth the percentages of total revenues represented
by certain items reflected in the Company's consolidated statements of
operations. The Company's business generally has been unaffected by
seasonality, except for slower growth in revenues during the third quarter of
its fiscal year due to reduced summertime activity.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Total revenues................................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries and related costs.................... 46.4 42.9 40.6
Selling, general and administrative........... 46.7 45.1 43.8
-------- -------- --------
Total operating expenses....................... 93.1 88.0 84.4
Operating income............................... 6.9 12.0 15.6
Net income..................................... 7.1 9.3 9.8
</TABLE>
RECENT ACQUISITIONS
IMPATH has successfully completed the acquisition and integration of several
complementary regional businesses which have added to the breadth and depth of
its technological expertise and services. In January 1997, IMPATH-HDC, Inc., a
wholly owned subsidiary of the Company, acquired a cancer testing
24
<PAGE>
facility from Oncogenetics, Inc. ("Oncogenetics"), which expanded IMPATH's
business into new growth areas in oncology, such as molecular and cytogenetic
testing for cancer. In February 1997, the Company purchased certain assets of
the oncology division of Immunodiagnostic Laboratories, Inc.
("Immunodiagnostic"). In September 1997, IMPATH acquired certain assets of the
GenCare division of Bio Reference Laboratories Inc. ("GenCare"), a New Jersey-
based cancer laboratory specializing in tissue-based testing and tumor marker
analyses. In October 1997, IMPATH purchased certain assets of Aeron
Biotechnology, Inc. ("Aeron"), a California-based cancer testing facility
specializing in breast cancer prognostic analysis. Additionally, the Company
acquired Aeron's tissue bank containing more than 56,000 analyzed cases, many
of which have detailed historical registry data and corresponding outcomes
information.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
The Company's total revenues in 1997 and 1996 were $37.1 million and $22.0
million, respectively, representing an increase of $15.1 million, or 68.7%, in
1997. This growth was primarily due to a 58% increase in case volume resulting
from increased sales and marketing activities and to the successful
integration of the Company's acquisitions of certain assets of Oncogenetics,
Immunodiagnostic, GenCare and Aeron. In addition, revenue realization per case
increased as a result of product mix changes towards cases which yield higher
reimbursement rates and payor mix shifts away from direct hospital billing
towards private insurance.
Salaries and related costs in 1997 and 1996 were $15.1 million and $9.4
million, respectively, representing an increase of $5.7 million, or 59.6%, in
1997. This increase was primarily due to direct personnel costs associated
with existing product case volume growth as well as the Company's acquisitions
during 1997. As a percentage of total revenues, salaries and related costs
decreased to 40.6% in 1997 from 42.9% in 1996.
Selling, general and administrative expenses in 1997 and 1996 were $16.2
million and $9.9 million, respectively, representing an increase of $6.3
million, or 63.9%, in 1997. This increase was due to an increase in bad debt
expense of approximately $2.0 million associated with higher revenues, as well
as a payor mix shift from direct hospital billings to private insurance
resulting in higher revenues and patient co-payments that generate higher bad
debt. The Company also incurred $1.5 million in additional selling, general
and administrative expenses associated with the Company's Arizona-based cancer
cytogenetics testing facility which was acquired from Oncogenetics in January
1997. In addition, the Company incurred over $1.4 million in incremental
supply and courier costs due to increased volume and the logistics required to
service the Company's rapidly growing oncology office-based business.
Depreciation and amortization costs increased approximately $734,000 primarily
due to additional capital expenditures, goodwill amortization associated with
the Company's acquisitions and amortization of third-party development costs
for the outcomes database. The Company also incurred higher travel-related
expenses and professional fees associated with expanded sales, marketing and
investor relations activities. As a percentage of total revenues, selling,
general and administrative expenses decreased to 43.8% in 1997 compared to
45.1% in 1996.
Income from operations in 1997 and 1996 was $5.8 million and $2.6 million,
respectively, representing an increase of $3.2 million, or 119.3%, in 1997.
The 1997 figure reflects increased Company operating margins from its core
diagnostic and prognostic services. As a percentage of total revenues, income
from operations increased to 15.6% in 1997 from 12.0% in 1996.
Other income, net for 1997 and 1996 was $716,000 and $1.0 million,
respectively, representing a decrease of approximately $300,000 in 1997. This
decrease was the result of lower investment returns resulting from the use of
the Company's cash and cash equivalents in order to fund the Company's
expansion and database development activities.
25
<PAGE>
The tax provision for 1997 of approximately $2.9 million reflects federal,
state and local income tax expense. The 44% effective tax rate is consistent
with the 1996 rate.
Net income in 1997 and 1996 was $3.6 million and $2.0 million, respectively,
representing an increase of $1.6 million, or 78.2%, in 1997 which was due to
the factors described above.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
The Company's total revenues in 1996 and 1995 were $22.0 million and $14.7
million, respectively, representing an increase of $7.3 million, or 49.3%, in
1996. This growth was primarily attributable to a 28.3% increase in case
volume resulting from increased sales and marketing activities. In addition,
revenue realization per case increased due to payor mix and product mix
changes toward cases that carry a higher reimbursement rate.
Salaries and related costs in 1996 and 1995 were $9.4 million and $6.8
million, respectively, representing an increase of $2.6 million, or 38.1%, in
1996. This increase was primarily attributable to a 32.5% increase in
personnel headcount associated with case volume growth as well as personnel
costs incurred in connection with the Company's expansion. As a percentage of
total revenues, salaries and related costs decreased to 42.9% in 1996 from
46.4% in 1995.
Selling, general and administrative expenses in 1996 and 1995 were $9.9
million and $6.9 million, respectively, representing an increase of $3.0
million, or 44.2%, in 1996. The primary component of this increase was an
increase in bad debt expense of approximately $854,000 associated with
increased revenues, specifically generated from third-party billing. Third-
party revenues have historically had a higher bad debt rate than institutional
revenues. Case volume growth necessitated an increase of $387,000 in
laboratory supplies and consulting fees and a $268,000 increase in automobile
and courier expenses. In addition, rent expense and depreciation and
amortization costs increased $277,000 and $391,000, respectively, due to the
establishment of the Company's California facility and the development of new
clinical and billing operating systems. Additional depreciation costs also
resulted from the Company's expansion and database development activities. The
Company also incurred an additional $283,000 in higher travel and marketing
costs associated with its expanded sales, marketing and investor relations
activities. As a percentage of total revenues, selling, general and
administrative expenses decreased to 45.1% in 1996 from 46.7% in 1995.
Income from operations in 1996 and 1995 was $2.6 million and $1.0 million,
respectively, representing an increase of $1.6 million, or 158.4%, in 1996.
The 1996 figure reflects the effect on operating income of increased revenue
growth and a decrease in operating expenses as a percentage of revenue from
93.1% in 1995 to 88.0% in 1996.
Other income, net for 1996 and 1995 was $1.0 million and $22,000,
respectively, representing an increase of approximately $1.0 million in 1996.
The increase was the result of income generated from trading gains on
marketable securities using the proceeds of the Company's initial public
offering of Common Stock in February 1996, partially offset by increased
interest expense due to additional capital lease obligations.
The tax provision for 1996 of approximately $1.6 million reflects federal,
state and local income tax expense. For 1995, the Company utilized its
remaining net operating losses and recorded deferred tax assets to the extent
of taxes that it had expected to pay on estimated 1995 taxable earnings.
Management believes that realization of such deferred tax assets was more
likely than not. As such, the Company's annual effective tax rate for 1995 was
zero.
As a result, net income in 1996 and 1995 was $2.0 million and $1.0 million,
respectively, representing an increase of $1.0 million, or 96.3%, in 1996. As
a percentage of total revenues, net income increased to 9.3% in 1996 from 7.1%
in 1995.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has raised approximately $32.5 million of
capital through the initial public offering of Common Stock and private
placements of Preferred Stock, all of which was converted into Common Stock at
the closing of the initial public offering in February 1996. The Company's
working capital and capital expenditure needs have increased and are expected
to continue to increase as the Company expands its existing facilities and
pursues its growth strategy. See "Business--Company Strategy."
The Company's cash and cash equivalent balances at December 31, 1997 and
1996 were approximately $325,000 and $942,000, respectively, representing a
decrease of $617,000 in 1997. The Company also had approximately $14.0 million
invested in a portfolio of investment-grade fixed-income securities at
December 31, 1997.
For 1997, net cash generated from operating activities was approximately
$8.4 million. This was the result of cash inflows from the sale of marketable
trading securities of $7.6 million and the Company's net income, partially
offset by increases in accounts receivable, net of allowance for bad debt
provisions of $4.4 million due to rapid sales growth. The Company also reduced
its accounts payable and accrued expenses by $382,000.
During 1997, the Company used approximately $6.2 million of cash to fund its
growth strategy through the acquisition of certain assets of Oncogenetics,
Immunodiagnostic, GenCare and Aeron. See "--Recent Acquisitions." In addition,
the Company had capital expenditures of $4.1 million during 1997, primarily
related to the development of the Company's clinical and billing systems.
The Company received approximately $515,000 during 1997 through the issuance
of Common Stock upon the exercise of incentive stock options and warrants. The
Company used approximately $1.1 million to satisfy its capital lease
obligations.
In November 1997, the Company renewed its line of credit at an aggregate
amount of $2.5 million. Borrowing under the line will bear interest at the
prime rate. The availability of a $10.0 million replacement line of credit,
which was approved in November 1997 and will bear interest at LIBOR plus
2.25%, is subject to the execution of such additional documentation as the
lender may request. As of December 31, 1997, the Company had not drawn on the
line of credit.
The Company's growth strategy is anticipated to be financed through the net
proceeds from a proposed underwritten public offering of 2,000,000 shares of
its Common Stock, its current cash resources and existing third-party credit
facilities. The Company believes the combination of these sources will be
sufficient to fund its operations and to satisfy the Company's cash
requirements for the next 12 months and the foreseeable future. There may be
circumstances, however, that would accelerate the Company's use of its liquid
resources. If this occurs, the Company may, from time to time, incur
additional indebtedness or issue, in public or private transactions, equity or
debt securities. However, there can be no assurance that suitable debt or
equity financing will be available to the Company.
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation and changing prices on the Company has been
primarily limited to salary, laboratory and operating supplies and rent
increases and has not been material to date to the Company's operations. In
the future, the Company may not be able to raise the prices for its cases by
an amount sufficient to cover the cost of inflation, although the Company is
responding to these concerns by attempting to increase the volume and adjust
the product mix of its business.
27
<PAGE>
YEAR 2000
The Company is in the final stages of the installation of newly developed
clinical and billing information systems which address year 2000 issues. The
Company does not expect the amounts required to be expended over the next three
years in connection with year 2000 compliance issues to have a material effect
on its financial position or results of operations.
ITEM 7. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For information concerning this item, see Item 14(a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Anu D. Saad, Ph.D.(1)........... President, Chief Executive Officer and
41 Director
John P. Gandolfo................ 37 Executive Vice President, Chief Operating
Officer and Chief Financial Officer
Moacyr DaSilva, M.D............. 40 Medical Director, Western Division
Bruce C. Horten, M.D............ 54 Medical Director, Eastern Division
Richard P. Adelson.............. 32 Senior Vice President, Sales and Marketing
John L. Cassis(1)(2)(3)......... 49 Chairman of the Board
Richard J. Cote, M.D.(1)........ 43 Director
Richard Kessler(2)(3)........... 67 Director
Joseph A. Mollica, Ph.D.(3)..... 57 Director
Marcel Rozencweig, M.D. ........ 52 Director
David B. Snow, Jr.(2)........... 43 Director
</TABLE>
- --------
(1)Member of the Nominating Committee.
(2)Member of the Compensation Committee.
(3)Member of the Audit Committee.
28
<PAGE>
The following is a brief summary of the business experience of each of the
executive officers, key employees and directors of the Company:
Dr. Saad has been the President and Chief Executive Officer of the Company
since October 1993. Prior to that, she was the Company's Scientific Director
and Director of Business Development. Before joining the Company in 1990, Dr.
Saad was Assistant Professor of Cell Biology and Anatomy at Cornell University
Medical College/New York Hospital. Dr. Saad has published extensively and is
the recipient of many awards, including from the National Institute of Health,
Muscular Dystrophy Association, Andrew W. Mellon Foundation, Charles H. Revson
Foundation, Inc. and the American Cancer Society. Dr. Saad received her
Bachelor's Degree in Biology from the University of Pennsylvania and her Ph.D.
in Developmental Biology from the University of Chicago. Dr. Saad has been a
director of the Company since 1993.
Mr. Gandolfo has been Executive Vice President and Chief Financial Officer
of the Company since April 1994 and Chief Operating Officer of the Company
since November 1995. From 1987 through March 1994, Mr. Gandolfo served as
Controller, Senior Vice President and Chief Financial Officer of Medical
Resources Inc., a publicly held medical diagnostic imaging management company.
Mr. Gandolfo was employed at the accounting firm of Price Waterhouse from 1982
to 1986, and at Dow Jones Telerate, Inc. in 1987. Mr. Gandolfo is a Certified
Public Accountant and received his Bachelor's Degree in Economics and Business
Administration from Rutgers University.
Dr. DaSilva has been Medical Director, Western Division of the Company since
January 1998. Dr. DaSilva served as Associate Medical Director, Eastern
Division of the Company from August 1994 through December 1997. Prior to
joining the Company, Dr. DaSilva was Attending Pathologist and Chief of
Cytopathology at Lenox Hill Hospital, New York. He is Attending Clinical
Professor of Pathology at New
York University and Adjunct Assistant Professor of Pathology at Cornell
Medical College. Dr. DaSilva's area of expertise is surgical pathology with
emphasis on gastrointestinal, pulmonary and head and neck pathology. Dr.
DaSilva received his M.D. from the Universidade Federal do Rio Grande do Sul
Brazil.
Dr. Horten has been Medical Director, Eastern Division of the Company since
December 1993. Dr. Horten has been a member of the pathology staffs at the
University of California at San Francisco, Memorial Sloan-Kettering Cancer
Center and most recently at Lenox Hill Hospital. He continues to serve as a
consultant at Lenox Hill Hospital and an instructor in pathology at Cornell
University Medical College. Dr. Horten received his anatomic pathology
training at Cornell University Medical College/New York Hospital, his clinical
pathology training at the University of California at San Francisco and
completed a neuropathology fellowship with Lucien Rubinstein at Stanford
University. Dr. Horten received his Bachelor's Degree in Chemistry from Drew
University and his M.D. from Duke University.
Mr. Adelson has been Senior Vice President, Sales and Marketing of the
Company since February 1998. From August 1996 through January 1998, he was
Vice President, Sales of IMPATH. He was Director of Sales of the Company from
August 1994 through August 1996. From January 1992 through August 1994, Mr.
Adelson served the Company as District and Regional Sales Manager for the
New York Metro Region. Prior to joining IMPATH, Mr. Adelson was a Sales
Representative for Surgipath Medical Industries, Inc., a medical equipment
company. Mr. Adelson received his Bachelor's Degree in Biology from the State
University of New York at Albany and studied at the Harvard School of Dental
Medicine.
Mr. Cassis has been the Chairman of the Board of Directors of the Company
since 1993. Mr. Cassis has been a partner in Hambro Health International, Inc.
since 1994. Prior to that, he was a director of Salomon Brothers Inc, where he
co-founded Salomon Brothers Venture Capital in 1986 and headed it from 1990 to
1994. From 1976 to 1981, he was a Managing Director of Ardshiel Associates
Inc., a merchant bank. In 1972, Mr. Cassis was employed by Johnson & Johnson
where he founded the J&J Development Corp., that firm's venture capital arm,
and was J&J's Manager of Acquisitions. Mr. Cassis is currently on the Boards
of Directors of Healthtech Services Inc. and Ilex Oncology Inc., and is
Chairman of the Board of Directors of Dome Imaging Systems, Inc. Mr. Cassis
received his Bachelor's Degree and M.B.A. from Harvard University. Mr. Cassis
has been a director of the Company since 1991.
29
<PAGE>
Dr. Cote was one of the founders of IMPATH and is the Company's principal
scientific and strategic consultant. Dr. Cote is Attending Pathologist at the
Kenneth J. Norris Cancer Center and an Associate Professor of Pathology and
Urology at the University of Southern California. He was trained at the
University of Michigan, Cornell University Medical College/New York Hospital
and Memorial Sloan-Kettering Cancer Center. Dr. Cote holds patents on
monoclonal antibody technology and is a leader in the developmental use of
monoclonal antibodies in cancer diagnosis and prognosis. Dr. Cote is also
known
for his work in breast, prostate and bladder cancers and in the
immunopathological analysis of cancer. Dr. Cote has been or is on the
Scientific Advisory Boards of Johnson & Johnson, Neoprobe Corporation and
Chromavision Medical Systems, Inc., and is a consultant to various national
and international organizations, such as the National Cancer Institute. Dr.
Cote graduated Phi Beta Kappa from the University of California with
Bachelor's Degrees in Biology and Chemistry. He received his M.D. from the
University of Chicago Pritzker School of Medicine. Dr. Cote has been a
director of the Company since 1988.
Mr. Kessler is a private investor and is President of Empire City Capital
Corporation and President and Managing Partner of various closely held
corporations and partnerships with a broad base of investments. Mr. Kessler
received his Bachelor's Degree in Economics from Colgate University. Mr.
Kessler has been a director of the Company since 1991.
Dr. Mollica is the Chairman and Chief Executive Officer of Pharmacopeia,
Inc., a Princeton, New Jersey-based company engaged in the field of research
to discover low molecular weight drug compounds using combinatorial chemistry
and automated high throughput screening. Prior to joining Pharmacopeia, Dr.
Mollica was President and Chief Executive Officer of DuPont Merck
Pharmaceutical Company. He also served as Vice President, Medical Products for
DuPont, and Senior Vice President of Ciba-Geigy Corp. Dr. Mollica is currently
on the Boards of Directors of Pharmacopeia, Inc., Neurocrine Biosciences,
Inc., USP, Inc. and the Biotechnology Council of New Jersey. He received his
Bachelor's Degree in Pharmaceutical Chemistry from the University of Rhode
Island and his Master's Degree and Ph.D. in Pharmaceutical and Physical
Chemistry from the University of Wisconsin. Dr. Mollica has been a director of
the Company since 1995.
Dr. Rozencweig has been the Vice President, Strategic & Scientific
Evaluation of the Pharmaceutical Group of Bristol-Myers Squibb Company
("Bristol-Myers") since 1996. From 1983 to 1996, Dr. Rozencweig was Vice
President, Infectious Diseases and Oncology at the Pharmaceutical Research
Institute of Bristol-Myers. Dr. Rozencweig is well known for his work in
medical oncology, new drug development and clinical trial methodology. At
Bristol-Myers, he played a prominent role in the clinical development and
registration strategies of many new anticancer agents and pioneered the
regulatory approach to accelerated approval of new drugs for the treatment of
life-threatening diseases. Dr. Rozencweig has also worked at the National
Cancer Institute of the Jules Bordet Institute and has been a consultant to
the German government for the appropriation of federal resources for cancer
research in Germany. Dr. Rozencweig received his M.D. from the Free University
of Brussels. Dr. Rosencweig has been a director of the Company since August
1997.
Mr. Snow has been the Executive Vice President of Oxford Health Plans, Inc.
since 1993. He is responsible for the Medical Delivery Systems, Medical
Management and Government Programs for the managed health care company, and is
the President of several Oxford subsidiaries. From 1988 through 1992, Mr. Snow
was co-founder and President of Managed Healthcare Systems, Inc. ("MHS"), a
managed health care company committed to the development and operation of
Medicaid managed care programs. Prior to founding MHS, Mr. Snow worked for
U.S. Healthcare Inc. as Chief Operating Officer and subsequently President of
its subsidiary, Health Maintenance Organization of New Jersey, Inc. Mr. Snow
received his Bachelor's Degree in Economics from Bates College and his Masters
Degree in Health Care Administration from Duke University. Mr. Snow has been a
director of the Company since 1995.
30
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee, an Audit Committee and
a Nominating Committee. The members of the Compensation Committee are John L.
Cassis, Richard Kessler and David B. Snow, Jr. The Compensation Committee
makes recommendations to the full Board as to the compensation of senior
management, administers the Company's 1989 Stock Option Plan and the Company's
1997 Long Term Incentive Plan and determines the persons who are to receive
options and the number of shares subject to each option.
The members of the Audit Committee are John L. Cassis, Richard Kessler and
Joseph A. Mollica, Ph.D. The Audit Committee acts as a liaison between the
Board and the independent accountants and annually recommends to the Board the
appointment of the independent accountants. The Audit Committee reviews with
the independent accountants the planning and scope of the audits of the
financial statements, the results of those audits and the adequacy of internal
accounting controls and monitors other corporate and financial policies.
The members of the Nominating Committee are John L. Cassis, Richard J. Cote,
M.D. and Anu D. Saad, Ph.D. The Nominating Committee recommends to the Board
of Directors nominees for election as directors of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, directors and officers of the
Company, and persons who own more than ten percent of the Common Stock, are
required to file reports with the Securities and Exchange Commission of their
beneficial ownership of securities of the Company. Directors, officers and
greater than ten percent stockholders are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
reports they file.
To the Company's knowledge, based solely on a review of copies of such
reports furnished and confirmation that no other reports were required during
the fiscal year ended December 31, 1997, except as provided below, its
directors, officers and greater than ten precent stockholders complied with
all Section 16(a) filing requirements. Dr Rozencweig was elected as a Director
of the Company in August 1997 and filed his initial report of ownership on
Form 3 in February 1998. Dr. Da Silva was appointed an executive officer of
the Company in January 1998 and filed his initial report of ownership on Form
3 in February 1998. Exercises of options to purchase Common Stock by Dr. Saad
in February 1997 and by Mr. Adelson in October 1997 were reported on their
annual statements of changes in ownership on Form 5 in February 1998. A sale
of shares of Common Stock by Yiatin Chu in July 1997 was reported on her
annual statement of changes in ownership on Form 5 in February 1998.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information for the fiscal years ended
December 31, 1997, 1996 and 1995 concerning the compensation of the Chief
Executive Officer of the Company, and the four other most highly compensated
executive officers of the Company whose total annual salary and bonus exceeded
$100,000 during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPEN-
ANNUAL COMPENSATION SATION
------------------- ----------
SHARES ALL OTHER
FISCAL UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS SATION(1)
- --------------------------- ------ ------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Anu D. Saad, Ph.D. ............. 1997 $ 210,000 $ 115,000 50,000 $1,931
President and Chief Executive
Officer 1996 190,000 90,000 30,000 1,766
1995 165,000 50,000 -- --
John P. Gandolfo................ 1997 190,000 60,000 42,500 2,248
Executive Vice President, Chief
Operating Officer and Chief 1996 175,000 50,000 25,000 2,041
Financial Officer 1995 140,000 30,000 -- 758
Rogelio R. Rojas-Corona,
M.D.(2)........................ 1997 250,000 -- -- 2,300
Vice President, Medical Affairs
and Medical Director, Western 1996 230,000 -- 10,000 2,300
Division 1995 210,000 -- -- 1,143
Bruce C. Horten, M.D. .......... 1997 230,000 -- 17,000 2,117
Medical Director, Eastern 1996 210,000 -- 7,500 2,150
Division 1995 200,000 -- -- 1,083
Richard P. Adelson.............. 1997 125,000 75,000 30,000 1,618
Vice President of Sales 1996 115,000 65,000 13,000 1,225
1995 90,000 45,000 -- 617
</TABLE>
- --------
(1) Consists of contributions made by the Company to the IMPATH Inc. 401(k)
Retirement Savings Plan on behalf of such executive officer.
(2) Dr. Rojas-Corona retired effective January 1, 1998.
32
<PAGE>
The following table sets forth the grants of stock options to the executive
officers named in the Summary Compensation Table during the fiscal year ended
December 31, 1997. The amounts shown for each of the named executive officers
as potential realizable values are based on arbitrarily assumed annualized
rates of stock price appreciation of five percent and ten percent over the
exercise price of the options during the full terms of the options. No gain to
the optionees is possible without an increase in stock price which will
benefit all stockholders proportionately. These potential realizable values
are based solely on arbitrarily assumed rates of appreciation required by
applicable Securities and Exchange Commission regulations. Actual gains, if
any, on option exercises and holdings of Common Stock are dependent on the
future performance of the Common Stock and overall stock market conditions.
There can be no assurance that the potential realizable values shown in this
table will be achieved.
OPTION GRANTS IN THE FISCAL YEAR ENDED
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM
GRANTED EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME (#) IN FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ------- -------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Anu D. Saad, Ph.D. ..... 25,000 7.3% 18.50 4/11/07 $ 290,875 $ 737,100
25,000 7.3 26.88 12/19/07 422,625 1,071,000
John P. Gandolfo........ 20,000 5.8 18.50 4/11/07 232,700 589,680
22,500 6.6 26.88 12/19/07 380,363 963,900
Rogelio R. Rojas-Corona,
M.D.(1)................ -- -- -- -- -- --
Bruce C. Horten, M.D. .. 17,000 5.0 26.88 12/19/07 287,385 728,280
Richard P. Adelson...... 15,000 4.4 18.50 4/11/07 174,525 442,260
15,000 4.4 26.88 12/19/07 253,575 682,200
</TABLE>
DECEMBER 31, 1997
- --------
(1) Dr. Rojas-Corona retired effective January 1, 1998.
The following table sets forth the number of shares of Common Stock acquired
upon the exercise of options by the executive officers of the Company named in
the Summary Compensation Table during 1997, the aggregate market value, net of
exercise price of such shares on the date of such exercise for each such
executive officer and the number and value of options held by such officers at
December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT AT 1997 FISCAL YEAR
ACQUIRED ON 1997 FISCAL YEAR END (#) END(1)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anu D. Saad, Ph.D....... 49,394 $883,446 97,097 77,032 $2,744,804 $1,182,425
John P. Gandolfo........ 6,208 120,797 14,810 63,267 293,296 932,296
Rogelio R. Rojas-Corona,
M.D.(2)................ 21,973 412,359 3,167 6,833 57,861 120,889
Bruce C. Horten, M.D.... -- -- 9,148 24,212 248,578 248,248
Richard P. Adelson...... 5,050 93,064 8,709 39,873 179,232 537,048
</TABLE>
- --------
(1) In-the-money options are those where the fair market value of the
underlying Common Stock exceeds the exercise price of the option. The
value of in-the-money options is determined in accordance with regulations
of the Securities and Exchange Commission by subtracting the aggregate
exercise price of the option from the aggregate year-end value of the
underlying Common Stock.
(2) Dr. Rojas-Corona retired effective January 1, 1998.
33
<PAGE>
EMPLOYMENT-RELATED AGREEMENTS WITH EXECUTIVE OFFICERS
The Company has entered into employment-related agreements with each of Dr.
Saad, Mr. Gandolfo, Dr. Horten, Dr. Da Silva and Mr. Adelson, the executive
officers of the Company. Each agreement provides that in the event that the
employment of the executive officer is terminated by the Company without cause
or the executive officer terminates his or her employment for good reason, the
Company will continue to pay his or her base salary for one year after
termination, subject to setoff for any cash compensation paid to the executive
officer by any subsequent employer during such one-year period. Each agreement
also provides that the stock options granted to each executive officer prior
to September 12, 1997 will fully vest upon a merger, consolidation or tender
or exchange offer that results or would result in a change in control of the
Company, or the sale of substantially all of the assets of the Company. Each
executive officer is prohibited under his or her agreement from engaging in any
business in competition with the Company during the period of his or her
employment with the Company and for one year thereafter.
COMPENSATION OF DIRECTORS
The Company pays its directors who are not employees of the Company a fee of
$1,000 for each directors' meeting attended. On April 11, 1997, the Company
granted Richard J. Cote, M.D. stock options to purchase 20,000 shares of
Common Stock at a purchase price of $18.50 per share. On December 19, 1997,
the Company granted to Dr. Cote stock options to purchase an additional 7,000
shares of Common Stock at a purchase price of $26.88 per share. The options
granted to Dr. Cote in 1997 vest over a four-year period following the
respective dates of grant. On August 28, 1997, the Company granted to Marcel
Rozencweig, M.D. stock options to purchase 10,632 shares of Common Stock at a
purchase price of $24.75 per share. The options granted to Dr. Rozencweig vest
over a three-year period following the date of grant.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
All executive officer compensation decisions have been made by the
Compensation Committee of the Board of Directors. The current members of the
Compensation Committee are John L. Cassis, Richard Kessler and David B. Snow,
Jr. All of the current and former members of the Compensation Committee are
and have been independent directors of the Company.
34
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of January 31, 1998 by (i) each person who is
known by the Company to own beneficially more than five percent of the Common
Stock, (ii) each of the Company's directors, (iii) each of the Company's five
most highly compensated executive officers and (iv) all executive officers and
directors as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BENEFICIALLY (1) OWNERSHIP (1)
- ------------------------------------ ---------------------- -------------
<S> <C> <C>
Pilgrim Baxter & Associates, Ltd. (2)..... 344,700 5.9%
825 Duportail Road
Wayne, Pennsylvania 19087
Anu D. Saad, Ph.D. (3).................... 172,762 3.1
John P. Gandolfo (4)...................... 28,268 *
Moacyr DaSilva, M.D. (5).................. 8,259 *
Bruce C. Horten, M.D. (6)................. 11,592 *
Richard P. Adelson (7).................... 14,206 *
John L. Cassis (8)........................ 14,367 *
Richard J. Cote, M.D. (9)................. 105,173 1.9
Richard Kessler (10)...................... 133,518 2.4
Joseph A. Mollica, Ph.D. (11)............. 9,155 *
Marcel Rozencweig, M.D. (12).............. 2,067 *
David B. Snow, Jr. (13)................... 9,155 *
All directors and executive officers as a
group (11 persons) (3), (4), (5), (6),
(7), (8), (9), (10), (11), (12), (13).... 508,522 8.9
</TABLE>
- --------
* Less than one percent.
(1) Amounts and percentages include outstanding warrants or options which are
exercisable within 60 days after January 31, 1998.
(2) This information is based upon a Report on Schedule 13G filed by this
stockholder with the Securities and Exchange Commission.
(3) Includes 105,118 shares issuable pursuant to currently exercisable stock
options.
(4) Includes 20,135 shares issuable pursuant to currently exercisable stock
options and 213 shares issuable pursuant to currently exercisable
warrants.
(5) Consists of 8,259 shares issuable pursuant to currently exercisable stock
options.
(6) Includes 11,092 shares issuable pursuant to currently exercisable stock
options.
(7) Includes 11,156 shares issuable pursuant to currently exercisable stock
options.
(8) Includes 8,565 shares issuable pursuant to currently exercisable stock
options and 5,000 shares held by Tower Hall Profit Sharing Trust for the
benefit of Mr. Cassis. Does not include shares beneficially owned by
Cross Atlantic Partners K/S, CAP/Hambro, L.P. or CAP/Hambro, Inc., which
shares may be deemed to be beneficially owned by Mr. Cassis. Mr. Cassis
disclaims any such beneficial ownership.
(9) Includes 48,082 shares issuable pursuant to currently exercisable stock
options.
(10) Includes 9,155 shares issuable pursuant to currently exercisable stock
options.
(11) Consists of 9,155 shares issuable pursuant to currently exercisable stock
options.
(12) Consists of 2,067 shares issuable pursuant to currently exercisable stock
options.
(13) Consists of 9,155 shares issuable pursuant to currently exercisable stock
options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements:
The financial statements of the Company contained in this Annual Report
on Form 10-K are listed in the attached Index to Financial Statements.
(2) Financial Statement Schedules:
All schedules have been omitted because they are inapplicable or the
information is provided in the consolidated financial statements, including
the notes thereto.
(3) Exhibits:
The exhibits required filed as part of this Annual Report on Form 10-K
are listed in the attached Index to Exhibits. Exhibits 10.2, 10.3, 10.13,
10.14, 10.15, 10.16 and 10.17 are the management contracts and compensatory
plans or arrangements required to be filed as part of this Annual Report on
Form 10-K.
(b) Current Reports on Form 8-K:
None.
36
<PAGE>
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby appoint
each of Anu D. Saad, Ph.D. and John P. Gandolfo as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
Registrant and each such person, individually and in each capacity stated
below, one or more amendments to this Annual Report on Form 10-K, which
amendments may make such changes in this Report as the attorney-in-fact acting
in the premises deems appropriate and to file any such amendment to this
Report with the Securities and Exchange Commission.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
IMPATH Inc.
Dated: March 9, 1998 /s/ Anu D. Saad
By __________________________________
ANU D. SAAD, PH.D.
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Dated: March 9, 1998 /s/ Anu D. Saad
By __________________________________
ANU D. SAAD, PH.D.
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Dated: March 9, 1998 /s/ John P. Gandolfo
By __________________________________
JOHN P. GANDOLFO
EXECUTIVE VICE
PRESIDENT, CHIEF OPERATING
OFFICER, CHIEF FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER
Dated: March 9, 1998 /s/ John L. Cassis
By __________________________________
JOHN L. CASSIS
CHAIRMAN OF THE
BOARD AND DIRECTOR
Dated: March 9, 1998 /s/ Richard J. Cote
By __________________________________
RICHARD J. COTE, M.D
DIRECTOR
Dated: March 9, 1998 /s/ Richard Kessler
By __________________________________
RICHARD KESSLER
DIRECTOR
/s/ Joseph A. Mollica
Dated: March 9, 1998 By __________________________________
JOSEPH A. MOLLICA, PH.D.
DIRECTOR
Dated: March 9, 1998 /s/ Marcel Rozencweig
By __________________________________
MARCEL ROZENCWEIG, M.D.
DIRECTOR
Dated: March 9, 1998 /s/ David B. Snow, Jr.
By __________________________________
DAVID B. SNOW, JR.
DIRECTOR
37
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997.............. F-3
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997...................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997...................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors IMPATH Inc.:
We have audited the accompanying consolidated balance sheets of IMPATH Inc.
and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. 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 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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IMPATH
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 6, 1998
F-2
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 941,903 $ 325,285
Marketable securities, at market value............. 23,395,398 13,952,148
Accounts receivable, net of allowance for doubtful
accounts of $2,732,041 in 1996 and $4,760,117 in
1997.............................................. 7,059,812 11,948,229
Prepaid expenses................................... 152,846 276,073
Deferred tax assets, net........................... 1,359,285 53,427
Other current assets............................... 371,753 703,753
----------- -----------
Total current assets........................... 33,280,997 27,258,915
Fixed assets, less accumulated depreciation and
amortization........................................ 3,391,965 10,475,575
Deposits and other assets............................ 98,878 334,167
Intangible assets, net of accumulated amortization of
$22,431 in 1996 and $383,534 in 1997................ 809,542 8,273,636
----------- -----------
Total assets................................... $37,581,382 $46,342,293
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations....... $ 704,399 $ 1,222,281
Current portion of note payable.................... -- 700,000
Accounts payable................................... 742,020 956,648
Construction payments payable...................... -- 1,542,199
Income taxes payable............................... 692,193 158,094
Accrued expenses................................... 374,761 728,353
----------- -----------
Total current liabilities...................... 2,513,373 5,307,575
----------- -----------
Capital lease obligations, net of current portion.... 1,430,104 2,451,587
Note payable, net of current portion................. -- 274,000
Stockholders' equity:
Common stock, $.005 par value. Authorized
20,000,000 shares; 5,322,286 and 5,458,827 shares
issued in 1996 and 1997, respectively; 5,315,198
and 5,451,739 shares outstanding in 1996 and 1997,
respectively...................................... 26,611 27,294
Additional paid-in capital......................... 32,357,260 33,893,774
Retained earnings.................................. 1,498,878 5,148,077
Unrealized net depreciation of marketable
securities........................................ -- (83,881)
----------- -----------
33,882,749 38,985,264
Less:
Cost of 7,088 shares of common stock held in
treasury........................................ (100) (100)
Notes receivable from stockholders............... (28,421) --
Deferred compensation............................ (216,323) (676,033)
----------- -----------
Commitments and Contingencies
Total stockholders' equity..................... 33,637,905 38,309,131
----------- -----------
Total liabilities and stockholders' equity..... $37,581,382 $46,342,293
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Net diagnostic and prognostic
services............................. $14,578,326 $21,755,193 $36,821,738
Contract laboratory services.......... 135,238 210,270 241,743
----------- ----------- -----------
Total revenues...................... 14,713,564 21,965,463 37,063,481
----------- ----------- -----------
Operating expenses:
Salaries and related costs............ 6,830,210 9,432,397 15,056,221
Selling, general and administrative... 6,862,503 9,895,084 16,222,332
----------- ----------- -----------
Total operating expenses............ 13,692,713 19,327,481 31,278,553
----------- ----------- -----------
Income from operations.............. 1,020,851 2,637,982 5,784,928
Interest income......................... 102,711 506,086 677,109
Interest expense........................ (80,373) (224,112) (339,903)
Gains on marketable securities, net..... -- 747,903 379,001
----------- ----------- -----------
Income before income tax expense.... 1,043,189 3,667,859 6,501,135
Income tax expense...................... -- 1,620,309 2,851,936
----------- ----------- -----------
Net income.......................... 1,043,189 2,047,550 3,649,199
Accrued dividends on preferred stock.... (478,000) (82,346) --
----------- ----------- -----------
Net income available to common
stockholders........................... $ 565,189 $ 1,965,204 $ 3,649,199
=========== =========== ===========
Per common and common equivalent share:
Basic:
Net income per common share........... $ 0.36 $ 0.41 $ 0.68
=========== =========== ===========
Weighted average common and common
equivalent shares outstanding........ 2,921,000 4,961,000 5,398,000
=========== =========== ===========
Dilutive:
Net income per common share--assuming
dilution............................. $ 0.31 $ 0.38 $ 0.63
=========== =========== ===========
Weighted average common and common
equivalent shares outstanding--
assuming dilution.................... 3,371,000 5,404,000 5,809,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
NONREDEEMABLE
CONVERTIBLE ADDITIONAL (ACCUMULATED NOTES
COMMON STOCK PREFERRED STOCK PAID-IN DEFICIT) UNREALIZED NET RECEIVABLE
----------------- ----------------------- CAPITAL RETAINED DEPRECIATION TREASURY FROM
SHARES AMOUNT SHARES AMOUNT (DEFICIENCY) EARNINGS OF SECURITIES STOCK STOCKHOLDERS
--------- ------- ---------- ----------- ------------ ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1994............ 439,113 $ 2,195 -- $ -- $(1,676,111) $(1,591,861) $ -- $(100) $ --
Common shares
issued upon
exercise of
stock options... 6,443 33 -- -- 6,122 -- -- -- --
Common shares
issued as
compensation for
services
rendered........ 9,451 47 -- -- 23,959 -- -- -- --
Preferred stock
issuance........ -- -- 1,612,904 1,911,879 -- -- -- -- (33,085)
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- -- -- -- (46,808) -- -- -- --
Restructuring of
redeemable
preferred stock
in conjunction
with Series D
preferred stock
issuance........ -- -- 5,579,820 4,653,406 1,799,909 -- -- -- --
Accrual of
preferred stock
dividends....... -- -- -- -- (478,000) -- -- -- --
Compensation
associated with
issuance of
options......... -- -- -- -- 382,376 -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- --
Repayments of
loans to
stockholders.... -- -- -- -- -- -- -- -- 1,750
Net income for
the year ended
December 31, 1995.. -- -- -- -- -- 1,043,189 -- -- --
--------- ------- ---------- ----------- ----------- ----------- ----- ----- -------
Balance at
December 31,
1995............ 455,007 2,275 7,192,724 6,565,285 11,447 (548,672) -- (100) (31,335)
Common shares
issued upon
exercise of
stock options... 75,846 379 -- -- 124,302 -- -- -- --
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- -- -- -- (82,346) -- -- -- --
Conversion of
redeemable
preferred stock
into common
stock........... 2,548,933 12,745 (7,192,724) (6,565,285) 6,552,540 -- -- -- --
Common shares
issued in the
initial public
offering........ 2,242,500 11,212 -- -- 25,726,054 -- -- -- --
Compensation
associated with
issuance of
options to non-
employees....... -- -- -- -- 25,263 -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- --
Repayment of
loans to
stockholders.... -- -- -- -- -- -- -- -- 2,914
Net income for
the year ended
December 31, 1996.. -- -- -- -- -- 2,047,550 -- -- --
--------- ------- ---------- ----------- ----------- ----------- ----- ----- -------
Balance at
December 31,
1996............ 5,322,286 26,611 -- -- 32,357,260 1,498,878 -- (100) (28,421)
<CAPTION>
DEFERRED
COMPEN-
SATION TOTAL
--------- ------------
<S> <C> <C>
Balance at
December 31,
1994............ $ -- $(3,265,877)
Common shares
issued upon
exercise of
stock options... -- 6,155
Common shares
issued as
compensation for
services
rendered........ -- 24,006
Preferred stock
issuance........ -- 1,878,794
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- (46,808)
Restructuring of
redeemable
preferred stock
in conjunction
with Series D
preferred stock
issuance........ -- 6,453,315
Accrual of
preferred stock
dividends....... -- (478,000)
Compensation
associated with
issuance of
options......... (382,376) --
Amortization of
deferred
compensation.... 38,469 38,469
Repayments of
loans to
stockholders.... -- 1,750
Net income for
the year ended
December 31, 1995.. -- 1,043,189
--------- ------------
Balance at
December 31,
1995............ (343,907) 5,654,993
Common shares
issued upon
exercise of
stock options... -- 124,681
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- (82,346)
Conversion of
redeemable
preferred stock
into common
stock........... -- --
Common shares
issued in the
initial public
offering........ -- 25,737,266
Compensation
associated with
issuance of
options to non-
employees....... -- 25,263
Amortization of
deferred
compensation.... 127,584 127,584
Repayment of
loans to
stockholders.... -- 2,914
Net income for
the year ended
December 31, 1996.. -- 2,047,550
--------- ------------
Balance at
December 31,
1996............ (216,323) 33,637,905
</TABLE>
(Continued)
F-5
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
NONREDEEMABLE
CONVERTIBLE ADDITIONAL (ACCUMULATED NOTES
COMMON STOCK PREFERRED STOCK PAID-IN DEFICIT) UNREALIZED NET RECEIVABLE DEFERRED
----------------- ----------------- CAPITAL RETAINED DEPRECIATION TREASURY FROM COMPEN-
SHARES AMOUNT SHARES AMOUNT (DEFICIENCY) EARNINGS OF SECURITIES STOCK STOCKHOLDERS SATION
--------- ------- ------- -------- ------------ ------------ -------------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ 5,322,286 $26,611 -- $ -- $32,357,260 $1,498,878 $ -- $(100) $(28,421) $(216,323)
Common shares
issued upon
exercise of
stock options... 125,357 627 -- -- 474,862 -- -- -- -- --
Common shares
issued upon
exercise of
warrant......... 11,184 56 -- -- 39,086 -- -- -- -- --
Compensation
associated with
issuance of
options to non-
employees....... -- -- -- -- 679,752 -- -- -- -- (679,752)
Issuance of
options related
to Immunopath
acquisition..... -- -- -- -- 191,218 -- -- -- -- --
Tax benefit
related to stock
option
exercises....... -- -- -- -- 171,531 -- -- -- -- --
Repayment of
officer loans... -- -- -- -- -- -- -- -- 28,421 --
Amortization of
deferred
compensation.... -- -- -- -- (19,935) -- -- -- -- 220,042
Change in
unrealized net
depreciation of
securities...... -- -- -- -- -- -- (83,881) -- -- --
Net income for
the year ended
December 31,
1997............ -- -- -- -- -- 3,649,199 -- -- -- --
--------- ------- ------ -------- ----------- ---------- -------- ----- -------- ---------
Balance at
December 31,
1997............ 5,458,827 $27,294 -- $ -- $33,893,774 $5,148,077 $(83,881) $(100) $ -- $(676,033)
========= ======= ====== ======== =========== ========== ======== ===== ======== =========
<CAPTION>
TOTAL
------------
<S> <C>
Balance at
December 31,
1996............ $33,637,905
Common shares
issued upon
exercise of
stock options... 475,489
Common shares
issued upon
exercise of
warrant......... 39,142
Compensation
associated with
issuance of
options to non-
employees....... --
Issuance of
options related
to Immunopath
acquisition..... 191,218
Tax benefit
related to stock
option
exercises....... 171,531
Repayment of
officer loans... 28,421
Amortization of
deferred
compensation.... 200,107
Change in
unrealized net
depreciation of
securities...... (83,881)
Net income for
the year ended
December 31,
1997............ 3,649,199
------------
Balance at
December 31,
1997............ $38,309,131
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 1,043,189 $ 2,047,550 $3,649,199
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization.......... 395,901 786,852 1,521,251
Provision for uncollectible accounts
receivable............................ 1,580,733 2,434,511 4,390,581
Non-cash compensation.................. 38,469 152,847 200,107
Deferred tax benefit................... (505,000) (854,285) 1,305,858
Changes in assets and liabilities (net
of the effects of acquisitions):
Increase in accounts receivable....... (2,812,333) (5,686,947) (8,803,998)
Increase in prepaid expenses and other
current assets....................... (150,254) (251,238) (455,227)
Increase in deposits and other
assets............................... (30,833) (18,917) (235,289)
(Increase) decrease in marketable
securities........................... -- (23,395,398) 7,569,853
Increase (decrease) in accounts
payable/accrued expenses............. 891,634 (381,951) (381,729)
Increase (decrease) in income taxes
payable.............................. 63,401 613,778 (362,568)
----------- ----------- ----------
Total adjustments..................... (528,282) (26,600,748) 4,748,839
----------- ----------- ----------
Net cash provided by (used in) operating
activities.............................. 514,907 (24,553,198) 8,398,038
----------- ----------- ----------
Cash flows from investing activities:
Purchases of marketable securities...... -- -- (1,122,368)
Sales/maturities of marketable
securities............................. -- -- 2,911,884
Acquisitions of businesses.............. (19,955) (800,000) (6,185,030)
Capital expenditures.................... (737,239) (434,324) (4,063,195)
----------- ----------- ----------
Net cash used in investing activities.... (757,194) (1,234,324) (8,458,709)
----------- ----------- ----------
Cash flows from financing activities:
Issuance of common stock................ 30,161 25,861,947 514,631
(Increase) decrease in registration
costs.................................. (746,462) 746,462 --
Issuance of preferred stock............. 1,911,879 -- --
Payment of dividends on preferred
stock.................................. -- (560,346) --
Proceeds from bank loan................. 300,000 -- --
Repayments of bank loan................. (164,667) (283,333) --
Payments of capital lease obligations... (159,911) (550,914) (1,098,999)
Issuance of loans to stockholders....... (33,085) -- --
Repayments of loans to stockholders..... 1,750 2,914 28,421
----------- ----------- ----------
Net cash provided by (used in) financing
activities.............................. 1,139,665 25,216,730 (555,947)
----------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents............................. 897,378 (570,792) (616,618)
Cash and cash equivalents at beginning of
year.................................... 615,317 1,512,695 941,903
----------- ----------- ----------
Cash and cash equivalents at end of
year.................................... $ 1,512,695 $ 941,903 $ 325,285
=========== =========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the period for income
taxes.................................. $ 441,599 $ 1,941,013 $1,771,044
=========== =========== ==========
Cash paid during the period for
interest............................... $ 80,373 $ 224,112 $ 339,963
=========== =========== ==========
Fixed assets acquired pursuant to
capital leases......................... $ 1,121,979 $ 1,417,569 $2,638,364
=========== =========== ==========
Note payable related to acquisition of
business............................... $ -- $ -- $ 974,000
=========== =========== ==========
Accrual of dividends on preferred
stock.................................. $ 524,808 $ 82,346 $ --
=========== =========== ==========
Forgiveness of dividends on preferred
stock.................................. $ 1,799,909 $ -- $ --
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
IMPATH Inc. (the "Company") was incorporated on March 1, 1988 under the laws
of the State of Delaware. The Company was organized for the purpose of
establishing a specialized facility dedicated to the use of the most
sophisticated technologies to provide diagnostic and prognostic information
to physicians specializing in cancer. The Company conducts these analyses by
utilizing immunohistochemistry, flow cytometry and image analysis, molecular
pathology, cytogenetics and serum analysis technologies. The Company's
affiliates include IMPATH-HDC, Inc., a wholly-owned subsidiary which comprises
the Company's cytogenetics testing facility; IMPATH Information Services,
Inc., a wholly-owned subsidiary, and a 50%-owned limited liability company,
IMPATH Registry L.L.C. IMPATH Information Services, Inc. and IMPATH Registry
L.L.C. will facilitate the Company's ongoing effort to link its diagnostic and
prognostic information to patient outcomes data and provide referring
physicians with patient-specific treatment pathways. The consolidated
financial statements include the accounts of all the majority-owned
subsidiaries. All intercompany balances have been eliminated in consolidation.
The Company's revenues are derived through:
Diagnostic and prognostic analytical services to hospitals, medical
centers, clinical laboratories and physicians; and
Monoclonal antibody and molecular probe characterization services to
biotechnology companies and other researchers.
The Company submits its invoices for diagnostic and prognostic analytical
services to its clients, primary and secondary insurers, or individual
patients. The Company does not require collateral from its clients as security
for payment of its invoices.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
Cash equivalents consist principally of money market funds at December 31,
1996 and 1997. For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents.
(b) Marketable Securities
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115 through September 30, 1997 the Company's investments (consisting primarily
of government and corporate fixed income securities) were classified as
trading securities and were stated at fair market value at each balance sheet
date with unrealized gains, net, in the amount of $80,720 for the year ended
December 31, 1996 (and unrealized gains, net, of $404,970 for the nine-month
period ended September 30, 1997) reported in the accompanying consolidated
statements of operations. Effective October 1, 1997, due to a change in the
Company's investment strategy, the portfolio of securities are now considered
available for sale as prescribed by SFAS No. 115. As a result, unrealized
depreciation since October 1, 1997 is recorded as a separate component of
stockholders' equity, net of related deferred taxes.
(c) Fixed Assets
Fixed assets are stated at cost. Depreciation of furniture, fixtures,
laboratory equipment and personal computers is provided over their estimated
useful lives (which range from three to seven years) using the straight-line
method, and leasehold improvements are being amortized over the shorter of the
related lease term or the lives of the improvements using the straight-line
method.
F-8
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Software development costs represent external costs capitalized for software
developed to meet the specific needs of the Company. These costs are being
amortized over a five- to seven-year period using the straight-line method.
(d) Revenue Recognition
Revenues are recognized on an accrual basis as earned at such time as the
Company has completed performance of its diagnostic or prognostic services.
Revenue is reported at the estimated net realizable amounts from patients,
third-party and government payors, and others for services rendered, including
estimated retroactive adjustments under reimbursement agreements with certain
payors. Retroactive adjustments are accrued on an estimated basis in the
period the related services are rendered and adjusted in future periods as
final settlements are determined.
Laws and regulations related to government programs are complex and subject
to interpretation. The Company believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation.
(e) Intangible Assets
The excess of cost over net assets acquired (goodwill) is being amortized on
a straight-line basis over a period of up to fifteen years. Other acquired
intangibles, the majority being customer lists, are being amortized over their
estimated useful lives of between seven to fifteen years.
(f) Income Taxes
Income taxes are provided pursuant to the asset and liability method as
described in SFAS No. 109. SFAS No. 109 requires that the Company recognize
deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the consolidated financial statements or
tax returns. Under SFAS No. 109, deferred tax assets and liabilities are
determined on the basis of the difference between the tax basis of assets and
liabilities and their respective financial reporting amounts ("temporary
differences") at enacted tax rates in effect for the years in which the
differences are expected to reverse.
(g) Concentration of Credit Risks
The Company invests its cash, cash equivalents and marketable securities in
deposits with money market funds of major U.S. financial institutions, and
fixed income securities. The Company has established guidelines relative to
diversification and maturities that maintain safety and liquidity. To date,
the Company has not experienced any significant losses on its cash, cash
equivalents and marketable securities.
(h) Equity Security Transactions
From inception through the Company's initial public offering in February
1996 (the "IPO"), the Board of Directors had established the fair value of
common shares, Series A, B, C and D mandatorily redeemable convertible
preferred stock, stock options and warrants based on facts and circumstances
existing at the dates such equity transactions occurred, including the price
at which equity instruments were sold to independent third parties. Subsequent
to the IPO, fair market value of equity instruments is determined based on the
quoted market price of the Company's stock.
F-9
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(i) Stock-Based Compensation
In accordance with 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,"Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the market price of the Company's stock at the date
of grant over the amount an employee must pay to acquire the stock. Such
amounts are amortized over the respective vesting periods of the option grant.
The Company uses the fair value-based method of accounting for stock-based
compensation to non-employees. Under the fair value-based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the vesting period.
(j) Net Income Per Common Share
SFAS No. 128, "Earnings per Share," which became effective in 1997, requires
presentation of two calculations of earnings per common share. "Basic"
earnings per common share equal net income divided by weighted average common
shares outstanding during the period. "Dilutive" earnings per common share
equal net income divided by the sum of weighted average common shares
outstanding during the period plus common stock equivalents. Common stock
equivalents are shares assumed to be issued if outstanding stock options and
warrants were exercised. Common stock equivalents that are anti-dilutive are
excluded from net income per common share. All prior period amounts have been
restated to reflect these calculations.
The calculation of shares used in computing net income per common share for
both the basic and dilutive calculations has included all series of
mandatorily redeemable preferred stock assuming conversion into shares of
common stock from their respective original dates of issuance. For periods
prior to the Company's IPO, net income per common share--assuming dilution is
based on the weighted average number of shares of common stock outstanding
including common equivalent shares from stock options and warrants. All stock
options and warrants issued during the one-year period prior to the IPO at
prices below the anticipated IPO price are presumed to have been issued in
contemplation of the IPO and have been included in the calculation of net
income per common share as if they were outstanding for all periods presented.
Following is a reconciliation of the shares used in calculating basic and
dilutive net income per common share (net income as reported is the numerator
in each calculation):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding... 372,000 4,536,000 5,398,000
Effect of assumed conversion of preferred
stock....................................... 2,549,000 425,000 --
--------- --------- ---------
Weighted average common and common equivalent
shares outstanding.......................... 2,921,000 4,961,000 5,398,000
Effect of dilutive securities--options....... 450,000 443,000 411,000
--------- --------- ---------
Weighted average common and common equivalent
shares outstanding--assuming dilution....... 3,371,000 5,404,000 5,809,000
========= ========= =========
</TABLE>
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
F-10
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(l) Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of." The statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets. There
was no material effect on the financial statements in 1996 or 1997 related to
this statement.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107,"Disclosure about Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, income taxes payable, note payable, capital lease
obligations and accrued expenses approximate fair value because of the short
maturity of those instruments. Fair values of investments in marketable
securities are based on quoted market prices.
(4) BUSINESS AND CREDIT CONCENTRATIONS
Accounts receivable, by payor class, as a percentage of total net
receivables at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Medicare......................................................... 24% 17%
Commercial insurance............................................. 37 42
Hospitals, clinics and other institutions........................ 31 24
Patients......................................................... 8 17
--- ---
100% 100%
=== ===
</TABLE>
(5) FIXED ASSETS
At December 31, 1996 and 1997, fixed assets consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Personal computers................................... $ 775,895 $ 2,150,760
Software development costs........................... 1,106,653 3,937,576
Furniture, fixtures and laboratory equipment......... 2,361,093 3,402,770
Leasehold improvements............................... 720,915 764,202
Construction in progress............................. -- 2,953,006
---------- -----------
4,964,556 13,208,314
Less accumulated depreciation and amortization....... 1,572,591 2,732,739
---------- -----------
$3,391,965 $10,475,575
========== ===========
</TABLE>
Included in the above at December 31, 1996 and 1997 are gross assets under
capital leases of approximately $2,894,477 and $5,532,841, respectively, and
the related accumulated amortization at such dates is approximately $921,200
and $1,500,515, respectively.
F-11
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) ACQUISITIONS
In May 1995, the Company acquired the assets and assumed certain liabilities
of OncoCare, a serum analysis facility located in California, for a total
purchase price of $20,000 plus assumed liabilities of $73,000. The acquisition
resulted in goodwill of $31,973. The results of operations of OncoCare are
included in the accompanying consolidated financial statements from the date
of acquisition.
In October 1996, the Company entered into an agreement with Oncogenetics
Inc. to purchase customer lists pertaining to its diagnostic and prognostic
cancer business for a sum of $800,000. In conjunction with this purchase the
Company obtained the option to purchase the cytogenetics business of the
seller for $1, plus assumption of a $750,000 note payable (which was paid just
after the transaction). The option was exercised in January 1997.
In February 1997, the Company purchased certain assets of Immunodiagnostic
Laboratories, Inc. ("Immunodiagnostic"), which operates an oncology division
specializing in sophisticated cancer analytical assays, in order to provide
diagnostic and prognostic information to pathologists, oncologists and others
specializing in cancer. The purchase price included an initial payment at
closing of $425,000 plus the issuance of options to purchase 20,000 shares of
the Company's common stock at $17.44 per share (estimated value of $191,218).
In September 1997, the Company acquired certain assets of GenCare for an
initial payment of $4,600,000. GenCare is a New Jersey-based cancer laboratory
specializing in tissue-based testing and tumor marker analyses.
In October 1997, the Company purchased certain assets of Aeron
Biotechnology, Inc. ("Aeron"), a California-based cancer testing facility
specializing in breast cancer prognostic analysis. The purchase price for
Aeron included an initial payment of $376,000 made at closing. Additionally,
the Company paid $180,000 for certain other assets owned by Aeron.
The acquisitions of Immunodiagnostic, GenCare and Aeron all have an
individual contingent purchase price arrangement based on the future operating
results of the respective business. Such payments will range from $974,000 to
$1,890,000 and bear interest at 9% per annum. The Company has recorded the
minimum amount in notes payable on the accompanying December 31, 1997
consolidated balance sheet.
The aggregate acquisitions in 1997 were all treated as purchases with the
results of operations of each transaction being included in the consolidated
results from the respective acquisition date. The incremental operating
results were not material to the results of operation of the Company. The
purchase prices represented primarily payments for customer lists, which are
included in intangible assets on the accompanying December 31, 1997
consolidated balance sheet and will be amortized over periods of up to fifteen
years.
(7) ACCRUED EXPENSES
Accrued expenses are comprised of the following as of December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Salaries and related costs................................ $230,099 $345,000
Other accrued expenses.................................... 144,662 383,353
-------- --------
$374,761 $728,353
======== ========
</TABLE>
F-12
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INDEBTEDNESS AND FINANCING COMMITMENTS
On September 21, 1995, the Company entered into a $300,000 term loan which
was repaid in 1996. The Company maintains a line of credit with The Chase
Manhattan Bank in the aggregate amount of $2,500,000, which bears interest at
the prime rate and expires on June 30, 1998. The Company has been approved for
a $10,000,000 replacement line of credit, subject to completion of certain
documentation requirements of the bank. Borrowings, if any, would bear
interest at LIBOR plus 2.25%. As of December 31, 1996 and 1997, there were no
amounts outstanding under the line of credit.
(9) STOCKHOLDERS' EQUITY
(a) Common Stock
On October 13, 1995, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with an initial public offering. Such
offering was consummated on February 26, 1996 for a total of 2,242,500 common
shares at an offering price of $13 per share. The net proceeds to the Company
amounted to approximately $25,737,000.
(b) Preferred Stock
Effective February 10, 1995, the Company sold 1,612,904 shares of its 8%
Series D Convertible Participating Preferred Stock and warrants to purchase
42,529 shares of its common stock at $3.50 per share for an aggregate sales
price of $2,000,000 (before issuance costs). The warrants are exercisable for
a period of six years. In 1997, 11,184 of such warrants were exercised and in
January 1998 another 29,331 were exercised. No value was ascribed to these
warrants for financial reporting purposes as the Company believes such amount
would not be material to the accompanying consolidated financial statements.
The holders of this preferred stock had the right to convert their shares into
shares of common stock, subject to certain adjustments. Concurrent with the
issuance of the 8% Series D Convertible Participating Preferred Stock and
common stock warrants, the terms of the outstanding Series A, B and C
Redeemable Preferred Stock were revised, resulting in the elimination of all
previously existing redemption rights, elimination of all previously accrued
dividends in the amount of $1,799,909 and a change in the future dividend rate
from 9% to 8%.
In June 1988 and March 1990, the Company sold 1,776,318 and 100,000 shares,
respectively, of its Series A 9% Convertible Preferred Stock (subsequently
amended to 8%) with a par value of $.01 per share for $1,350,000 (before
issuance costs) and $76,000, respectively.
In March 1990, the Company issued 668,182 shares of its Series B 9%
Convertible Preferred Stock (subsequently amended to 8%; terms are
substantially identical to those of the Series A 8% Convertible Preferred
Stock) for an aggregate consideration of $587,998 (before issuance costs).
In March 1991, the Company issued 1,638,887 shares of its Series C 9%
Convertible Preferred Stock (subsequently amended to 8%; terms are
substantially identical to those of the Series A 8% Convertible Preferred
Stock) for an aggregate consideration of $1,475,000 (before issuance costs).
In June and July 1993, the Company issued 1,396,433 additional shares of its
Series C 9% Convertible Preferred Stock (subsequently amended to 8%) for an
aggregate consideration of $1,256,789.
Upon the consummation of the Company's IPO on February 26, 1996, all
preferred shares were converted into 2,548,933 shares of common stock and all
accrued dividends commencing February 10, 1995, totaling approximately
$560,000, were paid.
(c) Stock Option Plans
In February 1989, the Company adopted (and subsequently amended) a Stock
Option Plan (the "Plan") which provides for granting to certain key employees
of the Company, directors and
F-13
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consultants, options to purchase up to 884,688 shares of common stock. Options
granted are exercisable over a period not to exceed ten years and generally
vest over five years.
In August 1995, four directors were granted options to purchase a total of
42,528 shares of common stock at an exercise price of $3.50 per share under
the Company's Stock Option Plan, which vest ratably over 36 months. Management
of the Company estimated the fair market value of the underlying common stock
to be approximately $8.00 per share and, accordingly, recorded deferred
compensation of $191,000, which amount is being amortized ratably over the
vesting period. In October 1995, three additional directors were granted
options to purchase a total of 31,896 shares of common stock at an exercise
price of $3.50 per share, which vest ratably over 36 months.
Management of the Company estimated fair market value of the underlying
common stock to be approximately $9.50 per share and, accordingly, recorded
deferred compensation of $191,000, which amount is being amortized ratably
over the vesting period.
In April 1997, the Company adopted the IMPATH Inc. 1997 Long-Term Incentive
Plan (the "Incentive Plan"), which provides for granting to certain key
employees of the Company, directors and consultants, options to purchase up to
300,000 shares of common stock. Options granted are exercisable over a period
not to exceed ten years and generally vest over four years. Options to
purchase 79,000 shares were granted under the Incentive Plan in 1997 to
consultants, resulting in $679,752 of compensation expense which will be
amortized over the vesting period of the options.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, which was adopted by the Company in 1996. The Company has elected not to
implement the fair value based accounting method for employee stock options,
but has elected to disclose the pro forma net income and earnings per share as
if such method had been used to account for stock-based compensation cost as
described in the Statement.
The per share weighted-average fair value of stock options granted during
1996 and 1997 was $8.10 and $14.88, respectively, on the dates of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions: 1996--expected dividend yield 0%, risk-free interest rate of
6.5%, expected volatility of 60% and an expected life of 7 years; 1997--
expected dividend yield 0%, risk- free interest rate of 7.0%, expected
volatility of 60% and an expected life of 7 years.
The Company applies APB Opinion No. 25 in accounting for its options and,
accordingly, no compensation cost has been recognized for its stock options
issued at exercise prices equal to the fair market value of the stock on the
grant date, with the exception of certain stock options issued in 1996 and
1997 to nonemployees as previously described.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C> <C>
Net income................................ As reported $2,047,550 $3,649,199
Pro forma $1,903,858 $3,211,328
Net income per share--assuming dilution... As reported $ 0.38 $ 0.63
Pro forma $ 0.37 $ 0.55
</TABLE>
F-14
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma net income reflects only options granted in 1995 through 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to January 1,
1995 is not considered.
The following is a summary of option activity during the years ended
December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
WEIGHTED-
SHARES AVERAGE
UNDER PRICE EXERCISE
OPTIONS RANGE ($) PRICE ($)
-------- ------------ ---------
<S> <C> <C> <C>
Options outstanding at
December 31, 1994...... 429,886 $ 0.28-3.50 $1.98
Granted................. 126,692 3.50-8.00 4.21
Exercised............... (6,444) 0.56-3.50 0.96
Canceled................ (16,777) 0.56-3.50 0.56
--------
Options outstanding at
December 31, 1995...... 533,357 0.28-8.00 2.57
Granted................. 247,077 11.13-18.38 14.05
Exercised............... (75,846) 0.28-13.00 1.66
Canceled................ (14,962) 2.15-13.00 5.62
--------
Options outstanding at
December 31, 1996...... 689,626 0.28-18.38 6.72
Granted................. 342,612 17.25-31.38 23.12
Exercised............... (125,357) 0.28-25.25 3.84
Canceled................ (28,705) 2.54-25.25 16.53
--------
Options outstanding at
December 31, 1997...... 878,176 0.28-31.38 13.21
======== ============ =====
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUT- REMAINING AVERAGE EXERCIS- AVERAGE
EXERCISE STANDING AT CONTRACTUAL EXERCISE ABLE AT EXERCISE
PRICES 12/31/97 LIFE PRICE 12/31/97 PRICE
------------ ----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 0.28-0.34 43,886 1.97 years $0.28 43,886 $0.28
0.56 2,837 3.31 years 0.56 2,837 0.56
2.12- 3.50 271,137 6.50 years 2.95 204,809 2.85
8.00-12.63 50,563 8.38 years 10.49 12,375 9.63
13.00-13.75 112,827 8.06 years 13.07 40,562 13.05
16.75-18.38 116,494 8.89 years 17.19 26,377 17.19
18.50-24.75 106,732 9.31 years 19.33 17,231 19.13
26.88 162,500 9.97 years 26.88 -- --
27.25-31.38 11,200 9.64 years 29.80 842 29.03
------- -------
0.28-31.38 878,176 348,919
============ ======= =======
</TABLE>
At December 31, 1997, the Company had 939,348 shares reserved for options
and warrants outstanding, as well as future option grants.
F-15
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) 401(K) RETIREMENT SAVINGS PLAN
Effective June 1, 1995, the Company adopted the IMPATH Inc. 401(k)
Retirement Savings Plan (the "Plan") benefiting certain employees. Employees
who are over the age of 21 and have completed six months of service are
eligible for voluntary participation in the Plan. Employees may contribute 1%
to 20% of their total salaries on a before tax basis, and the Company will
match up to 25% of the first 4% of employee contributions. Plan participants
who were employees as of June 1, 1995 are 100% vested in all contributions.
Any employees hired subsequent to June 1, 1995 are 100% vested in their own
contributions and will become vested in employer contributions over a three-
year period. Employer contributions for the year ended December 31, 1996 and
1997 were $50,990 and $70,439, respectively.
(11) INCOME TAXES
The components of the provision for income taxes for 1995, 1996 and 1997 are
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $ 463,000 $1,566,987 $ 972,484
State and local........................ 321,000 907,607 573,594
Benefit of operating loss
carryforwards......................... (279,000) -- --
--------- ---------- ----------
505,000 2,474,594 1,546,078
--------- ---------- ----------
Deferred:
Federal................................ (298,000) (541,047) 1,015,667
State and local........................ (207,000) (313,238) 290,191
--------- ---------- ----------
(505,000) (854,285) 1,305,858
--------- ---------- ----------
$ -- $1,620,309 $2,851,936
========= ========== ==========
</TABLE>
Net deferred tax assets at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Allowance for doubtful accounts........................ $1,229,418 $ --
Deferred compensation.................................. 68,782 169,882
Depreciation........................................... 34,495 263,359
All other.............................................. 26,590 (379,814)
---------- ---------
1,359,285 53,427
Less: Valuation allowance.............................. -- --
---------- ---------
Deferred tax assets, net............................... $1,359,285 $ 53,427
========== =========
</TABLE>
Management of the Company believes that it is more likely than not that
future tax benefits will be realized as a result of the recent operating
performance of the Company.
F-16
<PAGE>
IMPATH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the Federal statutory income tax rate to the effective
tax rate for the years ended December 31, 1995, 1996 and 1997 follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate....................... 34.0% 34.0% 34.0%
State and local taxes, net of Federal income tax
benefit................................................ 20.3 10.7 10.2
Change in valuation allowance........................... (50.7) (2.3) --
Other................................................... (3.6) 1.8 (0.3)
----- ---- ----
0.0% 44.2% 43.9%
===== ==== ====
</TABLE>
(12) LEASES
The Company utilizes laboratory and office facilities and leases equipment
pursuant to the terms of operating and capital leases, which expire through
2009 (certain leases expiring in 1999 are cancelable at the Company's option).
The present value of future minimum lease payments (including those
cancelable at the Company's option and subject to increases in the Consumer
Price Index and real estate taxes) for the capital leases and the future
minimum lease payments for operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ---------- ----------
<S> <C> <C>
1998.................................................. $1,133,640 $1,542,039
1999.................................................. 1,030,562 1,241,827
2000.................................................. 886,320 985,702
2001.................................................. 591,925 512,158
2002.................................................. 465,432 --
Thereafter............................................ 3,009,239 --
---------- ----------
$7,117,118 4,281,726
========== ----------
Less amount representing interest..................... (607,858)
----------
Present value of minimum lease payments............... 3,673,868
Less current portion.................................. (1,222,281)
----------
$2,451,587
==========
</TABLE>
For the years 1995, 1996 and 1997, rent expense totaled $472,499, $749,168
and $1,169,763, respectively.
(13) RELATED PARTY TRANSACTIONS
The Company paid $93,112 and $128,329 in the years ended December 31, 1996
and 1997, respectively, to a Director who also performs certain consulting
services to the Company.
(14) COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions in the normal course of
business, some of which seek monetary damages. The Company believes any
ultimate liability associated with these contingencies would not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
Certain executive officers of the Company have entered into agreements which
provide severance of up to one year's salary in the event of termination
without cause.
F-17
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
3.1 Restated Certificate of Incorporation, as amended *
3.2 Form of Certificate of Amendment regarding authorization of *
additional preferred stock
3.3 By-laws *
4.1 Registration Rights Agreement dated February 10, 1995 among *
IMPATH Inc. and certain of its shareholders
10.1 Master Lease Agreement dated April 11, 1995 between IMPATH Inc. *
and Financing For Science International, Inc.
10.2 Employment letter dated October 26, 1993 between Bruce C. *
Horten, M.D., and IMPATH Inc.
10.3 Employment letter dated March 7, 1994 between and John P. *
Gandolfo and IMPATH Inc.
10.4 Space Lease dated August 29, 1988, as amended, between 166 East *
61st Street Associates and IMPATH Inc. (formerly known as
BioPath, Inc.)
10.5 Sublease dated April 1992, between Zeller 1010 Formals, Inc. *
and IMPATH Inc.
10.6 Space Lease dated September 27, 1991, as amended, between 166 *
East 61st Street Associates and IMPATH Inc. (formerly known as
Impath Laboratories Inc.)
10.7 Assignment and Assumption of Lease Agreement dated August 1, *
1990, as amended, between Mitchell Manning Associates, Inc. and
IMPATH Inc.
10.8 Space Lease Agreement dated April 20, 1995 between OMA Del Aire *
Properties and IMPATH Inc. (formerly known as Impath
Laboratories Inc.)
10.9 Floating Rate Promissory Note in the principal amount of *
$300,000 made by IMPATH Inc. in favor of Chemical Bank
10.10 1989 Stock Option Plan *
10.11 Form of Indemnification Agreement with directors *
10.12 Lease Modification Agreement dated as of April 24, 1995 between *
166 East 61st Street Associates and IMPATH Inc. (formerly known
as Impath Laboratories Inc.)
10.13 Letter Agreement dated December 12, 1997 between Anu D. Saad,
Ph.D, and IMPATH Inc.
10.14 Letter Agreement dated December 12, 1997 between John P.
Gandolfo and IMPATH Inc.
10.15 Letter Agreement dated December 12, 1997 between Bruce C.
Horten, M.D., and IMPATH Inc.
10.16 Letter Agreement dated December 12, 1997 between Moacyr Da
Silva, M.D., and IMPATH Inc.
10.17 Letter Agreement dated December 12, 1997 between Richard P.
Adelson and IMPATH Inc.
10.18 1997 Long Term Incentive Plan **
10.19 Agreement of Lease dated as of June 26, 1997 between
International Flavors & Fragrances Inc. and IMPATH Inc.
23 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (see "Power of Attorney" in Form 10-K)
27 Financial Data Schedule ***
</TABLE>
- --------
* Incorporated by reference to the exhibit of the same number filed with the
Registration Statement on Form S-1 of IMPATH Inc. (File No. 33-98916).
** Incorporated by reference to Exhibit A to the Proxy Statement of IMPATH
Inc. dated April 25, 1997 (File No. 000-27750).
*** Incorporated by reference to the exhibit of the same number filed with the
Registration Statement on Form S-3 of IMPATH Inc. (File No. 333-45921).
<PAGE>
Exhibit 10.13
December 12, 1997
Anu D. Saad, Ph.D.
IMPATH Inc.
1010 Third Avenue
New York, New York 10021
Dear Anu:
In consideration of your service to IMPATH Inc. (the "Company"), you and
the Company agree as follows:
1. In connection with any merger or consolidation in which the Company is
not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all stock options for
the purchase of common stock of the Company awarded to you prior to September
12, 1997 ("Options") shall become exercisable in full, notwithstanding any
provision of the stock option plan of the Company pursuant to which the Options
were granted or of the stock option agreements or certificates evidencing the
Options, on and after (i) the fifteenth day prior to the effective date of such
merger, consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may be. With
respect to any Options which are incentive stock options, the provisions of the
foregoing sentence shall apply to the extent permitted by Section 422(d) of the
Code and such options in excess thereof shall, immediately upon the occurrence
of the event described in clause (i) or (ii) of the foregoing sentence, be
treated for all purposes as non-qualified stock options and shall be immediately
exercisable as such as provided in the foregoing sentence.
<PAGE>
2
2. In the event that your employment with the Company shall be terminated
by the Company without Cause (as hereinafter defined), and not as a result of
your death or Disability (as hereinafter defined), the Company shall make a
severance payment to you in an amount equal to one year's base salary
(determined at your highest annualized rate of base salary in effect during the
one-year period ending on the date of termination), payable in bi-weekly
installments during the one-year period commencing on the date of termination of
your employment. You shall be under no obligation to seek other employment or
otherwise to mitigate the Company's obligation to make such severance payment to
you; provided, however, that if you do obtain another position (whether as an
employee, consultant, partner or otherwise) during such one-year period, the
Company shall have the right to offset against such severance payment any
salary, fees, bonus or other cash compensation actually earned by you during
such one-year period from such other position. The Company shall, during such
one-year period, continue to provide you with health insurance benefits on the
same basis, including Company-paid premiums, as such benefits are provided to
employees of the Company. Your rights under the other benefit plans and programs
of the Company shall be determined in accordance with the terms of such plans
and programs as then in effect.
For purposes of this agreement, a termination of your employment with the
Company by you for Good Reason (as hereinafter defined) shall constitute a
termination of your employment by the Company without Cause.
For purposes of this agreement: "Cause" shall mean (a) your gross neglect
or willful misconduct in the discharge of your duties and responsibilities to
the Company, (b) your material and repeated failure to obey appropriate
directions from the Board of Directors of the Company which failure has the
effect of materially injuring the business or business relationships of the
Company, (c) any act of willful misappropriation by you against the Company or
(d) your indictment, conviction or plea of guilty or nolo contendere with
respect to a felony crime; "Good Reason" shall mean (a) a reduction in your base
salary from the annualized rate in effect on the date hereof or as hereafter
increased or (b) a demotion in your position with the Company or change in your
duties and responsibilities inconsistent with your position, which reduction,
demotion or change shall not have been corrected by the Company within ten (10)
days following notice thereof by you to the Company; and "Disability" shall mean
your failure by reason of sickness, accident or physical or mental disability to
substantially perform the duties and
<PAGE>
3
responsibilities of your employment with the Company for a period of six (6)
months in any period of twelve (12) consecutive months.
3. You agree that, in consideration of your employment with the Company,
you will not, during the period of your employment with the Company and
thereafter for a period of one (1) year commencing on the date of termination of
your employment with the Company, (a) engage, directly or indirectly, whether as
principal, agent, distributor, representative, consultant, employee, partner,
stockholder, limited partner or other investor (other than an investment of not
more than (i) five percent (5%) of the stock or equity of any corporation the
capital stock of which is publicly traded or (ii) five percent (5%) of the
ownership interest of any limited partnership or other entity) or otherwise, in
any business in competition with the business then conducted by the Company or
any of the Company's subsidiaries (the Company and the Company's subsidiaries,
being hereinafter collectively referred to as the "Company Group"), or (b)
solicit or entice or endeavor to solicit or entice away from any member of the
Company Group any person who was an employee of any member of the Company Group,
either for your own account or for any individual, firm or corporation, or
employ, directly or indirectly, any person who was during the one (1) year
period ending on the date of termination of your employment an employee of any
member of the Company Group.
4. In the event of a breach or threatened breach by you of any of the
provisions of Section 3 of this agreement, you hereby consent and agree that the
Company shall (i) be entitled to cease payment of the severance referred to in
Section 2 of this agreement and (ii) be entitled to an injunction or similar
equitable relief from any court of competent jurisdiction restraining you from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by you under any of
such provisions, without the necessity of showing any actual damage or that
money damages would not afford an adequate remedy and without the necessity of
posting any bond or other security. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have with respect to any such breach or threatened breach.
5. This agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of New
York applicable to contracts to be performed entirely within such State.
<PAGE>
4
6. This agreement contains all the understandings and representations
between the parties hereto pertaining to the subject matter hereof.
7. No provision of this agreement may be amended or modified unless such
amendment or modification is agreed to in writing and signed by you and by a
duly authorized representative of the Company.
8. Should any provision of this agreement be held by a court or arbitration
panel of competent jurisdiction to be enforceable only if modified, such holding
shall not affect the validity of the remainder of this agreement, the balance of
which shall continue to be binding upon the parties hereto with any such
modification to become a part hereof and treated as though originally set forth
in this agreement. The parties further agree that any such court or arbitration
panel is expressly authorized to modify any such unenforceable provision of this
agreement in lieu of severing such unenforceable provision from this agreement
in its entirety, whether by rewriting the offending provision, deleting any or
all of the offending provision, adding additional language to this agreement, or
by making such other modifications as it deems warranted to carry out the intent
and agreement of the parties as embodied herein to the maximum extent permitted
by law. The parties expressly agree that this agreement as so modified by the
court or arbitration panel shall be binding upon and enforceable against each of
them. In any event, should one or more of the provisions of this agreement be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, and
if such provision or provisions are not modified as provided above, this
agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
9. Anything to the contrary notwithstanding, all payments required to be
made by the Company hereunder shall be subject to withholding of such amounts
relating to taxes as the Company may reasonably determine it should withhold
pursuant to any applicable law or regulation.
* * *
<PAGE>
5
Please indicate your acceptance of and agreement with the foregoing by
signing and returning this agreement to the Company, whereupon this shall
constitute a binding agreement between you and the Company.
Very truly yours,
IMPATH INC.
By /s/ John P. Gandolfo
--------------------
Accepted and Agreed:
/s/ Anu D. Saad
---------------
Anu D. Saad
<PAGE>
Exhibit 10.14
December 12, 1997
Mr. John P. Gandolfo
IMPATH Inc.
1010 Third Avenue
New York, New York 10021
Dear John:
In consideration of your service to IMPATH Inc. (the
"Company"), you and the Company agree as follows:
1. In connection with any merger or consolidation in which the Company is
not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all stock options for
the purchase of common stock of the Company awarded to you prior to September
12, 1997 ("Options") shall become exercisable in full, notwithstanding any
provision of the stock option plan of the Company pursuant to which the Options
were granted or of the stock option agreements or certificates evidencing the
Options, on and after (i) the fifteenth day prior to the effective date of such
merger, consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may be. With
respect to any Options which are incentive stock options, the provisions of the
foregoing sentence shall apply to the extent permitted by Section 422(d) of the
Code and such options in excess thereof shall, immediately upon the occurrence
of the event described in clause (i) or (ii) of the foregoing sentence, be
treated for all purposes as non-qualified stock options and shall be immediately
exercisable as such as provided in the foregoing sentence.
<PAGE>
2
2. In the event that your employment with the Company shall be terminated
by the Company without Cause (as hereinafter defined), and not as a result of
your death or Disability (as hereinafter defined), the Company shall make a
severance payment to you in an amount equal to one year's base salary
(determined at your highest annualized rate of base salary in effect during the
one-year period ending on the date of termination), payable in bi-weekly
installments during the one-year period commencing on the date of termination of
your employment. You shall be under no obligation to seek other employment or
otherwise to mitigate the Company's obligation to make such severance payment to
you; provided, however, that if you do obtain another position (whether as an
employee, consultant, partner or otherwise) during such one-year period, the
Company shall have the right to offset against such severance payment any
salary, fees, bonus or other cash compensation actually earned by you during
such one-year period from such other position. The Company shall, during such
one-year period, continue to provide you with health insurance benefits on the
same basis, including Company-paid premiums, as such benefits are provided to
employees of the Company. Your rights under the other benefit plans and programs
of the Company shall be determined in accordance with the terms of such plans
and programs as then in effect.
For purposes of this agreement, a termination of your employment with the
Company by you for Good Reason (as hereinafter defined) shall constitute a
termination of your employment by the Company without Cause.
For purposes of this agreement: "Cause" shall mean (a) your gross neglect
or willful misconduct in the discharge of your duties and responsibilities to
the Company, (b) your material and repeated failure to obey appropriate
directions from the Board of Directors of the Company which failure has the
effect of materially injuring the business or business relationships of the
Company, (c) any act of willful misappropriation by you against the Company or
(d) your indictment, conviction or plea of guilty or nolo contendere with
respect to a felony crime; "Good Reason" shall mean (a) a reduction in your base
salary from the annualized rate in effect on the date hereof or as hereafter
increased or (b) a demotion in your position with the Company or change in your
duties and responsibilities inconsistent with your position, which reduction,
demotion or change shall not have been corrected by the Company within ten (10)
days following notice thereof by you to the Company; and "Disability" shall mean
your failure by reason of sickness, accident or physical or mental disability to
substantially perform the duties and
<PAGE>
3
responsibilities of your employment with the Company for a period of six (6)
months in any period of twelve (12) consecutive months.
3. You agree that, in consideration of your employment with the Company,
you will not, during the period of your employment with the Company and
thereafter for a period of one (1) year commencing on the date of termination of
your employment with the Company, (a) engage, directly or indirectly, whether as
principal, agent, distributor, representative, consultant, employee, partner,
stockholder, limited partner or other investor (other than an investment of not
more than (i) five percent (5%) of the stock or equity of any corporation the
capital stock of which is publicly traded or (ii) five percent (5%) of the
ownership interest of any limited partnership or other entity) or otherwise, in
any business in competition with the business then conducted by the Company or
any of the Company's subsidiaries (the Company and the Company's subsidiaries,
being hereinafter collectively referred to as the "Company Group"), or (b)
solicit or entice or endeavor to solicit or entice away from any member of the
Company Group any person who was an employee of any member of the Company Group,
either for your own account or for any individual, firm or corporation, or
employ, directly or indirectly, any person who was during the one (1) year
period ending on the date of termination of your employment an employee of any
member of the Company Group.
4. In the event of a breach or threatened breach by you of any of the
provisions of Section 3 of this agreement, you hereby consent and agree that the
Company shall (i) be entitled to cease payment of the severance referred to in
Section 2 of this agreement and (ii) be entitled to an injunction or similar
equitable relief from any court of competent jurisdiction restraining you from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by you under any of
such provisions, without the necessity of showing any actual damage or that
money damages would not afford an adequate remedy and without the necessity of
posting any bond or other security. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have with respect to any such breach or threatened breach.
5. This agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of New
York applicable to contracts to be performed entirely within such State.
<PAGE>
4
6. This agreement contains all the understandings and representations
between the parties hereto pertaining to the subject matter hereof.
7. No provision of this agreement may be amended or modified unless such
amendment or modification is agreed to in writing and signed by you and by a
duly authorized representative of the Company.
8. Should any provision of this agreement be held by a court or arbitration
panel of competent jurisdiction to be enforceable only if modified, such holding
shall not affect the validity of the remainder of this agreement, the balance of
which shall continue to be binding upon the parties hereto with any such
modification to become a part hereof and treated as though originally set forth
in this agreement. The parties further agree that any such court or arbitration
panel is expressly authorized to modify any such unenforceable provision of this
agreement in lieu of severing such unenforceable provision from this agreement
in its entirety, whether by rewriting the offending provision, deleting any or
all of the offending provision, adding additional language to this agreement, or
by making such other modifications as it deems warranted to carry out the intent
and agreement of the parties as embodied herein to the maximum extent permitted
by law. The parties expressly agree that this agreement as so modified by the
court or arbitration panel shall be binding upon and enforceable against each of
them. In any event, should one or more of the provisions of this agreement be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, and
if such provision or provisions are not modified as provided above, this
agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
9. Anything to the contrary notwithstanding, all payments required to be
made by the Company hereunder shall be subject to withholding of such amounts
relating to taxes as the Company may reasonably determine it should withhold
pursuant to any applicable law or regulation.
* * *
<PAGE>
5
Please indicate your acceptance of and agreement with the foregoing by
signing and returning this agreement to the Company, whereupon this shall
constitute a binding agreement between you and the Company.
Very truly yours,
IMPATH INC.
By /s/ Anu D. Saad
---------------
Accepted and Agreed:
/s/ John P. Gandolfo
- ---------------------
John P. Gandolfo
<PAGE>
Exhibit 10.15
December 12, 1997
Bruce C. Horten, M.D.
IMPATH Inc.
1010 Third Avenue
New York, New York 10021
Dear Bruce:
In consideration of your service to IMPATH Inc. (the
"Company"), you and the Company agree as follows:
1. In connection with any merger or consolidation in which the
Company is not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all stock options for
the purchase of common stock of the Company awarded to you prior to September
12, 1997 ("Options") shall become exercisable in full, notwithstanding any
provision of the stock option plan of the Company pursuant to which the Options
were granted or of the stock option agreements or certificates evidencing the
Options, on and after (i) the fifteenth day prior to the effective date of such
merger, consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may be. With
respect to any Options which are incentive stock options, the provisions of the
foregoing sentence shall apply to the extent permitted by Section 422(d) of the
Code and such options in excess thereof shall, immediately upon the occurrence
of the event described in clause (i) or (ii) of the foregoing sentence, be
treated for all purposes as non-qualified stock options and shall be immediately
exercisable as such as provided in the foregoing sentence.
<PAGE>
2
2. In the event that your employment with the Company shall be
terminated by the Company without Cause (as hereinafter defined), and not as a
result of your death or Disability (as hereinafter defined), the Company shall
make a severance payment to you in an amount equal to one year's base salary
(determined at your highest annualized rate of base salary in effect during the
one-year period ending on the date of termination), payable in bi-weekly
installments during the one-year period commencing on the date of termination of
your employment. You shall be under no obligation to seek other employment or
otherwise to mitigate the Company's obligation to make such severance payment to
you; provided, however, that if you do obtain another position (whether as an
employee, consultant, partner or otherwise) during such one-year period, the
Company shall have the right to offset against such severance payment any
salary, fees, bonus or other cash compensation actually earned by you during
such one-year period from such other position. The Company shall, during such
one-year period, continue to provide you with health insurance benefits on the
same basis, including Company-paid premiums, as such benefits are provided to
employees of the Company. Your rights under the other benefit plans and programs
of the Company shall be determined in accordance with the terms of such plans
and programs as then in effect.
For purposes of this agreement, a termination of your
employment with the Company by you for Good Reason (as hereinafter defined)
shall constitute a termination of your employment by the Company without Cause.
For purposes of this agreement: "Cause" shall mean (a) your
gross neglect or willful misconduct in the discharge of your duties and
responsibilities to the Company, (b) your material and repeated failure to obey
appropriate directions from the Board of Directors of the Company which failure
has the effect of materially injuring the business or business relationships of
the Company, (c) any act of willful misappropriation by you against the Company
or (d) your indictment, conviction or plea of guilty or nolo contendere with
respect to a felony crime; "Good Reason" shall mean (a) a reduction in your base
salary from the annualized rate in effect on the date hereof or as hereafter
increased or (b) a demotion in your position with the Company or change in your
duties and responsibilities inconsistent with your position, which reduction,
demotion or change shall not have been corrected by the Company within ten (10)
days following notice thereof by you to the Company; and "Disability" shall mean
your failure by reason of sickness, accident or physical or mental disability to
substantially perform the duties and
<PAGE>
3
responsibilities of your employment with the Company for a period of six (6)
months in any period of twelve (12) consecutive months.
3. You agree that, in consideration of your employment with
the Company, you will not, during the period of your employment with the Company
and thereafter for a period of one (1) year commencing on the date of
termination of your employment with the Company, (a) engage, directly or
indirectly, whether as principal, agent, distributor, representative,
consultant, employee, partner, stockholder, limited partner or other investor
(other than an investment of not more than (i) five percent (5%) of the stock or
equity of any corporation the capital stock of which is publicly traded or (ii)
five percent (5%) of the ownership interest of any limited partnership or other
entity) or otherwise, in any business in competition with the business then
conducted by the Company or any of the Company's subsidiaries (the Company and
the Company's subsidiaries, being hereinafter collectively referred to as the
"Company Group"), or (b) solicit or entice or endeavor to solicit or entice away
from any member of the Company Group any person who was an employee of any
member of the Company Group, either for your own account or for any individual,
firm or corporation, or employ, directly or indirectly, any person who was
during the one (1) year period ending on the date of termination of your
employment an employee of any member of the Company Group.
4. In the event of a breach or threatened breach by you of any
of the provisions of Section 3 of this agreement, you hereby consent and agree
that the Company shall (i) be entitled to cease payment of the severance
referred to in Section 2 of this agreement and (ii) be entitled to an injunction
or similar equitable relief from any court of competent jurisdiction restraining
you from committing or continuing any such breach or threatened breach or
granting specific performance of any act required to be performed by you under
any of such provisions, without the necessity of showing any actual damage or
that money damages would not afford an adequate remedy and without the necessity
of posting any bond or other security. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have with respect to any such breach or threatened breach.
5. This agreement shall be deemed a contract made under, and
for all purposes shall be construed in accordance with, the laws of the State of
New York applicable to contracts to be performed entirely within such State.
<PAGE>
4
6. This agreement contains all the understandings and
representations between the parties hereto pertaining to the subject matter
hereof.
7. No provision of this agreement may be amended or modified
unless such amendment or modification is agreed to in writing and signed by you
and by a duly authorized representative of the Company.
8. Should any provision of this agreement be held by a court
or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this agreement in lieu of severing such unenforceable
provision from this agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this agreement as so modified by the court or arbitration panel shall
be binding upon and enforceable against each of them. In any event, should one
or more of the provisions of this agreement be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this agreement shall be construed
as if such invalid, illegal or unenforceable provisions had never been set forth
herein.
9. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder shall be subject to withholding of
such amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation.
* * *
<PAGE>
5
Please indicate your acceptance of and agreement with the
foregoing by signing and returning this agreement to the Company, whereupon this
shall constitute a binding agreement between you and the Company.
Very truly yours,
IMPATH INC.
By /s/ Anu D. Saad
-----------------------
Accepted and Agreed:
/s/ Bruce C. Horten
- ---------------------------
Bruce C. Horten
<PAGE>
Exhibit 10.16
December 12, 1997
Moacyr Da Silva, M.D.
IMPATH Inc.
1010 Third Avenue
New York, New York 10021
Dear Moacyr:
In consideration of your service to IMPATH Inc. (the "Company"), you and
the Company agree as follows:
1. In connection with any merger or consolidation in which the Company is
not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all stock options for
the purchase of common stock of the Company awarded to you prior to September
12, 1997 ("Options") shall become exercisable in full, notwithstanding any
provision of the stock option plan of the Company pursuant to which the Options
were granted or of the stock option agreements or certificates evidencing the
Options, on and after (i) the fifteenth day prior to the effective date of such
merger, consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may be. With
respect to any Options which are incentive stock options, the provisions of the
foregoing sentence shall apply to the extent permitted by Section 422(d) of the
Code and such options in excess thereof shall, immediately upon the occurrence
of the event described in clause (i) or (ii) of the foregoing sentence, be
treated for all purposes as non-qualified stock options and shall be immediately
exercisable as such as provided in the foregoing sentence.
<PAGE>
2
2. In the event that your employment with the Company shall be terminated
by the Company without Cause (as hereinafter defined), and not as a result of
your death or Disability (as hereinafter defined), the Company shall make a
severance payment to you in an amount equal to one year's base salary
(determined at your highest annualized rate of base salary in effect during the
one-year period ending on the date of termination), payable in bi-weekly
installments during the one-year period commencing on the date of termination of
your employment. You shall be under no obligation to seek other employment or
otherwise to mitigate the Company's obligation to make such severance payment to
you; provided, however, that if you do obtain another position (whether as an
employee, consultant, partner or otherwise) during such one-year period, the
Company shall have the right to offset against such severance payment any
salary, fees, bonus or other cash compensation actually earned by you during
such one-year period from such other position. The Company shall, during such
one-year period, continue to provide you with health insurance benefits on the
same basis, including Company-paid premiums, as such benefits are provided to
employees of the Company. Your rights under the other benefit plans and programs
of the Company shall be determined in accordance with the terms of such plans
and programs as then in effect.
For purposes of this agreement, a termination of your employment with the
Company by you for Good Reason (as hereinafter defined) shall constitute a
termination of your employment by the Company without Cause.
For purposes of this agreement: "Cause" shall mean (a) your gross neglect
or willful misconduct in the discharge of your duties and responsibilities to
the Company, (b) your material and repeated failure to obey appropriate
directions from the Board of Directors of the Company which failure has the
effect of materially injuring the business or business relationships of the
Company, (c) any act of willful misappropriation by you against the Company or
(d) your indictment, conviction or plea of guilty or nolo contendere with
respect to a felony crime; "Good Reason" shall mean (a) a reduction in your base
salary from the annualized rate in effect on the date hereof or as hereafter
increased or (b) a demotion in your position with the Company or change in your
duties and responsibilities inconsistent with your position, which reduction,
demotion or change shall not have been corrected by the Company within ten (10)
days following notice thereof by you to the Company; and "Disability" shall mean
your failure by reason of sickness, accident or physical or mental disability to
substantially perform the duties and
<PAGE>
3
responsibilities of your employment with the Company for a period of six (6)
months in any period of twelve (12) consecutive months.
3. You agree that, in consideration of your employment with the Company,
you will not, during the period of your employment with the Company and
thereafter for a period of one (1) year commencing on the date of termination of
your employment with the Company, (a) engage, directly or indirectly, whether as
principal, agent, distributor, representative, consultant, employee, partner,
stockholder, limited partner or other investor (other than an investment of not
more than (i) five percent (5%) of the stock or equity of any corporation the
capital stock of which is publicly traded or (ii) five percent (5%) of the
ownership interest of any limited partnership or other entity) or otherwise, in
any business in competition with the business then conducted by the Company or
any of the Company's subsidiaries (the Company and the Company's subsidiaries,
being hereinafter collectively referred to as the "Company Group"), or (b)
solicit or entice or endeavor to solicit or entice away from any member of the
Company Group any person who was an employee of any member of the Company Group,
either for your own account or for any individual, firm or corporation, or
employ, directly or indirectly, any person who was during the one (1) year
period ending on the date of termination of your employment an employee of any
member of the Company Group.
4. In the event of a breach or threatened breach by you of any of the
provisions of Section 3 of this agreement, you hereby consent and agree that the
Company shall (i) be entitled to cease payment of the severance referred to in
Section 2 of this agreement and (ii) be entitled to an injunction or similar
equitable relief from any court of competent jurisdiction restraining you from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by you under any of
such provisions, without the necessity of showing any actual damage or that
money damages would not afford an adequate remedy and without the necessity of
posting any bond or other security. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have with respect to any such breach or threatened breach.
5. This agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of New
York applicable to contracts to be performed entirely within such State.
<PAGE>
4
6. This agreement contains all the understandings and representations
between the parties hereto pertaining to the subject matter hereof.
7. No provision of this agreement may be amended or modified unless such
amendment or modification is agreed to in writing and signed by you and by a
duly authorized representative of the Company.
8. Should any provision of this agreement be held by a court or arbitration
panel of competent jurisdiction to be enforceable only if modified, such holding
shall not affect the validity of the remainder of this agreement, the balance of
which shall continue to be binding upon the parties hereto with any such
modification to become a part hereof and treated as though originally set forth
in this agreement. The parties further agree that any such court or arbitration
panel is expressly authorized to modify any such unenforceable provision of this
agreement in lieu of severing such unenforceable provision from this agreement
in its entirety, whether by rewriting the offending provision, deleting any or
all of the offending provision, adding additional language to this agreement, or
by making such other modifications as it deems warranted to carry out the intent
and agreement of the parties as embodied herein to the maximum extent permitted
by law. The parties expressly agree that this agreement as so modified by the
court or arbitration panel shall be binding upon and enforceable against each of
them. In any event, should one or more of the provisions of this agreement be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, and
if such provision or provisions are not modified as provided above, this
agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
9. Anything to the contrary notwithstanding, all payments required to be
made by the Company hereunder shall be subject to withholding of such amounts
relating to taxes as the Company may reasonably determine it should withhold
pursuant to any applicable law or regulation.
* * *
<PAGE>
5
Please indicate your acceptance of and agreement with the
foregoing by signing and returning this agreement to the Company, whereupon this
shall constitute a binding agreement between you and the Company.
Very truly yours,
IMPATH INC.
By /s/ Anu D. Saad
---------------
Accepted and Agreed:
/s/ Moacyr Da Silva
-------------------
Moacyr Da Silva
<PAGE>
Exhibit 10.17
December 12, 1997
Mr. Richard P. Adelson
IMPATH Inc.
1010 Third Avenue
New York, New York 10021
Dear Richard:
In consideration of your service to IMPATH Inc. (the "Company"), you and
the Company agree as follows:
1. In connection with any merger or consolidation in which the Company is
not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all stock options for
the purchase of common stock of the Company awarded to you prior to September
12, 1997 ("Options") shall become exercisable in full, notwithstanding any
provision of the stock option plan of the Company pursuant to which the Options
were granted or of the stock option agreements or certificates evidencing the
Options, on and after (i) the fifteenth day prior to the effective date of such
merger, consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may be. With
respect to any Options which are incentive stock options, the provisions of the
foregoing sentence shall apply to the extent permitted by Section 422(d) of the
Code and such options in excess thereof shall, immediately upon the occurrence
of the event described in clause (i) or (ii) of the foregoing sentence, be
treated for all purposes as non-qualified stock options and shall be immediately
exercisable as such as provided in the foregoing sentence.
<PAGE>
2
2. In the event that your employment with the Company shall be terminated
by the Company without Cause (as hereinafter defined), and not as a result of
your death or Disability (as hereinafter defined), the Company shall make a
severance payment to you in an amount equal to one year's base salary
(determined at your highest annualized rate of base salary in effect during the
one-year period ending on the date of termination), payable in bi-weekly
installments during the one-year period commencing on the date of termination of
your employment. You shall be under no obligation to seek other employment or
otherwise to mitigate the Company's obligation to make such severance payment to
you; provided, however, that if you do obtain another position (whether as an
employee, consultant, partner or otherwise) during such one-year period, the
Company shall have the right to offset against such severance payment any
salary, fees, bonus or other cash compensation actually earned by you during
such one-year period from such other position. The Company shall, during such
one-year period, continue to provide you with health insurance benefits on the
same basis, including Company-paid premiums, as such benefits are provided to
employees of the Company. Your rights under the other benefit plans and programs
of the Company shall be determined in accordance with the terms of such plans
and programs as then in effect.
For purposes of this agreement, a termination of your employment with the
Company by you for Good Reason (as hereinafter defined) shall constitute a
termination of your employment by the Company without Cause.
For purposes of this agreement: "Cause" shall mean (a) your gross neglect
or willful misconduct in the discharge of your duties and responsibilities to
the Company, (b) your material and repeated failure to obey appropriate
directions from the Board of Directors of the Company which failure has the
effect of materially injuring the business or business relationships of the
Company, (c) any act of willful misappropriation by you against the Company or
(d) your indictment, conviction or plea of guilty or nolo contendere with
respect to a felony crime; "Good Reason" shall mean (a) a reduction in your base
salary from the annualized rate in effect on the date hereof or as hereafter
increased or (b) a demotion in your position with the Company or change in your
duties and responsibilities inconsistent with your position, which reduction,
demotion or change shall not have been corrected by the Company within ten (10)
days following notice thereof by you to the Company; and "Disability" shall mean
your failure by reason of sickness, accident or physical or mental disability to
substantially perform the duties and
<PAGE>
3
responsibilities of your employment with the Company for a period of six (6)
months in any period of twelve (12) consecutive months.
3. You agree that, in consideration of your employment with the Company,
you will not, during the period of your employment with the Company and
thereafter for a period of one (1) year commencing on the date of termination of
your employment with the Company, (a) engage, directly or indirectly, whether as
principal, agent, distributor, representative, consultant, employee, partner,
stockholder, limited partner or other investor (other than an investment of not
more than (i) five percent (5%) of the stock or equity of any corporation the
capital stock of which is publicly traded or (ii) five percent (5%) of the
ownership interest of any limited partnership or other entity) or otherwise, in
any business in competition with the business then conducted by the Company or
any of the Company's subsidiaries (the Company and the Company's subsidiaries,
being hereinafter collectively referred to as the "Company Group"), or (b)
solicit or entice or endeavor to solicit or entice away from any member of the
Company Group any person who was an employee of any member of the Company Group,
either for your own account or for any individual, firm or corporation, or
employ, directly or indirectly, any person who was during the one (1) year
period ending on the date of termination of your employment an employee of any
member of the Company Group.
4. In the event of a breach or threatened breach by you of any of the
provisions of Section 3 of this agreement, you hereby consent and agree that the
Company shall (i) be entitled to cease payment of the severance referred to in
Section 2 of this agreement and (ii) be entitled to an injunction or similar
equitable relief from any court of competent jurisdiction restraining you from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by you under any of
such provisions, without the necessity of showing any actual damage or that
money damages would not afford an adequate remedy and without the necessity of
posting any bond or other security. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have with respect to any such breach or threatened breach.
5. This agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of New
York applicable to contracts to be performed entirely within such State.
<PAGE>
4
6. This agreement contains all the understandings and representations
between the parties hereto pertaining to the subject matter hereof.
7. No provision of this agreement may be amended or modified unless such
amendment or modification is agreed to in writing and signed by you and by a
duly authorized representative of the Company.
8. Should any provision of this agreement be held by a court or arbitration
panel of competent jurisdiction to be enforceable only if modified, such holding
shall not affect the validity of the remainder of this agreement, the balance of
which shall continue to be binding upon the parties hereto with any such
modification to become a part hereof and treated as though originally set forth
in this agreement. The parties further agree that any such court or arbitration
panel is expressly authorized to modify any such unenforceable provision of this
agreement in lieu of severing such unenforceable provision from this agreement
in its entirety, whether by rewriting the offending provision, deleting any or
all of the offending provision, adding additional language to this agreement, or
by making such other modifications as it deems warranted to carry out the intent
and agreement of the parties as embodied herein to the maximum extent permitted
by law. The parties expressly agree that this agreement as so modified by the
court or arbitration panel shall be binding upon and enforceable against each of
them. In any event, should one or more of the provisions of this agreement be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, and
if such provision or provisions are not modified as provided above, this
agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
9. Anything to the contrary notwithstanding, all payments required to be
made by the Company hereunder shall be subject to withholding of such amounts
relating to taxes as the Company may reasonably determine it should withhold
pursuant to any applicable law or regulation.
* * *
<PAGE>
5
Please indicate your acceptance of and agreement with the foregoing by
signing and returning this agreement to the Company, whereupon this shall
constitute a binding agreement between you and the Company.
Very truly yours,
IMPATH INC.
By /s/ Anu D. Saad
---------------
Accepted and Agreed:
/s/ Richard P. Adelson
----------------------
Richard P. Adelson
<PAGE>
Exhibit 10.19
[Conformed Copy]
STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
Agreement of Lease, made as of this 26th day of June 1997, between
INTERNATIONAL FLAVORS & FRAGRANCES INC., a corporation organized under the laws
of the State of New York with its principal office at 521 W. 57th St., New York,
NY 10019, party of the first part, hereinafter referred to as OWNER, and IMPATH
INC., a corporation organized under the laws of the State of Delaware, with its
principal office currently located at 1010 Third Ave., New York, NY 10021, party
of the second part, hereinafter referred to as TENANT.
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from
Owner the entire sixth (6th) Floor in the building known as 521 West 57th
Street, City of New York (as indicated by colored outline on the floor plan
attached hereto as Exhibit A), for the term of twelve (12) years and six (6)
months (or until such term shall sooner cease and expire as hereinafter
provided) to commence on the Commencement Date as defined in Article 38 of the
this Lease, and to end on the last day of the 150th consecutive calendar month
following the Commencement Date, both dates inclusive, at an annual rental rate
of Three Hundred Forty-four Thousand Four Hundred Dollars ($344,400) commencing
as and when provided in such Article 38 and subject to further adjustment as
provided in such Article 38, which Tenant agrees to pay in lawful money of the
United States which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment, in equal monthly installments in
advance on the first day of each month, after the end of the Free Rent Period,
during said term, at the office of Owner or such other place as Owner may
designate, without any setoff or deduction whatsoever, except as otherwise
specifically provided in this Lease.
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
<PAGE>
2
Rent:
1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy:
2. Tenant shall use and occupy demised premises for the purposes set
forth in Article 64, provided such use is in accordance with the certificate of
occupancy for the building, if any, and for no other purpose.
Alterations:
See also Arts. 50 and 51 of the Rider.
3. Tenant shall make no changes in or to the demised premises of any
nature without Owner's prior written consent. Subject to the prior written
consent of Owner, and to the provisions of this article, Tenant, at Tenant's
expense, may make alterations, installations, additions or improvements which
are nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises. Tenant shall,
at its expense, before making any alterations, additions, installations or
improvements obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require under Art. 51. If any mechanic's lien is filed against the demised
premises, or the building of which the same forms a part, for work claimed to
have been done for, or materials furnished to, Tenant, whether or not done
pursuant to this article, the same shall be discharged by Tenant within 120 days
thereafter, at Tenant's expense, by payment or filing the bond required by law
or otherwise. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or Owner
on Tenant's behalf shall, upon installation, become the property of Owner and
shall remain upon and be surrendered with the demised premises. Nothing in this
Article shall be construed to give Owner title to or prevent Tenant's removal of
trade
<PAGE>
3
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Owner, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or removed from the
premises by Owner, at Tenant's expense.
Repairs:
4. Except as provided in Art. 49 of the Rider, Owner shall maintain
and repair the exterior of and the public portions of the building. Tenant
shall, throughout the term of this lease, take good care of the demised premises
including the bath rooms and lavatory facilities (if the demised premises
encompass the entire floor of the building) and the fixtures and appurte nances
therein and at Tenant's sole cost and expense promptly make all repairs thereto
and to the building, whether structural or non-structural in nature, required by
said Article 49, and all those repairs caused by or resulting from the
carelessness omission, neglect or improper conduct of Tenant, Tenant's servants,
employees, invitees, or licensees, and whether or not arising from such Tenant
conduct or omission, when required by other provisions of this lease, including
Article 6. Tenant shall also repair all damage to the building and the demised
premises caused by the moving of Tenant's fixtures, furniture or equipment. All
the aforesaid repairs shall be of quality or class equal to the original work or
construction. If Tenant fails, after ten days notice, to proceed with due
diligence to make repairs required to be made by Tenant, the same may be made by
the Owner at the expense of Tenant, and the expenses thereof incurred by Owner
shall be collectible, as additional rent, after rendition of a bill or statement
therefor. If the demised premises be or become infested with vermin, Tenant
shall, at its expense, cause the same to be exterminated. Tenant shall give
Owner prompt notice of any defective condition in any plumbing, heating system
or electrical lines serving the demised premises which under Article 49 Owner is
required to repair, and following such notice, Owner shall remedy the condition
with due diligence, but at the expense of Tenant, if repairs are necessitated by
damage or injury attributable to Tenant, Tenant's servants,
<PAGE>
4
agents, employees, invitees or licensees as aforesaid. Except as specifically
provided in Article 48 or elsewhere in this lease, there shall be no allowance
to the Tenant for a diminution of rental value and no liability on the part of
Owner by reason of inconvenience, annoyance or injury to business arising from
Owner, Tenant or others making or failing to realize any repairs, alterations,
additions or improvements in or to any portion of the building or the demised
premises or in and to the fixtures, appurtenances or equipment thereof. It is
specifically agreed that Tenant shall not be entitled to any set off or
reduction of rent by reason of any failure of Owner to comply with the covenants
of this or any other article of this lease except as otherwise specifically
provided in this Lease. Tenant agrees that Tenant's sole remedy at law in such
instance will be by way of any action for damages for breach of contract except
where rent setoff is specifically permitted. The provisions of this Article 4
with respect to the making of repairs shall not apply in the case of force or
other casualty with regard to which Article 48 hereof shall apply.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any
window in the demised premises to be cleaned from the outside in violation of
Section 202 of the New York State Labor Law or any other applicable law or of
the Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction.
Requirements of Law, Fire Insurance:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter Tenant shall, at Tenant's sole cost and
expense, subject to Art. 62 of the Rider, promptly comply with all present and
future laws, orders and regulations of all state, federal, municipal and local
governments, departments, commissions and boards and any direction of any public
officer pursuant to law, and all orders, rules and regulations of the New York;
Board of Fire Underwriters, or the Insurance Services Office, or any similar
body which shall impose any violation, order or duty upon Owner or Tenant with
respect to the demised premises, whether or not arising out of Tenant's use or
manner of use thereof, or, with respect to the building, if arising out of
Tenant's use or manner of use of the demised premises or the building (including
the use
<PAGE>
5
permitted under the lease). Except as provided in Article 30 and Arts. 4, 49 and
62 hereof, nothing herein shall require Tenant to make structural repairs or
alterations unless Tenant has, by its manner of use of the demised premises or
method of operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant shall not do or permit
any act or thing to be done in or to the demised promises which is contrary to
law, or which will invalidate or be in conflict with public liability, fire or
other policies of insurance at any time carried by or for the benefit of Owner.
Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization and other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy. If
by reason of failure to comply with the foregoing the fire insurance rate shall,
at the beginning of this lease or at any time thereafter, be higher than it
otherwise would be, then Tenant shall reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner which shall have been charged because of such failure by Tenant, but if
more than one tenant or other occupant of the building shall have caused such
premium increase, then Tenant's reimbursement obligation hereunder shall be
proportionate to its relative responsibility. In any action or proceeding
wherein Owner and Tenant are parties, a schedule or "make-up" or rate for the
building or demised premises issued by a body making fire insurance rates
applicable to said premises shall be conclusive evidence of the facts therein
stated and of the several items and charges in the fire insurance rates then
applicable to said premises. Tenant shall not place a load upon any more of the
demised premises exceeding the floor load per square foot area which it was
designed to carry and which is allowed by law. Owner reserves the right to
prescribe the weight and position of all safes, business machines and mechanical
equipment. Such installations shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Owner's judgment, to absorb and
prevent vibration, noise and annoyance.
<PAGE>
6
7. Omitted Tenant's Liability Insurance Property Loss, Damage Indemnity:
See also Art. 73 of the Rider.
8. Owner or its agents shall not be liable for any damage to any
property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants or employees; Owner
or its agents shall not be liable for any damage caused by other tenants or
persons in, upon or about said building or caused by operations in connection of
any private, public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not have been reimbursed by insurance, including reasonable attorney's
fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's
agents, contractors, employees, invitees, or licensees, or any covenant or
condition of this lease, or the carelessness, negligence or improper conduct of
the Tenant, Tenant's agents, contractors, employees, invitees or licensees.
Tenant's liability under this lease extends to the acts and omissions of any
sub-tenant, and any agent, contractor, employee, invitee or licensee of any sub-
tenant. In case any action or proceeding is brought against Owner by reason of
any such claim, Tenant, upon written notice from owner, will at Tenant's
expense, resist or defend such action or proceeding by counsel approved by Owner
in writing, such approval not to be unreasonably withheld.
9. Omitted
Eminent Domain:
10. If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public
<PAGE>
7
or quasi public use or purpose, then and in that event, the term of this lease
shall cease and terminate from the date of title vesting in such proceeding and
Tenant shall have no claim for the value of any unexpired term of said lease.
Tenant shall have the right to make an independent claim to the condemning
authority for the value of Tenant's moving expenses and personal property, trade
fixtures and equipment and for loss of business, provided Tenant is entitled
pursuant to the terms of the lease to remove such property, trade fixtures and
equipment at the end of the term and provided further such claim does not reduce
Owner's award.
Assignment, Mortgage, Etc.:
11. Tenant for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of Owner in each instance,
except as provided in and further subject to Art. 55 of the Rider. If this lease
be assigned, or if the demised premises or any part thereof be underlet or
occupied by anybody other than Tenant, Owner may, after default by Tenant,
collect rent from the assignee, under-tenant or occupant, and apply the net
amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this covenant,
or the acceptance of the assignee, under-tenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant from the further performance by Tenant of covenants on the part
of Tenant herein contained. The consent by Owner to an assignment or
underletting shall not in any wise be construed to relieve Tenant from obtaining
the express consent in writing of Owner to any further assignment or
underletting.
Electric Current:
12. Rates and conditions in respect to submetering or rent inclusion,
as the case may be, are added in Art. 46 of the Rider. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations
<PAGE>
8
or interfere with the use thereof by other tenants of the building. The change
at any time of the character of electric service shall in no wise make Owner
liable or responsible to Tenant, for any loss, damages or expenses which Tenant
may sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonable times, to examine the same and, subject to Article 66(F), to
make such repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to any portion of the building or system serving the
building or which Owner may elect to perform in the premises after Tenant's
failure to make repairs or perform any work which Tenant is obligated to perform
under this lease, or for the purpose of complying with laws, regulations and
other directions of governmental authorities.
Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein provided, as provided in Art. 66(F) of the Rider. Owner may, during the
progress of any work in the demised premises, take all necessary materials and
equipment into said premises without the same constituting an eviction, to the
extent Owner complies with its obligations pursuant to Arts. 13 and 66(F), nor
shall the Tenant be entitled to any abatement of rent while such work is in
progress nor to any damages by reason of loss or interruption of business or
otherwise. Throughout the term hereof Owner shall have the right to enter the
demised premises at reasonable hours for the purpose of showing the same to
prospective purchasers or mortgagees of the building, and during the last 12
months of the term for the purpose of showing the same to prospective tenants.
If Tenant is not present to open and permit an entry into the demised premises,
Owner or Owner's agents may enter the same, in the event of an emergency, by
master key or forcibly, if the use of force is permitted by law, or peaceably,
and provided reasonable care is exercised to safeguard Tenant's property, such
entry shall not render Owner or its agents liable therefor, nor in any event
shall the obligations of Tenant hereunder be affected.
<PAGE>
9
14. Omitted
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to Owner's obligations under Art. 58 of the Rider annexed hereto
with respect to Owner's work, if any. In any event, Owner makes no
representation as to the condition of the premises and Tenant agrees to accept
the same subject to violations, whether or not of record, subject to Art. 53(C)
of the Rider. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business, Tenant shall be responsible for
and shall procure and maintain such license or permit.
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be canceled by Owner by sending of a written notice to Tenant
within a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor, or (2) the managing by Tenant of an
assignment or any other arrangement for the benefit of creditors under any state
statute. Neither Tenant nor any person claiming through or under Tenant, or by
reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) It is stipulated and agreed that the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired opinion of the term demised and
the fair and reasonable rental value of title demised premises for the stated
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and
<PAGE>
10
reasonable rental value of the demised premises for the period for which such
installment was payable shall be discounted to the date of termination at the
rate of four percent (4%) per annum. If such premises or any part thereof be
relet by the Owner for the unexpired term of said lease, or any part thereof,
before presentation of proof of such liquidated damages to any court, commission
or tribunal, the amount of rent reserved upon such reletting shall be deemed to
be the fair and reasonable rental value for the part or the whole of the
premises so re-let during the term of the re-letting. Nothing herein contained
shall limit or prejudice the right of the Owner to prove for and obtain as
liquidated damages by reason of such lamination, 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
count be greater, equal to, or less than the amount of the difference referred
to above.
Default:
17.(1) If Tenant defaults in fulfilling any of the covenants of this lease
including the covenants for the payment of rent or additional rent for a period
of 10 days after written notice from Owner, or if the demised premises become
deserted or if this lease be rejected under (S)365 of Title 11 of the U.S. Code
(bankruptcy code); or if any execution or attachment shall be is sued against
Tenant or any of Tenant's property whereupon the demised premises shall be taken
or occupied by someone other than Tenant; or if Tenant shall make default with
respect to any other lease between Owner and Tenant; or if Tenant shall have
failed, after 10 days written notice, to redeposit with Owner any portion of the
security deposited hereunder which Owner has applied to the payment of any rent
and additional rent due and payable hereunder or failed to move into or take
possession of the premises with 120 days after the Rent Commencement Date, of
which fact Owner shall be sole judge; then in any one or more of such events,
upon Owner serving a written thirty (30) days notice upon Tenant specifying the
nature of said default and upon the expiration of said thirty (30) days, if
Tenant shall have failed to comply with or remedy such default, or if the said
default or omission complained of shall be of a nature that the same cannot be
completely cured or remedied within said thirty (30) day period, and if Tenant
shall not have diligently commenced during such thirty (30) day period efforts
to remedy such default or omission, and shall not thereafter with reasonable
diligence and
<PAGE>
11
in good faith, proceed to remedy or cure such default, then Owner may serve a
written five (S) days' notice of cancellation of this lease upon Tenant, and
upon the expiration of said five (5) days this lease and the term thereunder
shall end and expire as fully and completely as if the expiration of such five
(5) day period were the day herein definitely fixed for the end and expiration
of this lease and the term thereof and Tenant shall then quit and surrender the
demised premises to Owner but Tenant shall remain liable as hereinafter
provided.
(2) If the notice provided for in (a) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
or if the term of this Lease shall have expired; then and in any of such events
Owner may after ten (10) days written notice re-enter the demised premises
either by force (if force is permitted by law), or otherwise including peaceable
entry, after ten (10) days written notice and dispossess Tenant by summary
proceedings or otherwise and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or
dispossess by summary proceedings or otherwise, (a) the rent, and additional
rent, shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, (b) Owner may re-let the premises or any part or
parts thereof, either in the name of Owner or otherwise, for a term or terms,
which may at Owner's option be less than or exceed the period which would
otherwise have constituted the balance of the term of this lease and may grant
concessions or free rent or charge a higher rental than that in the lease, (c)
Tenant or the legal representatives of Tenant shall also pay Owner as liquidated
damages for the failure of Tenant to observe and perform said Tenant's covenants
herein contained, any deficiency between the rent hereby reserved and or
covenanted to be paid and the net amount, if any, of the rents collected on
account of the subsequent lease or leases of the demised premises for each month
of the period which would otherwise have constituted the balance
<PAGE>
12
of the term of this lease. The failure of Owner to re-let the premises or any
part or parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added to the said
deficiency such expenses as Owner may incur in connection with re-letting, such
as legal expenses, reasonable attorneys' fees, brokerage, advertising and for
keeping the demised premises in good order or for preparing the same for re-
letting. Any such liquidated damages shall be paid in monthly installments by
Tenant on the rent day specified in this lease and any suit brought to collect
the amount of the deficiency for any month shall not prejudice in any way the
rights of Owner to collect the deficiency for any subsequent month by a similar
proceeding. Owner, in putting the demised premises in good order or preparing
the same for re-rental may, at Owner's option, make such alterations, repairs,
replacements, and/or decorations in the demised premises as Owner, in Owner's
sole judgment, considers advisable and necessary for the purpose of re-letting
the demised premises, and the making of such alterations, repairs, replacements,
and/or decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Owner shall in no event be liable in any way
whatsoever for failure to re-let the demised premises, or in the event that the
demised premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoice any remedy allowed at law or in equity as provided for. Mention
in this case of any particular remedy, shall not preclude Owner from any other
remedy, in law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws.
Fees and Expenses:
19. If Tenant shall default in the observance or performance of any
term or covenant on Tenant's part to be observed or performed under or by virtue
of any of the terms or provisions in any article of this lease, after notice if
required and upon expiration of any applicable grace period if any, (except in
an emergency), then, unless otherwise provided elsewhere in this lease, Owner
may immediately or at any time thereafter and without notice perform the
obligation of Tenant
<PAGE>
13
thereunder. If Owner, in connection with the foregoing or in connection with any
default by Tenant in the covenant to pay rent hereunder, makes any expenditures
or incurs any obligations for the payment of money, including but not limited to
reasonable attorney's fees, instituting, prosecuting or defending any action or
proceedings, and prevails in only such action or proceeding, then Tenant will
reimburse Owner for such sums so paid or obligations incurred with interest and
costs. The foregoing expenses incurred by reason of Tenant's default shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Owner
within shiny (30) days of rendition of any bill or statement to Tenant therefor.
If Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable by
Owner as damages.
Building Alterations and Management:
20. Owner shall have the right, subject to Art. 58 of the Rider, at any
time without the same constituting an eviction and without incurring liability
to Tenant therefor, to change the arrangement and or location of public
entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets
or other public parts of the building, and subject to Art. 67 of the Rider, to
change the name, number or designation by which the building may be known.
Provided that Owner complies with Article 66(F) of this Lease, there shall be no
allowance to Tenant for diminution of rental value and no liability on the part
of Owner by reason of inconvenience, annoyance or injury to business arising
from Owner or other tenant making any repairs in the building or any such
alterations, additions and improvements. Furthermore, Tenant shall not have any
claim against Owner by reason of Owner's imposition of any controls of the
manner of access to the building by Tenant's social or business visitors as the
Owner may deem necessary for the security of the building and its occupants,
provided that Tenant shall have access to the demised premises 24 hours per day,
7 days per week subject to Article 54 of the Rider.
No Representations by Owner:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or
<PAGE>
14
any other manner or thing affecting or related to the demised premises or the
building except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" on the date possession is tendered, subject to
satisfactory completion of "Landlord's Work"; under Art. 58, and acknowledges
that the taking of possession of the demised premises by Tenant shall be
conclusive evidence that the said premises and the building of which the same
form a part and were in good and satisfactory condition at the time such
possession was so taken. All understandings and agreements heretofore made
between the parties hereto are merged in this contract, which alone fully and
completely expresses the agreement between Owner and Tenant and any executory
agreement hereafter made shall be ineffective to change, modify, discharge or
effect an abandonment of it in whole or in part, unless such executory agreement
is in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
End of Term:
22. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this case excepted, and Tenant
shall remove all its property from the demised premises, except as provided in
Art. 50 of the Rider. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of this lease. If the last day
of the term of this Lease or any renewal thereof, fall on Sunday, this lease
shall expire at noon on the preceding Saturday unless it be a local holiday in
which case it shall expire at noon on the preceding business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant's paying
the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless,
<PAGE>
15
to the terms and conditions of this lease including, but not limited to, Article
30 hereof.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premises on
the date of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or if Owner has not completed any work required to be performed by
Owner, or for any other reason, Owner shall not be subject to any liability for
failure to give possession on said date and the validity of the lease shall not
be impaired under such circumstance, except as provided in Art. 53(B) and (C) of
the Rider, nor shall the same be construed in any wise to extend the term of
this lease, but the rent payable hereunder shall be abated (provided Tenant is
not responsible for Owner's inability to obtain possession or complete any work
required) until after Owner shall have given Tenant notice that Owner is able to
deliver possession in the condition required by this lease. If permission is
given to Tenant to enter into the possession of the demised premises or to
occupy premises other than the demised premises prior to the date specified as
the commencement of the term of this case, Tenant covenants and agrees that such
possession and/or occupancy shall be deemed to be under all the terms covenants,
conditions and provisions of this lease, except the obligation to pay the fixed
annual rent set forth in page one of this lease. The provisions of this article
are intended to constitute "an express provision to the contrary" within the
meaning of Section 223-a of the New York Real Property Law.
No Waiver:
25. The failure of Owner or Tenant to seek redress for violation of,
or to insist upon the strict performance of any covenant or condition of this
lease or of any of the Rules or Regulations, set forth or hereafter adopted by
Owner, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Owner or payment by Tenant of rent with knowledge of
the breach of any covenant of this Lease shall not
<PAGE>
16
be deemed a waiver of such breach and no provision of this lease shall be deemed
to have been waived by Owner or Tenant unless such waiver be in writing signed
by the party to be bound thereby. No payment by Tenant or receipt by Owner of a
lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner or Tenant may accept such
check or payment without prejudice to Owner's or Tenant's right to recover the
balance of such rent or payment or pursue any other remedy in this case
provided. All checks tendered to Owner as and for the rent of the demised
premises shall be deemed payments for the account of Tenant. Acceptance by Owner
of rent from anyone other than Tenant shall not be deemed to operate as an
attornment to Owner by the payor of such rent or as a consent by Owner to an
assignment or subletting by Tenant of the demised premises to such payor, or as
a modification of the provisions of this lease. No act or thing done by Owner or
Owner's agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or surrender of the premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenants use or occupancy of said premises and
any emergency statute or any other statutory remedy. It is further mutually
agreed that in the event Owner commences any proceeding or action for
possession, including a summary proceeding for possession of the premises,
Tenant will not interpose any counterclaim of whatever nature or description in
any such proceeding, including a counterclaim under Article 4, except for
statutory mandatory counterclaims and as provided in Art. 70 of the Rider.
<PAGE>
17
Inability to Perform: See also Art. 40 of Rider.
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures or other materials if Owner is prevented or delayed from doing so by
reason of strike or labor troubles or any cause whatsoever beyond Owner's sole
control including, but not limited to, government preemption or restrictions or
by reason of any rule, order or regulation of any department or subdivision
thereof, or any government agency or by reason of the conditions which have been
or are affected, either directly or indirectly, by war or other emergency.
Bills and Notices: See also Art. 72 of the Rider.
28. Except as otherwise in this lease provided, a bill statement,
notice or communication which Owner may desire or be required to give to Tenant,
shall be deemed sufficiently given or rendered if, in writing, delivered to
Tenant personally or sent by registered or certified mail addressed to Tenant at
the last known business address of Tenant, or left at any of the aforesaid
premises and addressed to Tenant and marked "Attn: Mr. John Gandolfo, Executive
Vice-President and Chief Operating Officer" and the time of the rendition of
such bill or statement and of the giving of such notice or communication shall
be deemed to be the time when the same is delivered to Tenant, mailed, or left
at the premises as herein provided. Any notice by Tenant to Owner must be served
by registered or certified mail addressed to Owner at the address first
hereinabove given or at such other address as Owner shall designate by written
notice.
Water Charges: See Art. 43 of the Rider.
Sprinklers: 30 Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the New York Fire
Insurance Exchange or any bureau, department or official of the federal, state
or city government recommend or require the installation of a sprinkler
<PAGE>
18
system or that any changes, modifications, alterations, or additional sprinkler
heads or other equipment be made or supplied in an existing sprinkler system by
reason of Tenants business, or the location of partitions, trade fixtures, or
other contents of the demised premises, or for any other reason, or if any such
sprinkler system installations, modifications, alterations, additional sprinkler
heads or other such equipment, become necessary to prevent the imposition of a
penalty or charge against the full allowance for a sprinkler system in the fire
insurance rate set by any said Exchange or by any fire insurance company, Tenant
shall, at Tenant's expense, promptly make such sprinkler system installations,
changes, modifications, alterations, and supply additional sprinkler heads or
other equipment as required, whether the work involved shall be structural or
non-structural in nature.
Elevators, Heat, Cleaning:
31. Owner shall: (a) provide passenger elevator facilities as
provided in Art. 54 of the Rider, (b) provide freight elevator service as
provided in Art. 54 of the Rider, (c) furnish limited perimeter heat supplied by
Owner to the demised premises, when and as required by law, on business days
from 8 a.m. to 5 p.m. subject to Art. 45 of the Rider, (d) clean and maintain
the public halls and public portions of the building which is used in common by
all tenants. Tenant shall, at Tenant's expense, keep the demised premises,
including the windows, clean and in order, to the reasonable satisfaction of
Owner. Tenant shall independently contract for the removal of all rubbish and
refuse including "normal" rubbish, as provided in Art. 49(c) of the Rider. The
removal of such refuse and rubbish by others shall be subject to such rules and
regulations as, in the judgment of Owner, are necessary for the proper operation
of the building. Owner reserves the right to stop service of the heating,
elevator, plumbing and electric systems, when necessary, by reason of accident,
or emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repairs, subject
to Art. 66(F) of the Rider. See also Arts. 4S, 46 and 54.
Security: 32. Tenant has deposited with Owner the sum of $86,000 as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
<PAGE>
19
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited, and any
interest earned thereon, to the extent required for the payment of any rent and
additional rent or any other sums as to which Tenant is in default or for any
sum which Owner may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this lease,
including but not limited to, any damages or deficiency in the reletting of the
premises, whether such damages or deficiency accrued before or after summary
proceedings or other re-entry by Owner. In the event that Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and conditions of
this lease, the security, and any interest earned thereon, shall be returned to
Tenant after the date fixed as the end of the Lease and after delivery of entire
possession of the demised premises to Owner. In the event of a sale of the land
and building or leasing of the building, of which the demised premises form a
part, Owner shall have the right to transfer the security and interest to the
vendee or lessee and Owner shall thereupon be released by Tenant from all
liability for the return of such security and interest; and Tenant agrees to
look to the new Owner solely for the return of said security and interest, and
it is agreed that the provisions hereof shall apply to every transfer or
assignment made of the security to a new Owner. Tenant further covenants that it
will not assign or encumber or attempt to assign or encumber the monies
deposited herein as security and that neither Owner nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance.
Captions: 33. The Captions are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this lease
nor the intent of any provision thereof.
Definitions: 34. The term "Owner" as used in this lease means only the owner
of the fee or of the leasehold of the building, or the mortgagee in possession,
for the time being of the land and building, or the mortgagee in possession, for
the time being of the land and building (or the owner of a lease of the building
or of the land and building) of which the demised premises form a part, so that
in the event of any sale or sales of said land and building or of said lease, or
in the event of a lease of said building, or of the land and building, the said
Owner shall be
<PAGE>
20
and hereby is entirely freed and relieved of all covenants and obligations of
Owner hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties and
the purchaser, at any such sale, or the said lessee of the building, or of the
land and building, that the purchaser or the lessee of the building has assumed
and agreed to carry out any and all covenants and obligations of Owner
hereunder. The words "re-enter" and "reentry" as used in this lease are not
restricted to their technical legal meaning. The term "rent" includes the
annual rental rate whether so expressed or expressed in monthly installments,
and "additional rent." "Additional rent" means all sums which shall be due to
Owner from Tenant under this lease, in addition to the annual rental rate.
Adjacent Excavation-Shoring:
35. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
Rules and Regulations: See also Art. 71 of the Rider.
36. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully and comply strictly with, the Rules and
Regulations annexed hereto and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Written
notice of any additional rules or regulations shall be given in such manner as
Owner may elect. In case Tenant disputes the reasonableness of any additional
Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the
parties hereto agree to submit the question of the reasonableness of such Rule
or Regulation for decision, pursuant to Article 74 of the Rider, to the New York
office of the American Arbitration Association, whose determination shall be
final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
<PAGE>
21
writing upon Owner within fifteen (15) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
Glass: 37. Except as provided in Art. 49(B) of the Rider, Tenant shall
replace, at the expertise of the Tenant, any and all plate and other glass
damaged or broken from any cause whatsoever in and about the demised premises,
other than Landlord's negligence or intentional acts.
Estoppel Certificate:
37(A) Tenant, at any time, and from time to time, upon at least 10
days' prior notice by Owner, shall execute, acknowledge and deliver to Owner,
and/or to any other person, firm or corporation specified by Owner, a statement
certifying that, to the best of its knowledge and belief, this Lease is
unmodified in full force and effect (or, if there have been modifications, that
the same is in full force and effect as modified and stating the modifications),
stating the dates to which the rent and additional rent have been paid, and
stating whether or not, to the best of its knowledge and belief, there exists
any default by Owner under this Lease, and, if so, specifying each such default.
Successors and Assigns:
37(B) The covenants, conditions and agreements contained in this
lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns. Tenant shall look
only to Owner's estate and interest in the land and building for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) against Owner in the event of any default by Owner hereunder,
and no other property or assets of such Owner (or any partner, member, officer
or director thereof, disclosed or undisclosed), shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this lease, the
<PAGE>
22
relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of the
demised premises.
Space to be filled in or deleted.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner: INTERNATIONAL FLAVORS & FRAGRANCES INC.
/s/ [Illegible] By: /s/ [Illegible]
- -------------------- ---------------------------
Vice President & Chief
Financial Officer
Witness for Tenant: IMPATH INC:
/s/ [Illegible] By: /s/ John P. Gandolfo
- -------------------- ---------------------------
Executive Vice President &
Chief Financial Officer
<PAGE>
23
ACKNOWLEDGMENTS
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of New York
On this 27th day of June, 1997, before me personally came John P. Gandolfo
to me known, who being by me duly sworn, did depose and say that he resides in
43 Tanager Ct., Wayne, NJ that he is Vice President of IMPATH INC., the
corporation described in and which executed the foregoing instrument as TENANT;
that he knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
/s/ Theodore M. Kakoyiannis
---------------------------------
Theodore M. Kakoyiannis
Notary Public, State of New York
No. 02KA502534
Qualified in Nassau County
Commission Expires March 28, 1998
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of New York
On this _____ day of _________, 1997, before me personally came
________________________________to me known and known to me to be the individual
described in and who, as TENANT, executed the foregoing instrument and
acknowledged to me that _______________________he executed the same.
_____________________________
<PAGE>
24
IMPORTANT PLEASE READ
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE IN
ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobber or others in the delivery or receipt
of merchandise, any hand trucks, except those equipped with rubber tires and
sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it. Se also Art. 62(A).
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit it to be
swept or thrown from the demised premises any dirt or other substances into any
of the corridors of halls, elevators, or out of the doors or windows or
stairways of the building and Tenant shall not use, keep or permit to be used or
kept any foul or noxious gas or substance in the demised premises, except as
permitted under Art. 62A of the Rider, or permit or suffer the demised premises
to be occupied or used in a manner offensive or objectionable to Owner or other
occupants of the buildings by reason of noise, odor, and or vibrations, or
interfere in any way, with other tenants or those having business therein, nor
shall any bicycles, vehicles, animals, fish, or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
<PAGE>
25
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises, if
the same is visible from the outside of the premises, without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises and as provided in Art. 64. ln the event of the violation of the
foregoing by any Tenant, Owner may remove same without any liability and may
charge the expense incurred by such removal to Tenant or Tenants violating this
rule. Interior signs on doors shall be inscribed, painted or affixed for each
Tenant at the expense of such Tenant, and shall be of a size, color and style
acceptable to Owner.
6. Tenant shall not mark with paint, drill into, or in any way deface any
part of the 521 Bldg. other than the demised premises. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent of
Owner, and as Owner may direct. No Tenant shall lay linoleum, or other similar
door covering, so that the same shall come in direct contact with the door of
the demised premises, and, if linoleum or other similar floor covering is
desired to be used, an interlining of builder's deadening felt shall be first
affixed to the door, by a paste or other material, soluble in water, the use of
cement or other similar adhesive material being expressly prohibited.
7. Each Tenant must, upon the termination of his tenancy, restore to
Owner all keys of stores, offices and toilet rooms, either furnished to, or
otherwise procured by, such Tenant, tagged as to use, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations or the
Lease of which these Rules and Regulations are a part.
<PAGE>
26
9. Owner shall have the right to prohibit any advertising by any Tenant,
that specifically references the 521 Building and which, in Owner's opinion,
reasonably exercised, tends to impair the reputation of the building or its
desirability as a commercial building, and upon written notice from Owner,
Tenant shall refrain from such advertising.
10. Except as provided in Art. 62(A), Tenant shall not bring or permit to
be brought or left in or on the demised premises, any flammable, combustible, or
explosive, or hazardous fluid, material, chemical or substance, or cause or
permit any odors of cooking or other processes, or any unusual or other
objectionable odors to permeate in or emanate from the demised premises.
11. Tenant shall not use the demised premises in a manner which disturbs
or interferes with other tenants in the beneficial use of their premises.
<PAGE>
27
RIDER TO LEASE DATED AS OF JUNE 26, 1997
BETWEEN INTERNATIONAL FLAVORS & FRAGRANCES INC.,
LANDLORD, AND IMPATH INC., TENANT
--------------------------------------------------
38. Commencement Date; Base Rent; Late Charge.
------------------------------------------
The term "Commencement Date" as used in this Lease shall mean the date
on which the Landlord, after having completed Landlord's Work, as described in
Article 58, paragraph A, to Tenant's satisfaction, delivers to Tenant possession
of 100% of the demised premises free of holdover tenants, under-tenants or other
occupants and free of refuse and rubbish. Landlord and Tenant shall execute a
written instrument memorializing the mutually-agreed upon Commencement Date.
Tenant's obligation to pay the base annual rent of $344,400 provided in this
Lease shall commence on the first day of the seventh (7th) consecutive calendar
month following the Commencement Date. Thereafter such base annual rent shall
continue in effect until the first day of the seventy-third (73rd) consecutive
calendar month following the Commencement Date, at which time the base annual
rent shall increase to Four Hundred One Thousand Eight Hundred Dollars
($401,800) which Tenant agrees to pay and which shall continue in effect until
the end of the term demised in this Lease. The base annual rent in effect from
time to time is sometimes in this Lease referred to as "rent" or "Base Rent".
The initial six-month period during which Tenant shall be free of the obligation
to pay the Base Rent, as hereinbefore described, is sometimes hereinafter called
"the Free Rent Period." Notwithstanding the foregoing, if through Landlord's
delay or neglect not excused under Article 27 of this Lease, the "Commencement
Date" shall have not occurred by September 30, 1997, then, in the alternative,
as Tenant may elect by written notice to Landlord, either
(a) the Free Rent Period shall be extended by two months and Tenant's
obligation to pay the Base Rent shall commence on the first day of the ninth
(9th) consecutive calendar month following the Commencement Date, or
(b) Tenant shall have the right, exercisable by written notice to
Landlord given on or before November 30, 1997, to terminate this Lease and
recover its security deposit without interest.
<PAGE>
28
In addition to the foregoing, Tenant shall have the right to defer
payment of the Base Rent under the Lease for the seventh, eighth and ninth
consecutive calendar months following the Commencement Date by instead paying
Landlord, as additional rent (and in addition to the Base Rent then payable on
such dates), the sum of $14,729.00 per month on the first day of each of six
consecutive months beginning with the first day of the tenth consecutive
calendar month and ending on the first day of the fifteenth consecutive calendar
month following the Commencement Date, which six payments, if made in full,
shall discharge Tenant of any further obligation with respect to the payment of
such deferred Base Rent.
The Base Rent and any items of additional rent payable under the terms
of this Lease shall be payable at Landlord's headquarters, 521 W. 57th Street,
New York, New York 10019 marked "attention Doris Hevert" or to such other
address as Landlord may direct in the bill for same. If Tenant shall delay or
default in the timely payment of the Base Rent (causing ten day written notices
of default specified in Article 17(1)) more than twice in any calendar year,
then a One Hundred Twenty-Five Dollar ($125.00) late charge, payable as
additional rent, shall apply and be payable by Tenant with respect to the third
and every subsequent failure by Tenant in such calendar year to make timely
payment of the Base Rent.
39. Tenant's Share of Operating Expenses.
------------------------------------
A. For purposes of this Article 39 and Article 54, the following
definitions shall apply:
(i) "CPI" shall mean the "Consumer Price Index for Urban Wage
Earners and Clerical Workers, New York, N.Y. -- Northeastern N.J., All items,
(1982-84)," issued by the Bureau of Labor Statistics of the United States
Department of Labor.
(ii) "Base Price Index" shall mean the CPI for the month of
December, 1997.
(iii) "Lease Year" shall mean each period of twelve (12) consecutive
months, beginning on the first (1st) day of January of each calendar Year,
during the term of this Lease, after the Base Year.
<PAGE>
29
(iv) "Operating Expenses" shall mean all of Landlord's costs of
owning, operating and maintaining the 521 Building and the land on which it is
situated, excluding any Real Estate Taxes thereon.
(v) "Base Year" shall mean the calendar year 1997.
(vi) "Tenant's Share of Operating Expenses for the Base Year" shall
mean and equate to the amount of One Hundred Sixty Thousand Seven Hundred Twenty
Dollars ($160,720).
B. In addition to the Base Rent from time to time provided under Article
38 of this Lease, for each Lease Year during the term of this Lease, beginning
January 1, 1998, Tenant shall pay to Landlord, as additional rent, as and when
billed by Landlord as hereinafter provided, an amount equivalent to Tenant's
share of the annual increase in Operating Expenses over and above Tenant's Share
of Operating Expenses for the Base Year. For purposes of this Article 39,
Tenant's share of Operating Expenses for any Lease Year after the Base Year
shall conclusively be presumed to have increased by the same percentage as the
percentage increase, if any, in the CPI for December of such Lease Year over the
Base Price Index, administered and limited as hereinafter provided, and the
amount payable by Tenant on account of such increase for such Lease Year shall
be the product computed by multiplying the Tenant's Share of Operating Expenses
for the Base Year by the same percentage (to three decimal places), if any, by
which the CPI, as published for the last month of the Least Year in question,
shall exceed the Base Price Index.
After expiration of the first Lease Year (calendar year 1998) Landlord
shall deliver to Tenant a statement showing the amount of such additional rent
payable for the first Lease Year (calendar year 1998) computed in accordance
with this Article and an invoice for same, which invoice shall be paid by Tenant
to Landlord within thirty (30) days after such delivery.
C. Such additional rent for Tenant's share of the annual increase in
Operating Expenses for each Lease Year that follows the first Least Year shall
be billed and paid as follows:
(a) (1) Shortly after the beginning of any such Lease Year, Landlord
shall deliver to Tenant a statement showing the aggregate amount of such
additional rent that was payable for the
<PAGE>
30
immediately preceding Lease Year. Tenant shall pay Landlord, within thirty (30)
days after receipt of Landlord's monthly invoices, one twelfth (1/12th) of said
aggregate amount, in equal installments for each and every month during such
Lease Year. Such monthly installments shall be on account of the additional rent
accruing under this Article 39 for the then current Lease Year.
(2) If Landlord's invoice mentioned in subparagraph (a)(1) above
shall not have been delivered until the lapse of one or more months of the Lease
Year for which such partial payments are to be made, then Landlord's first
invoice in such Lease Year may include a sum sufficient to satisfy all payments
that would have been due if Landlord had submitted such invoice at the beginning
of such Lease Year, and Tenant shall pay such invoice within thirty (30) days
after receipt.
(b) Shortly after the end of the Lease Year in which such monthly
payments were payable, Landlord shall deliver to Tenant a statement of the
aggregate additional rent payable by Tenant for such Lease Year under this
Article 39. Such statement shall indicate the balance payable by Tenant or
credited to Tenant after crediting Tenant with the aggregate of the monthly
payments previously made for such Lease Year. If such statement shows a balance
due, then the amount of such balance shall be paid by Tenant to Landlord within
thirty (30) days after receipt of Landlord's invoice for same. If such statement
shows a credit to Tenant's favor, then Landlord shall apply such credit against
the next monthly installment(s) falling due under subparagraph C(a)(1) of this
Article 39 until the credit is exhausted.
EXAMPLE
-------
The following example illustrates the intended operation of the
preceding provisions of Article 39(A) to (C):
Assumptions
- -----------
. This calculation pertains to the Lease Year beginning January 1, 1998 and
ending December 31, 1998.
. CPI for month of December 1997 ("Base Price Index") = 167.5
. CPI for month of December 1998 - 177.1
<PAGE>
31
<TABLE>
<CAPTION>
Application
- -------------
<S> <C>
STEP ONE: (A) 177.1 = (C) 1.0573 = CPI for Lease Year has
--------- increased by 5.73% over Base
(B) 167.5 Price Index
STEP TWO: $160,720 x 5.73% = $9,209.26
STEP THREE: Landlord delivers to Tenant a statement and invoice, payable
within 30 days, for $9,209.26 representing Tenant's share of the
1998 increase in "Operating Expenses."
STEP FOUR: During 1999, Landlord delivers to Tenant 12 monthly invoices for
$767.44 ($9,209.26 + 12) representing Tenant's payments, on
account, for its share of the 1999 increase in "Operating
Expenses." Adjustment is made in early 2000 when CPI for December
1999 is known.
STEP FIVE: For calculating the increase in subsequent Lease Years, (B) in
Step One and $160,720 in Step Two remain the same.
</TABLE>
D. Landlord shall not be obliged to make any adjustments or
recomputations, retroactive or otherwise, by reason of any revision which may
later be made in the figure of the CPI first published for any month. The CPI
published for the last month of any Lease Year shall, for purposes of this
Article 39, always be deemed to be no lower than the Base Price Index, and no
credits or refunds or reductions in any payment shall be due, owing or allowable
to Tenant if the CPI shall fall below the Base Price Index.
E. If the CPI ceases to use the 1982-84 average equaling 100 as the basis
of calculation, or if a change is made in the term or number of items contained
in the CPI or if the CPI is altered, modified, converted or revised in any other
way, then the CPI shall be adjusted to the figure that would have been arrived
at had the change in the manner of computing the CPI in effect at the date of
execution of this Lease not been altered. If such CPI shall no longer be
published by said Bureau, then any substitute or successor index published by
said Bureau or other governmental agency of the United States, and similarly
adjusted as aforesaid, shall be used. If such CPI (or a successor or
<PAGE>
32
substitute index similarly adjusted) is not available, then a reliable
governmental or other reputable publication, reasonably selected by Landlord and
evaluating the information theretofore used in determining the CPI, shall be
used.
F. If the term of this Lease shall not end on December 31, then Tenant's
liability under this Article 39 shall be apportioned so that Tenant shall pay
only such part of the sums required to be paid under this Article 39 as shall be
included in the term of this Lease.
G. Any liability of Tenant for payment of any money required to be paid
pursuant to this Article 39 or Article 42 shall survive for two (2) years after
the date of termination or expiration of the term of this Lease and during the
pendency of any action or proceeding (including any appeal therein) to enforce
such liability commenced by Landlord during such two year period.
40. Tenant's Inability to Perform (Force Majeure).
----------------------------------------------
Except for the obligation to pay the Base Rent and items of additional
rent under this Lease when due, Tenant shall be excused in fulfilling any of its
obligations under this Lease, including but not limited to its obligations to
make repairs, alterations and improvements, if, and during the period that,
Tenant is prevented or delayed from doing so by reason of strikes or labor
troubles beyond Tenant's sole control or by any other cause whatsoever beyond
Tenant's sole control, including, but not limited to, government preemption or
restrictions or by reason of any rule, order or regulation of any department or
subdivision thereof or any government agency or by reason of the conditions
which have been or are affected, either directly or indirectly, by war or other
emergency.
This Article 40 shall not be deemed to apply, however, to events of
destruction by fire or other casualty which are dealt with in Article 48.
41. Omitted
<PAGE>
33
42. Real Estate Taxes and Assessments.
----------------------------------
A. Tenant agrees to pay to Landlord, as additional rent as and when
billed (and not more frequently than as billed) by the City of New York (or any
governmental taxing district hereafter exercising such authority) during the
term of this Lease, Tenant's proportionate share of any "Real Estate Taxes" (as
such term is hereinafter defined) levied with respect to the land and building
containing the demised premises, now known as 521 West 57th Street, Borough of
Manhattan, Block 1086, Lot 18, on the Tax Map of said Borough. Such obligation
on the part of Tenant shall begin on the first day of the seventh month
following the Commencement Date and continue throughout the remainder of the
term of this Lease. Such taxes for the fiscal year 1997-1998 are presently
estimated by Landlord to be about $459,000, but they shall be established by
final bills presented by the City. For purposes of this Article, Tenant's
proportionate share of any such Real Estate Taxes shall conclusively be presumed
to be ten percent (10%) thereof, but shall be equitably adjusted by mutual
agreement should Landlord, in the future, construct material additional floor
space adjacent to or atop the 521 Building for use by persons other than Tenant.
Such proportionate share shall be payable by Tenant when the taxes become fixed
and within thirty (30) days after demand therefor by Landlord. For the first
year and final year of the Lease's term, Tenant shall be obligated to pay only a
pro rata portion of such ten percent share of such taxes. Tax bills shall be
conclusive evidence of the amount of such taxes and shall be used for the
calculation of the amount to be paid by Tenant.
The term "Real Estate Taxes" shall mean all the real estate taxes and
assessments, special or otherwise, levied, assessed or imposed by Federal, State
or Municipal governments against or upon the 521 Building and/or the land on
which it is situated, including the walls, vaults, utility mains and pipes
connected therewith, and all assessments, levies or contributions, whether
required by law or voluntary, for Business Improvement Districts and/or the
"Safe Streets" Program applicable to the 521 Building. If, due to a future
change in the method of taxation, any tax on gross income from rentals, gross
receipts from rentals, rent, occupancy or value added, or any other similar tax,
shall be levied against Landlord, with respect to its ownership, use or leasing
of the 521 Building and/or the land on which it is situated, in whole or in part
in substitution for any tax which otherwise would constitute a "Real Estate Tax"
<PAGE>
34
hereunder, such tax on gross rental income, gross rental receipts, rent,
occupancy or value added, or such other similar tax, shall be deemed to be a
"Real Estate Tax" for the purposes hereof, provided that significant numbers of
lessors of Manhattan commercial property other than the 521 Building, whose
lessee provide for tax sharing or tax increase sharing, have similarly deemed
such other tax to constitute a "Real Estate Tax" to be shared by their tenants.
B. Omitted.
C. If any assessed valuation for Real Estate Tax purposes made by any
taxing authority for a fiscal year, with respect to 521 Building and/or the land
on which it is situated, is subsequently reduced in a final unappealed
determination of the Tax Commission or other appropriate tribunal, resulting in
the actual payment to Landlord of a refund of Real Estate Taxes applicable to
such land and building for a fiscal year in which Tenant paid a proportionate
share of any such Real Estate Taxes, then the Landlord shall pay the Tenant, as
Tenant's proportionate share of such refund, ten percent (10%) (or lesser pro
rata amount with respect to the first or final year of the Lease's term) of any
such refund of Real Estate Tax made with respect to the 521 Building, after
deduction from the amount of any such refund of any and all fees, disbursements
and other expenses, including legal, expert witness and appraisal fees, paid or
incurred by or on behalf of Landlord in applying for a correction or reduction
of, or otherwise contesting, such assessed valuation, subject, however, to the
following conditions:
(1) If Landlord shall apply for a correction or reduction of the
assessed valuation of the 521 Building and/or land on which it is situated for
any fiscal year during the term of this Lease, pursuant to an arrangement with
its attorneys handling such matter, which is other than a contingent fee
arrangement, then Tenant shall pay Tenant's proportionate share of all
reasonable fees, disbursements and other expenses, including reasonable legal,
expert witness and appraisal fees, paid or incurred by or on behalf of Landlord
in applying for and prosecuting such application, regardless of whether such
application results in an actual reduction of such assessed valuation or a
refund of taxes. Such amount shall be deemed to be additional rent payable by
the Tenant and collectible by the Landlord, as such, within fifteen (15) days
after it shall have been demanded by the Landlord, upon Landlord's presentation
of
<PAGE>
35
evidence of its payment or incurring of the same notwithstanding that no final
determination has been made with respect to such application or contest. Nothing
in this Article 42 shall be construed as giving Tenant any right to control, be
consulted in, or advised of, Landlord's course of action with respect to any
assessed valuation of such land or building.
(2) Tenant shall not be entitled to any payment of its proportionate
share of refunded Real Estate Taxes in the event that this Lease shall be
terminated by reason of Tenant's default.
(3) In the event that the term of this Lease shall expire on a day
that is not the last day of a Real Estate Tax fiscal year, appropriate
apportionment shall be made of the amounts corresponding to Tenant's obligation
to pay its share of Real Estate Taxes, Tenant's share of any Real Estate Tax
refund, and Tenant's obligation under subparagraph (1) of this paragraph C to
pay a proportionate share of certain expenses.
D. Tenant shall not independently apply for a correction or reduction in
the assessed valuation of the 521 Building or the demised premises without
Landlord's Prior written consent.
43. Water and Sewer Charges.
------------------------
A. Tenant covenants and agrees to pay Landlord for the cost of all water
and hot water employed, discharged or otherwise consumed in, on or with respect
to the demised premises, whether or not metered, beginning with the Commencement
Date, subject to the provisions of this Article 43. As long as Tenant uses the
demised premises for the uses set forth in Article 64 and as long as Tenant's
use and consumption of water and hot water in the premises is, in the judgment
of Landlord, not excessive (and, in the case of hot water, is used only for
lavatory and general cleaning purposes) then the cost of all water or hot water
discharged or otherwise consumed in, on or with respect to the demised premises,
and the costs of any sewer rent, charge or levy with respect to the demised
premises, shall be deemed to be subsumed within Landlord's "Operating Expenses"
referred to in Article 39, paragraph A and Tenant shall have no obligation,
apart from that imposed under the provisions of Article 39, to reimburse
Landlord for such costs.
<PAGE>
36
B. If Landlord hereafter determines, however, that Tenant's use or
consumption of water or hot water in the demised premises is excessive, or is
inconsistent with the uses set forth in Article 64, or interferes with the
maintenance of an adequate water supply in the building storage or heating
tanks, then Landlord shall give Tenant written notice of such determination, and
in such event Landlord shall have the right, at Tenant's expense, to install a
new meter or sub-meter, or to employ an existing meter or sub-meter, to measure
directly the uses and consumption of water and/or hot water in the demised
premises, and thereupon Tenant shall become obligated to pay to Landlord for
water consumption in the demised premises, as shown upon such existing or new
meter or sub-meter, at the same rate (including the applicable appropriate
charges for the corresponding sewer rent, charge or levy) as then charged to
Landlord by the Municipality, agency or utility furnishing same, as and when
billed by Landlord, the amount of which bills shall be deemed to be additional
rent and collectible by Landlord as such. If, after the commencement of direct
measurement of Tenant's consumption of water under this paragraph B, the
Municipality, agency or utility furnishing water shall change its method of
billing for water consumption and/or sewer rent so that water meter readings are
not used, then Tenant shall pay its proportionate share of any water or sewer
charges applicable to the 521 Building, calculated in a reasonable manner.
C. The charge for water for any new air conditioning system or units
hereafter installed by Tenant with Landlord's prior approval shall be deemed to
be subsumed within Landlord's "Operating Expenses" referred to in Article 39,
paragraph A, and Tenant shall have no obligation (except pursuant to paragraph B
of this Article) to reimburse Landlord for such costs.
D. If Tenant or Tenant's employees, contractors, agents, licensees or
invitees should break or damage any meter or sub-meters now or hereafter
installed in the demised premises, then Tenant shall replace or repair the same,
at Tenant's own cost and expense, in default of which Landlord may cause said
meters to be replaced or repaired and collect the coat thereof from Tenant as
additional rent.
<PAGE>
37
44. Air Conditioning.
-----------------
The demised premises are leased to Tenant without air conditioning,
and Landlord makes no undertaking to furnish air conditioning to such premises
at any time during the term of this Lease. Tenant shall not install any air
conditioning system or equipment or air cooling units of any kind, including
duct work, other than that comprised within the Initial Improvements, without
Landlord's prior written consent, and subject to all the other provisions of
this Lease, and in no event shall window air conditioning units be installed.
45. Heat; Gas; Steam.
-----------------
A. Present Heat. At present portions of the perimeter of the building
containing the demised premises are heated by steam purchased by the Landlord
from Consolidated Edison Company of New York Inc. (hereinafter called "Con Ed").
Landlord makes no representation as to, and Tenant or anyone claiming through or
under Tenant shall make no claim against Landlord based upon, the adequacy of
such perimeter heating. Landlord shall be under no obligation to install any
additional heating units or to maintain any minimum temperature in the demised
premises, but Landlord will operate such perimeter heating system at its full
capacity provided same does not adversely affect the system's operation. Tenant
shall not divert or interfere with such perimeter heating without Landlord's
prior written consent.
B. Tenant's Heating System. Tenant shall have the right, subject to
Articles 3, 50 and 51 of this Lease, to install, at Tenant's expense, its own
separate heating (and air conditioning) system in the demised premises as part
of the Initial Improvements. To that end, Landlord will allow Tenant, subject to
Landlord's approval of the connection mode, to tap into the medium pressure Con
Ed steam line in the 521 Building at the sixth floor level. The electricity or
steam to operate such separate heating and air conditioning system shall be
directed solely through sub-meters to be installed by Landlord, at Landlord's
sole cost. In no event shall Tenant make any arrangement for the supply of
electricity or steam by Con Ed directly to the demised premises. Tenant shall
pay directly to Landlord, as additional rent, as and when billed by Landlord,
the sum of the amount charged by Con Ed or other utility company hereafter
furnishing same, for all steam consumed in, on or with respect to the demised
premises as measured upon said sub-meter,
<PAGE>
38
at the rate charged from time to time by the utility company furnishing same,
plus 10% of such utility company charge to cover Landlord's costs of
administering same and taxes thereon.
No credit against, or abatement of, Tenant's share of Operating
Expenses under Article 39 shall be given or allowed if Tenant ceases to use
Landlord's perimeter heating because of the adequacy of heat furnished by a
heating system installed by Tenant under this paragraph B or for any other
reason.
C. Omitted
D. Prevailing Temperature. Tenant shall, by application of the existing
or future installed heating system, not cause or allow the temperature
prevailing in the demised premises at any time to drop to such level as would
cause the water or sprinkler lines located therein to freeze, and Tenant shall
indemnify Landlord against any loss, liability or expense which Landlord may
sustain or incur caused by or arising out of Tenant's failure in this respect.
46. Electricity.
------------
Tenant shall bear the expense of all electric current consumed in, on
or from the demised premises for any and all purposes, and whether or not
metered, starting on the Commencement Date, as hereinafter provided. Landlord
shall cause to be installed, prior to the Commencement Date, at Landlord's sole
cost, a sub-meter measuring the use of electric current in the demised premises.
Tenant shall pay directly to Landlord, as additional rent, as and when billed by
Landlord, the sum of the amount charged by Con Ed or other utility company
hereafter furnishing same, for all electric current consumed in, on or with
respect to the demised premises, as measured upon said sub-meter, at the rate
charged from time to time by the utility company furnishing same plus 10% of
such utility company charge to cover Landlord's costs of administering same and
taxes thereon.
Tenant has advised Landlord that Tenant's anticipated requirements for
electric current in the demised premises during the term of this Lease will be
1,000 amps. Landlord has advised Tenant that 1,000 amps are presently available
to the premises from the North bus duct and Tenant has examined such riser and
determined that it is adequate for Tenant's requirements. Nothing contained in
this Lease shall be construed to require Landlord to
<PAGE>
39
install, or to consent to Tenant's installation of, additional risers to supply
Tenant's future electric requirements or to comply with the requirements of any
municipal law or ordinance. Any electrical equipment or appliances, other than
risers, used or installed by Tenant in the demised premises shall comply with
all requirements of applicable City, State or Federal law or regulation,
including lighting in compliance with Article 8 of the New York State Energy Law
and Regulations, and shall not exceed standards prescribed by the Underwriters
Laboratories. Landlord makes no representation or guaranty, and assumes no
obligation, that Con Ed or other utility company furnishing electric current to
the demised premises will continue to provide such service or that such service
will be uninterrupted and satisfactory. Landlord, however, shall not do anything
to interfere with Tenant's obtaining electric service, throughout the said sub-
meter, from Con Ed or other utility company furnishing same.
Tenant shall be solely responsible for the design and installation of
the distribution panel and other components of its electrical system, after
having received Landlord's prior consent to such installation.
46-A. Sprinkler Alarm Service.
------------------------
At present, the automatic sprinkler valve alarms in the demised
premises are serviced under Landlord's existing contract with Wells-Fargo Alarm
Services, Inc. Tenant's proportionate share of the costs of such sprinkler alarm
service under such existing or renewal contracts with such company (or any
successor or substitute company selected by Landlord) during the term of this
Lease, shall be deemed covered by Tenant's payment of the Base Rent and its
share of Operating Expenses under this Lease, it being specifically understood
and agreed that Landlord assumes no obligation and makes no representation or
guaranty of the performance of said contract by Wells-Fargo Alarm Services, Inc.
(or successor or substitute company) and that Landlord is entering into said
contract, as a party thereto mainly for the benefit and at the request of the
tenants in the 521 Building. Landlord shall be under no obligation and shall not
be liable for any failure to enter into renewal contracts for such service. If,
however, Landlord shall fail to keep in effect such contract or other contract
for the provision of similar sprinkler alarm service, then, upon receipt of
Tenant's invoice, Landlord will reimburse Tenant for Tenant's reasonable costs
of continuing such
<PAGE>
40
service in the demised premises. In the alternative, Tenant may deduct and
setoff from Tenant's periodic payments of the Base Rent when due an amount
equivalent to the reasonable coats of continuing such service. In either event,
Tenant must substantiate such invoice or setoff by written evidence of payment
to the alarm service. Landlord shall notify Tenant in writing at least thirty
(30) days in advance of any proposed discontinuance of such contract(s).
47. Tenant's Insurance.
-------------------
Tenant further covenants and agrees, at its sole cost and expense, to
procure and maintain in effect at all times during the term of this Lease,
through good and responsible insurance companies authorized to do business in
the State of New York, comprehensive general liability insurance with limits of
at least $2,500,000 for any one occurrence and at least $2,500,000 for injury to
any one individual and at least $500,000 for damage to property, on the
premises, which shall include operations on the premises, independent contractor
risks and other risks ordinarily included in such policies, with a contractual
liability endorsement covering Tenant's obligations under the indemnification
clauses of Articles 8 & 47 of this Lease. Tenant shall have Landlord named as an
additional insured under such liability insurance policy.
Tenant shall present to Landlord certificates of insurance, or other
evidence satisfactory to Landlord, that the insurance coverages required in this
Article 47 have been procured and will not be canceled during their term until
thirty (30) days' prior written notice has been given to Landlord.
If the 521 Building shall be totally or partially damaged or
demolished as set forth in Article 48 hereof, Landlord shall be entitled to all
insurance proceeds, payable upon policies procured by Landlord, which are
referable to the building, installations and improvements.
Nothing in this Lease shall be construed as requiring Tenant to insure
against the negligence or improper conduct of Landlord.
<PAGE>
41
48. Destruction by Fire or Other Casualty.
--------------------------------------
If the demised premises shall be damaged by fire or other casualty,
then Tenant shall give immediate notice thereof to Landlord and Tenant shall in
every reasonable way facilitate the making of any repairs or the removal of any
debris necessitated by such damage, and the following terms and conditions shall
apply: (a) In the event of such damage, if it shall be such as to render the
demised premises wholly untenantable or wholly unusable, then the rent shall be
abated during such period as the demised premises shall be wholly untenantable
or wholly unusable. As used in this Article 48, the term "wholly unusable" with
respect to fire or casualty damage to the demised premises means that such
premises are completely inaccessible by elevator or stairwell passage and/or
cannot be effectively occupied by Tenant for any of the uses set forth in
Article 64 hereof, in either case for a period of time exceeding five (5)
consecutive calendar days. Furthermore, in such event, provided that such fire
or other casualty shall not have been caused by the willful act of Tenant or
Tenant's employees, contractors, agents, subtenants, licensees or invitees,
Tenant shall have the right, exercisable by written notice to Landlord given
within sixty (60) days after the date when such damage shall have occurred, to
terminate this Lease as of a date not more than sixty (60) days after the date
of such notice. If Tenant does not so exercise its right to terminate within
such period, then the abatement of rent referred to in this clause (a) shall
continue, except as provided below in clause (c), but this Lease otherwise shall
remain in effect (unless terminated by Landlord as hereinafter provided); (b) In
the event of such damage, if it shall be such as to render the demised premises
partially untenantable, or accessible but partially unusable, then the rent
shall be partially abated during such period as the demised premises shall be
partially untenantable or unusable, in the proportion which the area of the
premises rendered untenantable or unusable bears to the area of the whole
demised premises. Furthermore, if such partial damage shall render untenantable
or unusable more than fifty percent (50%) of the area of the demised premises
and if Landlord, within thirty (30) days after the date when such damage shall
have occurred, shall not have notified Tenant in writing of Landlord's
undertaking to reconstruct or restore the demised premises or if Landlord,
having notified Tenant of such undertaking, does not actually commence such
reconstruction or restoration within ninety (90) days after the date when such
damage shall have occurred, then in
<PAGE>
42
either such event, provided that such fire or casualty shall not have been
caused by the willful act of Tenant or Tenant's employees, contractors,
subtenants, agents, licensees or invitees, Tenant shall have the right,
exercisable by written notice to Landlord given within one-hundred twenty (120)
days after the date when such damage shall have occurred, to terminate this
Lease as of a date not more than sixty (60) days after the date of such notice.
If Tenant does not so exercise its right to terminate within such period, then
the partial abatement of rent referred to in this clause (b) shall continue,
except as provided below in clause (c), but this Lease otherwise shall remain in
effect (unless terminated by Landlord as hereinafter provided); (c) In the event
that fire or other casualty cause either total damage to the demised premises or
partial damage exceeding fifty percent (50%) of the area of the demised
premises, then Landlord shall have no obligation to reconstruct or restore the
same. In the event of partial damage to fifty percent (50%) or less of the area
of the demised premises from such causes, then Landlord shall have the
obligation to reconstruct and restore the same to the state thereof at the date
of such fire or other casualty and shall begin such reconstruction or
restoration within ninety (90) days after the date when such damage shall have
occurred. If Landlord shall reconstruct and restore the demised premises after
such total or partial damage, either voluntarily or as required by this clause
(c), then the total or partial abatement of rent referred to above shall cease
thirty (30) days after the date Landlord notifies Tenant of the completion of
such reconstruction and restoration and the availability of the premises for re-
occupancy, and after such thirtieth (30th) day rent shall be due and payable by
Tenant as if such damage had not occurred. Landlord shall prosecute any
reconstruction or restoration of the demised premises pursuant to clauses (b) or
(c) of this Lease with all reasonable expedition, subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Landlord's a
control. After any such fire or other casualty, Tenant shall cooperate with
Landlord's restoration by removing from the premises, as promptly as reasonably
possible, all of Tenant's moveable equipment, furniture and other property.
Except as herein specifically provided to the contrary, no damage to the demised
premises, however extensive, shall terminate this Lease or give Tenant the right
to quit and surrender the premises or impair any obligation of Tenant hereunder;
(d) In the event of either total or partial damage to of the 521 Building
(whether or not the demised premises are damaged in whole or in part) from fire
or other casualty which shall render the building
<PAGE>
43
structurally unsound, substantially untenantable, or disadvantageous
economically to own, operate or restore, if Landlord shall, within ninety (90)
days after the date when such damage occurs, elect to demolish the building, the
Landlord shall have the right, exercisable by written notice given to Tenant
within such 90-day period, to terminate this Lease as of a date sixty (60) days
or more after the date of such notice, and upon the termination date designated
in such notice, the term hereby granted shall terminate and the rent shall be
apportioned as of such termination date or as of each later date as Tenant may
actually surrender possession; provided, however, that any such rent shall be
abated as to the untenantable or unusable portion of the premises as heretofore
set forth; (e) If fire or other casualty shall damage any area of the 521
Building not part of the demised premises (including the elevators serving same)
in such manner as to prevent Tenant's reasonable access to the demised premises,
then the area of the demised premises so rendered inaccessible shall be deemed
damaged and untenantable for purposes of this Article 48; (f) Tenant hereby
expressly waives the provisions of Section 227 of the Real Property Law and
agrees that the foregoing provisions of this Article 48 shall govern and control
in lieu thereof. Nothing contained in this Article shall relieve Tenant from
liability that may exist by reason of damage from fire or other casualty. If the
damage or destruction from fire or other casualty be due to the negligence or
willful act of Tenant or Tenant's employees, contractors, agents, licensees or
invitees, all debris shall be removed by, and at the expense of, Tenant. Tenant
acknowledges that Landlord will not carry insurance on Tenant's furniture and/or
furnishings or any fixtures or equipment, improvements, or appurtenances
removable by Tenant or contents of the demised premises and Tenant agrees that
Landlord will not be obligated to repair any damage thereto or replace the same;
(g) See Article 65 hereto for the parties' mutual waivers of subrogation in the
event of damage by fire or other casualty; (h) If Tenant is reimbursed by its
insurance carrier for the cost of any restoration work conducted and paid for by
Landlord pursuant to clause (c) of this Article 48, then Tenant shall remit the
amount so received to Landlord (less the cost of collection thereof) but in no
event to exceed the sum actually paid by Landlord for such work; and (i) If
Tenant shall so request, Tenant shall have the right to perform Landlord's
restoration obligation under clause (c) provided Tenant's so doing does not
materially increase the cost to Landlord or, if it does, provided Tenant shall
reimburse Landlord for the extra coat necessitated by Tenant's performance, and
in
<PAGE>
44
such event Tenant shall receive the insurance proceeds applicable to such loss.
(j) If a fire or other casualty occurring during the Free Rent Period shall
create a condition under which the rent payable under this Lease would have been
abated or partially abated had rent otherwise then been payable, and provided
that Tenant shall not have terminated this Lease pursuant to the preceding
provisions of this Article 48, and provided, further, that the fire or other
casualty shall not have been caused by the negligence or wilful act of Tenant or
Tenant's employees, contractors, agents, licensees or invitees (unless Landlord
is successful in recovering under Landlord's fire and extended coverage
insurance policy the lose in rental value of the demised premises arising from
such fire or other casualty), then Tenant shall be entitled to setoff against
the rent which shall become payable on and after the rent commencement date
amounts equal in the aggregate to the putative abated rent corresponding to the
period of time and level of damage or partial damage during the Free Rent
Period.
49. Repairs and Maintenance. (See also Article 66)
----------------------------------------------
A. Supplementing Article 4, Tenant shall perform, at Tenant's sole
expense, to the satisfaction of Landlord reasonably exercised, all necessary
repairs (except those caused by or resulting from carelessness, omission,
neglect or improper conduct of Landlord or Landlord's servants, employees,
invitees or licensees, which shall be repaired by Landlord at Landlord's
expense) to and routine or other maintenance of any of the following:
(1) Any plumbing, electrical, heating, ventilating, air conditioning,
exhaust, sewage, sprinkler or fire warning system, or any part, fixture, pipe,
conduit, duct or other element thereof, wherever located and whether installed
by Landlord or Tenant (a) which is utilized to furnish service exclusively to
the demised premises or (b) which is a horizontal pipe, conduit, duct or other
element off a vertical riser, pipe, conduit or duct, which horizontal element
furnishes service exclusively to the demised premises, whether located within
the space of the demised premises or the exterior or interior walls of the
building. Included within the foregoing, without limitation, are any sinks,
toilets, tubs, outlets, lighting fixtures, signs, cables, electric panel boxes,
fuses, radiators, heaters, air-handling units, vents, hoods, floor drains or
<PAGE>
45
sprinkler heads or pipes which are utilized solely within the demised premises.
(2) Any entrance or interior doors or any interior windows or security
gates in the demised premises.
B. Throughout the term of this Lease, Landlord shall maintain and operate
the 521 Building at at least the same levels of appearance and efficiency as
prevailed on the date of execution of this Lease. Landlord shall perform, at
Landlord's sole expense, all necessary repairs (except those caused by or
resulting from carelessness, omission, neglect or improper conduct of Tenant,
Tenant's servants, employees, sub-tenants, invitees or licensees, which, whether
structural or non-structural in nature, shall be repaired by Tenant as provided
in Article 4) to and routine or other maintenance of any of the following:
(1) Any plumbing, electrical, heating, ventilating, air conditioning,
exhaust, sewage, sprinkler or fire warning system, or any part, fixture, pipe,
conduit, duct or other element thereof, which is utilized to furnish service to
the demised premises in common with other apace in the 521 Building, except that
horizontal pipes, conduits, ducts or other elements as described in subparagraph
A(1) of this Article 49 shall not be Landlord's responsibility under this
paragraph B.
(2) All structural elements of the 521 Building (including exterior
windows) including such repairs as are necessary to keep the building in a
water-tight condition.
C. Tenant shall be solely responsible, at Tenant's sole expense, for the
removal from the demised premises and the 521 Building and disposal of all
debris, rubbish and waste arising from its operations. Debris and rubbish from
conduct of construction operations, including the Initial Improvements, in the
demised premises shall be removed from the building by Tenant's contractors
performing same. The removal and disposal of normal office rubbish, including
stationery, lunchroom waste and other paper waste, shall be arranged for by
Tenant. Medical waste, chemical waste and radioactive waste from Tenant's
operations shall be separately containerized, packed, labeled and manifested in
accordance with all applicable Federal, State and City regulations, and removed
and disposed of from the building with reasonable frequency. Only the freight
elevators shall be
<PAGE>
46
used for the removal of all Tenant's waste from the building, and no medical,
chemical or radioactive waste shall be deposited on or suffered to be left on
Landlord's ground floor loading dock serving the building.
D. Landlord will perform routine maintenance and cleaning and necessary
repairs, at Landlord's sole expense, of the passenger and freight elevators
serving the demised premises and of the areas of facilities within or without
the 521 Building used in common by Tenant and other occupants of the building,
except that any elevator damage caused by the negligent or willful act or
omission of Tenant or Tenant's employees, contractors, agents, subtenants,
licensees or invitees shall be repaired at Tenant's sole expense.
E. In addition to the parties' respective obligations under the preceding
paragraphs A, B and D of this Article 49, each party to this Lease shall be
responsible for making, at its own expense, the additional repairs, whether
structural or non-structural, necessitated by its delay or failure to make the
repairs required in a timely manner after written notice by the other party to
do so, except where such delay or failure is caused by or arises out of Acts of
God or other circumstances beyond the control of the responsible party.
F. Tenant shall designate one person who alone shall communicate to
Landlord's Real Estate Manager the Tenant's requests for repairs required to be
made by Landlord under the terms of this Article and requests for additional
services under Article 45 D and Article 54.
G. To the extent feasible, Landlord will give Tenant access on a 24-hour
basis to areas in the 521 Building other than the demised premises, including
without limitation, the roof, sewage ejector and the exterior walls of the
buildings and shaft-ways, that may be necessary in order for Tenant to effect
the repairs and maintenance required of Tenant under this Article and Article 4
of this Lease and to perform Tenant's alterations pursuant to Article 50. Tenant
shall obtain the consent of Landlord's Real Estate Manager to enter such areas.
Tenant shall be solely responsible for all acts of all persons whom Tenant
directs or allows to enter such areas pursuant to this paragraph G.
<PAGE>
47
50. Alterations.
------------
Tenant shall erect and install, at Tenant's expense, beginning
promptly after the Commencement Date, but not later than January 31, 1998, those
alterations, installations, additions and improvements (including an air
conditioning, ventilating and heating system) in, on or to the demised premises
of the kind indicated in the preliminary drawings initialed by the parties
(herein collectively called "the Initial Improvements"). It is mutually
understood that the Initial Improvements shall include Tenant's replacement of
the east, west and north-facing windows in the demised premises with good
quality metal framed windows that are consistent with the appearance of the
north windows in the Landlord-occupied portion of the 521 Building. Some of the
Initial Improvements are outlined and agreed to in principle in the letter
agreement between the parties' engineers, a copy of which is attached as Exhibit
C to this Lease. Notwithstanding the foregoing Landlord shall have the right to
review and approve (and retain copies of) the final plans and specifications for
all of the Initial Improvements, as and when available, which approval shall not
unreasonably be withheld or delayed. Tenant represents that it will make the
Initial Improvements in accordance with the approved final plans and
specifications. Tenant shall also submit to Landlord for its prior approval the
names of any contractors or mechanics who will perform the Initial Improvements
or any subsequent alterations, installations, additions or improvements in or to
the demised premises that are structural in nature or that involve the
building's plumbing electrical, heating, ventilating, air conditioning, exhaust,
sewage, sprinkler or fire warning systems.
As part of the Initial Improvements, Tenant shall cause to be erected
and installed in the demised premises, in Room 650, one lavatory meeting the
requirements of regulations under the Americans with Disabilities Act of 1990
(42 U.S.C. (S) 1201 et seq.) (herein sometimes referred to as the "ADA") and all
applicable City of New York codes. When installation of such lavatory has been
completed Landlord shall promptly pay Tenant or Tenant's designee the sum of
Twenty-One Thousand Dollars ($21,000.00) to reimburse Tenant for costs incurred
by Tenant in the design and installation of such lavatory.
After installation of the Initial Improvements, Tenant shall not make
any subsequent alterations, installations,
<PAGE>
48
additions or improvements in or to the demised premises, of any nature without
Landlord's prior written consent which shall not unreasonably be withheld or
delayed. As used in this Article 50 and in Article 3 of the Lease, the phrase
"alterations, installations, additions or improvements" shall be deemed to
exclude painting, wallpapering and carpeting and other elements of interior
decorating that do not involve the building's electrical or plumbing systems.
By way of example but not by way of limitation, Landlord's consent to
an alteration, installation addition or improvement proposed by Tenant, whether
as part of the Initial Improvements or later, shall not be deemed to be
unreasonably withheld if the proposed change or construction:
(a) would involve a structural change in the 521 Building;
(b) would increase elevator usage in the 521 Building in
such manner as to affect materially and adversely Landlord
or other occupants of such building;
(c) would adversely affect plumbing, electrical, elevator,
heating, ventilating, air conditioning, exhaust, sewage,
sprinkler or fire warning systems, or elements thereof, in
the 521 Building, other than those serving Tenant
exclusively, or would entail the installation of any such
system in such building;
(d) would affect the exterior appearance of the 521
Building; or
(e) relates to the height, placement or adequacy of interior
or exterior ventilation ducts, exhaust openings or filters
intended for the removal of fumes, vapors, particulates
and/or air from the demised premises.
All alterations, installations, additions or improvements installed in
the demised premises at any time (including interior or exterior ventilation
ducts, exhaust
<PAGE>
49
openings or filters located outside but serving the demised premises), either by
Tenant or by Landlord in Tenant's behalf shall, upon installation, become
Tenant's property, but they shall become Landlord's property at the expiration
or other termination of the term of this Lease to the extent they are affixed to
the realty and they shall remain upon and be surrendered with the demised
premises, unless Landlord, by notice to Tenant not later than thirty (30) days
prior to the date fixed as the termination of this Lease, elects to relinquish
Landlord's right thereto and to have them removed by Tenant, in which event, the
same shall be removed by Tenant from the premises not later than 90 days after
the date of such notice and the premises restored to the condition prior to the
installation, at Tenant's expense, provided, however, that notwithstanding the
foregoing Tenant shall have no obligation to remove from the demised premises or
restore the same with respect to:
(1) that portion of the Initial Improvements consisting of
standard office space;
(2) structural or other alterations, installations, additions or
improvements to the demised premises hereafter made with Landlord's consent
where such consent expressly also waives Landlord's right to require Tenant's
removal of same and restoration of the premises at the expiration or other
termination of the Lease; and
(3) alterations, installations, additions or improvements in the
nature of standard office space made with Landlord's consent after the Initial
Improvements.
Landlord shall afford Tenant and Tenant's agents reasonable access to
the demised premises after the expiration or other termination of this Lease so
that Tenant may expeditiously perform its removal and repair obligations under
this Article and Article 3.
Landlord shall review, in due course but in any event, within thirty
(30) days after the date of Tenant's submission, all plans and specifications
for Tenant's alterations, installations, additions or improvements submitted to
it by Tenant for its consent and shall execute and return to Tenant, in due
course, but in any event, within thirty (30) days after the date of Tenant's
submission, all applications for building permits or certificate of occupancy
amendments, or documents,
<PAGE>
50
related thereto, which may be required to effect the same, it being understood
that the costs of filing and prosecuting any such applications or documents
shall be solely for Tenant's account. If Landlord's engineer shall reasonably
request additional or amended documents, data or explanations in order to review
appropriately Tenant's submissions under this paragraph, then the 30-day period
herein mentioned shall run from the date of Tenant's submission of such
additional items.
51. Work by Tenant's Contractors.
-----------------------------
Supplementing Article 3, before Tenant shall use any contractor or
subcontractor to make any alterations, additions, installations or improvements
in the demised premises, Tenant shall present to Landlord certificates of
insurance or other evidence satisfactory to Landlord, that each of Tenant's
contractors and subcontractors is and shall be covered, at all times, during its
operations upon the demised premises, by (a) comprehensive general liability
insurance with limits of $500,000 each occurrence and $l,000,000 aggregate
(persons injury and property damage), including elevator operation, independent
contractor risks, contractual liability coverage and other risks ordinarily
included in such policies, which insurance shall name Landlord as an additional
insured, and (b) workers compensation insurance with statutory limits. Such
certificates of insurance shall provide that the policies will not be canceled
during the term until at least thirty (30) days' prior written notice has been
given to Landlord.
All work in the demised premises by Tenant or Tenant's contractors or
subcontractors will be performed in accordance with all applicable building and
fire codes and requirements in regulations under the ADA, and in such manner as
not to interfere materially and adversely with the business of Landlord or other
tenants or occupants of the 521 Building. In particular, Tenant shall ensure
that all workers employed by Tenant or Tenant's contractors for work in the
demised premises shall use only the building's West 58th St. side freight
elevators for the passage of workers, materials and refuse in connection with
such work; that construction or demolition operations that may entail excessive
noise or vibration shall be conducted only after normal business hours; and that
rubble and refuse from any demolition operations will be removed from the
building and the streets in front in a prompt and cleanly manner. If a sidewalk
bridge or scaffolding is required by law for the installation of new
<PAGE>
51
windows in the demised premises, then Tenant shall arrange for same to be
permitted, erected, and removed not later than the expiration date authorized by
the City, at Tenant's expense.
Tenant shall not engage or employ in the demised premises any
contractor or subcontractor, the presence of whose employees may cause labor
discord in the 521 Building, and Tenant will confer with Landlord prior to such
engagement or employ as to assure that no such discord will ensue. Subject to
such qualification, any alterations, installations, additions, improvements or
decorations to be made by Tenant may be performed by any reputable contractor or
mechanic selected by Tenant.
52. Security; Cleaning. (See also Articles 31 and 49)
-------------------------------------------------
Landlord will furnish, during the term of this Lease, at Landlord's
expense, building security in the 521 Building lobby of a kind considered
"commercially reasonable" for the locale and the hours involved, under then
prevailing standards of normal commercial reasonableness. At present, Landlord
has in effect a security system in which an unarmed guard is located in and
controls ingress and egress in the West 57th Street ground floor lobby of the
521 Building seven days a week, 24 hours a day (subject to periodic evening
rounds when the entrance door may temporarily be closed to ingress), an unarmed
guard is located in and controls ingress and egress in the 518 West 58th Street
ground floor lobby of the 521 Building seven days a week from 8:00 A.M. to 8:00
P.M., and a pass issued or approved by Landlord must be exhibited to such guards
by all persons, including employees, seeking to enter the building via such
entrance lobbies. Tenant acknowledges that Landlord's present security system
currently meets the standard of "commercial reasonableness" set forth in this
Article.
Except for foregoing, Landlord shall have no responsibility for the
security of the demised premises and will not retain any key to the demised
premises or any part thereof. Landlord shall be responsible for cleaning the
areas of the 521 Building used in common by Landlord, Tenant and other occupants
of the buildings, to reasonable standards of cleanliness. Tenant shall be
responsible for all cleaning of the interior of the demised premises and both
aides of the plate glass windows in the premises, excluding the exterior of the
windows on the 57th Street aide of the building, to reasonable standards of
cleanliness. Tenant shall be solely responsible for any watchman
<PAGE>
52
or guard services in the demised premises it may desire to retain, provided that
any such watchman or guard retained by Tenant shall perform his security
services solely within the demised premises.
53. Compliance with Certificate of Occupancy; Compliance with Law.
--------------------------------------------------------------
A. Tenant shall not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises form a part (a copy of which is attached to this Lease as
Exhibit B), and in the event that any bureau or department of the City or State
of New York shall hereafter at any time contend and/or declare by notice,
violation, order or in any other manner whatsoever that the premises hereby
demised are used for a purpose which is a violation of such certificate of
occupancy, Tenant shall, upon thirty (30) days' written notice from Landlord
immediately discontinue such use of said premises. Failure by Tenant to
discontinue such use after such notice shall be considered a default in the
fulfillment of a covenant of this Lease and Landlord shall have the right to
terminate this Lease immediately, and in addition thereto shall have the right
to exercise any and all rights and privileges and remedies given to Landlord by
and pursuant to the provisions of Article 17 hereof; provided, however, that in
lieu of discontinuing any such use after such notice, Tenant shall have the
right to continue the use, provided Tenant also takes prompt legal,
administrative or other appropriate corrective steps to contest and/or remove
said notice, violation or order and provided further that such course of action
by Tenant does not give rise to the assertion of criminal liability against
Landlord in which event Tenant shall immediately discontinue such use of the
premises and indemnify Landlord against all liability, and expense which
Landlord may incur arising out of the continued use.
The statement in this Lease of the nature of the business to be
conducted by Tenant in the demised premises shall not be deemed or construed to
constitute a representation or guaranty by Landlord that such business may be
conducted in the demised premises or is lawful or permissible under the
certificate of occupancy issued for the 521 Building or otherwise permitted by
law. If alterations or additions, including but not limited to a new or improved
sprinkler system, or additional laboratory hoods or vents, are needed to permit
lawful conduct of
<PAGE>
53
Tenant's business or to comply with the certificate of occupancy, or if
amendments to the certificate of occupancy are required to permit Tenant's
contemplated use, then the same shall be installed by or applied for by and at
the sole expense of Tenant and the originals of such amendments shall be
furnished to Landlord upon issuance. Landlord shall execute as owner and deliver
to Tenant any certificates or other documents necessary or desirable to obtain
such amendments to the certificate of occupancy as Tenant may reasonably
request.
B. Notwithstanding the foregoing provisions of this Article, if (i)
Tenant, after bona fide effort to do so, is unable to obtain an amendment to the
certificate of occupancy required to permit the use of the demised premises
intended by Tenant, or (ii) any existing or future law, ordinance or regulation
of Federal, State or Municipal Government or department, of particular
applicability to Tenant's existing or intended use of the demised shall render
illegal the use thereof for such purpose, then in either such event Tenant, upon
prior written notice to Landlord, shall have the right exercisable by written
notice to Landlord within ninety (90) days after Tenant's determination of such
inability or illegality, as the case may be, to terminate this Lease and
surrender the demised premises to Landlord, and in such event the Base Rent,
additional rent and other charges payable by Tenant under this Lease shall be
prorated to the date of such surrender and paid by Tenant. Clause (ii) of this
paragraph shall not apply to any law, ordinance or regulation of general
applicability to space similar to the demised premises or to tenancies similar
to Tenant's (e.g. a law prohibiting occupancy of commercial floor areas in the
City of New York by more than a prescribed number of persons) nor to any law,
ordinance or regulation which may be complied with by Tenant by the expenditure
of reasonable amounts of money.
C. If the existence of any uncorrected notice, order or violation filed
against the 521 Building prior to the Commencement Date by any Federal, State or
Municipal government, or bureau or agency thereof (hereinafter called a "NOV")
and not arising out of Tenant's use, occupancy or operations, shall cause a
delay or impediment to Tenant's ability to obtain approval from the appropriate
government or agency of a then pending Tenant application for amendment to the
certificate of occupancy for the demised premises, to permit Tenant's intended
use of the demised premises and such delay or impediment from such cause shall
continue for more than 120 days after the date of Tenant's notice
<PAGE>
54
to Landlord that such delay or impediment from such cause exists, then, provided
Tenant shall not in fact be then occupying the demised premises for Tenant's
intended use (pursuant to a temporary certificate of occupancy or otherwise),
the Base Rent and additional rent otherwise payable under this Lease shall be
abated during such period after said 120 days as such delay or impediment from
such cause shall continue, in the proportion which the area of the demised
premises for which an amended certificate of occupancy permitting Tenant's
intended use cannot be obtained bears to the area of the whole demised premises.
The rent abatement provided in this paragraph C shall apply only in the case of
Tenant's application for any amendment to the certificate of occupancy required
in connection with completion of the Initial Improvements.
D. Landlord shall, at Landlord's sole cost and expense, promptly comply
with all present and future laws, orders and regulations of all state, federal,
municipal and local governments, departments, commissions and boards which shall
impose any violation, order or obligation upon Landlord with respect to the 521
Building (other than the demised premises) or the land on which it is situated,
which violation, order or obligation does not arise out of Tenant's use or
manner of use of such building or land, if Landlord's failure promptly so to
comply would unreasonably interfere with either (1) the accessibility of the
demised premises to Tenant and Tenant's employees, invitees and licensees or (2)
the conduct by Tenant in the demised premises of one or more of the uses set
forth in Article 64 of this Lease. Tenant's remedy for a breach by Landlord of
its obligations under this paragraph D shall be limited to specific performance
or injunction of Landlord's compliance obligation and such direct damages
consisting of Tenant's increased costs of occupying or operating the demised
premises as Tenant can clearly demonstrate, but in no event to include loss of
profits or business opportunity, interruption of business or incidental or
consequential damages which Tenant allegedly may incur.
54. Access and Elevators.
---------------------
Access to the demised premises for Tenant's personnel via the 521
Building's entrance lobbies used by Tenant in common with Landlord and other
occupants of the buildings shall be subject to the provisions of the next
paragraph of this Article
<PAGE>
55
and to Rule 10 of the Rules and Regulations made a part of this Lease.
The existing passenger elevators serving the demised premises are
automatic and Landlord will make the passenger elevators and access thereto
available to Tenant as follows: The passenger elevators on the West 57th Street
side of the 521 Building and access thereto will be made available at all times
(except during the guard's rounds), Saturdays, Sundays and holidays inclusive,
on a 24-hour basis, without charge. Access from the street to the passenger
elevators on the West 58th Street side of the 521 Building will be made
available to Tenant during Landlord's usual business hours, currently seven (7)
days a week from 8:00 A.M. to 8:00 P.M.
At no time shall Tenant bring hand trucks, or allow hand trucks to be
brought by its deliverymen, into or through the lobby or passenger elevators on
the West 57th Street side of the 521 Building (except as hereinafter stated).
All deliveries to, and pick-up from, the demised premises shall be made solely
by way of the West 58th Street entrance lobby and the freight elevators located
on the West 58th Street side of the Building. During the hours (hereinafter
stated) when the freight elevators serving the demised premises on the West 58th
Street side thereof are made available to Tenant, including any additional hours
paid for by Tenant, any hand trucks shall be brought into or taken away from the
demised premises solely by use of such freight elevators. During the hours
and/or days when freight elevator service is not available to Tenant (including
downtime during major overhauls and unforeseen mechanical difficulties), Tenant
may bring hand trucks into and through the entrance lobby and passenger
elevators on the West 58th Street side of the building. Notwithstanding the
foregoing, Landlord reserves the right hereafter to close the 518 West 58th
Street entrance after 5:00 P.M. on business days, and all day on holidays and
weekends, provided that, if Landlord hereafter shall do as then Tenant shall
have the right during such times of closure, to bring hand trucks into the
entrance lobby and passenger elevators on the West 57th Street side of the
building. All hand trucks used by Tenant or Tenant's employees, contractors,
agents, subtenants, licensees or invitees in passenger elevators in the 521
Building shall be mounted on rubber tires.
Landlord reserves the right to make other reasonable changes in times
of access provided in this Article (but no
<PAGE>
56
change shall be made that interferes with access on a 24-hour basis, 7 days a
week, for Tenant's passengers, as provided in this Article), to close off the
518 W. 58th St. entrance entirely, and to adopt further rules and regulations
(including occupant limits) relevant to Tenant's use of the passenger elevators
serving the demised premises should Tenant's use prove excessive or materially
and adversely interfere with the reasonable use thereof by Landlord and other
occupants of the 521 Building. Any such rule or regulation will not discriminate
unfairly against Tenant and will be uniformly applied to all lessees of the
building.
There shall be no allowance to Tenant for a diminution of rental value
and no liability on the part of Landlord by reason of inconvenience, annoyance
or injury to business arising from Landlord's or Landlord's guards' failure or
delay in affording access to the demised premises, provided that if such failure
or delay shall recur as often as to constitute constructive eviction, then
Tenant's remedy shall be limited to specific performance or injunction of the
access provided in this Lease and, in such event, Tenant may have additional
remedy under the provisions of Article 63(B) below.
The freight elevators nerving the demised premises on the West 58th
Street side thereof will be made available to Tenant during the term of this
Lease on business days from 8:00 A.M. to 5:00 P.M., without charge, subject to
the service demands of Landlord and other occupants of the 521 Building. In
addition to such business day availability, Landlord will make such freight
elevators available to Tenant on the one week-end of Tenant's initial move-in of
personal property into the demised premises (after the Commencement Date) on a
24-hour basis beginning at 5:00 P.M. on Friday and the Saturday, Sunday and/or
Monday to 8:00 A.M. of that move, without charge. Tenant shall notify Landlord
at least ten (10) days in advance of such anticipated move-in date(s).
Should Tenant request additional freight elevator service in the
demised premises beyond the freight elevator service provided under this Article
and should Landlord provide such additional freight elevator service, then
Tenant shall pay to Landlord for such additional service, as additional rent,
such amount as shall be fixed and determined by Landlord and Landlord agrees
that such amount shall not be unreasonable. Landlord hereby represents that its
current charges for such additional
<PAGE>
57
service are $25 per man, per hour or part thereof, used to furnish the
additional freight elevator service, with a minimum charge of four (4) hours
required. Such charges may be increased from time to time by Landlord, by
Landlord's written notice to Tenant, as may be necessitated by increases in the
cost to Landlord of providing such additional service or by increases in
Landlord's over-all operating costs caused by Tenant's excessive demand for such
additional service. Any increase by Landlord in the charges for such additional
service over the current charges stated in this paragraph shall be deemed to be
reasonable if the percentage increase does not exceed the percentage increase in
the CPI for the month immediately preceding the date of Landlord's notice over
the Base Price Index. Notwithstanding the foregoing, Landlord may increase such
charges in excess of the increase in the CPI if Landlord can demonstrate that
the increase in its actual costs, as described in this paragraph, exceeded the
CPI increase.
Tenant shall give notice in writing to Landlord at least twenty four
(24) hours prior to the time for which it desires such additional freight
elevator service and Landlord agrees to undertake to provide the same. Such
additional elevator service shall not exceed forty (40) days in any one year.
This provision to furnish additional freight elevator service beyond the periods
provided for in this Article shall be subject to all of the other terms and
conditions of this Lease. This provision for additional elevator service shall
not be deemed to be a covenant or obligation of Landlord to furnish the same and
the failure to do so shall not be deemed a breach of this Lease by Landlord.
Tenant shall be responsible for the acts of all persons who enter the 521
Building vis such freight elevators while delivering or picking up personal
property, including debris, rubbish and waste, to or from the demised premises.
Tenant's access to and use of all elevators serving the demised
premises, freight and passenger, are granted subject at all times to: (i) Rules
8 and 10 of the Rules and Regulations made a part of this Lease, (ii) the
requirements of the security system which Landlord may have in effect from time
to time during the term of this Lease , (iii) the use (pursuant to the terms of
existing leases or otherwise) of such elevators by Landlord and other occupants
of the building, (iv) downtime during major overhauls and unforeseen mechanical
difficulties.
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55. Assignment; Subletting.
-----------------------
Supplementing Article 11, any notice or request by Tenant to assign
this Lease or sublet the demised premises or any portion thereof, to be
effective, shall be accompanied by a copy of the proposed assignment or Sublease
and of all agreements collateral thereto, in writing even if such agreements are
oral. Landlord hereby agrees that it will not unreasonably withhold its consent
to a proposed assignment to this Lease or proposed subletting of the demised
premises by the Tenant, provided, however, that Landlord may withhold such
consent for any of the following reasons, without limitation (and such
withholding of consent shall not be deemed "unreasonable" under prevailing
standards of normal commercial reasonableness): if the proposed assignee or
subtenant (a) is engaged in a business which is competitive with the business of
Landlord (which business is the creation, manufacture and sale of flavors,
fragrances and aroma chemicals purchased by other manufacturers to impart or
improve taste or smell in consumer products), or (b) is a customer of the
flavor, fragrance or aroma chemical products of the Landlord, or (c) is in
Landlord's opinion, of a character or is engaged in a business which is not
appropriate to the type of buildings maintained and owned by Landlord or will
materially and adversely affect the building's services, or (d) is a charitable
or educational institution, or a health care group directly examining, treating
or administering procedures to patients, or a public interest group, or (e) is a
bureau, agency, department or division of any Municipal, State or Federal
government or (f) proposes to occupy less than five thousand square feet of the
demised premises; and provided further that, notwithstanding the foregoing
clauses, upon Landlord's receipt of any notice of or request by Tenant for a
proposed assignment or subletting, Landlord shall have the right and option, to
be exercised within fifteen (15) days after receipt of Tenant's notice or
request, to elect instead to require Tenant to surrender the portion of the
demised premises covered by the proposed assignment or subletting, and to
suspend this Lease with respect thereto as of the date specified by Tenant as
the commencement date of such proposed assignment or subletting and continuing
during the term of the proposed assignment or sublease (after which term such
area shall again be considered part of the demised premises) and in such event
the Base Rent, additional rent and other charges payable by Tenant under this
Lease shall be abated for the term of the assignment or sublease in the
proportion which the area of the demised premises so recaptured by Landlord
bears to the area
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59
of the whole demised premises, effective as of the date of surrender to Landlord
of such portion in the condition prescribed in Article 22 of this Lease. The
provisions set forth in this paragraph shall be subject to the following further
qualifications:
(i) If Landlord, in the exercise of its discretion under clause (c)
above of this Article 55, shall "unreasonably" withhold its consent to a
proposed assignee or subtenant, when measured by prevailing standards of normal
commercial reasonableness, then Landlord shall be obligated to recapture, in
accordance with the provisions of this Article, the portion of the demised
premises covered by the proposed assignment or subletting;
(ii) Landlord, in its discretion, may declare this Lease terminated,
rather than suspended, at the time of exercise of Landlord's right of recapture,
with respect to the portion of the demised premises covered by any proposed
assignment or subletting for a proposed term in excess of 75% of the then
remaining balance of the term of this Lease in which event the rent abatement
provisions above provided in this Article shall apply indefinitely;
(iii) Landlord shall return to Tenant after a recapture (unless the
immediately preceding clause (ii) shall apply) the demised premises or portion
thereof recaptured in substantially the same physical condition as surrendered
to Landlord at the start of the recapture period (except for ordinary wear and
tear); and
(iv) During any recapture period, Tenant's share of any annual
increases in Operating Expenses under Article 39 and of Real Estate Taxes under
Article 42, for the recaptured area will be allocated between the parties on a
reasonable pro-rata basis.
Landlord's rights of recapture set forth in this Article shall not be
deemed to be waived by Landlord's acting to withhold consent to a proposed
assignee or subtenant pursuant to any of the clauses of this Article and may be
exercised by Landlord notwithstanding that Tenant may then be seeking judicial
or other legal relief from Landlord's decision to withhold its consent to a
proposed assignee or subtenant.
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60
If Landlord shall consent to any assignment of this Lease or sublease
of all or any portion of the demised premises and, if the rental reserved in the
assignment or sublease (after taking into account both Tenant's reasonable costs
of the assignment or subletting, including brokerage, concessions, work
allowances and attorney's fees, and any rent equivalents received by Tenant such
as cost-sharing or goods or services as payment in kind) exceeds the Base Rent
or pro-rata portion of the Base Rent, as the case may be, for such apace
reserved in this Lease, then Tenant shall pay the Landlord monthly, as
additional rent, fifty percent (50%) of the excess of the rental (as and when
received by Tenant) reserved in the assignment or sublease over the Base Rent
reserved in this Lease applicable on a proportionate basis to the area of the
assigned or subleased space. Landlord shall not exercise its right of recapture
under this Article so as to appropriate solely to itself the potential profit
involved in any proposed assignment or subletting and, accordingly, for a period
of at least three (3) years following any such recapture (or until the
expiration or termination of the term of this Lease, if sooner) Landlord shall
not enter into any direct or indirect arrangement of leasing or occupancy of the
recaptured space with the assignee or subtenant proposed by Tenant. Moreover,
while this Lease is in effect, Landlord shall not lease any apace recaptured
from Tenant under this Article 55 to a business competitive with the business of
Tenant as described in Article 64.
Tenant shall not offer to assign this Lease or to sub-let the demised
premises or any portion thereof to any person, firm or corporation whose
operations will violate the certificate of occupancy for the 521 Building or
other requirements of law will cause an increase in the rate(s) for fire
insurance applicable to such building.
As long as shares of Tenant's common stock are registered with the
Securities and Exchange Commission and publicly traded in United States
securities markets, no concentration of ownership of such stock in one or more
holders shall be deemed an assignment of this Lease or a subletting of the
demised premises.
Tenant expressly covenants and agrees, that, in the case of any
assignment of or sublease under this Lease, Tenant, and not the assignee or
subtenant, shall have the primary obligations under this Lease and that Tenant
shall remain subject
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61
to the terms and conditions of this Lease in the same manner and to the same
extent as though there had been no such assignment or sublease.
If Landlord shall recapture, pursuant to this Article 55, a space less
than the entire demised premises, then Tenant shall, without compensation or
consideration, cooperate with Landlord and any future occupant of such portion
in affording access to such space and (i) reasonable common use of available
elevator and toilet facilities, in default of which cooperation Landlord may
adopt reasonable Rules and Regulations, pursuant to Article 36, requiring such
access and common use, but Tenant shall not be obligated to cooperate in any way
that will unreasonably interfere with Tenant's operations, and (ii) use of the
heating, ventilating, air conditioning, electrical, plumbing and other utility
systems serving the demised premises (including those installed by Tenant),
provided Landlord's or such other occupant's use thereof does not materially and
adversely interfere with Tenant's operations and provided further that Tenant is
promptly reimbursed by Landlord or such other occupant for the reasonable cost
thereof.
Notwithstanding the foregoing provisions of this Article and Article
11, this Lease may be assigned, or the demised premises may be sublet in whole
or in part, without Landlord's consent, to any corporation which shall be a
successor to Tenant or entity in which Tenant has an investment interest of at
least 80% of the voting stock or other voting control, provided prior notice
thereof is given to Landlord as set forth in the first sentence of this Article,
and provided further that such successor's or other entity's use of the premises
is consistent with Article 64 of this Lease and that such successor or other
entity is not engaged in an activity or is not of a kind described in any of
clauses (a) to (d) above of this Article 55 and its operations will not violate
the certificate of occupancy for the building or other requirements of law and
will not cause an increase in the rate for fire insurance applicable to the
building. In the event that an assignment or sublease fulfills the requirements
of this paragraph of this Article 55, then Landlord's rights to recapture the
premises or share in Tenant's profit, as hereinabove set forth, shall not apply.
56. First Consideration.
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62
Commencing January 1, 1999, if space consisting of at least one
complete floor in either the 521 Building or the 533 Building shall be or become
available for occupancy through the expiration of existing leases without
further interest therein by the then tenant, or otherwise, which space Landlord
does not require for its own use and desires to let, then (provided that
Landlord has not received a prior expression of interest therein from CBS Inc.
and provided further that Tenant is then in compliance with all of the material
terms and conditions of this Lease), Landlord shall give Tenant written notice
of the availability of such apace and allow a period of 60 calendar days after
the date of such notice (during which Landlord shall not offer the apace to any
third party) in which the parties shall attempt to negotiate a mutually
satisfactory agreement regarding Tenant's leasing of such space.
57. Construction; Definitional (See also Article 34). The provisions in this
Rider supplement, and shall not be construed to supersede the provisions in the
printed form of Lease (even though both may deal with the same subject matter),
unless two such provisions are expressly contradictory, in which event the
provisions in this Rider shall prevail insofar as the contradiction is
concerned. If any Rule and Regulation now or hereafter made a part of this Lease
in accordance with Articles 36 and 71 hereof shall expressly contradict a
provision in this Rider, then the latter provision shall prevail over the Rule
and Regulation.
As used in this Lease, the term "the 521 Building" means the building
in which the demised premises are located, now known as 521 West 57th Street
(also known as 518 West 58th Street), Borough of Manhattan, and the term "the
533 Building" means the adjoining building owned by Landlord and now known as
533 West 57th Street, Borough of Manhattan, even if the building address or Tax
Map designation of either such building are changed in the future. As used in
the printed form of Lease, the term "the building" shall be deemed to mean the
521 Building. As used in this Lease, the term "business days" shall mean Mondays
to Fridays inclusive in each week but excluding the days or Federal observance
of the holidays listed immediately after this sentence and any other Federal or
State holiday upon which Landlord's employees are not working.
New Year's Day
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Memorial Day
Thanksgiving Day and the day following
Good Friday
Independence Day
Easter Sunday
Labor Day
Christmas Day.
The terms "Landlord," "Owner" and "IFF" are used interchangeably in
this Lease and all mean International Flavors & Fragrances Inc., a corporation
organized and existing under the laws of the State of New York.
For purposes of calculating the proportion of the area of the demised
premises which might be destroyed, surrendered, recaptured or have profit-
recapture, be untenantable or otherwise be involved under the terms of Articles
48, 53, 55, or 61 of this Lease, or limiting Tenant's share of Real Estate Taxes
in the case of construction of additional space under Article 42(A) hereof, the
demised premises shall be deemed to consist of 28,700 square feet net rentable
apace.
The terms "Base Rent," "Commencement Date" and "Free Rent Period" are
defined in Article 38.
The "Initial Improvements" are defined in Article 50.
"Landlord's Work" is defined in Article 58.
"Occupancy Date" means the date on which Tenant shall have completed
erection and installation in the demised premises of the Initial Improvements
or, if earlier, the date on which a significant number of Tenant personnel shall
have commenced in the demised premises significant activities of the kind
described in Article 64 hereof.
Where any provision of this Lease requires Landlord to do anything to
the satisfaction of Tenant, Tenant agrees that Tenant will not unreasonably
refuse to state Tenant's
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64
satisfaction with such action by Landlord. Where any provision of this Lease
requires Tenant to do anything to the satisfaction of Landlord, Landlord agrees
that Landlord will not unreasonably refuse to state Landlord's satisfaction with
such action by Tenant. Where any provision of this Lease requires the consent,
cooperation, determination or approval of Tenant, Tenant agrees that Tenant will
not unreasonably delay or withhold such consent, cooperation, determination or
approval. Where any provision of this Lease requires the consent, cooperation,
determination or approval of Landlord, Landlord agrees that Landlord will not
unreasonably delay or withhold such consent, cooperation, determination or
approval, except that the foregoing shall not apply to a refusal of Landlord to
allow Tenant's independent application to correct or reduce assessed valuations
under Article 42 (D), the decision of Landlord under clause (d) of Article 50
that a proposed alteration would affect the building's exterior appearance ("the
Appearance Clause"), the decision of Landlord under clause (e) of Article 55
with respect to the height, placement or adequacy of certain ventilation
equipment ("the Ventilation Clause"), or the exercise of Landlord's discretion
under clause (c) of Article 55 to withhold its consent to certain proposed
assignees or subtenants ("the Appropriateness Clause"), provided, however, that
if at any time during the term of this Lease IFF or a successor to IFF or any
entity in which IFF has an investment interest of at least 80% of the voting
stock or other voting control, shall cease to hold fee title ownership of the
521 Building, then Landlord's decisions under the Appearance Clause, the
Ventilation Clause and the Appropriateness Clause shall also be subject to the
following "unreasonableness" standard. For the purpose of this paragraph,
"unreasonableness" on the part of Landlord and/or Tenant shall be measured by
the express provisions of this Lease and by prevailing standards of normal
commercial reasonableness. Except as provided in Article 74 of this Lease,
Tenant's remedy for a breach of this paragraph's application shall be limited to
specific performance or injunction of such requirement and such direct damages
consisting of Tenant's increased costs of occupying or operating the demised
premises as Tenant can clearly demonstrate, but in no event to include lose of
profits or business opportunity, interruption of business or incidental or
consequential damages which Tenant allegedly may incur.
58. Landlord's Work.
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A. Prior to delivery of possession the demised premises to Tenant,
Landlord shall perform, at Landlord's sole expense, the following work with
respect thereto:
1. All interior demolition and rubbish removal necessary to render
the space in a "gutted state, without interior walls or partitions except for
the lavatory as described in Article 50;
2. Removal of known asbestos within the demised premises subject to
Attachment 1 to this Lease, which is incorporated herein;
3. Omitted.
4. Other work as indicated on said Attachment I. The work to be
performed by Landlord pursuant to the above clauses (1) to (4) is referred to as
"Landlord's Work."
B. Landlord may, without limitation, effect alterations to the entrances
and entrance lobbies in the 521 Building. No abatement of rent or other charges
payable by Tenant to Landlord under this Lease or other allowance shall be made
should Landlord effect any of such alterations. Landlord's access to the demised
premises to perform such alterations shall be subject to the provisions of
Article 13 of this Lease. Landlord will give Tenant reasonable prior notice
before performing such alterations.
Supplementing Article 20, Landlord's right to change the arrangement
and/or location of public entrances, passageways, doors, doorways, corridors,
elevators, toilets, staircases or other public parts of the building shall be
exercised so as not to materially reduce the usable area of the demised premises
or materially and adversely affect Tenant's access thereto. Temporary
interruptions of access to perform demolition or construction work or for the
removal of later-discovered asbestos or hazardous surplus materials shall not be
deemed to materially adversely affect such access.
59. Subordination; Non-Disturbance Provisions; Landlord's Estoppel Certificates
and Lien Waivers.
I. This Lease is subject to and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such leases or the
521 Building and to all
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66
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases or mortgages. The preceding clause shall be self-operative and
no further instrument of subordination shall be required by any ground or
underlying lessee or by any mortgagee. In confirmation of such subordination,
Tenant shall execute and deliver promptly any certificate that Landlord may
request. Landlord represents that Landlord is the fee owner of the land and
building containing the demised premises and that there are no fee mortgagee or
ground or underlying leases presently covering said land and building.
A. The subordination of this Lease to certain ground or underlying
leases pursuant to this Article 59(I) ("Superior Leases") is subject to the
express conditions that:
1. So long as this Lease is in full force and effect:
(a) unless required by applicable law to properly perfect the
papers in an action or proceeding, neither Tenant nor any person claiming
through or under Tenant shall be named or joined in any action of proceeding to
terminate any Superior Lease;
(b) in the event of the termination of any such Superior Lease by
reentry, notice, summary proceedings or other action or proceedings, or if such
Superior Lease shall otherwise terminate or expire before the expiration of the
term of this Lease, this Lease shall continue in full force and effect as a
direct lease between Tenant and the then owner of the fee of the land on which
the 521 Building is erected (the "Land") or lessor under such Superior Lease as
the case may be, upon all of the obligations of this Lease, except such as are
then not applicable or pertinent to the remainder of the term of this Lease,
and, except if said owner or lessor shall be the Landlord or an affiliate of
Landlord (a "Related Entity") said owner or lessor shall not be subject to any
offsets (except to the extent that the facts or circumstances giving rise to
such offsets are then continuing) or defenses against or be liable for any prior
act or omission of any prior landlord (including Landlord) under this Lease or
be bound by any prepayment of more than one month's rent; and
(c) neither Tenant nor any person claiming through or under
Tenant shall be evicted from the demised
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premises, nor shall the leasehold estate or possession of Tenant or any person
claiming through or under Tenant be terminated or disturbed, nor (except to the
extent provided in subdivision (b) above) shall any of the rights of Tenant or
any person claiming through or under Tenant be diminished, reduced, otherwise
interfered with or adversely affected in any way whatsoever by reason of any
default or event of default under, or termination of, the Superior Lease.
B. The subordination of this Lease to the liens of certain mortgages
pursuant to Article 59(I) ("Superior Mortgages") is subject to the express
condition that:
I. So long as this Lease is in full force and effect:
(a) unless required by applicable law to properly perfect the papers
in an action or proceeding, neither Tenant nor any person claiming through or
under Tenant shall be named or joined in any action or proceeding to foreclose
any Superior Mortgage;
(b) in the event of foreclosure of any such Superior Mortgage or
delivery of a deed in lieu of foreclosure, this Lease shall continue in full
force and effect as a direct lease between Tenant and the then owner of the fee
title of the Land or the owner of the leasehold under a Superior Lease,
whichever is applicable, upon all of the obligations of this Lease, except such
as are then not applicable or pertinent to the remainder of the term of this
Lease, and, except if said owner shall be the Landlord or a Related Entity, said
owner shall not be subject to any offsets (except to the extent that the facts
or circumstances giving rise to such offsets are then continuing) or defenses
against or be liable for any prior act or omission of any prior landlord
(including Landlord) under this Lease or be bound by any prepayment of more than
one month's rent; and
(c) neither Tenant nor any person claiming through or under Tenant
shall be evicted from the demised premises, nor shall the leasehold estate or
possession of Tenant or any person claiming through or under Tenant be
terminated or disturbed, nor (except to the extent provided in subdivision (b)
above) shall any of the rights of Tenant or any person claiming through or under
Tenant be diminished, reduced, otherwise interfered with or adversely affected
in any way whatsoever by
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reason of any default or event of default under, or foreclosure (or deed in lieu
of foreclosure) of, the Superior Mortgage.
II. Landlord's Estoppel Certificates. Landlord, at any time, and from time
to time, upon at least ten (10) days prior written notice by Tenant, shall
execute, acknowledge and deliver to Tenant, and/or to any other person, firm or
corporation specified by Tenant, a statement certifying that, to the best of its
knowledge and belief, this Lease is unmodified and in full force and effect (or
if there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not, to the best of its
knowledge and belief, there exists any default by Tenant under this Lease, and,
if so, specifying each such default, provided, however, that a service charge of
One Hundred Twenty Five Dollars ($125.00) shall apply and be payable by Tenant
with respect to the second and every subsequent estoppel certificate furnished
by Landlord to Tenant during any calendar year pursuant to this Article 59 (II).
III. Waiver of Landlord's Lien Rights.
---------------------------------
Landlord, at any time, and from time to time, upon at least ten (10) days
prior written notice by Tenant, shall execute, acknowledge and deliver to
Tenant, or to any other person, firm or corporation specified by Tenant, a
waiver and release of Landlord's rights (both contractual and statutory) to
assert a lien or other encumbrance on or with respect to any office machinery or
equipment purchased or leased by Tenant and used in the demised premises,
provided, however, that a service charge of One Hundred Twenty-Five Dollars
($125.00) shall apply and be payable by Tenant with respect to the fourth and
every subsequent waiver furnished by Landlord to Tenant during any calendar year
pursuant to this Article 59 (III).
60. Brokers.
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Each party to this Lease represents to the other party hereto that (i)
it did not employ a broker, agent or other third party other than Cushman &
Wakefield Inc. of 51 West 52nd St., New York, N.Y. 10019 and CB Commercial Real
Estate Group Inc. of 560 Lexington Avenue, New York, N.Y. 10022 (herein
collectively the "Procuring Brokers") to procure Tenant's interest in the
demised premises or Landlord's willingness to lease the premises
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69
to Tenant nor to describe or show the demised premises to Tenant or induce or
take part in the parties' negotiations leading to execution of this Lessee, and
(ii) to the best of its knowledge, no broker, agent or other third party other
than the Procuring Brokers has a present claim for commission or the value of
services rendered arising out of or in connection with this Lease. Landlord
represents that it has entered into written agreements with each of the
Procuring Brokers, pursuant to which Landlord will be solely responsible for the
payment of any commission owing as a result of the execution of the Lease. Each
party to this Lease agrees to indemnify and hold harmless the other party hereto
against any loss, liability, expense (including reasonable attorneys fees),
claim or demand which such other party may incur as a result of the
representations made by each party in the preceding sentence proving to be
incorrect or misleading in any material respect.
61. Untenantability.
---------------
If Landlord shall be in substantial default in the performance of any
material obligation of Landlord under this Lease and such default shall cause
the demised premises, or portion thereof, to become in an untenantable condition
then, unless Landlord shall, within 15 days after receipt of Tenant's notice of
such condition, have commenced the work, discontinued or modified the operations
or purchased the materials or equipment necessary to remedy such condition and,
thereafter, diligently pursued such remedial work to completion, the Base Rent,
additional rent and other charges then payable by Tenant under the terms of this
Lease shall be abated after such 15 day period for such time as the demised
premises, or portion thereof, shall remain untenantable, in the proportion which
the area of the premises rendered untenantable by Landlord's default bears to
the area of the whole demised premises. If Tenant, at Tenant's cost, shall
restore such untenantable area of the demised premises to a tenantable
condition, then such rent abatement shall thereafter cease but Landlord shall be
liable to reimburse Tenant for Tenant's reasonable costs of such restoration.
This Article 61 shall not be deemed to apply to untenantability of the
demised premises arising out of destruction by fire or other casualty which is
dealt with in Article 48 or to Tenant's inability to occupy the demised premises
for a use intended by Tenant which is dealt with in Article 53.
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62. Tenant's Operations: Requirements of Law.
-----------------------------------------
A. Tenant has represented to landlord that Tenant's business and intended
use of the demised premises are subject to regulation by various departments,
bureaus and agencies of Federal, State and Municipal governments, including
without limitation, those bodies charged with the licensing and inspection of
clinical laboratories, the Occupational Safety and Health Administration, the
New York City Departments of Health and Environmental Protection and the Fire
Department. Tenant shall, at all times and at its sole expense, conduct its
operations in the demised premises in strict accordance with all applicable
rules, regulations and standards of such regulatory bodies and obtain and keep
current all licenses or permits required for Tenant's operations. Tenant may
store and use in the demised premises, in accordance with applicable
regulations, less than 75 gallons each (at any one time) of chemical solvents,
including ethanol and chloroform, and radioactive materials necessary for the
preparation, observation or analysis of human tissue specimens. Tenant shall
containerize and dispose of any surplus or waste solvents, chemicals,
radioactive materials and human tissues or fluids in accordance with all
applicable environmental, sanitary and health regulations. In particular, no
solvents, chemicals, radioactive materials, or human tissue or fluid specimens
shall be disposed of in the sinks, sanitary facilities or waste pipes serving
the demised premises or placed for collection with Tenant's normal rubbish.
Tenant shall limit its operations in the demised premises to the diagnosis of
non-communicable disease. Tenant shall receive in the demised premises only
human tissues that are "fixed" in inert material or frozen at -70 degrees and
embedded in an inert freezing compound. Any whole human blood received will be
solely for the purposes of testing for bloodborne cancers, e.g. leukemias and
lymphomas (not for communicable diseases) and will be received in containers
with appropriate preservatives that will meet or exceed local, state and federal
guidelines for transporting blood.
The provisions of this paragraph A shall be deemed to be material covenants
by Tenant and, in the event of a breach by Tenant of any of them, Landlord shall
have all of the rights and remedies specified in Article 17 of this Lease.
B. If any violation, order or duty described in the first sentence of
Article 6 of this Lease shall be imposed with respect to the demised premises or
if any modifications or alterations of
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or additions to the existing sprinkler system in the demised premises shall be
required pursuant to Article 30 of this Lease, and such violation, order, duty
or requirement does not arise out of (i) Tenant's use or manner of use of the
demised premises (including the location of partitions, trade fixtures or other
contents of the demised premises) or the 521 Building, or (ii) Tenant's
installation or manner of installation of the Initial Improvements or subsequent
Tenant changes, then Tenant's liability to comply therewith shall be limited to
50% of the costs of complying with all such violations orders, duties or
requirements described in this Article (the other 50% to be borne by Landlord),
up to $400,000 aggregate of such costs incurred during the term of this Lease to
be borne by Tenant as its share. Any costs of complying with violations, orders,
duties or requirements not arising out of the matters in clauses (i) and (ii)
above, in excess of Tenant's limit as herein specified, shall be borne by
Landlord.
Notwithstanding the foregoing paragraph of this Article 62, Tenant shall at
Tenant's sole cost and without dollar limitation, in conjunction with Tenant's
Initial Improvements, comply with all laws, regulations or ordinances, requiring
in the demised premises smoke detectors, emergency lighting, "No Smoking" and
"Exit" signs, fire warning and communication devices, fire extinguishers,
extension or improvement of existing sprinkler systems, lighting in compliance
with Article 8 of the New York State Energy Law and Regulations, and
accessibility to disabled persons under ADA guidelines, and will replace or re-
install Landlord's Fire Warning Communication System in the demised premises if
it is necessary to remove or modify it temporarily in performing such
Improvements.
If the 521 Building becomes infested with vermin from Tenant's operations,
Tenant shall at Tenant's expense, cause the same to be exterminated from time to
time to the satisfaction of Landlord.
Supplementing Article 6, Tenant shall not be deemed to have violated any
provisions of any insurance policy referred to in such Article until it has
received notice of the substance of the provisions.
63. Tenant's Termination.
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A. Supplementing Article 23, if Tenant is successful in terminating this
Lease because of a substantial breach by Landlord of the covenant contained in
such Article, such termination shall be without further obligation or penalty
under this Lease.
B. If any occurrence or condition of untenantability not caused by the
willful act or negligence of Tenant or Tenant's employees, contractors, agents,
subtenants, licensees or invitees, such as events of force majeure, shall
prevent Tenant's access to the demised premises or Tenant's effective use of the
demised premises for the use stated in Article 64, and if such prevented access
or prevented use shall continue uninterrupted for a period of ten (10) business
days or longer, then (in addition to any other right that Tenant may have under
other provisions of this Lease) Tenant shall have the right, exercisable by
written notice to Landlord given within ninety (90) days after the date that
such prevented access or prevented use commenced, to terminate this Lease as of
a reasonably proximate date without further obligation or penalty under this
Lease. This paragraph B shall be deemed to apply to and include events of
destruction by fire or other casualty dealt with in Article 48, major overhauls
and downtime of elevators dealt with in clause (iv) of Article 54 and conditions
of untenantability dealt with in Article 61, but shall not be deemed to apply to
Tenant's inability to secure an amendment of the certificate of occupancy for
the 521 Building to permit lawful conduct of Tenant's business, which is dealt
with in Article 53.
64. Occupancy; Signage.
-------------------
Tenant may use and occupy the demised premises for the laboratory
analysis of human cancer tissue specimens; diagnosis, prognosis and treatment
determinations of human cancer cases; development and maintenance of
computerized cancer information data bases; with offices, conference rooms and
kitchen ancillary to such uses and for no other purposes, it being understood
that the demised premises shall not be used for the collection of human tissue
specimens or the direct diagnosis or treatment of patients. Landlord makes no
representation that the certificate of occupancy for the demised premises
presently allows any of the foregoing uses. Notwithstanding anything contained
in such certificate of occupancy, the occupancy of the demised premises by
Tenant and/or any subtenants, assignees, agents, licenses or invitees shall not
exceed one hundred twenty-five (125) persons
<PAGE>
73
at any given time, except for special meetings or during shift changes.
Supplementing Rule 5 of the Rules and Regulations made a part of this
Lease, Tenant may exhibit, inscribe, paint or affix signs, directories and/or
plaques (other than neon lit signs) in the sixth floor elevator lobbies on the
West 57th Street and/or West 58th Street sides of the demised premises, naming
Tenant and describing Tenant's business and/or officers or departments, provided
that the format and number of such signs, directories and plaques shall be
subject to Landlord's prior written approval.
65. Waiver of Subrogation.
----------------------
A. Anything in Article 48 to the contrary notwithstanding, Landlord and
Tenant shall each endeavor to secure an appropriate clause in, or an endorsement
upon, each fire or extended coverage or rent or business interruption insurance
policy obtained by it and covering the 521 Building, the demised premises and
the personal property, fixtures and equipment located therein or thereon,
pursuant to which the respective insurance companies waive subrogation or permit
the insured, prior to any loss, to agree with a third party to waive any claim
it might have against such third party. The waiver of subrogation or permission
for waiver of any claim hereinbefore referred to shall extend to the agents of
each party and its employees and, in the case of Tenant, shall also extend to
all other persons and entities occupying or using the demised premises in
accordance with the terms of this Lease and, in the case of Landlord, shall also
extend to all officers, directors and employees of Landlord. If and to the
extent that such waiver or permission can be obtained only upon payment of an
additional charge, then, except as provided in the following two paragraphs, the
party benefiting from the waiver or permission shall pay such charge upon
demand, or shall be deemed to have agreed that the party obtaining the insurance
coverage in question shall be free of any further obligations under the
provisions hereof relating to such waiver or permission.
B. In the event that Landlord shall be unable at any time to obtain one of
the provisions referred to in subdivision A of this Article 65 in any of its
insurance policies, at Tenant's option, Landlord shall use its best efforts to
cause Tenant to be named in such policy or policies as one of the insureds, but
if
<PAGE>
74
any additional premium shall be imposed for the inclusion of Tenant as such an
assured, Tenant shall pay such additional premium promptly after demand or
Landlord shall be excused from its obligations under this Article with respect
to the insurance policy or policies for which such additional premiums would be
imposed. In the event that Tenant shall have been named as one of the insureds
in any of Landlord's policies in accordance with the foregoing, Tenant shall
endorse promptly to the order of Landlord, without recourse, any check, draft or
order for the payment of money representing the proceeds of any such policy or
any other payment growing out of or connected with such policy and Tenant hereby
irrevocably waives any and all rights in and to such proceeds and payments.
C. In the event that Tenant shall be unable at any time to obtain one of
the provisions referred to in Subdivision A of this Article 65 in any of its
insurance policies, Tenant shall use its best efforts to cause Landlord to be
named in such policy or policies as one of the insureds, but if any additional
premium shall be imposed for the inclusion of Landlord as such an insured,
Landlord shall pay such additional premium promptly after demand or Tenant shall
be excused from its obligations under this Article with respect to the insurance
policy or policies for which such additional premiums would be imposed. In the
event that Landlord shall have been named as one of the insureds in any of
Tenant's policies in accordance with the foregoing, Landlord shall endorse
promptly to the order of Tenant, without recourse, any check, draft or order for
the payment of money representing the proceeds of any such policy or any other
payment growing out of or connected with such policy and Landlord hereby
irrevocably waives any and all rights in and to such proceeds and payments.
D. Subject to subdivisions A, B and C of this Article 65, each party to
this Lease shall look first to any insurance in its favor before making a claim
against the other party for loss or damage that may exist by reason of fire or
other casualty, and to the extent that such insurance is in force and
collectible and insofar as permitted by law and the terms of the insurance
policies carried by it, each party hereby releases the other with respect to any
claim (including a claim for negligence but excluding a claim for willful acts)
which it might otherwise have against the other party for loss, damage or
destruction with respect to its property by fire or other casualty (including
rental value or business interest, as the case may be) occurring
<PAGE>
75
during the term, which release shall bind anyone claiming through or under each
party by way of subrogation or otherwise. Nothing in this Article 65 shall
require either party to procure insurance against fire or other casualty
covering the demised premises.
66. Repairs.
--------
Supplementing Articles 4, 13 and 49:
A. Except in the event of an emergency, Landlord shall not perform any
obligation of Tenant under this Lease nor incur any expenditure for such purpose
until it has first notified Tenant of its intention to do so and the applicable
grace or cure period pursuant to Article 17 has expired. Except in the event of
an emergency, Tenant shall not perform any obligation of Landlord under this
Lease nor incur any expenditure for such purpose until it has first notified
Landlord of its intention to do so and the applicable grace or cure period
provided in this Lease has expired.
B. If Landlord fails to perform any material obligation under this Lease,
and such failure can be cured by the performance of work solely within the
demised premises, Tenant may notify Landlord of such failure. If Landlord fails
to cure such failure within thirty (30) days after receipt of such notice (or
such longer period as may be necessary to cure such failure by reasonably
diligent efforts or as may be necessitated by causes beyond Landlord's control),
Tenant thereafter may perform such work for, and on behalf of, Landlord. In such
event, Tenant shall furnish Landlord with reasonable substantiation of its
expenditures for such purpose and Landlord shall, within fifteen (15) days
thereafter, reimburse Tenant for the reasonable expenditures so incurred by
Tenant. This subparagraph does not apply to damage by fire or other casualty
which is covered by Article 48 or to circumstances covered by Article 53 C.
C. Tenant shall not be required to make any repairs if such repairs are
necessitated by Landlord's improper conduct, omissions or negligence.
D. In the event Landlord is reimbursed by its insurance carrier for the
cost of any work paid for by Tenant, Landlord shall remit the amount so received
to Tenant (lees the cost of collection thereof), but in no event to exceed the
sum actually
<PAGE>
76
paid by Tenant for such work. This subparagraph shall not apply to reimbursement
of costs incurred by Landlord to repair or remedy the effects of Tenant's
improper conduct, omissions or negligence.
E. Any failure by Tenant to notify Landlord of the need for repairs which
Landlord is required to perform pursuant to this Lease shall not relieve
Landlord of its obligation to perform such repairs if Landlord otherwise
receives actual knowledge thereof.
F. Landlord's right to enter the demised premises and its access thereto
to perform work and make repairs (except in the event of an emergency, in which
event such right and access shall be unrestricted) and to erect and maintain
pipes and conduits therein shall be subject to the following conditions:
(1) Any pipes or conduits so installed shall, where practicable, be
concealed under floors, behind walls, in the ceiling or in closets, but this
shall not be required in areas where Tenant-installed pipe or conduit is exposed
or areas not yet improved by Tenant.
(2) Landlord shall give Tenant reasonable advance notice of proposed
entry or access so as to enable Tenant to have a representative present on all
such occasions if Tenant wishes to do so;
(3) Landlord shall perform all work, make all repairs and install all
pipes and conduits in a workmanlike manner and in a manner designed to minimize
interference with Tenant's normal business operations (although Landlord shall
not thereby be required to incur overtime or other additional expense to do so
unless Tenant requests Landlord to do so, contractors or mechanics to perform
such overtime work are reasonably available, and, promptly upon demand, Tenant
pays or reimburses Landlord for such expense);
(4) Upon the completion of such work, repairs and installations, the
usable area of any floor of the demised premises shall not be materially reduced
thereby and the affected portions of the demised premises shall have been
restored to substantially their condition immediately prior to the performance
of such work, repairs or installations;
<PAGE>
77
(5) The demised premises shall not be used by Landlord for the staging
of work, or for the storage of materials or equipment for work on floors in the
building other than the demised premises (unless required by law or unless it is
impossible otherwise to do such work, in either of which events Landlord shall
use its best efforts to expedite such work and to minimize interference with
Tenant's normal business operations; and
(6) Notwithstanding anything contained in this Lease, Landlord shall
have the unlimited right to enter the demised premises, with or without notice,
to inspect, adjust, maintain and repair the pipes, conduits, risers, electrical
bus ducts, shut-off valves, condensate pumps and other pumps that are located
within the demised premises but serve Landlord or other occupants of the
building.
67. Building Name.
--------------
During the term of this Lease, Landlord and Landlord's successors and
assigns shall not name the 521 Building after, or denote the 521 Building by a
name that contains the name of, any corporation or other entity whose primary
business is competitive with the primary business of Tenant, provided, however,
that the foregoing restriction shall not apply if such corporation or other
entity shall have acquired fee title ownership of the 521 Building or control of
eighty percent (80%) or more of the outstanding voting stock (or other voting
power if not a corporation) of the entity that holds such fee title ownership.
This Article 67 shall inure to the benefit only of Impath Inc. and any
corporation which shall be a successor to Impath Inc. or entity in which Impath
Inc. has an investment interest of at least 80% of the voting stock or other
voting control, and not to the benefit of any other assignee of, or subtenant
under, this Lease.
68. Landlord's Remedies.
--------------------
Landlord shall not exercise any remedies granted to it hereunder until
the expiration of any applicable grace or cure period contained in Article 17,
except in emergencies.
69. Tenant's Taking Possession of the Demised Premises.
---------------------------------------------------
<PAGE>
78
Anything in Article 21 to the contrary notwithstanding, Tenant's
taking possession of the demised premises shall be conclusive evidence that the
demised premises were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects of which Tenant notifies
Landlord within sixty (60) days after the Commencement Date. If Tenant notifies
Landlord of any latent defects in the demised premises pursuant to the first
sentence of this Article, Landlord's obligations to correct or otherwise deal
with same shall be limited to Landlord's obligations under Articles 4, 49 and 58
of this Lease.
70. Counterclaims.
--------------
Supplementing Article 26, it is agreed that nothing therein contained
shall prohibit Tenant from (1) interposing a counterclaim if its inability to do
so would totally preclude Tenant's right to assert its claim, or (2) instituting
a separate action against Landlord on account of any counterclaim which, but for
the provisions of Article 26, Tenant would have interposed in a summary
proceeding instituted by Landlord. Landlord hereby waives any right which it may
have to claim in any such separate proceeding that Tenant's claim should have
been brought as a counterclaim in such summary proceeding.
71. Rules and Regulations.
----------------------
Supplementing Article 36:
A. Landlord shall not enforce any of the Rules and Regulations hereunder
in a way which discriminates unfairly against Tenant (taking into account the
nature of Tenant's occupancy and the number of employees that it employs).
B. Any additional Rules and Regulations which may hereafter be adopted by
Landlord shall be in writing and shall not materially reduce Tenant's rights
under this Lease or materially increase the amounts that Tenant is required to
pay Landlord from time to time under the terms of this Lease.
The following Rule(s) is made a part of this Lease in accordance with
Article 36 hereof:
"Rule 10.
- ---------
<PAGE>
79
Landlord reserves the right to exclude from the common entrances of the 521
Building all persons who do not present a pass to the building issued by the
Landlord, or an "I.D." card issued by Tenant, or who are otherwise not properly
identified to Landlord's guards. Landlord will furnish passes to Tenant's
employees for whom any Tenant requests same in writing or orally. Tenant shall
use its best efforts to recover Landlord's building pass from any terminated
Tenant employees. Tenant shall be responsible for all persons for whom it
requests such pass or who present an "I.D." card and shall be liable to Landlord
for all acts of such persons. Tenant shall not have a claim against Landlord by
reason of Landlord's or Landlord's guards' excluding from the 521 Building any
person who does not present such a pass."
72. Bills, Notices and Communications.
----------------------------------
Supplementing Article 28, after the Occupancy Date, the address for
any bill, statement, notice or communication which Landlord may desire or be
required to give Tenant shall be 521 West 57th Street, Sixth Floor, New York,
New York 10019, or such other address as Tenant hereafter shall designate by
written notice, and copy of any such communication (other than bills or
statements) shall simultaneously be forwarded to Hutton Ingram Yuzek Gainen
Carroll & Bertolotti, Esqs., 250 Park Avenue, New York, N.Y. 10177, marked
"Atten. Shane O'Neill, Esq." In addition to the methods of furnishing notice set
forth in Article 28, notice to either Tenant or Landlord shall be deemed
sufficiently given, served or rendered if, in writing, and sent by telephone
facsimile (commonly called "fax") machine with receipt confirmed by "fax," or by
commercial overnight courier service.
73. Indemnification of Landlord.
----------------------------
A. Supplementing Article 8 with respect to any claim, suit, action
or proceeding for which Landlord shall seek Tenant's defense and/or
indemnification under this Lease ("Indemnifiable Claims") Tenant's obligations
to defend and indemnify Landlord shall be subject to the following further
condition:
(1) Landlord shall reasonably cooperate with Tenant in the defense of
any Indemnifiable Claim;
(2) Landlord shall give Tenant reasonable written notice of any
Indemnifiable Claim;
<PAGE>
80
(3) Tenant shall be permitted to use counsel of Tenant's own choosing
(which may be counsel furnished by Tenant's insurance carrier) to
defend any Indemnifiable Claim; and
(4) Landlord shall not settle or otherwise compromise any
Indemnifiable Claim without the prior written approval of Tenant.
B. If Tenant shall fail or refuse to defend any Indemnifiable Claim
presented to it by Landlord or shall dispute whether any claim, suit, action or
proceeding against Landlord constitutes an Indemnifiable Claim, then in either
such event Landlord, upon reasonable written notice to Tenant, may assume the
defense of such claim, suit, action or proceeding by counsel of Landlord's own
choosing, and Landlord may settle or compromise the same or pursue the same to
judgment, without further notice to or consent by Tenant, and Tenant shall
remain liable, to the extent provided in this Lease, to indemnify and hold
Landlord harmless from and against all liabilities, damages, penalties, costs
and expenses, including reasonable attorneys fees, for which Landlord shall not
have been reimbursed by insurance, incurred or sustained by Landlord as a result
of such claim, suit, action or proceeding.
C. Nothing in this Lease shall be construed as requiring Tenant to
indemnify Landlord against the negligence or improper conduct of Landlord.
74. Arbitration of Certain Landlord Decisions.
------------------------------------------
A. Notwithstanding the last sentence of Article 57, if there is a dispute
between Landlord and Tenant as to the timeliness of Landlord's consent or
decision or the reasonableness of Landlord's refusal of consent or decision with
respect to: (i) Tenant's making of an alteration, installation, addition or
improvement under Articles 3 or 50, or (ii) a proposed assignment of this Lease
or subletting of the demised premises under Articles 11 and 55 (except for
Landlord's decisions under the "Appearance Clause," the "Ventilation Clause" or
the "Appropriateness Clause" described in Article 57 while IFF or IFF's
successor or an IFF-controlled entity owns the 521 Building, which shall not be
subject to arbitration), then Landlord and Tenant agree to proceed diligently in
good faith to have such dispute resolved by arbitration in the City of New York
<PAGE>
81
under the Expedited Procedures provisions (notwithstanding that the amount in
dispute may exceed $50,000) of the Commercial Arbitration Rules of the American
Arbitration Association or its successor (the "AAA") (as amended and effective
on July 1. 1996).
B. The arbitrator conducting any arbitration shall be bound by the
provisions of this Lease (including time frames) and shall not have the power to
add to, subtract from, or otherwise modify such provisions. Landlord and Tenant
agree to do all things reasonably necessary to submit any matter described in
paragraph (A) above to arbitration and further agree to, and hereby do, waive
any and all rights they or either of them may have at any time to revoke their
agreement hereunder to submit to arbitration and to abide by the decision
rendered thereunder which shall be binding and conclusive on the parties and
shall constitute an "award" by the arbitrator within the meaning of the AAA
rules and applicable law. Judgment may be had on the decision and award of the
arbitrator so rendered in any court of competent jurisdiction. An arbitration
award shall be effective when rendered by the arbitrator. The arbitrator shall
act independently and be an attorney with at least ten (10) years experience in
Manhattan loft leasing for commercial buildings. The arbitrator shall be
selected by two licensed commercial real estate agents, one appointed by
Landlord and one appointed by Tenant. Landlord and Tenant shall each have the
right to appear and be represented by counsel at said arbitration and to submit
such data and memoranda in support of their respective positions in the matter
in dispute as may be reasonably necessary or appropriate under the
circumstances. The costs and expenses of arbitration shall be shared equally by
Landlord and Tenant, but each party shall be responsible for its own costs and
expenses and the fees and expenses of its own witnesses and counsel. A
determination made by arbitration pursuant to this Article 74 shall be final and
binding upon the parties.
75. Security.
--------
Supplementing Article 32, Landlord shall place Tenant's security deposit in
an account with a bank, securities brokerage firm or similar financial
institution, bearing an annual interest rate that is commercially reasonable for
the amount of money and period of time involved.
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82
Attachment I
------------
BUILDING SYSTEMS AND EQUIPMENT
- ------------------------------
Tenant may, at Tenant's option, make use of all or part of the
following existing utility systems serving the demised premises described in the
attached Lease.
a. Domestic hot and cold water
b. Sanitary waste and vent system
c. Steam, including perimeter radiation
d. Electricity
e. Class E fire warning system
f. Main Sprinkler Riser
Landlord agrees, at Landlord's expense, to repair, (if necessary) such
systems or portions thereof that Tenant may require and place them in working
order on the Commencement Date. Work may be done by Landlord with its own
contractors, or by Tenant's contractors, as the parties shall mutually agree.
After the Commencement Date the responsibility for repair and maintenance of
such systems shall be determined under Article 4, 13, 49 and 66.
Landlord also agrees to remove, at Landlord expense, prior to the
Commencement Date, all asbestos containing material ("ACM") and other hazardous
surplus materials known to exist in the demised premises and to furnish to
Tenant a Form ACP-5 (or equivalent) to Tenant. If, after the Commencement Date,
there shall be discovered in the demised premises additional ACM or other
hazardous surplus materials, whose existence in the premises preceded the
Commencement Date and was not attributable to Tenant's occupancy or work for the
Initial Improvements, then Landlord shall be obligated to remove such additional
ACM or other hazardous surplus materials at its sole expense. Nothing contained
in this attachment shall be construed to require Landlord to remove ACM which is
fully contained within building walls, ceilings or floors or otherwise is not
required to be removed under applicable regulations concerning ACM in commercial
buildings.
<PAGE>
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
IMPATH Inc.:
We consent to the incorporation by reference in Registration Statements on Form
S-3 (No.'s 33-98916, 333-08553 and 333-45921) and on Form S-8 (No. 333-09469) of
IMPATH Inc. of our report dated February 6, 1998, relating to the consolidated
balance sheets of IMPATH Inc. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997, which report appears in the December 31, 1997 annual report on Form 10-K
of IMPATH Inc.
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 9, 1998
