AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 1998
REGISTRATION NO. 333-09349
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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AVAX TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
-----------
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 2836 13-3575874
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4520 MAIN STREET
SUITE 930
KANSAS CITY, MO 64111
(816) 960-1333
WWW.AVAX-TECH.COM
(Address and telephone number of Small Business Issuer's principal
executive offices and principal place of business)
-----------
JEFFREY M. JONAS, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
4520 MAIN STREET
SUITE 930
KANSAS CITY, MO 64111
(816) 960-1333
(Name, address and telephone number of agent for service)
-----------
COPY TO:
IRA L. KOTEL
ROBERTS, SHERIDAN & KOTEL
A PROFESSIONAL CORPORATION
12 EAST 49TH STREET, 30TH FLOOR
NEW YORK, NEW YORK 10017
(212) 299-8600
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APPROXIMATE DATE OF PROPOSED SALE TO
THE PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVE
DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
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<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
PROSPECTUS
Subject to Completion, Dated March 16, 1998
6,355,248 SHARES
AVAX TECHNOLOGIES, INC.
COMMON STOCK
This Prospectus relates to the offer (the "Offering") by the securityholders
named herein under the caption "Selling Securityholders" (collectively, the
"Selling Securityholders") for sale to the public of the following securities of
AVAX Technologies, Inc. (the "Company"): (i) 1,209,234 shares of the Company's
common stock, par value $.004 per share (the "Common Stock"); (ii) 5,096,785
shares of Common Stock issuable upon conversion of currently outstanding shares
of Series B Convertible Preferred Stock, par value $.01 per share, of the
Company ("Series B Preferred Stock"); and (iii) 49,229 shares of Common Stock
issuable upon (a) the conversion of shares of Series B Preferred Stock of the
Company issuable upon exercise of the warrants issued to the designees of the
placement agent of the Series B Offering described herein (the "Series B
Placement Warrants") and (b) exercise of warrants issued to the designees of the
placement agent for certain bridge financing transactions of the Company
described herein (the "Bridge Placement Warrants," and together with the Series
B Placement Warrants, the "Placement Warrants"). The number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock and upon exercise
of the Placement Warrants is subject to adjustment in certain events. This
Prospectus relates to the shares of Common Stock remaining to be sold in an
offering which commenced on July 7, 1997 for an aggregate of 7,047,788 shares of
Common Stock.
The Company will not receive any proceeds from the sale of shares of Common
Stock. The Company is not expected to receive any proceeds from the exercise of
the Placement Warrants since the Placement Warrants may be exercised pursuant to
a cashless exercise provision. In the event that the Placement Warrants are
exercised for cash, the Company intends to use such net cash proceeds (after
estimated expenses of this Offering of approximately $620,000) for general
working capital purposes. Proceeds, if any, from the exercise for cash of all
the Placement Warrants, before deduction of estimated expenses of this Offering,
would be approximately $160,000. Whether, how and to what extent any of the
Placement Warrants will be exercised, and whether the Placement Warrants are
exercised for cash or not, cannot be predicted by the Company.
The Selling Securityholders have advised the Company that they may sell,
directly or through brokers, all or a portion of the securities offered hereby
in negotiated transactions or in one or more transactions in the market at the
price prevailing at the time of sale. In connection with such sales, the Selling
Securityholders and any participating broker may be deemed to be "underwriters"
of the Common Stock within the meaning of the Securities Act of 1933. It is
anticipated that usual and customary brokerage fees will be paid by the Selling
Securityholders in all open market transactions. The Company will pay all other
expenses of this Offering. See "Plan of Distribution."
The Company has informed the Selling Securityholders that the anti-manipulation
provisions of Regulation M promulgated under the Securities Exchange Act of 1934
may apply to the sales of their shares offered hereby. The Company also has
advised the Selling Securityholders of the requirement for delivery of this
Prospectus in connection with any sale of the shares offered hereby.
The Company is in the research and development stage, has not had any operating
revenues, and at December 31, 1997, had an accumulated deficit of approximately
$7,520,147. The Company is continuing to incur losses and expects to incur
significantly increasing additional losses for the foreseeable future.
The Common Stock is listed for quotation on the Nasdaq SmallCap Market under the
symbol "AVXT." The last reported sale price of the Common Stock on the Nasdaq
SmallCap Market on March 10, 1998, was $ 4.125 per share. The prices of the
Common Stock which may be obtained on such market are not necessarily related to
the Company's assets, book value, results of operations or any other established
criteria of value, and should not be regarded as any indication of future market
price of the Common Stock. See "Risk Factors," "Description of Securities" and
"Plan of Distribution." There can be no assurance that an active trading market
in the Company's securities will develop or be sustained.
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THE SECURITIES OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
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THE COMMON STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is __________, 1998
[RED HERRING APPEARS AT LEFT OF PAGE ROTATED 90 DEGREES]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOT SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
The Company is a "reporting company" as such term is employed in the Securities
Exchange Act of 1934 and intends to furnish to registered holders of Common
Stock, annual reports containing financial statements examined by an independent
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing interim unaudited financial information.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (together with all
amendments and exhibits thereto being herein referred to as the "Registration
Statement") under the Securities Act of 1933. For further information about the
Company and the securities offered hereby, reference is made to the Registration
Statement and to the financial statements and exhibits filed as a part thereof.
The statements contained in this Prospectus as to the contents of any contract
or any other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, as well as other reports
and other information filed by the Company, can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, New York, New York 10048. Copies of such material can be
obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and other information regarding registrants that file
electronically with the Commission.
2
<PAGE>
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND THE FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS, INCLUDING,
WITHOUT LIMITATION, THE INFORMATION UNDER "RISK FACTORS," OR INCORPORATED HEREIN
BY REFERENCE, AND, ACCORDINGLY, SHOULD BE READ IN CONJUNCTION THEREWITH. UNLESS
OTHERWISE INDICATED TO THE CONTRARY, THE INFORMATION IN THIS PROSPECTUS GIVES
EFFECT TO A TWO-FOR-ONE REVERSE STOCK SPLIT OF THE COMMON STOCK EFFECTED ON MAY
13, 1997.
COMPANY SUMMARY
AVAX(TM) Technologies, Inc. ("AVAX" or the "Company"), is a development stage
biopharmaceutical company which intends to acquire rights to, and to develop,
technologies and products for the treatment of cancer and other life-threatening
diseases. The Company initially intends to focus its efforts primarily on the
development of immunotherapies and chemotherapies for cancer. Immunotherapy is a
rapidly developing segment of the cancer therapeutic market.
In 1995, the Company licensed (the "TJU License") from Thomas Jefferson
University ("TJU") an issued U.S. patent and certain U.S. and foreign patent
applications covering a cancer vaccine containing a cancer patient's own
modified tumor cells, and a method for making and using such a vaccine. This
technology allows the Company to produce an autologous cell vaccine (an "AC
Vaccine") that attempts to stimulate the patient's immune system to eliminate
the cancer. This technology has emerged from research conducted at TJU and
primarily involves the removal of a patient's own tumor cells, modifying them
with a small molecule known as a hapten, and reintroducing the product back into
the patient. The approach is based on the premise that a patient's immune
response to a strongly immunogenic, hapten-modified tumor antigen may be
followed by the development of an immune response to the unmodified tumor
antigen, somewhat analogous to the phenomenon of drug-induced autoimmune
disease.
The Company's initial AC Vaccine(TM), M-Vax(TM), is currently undergoing
physician-sponsored human clinical trials based on an experimental protocol at
TJU as an outpatient, post-surgical, adjunct therapy for the treatment of
melanoma, and is believed by the Company to be the first therapeutic cancer
vaccine to show a substantial increase in the survival rate for patients with
stage 3 melanoma. In such ongoing clinical trials at TJU, over 300 melanoma
patients have been treated post-surgically on an outpatient basis with M-Vax. In
62 patients with stage 3 melanoma in protocols in which there has been
sufficient time for long-term follow-up, the five-year survival rate is
approximately 60%. This compares with the historical and control group stage 3
survival rate of approximately 20%, and the survival rate for treatment with
high dose alpha interferon of approximately 32% in stage 3 patients whom the
Company believes to be comparable to those treated with M-Vax. In patients over
50 years old treated with M-Vax, the five-year survival rate was approximately
71%. In the over 300 patients treated in studies, the Company believes that only
relatively minor side effects, such as mild transient nausea and soreness and
swelling at the site of the application of the M-Vax vaccine, have been
witnessed to date.
David Berd, M.D., Professor of Medicine and Clinical Oncologist at TJU and the
inventor of the AC Vaccine technology, has conducted the ongoing clinical trials
at TJU pursuant to an FDA-approved, physician-sponsored Investigational New Drug
Application ("IND"). Following an earlier meeting with the FDA to discuss the
clinical results obtained with M-Vax, the use of such results in support of the
submission of a Company-sponsored IND to the FDA, and to review its proposed
development plan, the Company reviewed a proposed phase 3 protocol with FDA and
plans to submit a Company-sponsored IND to support the pivotal trial program.
This IND will also address product characterization/manufacturing issues raised
by the FDA to ensure that all pivotal data will support a product license
application. No patients will be enrolled in the pivotal trial program until the
Company and the FDA are satisfied that all product issues are resolved.
Depending upon the results of such clinical trials, it is the Company's
intention to use the results of these Company-sponsored clinical trials along
with the results of the clinical trial conducted at TJU, as the basis for the
filing of an application for the FDA approval to market M-Vax. The Company also
may pursue a similar regulatory approval and commercialization strategy for
M-Vax in Australia, Canada, Mexico and certain other countries through corporate
partnering strategies, although such strategies have not yet been finalized or
initiated.
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3
<PAGE>
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Denial of any regulatory approvals or any significant delays in obtaining any
of the same would have a material adverse effect on the Company.
The Company also believes that the AC Vaccine technology may have
applications in the treatment of other cancers, which may include ovarian,
breast, prostate, lung and colorectal cancers and acute myelogenous leukemia
(AML). The Company intends to fund the preclinical and initial clinical
development of this technology for at least some of these indications.
Accordingly, in addition to continuing the clinical work on M-Vax, the
Company has also entered into a sponsored research agreement with TJU
relating to the development of additional immunotherapies based on the AC
Vaccine technology. For example, the Company is treating post-surgical stage
3 patients in its Phase I/II clinical trial of O-Vax(TM), its AC Vaccine for
ovarian cancer. This trial is being conducted at TJU under the direction of
Dr. David Berd and has already shown a positive immune response, as measured
by a delayed type hypersensitivity (DTH) test, in the first seven of seven
patients treated. The Company also plans to initiate a similar Phase I/II
clinical trial of C-Vax(TM), its AC Vaccine for colorectal cancer, within the
next year.
In connection with the Company's strategy to acquire, develop and
commercialize other potential biotechnology products and technologies, the
Company has licensed from Rutgers University and the University of Medicine
and Dentistry of New Jersey (collectively, "Rutgers"), certain patent
applications relating to a series of topoisomerase inhibitor compounds for
the potential treatment of cancer and infectious diseases (the "Rutgers
License"). The Company also has licensed from The Texas A&M University System
("Texas A&M"), an issued U.S. patent and certain patent applications relating
to a series of novel anti-estrogen compounds for the potential treatment of
cancer (the "Texas A&M License"). Pursuant to the Rutgers License and the
Texas A&M License (and under its related sponsored research agreements with
each of Rutgers and Texas A&M), the Company intends to expend substantial
resources on the research and development of these compounds.
In order to contain costs, the Company may continue to use sponsored research
agreements and contract research organizations to help it develop its
technologies. At the appropriate time the Company may seek corporate partners
to provide the necessary resources and expertise for clinical development and
to manufacture, market and distribute products. In addition, the Company may
seek to explore the acquisition and subsequent development and
commercialization of additional commercially promising immunotherapy,
chemotherapy and adjuvant technologies. No assurance can be given that the
Company will have the requisite resources or that any such projects will be
identified on terms favorable to the Company, if at all.
The Company may seek to explore the acquisition and subsequent development
and commercialization of additional commercially promising immunotherapy and
adjuvant technologies. No assurance can be given that the Company will have
the requisite resources or that any such projects will be identified on terms
favorable to the Company, if at all.
The Company was incorporated in the State of New York on January 12, 1990,
under the name Nehoc, Inc. On May 29, 1992, it changed its name to Appex
Technologies, Inc. On October 22, 1992, the Company merged into Walden
Laboratories, Inc. ("Walden"), a Delaware corporation, which was incorporated
on September 18, 1992. On December 27, 1995, Walden sold its former leading
product under development, an over-the-counter nutritional dietary, medicinal
and/or elixorative food supplement or drug and related patents and
intellectual property to a subsidiary of Interneuron Pharmaceuticals, Inc.
The Company changed its name from Walden Laboratories, Inc., to AVAX
Technologies, Inc., effective March 26, 1996.
The Company's principal executive office is located at 4520 Main Street,
Suite 930, Kansas City, Missouri 64111. Its telephone number at that address
is (816) 960-1333.
AVAX(TM), AC Vaccine(TM), M-Vax(TM), O-Vax(TM) and C-Vax(TM) are trademarks
of the Company. This Prospectus also includes trademarks of other companies.
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4
<PAGE>
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OFFERING SUMMARY
Common Stock Outstanding
as of March 3, 1998: 4,777,488 shares of Common Stock, including
1,209,234 currently outstanding shares of
Common Stock directly held by the Selling
Securityholders.(1)
Common Stock Offered
by Selling Securityholders: 6,355,248 shares of Common Stock.
Risk Factors: The securities offered hereby involve a high
degree of risk. See "Risk Factors."
Nasdaq SmallCap
Market Symbol: AVXT
Use of Proceeds: The Company will not receive any proceeds
from the sale of shares of Common Stock. The
Company is not expected to receive any
proceeds from the exercise of the Placement
Warrants since the Placement Warrants may be
exercised pursuant to a cashless exercise
provision. In the event that the Placement
Warrants are exercised for cash, the Company
intends to use such net cash proceeds (after
estimated offering expenses of this Offering
of approximately $620,000) for general
working capital purposes. Proceeds, if any,
from the exercise for cash of all the
Placement Warrants, before deduction of
estimated expenses of this Offering, would
be approximately $160,000. Whether, how and
to what extent any of the Placement Warrants
will be exercised, and whether the Placement
Warrants are exercised for cash or not,
cannot be predicted by the Company. See "Use
of Proceeds," "Certain Transactions,"
"Selling Securityholders" and "Description
of Securities."
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1 Does not include (i) 5,130,681 shares of Common Stock issuable upon
conversion of currently outstanding shares of Series B Preferred
Stock, (ii) 704,814 shares of Common Stock issuable upon (a) exercise
of Bridge Placement Warrants and (b) conversion of Series B Preferred
Stock issuable upon exercise of Series B Placement Warrants, (iii)
30,000 shares of Common Stock issuable upon exercise of outstanding
stock options at an exercise price of $1.20 per share under the
Company's 1992 Stock Option Plan, (iv) 407,500 shares of Common Stock
reserved for issuance of future options under the Company's 1992 Stock
Option Plan, (v) 1,152,016 shares of Common Stock reserved for
issuance pursuant to the employment arrangements among the Company and
certain of its full-time employees, officers, directors and
consultants, and (vi) approximately 578,250 shares of Common Stock
issuable upon exercise of other options and warrants to purchase
shares of Common Stock. See "Executive Compensation" and "Description
of Securities."
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5
<PAGE>
SUMMARY OF FINANCIAL DATA
The following table presents certain summary historical financial information
derived from the financial statements of the Company. The summary is qualified
in its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Plan of Operations", and the
Financial Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
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1996 1997
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<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating loss........................ $ (1,992,386) $ (5,172,983)
Net loss.................................... (1,536,842) (4,266,125)
Net loss attributable to common
stockholders.......................... (2,668,586) (4,266,125)
Net loss per common share (1)............... (.84) (1.14)
Weighted average number of shares
outstanding........................... 3,182,058 3,750,440
December 31, 1997
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BALANCE SHEET DATA:
Cash and cash equivalents................... $ 6,820,884
Marketable securities....................... 9,102,028
Total current assets........................ 17,277,841
Total assets................................ 17,354,833
Amount payable to preferred stockholders.... 1,150,200
Amount payable to former officer............ 49,800
Total current liabilities................... 1,553,726
Deficit accumulated during development
stage................................. (7,520,147)
Stockholders' equity........................ 15,801,107
</TABLE>
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(1) See Note 1 to Financial Statements for an explanation of the
determination of shares used in computing Net income (loss) per common
share.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY IS HIGHLY SPECULATIVE
IN NATURE, INVOLVES A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY PERSONS
WHO CANNOT AFFORD A LOSS OF THEIR ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR
SHOULD CONSIDER CAREFULLY THE RISKS INHERENT IN AND AFFECTING BOTH THE BUSINESS
OF THE COMPANY AND THE VALUE OF THE COMMON STOCK AND SPECULATIVE FACTORS
INCLUDING, WITHOUT LIMITATION, THE FOLLOWING RISK FACTORS, AS WELL AS OTHER
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
IN THE COMMON STOCK.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company has incurred substantial operating losses since its inception. As of
December 31, 1997, the Company's accumulated deficit was approximately
$7,520,147. The Company expects to incur significant increasing operating losses
over the next several years, primarily due to the expansion of its research and
development programs, including clinical trials for M-Vax(TM) , O-Vax(TM),
C-Vax(TM) and preclinical studies and clinical trials for other products that it
may acquire or develop. The Company's ability to achieve profitability depends
upon, among other things, its ability to develop products, obtain regulatory
approval for its proposed products, and enter into agreements for product
development, manufacturing and commercialization. The Company's M-Vax , O-Vax
and C-Vax products do not currently generate revenue and the Company does not
expect to achieve revenues from these or other products for the foreseeable
future. Moreover, there can be no assurance that the Company will ever achieve
significant revenues or profitable operations from the sale of M-Vax, O-Vax,
C-Vax, or any other products that it may develop.
NEED FOR ADDITIONAL FINANCING; ISSUANCE OF SECURITIES; FUTURE DILUTION
In the future, the Company may require substantial additional financing to
continue research, undertake product development and to pursue the manufacturing
and marketing of any products that it may develop. The Company anticipates that
further funds may be raised through additional debt or equity financings
conducted by the Company, or through collaborative ventures entered into between
the Company and potential corporate partners. However, there can be no assurance
that any such offering will be consummated or that the Company will otherwise be
able to obtain additional financing or that such financing, if available, can be
obtained on terms favorable or acceptable to the Company. If such offerings are
not consummated or additional financing is not otherwise available, the Company
will be required to modify its business development plans or reduce or cease
certain or all of its operations.
While the Company may seek to enter into collaborative ventures with corporate
sponsors to fund some or all of its research and development activities, as well
as to manufacture or market any products which may be successfully developed,
the Company currently does not have any such arrangements with corporate
sponsors, and there can be no assurance that the Company will be able to enter
into such ventures on favorable or acceptable terms, if at all. In addition, no
assurance can be given that the Company will be able to complete a subsequent
public offering or private placement of its securities. Failure by the Company
to enter into such collaborative ventures or to receive additional funding to
complete its proposed product development programs either through a private
placement or a public offering could have a material adverse effect on the
Company. In the event that the Company obtains any additional funding, such
financings may have a dilutive effect on the holders of the Common Stock. See
"Risk Factors--Dependence on Third Parties for Additional Funds and for
Manufacturing, Marketing and Selling."
In addition, the Company currently has an employee stock option plan under which
its officers and directors will be eligible to receive stock options exercisable
for Common Stock at exercise prices which may be lower than the current market
price of the Common Stock. Similarly, under employment arrangements with certain
full-time employees, officers, directors and consultants of the Company, the
Company has granted such employees, officers, directors and consultants options
for Common Stock at exercise prices that may be lower than the prevailing market
price of the Common Stock from time to time. Such stock option grants under the
employee stock option plan if any, and to certain of the full-time employees,
officers, directors and consultants of the Company, may dilute the value of the
Common Stock. See "Management" and "Description of Securities--1992 Stock Option
Plan; Other Options."
7
<PAGE>
DEVELOPMENT STAGE COMPANY
Although the Company was organized in January 1990, it has only conducted
limited research activities, principally through its license and research
agreements with TJU, Rutgers and Texas A&M, and has not generated any
significant revenues to date from operations. Accordingly, the Company must be
evaluated in light of the expenses, delays, uncertainties and complications
typically encountered by newly established biopharmaceutical businesses, many of
which uncertainties and complications may be beyond the Company's control. These
include, but are not limited to, unanticipated problems relating to product
development, testing, regulatory compliance, manufacturing, marketing and
competition, and additional costs and expenses that may exceed current
estimates. There can be no assurance that the Company will successfully develop
and commercialize any products, generate any revenues or ever achieve profitable
operations. See "Business."
TECHNOLOGICAL UNCERTAINTY AND EARLY STAGE OF PRODUCT DEVELOPMENT
The technologies and products which the Company intends to develop are in the
early stages of research and development, require significant further research,
development and testing and are subject to the risks of failure inherent in the
development of products based on innovative or novel technologies. These risks
include, but are not limited to, the possibility that any or all of the
Company's proposed products will be found to be ineffective or unsafe, that the
products once developed, although effective, are uneconomical to market, that
third parties hold proprietary rights that preclude the Company from marketing
such products or that third parties market a superior or equivalent product and
that the Company will be unable to secure a meaningful patent position for such
products. See "Uncertainty Regarding Patents and Proprietary Rights." The
results of initial preclinical and clinical testing of the Company's current and
proposed products under development are neither necessarily predictive of
results that will be obtained from subsequent or more extensive preclinical and
clinical testing nor necessarily acceptable to the United States Food and Drug
Administration (the "FDA") or other similar agencies to support applications for
marketing permits.
The Company's agreements with (i) TJU, its licensor for the AC Vaccine(TM)
technology, (ii) Rutgers, its licensor for certain anti-cancer and
anti-infective technology and (iii) Texas A&M, its licensor for certain
anti-cancer technology, do not contain any representations by the licensors as
to the safety or efficacy of the inventions or discoveries covered thereby. The
Company is unable to predict whether the research and development activities it
is funding will result in any commercially viable products or applications.
Further, due to the extended testing required before marketing clearance can be
obtained from the FDA or other similar agencies, the Company is not able to
predict with any certainty, when, if ever, it will be able to commercialize any
of its proposed products.
The market for biotechnology in general, and for cancer immunotherapies such as
the AC Vaccine technology and other possible future products, in particular, are
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions. The Company's future success will depend
upon its ability to develop and commercialize its existing product and to
develop new products. There can be no assurance that the Company will
successfully complete the development of its existing product or of any future
product or that the Company's current or future products will achieve market
acceptance. Any delay or failure of M-Vax, O-Vax, C-Vax, or any future product
which the Company may develop, in achieving market acceptance would materially
and adversely affect the Company's business. In addition, there can be no
assurance that products or technologies developed by others will not materially
render the Company's existing or future products or technologies non-competitive
or obsolete.
This Prospectus includes estimates by the Company of the number of patients with
a particular type of cancer or other diseases, the number of patients who were
administered a particular vaccine or drug and the number of patients who
received or might have been candidates for a particular type of treatment. There
can be no assurance that such estimates accurately reflect the true market or
the extent to which any of the Company's products, if successfully developed,
will actually be used by patients. Furthermore, even if patient use occurs,
there can be no assurance that the Company's sales of its products for such uses
will be profitable. Failure of the Company to successfully develop, obtain
regulatory approval for, introduce and market M-Vax, O-Vax, C-Vax, and any
possible future products would have a material adverse effect on the Company.
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GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL
The proposed products of the Company will be subject to very stringent federal,
state and local government regulations, including, without limitation, the
Federal Food, Drug and Cosmetic Act, and its state and local counterparts.
Similar regulatory frameworks exist in other countries where the Company may
consider marketing its products. To date, TJU and Dr. David Berd, the inventor
of the AC Vaccine technology, have conducted the ongoing clinical trials at TJU
pursuant to an FDA-approved physician sponsored Investigational New Drug
Application ("IND"). The Company met earlier with the FDA to discuss the
clinical results obtained with M-Vax, the use of such results in support of the
submission of a Company-sponsored IND to the FDA, and to review its proposed
development program, which includes Phase III clinical trials for M-Vax. Prior
to marketing M-Vax, O-Vax, C-Vax, or any other possible product the Company may
develop, such product must undergo an extensive regulatory approval process. Any
denials or delays in obtaining requisite approvals would be likely to have a
material adverse effect on the Company.
The regulatory process includes extensive preclinical and clinical testing of
any product to establish its safety and efficacy. This testing can take many
years and require the expenditure of substantial capital and other resources. In
the U.S., clinical trials are stringently regulated by the FDA, and the FDA may
suspend clinical trials at any time if it determines that patients are being
exposed to an unreasonable health risk, or for certain other reasons. Delays or
denials of marketing approval are encountered regularly due to the submission of
unacceptable or incomplete data as deemed by the FDA or other similar regulatory
agency, or due to regulatory policy for product approvals. In addition, new
government regulations may be established that could delay or prevent regulatory
approval of the Company's products under development. These delays may be
encountered both domestically and abroad. There is no assurance that even after
clinical testing, regulatory approval will ever be obtained. If regulatory
approval is obtained, the uses for which any products may be marketed will be
limited to specific indications. Following regulatory approval, if any, a
marketed product and its manufacturer are subject to continual regulatory review
and periodic inspections. In the U.S., the Company would be required to comply
with FDA requirements for manufacturing, labeling, advertising, record keeping
and reporting of adverse experiences and other information. In addition, the
Company would be required to comply with federal and state health care
anti-kickback laws and other health care fraud and abuse laws that pertain to
the marketing of pharmaceuticals. Failure to comply with regulatory requirements
could subject the Company to administrative or judicial enforcement actions,
including but not limited to product seizures, injunctions, civil penalties,
criminal prosecution, refusals to approve new products or withdrawal of existing
approvals, as well as increased product liability exposure, any of which could
have a material adverse affect on the Company. Development and marketing of the
Company's products outside the U.S. will be subject to foreign regulatory
requirements governing clinical trials, marketing approval, manufacturing and
pricing. Failure to comply with these requirements could result in enforcement
actions or penalties or could delay introduction of the Company's products in
certain countries.
Failure of the Company to obtain and maintain regulatory approval of its
proposed products, processes or facilities would have a material adverse effect
on the business, financial condition and results of operations of the Company.
In addition, many academic institutions and companies doing research in the
field of cancer immunotherapy are using a variety of approaches and
technologies. Any adverse results obtained by such researchers in preclinical or
clinical studies, even if not directly or indirectly related to the Company's
potential products or approaches, could adversely affect the regulatory
environment for immunotherapy or other biotechnology products generally, and
possibly lead to delays in the approval process for the Company's potential
products. See "Business--Government Regulation."
DEPENDENCE ON OTHERS FOR CLINICAL DEVELOPMENT OF, AND REGULATORY APPROVALS FOR,
MANUFACTURING AND MARKETING OF PHARMACEUTICAL PRODUCTS
The Company anticipates that it may in the future seek to enter into
collaborative agreements with pharmaceutical, or other biotechnology companies,
for the development of, clinical testing of, seeking of regulatory approval for,
and manufacturing, marketing and commercialization of, certain of its products.
The Company may in the future grant to its collaborative partners, if any,
rights to license and commercialize any pharmaceutical products developed under
these collaborative agreements and such rights would limit the Company's
flexibility in considering alternatives for the commercialization of such
products. Under such agreements, the Company may rely on such collaborative
partners to conduct research efforts and clinical trials on, obtain regulatory
approvals for, manufacture, market and commercialize certain of the Company's
products. Although the Company believes that such collaborative partners might
have an
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economic motivation to commercialize the pharmaceutical products which they may
license, the amount and timing of resources devoted to these activities
generally will be controlled by each such individual partner. There can be no
assurance that the Company will be successful in establishing any collaborative
arrangements, or that, if established, such future partners will be successful
in commercializing products or that the Company will derive any revenues from
such arrangements. Although the Company intends to pursue such collaborative
arrangements in the future, there are no specific arrangements, proposals, plans
or understandings with respect to any such collaborative arrangements.
DEPENDENCE ON THIRD PARTIES FOR ADDITIONAL FUNDS AND FOR MANUFACTURING,
MARKETING AND SELLING
The Company currently does not have the resources to commercially manufacture,
directly market or sell M-Vax, O-Vax, C-Vax, or any products it may develop in
the future. Accordingly, the Company may be dependent on corporate partners or
other entities for, and may have only limited control over, commercial scale
manufacturing, marketing and selling of its products. The inability of the
Company to acquire such third party manufacturing, distribution, marketing and
selling arrangements for the Company's anticipated products will have a material
adverse effect on the Company's business. There can be no assurance that the
Company will be able to enter into any arrangements for the manufacturing,
marketing and selling of its products. While the Company is in the process of
establishing commercial scale manufacturing facilities, such endeavor will
require substantial additional funds, the hiring and retention of significant
additional personnel and compliance with extensive regulations applicable to
such a facility. There can be no assurance that the Company will be able to
successfully establish such a facility, hire such personnel or successfully
manufacture products for sale at competitive prices. See
"Business--Manufacturing and Marketing."
DEPENDENCE ON LICENSES AND SPONSORED RESEARCH AGREEMENTS
The Company relies heavily on third parties for a variety of functions,
including certain functions relating to research and development. As of March 3,
1998, the Company had only six full-time employees. The Company is party to
several license and research agreements which place substantial responsibility
on the Company's licensors for research and clinical development of its products
and technologies.
In particular, the Company is dependent upon the TJU License as the basis of its
proprietary AC Vaccine technology and is dependent upon a sponsored research
agreement with TJU for research and development efforts in connection therewith.
Pursuant to the TJU License, the Company is obligated to pay an up-front license
fee, to use due diligence in developing and bringing products to market and to
make certain payments upon the achievement of certain milestones. The Company is
also obligated to make royalty payments on the sales, if any, of products
resulting from such licensed technology and, is responsible for the costs of
filing and prosecuting patent applications and maintaining issued patents. In
addition, the Company is required to invest a minimum amount per year in the AC
Vaccine technology as well as sponsored research at TJU. The Company is
similarly dependent upon the Rutgers License and Texas A&M License for certain
of its technology, and has financial and other obligations thereunder (and under
its related sponsored research agreements with each of Rutgers and Texas A&M)
which are similar to those under the TJU agreements.
As the Company currently does not have laboratory facilities, the Company's
research and development activities are intended to be conducted by universities
or other institutions pursuant to sponsored research agreements. The sponsored
research agreement entered into by the Company, TJU and Dr. Berd generally
requires periodic payments by the Company to TJU on a quarterly basis.
There are similar types of obligations under the Rutgers License and Texas A&M
License.
If the Company does not meet its financial, development, or other obligations in
a timely manner under its license agreements or related sponsored research
agreements, the Company could lose the rights to its proprietary technology or
the right to have its licensors and others conduct its research and development
efforts, any of which could have a material adverse effect on the Company. TJU
has the right to terminate the R&D agreement on 30 days' written notice if it
becomes unable for any reason to complete the Study.
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UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The biotechnology industry places importance on obtaining patent and trade
secret protection for new technologies, products and processes. The success of
the Company will depend in substantial part on its ability, on the ability of
its current licensors and on the ability of its potential future licensors, if
any, to obtain patents, defend such patents, maintain trade secrets and operate
without infringing upon the proprietary rights of others, both in the United
States and in foreign countries. The patent position of firms relying upon
biotechnology is highly uncertain and involves complex legal and factual
questions. To date there has emerged no consistent policy regarding the breadth
of claims allowed in biotechnology patents or the degree of protection afforded
under such patents.
More specifically, the Company relies on TJU's issued patent for its proprietary
patent rights in and to the AC Vaccine technology and may rely on certain United
States patents and pending patent applications, as well as a pending foreign
Patent Cooperation Treaty ("PCT") application, relating to various aspects of
its present and future products and processes. The patent application and
issuance process can be expected to take several years and could entail
considerable expense to the Company, as it may be responsible for such costs
under the terms of any technology agreements. There can be no assurance that
patents will issue as a result of any applications or that existing patents and
any patents resulting from such applications, will be sufficiently broad to
afford protection against competitors with similar technology. In addition,
there can be no assurance that any issued patents will be enforceable and will
not be subject to reexamination or reissue, or challenged, invalidated, or
circumvented. There can be no assurance that the rights granted thereunder will
provide competitive advantages to the Company. The commercial success of the
Company will also depend upon avoiding infringement of patents issued to
competitors. A United States patent application is maintained under conditions
of confidentiality while the application is pending, so the Company cannot
determine the inventions being claimed in pending patent applications filed by
third parties. As a result, the Company cannot be certain that its scientists
were the first to make inventions covered by its patents and patent
applications.
In the event a third party has filed a patent application relating to an
invention claimed in a Company patent application, the Company or its licensor
may be required to participate in an interference proceeding in the United
States Patent and Trademark Office to determine priority of the invention, which
could result in substantial uncertainties and cost for the Company, even if the
eventual outcome is favorable to the Company. An adverse outcome could subject
the Company to significant liabilities to third parties and require the Company
to license disputed rights from third parties at an undeterminable cost or to
cease using the technology. In addition to patent litigation and interferences,
a third party may at some time seek to have a patent of the Company reexamined
in the Patent Office on the basis of prior art. The Company, or a licensor of
the Company, may also at some time seek reexamination, or reissue, of a Company
patent. An application for reissue is being made for the purpose of
strengthening the TJU patent in light of a prior art reference which may have a
material adverse impact on the patent. Although the Company believes that there
is a sound basis for this reissue application, there can be no assurance that a
patent will issue from the application, or that any such patent will be
enforceable and will not be challenged, invalidated, or circumvented. There can
be no assurance that the validity or enforceability of the Company's patents and
its applications, if issued, would be upheld by a court.
While no patent that could be potentially infringed by manufacture, use or sale
of the Company's product candidates has come to the attention of the Company,
the Company's product candidates are still in the development stage, and neither
their formulations nor their method of manufacture have been finalized. Thus,
there can be no assurance that the manufacture, use or sale of the Company's
product candidates will not infringe patent rights of others. The Company may be
unable to avoid infringement of any such patents and may have to seek a license,
defend an infringement action, or challenge the validity of the patents in
court. There can be no assurance that a license will be available to the
Company, if at all, upon terms and conditions acceptable to the Company or that
the Company will prevail in any patent litigation. Litigation may be necessary
to defend or enforce the Company's patent and license rights or to determine the
scope and validity of others' proprietary rights. Defense and enforcement of
patent claims can be expensive and time consuming, even in those instances in
which the outcome is favorable to the Company, and can result in the diversion
of substantial resources from the Company's other activities. There can be no
assurance that the Company will have sufficient resources to pursue such
litigation. If the Company does not obtain a license under any such patents, is
found liable for infringement, or is not able to have them declared invalid, the
Company may be liable for significant money damages, may encounter significant
delays in bringing products to market, or may be precluded from participating in
the manufacture, use or sale of
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products or methods of treatment covered by such patents, any of which could
have a material adverse effect on the Company's business, results of operation
and financial condition. See "Business-- Proprietary Technology."
In its product development activities, the Company relies substantially on
certain technologies which are not patentable or proprietary and are therefore
available to the Company's competitors. The Company also relies on certain
proprietary trade secrets and know-how which are not patentable. Although the
Company has taken steps to protect its unpatented trade secrets and know-how, in
part through the use of confidentiality agreements with its employees,
consultants and certain of its contractors, there can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach or that the Company's trade secrets will not otherwise become
known or be independently developed or discovered by competitors. If the
Company's employees, scientific consultants or collaborators develop inventions
or processes independently that may be applicable to the Company's product
candidates, disputes may arise about ownership of propriety rights to those
inventions and processes. Such inventions and processes will not necessarily
become the Company's property, but may remain the property of those persons or
their employers. Protracted and costly litigation could be necessary to enforce
and determine the scope of the Company's proprietary rights. Failure to obtain
or maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the Company. Certain of the Company's patents are
directed to inventions developed within academic institutions (from which the
Company earlier acquired rights to such patents) with funds from United States
government agencies. As a result of these arrangements, the United States
government may have rights in certain inventions developed during the course of
the performance of federally funded projects as required by law or agreements
with the funding agency. Several bills affecting patent rights have been
introduced in the United States Congress. These bills address various aspects of
patent law, including publication, patent term, re-examination, subject matter
and enforceability. It is not certain whether any of these bills will be enacted
into law or what form new laws may take. Accordingly, the effect of legislative
change on the Company's intellectual property rights is uncertain.
CONDUCTING BUSINESS ABROAD
To the extent the Company conducts business outside the United States, it
intends to do so through licenses, joint ventures or other contractual
arrangements for the development, manufacturing and marketing of its products.
No assurance can be given that the Company will be able to establish foreign
operations successfully through such a plan, or that foreign applications will
avoid opposition and be approved. No assurance can be given that the foreign
coverage will be available or that the manufacturing and marketing of its
products through such licenses, joint ventures other arrangements will be
commercially successful. The Company might also have greater difficulty
obtaining proprietary protection for its products and technologies outside the
United States and enforcing its rights in foreign courts.
For clinical investigation and marketing outside the United States, the Company
also is subject to foreign regulatory requirements governing human clinical
trials and marketing approval for drugs. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary widely for
European countries both within and outside the European Union ("EU"). Outside
the United States, the Company's ability to market a product is contingent upon
receiving a marketing authorization from the appropriate regulatory authority.
At present, foreign marketing authorizations are applied for at a national
level, although with the EU certain registration procedures are available to
companies wishing to market their products in more than one EU member state. If
the regulatory authority is satisfied that adequate evidence of safety, quality
and efficacy has been presented, a marketing authorization will be granted. The
system for obtaining marketing authorizations within the EU registration system
is a dual one in which certain products, such as biotechnology and high
technology products and those containing new active substances, will have access
to a central regulatory system that provides registration throughout the entire
EU. Other products will be registered by national authorities in individual EU
member states, operating on a principle of mutual recognition. This foreign
regulatory approval process includes, at least, all of the risks associated with
FDA approval set forth above. The Company could possibly have greater difficulty
in obtaining any such approvals and also might find it more difficult to protect
its intellectual property abroad.
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DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS
The Company is highly dependent upon its officers and directors, as well as its
Scientific Advisory Board members, consultants and collaborating scientists.
Except for its six full-time employees, each of the Company's officers,
directors, advisors and consultants devotes only a portion of his or her time to
the Company's business and for the most part are involved with other
substantially full-time activities. The loss of certain of these individuals,
including, without limitation, Jeffrey M. Jonas, M.D., the Company's President
and Chief Executive Officer, could have a material adverse effect on the Company
unless the Company could promptly hire qualified replacements. The Company
maintains a key-man life insurance policy on Dr. Jonas in the amount of only $3
million. In addition, several of the Company's full-time employees, officers and
consultants have only recently joined the Company. Although the Company has
entered into letters of employment with many of its full-time employees,
officers and consultants, such letters of employment do not contain provisions
which would prevent any of them from resigning at any time. See "Management".
Competition for qualified employees among pharmaceutical and biotechnology
companies is intense, and the loss of any of such persons, or an inability to
attract, retain and motivate any additional highly skilled employees required
for the expansion of the Company's activities, could have a material adverse
effect on the Company. There can be no assurance that the Company will be able
to retain its existing personnel or to attract additional qualified employees
and such failure likely would have a material adverse effect on the Company.
LACK OF MANUFACTURING FACILITIES
In order to successfully commercialize its product candidates, the Company must
be able to manufacture its products in commercial quantities, in compliance with
regulatory requirements, at acceptable costs and in a timely manner. The
manufacture of the types of biopharmaceutical products that are likely to be
developed by the Company present several risks and difficulties. For example,
the manufacture of M-Vax, O-Vax, C-Vax and other compounds the Company may
develop for use in the Company's current and future products and technologies is
complex, can be difficult to scale-up when large scale production is required
and can be subject to delays, inefficiencies and poor or low yields of quality
products. The Company may also be subject to risks relating to the expense, or
unavailability of, products and compounds manufactured or sold by third parties
which are required for use on a comparative basis in clinical trials and studies
for the Company's products. There can be no assurance that the Company will be
able to procure such products and compounds at an acceptable cost or in
sufficient quantities without delays or other adverse effects upon the Company's
development programs.
The Company currently has interim manufacturing capacity which it believes is
reasonably adequate to support the commencement of the clinical programs and
expects to expand its manufacturing staff and facilities, to establish an
additional facility or facilities and to contract with third parties to assist
it with production. There can be no assurance that the Company will be able to
obtain from third party manufacturers adequate supplies in a timely fashion for
commercialization, or that commercial quantities of any such products, if
approved for marketing, will be available from contract manufacturers at
acceptable costs. In the event the Company proceeds with establishing a
full-scale commercial manufacturing facility, the Company will require
substantial additional funds and will be required to hire and train significant
numbers of employees and comply with the extensive regulations applicable to
such a facility. There is no assurance that AVAX will be able to develop a
current Good Manufacturing Practices ("cGMP") manufacturing facility sufficient
for all clinical trials or commercial-scale manufacturing. The cost of
manufacturing certain products may make them prohibitively expensive. In
addition, in order to successfully commercialize its product candidates, the
Company may be required to reduce the cost of production, and there can be no
assurance that the Company will be able to do so. See "Business--Manufacturing
and Marketing."
COMPETITION
The Company's proposed cancer immunotherapy business is characterized by
intensive research efforts and intense competition. Many companies, research
institutes, hospitals and universities are working to develop products and
processes in the Company's fields of research. Most of these entities have
substantially greater financial, technical, manufacturing, marketing,
distribution and other resources than the Company and include, among others,
Schering Plough Corporation, Chiron Corporation, Bristol-Myers Squibb and
Johnson & Johnson. Certain of such companies have
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experience in undertaking testing and clinical trials of new or improved
products similar in nature to that which the Company is developing. In addition,
certain competitors have already begun testing similar compounds or processes
and may introduce such products or processes before the Company. Accordingly,
other companies may succeed in developing products earlier than the Company or
that are more effective than those proposed to be developed by the Company.
Further, it is expected that competition in the Company's field will intensify.
There can be no assurance that the Company will be able to compete successfully
in the future. See "Business--Competition."
RISK OF PRODUCT LIABILITY
Should the Company develop and market any products, the marketing of such
products, through third-party arrangements or otherwise, may expose the Company
to product liability claims. Though the Company presently carries product
liability insurance, there can be no assurance that such insurance will protect
the Company against all claims of product liability. The Company may be required
to indemnify its licensor against certain product liability claims incurred as a
result of the products developed by the Company. The Company's licensors have
not made, and are not expected to make, any representations as to the safety or
efficacy of the inventions covered by the license or as to any products which
may be made or used under rights granted therein or thereunder. In addition, it
is possible that license and collaborative agreements which the Company may
enter into in the future may also include similar insurance requirements. There
can be no assurance that in the future adequate insurance coverage will be
available in sufficient amounts or at a reasonable cost, or that a product
liability claim or recall would not have a material adverse effect on the
Company.
UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT; HEALTH CARE REFORM AND RELATED
MEASURES
The levels of revenues and profitability of pharmaceutical and/or biotechnology
products and companies may be affected by efforts of governmental and third
party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to implement similar government control.
The United States Congress continually considers a number of legislative and
regulatory reforms that may affect companies engaged in the health care industry
in the United States. Pricing constraints on the Company's products, if
approved, could have a material adverse effect on the Company. Although the
Company cannot predict whether these proposals will be adopted or what effects
such proposals may have on its business, the existence and pendency of such
proposals could have a material adverse effect on the Company in general. In
addition, the Company's ability to commercialize potential pharmaceutical and/or
biotechnology products may be adversely affected to the extent that such
proposals have a material adverse effect on other companies that are prospective
collaborators with respect to any of the Company's product candidates.
In addition, in the United States and elsewhere, sales of medical products and
services are dependent in part on the availability of reimbursement to the
consumer from third party payors, such as government and private insurance
plans. Third party payors are increasingly challenging the prices charged for
medical products and services. If the Company succeeds in bringing one or more
products to the market, there can be no assurance that these products will be
considered cost effective and that reimbursement to the consumer will be
available or will be sufficient to allow the Company to sell their products on a
competitive basis. See "Risk Factors--Government Regulation; No Assurance of
Product Approval."
NO ASSURANCE OF IDENTIFICATION OF ADDITIONAL PROJECTS; CERTAIN INTERLOCKING
RELATIONSHIPS; POTENTIAL CONFLICTS OF INTEREST
The Company initially intends to be engaged primarily in the development and
commercialization of the AC Vaccine technology, as well as the potential
anti-cancer and anti-infective technology licensed pursuant to the Rutgers
License and the potential anti-cancer technology licensed pursuant to the Texas
A&M License. See "Business." From time to time, if and when the Company's
resources allow, the Company may explore the acquisition and subsequent
development and commercialization of additional biomedical and pharmaceutical
products and technologies. However, there can be no assurance that the Company
will be able to identify any additional products or technologies and, even if
suitable products or technologies are identified, there can be no assurance that
the Company will have sufficient resources to pursue any such products or
technologies in the foreseeable future.
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Certain of the directors of the Company are officers of Paramount Capital
Investments, LLC. See "Management." Paramount Capital Investments, LLC, is a
merchant bank specializing in biotechnology companies. In the regular course of
its business, Paramount Capital Investments, LLC, identifies, evaluates and
pursues investment opportunities in biomedical and pharmaceutical products,
technologies and companies. Generally, Delaware corporate law requires that any
transactions between the Company and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to the Company as those
then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither Paramount Capital Investments,
LLC, nor any other person is obligated pursuant to any agreement or
understanding with the Company to make any additional products or technologies
available to the Company, and there can be no assurance, and purchasers of the
Common Stock should not expect, that any biomedical or pharmaceutical product or
technology identified by Paramount Capital Investments, LLC, or any other person
in the future will be made available to the Company. In addition, certain of the
officers, directors, consultants and advisors to the Company may from time to
time serve as officers, directors, consultants or advisors to other
biopharmaceutical or biotechnology companies. There can be no assurance that
such other companies will not in the future have interests in conflict with
those of the Company.
CONTROL BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The Company's directors, executive officers and principal stockholders
beneficially own approximately 31% of the outstanding shares of Common Stock.
Accordingly, the Company's executive officers, directors, principal stockholders
and certain of their affiliates have the ability to exert substantial influence
over the direction and policies of the Company and, if they choose to act in
concert, the election of the Company's Board of Directors and the outcome of
issues submitted to the Company's stockholders. See "Principal Stockholders."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock like that of many other development-stage
public pharmaceutical or biotechnology companies, may be highly volatile.
Factors such as announcements of technological innovations or new commercial
products by the Company or its competitors, disclosure of results of preclinical
and clinical testing, adverse reactions to products, governmental regulation and
approvals, developments in patent or other proprietary rights, public or
regulatory agency concerns as to the safety of any products developed by the
Company and general conditions may have a significant or adverse effect on the
market price of the Common Stock. Also, the trading price of the Common Stock
may respond to quarterly variations in operating results, announcements of
innovations or new products by the Company or its competitors and other events
or factors, including, but not limited to, the sale or attempted sale of a large
amount of such securities into the market. In addition, market fluctuations may
adversely affect the market prices of such securities. See "Description of
Securities."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
As of March 3, 1998, 4,777,488 shares of Common Stock were issued and
outstanding of which the Company believes that, other than those shares
registered in this Offering, only 1,487,822 shares of Common Stock are
"restricted securities" and under certain circumstances may, in the future, be
sold in compliance with Rule 144 under the Securities Act of 1933 (the "Act"),
unless they are held by "affiliates" of the Company as that term is used under
the Act. In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain conditions and certain manner of sale and notice
requirements, including the requirement that there is adequate current public
information with respect to the Company as contemplated by Rule 144, a person
(or persons whose shares are aggregated), including persons who may be deemed an
affiliate of the Company as that term is defined under the Act, who beneficially
owned restricted shares of Common Stock for at least one year is entitled to
sell, within any three-month period, a number of shares that does not exceed (i)
the greater of one percent of the total number of outstanding shares of the same
class, or (ii) the average weekly trading volume during the four calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate of the Company for at least three months immediately preceding
the sale and who has beneficially owned the shares of Common Stock for at least
two years is entitled to sell such shares under Rule 144(k) without regard to
the volume limitations described above.
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In addition, the Company has issued and outstanding, or issuable, warrants and
options to purchase an aggregate of 2,793,351 shares of Common Stock (excluding
49,229 shares of Common Stock underlying Series B Placement Warrants and Bridge
Placement Warrants that are being registered in this Offering). Any employee,
officer or director of the Company who acquired his or her shares prior to the
effective date of the Registration Statement at a time when the Company was not
subject the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") or who holds vested options as of the
effective date of the Registration Statement, pursuant to a written compensatory
plan or contract is entitled to rely on the resale provisions of Rule 701. Rule
701 permits non-affiliates to sell their Rule 701 shares without having to
comply with the public information, holding period, volume limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing 90 days after the effective date of the Registration Statement.
The Company also has 5,130,681 shares of Common Stock that are issuable upon
conversion of Series B Preferred Stock. Certain of the stockholders and holders
of shares of Common Stock issuable upon exercise of Series B Preferred Stock
(including shares of Common Stock issuable upon conversion of shares of Series B
Preferred Stock issuable upon exercise of Series B Placement Warrants), and
other warrants of the Company, have certain demand and piggyback registration
rights. The Company's current Registration Statement, to which this Prospectus
relates, pertains to the resale of up to 6,355,248 shares of Common Stock and
the Company may, in the future, agree to register other shares of Common Stock
held by eligible persons' including officers of the Company, on Form S-8
relating to shares of Common Stock issuable upon exercise of such persons' stock
options or warrants, including, without limitation, under its 1992 Stock Option
Plan. See "Description of Securities--1992 Stock Option Plan", "Other Options",
"Warrants" and "Registration Rights". Exercise of any registration rights could
involve substantial expense to the Company.
In addition, the vesting dates for the shares issuable upon exercise of the
Company's stock options are also subject to acceleration under certain
circumstances, including certain changes in control of the Company, subject to
certain exceptions.
Holders of the Company's warrants and options are likely to exercise them when,
in all likelihood, the Company could obtain additional capital on terms more
favorable than those provided by warrants and options. Further, while these
warrants and options are outstanding, the Company's ability to obtain additional
financing on favorable terms may be affected adversely by the presence of such
securities and the terms thereof. No prediction can be made as to the effect, if
any, that the availability of such shares for sale will have on the market
prices that may be quoted from time to time on the Nasdaq Smallcap Market.
Nevertheless, the possibility that substantial amounts of the Common Stock may
be sold in the public market may adversely affect the prevailing market prices
for the Common Stock and could impair the Company's ability to raise capital in
the future through the sale of equity securities. Actual sales or the prospect
of future sales of shares of the Common Stock, whether such shares are
"restricted shares" under Rule 144, or are otherwise eligible for resale without
restriction, may have a depressive effect upon the price of the Common Stock and
the market therefor.
LIMITED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock is listed for quotation on the Nasdaq SmallCap Market. There
can be no assurance that there will be an active trading market for the Common
Stock during or after the Offering. The absence of an active trading market
would reduce the liquidity of an investment in the Common Stock. To the extent
that brokerage firms act as market makers, they may be a dominating influence in
any market that might develop, and the degree of participation by such firms may
significantly affect the price and liquidity of the Common Stock. These firms
may discontinue such activities at any time or from time to time. The prices at
which the Common Stock may be offered in the market will be determined by these
firms and the purchasers and sellers of the Common Stock, based in part on
market factors, and may not necessarily relate to the Company's assets, book
value, results of operations or other established and quantifiable criteria of
value. The trading price of the Common Stock, including, without limitation, any
Common Stock to be offered by the Selling Shareholders, could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors and other events or factors. In addition, the stock market has
experienced volatility that has particularly affected the market prices of
equity securities of many biotechnology companies and that often has been
unrelated to the operating performance of such companies. These broad market
fluctuations may affect adversely the market price of the Common Stock. See
"Plan of Distribution."
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UNCERTAINTY OF LISTING ON NASDAQ SMALLCAP MARKET; MARKET ILLIQUIDITY
Although the Common Stock has been approved for initial listing and quotation on
the Nasdaq SmallCap Market, such market has recently adopted stricter continuing
listing criteria, which the Company is required to meet. Accordingly, continued
inclusion of the Common Stock on the Nasdaq SmallCap Market pursuant to the
recently adopted stricter standards requires that: (i) the Company have net
tangible assets of $2,000,000, or a market capitalization of $35 million or
more, or net income in two of the three most recent fiscal years of at least
$500,000; (ii) the Company's public float have a market value of at least $1
million and a public float of at least 500,000 shares; (iii) the minimum bid
price for the Common Stock be at least $1.00 per share; (iv) the Common Stock
have at least two active market makers and be held of record by at least 300
shareholders and (v) the Company adhere to certain corporate governance
provisions. . For purposes of determining compliance with the public float
requirements, shares of stock held by officers, directors and 10%-or-greater
stockholders are excluded. There can be no assurance that the Company and the
Common Stock will continue to satisfy the requirements for maintaining a listing
on the Nasdaq SmallCap Market.
If the Company is unable to satisfy the continuing maintenance requirements as
they may be in effect or applied from time to time, the Common Stock may be
delisted from the Nasdaq SmallCap Market. In such event, trading, if any, in the
Common Stock would thereafter probably be conducted on the OTC Bulletin Board or
in the over-the-counter market through the National Quotation Bureau (the "pink
sheets") and the Company would again be required to comply with the Nasdaq
SmallCap Market's initial listing criteria in order to have the Common Stock
re-approved for listing and quotation thereon. Consequently, the liquidity of
the Common Stock could be impaired materially and adversely, not only in the
number of securities that can be bought and sold at a given price, but also
through delays in the timing of transactions and reduction in security analysts'
and media coverage of the Company, which could result in lower prices for the
Common Stock than might otherwise be attained and could also result in a larger
spread between the bid and asked prices for the Common Stock. See "Risks of Low
Price Stock; Possible Effect of "Penny Stock" Rules on Liquidity for the Common
Stock."
RISKS OF LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK" RULES ON LIQUIDITY
FOR THE COMMON STOCK
The Exchange Act requires additional disclosure relating to the market for penny
stocks in connection with trades in any stock defined as a penny stock. The
Commission's regulations generally define a penny stock to be any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. Such exceptions include any equity security listed on the
Nasdaq SmallCap Market, subject to certain trade reporting requirements, and any
equity security issued by an issuer that has (i) net tangible assets of at least
$2 million, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5 million, if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6 million, if such issuer has been in continuous operation for less
than three years. Though the Company believes that it currently meets the net
tangible assets test, there can be no assurance that the Company will meet the
requirements of the foregoing financial exceptions. Thus, if the price per share
of the Common Stock were to be less than $5.00 per share and the Company was
unable to continue to meet the requirements for listing on the Nasdaq SmallCap
Market, failure to qualify under one of the foregoing exceptions would require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the Commission relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks. In any event, even if the Common Stock
were exempt from such restrictions, they would remain subject to Section
15(b)(6) of the Exchange Act, which gives the Commission the authority to
prohibit any person that engages in unlawful conduct while participating in a
distribution of penny stock from associating with a broker-dealer or
participating in a distribution of penny stock, if the Commission finds that
such a restriction would be in the public interest. Accordingly, if the Common
Stock is subject to the rules on penny stocks, the market liquidity for such
securities could be materially and adversely affected.
In addition, if the Common Stock fails to meet the minimum market price, the net
tangible asset or the annual revenue tests set forth above, but is quoted on the
OTC Bulletin Board (as to which there can be no assurance), then trading in the
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Common Stock would be regulated pursuant to Rules 15-g-1 through 15-g-6 and
15-g-9 promulgated under the Exchange Act for non-National Association of
Securities Dealers Automotive Quotation System and non-exchange listed
securities. Under such rules, broker-dealers who recommend such securities to
persons other than established customers and "accredited investors" must make a
special written suitability determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
this transaction. Securities are exempt from these rules if the market price of
the Common Stock is at least $5.00 per share. Consequently, such Exchange Act
rules may affect the ability of broker-dealers to make a market in such shares
and may affect the ability of holders of Common Stock to sell in the secondary
market.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
The Company's Articles of Incorporation, as amended, authorize the issuance of
up to 5,000,000 shares of preferred stock, par value $.01 per share, of which
300,000 shares are authorized for issuance as shares of Series B Preferred
Stock, of which approximately 196,677 are issued and outstanding as Series B
Preferred Stock or reserved for issuance upon the exercise of Series B Placement
Warrants. The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designation, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue a new
series of preferred stock with dividend, liquidation, conversion, voting or
other rights which could adversely affect the voting power or other rights of
the holders of the Common Stock. In the event of issuance, the new series of
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any additional shares of
its preferred stock, other than those already authorized for issuance upon
exercise of the Placement Warrants, there can be no assurance that the Company
will not do so in the future. See "Description of Securities."
The Company is subject to Section 203 of the General Corporation Law of the
State of Delaware which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. The foregoing
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company.
POTENTIAL CONVERSION PRICE RESET OF SERIES B PREFERRED STOCK
In May and June 1996, the Company consummated an offering of units consisting of
shares of Series B Preferred Stock and Common Stock. The 259,198 shares of
Series B Preferred Stock sold in such offering were convertible at the option of
the holders thereof into shares of Common Stock, at an initial conversion rate
of 25 shares of Common Stock per share of Series B Preferred Stock,
corresponding to a conversion price equal to $4.00 per share (the "Initial
Conversion Price"). As of June 11, 1997, 13,250 shares of Series B Preferred
Stock had been converted to Common Stock. The Initial Conversion Price was
adjusted effective June 11, 1997, because the average closing bid price of the
Common Stock for the 30 consecutive trading days immediately preceding such date
was less than $5.40. The average was, in fact, $5.175 per share. Accordingly,
the conversion price was adjusted to $3.83 per share, which corresponds to a new
conversion rate of 26.0875 shares of Common Stock per share of Series B
Preferred Stock. The conversion price (and, consequently the number of shares of
Common Stock issuable upon conversion) is subject to further adjustment upon the
occurrence of certain events. See "Description of Securities--Conversion." Any
such reset of the conversion price applicable to the Series B Preferred Stock
would result in the issuance of additional shares of Common Stock upon
conversion of the Series B Preferred Stock, and would have a dilutive effect on
purchasers of the Common Stock offered hereby.
In addition, in consideration for their agreement to extend the "lock-up"
provisions described below which are applicable to the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock, certain holders of
shares of Series B Preferred Stock are entitled to be issued additional shares
of Common Stock upon the happening of certain events.
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See "Description of Securities--Lock-Up." The occurrence of such an event and
the issuance of the additional shares of Common Stock would have a dilutive
effect on purchasers of the Common Stock offered hereby.
FORWARD LOOKING STATEMENTS
Certain written and oral statements made or incorporated by reference by the
Company or its representatives in this Prospectus, other reports and filings
with the Commission, press releases, conferences or otherwise, are "forward
looking statements", within the meaning of the Private Securities Litigation
Reform Act of 1995 ("PSLRA") and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
include, without limitation, any statement that may predict, forecast, indicate,
or imply future results, performance or achievements, and may contain the words
"estimate", "project", "intend", "forecast", "anticipate", "plan", "planning",
"expect", "believe", "will", "will likely", "should", "could", "would", "may" or
words or expressions of similar meaning. In addition, except for historical
matters, certain other statements set forth in this Prospectus and elsewhere by
the Company from time to time, including, without limitation, the Company's
research and development programs, the possible filing of INDs or marketing
applications for M-Vax, O-Vax, C-Vax, or any other products the Company may
develop, the seeking of joint development or licensing arrangements with
pharmaceutical companies, the research and development of particular compounds
and technologies for particular indications and the period of time for which the
Company's existing resources will enable the Company to fund its operations and
to meet the continuing listing requirements for the quotation of its securities
on the Nasdaq SmallCap Market and the possibility of contracting with other
parties additional licenses to develop, manufacture and market commercially
viable products, are forward-looking statements within the meaning of the PSLRA.
Such forward-looking statements are based upon the Company's current belief as
to the outcome, occurrence and timing of future events or current expectations
and plans based upon, among other things, assumptions made by, and information
currently available to management, including management's own knowledge and
assessment of the Company's industry, competition and current regulatory
environment. All such statements involve significant risks and uncertainties.
Many important factors affect the Company's ability to achieve the stated
outcomes and to successfully develop and commercialize its product candidates,
including, among other things, the ability to obtain substantial additional
funds, obtain and maintain all necessary patents or licenses, to demonstrate the
safety and efficacy of product candidates at each state of development, to meet
applicable regulatory standards and receive required regulatory approvals, to
meet obligations and required milestones under its license agreements, to be
capable of producing drug candidates in commercial quantities at reasonable
costs, to compete successfully against other products and to market products in
a profitable manner. Although the Company believes that its assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there also can be no assurance that the
statements included in this Prospectus and elsewhere will prove to be accurate.
In addition, such risks and uncertainties included herein and elsewhere are not
exhaustive. Other sections of this Prosepectus and the Company's other filings
with the Commission from time to time, may include additional factors which
could impact adversely upon the Company's business and other financial
performance. Moreover, the Company operates in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for management to predict all such risk factors, nor can it assess the
impact of all such factors on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Accordingly, in light of
the significant uncertainties inherent in these statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved; in fact, actual results could differ materially from those
contemplated by such forward-looking statements. Given these risks,
uncertainties and limitations, investors should not rely upon forward-looking
statements as a predictor of actual results. AVAX does not undertake any
obligation to release publicly any revisions to these forward-looking statements
or to reflect the occurrence of unanticipated events.
YEAR 2000
Pursuant to the Company's Year 2000 Plan, the Company is currently evaluating
its computerized systems to assure that the transition to the Year 2000 will not
disrupt the Company's operations. The Company also intends to evaluate the
systems of its key suppliers, vendors and other collaborators. Presently, the
Company does not believe that Year 2000 compliance will result in material
investments by the Company, nor does the Company anticipate that the so-called
Year 2000 problem will have any material adverse effect on the business,
operations or financial performance of the Company.
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There can be no assurance, however, that the Year 2000 problem will not
adversely affect the Company and its business, particularly in an indirect
manner by virtue of any problems encountered by third parties with whom it does
business.
NO DIVIDENDS
The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends for the foreseeable future. See "Dividend
Policy."
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of Common
Stock. The Company is not expected to receive any proceeds from the exercise of
the Placement Warrants since the Placement Warrants may be exercised pursuant to
a cashless exercise provision. In the event that the Placement Warrants are
exercised for cash, the Company intends to use such net cash proceeds (after
estimated offering expenses of this Offering of approximately $620,000) for
general working capital purposes. Proceeds, if any, from the exercise for cash
of all the Placement Warrants, before deduction of estimated expenses of this
Offering, would be approximately $160,000. Whether, how and to what extent any
of the Placement Warrants will be exercised, and whether the Placement Warrants
are exercised for cash or not, cannot be predicted by the Company.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock was publicly traded on the OTC Bulletin Board from December 19,
1996 through July 9, 1997. Since July 10, 1997, the Common Stock has been listed
for quotation on the Nasdaq SmallCap Market under the symbol "AVXT". The
following table sets forth, for the periods indicated, the high and low closing
bid prices for the Common Stock, as reported by the National Quotation Bureau
and/or Nasdaq, for the quarters presented. Certain of the prices set forth below
may represent inter-dealer quotations, without adjustment for markups, markdowns
and commissions and may not reflect actual transactions.
- -------------------------------------------- -------------- -----------------
High Low
- -------------------------------------------- -------------- -----------------
Fiscal year ended December 31, 1998
First quarter (through March 3, 1998) 4 1/2 3 5/8
- -------------------------------------------- -------------- -----------------
Fiscal year ended December 31, 1997
First quarter $6 3/4 $5 1/2
Second quarter 5 7/8 4 1/4
Third quarter 5 3/8 4
Fourth quarter
4 1/2 3 1/2
- -------------------------------------------- -------------- -----------------
Fiscal year ended December 31, 1996
Fourth quarter 6 5 3/4
- -------------------------------------------- -------------- -----------------
The last reported sale price of the Common Stock on the Nasdaq SmallCap Market
on March 10, 1998 was $ 4.125 per share. At March 3, 1998, there were 4,777,488
shares of Common Stock outstanding, which were held by approximately 800
shareholders of record.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
formation. The payment of dividends, if any, in the future, with respect to the
Common Stock, is within the discretion of the Board of Directors of the Company
and will depend on the Company's earnings, capital requirements, financial
condition and other relevant factors. The Board of Directors of the Company does
not presently intend to declare any dividends on the Common Stock in the
foreseeable future. The Company anticipates that all earnings and other
resources of the Company, if any, will be retained by the Company for investment
in its business.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of December
31, 1997. This table should be read in conjunction with the Company's financial
statements, and the related notes thereto. See "Financial Statements."
Stockholders' equity December 31,
1997
----
Preferred Stock, $.01 par value:
Authorized Shares - 5,000,000, including Series B -
300,000 shares
Series B convertible preferred stock:
Issued and outstanding shares - 204,159 (liquidation
preference - $27,561,465) $ 2,041
Common Stock, $.004 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 4,582,305 18,329
Additional paid-in capital 23,995,640
Subscription receivable (432)
Deferred compensation (694,324)
Deficit accumulated during the developmental stage (7,520,147)
-----------
Total stockholders' equity $15,801,107
===========
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATION
GENERAL
Since its inception, the Company has concentrated its efforts and resources in
the development and commercialization of biotechnology and pharmaceutical
products and technologies. The Company has been unprofitable since its founding
and has incurred a cumulative net loss of approximately $7,520,147 as of
December 31, 1997. The Company expects to incur significantly increasing
operating losses over the next several years, primarily due to the expansion of
its research and development programs, including clinical trials for M-Vax,
O-Vax, C-Vax and other preclinical studies and clinical trials for other
products that may arise from the AC Vaccine technology and from the compounds
licensed from Rutgers and Texas A&M and other products that it may acquire or
develop.
The Company's ability to achieve profitability depends upon, among other things,
its ability to develop products, obtain regulatory approval for its proposed
products, and enter into agreements for product development, manufacturing and
commercialization. The Company's M-Vax, O-Vax and C-Vax products do not
currently generate revenue and the Company does not expect to achieve revenues
from these or other products for the foreseeable future. Moreover, there can be
no assurance that the Company will ever achieve significant revenues or
profitable operations from the sale of M-Vax, O-Vax, C-Vax, or any other
products that it may develop.
PLAN OF OPERATION
The Company is currently engaged in the development and commercialization of
biotechnology and pharmaceutical products and technologies. In November 1995,
the Company acquired the rights to the AC Vaccine technology pursuant to the TJU
License. The Company initially intends to be engaged primarily in the
development and commercialization of the AC Vaccine technology, as well as the
potential anti-cancer and anti-infective technology licensed pursuant to the
Rutgers License and the potential anti-cancer technology licensed pursuant to
the Texas A&M License. See "Business." The Company anticipates that during the
next 12 months it will conduct substantial research and development of the AC
Vaccine technology, including, without limitation, Phase III clinical trials on
M-Vax, the Company's lead AC Vaccine technology for metastatic melanoma. The
Company also anticipates that it will expend substantial resources on the
research and development of that same technology for the treatment of other
cancers, which may include ovarian, breast, prostate, lung and colorectal cancer
and acute myelogenous leukemia (AML). For example, the is treating post-surgical
stage 3 patients in its Phase I/II clinical trial of O-Vax, its AC Vaccine for
ovarian cancer. This trial is being conducted at TJU under the direction of Dr.
David Berd. The Company also plans to initiate a similar Phase I/II clinical
trial of C-Vax, its AC Vaccine for colorectal cancer, within the next 12 months.
It is also expected that during the next 12 months, in order to support these
clinical trial efforts, the Company will be required to expend substantial
resources on the establishment of laboratory facilities for the manufacture of
its products. See "Business--Technology Applications and Product Candidates,"
"Research and Development" and "Manufacturing and Marketing."
In connection with the Company's strategy to acquire, develop and commercialize
other potential biotechnology products and technologies, in December 1996, the
Company acquired the exclusive worldwide rights to a series of compounds for the
potential treatment of cancer and other infectious diseases from Rutgers.
Additionally, in February 1997, the Company acquired the exclusive worldwide
rights to another series of compounds for the potential treatment of cancer from
Texas A&M. Pursuant to the Rutgers License, the Texas A&M License, and the
related sponsored research agreements with each of Rutgers and Texas A&M, the
Company intends to expend substantial resources on the research and development
of these compounds.
While there can be no assurance, the Company may acquire additional products and
technologies during the next 12 months, which may or may not be in the cancer
immunotherapy field. Should the Company acquire such additional products or
technologies, it is anticipated that such additional products or technologies
will require substantial resources for research, development and clinical
evaluation. However, there can be no assurance that the Company will be able to
obtain the additional financing necessary to acquire and develop such additional
products and technologies. In addition, there can be no assurance, that changes
in the Company's research and development plans or other changes which would or
could alter the Company's operating expenses will not require the Company to
reallocate funds among its planned
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activities and curtail certain planned expenditures. In such event, the Company
may need additional financing. There can be no assurance as to the availability
or the terms of any required additional financing, when and if needed. In the
event that the Company fails to raise any funds it requires, it may be necessary
for the Company to significantly curtail its activities or cease operations.
During the last 12 months, the Company's Research and Development and General
and Administrative expenses increased significantly from $.7 to $2.4 million and
from $1.3 to $2.7 million, respectively. These increases relate primarily to the
progress made in preparing the AC Vaccine technology for phase III clinical
trials in melanoma, commencement of a proof-of-concept study in ovarian cancer
with the same technology and completion of a Class 10,000 "clean room"
laboratory for clinical manufacturing of the vaccine. Research and development
costs also increased due to the licensing of the topoisomerase inhibitor
compounds from Rutgers and the licensing of the anti-estrogen compounds from
Texas A&M. General and administrative expenses also increased due to the
completion of the registration of the shares issued in the Company's 1996
private placement and the listing of such shares on the Nasdaq Small Cap Market.
The Company anticipates that, over the next 12 months, expenses will continue to
increase, particularly as development proceeds with the AC Vaccine and the
Rutgers and Texas A&M compounds.
Also, during the past 12 months, the Company hired two new employees and it
anticipates that over the next 12 months it may hire additional new employees,
particularly in connection with the establishment of facilities for the clinical
development and manufacture of the AC Vaccine products or any other technologies
which may have been, or may be, acquired. The timing and cost of hiring any
additional employees or the establishment of any such facility may vary
depending on need and currently cannot be predicted with any certainty.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently anticipates that its current resources should be
sufficient to fund operations for approximately the next 24-36 months based upon
the Company's current operating plan. The Company does not currently expect to
be required to raise additional capital in the next 12 months, although from
time to time, depending upon its anticipated future needs, the Company may avail
itself of opportunities in the capital markets to raise additional capital if
acceptable terms may be obtained. However, since the Company's working capital
requirements will depend upon numerous factors, including, without limitation,
progress of the Company's research and development programs, preclinical and
clinical testing, timing and cost of obtaining regulatory approvals, changes in
levels of resources that the Company devotes to the development of manufacturing
and marketing capabilities, competitive and technological advances, status of
competitors, and the ability of the Company to establish collaborative
arrangements with other organizations, there can be no assurance that the
Company will be able to meets its business objectives under its current
operations plan and/or not need to raise additional capital. Since the Company
has no committed external sources of capital, and expects no product revenues
for the foreseeable future, it will likely require additional financing to fund
future operations. There can be no assurance, however, that the Company will be
able to obtain the additional funds it will require on acceptable terms, if at
all. If adequate funds are not available the Company may be required to delay,
reduce the scope of or eliminate one or more of its research or development
programs; to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself; or to license the rights to such
products on terms that are less favorable to the Company that might otherwise be
available. See "Risk Factors--Accumulated Deficit; Uncertainty of Future
Profitability."
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 130, Reporting Comprehensive Income, which is effective for years beginning
after December 15, 1997, and will be adopted by the Company in 1998. The
Statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Management does not believe that this Statement will have any impact on the
results of operations or the financial position of the Company.
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BUSINESS
GENERAL
AVAX Technologies, Inc. ("AVAX" or the "Company"), is a development stage
biopharmaceutical company which intends to acquire rights to, and to develop,
technologies and products for the treatment of cancer and other life-threatening
diseases. The Company initially intends to focus its efforts primarily on the
development of immunotherapies and chemotherapies for cancer.
Immunotherapy is a rapidly developing segment of the cancer therapeutic market.
In 1995, the Company licensed (the "TJU License") from Thomas Jefferson
University ("TJU") an issued U.S. patent and certain U.S. and foreign patent
applications covering a cancer vaccine containing a cancer patient's own
modified tumor cells, and a method for making and using such a vaccine. This
technology allows the Company to produce an autologous cell vaccine (an "AC
Vaccine") that attempts to stimulate the patient's immune system to eliminate
the cancer. This technology has emerged from research conducted at TJU and
primarily involves the removal of a patient's own tumor cells, modifying them
with a small molecule known as a hapten, and reintroducing the product back into
the patient. The approach is based on the premise that a patient's immune
response to a strongly immunogenic, hapten-conjugated tumor antigen may be
followed by the development of an immune response to the unmodified tumor
antigen, somewhat analogous to the phenomenon of drug-induced autoimmune
disease.
The Company's initial AC Vaccine(TM), M-Vax(TM), is currently undergoing
physician-sponsored human clinical trials based on an experimental protocol at
TJU as an outpatient, post-surgical, adjunct therapy for the treatment of
melanoma, and is believed by the Company to be the first therapeutic cancer
vaccine to show a substantial increase in the survival rate for patients with
stage 3 melanoma. In such ongoing clinical trials at TJU, over 300 melanoma
patients have been treated post-surgically on an outpatient basis with M-Vax. In
62 patients with stage 3 melanoma in protocols in which there has been
sufficient time for long-term follow-up, the five-year survival rate is
approximately 60%. This compares with the historical and control group stage 3
survival rate of approximately 20%, and the survival rate for treatment with
high dose alpha interferon of approximately 32% in stage 3 patients whom the
Company believes to be comparable to those treated with M-Vax. In patients over
50 years old treated with M-Vax, the five-year survival rate was approximately
71%. In the over 300 patients treated in studies, the Company believes that only
relatively minor side effects, such as mild transient nausea and soreness and
swelling at the site of the application of the M-Vax vaccine, have been
witnessed to date. Based on these results, and following a meeting with the FDA
to discuss its development plans, the Company plans to conduct two pivotal Phase
III multi-center clinical trials of M-Vax.
The Company also believes that the AC Vaccine technology may have applications
in the treatment of other cancers, which may include ovarian, breast, prostate,
lung and colorectal cancers and acute myelogenous leukemia (AML). The Company
intends to fund the preclinical and initial clinical development of this
technology for at least some of these indications. Accordingly, in addition to
continuing the clinical work on M-Vax, the Company has also entered into a
sponsored research agreement with TJU relating to the development of additional
immunotherapies based on the AC Vaccine technology. For example, the Company is
treating post-surgical stage 3 patients in its Phase I/II clinical trial of
O-Vax(TM), its AC Vaccine for ovarian cancer. This trial is being conducted at
TJU under the direction of Dr. David Berd and has already shown a positive
immune response, as measured by a delayed type hypersensitivity (DTH) test, in
the first seven of seven patients treated. The Company also plans to initiate a
similar Phase I/II clinical trial of C-Vax(TM), its AC Vaccine for colorectal
cancer, within the next year.
In order to contain costs, the Company may continue to use sponsored research
agreements and contract research organizations to help it develop its
technologies. At the appropriate time the Company may seek corporate partners to
provide the necessary resources and expertise for clinical development and to
manufacture, market and distribute products. In addition, the Company may seek
to explore the acquisition and subsequent development and commercialization of
additional commercially promising immunotherapy, chemotherapy and adjuvant
technologies. No assurance can be given that the Company will have the requisite
resources or that any such projects will be identified on terms favorable to the
Company, if at all.
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In connection with the Company's strategy to acquire, develop and commercialize
other potential biotechnology products and technologies, the Company has
licensed from Rutgers University and the University of Medicine and Dentistry of
New Jersey (collectively, "Rutgers"), certain patent applications relating to a
series of topoisomerase inhibitor compounds for the potential treatment of
cancer and infectious diseases (the "Rutgers License"), and from The Texas A&M
University System ("Texas A&M"), an issued U.S. patent and certain patent
applications relating to a series of novel anti-estrogen compounds for the
potential treatment of cancer (the "Texas A&M License"). Pursuant to the Rutgers
License and the Texas A&M License (and under its related sponsored research
agreements with each of Rutgers and Texas A&M), the Company intends to expend
substantial resources on the research and development of these compounds.
BACKGROUND AND SCIENTIFIC RATIONALE OF THE AC VACCINE TECHNOLOGY
Cancer is characterized by the uncontrolled growth and spread of abnormal cells
which escape the body's protective immune surveillance system, invade healthy
tissues and destroy normal tissue function and ultimately lead to a person's
death if untreated. Cancers, composed of either solid tumors or blood-borne
cancerous cells, over time tend to spread to other tissues and organs in the
body (metastasis). Cancer may be diagnosed at any stage of the disease, from
very early (best prognosis) to very late (worst prognosis). When cancer is
detected early and has not yet metastasized (spread) to other organs and
tissues, surgical removal of the tumor is often effective. Unfortunately, many
cancers are not discovered until metastatic cancer cells from the primary tumor
have already entered the blood or lymphatic system and established new tumors at
distant sites. These cells, and the tumors they form, are difficult to diagnose
and treat with current technology.
As of 1997, the National Cancer Institute (NCI) estimates that approximately 7.4
million people living in the United States were diagnosed as having cancer. The
incidence of cancer continues to increase. The NCI also estimates that the
overall cost to the health care system of treating these patients is
approximately $104 billion. The Company is aware of estimates that deaths from
cancer will surpass cardiovascular mortality worldwide by the end of the
century.
Although some progress has been made, few effective treatments are available for
most adult solid tumors, which often metastasize and invade other organs before
they are detected. The standard treatment for solid tumors is surgery. While
this treatment is effective in many types of cancers, in cases in which removal
of the tumor is incomplete or in which the tumor has metastasized, the patient's
prognosis is poor. Chemotherapy and radiation therapy are rather crude
treatments since they kill cells indiscriminately, destroying normal as well as
malignant cells, leading to toxic side-effects and thereby limiting the
usefulness of these therapies. A safe, effective treatment for residual and
metastatic disease is clearly needed. Such a treatment, if effective and safe,
would increase patient survival and may, therefore, be widely adopted.
Although, many different types of drugs are used to treat a variety of cancers,
no one drug has been found to be a cure for the disease. Given the need for new
effective treatments for cancer, a drug which may effectively treat cancer could
have a large market potential. Although there can be no assurance, the Company
believes that an AC Vaccine, developed to effectively treat the recurrence of
cancer after surgery, is likely to have a sizable market share. Surgery, in many
cases is the first treatment performed on cancer patients, and if such a
treatment following surgery were to prove broadly applicable and safe, its
market potential could be significant while enabling the health care system to
realize significant overall cost savings due to a reduction in the number of
cases of recurrent disease requiring hospitalization and ongoing clinical and
home care.
Immunotherapy is an emerging cancer treatment modality that the Company believes
shows promise for utilizing a patient's own immune system to recognize and
eliminate cancer cells. There are a number of different types of immunotherapies
such as cytokines, antibodies, activated cell therapy and vaccines currently
under development by third parties. See "Business--Competition." In all cases,
immunotherapies attempt to modulate the body's immune system to contain and
eliminate cancer cells. In concept, immunotherapies should have fewer
side-effects than chemotherapies and should be relatively well-tolerated by the
patient. Thus, although there can be no assurance of success, the Company
believes immunotherapies have the potential to be effective and by reason of
their selectivity, relatively safe anti-cancer therapeutic agents.
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TECHNOLOGY APPLICATIONS AND PRODUCT CANDIDATES
THE AC VACCINE TECHNOLOGY
The Company's primary proprietary technology is a patented autologous cell
vaccine (an "AC Vaccine") that attempts to stimulate the patient's own immune
system to recognize, contain and eliminate cancer cells. The technology
primarily involves the removal of a patient's own tumor cells, conjugating them
to a small molecule known as a hapten-dinitro phenyl (DNP), and reintroducing
the product back into the patient with an adjuvant, which is an immunological
agent that increases the immune response. Haptenization is the process of
modifying a larger molecule with a smaller molecule. The small molecule known as
a hapten, is recognized by the immune system and elicits an immune response
against the larger molecule. The approach is based on the premise that a
patient's immune response to a strongly immunogenic, hapten-modified tumor
antigen may be followed by the development of an immune response to the
unmodified tumor antigen, somewhat analogous to the phenomenon of drug-induced
autoimmune disease. Therefore, the process of haptenizing a patient's tumor
cells may allow the unhaptenized cancer cells to be recognized by the body's
immune system leading to an immune response against the patient's tumor cells
and their potential elimination from the body.
In practice, the Company's initial therapy would be used as an adjunct to
surgical treatment of tumors. In one proposed model, the surgeon would remove
the patient's tumor and send the cells to the Company where they would be
processed and stored. The vaccine would then be created and sent to the
patient's doctor as each dose is required for administration of the vaccine on
an outpatient basis. The patient's response to the treatment would then be
monitored using standard protocols.
The Company is initially developing this technology for the treatment of
metastatic melanoma but believes that it possibly could have applications in the
treatment of a variety of solid tumors such as ovarian, breast, prostate, lung
and colorectal cancer and may have applications in the treatment of acute
myelogenous leukemia (AML).
M-VAX
GENERAL. The Company's lead product, M-Vax, is a post-surgical treatment for
stage 3 melanoma. Melanoma is a highly malignant tumor that can spread so
rapidly that it can be fatal within months of diagnosis. The incidence of
melanoma is increasing at a faster rate than most other cancers in the United
States, Australia, northern Europe and Canada. Although there are several
causative factors, rising exposure by the general population to UV radiation in
sunlight appears to be the most significant factor behind this increase. With
the incidence growing at a rate in excess of 6% annually, it is estimated that
melanoma affects over 200,000 people in the United States, with approximately
40,300 new cases diagnosed in 1997.
Melanoma patients may be categorized according to the following staging system:
o Stage 1--lesion less than 1.5mm thickness and no apparent metastasis;
o Stage 2--lesion greater than 1.5mm thickness and local spreading from primary
cancer site;
o Stage 3--metastasis to regional draining lymph nodes and regional spread from
primary cancer site; and
o Stage 4--distant metastasis.
Surgical excision of the tumor mass and any of the nearby lymph nodes into which
there has been metastasis, followed by high dose alpha interferon, which is
currently the only FDA-approved treatment for patients with stage 3 melanoma.
However, in many cases survival is restricted by the inability of surgery to
guarantee removal of all the tumor cells. It is highly possible for the patient
to remain with undetected metastasis. Further, use of high dose alpha interferon
is associated with many severe side effects, often leading to either reduction
in dosage or complete discontinuation before the full course of treatment is
completed. Due to its limited efficacy and highly toxic side effects,
chemotherapy and radiation have not been widely used in the treatment of these
patients. The five-year survival rate for these patients is believed by the
Company to be approximately 20%. Recently, the FDA approved the use of high dose
alpha interferon for the post-surgical treatment of melanoma patients. In
clinical studies alpha interferon has demonstrated a five-year survival rate
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that the Company believes to be approximately 32% in stage 3 patients whom the
Company believes to be comparable to those treated with M-Vax. Thus, the Company
believes that there is a clear need for an effective post-surgical treatment of
stage 3 melanoma patients, one that would contain metastasis and prevent
recurrent disease.
CLINICAL TRIALS. Dr. David Berd, the inventor of the patented technology
licensed to the Company by TJU, is a clinical oncologist at TJU. Dr. Berd has
been conducting physician-sponsored clinical trials for the treatment of
melanoma using M-Vax for approximately the past eight years.
In such ongoing clinical trials at TJU, over 300 melanoma patients have been
treated post-surgically on an outpatient basis with M-Vax. In 62 patients with
stage 3 melanoma in protocols in which there has been sufficient time for
long-term follow-up, the five-year survival rate is approximately 60%. This
compares with the historical and control group survival rates of about 20%, and
the survival rate for treatment with high dose alpha interferon of approximately
32% in stage 3 patients whom the Company believes to be comparable to those
treated with M-Vax. In patients over 50 years old treated with M-Vax, the
five-year survival rate was approximately 71%. The Company believes that the
results to date of the ongoing clinical trial represent the first substantial
increase in survival for stage 3 melanoma patients treated by immunotherapy. In
the over 300 patients treated in studies, the Company believes that only
relatively minor side effects, such as soreness and mild transient nausea and
swelling at the site of the application of the M-Vax vaccine, have been
witnessed to date.
David Berd, M.D., Professor of Medicine and Clinical Oncologist at TJU and the
inventor of the AC Vaccine technology, has conducted the ongoing clinical trials
at TJU pursuant to an FDA-approved, physician-sponsored Investigational New Drug
Application ("IND"). Following an earlier meeting with the FDA to discuss the
clinical results obtained with M-Vax, the use of such results in support of the
submission of a Company-sponsored IND to the FDA, and to review its proposed
development plan, the Company reviewed a proposed phase 3 protocol with the FDA
and plans to submit a Company-sponsored IND to support the pivotal trial
program. This IND will also address product characterization/manufacturing
issues raised by the FDA to ensure that all pivotal data will support a product
license application. No patients will be enrolled in the pivotal trial program
until the Company and the FDA are satisfied that all product issues are
resolved. Depending upon the results of such clinical trials, it is the
Company's intention to use the results of these Company-sponsored clinical
trials along with the results of the clinical trials conducted at TJU, as the
basis for the filing of an application for FDA approval to market M-Vax. During
the third and fourth quarters of 1997 the Company designed and developed a class
10,000 clean room at TJU to be used as interim capacity which the Company
believes is adequate to support commencement of the Phase III clinical program.
Completion of these studies, however, is dependent upon the Company's ability to
establish additional Good Manufacturing Practice ("cGMP") facilities which will
be needed for compliance with certain regulatory standards promulgated by the
FDA. To that end, the Company has entered into a lease for space in
Philadelphia, Pennsylvania to begin construction of such a facility. While
management of the Company anticipates that such additional facilities will be
established in a timely manner, there can be no assurance of the adequacy of the
manufacturing or of FDA acceptance. Delays in either manufacturing capability or
regulatory approval would delay completion of these studies and could have a
material adverse effect on the Company. Depending upon the results of the
anticipated clinical trials, the Company intends to use the results of these
Company-sponsored clinical trials along with the results of the clinical trial
conducted at TJU, as the basis for the filing of an application for FDA approval
to market M-Vax. The Company's management estimates that it may be in the
position to submit such application for FDA approval in approximately the year
2000 or 2001. The targeted timetable for filing a marketing application depends
upon the rate of enrollment of both clinical sites and patients in the Phase III
studies, the adequacy of the overall clinical outcome data from these trials,
and ultimately acceptance by the FDA of the studies. A delay in enrollment of
either clinical sites or patients would delay completion of the trials.
Moreover, equivocal clinical outcomes from such trials would have the effect of
at least delaying the timetable for submission of a marketing application and
would impact negatively on regulatory acceptance of the studies in connection
with the possible approval of such marketing application.
The Company also may pursue a similar regulatory approval and commercialization
strategy for M-Vax in Australia, Canada, Mexico and certain other countries
through corporate partnering strategies, although such strategies have not yet
been finalized or initiated. Denial of any regulatory approvals or any
significant delays in obtaining any of the same, would have a material adverse
effect on the Company.
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The Company is treating post-surgical stage 3 patients in its Phase I/II
clinical trial of O-Vax, its AC Vaccine for ovarian cancer. This trial is being
conducted at TJU under the direction of Dr. Berd and has already shown a
positive immune response, as measured by a DTH test, in the first seven of seven
patients. The Company intends for further clinical trials to be conducted for
the purpose of collecting Phase I/II preliminary efficacy data with respect to
the effectiveness of O-Vax in treating advanced stages of ovarian cancer, and to
use the results of all such Company-sponsored trials to support the commencement
of a subsequent Phase III program for O-Vax.
The Company also plans to initiate a similar Phase I/II clinical trial of
C-Vax(TM), its AC Vaccine for colorectal cancer, during 1998.
There can be no assurance, however, that the foregoing forward-looking
statements with respect to the Company's intended timetable for the commencement
of the Phase III clinical trials for M-Vax, the eventual filing of a marketing
application for M-Vax and the Company's intended timetable for clinical trials
for O-Vax and C-Vax will be met. For a discussion of certain of the risks and
uncertainties which may impact upon such timing, see "Risk Factors--Development
Stage Company", "Technological Uncertainty and Early Stage of Product
Development", "Government Regulation; No Assurance of Product Approval",
"Dependence on Others for Clinical Development of, and Regulatory Approvals for,
Manufacturing and Marketing of Pharmaceutical Products", "Dependence on Licenses
and Sponsored Research Agreements", "Lack of Manufacturing Facilities", "Forward
Looking Statements" and the other items under "Risk Factors".
In addition, the Company has recently entered into a Technical Testing Agreement
(the "Illinois Agreement") with the University of Illinois ("Illinois"),
pursuant to which Illinois will conduct testing in order to determine whether an
animal model can be used to demonstrate the therapeutic potential of
DNP-vaccine, such as the Company's AC Vaccine, in experimental tumor models, and
the value of adjunctive therapies. In consideration of the Illinois Agreement,
the Company and Illinois have agreed to a budget of approximately $160,000 for
the expected two-year term of the study, which shall be funded by the Company.
TOPOISOMERASE INHIBITORS
The Rutgers License relates to a series of novel anticancer compounds being
prepared and studied under the direction of Professors Edmund LaVoie and Leroy
Liu at Rutgers University (the "Rutgers Compounds"). The Rutgers Compounds have
proven effective on animal models during preclinical studies, and, although
there can be no assurance, the Company believes that they may be effective on
humans. The Rutgers Compounds fall into six distinct and varied chemical
classes, and have been shown to inhibit topoisomerase I or topoisomerase II
activities, depending on the exact structure. Topoisomerases are key enzymes
needed for remolding DNA, a necessary function for malignant tumor growth.
Inhibitors of these enzymes have been proven to be clinically-useful anticancer
therapies. In addition to having topoisomerase-inhibiting characteristics, some
of the Rutgers compounds have shown activity against fungal as well as parasitic
organisms. Both United States and non-U.S. patents have been filed for the
Rutgers Compounds and their anticancer and anti-infective uses. Although such
compounds are in an early stage of preclinical development for solid tumor,
antifungal and parasitic indications, the Company intends to pursue development
of one or more of these compounds. The Company's management anticipates that the
preclinical work may lead to indentification of a lead compound by early 1998,
and that an IND for such compound may be filed with the FDA during 1998, or
early 1999. However, there can be no assurance that any such compounds will
ultimately reach a stage of clinical testing or commercialization. For a
discussion of certain risks which may impact upon the timing and outcomes of the
development of the Rutgers compounds, see "Risk Factors--Development Stage
Company", "Technological Uncertainty and Early Stage of Product Development",
"Government Regulation; No Assurance of Product Approval", "Dependence on Others
for Clinical Development of, and Regulatory Approvals for, Manufacturing and
Marketing of Pharmaceutical Products", "Dependence on Licenses and Sponsored
Research Agreements", "Lack of Manufacturing Facilities", "Forward Looking
Statements" and the other items under "Risk Factors".
NOVEL ANTI-ESTROGENS
The Texas A&M License relates to a series of novel anticancer compounds (the
"Texas A&M Compounds") being prepared and studied under the direction of
Professor Stephen Safe at Texas A&M University. The unique activity against
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solid tumors exhibited by the Texas A&M Compounds can be classified as
anti-estrogen, although they appear to act indirectly on the estrogen receptor
through a novel pathway. Anti-estrogens have been proven to be clinically-useful
anticancer therapies. United States patents for both the Texas A&M Compounds and
their anticancer uses have been filed. Although non-U.S. patent filings have not
yet been made, the Company expects that foreign patent coverage will be pursued
as the result of ongoing laboratory research. Although such compounds are in a
early stage of preclinical development for solid tumor indications, the Company
intends to pursue development of one or more of these compounds. The Company's
management anticipates that the preclinical work may lead to indentification of
a lead compound early 1998, and that an IND for such compound may be filed with
the FDA during 1998, or early 1999. However, there can be no assurance that any
such compounds will ultimately reach a stage of clinical testing or
commercialization. For a discussion of certain risks which may impact upon the
timing and outcomes of the development of the Texas A&M compounds, see "Risk
Factors--Development Stage Company", "Technological Uncertainty and Early Stage
of Product Development", "Government Regulation; No Assurance of Product
Approval", "Dependence on Others for Clinical Development of, and Regulatory
Approvals for, Manufacturing and Marketing of Pharmaceutical Products",
"Dependence on Licenses and Sponsored Research Agreements", "Lack of
Manufacturing Facilities", "Forward Looking Statements" and the other items
under "Risk Factors".
RESEARCH AND DEVELOPMENT
AUTOLOGOUS CELL VACCINES
In connection with the TJU License entered into in November 1995, TJU, Dr. Berd,
as TJU's principal investigator, and the Company entered into a Clinical Study
and Research Agreement pursuant to which TJU and Dr. Berd began a research and
clinical study program for the further development of the AC Vaccine technology
for additional cancer targets. In turn, the Company agreed to fund such research
as follows: $220,094 for the first year of the agreement, $220,381 for the
second year of the agreement and at least $100,000 for the third year of the
agreement. Following the third year, the Company is obligated to spend a minimum
of $500,000 per year on the development of the AC Vaccine technology until
commercialized in the United States. If following the third year, the Company
files for FDA approval of a Company-sponsored marketing application for the
right to market a product arising from such technology, the Company may elect to
spend less than $500,000 per year on the development of the AC Vaccine
technology during the period of time the marketing application is under review
by the FDA. If the Company does not meet its financial, development, or other
obligations in a timely manner under its license agreements or related sponsored
research agreements, the Company could lose the rights to its proprietary
technology or the right to have its licensors and others conduct its research
and development efforts, any of which could have a material adverse effect on
the Company. TJU has the right to terminate the R&D agreement on 30 days'
written notice if it becomes unable for any reason to complete the Study.
See "Risk Factors--Dependence on Licenses and Sponsored Research Agreements."
TOPOISOMERASE INHIBITORS
In consideration of the license granted to the Company by Rutgers in December
1996, the Company has committed to the funding of research for each of the first
three years of the Rutgers License at a rate of $100,000 per year as well as the
payment of certain indirect overhead costs. The Company also is obligated to pay
Rutgers for certain overhead costs for such three-year period on a deferred
basis. In addition, the Company is obligated to spend an aggregate of $200,000
in the first year, $300,000 in the second year and $500,000 each year thereafter
until the first year of commercial marketing of a product derived from the
Rutgers compounds, for the development, research (including the $100,000
research funding commitment in each of the first three years), manufacture,
regulatory approval, marketing and selling of a product derived from the Rutgers
compounds. If the Company fails to make such payments in accordance with the
terms of the Rutgers License, Rutgers would be entitled to terminate the
agreement and no further research would be performed thereunder. The termination
of the Rutgers License could have a material adverse effect on the Company. See
"Risk Factors--Dependence on Licenses and Sponsored Research Agreements."
It is expected that the research and development effort with respect to these
compounds will be conducted at Rutgers under the direction of Edmond J. LaVoie,
Ph.D., the co-originator of the technology underlying the Rutgers License. Dr.
LaVoie is Professor of Medicinal Chemistry and Chairman of the Department of
Pharmaceutical Chemistry at Rutgers and is a member of the Company's Scientific
Advisory Board. See "Management--Scientific Advisory Board."
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NOVEL ANTI-ESTROGENS
In consideration of the license granted to the Company by Texas A&M in February
1997, the Company has committed to the funding of research in the amount of
$108,750 for each of the first three years. In addition, the Company is required
to achieve certain milestones toward development of a licensed product within
certain specified time frames. If the Company fails to make such payments or
achieve such milestones in accordance with the terms of the Texas A&M License,
Texas A&M would be entitled to terminate the agreement and no further research
would be performed thereunder. The termination of the Texas A&M License could
have a material adverse effect on the Company. See "Risk Factors--Dependence on
Licenses and Sponsored Research Agreements."
It is anticipated that the research and development effort with respect to the
potential anti-cancer compounds licensed under the Texas A&M License will be
conducted at Texas A&M under the direction of Stephen H. Safe, Ph.D., the
originator of the technology underlying the Texas A&M License. Dr. Safe is Sid
Kyle Professor of Toxicology at Texas A&M and is a member of the Company's
Scientific Advisory Board. See "Management--Scientific Advisory Board."
PROPRIETARY RIGHTS
THE TJU LICENSE
Pursuant to the TJU License, the Company has licensed an issued U.S. patent and
certain U.S. and foreign patent applications covering a process for the
modification of a patient's own tumor cells into a cancer vaccine. The TJU
License is a royalty-bearing license for the rights to such patented vaccine
technology, and provides for certain payments upon the occurrence of certain
milestones. As consideration for the TJU License, the Company paid $10,000 to
TJU, and issued 229,121.5 shares of Common Stock to each of TJU and Dr. Berd,
representing 7.5% (15% in the aggregate) of the Company's total outstanding
voting securities at the time of issuance.
The Company is obligated to make certain milestone payments to TJU as follows:
$10,000 upon initiation of the first clinical trial that is approved by the FDA
(or comparable international agency), $10,000 upon the first filing of a
marketing application with the FDA (or comparable filing with a comparable
international agency), and $25,000 upon receipt by the Company of approval from
the FDA (or comparable international agency) to market products relating to the
AC Vaccine technology. In addition, the Company is obligated to pay royalties on
its net sales revenue and a percentage of all revenues received from sublicenses
relating to the AC Vaccine technology. Failure to comply with the terms of the
TJU License may cause its termination, which would have a material adverse
effect on the Company. See "Risk Factors--Dependence on Licenses and Sponsored
Research Agreements."
THE RUTGERS LICENSE
Pursuant to the Rutgers License, the Company has licensed certain U.S. and
foreign patent applications relating to a series of compounds for the potential
treatment of cancer and infectious diseases. The Company paid $15,000 as
consideration for the Rutgers License, and has agreed to pay an additional
$15,000 license maintenance fee in each subsequent year. The Company has also
committed to the issuance to Rutgers of warrants to purchase 125,000 shares of
Common Stock at a price of $8.24 per share. Such warrants are exercisable upon
the achievement of certain development-related milestones. The first 75,000 of
such warrants will expire in 2006 and the final 50,000 of such warrants will
expire in 2011. These warrants will provide for cashless exercise, piggyback
registration rights and certain anti-dilution rights.
The Company also has agreed to fund research in the amount of $100,000 per year
for the first three years of the Rutgers License as well as to pay for certain
indirect overhead costs during such time. The Company also is obligated to pay
on a deferred basis for certain overhead costs for such three-year period. The
license maintenance fee is not payable in years where research funding is equal
to or greater than $100,000.
The Company is also obligated to pay certain milestone payments as follows:
$15,000 on the earlier of October 31, 1999 or the date of first filing of an IND
application with the FDA, or comparable international agency, $25,000 on the
earlier of October 31, 2001 or the date of initiation of Phase II trials in the
United States or another major market country, $45,000
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on the earlier of October 31, 2005 or the date of first filing of a marketing
application with the FDA, or comparable international agency and $150,000 on the
earlier of October 31, 2008 or the date of receipt by the Company of approval
from the FDA or comparable international agency to market products. In addition,
the Company is required to pay royalties on its worldwide net sales revenue
derived from the Rutgers compounds and a percentage of all revenues received
from sublicenses of products derived from these compounds. Failure to comply
with the terms of the Rutgers License may cause its termination, which would
have a material adverse effect on the Company. See "Risk Factors--Dependence on
Licenses and Sponsored Research Agreements."
THE TEXAS A&M LICENSE
Pursuant to the Texas A&M License, the Company has licensed an issued U.S.
patent and certain U.S. and foreign patent applications relating to a series of
compounds for the potential treatment of cancer. Under the terms of the
agreement, the Company is obligated to pay future milestone payments, royalties
on its net sales revenue derived from these compounds and a percentage of all
revenues received from sublicensees of such compounds. The Company also has
agreed to fund research in the amount of $108,750 for each of the first three
years of the Texas A&M License. Failure to comply with the terms of the Rutgers
License may cause its termination, which would have a material adverse effect on
the Company. See "Risk Factors--Dependence on Licenses and Sponsored Research
Agreements."
In the future, the Company may require additional licenses from other parties to
develop, manufacture and market commercially viable products effectively. The
Company's commercial success will depend in part on obtaining and maintaining
such licenses. There can be no assurance that such licenses can be obtained or
maintained on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the technology underlying such licenses will remain proprietary. The
Company presently intends to pursue aggressively the broadest patent coverage
possible for all of its intellectual property. See "Risk Factors--Uncertainty
Regarding Patents and Proprietary Rights."
COMPETITION
The Company is aware of estimates that more than 300 companies are reported to
have approximately 1,250 cancer drugs under development worldwide, of which a
substantial number are under development in the United States. Many of such
drugs or other substances under development involve chemotherapeutic agents and
cancer immunotherapies and, thus, are, or may be, in direct competition with the
Company's AC Vaccine or compounds resulting from development work pursuant to
the Rutgers License or the Texas A&M License. Such future competitor products
and drugs may perform more effectively or safely than the Company's product
candidates.
Many of the companies engaged in anticancer research and development and in
acquiring rights to the products of such research and development, including
biotechnology companies, have substantially greater financial, technical,
scientific, manufacturing, marketing and other resources than the Company and
have more experience in developing, marketing and manufacturing therapeutics,
including performing the preclinical testing and clinical trials that are
required for obtaining FDA and other regulatory approvals. Included among the
Company's competitors are: (i) large established pharmaceutical and
biotechnology companies with commitments to oncology or antiviral research,
development and marketing, including, without limitation, Schering Plough
Corporation, Chiron Corporation, Bristol-Myers Squibb and Johnson & Johnson;
(ii) smaller biotechnology companies with similar strategies, including IDEC
Pharmaceuticals, Inc. and Biomira Diagnostics; and (iii) many development stage
companies licensing and/or developing oncology therapeutics.
In addition, many research institutes, hospitals and universities are working to
develop products and processes in the same field of cancer that may in the
future be in direct competition with the Company's present and future products.
A number of companies or research institutions are developing cancer vaccines,
including, without limitation, Ribi ImmunoChem Research, Inc. and Progenics,
Inc., in melanoma; AltaRex, Genentech and Biomira, in ovarian cancer; and
PerImmune, Inc. and Aphton Corporation, in colorectal cancer. The principal
competitive factors in the area of cancer immunotherapies are (i) the efficacy
of the product and (ii) the timing of the entry of the product into the market.
Although there is significant competition, to date, the Company believes that
none of such immunotherapies have demonstrated the increase in survival over the
same period of time that the Company's technology has shown in
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melanoma. Although there can be no assurance, the Company also believes that its
AC Vaccine technology may be applicable to a variety of solid tumors such as
ovarian, breast, prostate, lung and colorectal cancer and may have applications
in the treatment of acute myelogenous leukemia (AML) and therefore may not be as
limited as certain other approaches. With respect to the timing of the entry of
the product, there can be no assurance as to when, if at all, any of the
Company's potential products will be approved. See "Risk Factors--Technological
Uncertainty and Early Stage of Product Development", "Government Regulation; No
Assurance of Product Approval", "Dependence on Others For Clinical Development
of, and Regulatory Approvals for, Manufacturing and Marketing of Pharmaceutical
Products", "Dependence on Licenses and Sponsored Research Agreements",
"Dependence Upon Key Personnel and Consultants" and "Lack of Manufacturing
Facilities".
MANUFACTURING AND MARKETING
The Company does not currently have the resources to commercially manufacture or
directly market any products that it may develop. In connection with its
research and development activities, the Company may seek to enter into
collaborative arrangements with pharmaceutical, medical device, health care,
chemical or other companies to assist in further funding as well as in
development, commercial manufacturing and/or marketing of its products if such
activities are commercially feasible. These partners may also be responsible for
commercial scale manufacturing, which will be subject to compliance with
applicable FDA regulations. The Company anticipates that such arrangements may
involve the grant of exclusive or semi-exclusive rights to sell specific
products to specified market segments or particular geographic territories in
exchange for a royalty, joint venture, future co-marketing or other financial
interests.
To date, the Company has not entered into any collaborative commercial
manufacturing or marketing agreements for any of its potential products. There
can be no assurance that the Company will be able to enter into any such
arrangements on favorable terms, if at all. Such collaborative marketing
arrangements, whether licenses, joint ventures or otherwise, may result in lower
revenues than would otherwise be generated if the Company conducted the
marketing of their own products. See "Risk Factors--Dependence on Third Parties
for Additional Funds and for Manufacturing, Marketing and Selling."
The Company may elect to establish its own commercial manufacturing facilities
for the products and technologies that it may develop. In the event the Company
decides to establish manufacturing facilities, the Company will be required to
hire and train significant numbers of employees and to comply with the extensive
cGMP regulations applicable to such a facility. The establishment of any such
facilities and eventual expansion of operations to commercial levels, as well as
the hiring of qualified employees, could require substantial expenditures. In
addition, at least some of the Company's products produced at its facilities
will probably be regulated as biologics. In that event, the Company would be
required to file with the FDA in order to obtain an establishment license (or
similar license) for its facilities. Legislation that would eliminate the
requirement for an establishment license is currently pending before Congress,
but there is no assurance that this legislation will be enacted. Any delay in
the FDA's approval of (or its refusal to grant) such a license would delay or
prevent marketing of the relevant product. See "Risk Factors--Lack of
Manufacturing Facilities" "--Dependence on Others for Clinical Development of,
and Regulatory Approvals for Manufacturing and Marketing of Pharmaceutical
Products."
GOVERNMENT REGULATION
The research, preclinical development, clinical trials, product manufacturing
and marketing which may be conducted by the Company is subject to regulation by
the FDA and similar health authorities in foreign countries. The proposed
products and technologies of the Company also may be subject to certain other
federal, state and local government regulations, including, without limitation,
the Federal Food, Drug and Cosmetic Act, and their state, local and foreign
counterparts. Although there can be no such assurance, the Company does not
believe that compliance with such laws and regulations has, nor is presently
expected to have, a material adverse effect on the business of the Company.
However, the Company cannot predict the extent of the adverse effect on its
business or the financial and other cost that might result from any government
regulations arising out of future legislative, administrative or judicial
action. See "Risk Factors--Government Regulation; No Assurance of Product
Approval."
Generally, the steps required before a pharmaceutical or therapeutic biological
agent may be marketed in the United States include: (i) preclinical laboratory
tests, IN VIVO preclinical studies in animals, toxicity studies and formulation
studies; (ii)
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the submission to the FDA of an IND application for human clinical testing, that
must become effective before human clinical trials commence; (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug; (iv) the submission of a marketing application to the FDA; and (v) FDA
approval of the marketing application prior to any commercial sale or shipment
of the drug.
Preclinical studies include laboratory evaluation of the product, conducted
under Good Laboratory Practice (GLP) regulations, and animal studies to assess
the pharmacological activity and the potential safety and effectiveness of the
drug. The results of the preclinical studies are submitted to the FDA in the
IND. Unless the FDA objects to an IND, it becomes effective 30 days following
submission and the clinical trial described in the IND may then begin.
Every clinical trial must be conducted under the review and oversight of an
institutional review board (IRB) at each institution participating in the trial.
The IRB evaluates, among other things, ethical factors, the safety of human
subjects, and the possible liability of the institution.
Clinical trials are typically conducted in three sequential phases, although the
phases may overlap. Phase I represents the initial introduction of the drug to a
small group of healthy subjects to test for safety, dosage tolerance, and the
essential characteristics of the drug. Phase II involves studies in a limited
number of patients to test the safety and efficacy of the drug at different
dosages. Phase III trials involve large-scale evaluation of safety and
effectiveness, usually (though not necessarily) in comparison with placebo or an
existing treatment.
The results of the preclinical and clinical trials are submitted to the FDA as
part of an application to market the drug. The marketing application also
includes information pertaining to the chemistry, formulation, manufacture of
the drug and each component of the final product. The FDA review of a marketing
application takes from one to two years on average to complete, though reviews
of treatments for cancer and other life-threatening diseases may be accelerated.
However, the process may take substantially longer if the FDA has questions or
concerns about a product. Following review, the FDA may ultimately decide that
an application does not satisfy regulatory and statutory criteria for approval.
In some cases, the FDA may approve a product but require additional clinical
tests following approval (i.e., Phase IV).
In addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with, and approved by, the FDA.
Domestic manufacturing establishments are subject to inspections by the FDA and
must comply with Good Manufacturing Practice ("GMP"). To supply products for use
in the United States, foreign manufacturing establishments must comply with GMP
and are subject to periodic inspection by the FDA or by corresponding regulatory
agencies in such countries under reciprocal agreements with the FDA. As
permitted by FDA regulations, the M-Vax and O-Vax phase I/II human clinical
trials are being conducted by TJU under the supervision of Dr. David Berd
pursuant to an FDA-approved physician sponsored IND. Following an earlier
meeting with the FDA to discuss the clinical results obtained with M-Vax, the
use of such results in support of the submission of a Company-sponsored IND to
the FDA, and to review its proposed development plan, the Company reviewed a
proposed phase III protocol with FDA and plans to submit a Company-sponsored IND
to support the pivotal trial program. This IND will also address product
characterization/manufacturing issues raised by FDA to ensure that all pivotal
data will support a product license application. No patients will be enrolled in
the pivotal trial program until the Company and FDA are satisfied that all
product issues are resolved. Depending upon the results of such clinical trials,
it is the Company's intention to use the results of these Company-sponsored
clinical trials along with the results of the clinical trial conducted at TJU,
as the basis for the filing of an application for FDA approval to market M-Vax.
Even if the Company eventually receives FDA approval of a marketing application
to commercialize any of its products, there can be no assurance that the Company
will be able to successfully manufacture such product at a commercially
acceptable cost.
If marketing approval of any Company product is granted, the Company must
continue to comply with FDA requirements not only for manufacturing, but also
for labeling, advertising, record keeping, and reporting to the FDA of adverse
experiences and other information. In addition, the Company must comply with
federal and state health care antikickback laws and other health care fraud and
abuse laws that affect the marketing of pharmaceuticals. Failure to comply with
applicable laws and regulations could subject the Company to administrative or
judicial enforcement actions, including but not limited to product seizures,
injunctions, civil penalties, criminal prosecution, refusals to
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<PAGE>
approve new products or withdrawal of existing approvals, as well as increased
product liability exposure, any of which could have a material adverse effect on
tile company's business, financial condition, or results of operations.
For clinical investigation and marketing outside the United States, the Company
also is subject to foreign regulatory requirements governing human clinical
trials and marketing approval for drugs. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary widely for
European countries both within and outside the European Community ("EU").
Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authority. At present, foreign marketing authorizations are applied
for at a national level, although within the EU certain registration procedures
are available to companies wishing to market their products in more than one EU
member state. If the regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, a marketing authorization will
be granted. The system for obtaining marketing authorizations within the EU
registration system is a dual one in which certain products, such as
biotechnology and high technology products and those containing new active
substances, will have access to a central regulatory system that provides
registration throughout the entire EU. Other products will be registered by
national authorities in individual EU member states, operating on a principle of
mutual recognition. This foreign regulatory approval process includes, at least,
all of the risks associated with FDA approval set forth above. The Company could
possibly have greater difficulty in obtaining any such approvals and also might
find it more difficult to protect its intellectual property abroad.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company does not expect to encounter significant difficulties in obtaining
raw materials for M-Vax, O-Vax or C-Vax, since they are primarily composed of a
readily available chemical reagent, DNP, and the patient's own tumor cells.
Should the supply of DNP significantly decrease, the Company may encounter
problems preparing M-Vax, O-Vax, C-Vax, or any other AC Vaccine technology.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company's business may be subject to regulation under federal, state, local,
and foreign laws regarding environmental protection and hazardous substance
control. The Company believes that its compliance with these laws will have no
adverse impact upon its capital expenditures, earnings or competitive position.
Federal, state and foreign agencies and legislative bodies have expressed
interest in the further environmental regulation of the biotechnology industry.
The Company is unable to estimate the extent and impact of such, if any, future
federal, state, local legislation or administrative environmental action.
EMPLOYEES
The Company utilizes a product development strategy that includes contracting
out its research and development, and to a certain extent, some other functions
in order to minimize the expenses and overhead associated with full-time
employees. Consistent with this strategy, as of March 3, 1998, the Company had
six full-time employees, including Jeffrey M. Jonas, M.D., its President and
Chief Executive Officer, David L. Tousley, C.P.A., its Chief Financial Officer,
and Ernest W. Yankee, Ph.D., its Executive Vice President. Its other
consultants, scientific advisors, part-time officers and directors devote only a
portion of their time to the business of the Company. The Company believes that
it maintains good relations with its employees, consultants, scientific
advisors, part-time officers and directors. See "Risk Factors--Lack of
Management and Employees" and "--Dependence Upon Key Personnel and Consultants."
FACILITIES
The Company's executive offices are located at 4520 Main, Suite 930, Kansas
City, Missouri 64111. In October of 1996, the Company entered into a three-year
lease for approximately 2,800 square feet of office space with a monthly rental
of approximately $5,400, beginning in the fourth month. This lease was amended
in December 1997 to add approximately 1,300 additional square feet of office
space for the remainder of the original lease term which increased the monthly
rental by approximately $2,700.
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The Company anticipates that in the future it may own or lease its own facility
for the manufacturing of its potential products and has entered into a 10-year
lease for approximately 11,900 square feet of space in Philadelphia,
Pennsylvania to begin construction of such a facility. The lease began in
February 1998, contains options for expansion in 1999 and 2002 and contains an
option to terminate at the end of the fifth year. The initial monthly rental is
approximately $10,400.
The research work of the Company is currently being conducted at TJU, Rutgers
and Texas A&M pursuant to their respective license and research agreements with
the Company. See "Risk Factors--Lack of Facilities," --"Dependence on Third
Parties for Additional Funds and for Manufacturing, Marketing and Selling," and
"--Dependence on Others for Clinical Development of, and Regulatory Approvals
for, and Manufacturing and Marketing of Pharmaceutical Products" and "Certain
Transactions."
LEGAL PROCEEDINGS
The Company's application for a federal trademark registration for the name AVAX
has been opposed by a third party. This opposition proceeding concerns the right
of the Company to obtain a federal trademark registration in the United States
Patent & Trademark Office for the name AVAX. Although the Company believes there
is a sound basis for denial of the opposition and allowance of its application
to register the name AVAX, there can be no assurance that the Company will
prevail in this proceeding. There is also no assurance that the Company will
desire or be able to continue using the name AVAX at some future time. The
Company does not believe that an adverse outcome in this proceeding will
materially affect its business.
The Company is not aware of any other pending or threatened legal actions which,
in the opinion of management, based on known information, is likely to have a
material adverse effect on the Company's business.
RESEARCH AND DEVELOPMENT EXPENSE
For fiscal years 1996 and 1997, the Company incurred research and development
expense of $738,991 and $2,448,976, respectively. Research and development
expense for the period from inception has been $4,801,285. See "Financial
Statements." Although there can be no assurance, the Company intends to spend
increasingly more on research and development in the foreseeable future.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names and positions of the executive officers
and directors of the Company:
Name Age Position
- ---- --- --------
Jeffrey M. Jonas, M.D. 45 Chief Executive Officer, President and
Director
Edson D. de Castro 59 Director
John K.A. Prendergast, Ph.D. 44 Director
Carl Spana, Ph.D. 35 Director
Michael S. Weiss 32 Secretary and Director
David L. Tousley, C.P.A. 42 Chief Financial Officer
Ernest W. Yankee, Ph.D. 54 Executive Vice President
JEFFREY M. JONAS, M.D., has been the Chief Executive Officer, President and
Director of the Company since June 1, 1996. Prior to joining the Company, from
1994 to 1996, Dr. Jonas was the Vice President of Clinical Development and the
Chief Medical Officer of Upjohn Laboratories. From 1991 to 1994, he was the Vice
President of Worldwide Pharmaceutical Regulatory Affairs, the Director of
Psychopharmacology and the Director of Clinical Development III for Upjohn
Company. Prior thereto, Dr. Jonas was a research and clinical
psychopharmacologist in the Boston area. Dr. Jonas has authored a book on
Prozac(TM), and over 100 scientific articles, abstracts and book chapters. Dr.
Jonas received his M.D. from Harvard Medical School in 1979 and a B.A. in
Biology and English from Amherst College in 1975.
MR. EDSON D. DE CASTRO has been a member of the Board of Directors of the
Company since October 1993. Since 1990 Mr. de Castro has been consulting for
companies and participating as a member of certain Boards of Directors. Mr. de
Castro was one of five co-founders of Data General Corporation in 1968 for
which, from 1968 to 1989, he served as its President and Chief Executive
Officer, and from 1989 to 1990, he served as its Chairman of the Board of
Directors. Mr. de Castro was a founder and Executive Committee Member of the
Massachusetts High Tech Council. Mr. de Castro is a Trustee of Boston
University. In addition, Mr. de Castro serves on the Board of Directors of
Boston Life Sciences, Inc. Mr. de Castro received his B.S. in Electrical
Engineering from the University of Lowell in 1960.
JOHN K.A. PRENDERGAST, PH.D., has been a director of the Company since July
1996. He is a co-founder and/or a member of the Board of Ingenex, Inc., Atlantic
Pharmaceuticals, Inc., Optex Ophthamologics, Inc., Gemini Gene Therapies, Inc.,
Channel Therapeutics, Inc., Xenometrix, Inc., Avigen, Inc., and Palatin
Technologies, Inc. Dr. Prendergast is a Managing Director of Paramount Capital
Investments, LLC. Prior to joining Paramount Capital Investments, LLC, Dr.
Prendergast worked as an investment banker in the Corporate Finance division of
the firm D.H. Blair & Co., Inc., a New York investment bank. Dr. Prendergast
received his M.Sc. and Ph.D. from the University of New South Wales, Sydney,
Australia and a CSS in Administration and Management from Harvard University.
CARL SPANA, PH.D., has been a Director of the Company since September 1995 and
was its Interim President from August 1995 to June 15, 1996. Dr. Spana is
currently the Executive Vice President of Business Development and Chief
Scientific Officer of Palatin Technologies, Inc. From 1993 to 1996, Dr. Spana
was responsible for discovering, evaluating, and commercializing new
biotechnologies through his work at Paramount Capital Investments, LLC where he
was an Associate Director. Dr. Spana has been a co-founder of several private
biotechnology firms. From 1991 to 1993, Dr. Spana was a Research Associate at
Bristol-Myers Squibb where he was involved in scientific research in the field
of immunology that lead to the initiation of several new drug discovery
programs. Dr. Spana currently is a member of the Board of Directors of Palatin
Technologies, Inc. Dr. Spana received his Ph.D. in Molecular Biology from The
Johns Hopkins University and a B.S. in Biochemistry from Rutgers University.
MICHAEL S. WEISS, ESQ., has been a Director of the Company since March 1996 and
Secretary of the Company since September 1995. Since November 1993, Mr. Weiss
has been Vice President and then Senior Managing Director of Paramount Capital,
Inc., and since 1995 he has been General Counsel of Paramount Capital
Investments, LLC. From 1991
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to 1993, Mr. Weiss was an attorney with Cravath, Swaine & Moore. Mr. Weiss is a
Director of Pacific Pharmaceuticals, Inc. and Palatin Technologies, Inc., Vice
Chairman of the Board of Genta, Inc., Chairman of the Board of Directors of
Procept, Inc., and Secretary of Atlantic Pharmaceuticals, Inc., each of which is
a publicly traded biotechnology company. In addition, Mr. Weiss is a Director of
several privately-held biotechnology companies. Mr. Weiss received his J.D. from
Columbia University School of Law and a B.S. in Finance from the State
University of New York at Albany.
DAVID L. TOUSLEY, C.P.A., has been the Chief Financial Officer of the Company
since October 1, 1996. Prior to joining the Company, from 1989 to 1996, Mr.
Tousley was the Controller and then the Vice President for Finance and
Administration of Connaught Laboratories, Inc. Mr. Tousley received his M.B.A.
in Accounting from Rutgers University Graduate School of Business in 1978 and
his B.A. in English from Rutgers College in 1977.
ERNEST W. YANKEE, PH.D., has been an Executive Vice President of the Company
since October 1, 1996. Prior to joining the Company, he served as the Director
of Clinical Development of the Upjohn Company from 1994 to 1996. From 1990 to
1994, he was the Director of Preclinical Development-Scientific Affairs of the
Upjohn Company. Dr. Yankee received his Ph.D. from the University of California
at Los Angeles in 1970 and his B.A. in Chemistry from La Sierra University in
1965.
All directors hold office until the next annual meeting of stockholders of the
Company and until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors. The Company's Certificate of
Incorporation and bylaws provide that directors and officers shall be
indemnified against liabilities arising from their service as directors or
officers to the fullest extent permitted by the laws of the State of Delaware,
which generally requires that the individual act in good faith and in a manner
he or she reasonably believes to be in, or not opposed to, the Company's best
interests.
The Company has only six full time employees. Mr. Weiss currently devotes only a
portion of his time to the Company as Corporate Secretary and does not currently
receive compensation from the Company for such services. Certain of the officers
and directors of the Company currently do and may from time to time in the
future serve as officers or directors of other biopharmaceutical or biotechnical
companies. There can be no assurance that such other companies will not in the
future have interest in conflict with those of the Company. See "Risk Factors --
No Assurance of Identification of Additional Projects," and "--Certain
Interlocking Relationships; Potential Conflicts of Interest."
BOARD COMMITTEES
The Company's Board of Directors has a Compensation Committee. The Compensation
Committee sets the compensation for certain of the Company's personnel and
administers the Company's 1992 Stock Option Plan. The Compensation Committee
consists of Dr. Spana and Mr. Weiss.
The Company's Board of Directors also has an Audit Committee. The Audit
Committee reviews the professional services provided by the Company's
independent accountants and monitor the scope and the results of the annual
audit, reviews proposed changes in the Company's financial and accounting
standards and principles, and the Company's policies and procedures with respect
to its internal accounting, auditing and financial controls and make
recommendations to the Board of Directors on the engagement of the independent
accountants, as well as other matters that may come before it or as directed by
the Board of Directors. The Audit Committee is composed of Dr. Jonas, Dr. Spana
and Mr. de Castro.
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SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board that consists of individuals with
extensive experience in the Company's fields of interest. It is expected that
the Scientific Advisory Board members will meet as a board with management and
key scientific employees of the Company on a semi-annual basis and in smaller
groups or individually on an informal basis. The Company anticipates that the
Scientific Advisory Board members will assist the Company in identifying
scientific and product development opportunities, in reviewing and evaluating
scientists and other employees. Presently, the Scientific Advisory Board members
consists of:
David Berd, M.D. -- Chairman Clinical Oncologist at the Jefferson Cancer
Center of TJU and Inventor of the Company's AC
Vaccine technology.
Edmond J. LaVoie, Ph.D. Professor of Medicinal Chemistry and Chairman
of the Department of Pharmaceutical Chemistry
at Rutgers University.
Margalit Mokyr, Ph.D. Professor of Biochemistry at the University of
Illinois College of Medicine.
Stephen H. Safe, Ph.D. Sid Kyle Professor of Toxicology at Texas A&M
University.
Robert J. Belt, M.D. Medical Director at the Peet Cancer Center of
Saint Luke's Hospital in Kansas City.
Drs. Berd and LaVoie are compensated pursuant to their consulting agreements
with the Company. See "Employment Agreements, Termination and Severance
Arrangements." Drs. LaVoie, Mokyr, Safe and Belt each recently entered into a
Scientific Advisory Board Agreement with the Company, where they agreed to serve
on the Scientific Advisory Board for a period of two years, subject to automatic
annual renewal periods. Pursuant to their respective agreements with the
Company, each such SAB member shall receive $2,000 per meeting, and may, in the
discretion of the Board of Directors of the Company or Compensation Committee
thereof, receive additional compensation in the form of options to purchase
shares of Common Stock of the Company or otherwise.
Members of the Scientific Advisory Board may be employed by or have consulting
agreements with entities other than the Company, some of which may conflict or
compete with the Company, or which may, limit a particular member's availability
to the Company. Certain of the institutions with which the Scientific Advisory
Board members are affiliated may have regulations or policies which are unclear
with respect to the ability of such personnel to act as part-time consultants or
in other capacities for a commercial enterprise. Regulations or policies now in
effect or adopted in the future might limit the ability of the Scientific
Advisory Board members to consult with the Company. The loss of the services of
certain of the Scientific Advisory Board members could have a material adverse
effect on the Company.
Although each of the members of the Scientific Advisory Board has the customary
contractual obligation to keep confidential and not to disclose nor use any
confidential or proprietary information of the Company's, inventions or
processes discovered by any Scientific Advisory Board member, in certain
instances or unless otherwise agreed, will not become the property of the
Company but will remain the property of such person or of such person's
full-time employers. In addition, the institutions with which the Scientific
Advisory Board members are affiliated may make available the research services
of their scientific and other skilled personnel, including the Scientific
Advisory Board members to entities other than the Company. In rendering such
services, such institutions may be obligated to assign or license to a
competitor of the Company patents and other proprietary information which may
result from such services, including research performed by an advisor or
consultant for a competitor of the Company.
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BOARD COMPENSATION
In September 1997, as compensation for services rendered and to be rendered as
members of the Company's Board of Directors, the Company issued to each of Mr.
de Castro, Dr. Spana, Dr. Prendergast and Mr. Weiss, options to purchase 40,000
shares of Common Stock, exercisable for seven years at an exercise price equal
to $4.50 per share. Such options shall vest at a rate of 1/16 per quarter for a
period of four years, commencing on December 1, 1997. The Company currently
intends to compensate its directors on an annual basis, at the election of each
such director (which election must be made annually by December 15th of the year
immediately prior to the year in which such compensation is earned (the
"Election Date")), as follows: (i) $ 10,000, payable quarterly in arrears (the
"Director's Fee"), or (ii) options to purchase that number of shares of Common
Stock in an amount equal to the result obtained by multiplying (A) two by (B)
the result obtained by dividing (x) the Director's Fee by (y) the closing price
of the Common Stock on the Election Date, or the last business day preceding the
Election Date (the "Closing Price"); which options shall vest at a rate of 1/4
per quarter over a one-year period and shall be exercisable for a period of
seven years at an exercise price equal to the Closing Price. All directors have
elected to be compensated for their 1998 services with options to purchase
common stock and accordingly, in December, 1997, were each issued options to
purchase 5,161 shares of Common Stock with the foregoing terms at an exercise
price of $3.875 per share of Common Stock. In the event of a change of control
(as defined in the applicable stock option agreements), each of the foregoing
outstanding stock options, generally, will immediately vest in full, either at
the time of such event, or upon the subsequent termination of such individual's
service with AVAX.
Dr. Jonas receives no compensation for service on the Board of Directors or any
committee thereof. All directors of the Company are reimbursed for travel
expenses incurred in attending board and committee meetings.
The Company may retain additional board members in the future. Certain of the
directors may have consulting agreements and/or received stock grants in
consideration for services rendered to the Company, other than services rendered
as members of the Board. See "Executive Compensation" and "Certain
Transactions."
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned by
the persons serving as either the Company's chief executive officer and the
other named executive officers (collectively the "Named Officers") for the last
three fiscal years. No other executive officer earned compensation in excess of
$100,000 for services rendered to the Company for any such fiscal year and no
executive officer, who would have otherwise been included in such table,
resigned or terminated employment during that year. With respect to the persons
and periods covered in the following table, the Company made no restricted stock
awards and had no long-term incentive plan payouts.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
RESTRICTED COMMON SHARES OF COMMON ALL OTHER
NAME AND PRINCIPAL BONUS STOCK AWARD(S) STOCK UNDERLYING COMPENSATION
POSITION YEAR SALARY ($) ($) ($) OPTIONS/SARS (#) ($)
- ------------------------ ------ ------------------- ------------ ------------------- ------------------- ----------------
Jeffrey M. Jonas, M.D.
<S> <C> <C> <C> <C> <C> <C>
- -- President and Chief
Executive Officer 1997 $214,656.63 $100,000 -0- 150,000.0 -0-
1996 $117,712.29 $12,5001 -0- 318,872.5 -0-
David L. Tousley,
C.P.A. -- Chief
Financial Officer 1997 $154,500.00 $50,000 -0- 60,000 $62,570.542
1996 $35,288.44 -0- -0- 125,000 -0-
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Ernest W. Yankee,
Ph.D. - Executive Vice
President 1997 $150,750.10 $50,000 -0- 60,000 $70,631.273
1996 $36,250.02 -0- -0- 125,000 -0-
</TABLE>
1 Represents amount paid to Dr. Jonas as a signing bonus in connection with
his letter of employment. See "Management--Employment Agreements;
Termination and Severance Arrangements."
2 Includes $62,287.04 paid in connection with Mr. Tousley's relocation and
temporary living expenses in accordance with his letter of employment and
$283.50 in group term life insurance premiums for insurance coverage in
excess of $50,000, paid by the Company.
3 Includes $69,906.27 paid in connection with Dr. Yankee's relocation and
temporary living expenses in accordance with his letter of employment and
$725.00 in group term life insurance premiums for insurance coverage in
excess of $50,000, paid by the Company.
The following table sets forth certain information concerning stock options
granted during the fiscal year ended December 31, 1997 to the Named Officers.
Option/SAR Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Shares of Common Stock % of Total
Underlying Options/SARs Options/SARs Granted Exercise or Base
Name Granted (#) to Employees in Fiscal Price ($/share) Expiration Date
Year
- --------------------------- ------------------------- ------------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Jeffrey M. Jonas, M.D. 150,000 40.54% 4.50 July 1, 2004
David L. Tousley, 60,000 16.22% 4.50 July 1, 2004
Ernest W. Yankee, Ph.D. 60,000 16.22% 4.50 July 1, 2004
</TABLE>
The following table sets forth certain information concerning stock options held
by the Named Officers on December 31, 1997. No stock options were exercised by
the Named Officers during the fiscal year ended December 31, 1997.
Aggregate Option Exercises In Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at December 31, 1997 (#) at December 31, 1997 ($) (1)
-------------------------------- ----------------------------
Shares Acquired
Name on Exercise (#) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------ ------------------- ----------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Jeffrey M. Jonas, M.D. -0- 132,077 336,795 $321,363.19 $535,605.31
David L. Tousley, C.P.A. -0-
35,000 150,000 $83,984.37 $251,953.13
Ernest W. Yankee, Ph.D. -0- 35,000 150,000 $83,984.37 $251,953.13
</TABLE>
(1) Value is based on the difference between the option exercise price and
$3.6875, the fair market value of the Corporation's Common Stock on December 31,
1997, multiplied by the number of shares of Common Stock issuable upon exercise
of the options.
41
<PAGE>
EMPLOYMENT AGREEMENTS; TERMINATION AND SEVERANCE ARRANGEMENTS
On May 17, 1996, the Company entered into a letter of employment (the "Jonas
Employment Letter") with Dr. Jeffrey M. Jonas, pursuant to which Dr. Jonas
became the President, Chief Executive Officer and a Director of the Company for
an initial term of four years, effective as of June 1, 1996. Pursuant to the
terms of the Jonas Employment Letter, Dr. Jonas will receive an annual salary of
$200,000, in addition to a signing bonus of $12,500. Dr. Jonas will also receive
a minimum annual bonus of $25,000 at the end of the first year of his employment
and an additional discretionary bonus of up to $175,000. Dr. Jonas also received
options to acquire 318,872.5 shares of Common Stock at an exercise price of
$1.00. Such options will vest at a rate of 1/16 per quarter over a four-year
period, and are exercisable for a period of seven years. In June 1997, Dr. Jonas
received a bonus of $100,000 and his annual salary was increased to $225,000. In
July 1997, Dr. Jonas received options to acquire an additional 150,000 shares of
Common Stock at an exercise price of $4.50 per share. Such options will vest at
a rate of 1/12 per quarter over a three-year period, and are exercisable for a
period of seven years. The Jonas Employment Letter also provides that the
Company and Dr. Jonas intend to enter into a more formal employment agreement
which will contain, among other things, severance arrangements and non-compete
provisions. Dr. Jonas will also be eligible for additional stock options and
bonuses based upon outstanding performance. In the event that a Change of
Control (as defined in the Jonas Employment Letter) occurs and, prior to the
expiration of the initial term of the Jonas Employment Letter, Dr. Jonas'
employment thereunder is terminated by the Company without cause or by Dr. Jonas
with cause, all options previously granted to Dr. Jonas which remain unvested
will immediately vest.
On September 13, 1996, the Company entered into a letter of employment (the
"Tousley Employment Letter") with David L. Tousley, pursuant to which Mr.
Tousley became the Chief Financial Officer of the Company for an initial term of
four years. Pursuant to the terms of the Tousley Employment Letter, Mr. Tousley
will receive an annual salary of $150,000. Mr. Tousley will also receive a
minimum annual bonus of $25,000 at the end of the first year of his employment
and an additional discretionary bonus of up to $125,000. Mr. Tousley also
received options to acquire 125,000 shares of Common Stock at an exercise price
of $1.00 per share. In July 1997, Mr. Tousley received options to acquire an
additional 60,000 shares of Common Stock at an exercise price of $4.50 per
share. All such options will vest at a rate of 1/16 per quarter over a four-year
period, and are exercisable for a period of seven years. The Tousley Employment
Letter also provides that the Company and Mr. Tousley intend to enter into a
more formal employment agreement which will contain, among other things,
severance arrangements and non-compete provisions. Mr. Tousley shall also be
entitled to such additional compensation in the form of bonuses, raises or
otherwise as the Board of Directors of the Company may determine. In the event
that a Change of Control (as defined in the Tousley Employment Letter) occurs
and, prior to the expiration of the initial term of the Tousley Employment
Letter, Mr. Tousley's employment thereunder is terminated by the Company without
cause or Mr. Tousley with cause, all options previously granted to Mr. Tousley
which remain unvested will immediately vest.
On September 13, 1996, the Company entered into a letter of employment (the
"Yankee Employment Letter") with Ernest W. Yankee, Ph.D., pursuant to which Dr.
Yankee became an Executive Vice President of the Company for an initial term of
four years. Pursuant to the terms of the Yankee Employment Letter, Dr. Yankee
will receive an annual salary of $145,000. Dr. Yankee will also receive a
minimum annual bonus of $25,000 at the end of the first year of his employment
and an additional discretionary bonus of up to $83,750. Dr. Yankee also received
options to acquire 125,000 shares of Common Stock at an exercise price of $1.00
per share. In July 1997, Dr. Yankee received options to acquire an additional
60,000 shares of Common Stock at an exercise price of $4.50 per share. All such
options will vest at a rate of 1/16 per quarter over a four-year period, and are
exercisable for a period of seven years. The Yankee Employment Letter also
provides that the Company and Dr. Yankee intend to enter into a more formal
employment agreement which will contain, among other things, severance
arrangements and non-compete provisions. Dr. Yankee shall also be entitled to
such additional compensation in the form of bonuses, raises or otherwise as the
Board of Directors of the Company may determine. In the event that a Change of
Control (as defined in the Yankee Employment Letter) occurs and, prior to the
expiration of the initial term of the Yankee Employment Letter, Dr. Yankee's
employment thereunder is terminated by the Company without cause or by Dr.
Yankee with cause, all options previously granted to Dr. Yankee which remain
unvested will immediately vest.
42
<PAGE>
On February 22, 1996, the Company entered into a consulting agreement (the
"Spana Consulting Agreement") with Dr. Carl Spana, a Director and the then
Interim President of the Company. Pursuant to the Spana Consulting Agreement,
Dr. Spana is entitled to a consulting fee of $25,000 per annum payable on a
monthly basis, commencing upon the consummation of the Series B Offering. The
Spana Consulting Agreement is for an initial term of three years, and is
renewable for one year terms thereafter at the discretion of both parties and
may be terminated upon 30 days' notice by either party. Dr. Spana's tenure as
Interim President of the Company included the period from March 1996 to June
1996, when the Company did not have a Chief Executive Officer. At the time of
Dr. Jonas' appointment as the President and Chief Executive Officer of the
Company, Dr. Spana resigned from his position as Interim President. See "Certain
Transactions."
In May 1996, the Company entered into a consulting agreement with Dr. David Berd
(the "Berd Consulting Agreement"). Pursuant to such consulting agreement, Dr.
Berd is entitled to a $36,000 per year consulting fee payable on a monthly basis
accruing from January 1, 1996, the payment of which commenced upon the
consummation of the Series B Offering. The Berd Consulting Agreement is for a
term of three years subject to early termination upon the happening of certain
events. If Dr. Berd's consulting agreement is terminated without cause, Dr. Berd
will be entitled to six months' severance pay. In addition, Dr. Berd has agreed
to serve as Chairman of the Company's Scientific Advisory Board.
In July 1997, the Company entered into a consulting agreement with a member of
its Scientific Advisory Board, Dr. Edmond J. LaVoie (the "LaVoie Consulting
Agreement"). Pursuant to such consulting agreement, Dr. LaVoie is entitled to a
consulting fee of $20,000 per annum, payable quarterly. In addition, Dr. LaVoie
received options to acquire 30,000 shares of Common Stock, exercisable for a
period of seven years at an exercise price of $4.50 per share. The LaVoie
Consulting Agreement is for an initial term of three years, and is renewable for
one year periods thereafter upon the mutual agreement of the parties.
43
<PAGE>
CERTAIN TRANSACTIONS
Pursuant to a private offering held in May and June 1996, the Company
consummated an offering of Series B Preferred Stock (the "Series B Offering")
pursuant to which the Company raised aggregate gross proceeds of approximately
$25,800,000. In connection with services rendered by Paramount Capital, Inc., as
placement agent ("Paramount" or the "Placement Agent"), for the Series B
Offering, and pursuant to a placement agency agreement entered into by the
Company and the Placement Agent, the Company paid the Placement Agent cash
commissions of approximately $2,324,000, a non-accountable expense allowance of
approximately $1,033,000 and placement warrants ("Series B Placement Warrants")
to acquire approximately 25,820 shares of Series B Preferred Stock, exercisable
until June 11, 2006 at an exercise price of $110 per share of Series B Preferred
Stock. See "Description of Securities."
Pursuant to the placement agency agreement for the Series B Offering, on June
12, 1996, the Company and the Placement Agent entered into a Financial Advisory
Agreement, pursuant to which the Placement Agent will act as the Company's
financial advisor. Such engagement provides that the Placement Agent will
receive a monthly retainer of $4,000 per month for a minimum of 24 months, plus
expenses and success fees.
On October 20, 1995, the Company entered into an Engagement & Technology
Acquisition Agreement with The Castle Group, LLC ("The Castle Group"), which may
be deemed an affiliate of both the Company and the Placement Agent, pursuant to
which The Castle Group identified, negotiated and acquired for the Company the
TJU License. In consideration for the conveyance of the license, TJU and Dr.
Berd were both granted 229,121.5 shares of Common Stock. In connection
therewith, The Castle Group and its designees were granted and sold 916,485.5
shares of Common Stock of the Company at a price of $.004 per share. Prior to
the acquisition of the TJU License, the Company had no technological assets
other than it's former lead product under development, which was sold in
December 1995.
Dr. Lindsay A. Rosenwald, a substantial shareholder of the Company, is the
Chairman and sole shareholder of each of the Placement Agent and Paramount
Capital Investments, LLC. Dr. Rosenwald personally collateralized loans to the
Company from NatWest Bank N.A., pursuant to which the Company incurred principal
and interest indebtedness of approximately $55,000. Such indebtedness was paid
in full as of June 30, 1996. Dr. Rosenwald also extended a line of credit to the
Company. As of June 30, 1996, the Company paid the outstanding principal amount
and accrued interest under such line of credit, which was approximately
$250,000. In addition, in 1995 and 1996, Paramount acted as placement agent,
pursuant to a placement agency agreement, for a bridge financing for the Company
as to which Paramount was paid $90,000 in commissions and received warrants to
purchase 31,250 shares of Common Stock. Two of the investors in these bridge
financings were private investment funds managed by a company for which Dr.
Rosenwald is President. Also, Michael S. Weiss, Director and Secretary of the
Company, is a Senior Managing Director of Paramount and General Counsel of
Paramount Capital Investments, LLC. Wayne Rubin, at that time the Treasurer of
the Company, is Chief Financial Officer of Paramount and Paramount Capital
Investments, LLC. Dr. Carl Spana, a Director of the Company, was at that time a
Vice President of Paramount Capital Investments, LLC. Dr. John K.A. Prendergast,
also a Director of the Company, is a Managing Director of Paramount Capital
Investments, LLC.
In consideration of services rendered on behalf of the Company in connection
with the acquisition and negotiation of the Rutgers License, on February 13,
1997, the Company agreed to pay Samuel P. Wertheimer, Ph.D., $25,000, and Carl
Spana, Ph.D., $15,000. In addition, the Company agreed to issue to each of Drs.
Wertheimer and Spana warrants to purchase 6,375 shares of Common Stock at an
exercise price of $6.00 per share, exercisable for seven years. In consideration
of services rendered on behalf of the Company in connection with the acquisition
and negotiation of the Texas A&M License, on February 13, 1997, the Company
agreed to pay Fred Mermelstein, Ph.D., $40,000 and to issue to Dr. Mermelstein
warrants to purchase 12,750 shares of Common Stock at an exercise price of $6.00
per share, exercisable for seven years. Drs. Wertheimer and Mermelstein are
employees of Paramount Capital Investments, LLC. Dr. Spana is a Director of the
Company.
Pursuant to the Company's Certificate of Incorporation and bylaws, the Company
has agreed to indemnify the Directors and Officers of the Company to the maximum
extent permissible under Delaware law. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing, or otherwise, the Company has been advised that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding the beneficial ownership of the Common Stock (i) by each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding shares of the Common Stock, (ii) by each of the named
executive officers and directors of the Company and (iii) by all officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF PERCENTAGE OF CLASS
OWNER (1) TITLE OF STOCK SHARES BENEFICIALLY OWNED
--------- -------------- ------ ------------------
<S> <C> <C> <C>
LINDSAY A. ROSENWALD, M.D. (2) Common Stock 773,056 16.18%
787 Seventh Avenue, Series B Preferred 10,000 (3) *
44th Floor
New York, NY 10019
JEFFREY M. JONAS, M.D. (4) Common Stock 177,007 3.57%
CARL SPANA, PH.D. (5) Common Stock 70,240 1.47%
JOHN K.A. PRENDERGAST, PH.D. (6) Common Stock 70,240 1.47%
EDSON D. DE CASTRO (7) Common Stock 35,323 *
MICHAEL S. WEISS (8) Common Stock 106,040 2.22%
DAVID L. TOUSLEY (9) Common Stock 58,125 1.20%
ERNEST W. YANKEE (9) Common Stock 58,125 1.20%
All officers and directors as a Common Stock 575,100 10.74%
group (7 persons) Series B Preferred -0- *
</TABLE>
- --------------------------------------------------------------------------------
*Represents less than 1%.
(1) Beneficial ownership is determined in accordance with rules promulgated by
the Securities and Exchange Commission, and include voting and investment power
with respect to shares of Common Stock. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days of the
date of this Prospectus, are deemed outstanding for computing the percentage
ownership of the person holding such options or warrants, but are not deemed
outstanding for purposes of computing the percentage ownership of any other
person.
(2) Includes 199,314 shares of Common Stock owned by Dr. Rosenwald's wife and
trusts in favor of his minor children. Dr. Rosenwald disclaims beneficial
ownership of such shares. Excludes (i) 17,000 shares of Common Stock issuable
upon exercise of Bridge Placement Warrants and (ii) approximately 320,949 shares
of Common Stock issuable upon conversion of shares of Series B Preferred Stock
issuable upon exercise of Series B Placement Warrants. Includes 61,250 shares of
Common Stock owned by The Aries Fund, A Cayman Island Trust and The Aries
Domestic Fund, L.P. (collectively, the "Funds"), two private investment funds
that are managed by a company of which Dr. Rosenwald is President, but excludes
an aggregate of 298,211 shares of Common Stock issuable upon conversion of
shares of Series B Preferred Stock held directly by such entities or issuable
upon exercise of Series B Placement Warrants and Bridge Placement Warrants held
by such entities. Dr. Rosenwald disclaims beneficial ownership of such shares
owned by the Funds, except to the extent of his pecuniary interest, if any.
(3) Represents shares of Series B Preferred Stock owned by the Funds. Dr.
Rosenwald disclaims beneficial ownership of such shares owned by the Funds,
except to the extent of his pecuniary interest, if any.
45
<PAGE>
(4) Represents shares that Dr. Jonas may acquire within 60 days of the date of
this Prospectus, upon the exercise of options granted pursuant to his letter of
employment. Excludes 291,865 shares of Common Stock issuable upon exercise of
options granted pursuant to his letter of employment which are not exercisable
within 60 days of the date of this Prospectus.
(5) Includes 5,323 shares of Common Stock that Dr. Spana may acquire within 60
days of the date of this Prospectus upon the exercise of options granted as
board compensation. Excludes 39,838 shares of Common Stock issuable to Dr. Spana
upon exercise of options granted as board compensation which are not exercisable
within 60 days of the date of this Prospectus.
(6) Includes 5,323 shares of Common Stock that Dr. Prendergast may acquire
within 60 days of the date of this Prospectus upon the exercise of options
granted as board compensation. Excludes 39,838 shares of Common Stock issuable
to Dr. Prendergast upon exercise of options granted as board compensation which
are not exercisable within 60 days of the date of this Prospectus.
(7) Represents shares of Common Stock that Mr. de Castro may acquire within 60
days of the date of this Prospectus, including 5,323 shares of Common Stock that
Mr. de Castro may acquire within 60 days of the date of this Prospectus upon the
exercise of options granted as board compensation. Excludes 39,838 shares of
Common Stock issuable Mr. de Castro upon exercise of options granted as board
compensation which are not exercisable within 60 days of the date of this
Prospectus.
(8) Excludes (i) 1,500 shares of Common Stock issuable upon exercise of Bridge
Placement Warrants and (ii) approximately 45,180 shares of Common Stock issuable
upon conversion of shares of Series B Preferred Stock issuable upon exercise of
Series B Placement Warrants. Includes 5,323 shares of Common Stock that Mr.
Weiss may acquire within 60 days of the date of this Prospectus upon the
exercise of options granted as board compensation. Excludes 39,838 shares of
Common Stock issuable to Mr. Weiss upon exercise of options granted as board
compensation which are not exercisable within 60 days of the date of this
Prospectus.
(9) Represents shares that Mr. Tousley and Dr. Yankee each may acquire within 60
days of the date of this Prospectus and excludes 126,875 shares issuable to each
of Mr. Tousley and Dr. Yankee not exercisable within 60 days of the date of this
Prospectus upon exercise of options granted pursuant to their respective letters
of employment.
46
<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 50,000,000 shares of Common Stock, par
value $.004 per share, and 5,000,000 shares of preferred stock, par value, $.01
per share, of the Company. As of March 3, 1998, 4,777,488 shares of Common Stock
and 196,677 shares of Series B Preferred Stock were issued and outstanding.
COMMON STOCK
Each holder of Common Stock of the Company is entitled to one vote for each
share held of record. There is no right to cumulative voting of shares for the
election of directors. The shares of Common Stock are not entitled to preemptive
rights and are not subject to redemption or assessment. Each share of Common
Stock is entitled to share ratably in distributions to shareholders and to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. Upon liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive, pro-rata,
the assets of the Company which are legally available for distribution to
shareholders. The issued and outstanding shares of Common Stock are validly
issued, fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred stock,
par value $.01 per share (of which 300,000 are designated as Series B Preferred
Stock and 196,677 of which are issued and outstanding). The preferred stock of
the Company can be issued in one or more series as may be determined from
time-to-time by the Board of Directors. In establishing a series the Board of
Directors shall give to it a distinctive designation so as to distinguish it
from the shares of all other series and classes, shall fix the number of shares
in such series, and the preferences, rights and restrictions thereof. All shares
of any one series shall be alike in every particular. The Board of Directors has
the authority, without shareholder approval, to fix the rights, preferences,
privileges and restrictions of any series of preferred stock including, without
limitation: (a) the rate of distribution, (b) the price at and the terms and
conditions on which shares shall be redeemed, (c) the amount payable upon shares
for distributions of any kind, (d) the terms and conditions on which shares may
be converted if the shares of any series are issued with the privilege of
conversion and (e) voting rights except as limited by law.
Although the Company currently does not have any plans to issue additional
shares of preferred stock or to designate a new series of preferred stock, there
can be no assurance that the Company will not do so in the future. As a result,
the Company could authorize the issuance of a series of preferred stock which
would grant to holders preferred rights to the assets of the Company upon
liquidation, the right to receive dividend coupons before dividends would be
declared to holders of Common Stock, and the right to the redemption of such
shares, together with a premium, prior to the redemption to Common Stock. The
current shareholders of the Company have no redemption rights. In addition, the
Board could issue large blocks of voting stock to fend off unwanted tender
offers or hostile takeovers without further shareholder approval.
SERIES B PREFERRED STOCK
The Board of Directors of the Company has authorized the issuance of up to
300,000, of which 196,677 are outstanding, shares of Series B Preferred Stock,
par value $.01 per share, the rights, preferences and characteristics of which
are as follows:
DIVIDENDS
The holders of Series B Preferred Stock are entitled to receive dividends as,
when and if declared by the Board of Directors of the Company out of funds
legally available therefor. No dividend or distribution, as the case may be,
will be declared or paid on any junior stock unless the dividend also is paid to
holders of the Series B Preferred Stock. The Company does not intend to pay cash
dividends on the Series B Preferred Stock or the underlying Common Stock for the
foreseeable future.
47
<PAGE>
CONVERSION
Each share of Series B Preferred Stock initially was convertible, in whole or
part, at the option of the holder at any time after the initial issuance date
into 25 shares of Common Stock based upon an initial conversion price of $4.00
per share of Common Stock (the "Initial Conversion Price"). As of June 11, 1997,
13,250 shares of Series B Preferred Stock had been converted into shares of
Common Stock. The Initial Conversion Price was adjusted effective June 11, 1997
(the "Reset Date"), because the average closing bid price of the Common Stock
for the 30 consecutive trading days immediately preceding such date was less
than $5.40. The average was, in fact, $5.175 per share. Accordingly, the
conversion price was adjusted to $3.83 per share, which corresponds to a new
conversion rate of 26.0875 shares of Common Stock per share of Series B
Preferred Stock. The conversion price is subject to further adjustment upon the
occurrence of certain mergers, reorganizations, consolidations,
reclassifications, stock dividends or stock splits which will result in an
increase or decrease in the number of shares of Common Stock outstanding.
MANDATORY CONVERSION
The Company has the right at any time after the Reset Date to cause the
Preferred Stock to be converted in whole or in part, on a PRO RATA basis, into
shares of Common Stock if the closing price of the Common Stock exceeds 150% of
the then applicable Preferred Conversion Price for at least 20 trading days in
any 30 consecutive trading day period.
LIQUIDATION
Upon (i) a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) a sale or other disposition of all or
substantially all of the assets of the Company or (iii) merger or consolidation
(a "Merger Transaction") in which the Company is not the surviving entity and
shares of Common Stock consisting in excess of 50% of the voting power of the
Company are exchanged (subparagraphs (i), (ii), and (iii) being collectively
referred to as a "Liquidation Event"), after payment or provision for payment of
the debts and other liabilities of the Company, the holders of the Preferred
Stock then outstanding will first be entitled to receive, pro rata (on the basis
of the number of shares of the preferred stock then outstanding), and in
preference to the holders of the Common Stock and any other series of Preferred
Stock of the Company, an amount per share equal to $135.00 plus accrued but
unpaid dividends, if any; provided, however, that in the case of a Merger
Transaction, such $135.00 per share may be paid in cash and/or securities of the
surviving entity in such Merger Transaction.
VOTING RIGHTS
The holders of the Series B Preferred Stock have the right at all meetings of
stockholders to the number of votes equal to the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock at the record
date for determination of the stockholders entitled to vote. So long as 50% of
the shares of Series B Preferred Stock remain outstanding, the holders of 66.67%
of the Series B Preferred Stock are entitled to approve (i) the issuance of any
securities of the Company senior to or on parity with the Series B Preferred
Stock, (ii) any alteration or change in the rights or preferences or privileges
of the Series B Preferred Stock and (iii) the declaration or payment of any
dividend on any junior stock or the repurchase of any securities of the Company.
Except as provided above or as required by applicable law, the holders of the
Series B Preferred Stock will be entitled to vote together with the holders of
the Common Stock and not as a separate class.
LOCK-UP AGREEMENTS
The holders of shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock (the "Conversion Shares") agreed pursuant to their
subscription agreements with the Company not to offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, 75% of the Conversion Shares, without the prior written consent of
the placement agent in the Series B Offering (the "Lock-Up"). Such restrictions
were effective as follows: (i) with respect to 75% of the Conversion Shares
until September 12, 1996 (three months after the completion of the Series B
Offering); with respect to the 50% of the Conversion Shares until December 12,
1996 (six months after the completion of the Series B Offering); and with
respect to the remaining 25% of the Conversion Shares until March 11,
48
<PAGE>
1997 (nine months after the completion of the Series B Offering). Accordingly,
25% of each of the holders' Conversion Shares were never subject to the Lock-Up,
and as of March 11, 1997, the Lock-Ups expired.
However, holders of approximately 94% of the shares of Series B Preferred Stock
agreed to amend their subscription agreements with the Company to extend the
Lock-Up period. Pursuant to this amendment, the Lock-Up for such holders' shares
of Series B Preferred Stock has been extended for the period following the later
of the effectiveness under the Securities Act of 1933 (the "Act") of the
Registration Statement ("Effectiveness") and the listing of the Conversion
Shares on a national securities exchange or initial quotation on the Nasdaq
SmallCap Market ("Listing"), which occurred on July 10, 1997, as follows: (i)
three months following the later of Effectiveness and Listing with respect to
75% of the Conversion Shares; (ii) six months following the later of
Effectiveness and Listing with respect to 50% of the Conversion Shares and (iii)
nine months following the later of Effectiveness and Listing with respect to the
remaining 25% of the Conversion Shares. Accordingly, 25% of such holders'
Conversion Shares continue to have never been subject to the Lock-Up. The
Conversion Shares of holders that did not agree to amend their subscription
agreement are not subject to any Lock-Up.
In consideration of the agreement with the Company to extend the Lock-Up period
for their Conversion Shares, holders of shares of Series B Preferred Stock that
agreed to such extended Lock-Up have the right as of July 10, 1998 (i.e., one
year after the later of Effectiveness and Listing), to have the Company issue
such number of additional shares of Common Stock as shall be necessary to effect
the principles of the original reset provisions contained in the Certificate of
Designations for the Series B Preferred Stock taking into account any
adjustments which may have been previously made at the time of the Reset Date.
Accordingly, the Company will become obligated to issue additional shares of
Common Stock to such holders if the average closing bid price of the Common
Stock for the 30 consecutive trading days immediately preceding July 10, 1998 is
less than $5.175 per share.
The holders of shares of Series B Preferred Stock issuable upon exercise of
Series B Placement Warrants and the Common Stock issuable upon conversion
thereof (collectively, the "Placement Conversion Shares") are bound, pursuant to
the terms of such Series B Placement Warrants, not to offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any of the Placement Conversion Shares prior to December
11, 1997.
In addition, in connection with the Company's application for listing and
quotation of the Common Stock on the Nasdaq SmallCap Market, pursuant to the
request of Nasdaq, the Company obtained from the officers and directors of the
Company, and certain employees of Paramount and its affiliates, agreements
locking-up all securities and derivative securities of the Company held by such
individuals for a period of two years through July 10, 1999. Such agreements may
be waived in whole or in part at the option of the Company.
1992 STOCK OPTION PLAN
A total of 437,500 shares of Common Stock has been reserved for issuance under
the Company's 1992 Stock Option Plan (the "AVAX Option Plan"). The AVAX Option
Plan was adopted by the Board of Directors in April 1992 and approved by
stockholders of the Company in April 1992. The AVAX Option Plan expires by its
own terms in 2002. It is anticipated that the Company will put forth a proposal
to increase the amount of shares issuable pursuant to the AVAX Option Plan to
2,000,000 shares of Common Stock at its 1998 Annual Meeting which is currently
scheduled for June 3, 1998.
The AVAX Option Plan provides for the grant of "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
nonqualified stock options to employees, directors and consultants of the
Company. Incentive stock options may be granted only to employees. The AVAX
Option Plan is administered by the Board of Directors of the Company (or a
Committee thereof) which determines the terms of the options granted, including
the exercise price, the number of shares subject to the option, and the schedule
on which the option becomes exercisable.
The AVAX Option Plan requires that the exercise price of incentive stock options
granted to employees of the Company who at the time of the grant of such
incentive stock option own stock representing more than 10% of the voting power
of all classes of stock of the Company or any parent or subsidiary, must be at
least equal to 110% of the fair market value of such shares on the date of
grant. The AVAX Option Plan also requires that the exercise price of incentive
stock options granted to any other employee of the Company must be at least
equal to the fair market value of such shares on the date of grant, and that the
exercise price of nonqualified stock options granted by the Company must be
equal to 85% of the fair market value per share on the date of
49
<PAGE>
grant. The maximum terms of options granted under the AVAX Option Plan is 10
years. With respect to any participant who owns stock possessing more than 10%
of the voting rights of outstanding capital stock, the exercise price of any
option must be at least equal to 110% of fair market value on the date of grant
and the term may be no longer than five years. No incentive stock option may be
granted under the AVAX Option Plan to any individual if the aggregate fair
market value of the shares (determined as of the time of the option is granted)
which would become exercisable during any calendar year, under all incentive
stock options held by such individual, exceeds $100,000, unless such excess
options shall be treated as nonstatutory stock options.
Generally, any option held by an individual who ceases to be employed or
retained by the Company may be exercised by such individual within three months
after such individual ceases to be employed or retained by the Company or within
one year after such individual ceases to be employed or retained in the case of
disability. Generally, any option held by an individual who dies while still
employed or retained by the Company or dies within three months after the date
he or she is no longer employed or retained by the Company may be exercised by
such individual's representative within six months following the date of death.
Pursuant to the AVAX Option Plan, as of March 3, 1998, options to purchase
30,000 shares of Common Stock were outstanding and fully vested at a weighted
average price of $1.20 per share, and no options had been exercised.
Such options do not confer upon holders thereof any voting or any other rights
of a stockholder of the Company. The shares of Common Stock issuable upon
exercise of the options and warrants in accordance with the terms thereof, will
be fully paid and nonassessable.
OTHER OPTIONS
Pursuant to their letters of employment with the Company, Dr. Jonas, Mr. Tousley
and Dr. Yankee received share options to acquire 318,872, 125,000 and 125,000
shares of Common Stock, respectively, at an exercise price of $1.00 per share.
In connection with her letter of employment entered into on August 23, 1996,
another employee of the Company received share options to acquire 2,500 shares
of Common Stock at an exercise price of $1.00 per share. All the foregoing share
options will vest at a rate of 1/16 per quarter over the four-year period
following the effective date of the applicable letters of employment and are
exercisable for a period of seven years.
In July 1997, Dr. Jonas, Mr. Tousley, Dr. Yankee and the other employee referred
to above received additional share options to acquire 150,000, 60,000, 60,000
and 10,000 shares of Common Stock, respectively, at an exercise price of $4.50
per share. All such share options will vest at a rate of 1/16 per quarter over
the four-year period and are exercisable for a period of seven years; provided,
however, that the additional options granted to Dr. Jonas will vest at a rate of
1/12 per quarter over a three-year period.
In connection with his letter of employment, effective February 10, 1997, one
other employee of the Company has received share options to purchase 52,500
shares of Common Stock at an exercise price equal to $6.00 per share. In July
1997, to reward and incent such employee, the Company withdrew such share
options and replaced them with share options to acquire 90,000 shares of Common
Stock at an exercise price of $4.50. The share options issued to such employee
will vest as follows: 5,000 of such options shall vest on September 1, 1997,
30,000 shall vest at a rate of 1/6 every six months over a three-year period
thereafter, and the remaining 55,000 shares will vest upon the occurrence of
certain milestone events relating to the Company's manufacturing program.
In July 1997, in consideration for scientific consulting services, the Company
issued options to purchase 30,000 shares of Common Stock, exercisable for seven
years at an exercise price equal to $4.50 per share. Such options shall vest at
a rate of 1/3 per year over a period of three years.
In September 1997, as compensation for services rendered and to be rendered as
members of the Company's Board of Directors, the Company issued to each of Mr.
de Castro, Dr. Spana, Dr. Prendergast and Mr. Weiss, options to purchase 40,000
shares of Common Stock, exercisable for seven years at an exercise price equal
to $4.50 per share. Such options shall vest at a rate of 1/16 per quarter for a
period of four years, commencing on December 1, 1997.
50
<PAGE>
In December 1997, all directors elected to be compensated for their 1998
services with options to purchase common stock and accordingly, were each issued
options to purchase 5,161 shares of Common Stock with the foregoing terms at an
exercise price of $3.875 per share of Common Stock. See "Board Compensation".
As of March 3, 1998, options to purchase 301,109 shares of Common Stock were
vested with respect to such officers, directors and employees with a weighted
average price of $2.46 per share and no such options had been exercised.
WARRANTS
The following summaries are qualified in their entirety by the text of the
warrants, copies of which have been filed as exhibits to the Registration
Statement.
In connection with services rendered by Paramount, as placement agent in the
Series B Offering, and pursuant to a placement agency agreement entered into by
the Company and Paramount, the Company granted Paramount and/or its designees
placement warrants ("Series B Placement Warrants") to acquire approximately
25,820 shares of Series B Preferred Stock, exercisable until June 11, 2006 at an
exercise price of $110 per share of Series B Preferred Stock. The Series B
Placement Warrants may be exercised, in whole or in part and may be exercised
pursuant to a cashless exercise provision. The Series B Placement Warrants are
subject to certain lock-up restrictions. See "Lock-up Agreements."
An aggregate of 37,979 shares of Common Stock issuable upon conversion of the
shares of Series B Preferred Stock issuable upon exercise of the Series B
Placement Warrants held by non-Paramount registered representatives are being
registered pursuant to the Registration Statement for this Offering. An
aggregate of 635,585 shares issuable upon conversion of the shares of Series B
Preferred Stock issuable upon exercise of the Series B Placement Warrants held
by Paramount registered representatives are not being so registered.
In connection with services rendered by Paramount, as bridge financing agent in
a certain bridge financing loan availed of by the Company from August 1995 to
February 1996, the Company granted Paramount and/or its designees warrants
("Bridge Placement Warrants") to acquire 11,250 newly issued shares of Common
Stock. Each Bridge Placement Warrant entitles the registered holder thereof to
purchase Common Stock at a price of $.04 per share, at any time until five years
from the date of this Prospectus. The Bridge Placement Warrants may be
exercised, in whole or in part and may be exercised pursuant to a cashless
exercise provision.
In connection with services rendered by Castelli Associates, Inc. and
Shear/Kershman Laboratories, Inc., the Company granted Castelli Associates, Inc.
and Shear/Kershman Laboratories, Inc. and/or their designees warrants ("Castelli
and Shear/Kershman Warrants") to acquire 7,750 newly issued shares of Common
Stock. Each Castelli and Shear/Kershman Warrant entitles the registered holder
thereof to purchase Common Stock at a price of $11.00 per share, at any time
until April 30, 1998. The Castelli and Shear/Kershman Warrants may be exercised
in whole or in part.
In connection with services rendered by Ladenberg, Thalmann & Co., Inc.
("Ladenberg"), and D. H. Blair Investment Banking Corp. ("D. H. Blair"), as
placement agents in the offering of Series A Preferred Stock conducted from June
1992 to September 1992, the Company granted Ladenberg and D. H. Blair and/or
their respective designees certain warrants ("Series A Placement Warrants") to
purchase Common Stock at any time until June 26, 1997. In April and June 1997,
Ladenberg and D.H. Blair and/or their respective designees were issued
approximately 49,770 shares of Common Stock pursuant to the cashless exercise
provisions of the Series A Placement Warrants.
In consideration for certain investment banking and financial advisory services
that may be rendered on a non-exclusive basis by Hill, Thompson, Magid & Co.
("HTM"), the Company granted HTM warrants (the "HTM Warrants") to acquire 50,000
shares of Common Stock, which warrants shall vest from time to time through
April 17, 1998. The HTM Warrants entitle the registered holder to purchase
Common Stock at a price of $8.00 per share, at any time from July 17, 1997 until
July 17, 2002. The HTM Warrants may be exercised in whole or in part.
In consideration for certain investment banking and financial advisory services
to have been rendered on a non-exclusive basis by M.H. Meyerson & Co., Inc.
("Meyerson"), the Company granted Meyerson warrants (the "Meyerson Warrants")
51
<PAGE>
to acquire 50,000 shares of Common Stock on October 24, 1996. The Company
terminated the agreement with Meyerson on April 17, 1997, and, accordingly, the
Meyerson Warrants vested with respect to the right to purchase up to 25,000
shares. Pursuant to the Meyerson Warrants, the registered holder is entitled to
purchase up to 25,000 shares of Common Stock at a price of $6.00 per share, at
any time from December 24, 1996 until October 24, 2001. Meyerson was also paid a
fee of $15,000 at the time of its execution of the investment banking agreement.
Pursuant to Section 2710(c)(7)(A) of the NASD Corporate Financing Rules, the HTM
Warrants and the Meyerson Warrants were issued to HTM and Meyerson and certain
of their respective bona fide officers and employees only and may not be sold,
transferred, assigned or pledged or hypothecated by any person for a period of
one year from the date of issuance. Accordingly, the HTM Warrants and the
Meyerson Warrants contain an appropriate legend describing the restriction set
forth above for the period in which such restriction is operative.
In connection with the Rutgers License, the Company granted Rutgers warrants
(the "Rutgers Warrants") to purchase 125,000 shares of Common Stock at $8.24 per
share, which warrants vest from time to time until October 31, 2011, subject to
the achievement of certain milestones. The Rutgers Warrants may be exercised, in
whole or in part and may be exercised pursuant to a cashless exercise provision.
In consideration of services rendered on behalf of the Company in connection
with the acquisition and negotiation of the Rutgers License, on February 13,
1997, the Company agreed to issue to each of Samuel P. Wertheimer, Ph.D. and
Carl Spana, Ph.D., warrants to purchase 6,375 shares of Common Stock at a price
of $6.00 per share. Such warrants may be exercised in whole or in part over a
seven-year period. In consideration of services rendered on behalf of the
Company in connection with the acquisition and negotiation of the Texas A&M
License, on February 13, 1997, the Company agreed to issue to Fred Mermelstein,
Ph.D., warrants to purchase 12,750 shares of Common Stock at a price of $6.00
per share. Such warrants may be exercised in whole or in part over a seven-year
period.
In July 1997, the Company issued warrants to purchase 45,000 shares of Common
Stock at an exercise price of $4.50 per share. Such warrants were issued in
consideration of services being rendered by the Company's real estate advisor
who is representing it in connection with the identification and negotiation of
potential biopharmaceutical clinical manufacturing sites throughout the country.
Such warrants were to vest upon the occurrence of certain milestones relating to
the establishment of clinical manufacturing sites, and were exercisable in
whole, or in part, over a five-year period. In December 1997, these warrants
were canceled and new warrants to purchase 115,000 shares of common stock at
$3.50 were issued to the real estate advisor. Such warrants will vest and are
exercisable on the same terms as the original warrants.
In December 1997, the Company issued warrants to purchase 200,000 shares of
Common Stock at an exercise price of $3.75 per share. Such warrants were issued
in consideration of services being rendered by the Company's investment
relations advisor. Such warrants will vest upon the achievement of certain
performance-based milestones relating to the Company's stock price and trading
volume and are exercisable in whole, or in part, over a five-year period.
Each of the foregoing warrants contain provisions that generally provide the
holders thereof certain antidilution protection in certain events (such as, but
not limited to, the occurrence of stock dividends, stock splits, mergers, sales
of all or substantially all of the Company's assets and sales of other preferred
stock at below market price) by adjustment of the applicable exercise price
and/or the number of shares issuable upon exercise of such warrants.
The Company is not required to issue fractional shares of Common Stock upon
exercise of any such warrants. In lieu thereof, an amount of cash equal to the
same fraction of the then current market value of a share of Common Stock will
be paid. No adjustment as to dividends will be made upon any exercise of any
such warrants. The holder of any such warrant will not have any rights as a
holder of Common Stock unless and until the applicable warrant is exercised.
REGISTRATION RIGHTS
The Company has agreed under certain circumstances to register the shares of
Common Stock owned by TJU, Dr. Berd, VentureTek, L.P., Dr. Rosenwald and certain
designees of Dr. Rosenwald. Under terms of the agreements between the Company
and the holders of such registrable securities, generally, if the Company
proposes to register any of its securities
52
<PAGE>
under the Act, either for its own account or for the account of other
securityholders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include such shares of Common
Stock therein. Holders of an aggregate of 50% of the shares of Common Stock
issuable upon exercise of the Series A Placement Warrants are entitled to
exercise their right to have the shares of Common Stock issuable upon exercise
thereof registered under the Act at any time 180 days after the Company's
initial public offering until August 31, 1999. Holders of the Castelli and
Shear/Kershman Warrants are entitled under certain circumstances 18 months after
the Company's initial public offering also to require the Company to file a
registration statement under the Act at the Company's expense with respect to
their shares of Common Stock and the Company is required to use its reasonable
best efforts to effect such registration. Such rights are subject to certain
conditions and limitations, including the right of the underwriter of an
offering of the Common Stock to limit the number of shares included in such
registration in certain circumstances. The holders of the Meyerson Warrants and
holders of any shares of Common Stock issued upon exercise of the Meyerson
Warrants ("Meyerson Shares") are entitled, during the period commencing October
24, 1998, and ending October 24, 2001, upon the request of at least 51% of the
collective holders of the unexercised Meyerson Warrants and the Meyerson Shares,
to require the Company to file a registration statement under the Act at the
Company's expense with respect to the shares of Common Stock issuable upon
exercise of the Meyerson Warrants. Holders of the Meyerson Warrants and Meyerson
Shares are also entitled to certain piggyback registration rights during the
same period. Holders of the Rutgers Warrants are entitled to piggyback
registration rights in any registrations subsequent to the first public offering
by the Company.
Registered representatives of Paramount that may have had registration rights
with respect to their ownership of shares of Common Stock (including shares of
Common Stock issuable upon conversion of shares of Series B Preferred Stock,
including shares of Series B Preferred Stock issuable upon exercise of any
Placement Warrants), have waived their rights to have such Common Stock included
in the Registration Statement at this time and are not participating in the
Offering.
TRANSFER AGENT
The Transfer Agent for the shares of Common Stock is UMB Bank of Missouri.
53
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth as of March 3, 1998, (i) the name of each
Selling Securityholder, (ii) the amount of shares of Common Stock owned, whether
outstanding or issuable, by such holder, (iii) the amount of shares of Common
Stock which may be offered by each Selling Securityholder and (iv) the amount
and percentage of shares of Common Stock to be owned by each such holder
following the completion of the Offering. The amounts of Common Stock set forth
below, under the caption "Amount to be Offered," represent the aggregate number
of shares of (A) Common Stock owned by each Selling Stockholder, (B) Common
Stock issuable upon conversion of the Series B Preferred Stock owned by each
Selling Securityholder, (C) Common Stock issuable upon conversion of the Series
B Placement Warrants and (D) Common Stock issuable upon exercise of conversion
of the Bridge Placement Warrants (assuming for (B)-(D) the initial
conversion/exercise rates under the terms of the Series B Preferred Stock, the
Series B Placement Warrants and the Bridge Placement Warrants, respectively), in
each case as of March 3, 1998.
<TABLE>
<CAPTION>
Shares Percentage
Shares Currently Amount to Owned after Owned after
Selling Securityholder (1) Owned be Offered Offering Offering
- -------------------------- ----- ---------- -------- --------
<S> <C> <C> <C> <C>
The 1992 Houston Partnership, L.P. 13,293 13,293 0 *
The A.M. Group L.L.C. 24,457 24,457 0 *
Todd D. Aaron, M.D. 6,646 6,646 0 *
Leonard J. Adams 13,587 13,587 0 *
Ross D. Ain 2,658 2,658 0 *
Kenneth G. Alberstadt 1,747 1,747 0 *
Meir Aliakim 52,359 52,359 0 *
Amram Kass P.C. Defined Benefit
Pension Plan 9,783 9,783 0 *
George Anagnos 6,646 6,646 0 *
Josephine G. Anagnos 6,646 6,646 0 *
Steven Anagnos 6,646 6,646 0 *
Ansec Corp. 53,175 53,175 0 *
The Aries Domestic Fund, L.P. (2) 125,088 125,088 0 *
The Aries Fund, A Cayman Island Trust (2) 234,373 234,373 0 *
Rajiv Bahl 6,646 6,646 0 *
BAM of NY, Inc. Defined Benefit
Pension Plan 24,457 24,457 0 *
Martin Bandier 13,293 13,293 0 *
Banque SCS Alliance (2) 13,815 13,815 0 *
Banque Franck S.A. 26,587 26,587 0 *
Banque Unigestion 73,210 73,210 0 *
Amnon Barness & Caren H. Barness,
JTWROS 6,646 6,646 0 *
Alan R. Batkin 13,293 13,293 0 *
Laurie and Steven Beane 6,646 6,646 0 *
Mark Berg 66,468 66,468 0 *
David J. Bershad 53,175 53,175 0 *
Biowave Investment Partners 13,293 13,293 0 *
John V. Bivona 2,937 2,937 0 *
Marcy Blender, Alan Blender
JTWROS 3,988 3,988 0 *
Blair Foster & Co., Inc. (2) 965 965 0 *
Elliott Broidy 26,587 26,587 0 *
Patrick J. Callahan 6,646 6,646 0 *
M. Rafael Gonzalez Calvillo 2,658 2,658 0 *
Carlos Plancarte Garcia N., Leonor P.
De Morian, JTWROS 6,646 6,646 0 *
Gabriel M. Cerrone 51,000 51,000 0 *
Chana Sasha Foundation 14,956 14,956 0 *
Andrew and Barbara Cichelli 6,646 6,646 0 *
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage
Shares Currently Amount to Owned after Owned after
Selling Securityholder (1) Owned be Offered Offering Offering
- -------------------------- ----- ---------- -------- --------
<S> <C> <C> <C> <C>
Cinco de Mayo, Ltd. 13,293 13,293 0 *
Roger and Margaret Coleman 6,646 6,646 0 *
Colony Partners, A California General
Partnership 13,293 13,293 0 *
Robert J. Conrads 13,293 13,293 0 *
Cook & CIE SA 106,350 106,350 0 *
Lilia Cordero de Adame, Lilia M.A.
Olvera, JTWROS 13,293 13,293 0 *
Archibald Cox, Jr. 53,175 53,175 0 *
Credit Lyonnais Suisse (SA) 79,762 79,762 0 *
David Trust 2,658 2,658 0 *
DBRN Securities Inc. 26,587 26,587 0 *
Elke R. de Ramirez 2,658 2,658 0 *
Nathan P. Diamond 6,646 6,646 0 *
Donald G. Drapkin 66,468 66,468 0 *
M. Robert Dussler 1,329 1,329 0 *
Eastside Investment Partners 13,293 13,293 0 *
Elena Edelstein and Marcus Edelstein 6,646 6,646 0 *
Edgewater Private Equity Fund, LP 97,718 66,468 31,250 *
EDN Equities 53,175 53,175 0 *
Ariel Elia 6,646 6,646 0 *
Howard Ellis 2,658 2,658 0 *
Etablissement Occramis 13,293 13,293 0 *
Europa International, Inc. 13,293 13,293 0 *
Joseph A. Fabiani, M.D. 26,190 19,940 6,250 *
Faisal Finance 53,175 53,175 0 *
Laurence D. Fink 53,175 53,175 0 *
Steven B. Fink 6,646 6,646 0 *
Finterbank Zuerich 26,587 26,587 0 *
Firebird Overseas, Ltd. 3,750 3,750 0 *
Alan Fisher 11,964 11,964 0 *
Norman J. Fisher 12,750 12,750 0 *
Joseph H. Flom 10,032 10,032 0 *
Hans-Wolfgang Frick 26,587 26,587 0 *
James P. Frickleton and James R. Bartimus 26,587 26,587 0 *
Michael J. Garnick 50,750 38,250 12,500 *
Marc Gelman 76,500 76,500 0 *
Joseph Giamanco 53,173 53,173 0 *
Richard Goldberg 3,262 3,262 0 *
Harold S. Goldstein 6,646 6,646 0 *
Ofelia Anton Gomez 5,317 5,317 0 *
Michael J. Gordon 3,322 3,322 0 *
Robert P. Gordon 13,293 13,293 0 *
Peter Grabler 814 814 0 *
Robert J. Granovsky 13,293 13,293 0 *
Greenwood Partners 66,468 66,468 0 *
James & Nancy Grosfeld, tenants by
entireties 53,175 53,175 0 *
Peter Grossman 6,646 6,646 0 *
Stuart Gruber 26,587 26,587 0 *
Erez & Elyse Halevah 13,293 13,293 0 *
Yonah J. Hamlet, MD, Trustee FBO Yonah
J. Hamlet, MD Profit Sharing Plan Dtd.
1/1/86 9,771 9,771 0 *
Harpel Family Partnership 66,468 66,468 0 *
Thomas O. Hecht 13,293 13,293 0 *
Chaim Herman and Denise Herman 2,658 2,658 0 *
Gary Herman 13,292 13,292 0 *
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage
Shares Currently Amount to Owned after Owned after
Selling Securityholder (1) Owned be Offered Offering Offering
- -------------------------- ----- ---------- -------- --------
<S> <C> <C> <C> <C>
Jack Hirschfield 3,322 3,322 0 *
The Holding Company 26,587 26,587 0 *
Jeffrey C. Hoos 6,646 6,646 0 *
Irving Huber and Charlotte Huber 6,646 6,646 0 *
IASD Health Services Corp. 53,175 53,175 0 *
Mark & Rebecca Ingerman 13,293 13,293 0 *
J.F. Shea Co., Inc. as Nominee 1996-21 33,043 33,043 0 *
Jackson Hole Investments Acquisitions,
L.P. 25,500 25,500 0 *
Peter L. Jensen 6,942 6,942 0 *
John Osterweis TTEE Osterweis
Revocable Trust dtd 9-13-93 6,646 6,646 0 *
James D. Judd 16,418 13,293 3,125 *
Hyman R. Kahn 26,587 26,587 0 *
Patrick M. Kane 6,646 6,646 0 *
Robert S. Kapito 26,587 26,587 0 *
Donald R. Kendall, Jr. 7,976 7,976 0 *
Daniel Kessel, M.D. 29,712 26,587 3,125 *
Ida Kessel 9,771 6,646 3,125 *
Lawrence J. Kessel 26,587 26,587 0 *
Keys Foundation, Curacao, Netherlands,
Antilles 26,587 26,587 0 *
Robert Klein, M.D. 26,587 26,587 0 *
Robert Knox 13,293 13,293 0 *
Arthur or Sean Kohn 10,033 10,033 0 *
Charles Koppelman 26,587 26,587 0 *
Ira L. Kotel 8,880 8,880 0 *
Ted Koutsoubos 19,940 19,940 0 *
Michael and Nicole Kubin 13,587 13,587 0 *
Vincent P. Lambriola 6,646 6,646 0 *
Larich Associates 39,881 39,881 0 *
Legong Investments N.V. 26,174 26,174 0 *
Albert Lemer 6,646 6,646 0 *
Susan Tauber Lemor 6,646 6,646 0 *
Gregory Lenchner 16,885 10,635 6,250 *
Gregory S. Lenchner and Donna Lenchner,
Jointly 9,305 9,305 0 *
Harvey Lenchner 5,317 5,317 0 *
Michael Lenchner 1,329 1,329 0 *
Henry N. Lieberman 13,293 13,293 0 *
Frank T. Lincoln, Jr. 13,293 13,293 0 *
The Lincoln Tax Advantaged, L.P. 26,587 26,587 0 *
Armand A. Lindenbaum 6,646 6,646 0 *
Lion Tower Corporation 13,293 13,293 0 *
Beverly O. Lobell 12,750 12,750 0 *
J. Jay Lobell 5,875 5,875 0 *
John L. Loeb, Jr. 6,646 6,646 0 *
Luxembrella - All Around Int'l 53,175 53,175 0 *
Herbert M. Lyman 6,646 6,646 0 *
The M.L. Lawrence Trust 79,762 79,762 0 *
Marathon Agents Profit Sharing 6,646 6,646 0 *
Michael P. Marcus 26,588 26,588 0 *
Alfons Melohn 66,500 66,500 0 *
Arden Merback 3,322 3,322 0 *
Joseph Merback (2) 3,860 3,860 0 *
Josef Mermelstein 26,587 26,587 0 *
Albert Milstein 13,293 13,293 0 *
Mary Y.Y. Mo 6,646 6,646 0 *
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage
Shares Currently Amount to Owned after Owned after
Selling Securityholder (1) Owned be Offered Offering Offering
- -------------------------- ----- ---------- -------- --------
<S> <C> <C> <C> <C>
Michael Y.Q. Mo 6,646 6,646 0 *
Zhong-Liang Mo 13,293 13,293 0 *
Richard Molinsky 12,750 12,750 0 *
The Monument Trust Company Limited 26,587 26,587 0 *
Roberto Gonzalez Moreno 26,587 26,587 0 *
Alfred D. Morgan, Trust Administrator
(Trustee) / Margaret Goldwater, 6,646 6,646 0 *
Trustee
Robert Mosberg 1,631 1,631 0 *
Eli Moshen 3,322 3,322 0 *
Mova Investments Limited 26,587 26,587 0 *
Arnold Mullen 13,293 13,293 0 *
Arthur J. Nagle 6,646 6,646 0 *
P. Sherrill Neff 6,646 6,646 0 *
New Jersey Wolfson Trust 345,637 345,637 0 *
Kevin P. Newman 3,322 3,322 0 *
Nikki Establishment For Fashion &
Marketing Research 13,293 13,293 0 *
Old Oly, J.V. 13,293 13,293 0 *
Paul D. and Rebecca L. Ostrovsky 6,646 6,646 0 *
Steven N. Ostrovsky 6,646 6,646 0 *
Palmetto Partners, Ltd. 39,881 39,881 0 *
John Pappajohn 53,175 53,175 0 *
Mark D. Pesonen 13,293 13,293 0 *
Maria Pierce 6,646 6,646 0 *
Charles Potter 6,646 6,646 0 *
Tis Prager 6,646 6,646 0 *
Privat Kredit Bank, Lugano 159,525 159,525 0 *
Propp & Company, Inc. (2) 6,802 6,802 0 *
Abel Quezada Rueda, Mercedes P. Quezada
JTWRS 3,988 3,988 0 *
Michael S. Resnick 4,904 4,904 0 *
Rick Steiner Productions, Inc. 7,976 7,976 0 *
Todd M. Roberts 8,853 8,853 0 *
Linda Gosden Robinson 39,881 39,881 0 *
Rosemary Cass Ltd. Pension Plan 5,317 5,317 0 *
J. Philip Rosen 13,293 13,293 0 *
Paul H. Rosen 2,658 2,658 0 *
Ervin Rosenfeld 6,523 6,523 0 *
Martine Rothblatt 6,646 6,646 0 *
Jeffrey Rothenberg DDS 7,976 7,976 0 *
David W. Ruttenberg 6,646 6,646 0 *
S&M Investments 6,646 6,646 0 *
Leeor Sabbah 79,762 79,762 0 *
M.D. Sabbah 132,937 132,937 0 *
Sagres Group Ltd. 212,700 212,700 0 *
Wayne Saker 13,587 13,587 0 *
Scott G. Sandler 19,940 19,940 0 *
Sarah Trust 2,658 2,658 0 *
Savenna Consultants, Inc. (2) 4,043 4,043 0 *
Roy and Marlena Schaeffer 13,293 13,293 0 *
Howard Schain 13,293 13,293 0 *
Carl M. Schechter 6,646 6,646 0 *
Robin Schlaff 6,646 6,646 0 *
Ralph Schlosstein 26,587 26,587 0 *
Andrew W. Schonzeit 6,646 6,646 0 *
Schwendiman Global Sector Fund L.P. 13,293 13,293 0 *
Roberto Segovia 5,317 5,317 0 *
Lori Shapero 13,293 13,293 0 *
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage
Shares Currently Amount to Owned after Owned after
Selling Securityholder (1) Owned be Offered Offering Offering
- -------------------------- ----- ---------- -------- --------
<S> <C> <C> <C> <C>
Leonard P. Shaykin 13,293 13,293 0 *
The Sheila Davis Lawrence Revocable
Trust 26,587 26,587 0 *
L. Kevin Sheridan, Jr. 7,105 7,105 0 *
Martin Sirotkin 16,418 13,293 3,125 *
Bruce Slovin 66,468 66,468 0 *
South Ferry #2, L.P. 303,375 303,375 0 *
Aaron Speisman 3,386 3,386 0 *
Aaron Speisman custodian for Jennifer
Speisman 6,375 6,375 0 *
Aaron Speisman custodian for Joshua
Speisman 6,375 6,375 0 *
William M. Spencer III 26,587 26,587 0 *
Neil and Laurie Spindel 13,293 13,293 0 *
John L. Steffens 26,587 26,587 0 *
Dr. Edward L. Steinberg 6,375 6,375 0 *
Catherine Steinmann 6,646 6,646 0 *
Gabriel Steinmann 6,646 6,646 0 *
Jennifer Steinmann 6,646 6,646 0 *
Joshua Steinmann 6,646 6,646 0 *
Gary J. Strauss 13,293 13,293 0 *
Strome Partners, L.P. 265,875 265,875 0 *
Kaveh Taleghani 125 125 0 *
Hindy H. Taub 6,646 6,646 0 *
Herman Tauber 39,087 39,087 0 *
Myron M. Teitelbaum, M.D. 16,021 16,021 0 *
Termtec, Ltd. 13,293 13,293 0 *
Patricia & Erich Theissen 2,658 2,658 0 *
Mitchell Troyetsky 6,646 6,646 0 *
Thomas R. Ulie (2) 875 875 0 *
Joseph A. Umbach 13,293 13,293 0 *
United Congregations Mesora 26,587 26,587 0 *
Dan Valahu 6,646 6,646 0 *
Valor Capital Management, L.P. 13,293 13,293 0 *
Andre Visser (2) 27,652 27,652 0 *
Vivaldi, Ltd. 39,881 39,881 0 *
W & P Bank & Trust Company Ltd. 53,175 53,175 0 *
Allan Warshawsky 6,646 6,646 0 *
Michael Weiner, M.D. 2,608 2,608 0 *
Mark E. Weiss 6,646 6,646 0 *
The M and B Weiss Family Limited
Partnership of 1996 53,175 53,175 0 *
Robert J. Whetten 26,587 26,587 0 *
Whitcome Family Trust 26,587 26,587 0 *
Tim Winans 6,646 6,646 0 *
Wisdom Tree Associates, LP 39,881 39,881 0 *
Alan Wise/Teri Wise, Jointly 6,646 6,646 0 *
Andrew B. Woldow 6,646 6,646 0 *
James D. Wolfensohn 25,000 25,000 0 *
Aaron Wolfson 26,587 26,587 0 *
Abraham Wolfson 26,587 26,587 0 *
Wolfson Descendents' 1983 Trust 132,937 132,937 0 *
Worldwide Consultants and Finance Ltd. 26,587 26,587 0 *
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage
Shares Currently Amount to Owned after Owned after
Selling Securityholder (1) Owned be Offered Offering Offering
- -------------------------- ----- ---------- -------- --------
<S> <C> <C> <C> <C>
Richard A. Young 6,646 6,646 0 *
Robert J. Young 6,646 6,646 0 *
Zapco Holdings Settlement 6,646 6,646 0 *
Uzi Zucker 13,293 13,293 0 *
------ ------ - - -
TOTAL 6,423,998 6,355,248 68,750 *
========= ========= ====== = =
</TABLE>
- --------------------------------------------------------------------------------
* Represents less than 1.0 %.
<PAGE>
(1) Unless otherwise indicated, includes all shares of Common Stock issuable
upon conversion of the Series B Preferred Stock at the reset conversion
rate of $3.83 per share. See "Description of Securities--Series B Preferred
Stock."
(2) Includes Common Stock issuable upon conversion of the shares of Series B
Preferred Stock issuable upon exercise of the Series B Placement Warrants.
Each Selling Securityholder may, but is not required to, sell all of the shares
of Common Stock shown in the column entitled "Amount of Shares to be Offered"
subject, in certain instances, to lock-up provisions. See "Description of
Securities --Lock-Up Agreements." The Selling Securityholders and any
broker-dealers that act in connection with the sale of the Common Stock as
principals may be deemed to be "underwriters" within the meaning of Section
2(11) of the Act and any commission received by them and any profit on the
resale of such securities as principals might be deemed to be underwriting
discounts and commissions under the Act. The Selling Securityholders may agree
to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of such securities certain liabilities, including
liabilities arising under the Act. The Company will not receive any proceeds
from the sales of the Common Stock by the Selling Securityholders, although the
Company may receive proceeds from the exercise of the Placement Warrants. Sales
of the shares of Common Stock by the Selling Securityholders, or even the
potential sale of such shares, may have an adverse effect on the market price of
the Common Stock.
At the time a particular offer for Common Stock is made, as herein contemplated,
by or on behalf of the Selling Securityholder, to the extent required, a
Prospectus will be distributed by the Selling Securityholder which will set
forth the number of shares of Common Stock being offered and the terms of the
Offering, including the name or names of any underwriters, dealers or agents, if
any, and to the extent that an underwriter is involved, the purchase price paid
by any underwriter for shares purchased from the Selling Securityholder and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
Except as noted below, none of the Selling Securityholders named in the
preceding table has had any position, office or other material relationship with
the Company or any of its predecessors or affiliates within the past three
years. The Aries Domestic Fund, L.P. and The Aries Fund, A Cayman Island Trust
are private investment funds managed by Dr. Lindsay A. Rosenwald, a substantial
shareholder and former director of the Company and the sole owner of Paramount.
See "Certain Transactions."
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALES
Upon completion of the Offering, the Company will have 12,750,749 shares of
Common Stock outstanding or issuable upon the conversion of the Series B
Preferred Stock, the exercise of all outstanding or issuable options and
warrants as of the date of this prospectus. As of March 3, 1998, 4,777,488
shares of Common Stock were issued and outstanding, of which the Company
believes that, other than those shares registered in this offering, only
1,487,822 shares of Common Stock are "restricted securities" and under certain
circumstances may, in the future, be sold in compliance with Rule 144 under the
Securities Act of 1933 (the "Act"), unless they are held by "affiliates" of the
Company as that term is used under the Act. In addition, the Company has issued
and outstanding, or issuable, warrants and options to purchase an aggregate of
2,793,351 shares of Common Stock (excluding 49,229 shares of Common Stock
underlying Series B Placement Warrants and Bridge Placement Warrants that are
being registered in this Offering) and 5,130,681 shares of Common Stock that are
issuable upon conversion of shares of Series B Preferred Stock. Also, as of
March 3, 1998, the Company believes that there are approximately 3,289,666
outstanding shares of Common Stock that are eligible for sale without
restriction or further registration under the Act, subject to certain
requirements. See "Risk Factors--Potential Adverse Effect of Shares Eligible For
Future Sales" and "Description of Securities".
SALES OF RESTRICTED SHARES
As of March 3, 1998, 4,777,488 shares of Common Stock were issued and
outstanding, of which the Company believes that, other than those shares
registered in this offering, only 1,487,822 shares of Common Stock are
"restricted securities" and under certain circumstances may, in the future, be
sold in compliance with Rule 144 under the Act, unless they are held by
"affiliates" of the Company as that term is used under the Act. In general,
under Rule 144 as currently in effect, subject to the satisfaction of certain
conditions and certain manner of sale and notice requirements, including the
requirement that there is adequate current public information with respect to
the Company as contemplated by Rule 144, a person (or persons whose shares are
aggregated), including persons who may be deemed an affiliate of the Company as
that term is defined under the Act, who beneficially owned restricted shares of
Common Stock for at least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed (i) the greater of one percent
of the total number of outstanding shares of the same class, or (ii) the average
weekly trading volume during the four calendar weeks immediately preceding the
sale. A person who presently is not and who has not been an affiliate of the
Company for at least three months immediately preceding the sale and who has
beneficially owned the shares of Common Stock for at least two years is entitled
to sell such shares under Rule 144(k) without regard to the volume limitations
described above. Certain shares eligible for sale under Rule 144 remain subject
to certain lock-up restrictions. See "Lock-Up Agreements."
No predictions can be made of the effect, if any, that the sale or availability
for sale of restricted shares or locked-up shares will have on the market price
of the Common Stock on the Nasdaq SmallCap Market. Sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of its
equity securities.
For a description of the Company's outstanding warrants and options, see
"Description of Securities--1992 Stock Option Plan," "Other Options," and
"Warrants."
60
<PAGE>
PLAN OF DISTRIBUTION
A total of 6,355,248 shares of Common Stock are being directly offered for sale
by the Selling Securityholders to the public. The Selling Securityholders may,
but are not required to, sell, directly or through brokers, the shares of Common
Stock in negotiated transactions or in one or more transactions in the market at
the price prevailing at the time of sale. (Certain of the shares of Common Stock
may be subject to lock-up agreements. See "Description of Securities--Lock-Up
Agreements"). In connection with such sales, the Selling Securityholders and any
participating broker may be deemed to be "underwriters" of the shares of Common
Stock within the meaning of the Act, although the offering of these securities
will not be underwritten by a broker-dealer firm. Sales in the market may be
made to broker-dealers making a market in the Common Stock or other
broker-dealers, and such broker-dealer, upon their resale of such securities,
may be deemed to be "Selling Securityholders" in this offering. The Company will
not receive any of the proceeds from the sale of the Common Stock by the Selling
Securityholders. Pursuant to the terms under which the Preferred Stock and
Placement Warrants were issued and sold, the Company has agreed to indemnify the
Selling Securityholders against such liabilities as they may incur as a result
of any untrue statement of a material fact in the Registration Statement of
which this Prospectus forms a part, or any omission herein or therein to state a
material fact necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading. Such
indemnification includes liabilities that the Selling Securityholders may incur
under the Act.
The Company will bear all costs and expenses of the registration under the Act
and certain state securities laws of the Common Stock and any discounts or
commissions payable with respect to sales of such securities.
From time to time, this Prospectus will be supplemented and amended as required
by the Act. During any time when a supplement or amendment is so required, after
notice from the Company, the Selling Securityholders are required to cease sales
until the Prospectus has been supplemented or amended.
The Selling Securityholders have advised the Company that they may sell,
directly or through brokers, all or a portion of the securities offered hereby
in negotiated transactions or in one or more transactions in the market at the
price prevailing at the time of sale. In connection with such sales, the Selling
Securityholders and any participating broker may be deemed to be "underwriters"
of the Common Stock within the meaning of the Act. It is anticipated that usual
and customary brokerage fees will be paid by the Selling Securityholders in all
open market transactions. The Company will pay all other expenses of this
Offering.
The Company has advised the Selling Securityholders that no NASD member
participating in the offering of the shares of Common Stock being offered hereby
by the Selling Securityholders may receive compensation in excess of 8% of the
proceeds of the sale of such shares. In addition, the terms and arrangements of
any underwritten offering must be filed with the NASD for its review pursuant to
Section 2710 of the NASD's Corporate Financing Rules.
The Company has informed the Selling Securityholders that the anti-manipulation
provisions of Regulation M promulgated under the Securities Exchange Act of 1934
may apply to the sales of their shares offered hereby. The Company has advised
the Selling Securityholders of the requirement for delivery of this Prospectus
in connection with any sale of the Common Stock offered hereby.
Certain Selling Securityholders may from time to time purchase shares of Common
Stock in the open market. These Selling Securityholders have been notified that
they should not commence any distribution of Common Stock unless they have
terminated their purchasing and bidding for Common Stock in the open market as
provided in applicable securities regulations, including, without limitation,
Regulation M.
61
<PAGE>
EXPERTS
The financial statements of AVAX Technologies, Inc. (formerly Walden
Laboratories, Inc.), at December 31, 1997 and for the years ended December 31,
1996 and 1997, appearing in this Prospectus and Registration Statement, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
LEGAL COUNSEL
Legal matters relating to the Offering will be passed upon for the Company by
Roberts, Sheridan & Kotel, a Professional Corporation, New York, New York,
counsel to the Company. Members of such firm beneficially own an aggregate of
26,585 shares of Common Stock assuming the conversion of all shares of Series B
Preferred Stock owned by them at the adjusted conversion price. All of such
shares of Common Stock owned directly or issuable upon conversion of shares of
Series B Preferred Stock are included in the Registration Statement.
62
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Financial Statements
Years ended December 31, 1996 and 1997
CONTENTS
Report of Independent Auditors..............................................F-1
Audited Financial Statements
Balance Sheet as of December 31, 1997.......................................F-2
Statements of Operations for the years ended December 31, 1996
and 1997 and the period from January 12, 1990 (incorporation)
to December 31, 1997.....................................................F-3
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1996 and 1997 and the period from January 12, 1990
(incorporation) to December 31, 1997.....................................F-4
Statements of Cash Flows for the years ended December 31, 1996
and 1997 and the period from January 12, 1990 (incorporation)
to December 31, 1997.....................................................F-6
Notes to Financial Statements...............................................F-8
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
AVAX Technologies, Inc.
We have audited the accompanying balance sheet of AVAX Technologies, Inc. (a
development stage company) as of December 31, 1997, and the related statements
of operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1996 and 1997, and for the period from January 12, 1990
(incorporation) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AVAX Technologies, Inc. at
December 31, 1997 and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1997, and for the period from January 12, 1990
(incorporation) to December 31, 1997, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Kansas City, Missouri
January 16, 1998
F-1
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
<TABLE>
<CAPTION>
DECEMBER 31,
1997
---------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,820,884
Marketable securities 9,102,028
Common stock receivable from a related party (NOTE 2) 1,200,000
Prepaid expenses and other current assets 154,929
---------------------
Total current assets 17,277,841
Furniture and equipment, at cost 91,959
Less accumulated depreciation 14,967
---------------------
Net furniture and equipment 76,992
=====================
Total assets $17,354,833
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued liabilities (NOTE 5) $ 353,726
Amount payable to preferred stockholders (NOTE 2) 1,150,200
Amount payable to Former Officer (NOTE 2) 49,800
---------------------
Total current liabilities 1,553,726
Commitments and contingencies (NOTE 7)
Stockholders' equity (NOTES 3, 4, 7 AND 8): Preferred stock, $.01 par value:
Authorized shares - 5,000,000, including Series B -
300,000 shares
Series B convertible preferred stock:
Issued and outstanding shares - 204,159
(liquidation preference - $27,561,465) 2,041
Common stock, $.004 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 4,582,305 18,329
Additional paid-in capital 23,995,640
Subscription receivable (432)
Deferred compensation (694,324)
Deficit accumulated during the development stage (7,520,147)
---------------------
Total stockholders' equity 15,801,107
=====================
Total liabilities and stockholders' equity $17,354,833
=====================
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 12, 1990
(INCORPORATION)
TO
YEAR ENDED DECEMBER 31 DECEMBER 31,
1996 1997 1997)
--------------------------------------------------------
<S> <C> <C> <C>
Gain from sale of the Product (NOTE 2) $ - $ - $ 1,951,000
Costs and expenses:
Research and development 738,991 2,448,976 4,801,285
Marketing and selling - - 543,646
General and administrative 1,253,395 2,724,007 5,562,144
--------------------------------------------------------
Total operating income (loss) (1,992,386) (5,172,983) (8,956,075)
Other income (expense):
Interest income 819,324 1,057,460 1,936,453
Interest expense (353,867) (150,602) (646,293)
Other, net (9,913) - 145,768
--------------------------------------------------------
Total other income, net 455,544 906,858 1,435,928
--------------------------------------------------------
Net loss (1,536,842) (4,266,125) (7,520,147)
Amount payable for liquidation preference
(1,131,744) - (1,870,033)
--------------------------------------------------------
Net loss attributable to common
stockholders $(2,668,586) $(4,266,125) $(9,390,180)
========================================================
Net loss per common share - basic $ (.84) $ (1.14)
====================================
Weighted average number of common shares
outstanding 3,182,058 3,750,440
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
AVAX TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
-----------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of commmon stock for services in
January 1990 - $ - - $ - 582,500 $ 2,330
Net loss - - - - - -
----------------------------------------------------------
Balance at December 31, 1990 - - - - 582,500 2,330
Issuance of common stock for services in
August 1991 - - - - 230,000 920
Net loss - - - - - -
----------------------------------------------------------
Balance at December 31, 1991 - - - - 812,500 3,250
Conversion of note payable to related
party to common stock in June 1992 - - - - 22,913 92
Issuance of common stock for services in
May and June 1992 - - - - 264,185 1,056
Issuance of Series A convertible preferred
stock, net of issuance cost in June,
July and September 1992 1,287,500 12,875 - - - -
Net loss - - - - - -
----------------------------------------------------------
Balance at December 31, 1992 1,287,500 12,875 - - 1,099,598 4,398
Issuance of common stock for services in
July and November 1993 - - - - 8,717 35
Net loss - - - - - -
----------------------------------------------------------
Balance at December 31, 1993 1,287,500 12,875 - - 1,108,315 4,433
Issuance of common stock for services in
July 1994 - - - - 3,750 15
Net loss - - - - - -
----------------------------------------------------------
Balance at December 31, 1994 1,287,500 12,875 - - 1,112,065 4,448
Common stock returned and canceled in
April and May 1995 - - - - (307,948) (1,232)
Shares issued in September and
November 1995 - - - - 1,777,218 7,109
Amount payable for liquidation - - - - - -
preference
Net loss - - - - - -
----------------------------------------------------------
Balance at December 31, 1995 1,287,500 12,875 - - 2,581,335 10,325
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
UNREALIZED ACCUMULATED TOTAL
ADDITIONAL LOSS ON DURING THE STOCKHOLDERS'
PAID-IN SUBSCRIPTION DEFERRED MARKETABLE DEVELOPMENT EQUITY
CAPITAL RECEIVABLE COMPENSATION SECURITIES STAGE (DEFICIT)
------- ---------- ----------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of commmon stock for services in
January 1990 $ 920 $ - $ - $ - $ - $ 3,250
Net loss - - - - (889) (889)
----------------------------------------------------------------------------
Balance at December 31, 1990 920 - - - (889) 2,361
Issuance of common stock for services in
August 1991 5,830 - - - - 6,750
Net loss - - - - (97,804) (97,804)
----------------------------------------------------------------------------
Balance at December 31, 1991 6,750 - - - (98,693) (88,693)
Conversion of note payable to related
party to common stock in June 1992 160,465 - - - - 160,557
Issuance of common stock for services in
May and June 1992 6,444 - - - - 7,500
Issuance of Series A convertible preferred
stock, net of issuance cost in June,
July and September 1992 2,258,837 - - - - 2,271,712
Net loss - - - - (607,683) (607,683)
----------------------------------------------------------------------------
Balance at December 31, 1992 2,432,496 - - - (706,376) 1,743,393
Issuance of common stock for services in
July and November 1993 24,965 - - - - 25,000
Net loss - - - - (1,610,154) (1,610,154)
----------------------------------------------------------------------------
Balance at December 31, 1993 2,457,461 - - - (2,316,530) 158,239
Issuance of common stock for services in
July 1994 4,485 - - - - 4,500
Net loss - - - - (781,221) (781,221)
----------------------------------------------------------------------------
Balance at December 31, 1994 2,461,946 - - - (3,097,751) (618,482)
Common stock returned and canceled in
April and May 1995 - - - - - (1,232)
Shares issued in September and
November 1995 - (7,109) - - - -
Amount payable for liquidation (738,289) - - - - (738,289)
preference
Net income - - - - 1,380,571 1,380,571
----------------------------------------------------------------------------
Balance at December 31, 1995 1,723,657 (7,109) - - (1,717,180) 22,568
</TABLE>
F-4
<PAGE>
AVAX TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
-----------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,287,500 $ 12,875 - $ - 2,581,335 $ 10,325
Repurchase of common stock in
March 1996 - - - - (77,901) (312)
Payment of subscription receivable - - - - - -
Conversion of Series A preferred in
June 1996 (1,287,500) (12,875) - - 321,875 1,288
Issuance of common stock and Series B
preferred stock in a private placement
in May and June 1996 - - 258,198 2,582 129,099 516
Issuance of common stock and
Series B preferred stock for
services in June 1996 - - 1,000 10 500 2
Exercise of warrants in June and July - - - - 156,250 626
1996
Amount payable for liquidation - - - - - -
preference
Compensation related to stock options
granted in May and September 1996 - - - - - -
Amortization of deferred compensation - - - - - -
Unrealized loss on marketable securities - - - - - -
Net loss - - - - - -
-----------------------------------------------------------
Balance at December 31, 1996 - - 259,198 2,592 3,111,158 12,445
Payment of subscription receivable - - - - - -
Write-off of subscription receivable - - - - - -
Exercise of warrants in April and
June 1997 - - - - 49,770 199
Conversion of preferred to common - - (55,039) (551) 1,421,403 5,685
stock
Repurchase of loss on fractional
shares - - - - (26) -
Realization of loss on marketable securities - - - - - -
Amortization of deferred compensation - - - - - -
Net loss - - - - - -
-----------------------------------------------------------
Balance at December 31, 1997 - $ - 204,159 $2,041 4,582,305 $18,329
===========================================================
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
UNREALIZED ACCUMULATED TOTAL
ADDITIONAL LOSS ON DURING THE STOCKHOLDERS'
PAID-IN SUBSCRIPTION DEFERRED MARKETABLE DEVELOPMENT EQUITY
CAPITAL RECEIVABLE COMPENSATION SECURITIES STAGE (DEFICIT)
------- ---------- ----------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 1,723,657 $ (7,109) $ - $ - $(1,717,180) $ 22,568
Repurchase of common stock in
March 1996 - 312 - - - -
Payment of subscription receivable - 2,771 - - - 2,771
Conversion of Series A preferred in
June 1996 11,587 - - - - -
Issuance of common stock and Series B
preferred stock in a private placement
in May and June 1996 22,217,397 - - - - 22,220,495
Issuance of common stock and
Series B preferred stock for
services in June 1996 99,988 - - - - 100,000
Exercise of warrants in June and July 5,624 - - - - 6,250
1996
Amount payable for liquidation (1,131,744) - - - - (1,131,744)
preference
Compensation related to stock options
granted in May and September 1996 1,076,373 - (1,076,373) - - -
Amortization of deferred compensation - - 112,949 - - 112,949
Unrealized loss on marketable securities - - - (2,037) - (2,037)
Net loss - - - - (1,536,842) (1,536,842)
------------------------------------------------------------------------------
Balance at December 31, 1996 24,002,882 (4,026) (963,424) (2,037) (3,254,022) 19,794,410
Payment of subscription receivable - 1,761 - - - 1,761
Write-off of subscription receivable (1,833) 1,833 - - - -
Exercise of warrants in April and
June 1997 (199) - - - - -
Conversion of preferred to common (5,134) - - - - -
stock
Repurchase of fractional shares
Realization of loss on marketable securities (76) - - 2,037 - (76)
Amortization of deferred compensation - - 269,100 - - 269,100
Net loss - - - - (4,266,125) (4,266,125)
------------------------------------------------------------------------------
Balance at December 31, 1997 $23,995,640 $ (432) $ (694,324) $ - $(7,520,147) $15,801,107
==============================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM JANUARY
12, 1990
(INCORPORATION)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
1996 1997 1997
--------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,536,842) $ (4,266,125) $ (7,520,146)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 164,865 282,061 512,322
Gain from sale of the Product - - (1,951,000)
Gain on sale of intellectual property - - (787)
Accretion of interest on common stock
receivable (298,459) (150,541) (449,000)
Accretion of interest on amount payable to
preferred stockholders and Former Officer
298,459 150,541 449,000
Loss on sale or abandonment of furniture and
equipment 8,156 - 37,387
Issuance of common stock for services 100,000 - 147,000
Changes in operating assets and liabilities:
Prepaid expenses and other current
assets (61,285) (93,644) (154,929)
Accounts payable and accrued liabilities 2,933 76,048 353,724
Amount payable to Former Officer - - 80,522
--------------------------------------------------------
Net cash used in operating activities (1,322,173) (4,001,660) (8,495,907)
INVESTING ACTIVITIES
Purchase of marketable securities and short-term
investments (6,136,890) (9,102,028) (16,218,500)
Proceeds from sale of short-term investments - 6,136,890 7,116,472
Purchases of furniture and equipment (45,777) (46,182) (157,893)
Proceeds from sale of furniture and equipment - - 4,600
Organization costs incurred - - (1,358)
--------------------------------------------------------
Net cash used in investing activities (6,182,667) (3,011,320) (9,256,679)
</TABLE>
F-6
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
PERIOD FROM JANUARY
12, 1990
(INCORPORATION)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
1996 1997 1997
--------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of notes payable
to related party $ - $ - $ 957,557
-
Principal payments on notes payable to related
party (207,000) - (797,000)
Proceeds from loans payable 400,000 - 1,389,000
Principal payments on loans payable (1,050,000) - (1,389,000)
Payments for fractional shares from reverse splits
and preferred stock conversions - (76) (76)
Financing costs incurred (36,000) (90,000)
Payments received on subscription receivable 2,771 1,761 4,532
Proceeds received from exercise of stock warrants
6,250 - 6,250
Net proceeds received from issuance of
preferred and common stock 22,220,495 - 24,492,207
--------------------------------------------------------
Net cash provided by financing activities 21,336,516 1,685 24,573,470
--------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 13,831,676 (7,011,295) 6,820,884
Cash and cash equivalents at beginning
of period 503 13,832,179 -
--------------------------------------------------------
Cash and cash equivalents at end of period $13,832,179 $ 6,820,884 $ 6,820,884
========================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 157,721 $ - $ 197,072
========================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1996 and 1997
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
AVAX Technologies, Inc. (the Company) is a development stage biopharmaceutical
company.
In November 1995, the Company sold its leading product under development, an
over-the-counter nutritional, dietary, medicinal and/or elixorative food
supplement or drug and all of the related patents and other intellectual
property (the Product) (see NOTE 2).
Also in November 1995, the Company entered into a license agreement with the
Thomas Jefferson University (TJU) to develop, commercially manufacture and sell
products embodying immunotherapeutic vaccines for the treatment of malignant
melanoma and other cancers (the Invention) (see NOTE 3).
In December 1996, the Company entered into a license agreement with Rutgers
University (Rutgers) to develop, commercially manufacture and sell products
embodying a series of compounds for the treatment of cancer and infectious
diseases (the Compounds) (see NOTE 3).
In February 1997, the Company entered into a license agreement with Texas A&M to
develop, commercially manufacture and sell products embodying a series of
compounds for the treatment of cancer (the Texas A&M Compounds) (see NOTE 3).
The Company's business is subject to significant risks consistent with
biotechnology companies that are developing products for human therapeutic use.
These risks include, but are not limited to, uncertainties regarding research
and development, access to capital, obtaining and enforcing patents, receiving
regulatory approval, and competition with other biotechnology and pharmaceutical
companies. The Company plans to continue to finance its operations with a
combination of equity and debt financing and, in the longer term, revenues from
product sales, if any. However, there can be no assurance that it will
successfully develop any product or, if it does, that the product will generate
any or sufficient revenues.
F-8
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 31,
1997, all cash and cash equivalents were held at two financial institutions.
MARKETABLE SECURITIES
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization and interest on
securities classified as held-to-maturity are included in interest income.
Equity securities are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with any unrealized gains and losses, net
of tax, reported in a separate component of stockholders' equity. Interest and
dividends on securities classified as available-for-sale are included in
interest income.
F-9
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following is a summary of marketable securities:
<TABLE>
<CAPTION>
UNREALIZED ESTIMATED
DESCRIPTION OF SECURITIES COST LOSS FAIR VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1996 Held-to-maturity debt securities:
U.S. Treasury securities $2,126,462 $ - $2,126,462
Other U.S. government securities 2,000,000 - 2,000,000
--------------------------------------------------------
4,126,462 - 4,126,462
Available-for-sale:
Equity securities 2,010,428 (2,037) 2,008,391
--------------------------------------------------------
$6,136,890 $(2,037) $6,134,853
========================================================
DECEMBER 31, 1997 Held-to-maturity debt securities:
Commercial paper $9,024,625 $ - $9,024,625
U.S. Treasury securities 77,403 - 77,403
--------------------------------------------------------
$9,102,028 $ - $9,102,028
========================================================
</TABLE>
The Company's debt securities all mature in 1998.
DEPRECIATION
Depreciation is computed using the straight-line method over the estimated
useful lives of the furniture and equipment, which range from three to 10 years.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs, including payments related to patents and
license agreements, are expensed when incurred.
F-10
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED COMPENSATION
Certain compensation costs are deferred and amortized over the vesting period of
such compensation.
SHARE INFORMATION
Prior to the first closing of a private placement on May 15, 1996 (see NOTE 4),
the Company effected a 1-for-2 reverse stock split of the Company's common
stock. Pursuant to an amendment to the Company's Certificate of Incorporation
dated May 7, 1997, a second 1-for-2 reverse split of the Company's common stock
was effected as of the close of business on May 13, 1997. All outstanding share
and per share amounts included in the accompanying financial statements have
been adjusted to reflect both 1-for-2 reverse stock splits.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share exclude any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously required fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS No. 128 requirements.
Net loss per share is based on net loss divided by weighted average number of
shares of common stock outstanding during the respective periods, adjusted to
reflect the reverse stock splits. The weighted average number of common shares
outstanding has been calculated in accordance with Staff Accounting Bulletin 83
(SAB 83) of the Securities
F-11
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and Exchange Commission. SAB 83 requires that shares of common stock, warrants
and options issued one year prior to the initial filing of a registration
statement relating to an initial public offering at amounts below the public
offering price be considered outstanding for all periods presented in the
Company's registration statement. For purposes of calculating the net loss per
share, the private placement of Series B convertible preferred stock (see NOTE
4) has been considered to be the equivalent of an initial filing of a
registration statement relating to an initial public offering, and the initial
public offering price was determined to be $3.92 per share by assuming that the
preferred stock issued was immediately converted into common stock. Those shares
of common stock, warrants and options (see NOTE 4), considered as cheap stock in
accordance with SAB 83, were considered outstanding for all periods, prior to
July 10, 1997, at which time the Company's registration statement on Form SB-2
to register the shares sold in the private placement was declared effective.
The following table sets forth the computation of the Company's basic earnings
per share information, adjusted for the SAB 83 requirements, as discussed above.
Diluted earnings per share information is not presented, as the effects of stock
options, warrants and other convertible securities would be antidilutive for the
periods presented.
<TABLE>
<CAPTION>
1996 1997
----------------------------------------
<S> <C> <C>
Numerator (basic):
Net loss $(1,536,842) $(4,266,125)
Amount payable for liquidation preference (1,131,744) -
========================================
Numerator - income available to common stockholders
$(2,668,586) $(4,266,125)
========================================
Denominator (basic):
Weighted average shares 2,859,126 3,616,906
Effect of stock issuances, stock options and warrants
issued within one year prior to the initial public
offering (IPO) at prices below the IPO price
322,932 133,534
========================================
Denominator 3,182,058 3,750,440
========================================
Net loss per share - basic $ (.84) $ (1.14)
========================================
</TABLE>
F-12
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 is effective for fiscal years beginning after
December 31, 1995 and prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) and
related interpretations, with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company has elected to continue to account for its stock-based
compensation plans in accordance with the provisions of APB 25. See NOTE 4 for
the pro forma effects of applying SFAS No. 123.
2. SALE OF THE PRODUCT
In December 1995, the Company entered into an agreement to sell the Product for
$2.4 million in shares of common stock of Interneuron Pharmaceuticals, Inc.
(IPI), a public company, the parent of the purchaser of the Product (the Stock).
Certain common stockholders of the Company are also common stockholders of IPI.
The purchase price, payable in two equal installments in December 1996 and 1997,
is fixed, and the number of shares of the Stock will vary depending on the
quoted market price of the Stock at such time.
The first installment was paid on January 3, 1997 in the form of a distribution
of IPI stock directly by IPI to the Series A convertible preferred stockholders,
who were holders of record on the closing date of the agreement for sale, and
the Company's former President and Chief Executive Officer (the Former Officer).
The final installment was received on January 14, 1998. Accordingly, the common
stock receivable and the payables to preferred stockholders and the Former
Officer related to this installment are reported as current assets and
liabilities, respectively, in the accompanying balance sheet.
F-13
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
2. SALE OF THE PRODUCT (CONTINUED)
The sale of the Product was approved by the Company's common and Series A
preferred stockholders subject to the following conditions:
o At approximately the same time each installment is received by the
Company, 95.85% of the Stock will be distributed by the Company, or
directly by IPI, to the Company's preferred stockholders of record
(referred to herein as the holders of Series A preferred stock) at the
time sale of the Product closed, on a pro rata basis, to reduce their
liquidation preference, provided, however, that if at the time of each
installment, any of the Company's indebtedness which had been
outstanding at the time of the closing of the agreement to sell the
Product (December 27, 1995) and is then due and payable, the Company
will cause such indebtedness to be paid or provided for, whether by
use of available cash, refinancing, redirecting a portion of the Stock
to satisfy such indebtedness, or otherwise, as the Company shall
determine in its best interest.
o The remaining 4.15% of the Stock (or a cash payment equal to the value
thereof) will be distributed to the Former Officer in partial
consideration for his resignation from the Company and the return to
the Company of all common stock of the Company and cancellation of
options to purchase 62,500 shares of common stock (see NOTE 8).
Other than for the Former Officer, none of the other common stockholders were
entitled to any of the Stock.
Because the Stock is receivable in two equal annual installments, the gain from
the sale of the Product, $1,951,000, was calculated by discounting the value of
the Stock receivable using a discount rate of 15%. In 1995, the Company also
recorded the difference between 95.85% of the discounted net present value of
the Stock to be received and the Company's indebtedness, $1,131,744 at December
31, 1995, as a payable to the preferred stockholders of $738,289 to reduce their
liquidation preference. The present value of the amount payable to the preferred
stockholders, including the accretion of interest thereon, was $2,156,106 at
December 31, 1996, since all of the Company's indebtedness outstanding as of the
date of the sale of the Product has been satisfied through sources
F-14
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
2. SALE OF THE PRODUCT (CONTINUED)
other than the Stock to be received. The present value of the amount payable to
the preferred stockholders, including accretion of interest thereon, is
$1,150,200 at December 31, 1997, after being reduced by the payment of the first
installment in January 1997.
The discounted net present value of the Stock distributable to the Former
Officer as of the date of sale, amounting to $80,967, was allocated between
common stock ($445) and severance expense ($80,522) based on the fair value of
the Company's common stock ($.004 per share). The present value of the amount
payable to the Former Officer, including the accretion of interest thereon, is
$49,800 at December 31, 1997.
3. LICENSE AND RESEARCH AGREEMENTS
In November 1995, the Company entered into an agreement with TJU for the
exclusive worldwide license to develop, manufacture and sell the Invention. In
consideration for the license agreement, the Company paid cash of $10,000 and
issued an aggregate of 458,243 shares of common stock to TJU and the scientific
founder (the Scientist). These shares had antidilution rights prior to the first
equity financing, as defined in the license agreement, in excess of $1,000,000
by the Company.
Under terms of the license agreement, the Company was required to raise a
minimum of $500,000 of net operating capital by December 1996. Also under the
terms of the license agreement, (i) the Company is obligated to pay certain
milestone payments as follows: $10,000 upon initiation of the first clinical
trial that is approved by the Food and Drug Administration (FDA) or comparable
international agency, $10,000 upon the first filing of a New Drug Application
(NDA) with the FDA or comparable international agency, and $25,000 upon receipt
by the Company of approval from the FDA or comparable international agency to
market products. In addition, the Company is obligated to pay royalties on its
worldwide net sales revenue derived from the Invention and a percentage of all
revenues received from sublicensees of the Invention.
The Company also entered into a research agreement with TJU to fund a study to
be performed by TJU for the development of the technology related to the
Invention (the Study) at approximately $220,000 per annum for the first three
years. The Company, at its discretion, may reduce the funding in the third year
to no less than $100,000. Following
F-15
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
3. LICENSE AND RESEARCH AGREEMENTS (CONTINUED)
the third year, the Company is obligated to spend a minimum of $500,000 per year
on the development of the Invention until commercialized in the United States.
If following the third year, the Company files for United States marketing
approval through a Company sponsored NDA, the Company may elect to spend less
than $500,000 per year on the development of the Invention during the period of
time the NDA is under review by the FDA. The research agreement will continue
until completion of the Study, although it is terminable, upon notice by either
party to the other, at any time.
In December 1996, the Company entered into an agreement with Rutgers for the
exclusive worldwide license to develop, manufacture and sell products embodying
the Compounds. In consideration for the license agreement, the Company paid cash
of $15,000, has agreed to pay $15,000 in each subsequent year as a license
maintenance fee and has committed to the issuance of warrants to Rutgers to
purchase 125,000 shares of common stock at a price of $8.24 per share based on
the achievement of certain development milestones. The first 75,000 warrants
will expire in 2006, and the final 50,000 warrants will expire in 2011. These
warrants, once issued, shall provide for cashless exercise, piggyback
registration rights and certain antidilution rights. The Company has agreed to
fund research in the amount of one hundred thousand dollars ($100,000) per year
for the next three years. In addition, the Company is obligated to spend an
aggregate of $200,000 in the first year, $300,000 in the second year and
$500,000 each year thereafter until the first year of commercial marketing of a
product derived from the Compounds. The license maintenance fee shall not be
payable in years where research funding is equal to or greater than $100,000.
Under the terms of the license agreement, the Company is obligated to pay
certain milestone payments as follows: $15,000 on the earlier of October 31,
1999 or the date of first filing of an Investigational New Drug (IND)
application with the FDA, or comparable international agency; $25,000 on the
earlier of October 31, 2001 or the date of initiation of Phase II trials in the
United States or another major market country; $45,000 on the earlier of October
31, 2005 or the date of first filing of an NDA application with the FDA, or
comparable international agency; and $150,000 on the earlier of October 31, 2008
or the date of receipt by the Company of approval from the FDA, or comparable
international agency, to market products.
F-16
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
3. LICENSE AND RESEARCH AGREEMENTS (CONTINUED)
In addition, the Company is obligated to pay royalties on its worldwide net
sales revenue derived from the Compounds and a percentage of all revenues
received from sublicensees of products derived from the Compounds. Such royalty
payments shall be no less than $100,000 in the first year of commercial
marketing, $200,000 in the second year, $250,000 in the third year, $300,000 in
the fourth year, and $350,000 in the fifth and all following years.
In February 1997, the Company entered into an agreement with Texas A&M for the
exclusive worldwide license to develop, manufacture and sell products embodying
the Texas A&M Compounds. Under the terms of the license agreement, the Company
has agreed to fund research in the amount of approximately $108,000 per year for
the next three years. The Company is also obligated to pay certain milestone
payments as follows: $24,000 upon initiation of certain toxicity evaluations;
$12,000 upon completion of toxicity evaluations demonstrating certain acceptable
toxicity levels; $12,000 upon the submission of an IND to the FDA, or comparable
international agency; $5,000 upon completion of the first Phase I clinical
investigation; and $15,000 upon receipt by the Company of NDA approval from the
FDA to market products.
In addition, the Company is obligated to pay royalties on its worldwide net
sales revenue derived from the Compounds and a percentage of all revenues
received from sublicensees of products derived from the Compounds. Such royalty
payments shall be no less than $50,000 in the first year of commercial
marketing, $100,000 in the second year, and $200,000 in the third year and all
following years.
4. EQUITY TRANSACTIONS
COMMON AND PREFERRED STOCK
Common stock issued for services since 1990 has been recorded based on the value
of the services provided.
In April 1995, in accordance with the terms of his resignation and related
severance arrangements, the Former Officer returned 111,330 shares of common
stock and options to purchase 62,500 shares of common stock. The common stock
returned was valued at $.004 per share. The common stock and options returned
were canceled.
F-17
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
In May 1995, in accordance with the terms of a settlement agreement with a
former officer and director of the Company, the Company agreed to release and
relinquish any claim it may have on certain intellectual property, excluding the
Product, in exchange for 196,618 shares of the Company's common stock owned by
her and her family. The common stock was valued at $.004 per share and was
canceled.
On September 13, 1995, the Company issued 402,490 shares of common stock to
officers of the Company at $.004 per share.
On November 20, 1995, the Company issued an aggregate of 458,243 shares of
common stock to TJU and the Scientist (see NOTE 3). In addition, on November 20,
1995, the Company issued, in aggregate, an additional 916,485 shares to a
principal stockholder, a third party designated by the principal stockholder,
and an officer, at $.004 per share.
On March 24, 1996, the Company repurchased 77,901 shares of common stock
previously issued to an officer at $.004 per share. The repurchased shares were
canceled.
In May 1996, the Company's authorized capital was increased to 50,000,000 shares
of common stock, par value $.004, and 5,000,000 shares (of which 2,500,000
shares were designated as Series A preferred stock and 300,000 shares were
designated as Series B preferred stock) of preferred stock, par value $.01.
Pursuant to a private placement in May and June 1996, the Company issued
258,198 shares of Series B convertible preferred stock. The preferred
stockholders also received 129,099 shares of common stock. The total
consideration was $25,819,800. The per share price allocated to common stock and
Series B convertible preferred stock was $1 and $99, respectively. In connection
with the private placement, the Company paid $3,357,000 in commissions and
nonaccountable expenses to the placement agent, a related party, and issued 500
shares of common stock and 1,000 shares of Series B convertible preferred stock
as consideration for legal services valued at $100,000. In addition, the
placement agent received warrants to purchase 25,819.8 shares of Series B
convertible preferred stock at an exercise price of $110 per share. Such
warrants are exercisable until June 11, 2006, contain certain antidilution
provisions and may be exercised pursuant to a cashless exercise feature. Other
share issuance expenses amounted to $142,000.
F-18
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
The Series B preferred stockholders are entitled to voting rights equivalent to
the number of common shares into which their preferred shares are convertible.
The Series B preferred stockholders are also entitled to receive, in preference
to the holders of common stock, an amount per preferred share of $135 plus any
declared but unpaid dividends.
Pursuant to the terms of the private placement, each share of Series B preferred
stock was convertible at any time, in whole or in part, at the discretion of the
holders, into common stock at $4 per share (the Initial Conversion Price), which
amounted to 6,479,950 shares at December 31, 1996. Twelve months after the final
closing date (the Reset Date), the Company could, at its option, cause
conversion of the preferred stock, in whole or in part, into common stock at the
Initial Conversion Price if the closing price of the common stock exceeded 150%
of the Initial Conversion Price for at least 20 trading days in any
30-consecutive-trading-day period.
At the second closing of the private placement on June 11, 1996, the 1,287,500
shares of Series A preferred stock were automatically converted to 321,875
shares of common stock. Notwithstanding such conversion, holders of the Series A
preferred stock have received pro rata 95.85% of shares of common stock of IPI
associated with the sale of the Product, as discussed in NOTE 2.
During 1997, Series B preferred stockholders converted 55,039 shares of
preferred stock into 1,421,392 shares common stock at the conversion price in
effect at the time. At December 31, 1997, the remaining 204,159 shares of Series
B preferred stock are convertible into 5,325,866 shares of common stock,
excluding the effect of any fractional shares.
CONVERSION RESET
In accordance with the terms of the placement, the Initial Conversion Price was
to be adjusted and reset effective as of the Reset Date if the average closing
bid price for the 30 consecutive trading days immediately preceding the Reset
Date (the 12-Month Trading Price) was less than 135% of the Initial Conversion
Price or $5.40. If such was the case, the Initial Conversion Price would be
reduced to be equal to the greater of the 12-Month Trading Price divided by 1.35
or 50% of the Initial Conversion Price.
F-19
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
The Initial Conversion Price was adjusted effective June 11, 1997, because the
average closing bid price of the common stock for the 30 consecutive trading
days immediately preceding such date was less than $5.40. The average was, in
fact, $5.175 per share. Accordingly, the conversion price was adjusted to $3.83
per share, which corresponds to a new conversion rate of 26.0875 shares of
common stock per share of Series B preferred stock.
STAGGERED LOCK-UP
Pursuant to the terms of the placement, 25% of each holder's shares of common
stock issuable upon conversion of the Series B preferred shares (the Conversion
Shares) were not subject to any restriction on resale (Lock-up). The remaining
75% of each holder's Conversion Shares were subject to a staggered Lock-up,
whereby 25% of the Conversion Shares were released from the Lock-up every three
months after the final closing, through and including March 11, 1997.
In March 1997, the Company completed a revision to the staggered Lock-up and
Conversion Reset provision of the private placement. Shareholders owning
approximately 94% of the Series B preferred shares agreed to a modification of
the original subscription agreement, such that the staggered Lock-up would
expire beginning three months after both listing and effectiveness under the
Securities Act of 1933 of the Company's Registration Statement for its common
stock (Effectiveness). As so modified, upon listing and Effectiveness, which
occurred on July 10, 1997, 25% of the Conversion Shares were not subject to any
Lock-up provisions. The remaining 75% of the Conversion Shares were subject to a
staggered Lock-up, such that every three months after July 10, 1997, 25% of the
Conversion Shares are released from Lock-up until the ninth month, at which
point, all Conversion Shares will no longer be subject to any Lock-up.
In addition, for those shareholders who accepted the Lock-up modifications, the
Company agreed to provide additional reset protection, extending the Reset Date
to 12 months following the later of Effectiveness and listing. The terms of this
modified reset are the same as the original reset provision, except that the
Company will not adjust the conversion price, but will issue additional shares
of common stock to effect the principles of the reset provision.
F-20
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
STOCK OPTIONS
In April 1992, the Board of Directors approved the 1992 Stock Option Plan (the
Plan), which, as amended, authorizes up to 437,500 shares of common stock for
granting both incentive and nonqualified stock options to employees, directors,
consultants and members of the scientific advisory board of the Company. The
exercise price and vesting period of the options are determined by the Board of
Directors at the date of grant. Options may be granted up to 10 years after the
Plan's adoption date and generally expire 10 years from the date of grant.
The following summarizes activity in the Plan:
OPTIONS
-------------------
Balance at December 31, 1994 276,375
Canceled (246,375)
-------------------
Balance at December 31, 1995, 1996 and 1997 30,000
===================
All outstanding options were issued at an exercise price of $1.20 per share. At
December 31, 1997, options to purchase 30,000 shares of common stock were
exercisable, and options to purchase 407,500 shares of common stock were
available for grant under the Plan.
Certain officers and employees were also granted stock options in 1996, as
authorized by the Board of Directors, apart from the Plan. In May 1996, the
Company's President and Chief Executive Officer (the President) received options
to purchase 318,873 shares of common stock at $1.00 per share. Such options vest
at a rate of 1/16 per quarter over four years and are exercisable for a period
of seven years. Because the fair value of the Company's common stock at the date
of grant was determined to be $2 per share, the Company recorded $318,873 as
deferred compensation. Such deferred compensation is being amortized over four
years.
In September 1996, certain officers and an employee also received options to
purchase 252,500 shares of common stock at $1.00 per share. Such options vest at
a rate of 1/16 per quarter over four years and are exercisable for a period of
seven years. Because the
F-21
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
fair value of the Company's common stock at the date of grant was determined to
be $4 per share, the Company recorded $757,500 as deferred compensation. Such
deferred compensation is being amortized over four years.
In March 1997, one other employee of the Company received options to purchase
52,500 shares of common stock at $6.00 per share, the closing market price on
the date of grant. In July 1997, the Company withdrew such options and replaced
them with options to purchase 90,000 shares of common stock at an exercise price
of $4.50, the closing market price on the date of grant. The options vest as
follows: 5,000 shares vest on September 1, 1997, 30,000 shares vest at a rate of
1/6 every six months over a three-year period, thereafter, and the remaining
55,000 shares will vest upon the occurrence of certain milestone events relating
to the Company's manufacturing program. Such options are exercisable for a
period of seven years.
In July 1997, the President, certain officers and an employee also received
options to purchase 280,000 shares of common stock at $4.50 per share. The
President's options, which represent 150,000 of these options, vest at a rate of
1/12 per quarter over a three-year period. The remaining options vest at a rate
of 1/16 per quarter over four years and all are exercisable for a period of
seven years.
In July 1997, options were issued to a scientific consultant to purchase 30,000
shares of common stock at $4.50 per share. Such options vest at a rate of 1/3
per year over three years and are exercisable for a period of seven years.
In September 1997, four directors of the Company each received a grant of
40,000 options to purchase common stock at $4.50 per share. Such options vest at
a rate of 1/16 per quarter over four years, commencing on December 1, 1997, and
are exercisable for a period of seven years.
In December 1997, four directors of the Company each received a grant of 5,161
options to purchase common stock at $3.88 per share. Such options vest at a rate
of 1/4 per quarter over one year, commencing on March 1, 1998, and are
exercisable for a period of seven years.
F-22
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
WARRANTS
In June, July and September 1992, the Company issued warrants to purchase
88,769 shares (adjusted to comply with antidilution provisions of the warrants)
of the Company's common stock at a price of $2.59. These warrants were exercised
in April and June 1997 under a cashless exercise provision, resulting in the
issuance of 49,770 shares of common stock.
The Company has issued warrants to purchase 7,750 (May 1993) and 90,000
(January, February and August 1995) shares of the Company's common stock at a
price of $11.00 and $.04 per share, respectively. These warrants are exercisable
at any time and expire in 1998 and 2006, respectively.
In January and February of 1996, the Company issued warrants to purchase 97,500
shares of the Company's common stock at a price of $.04 per share. Such warrants
are exercisable at any time and expire in 2007.
In October 1996, the Company issued warrants to purchase 50,000 shares of common
stock at $6 per share, 25,000 of which were subsequently canceled in April of
1997 (see NOTE 7). These warrants are exercisable at December 31, 1997 and
expire in 2001.
In December 1996, the Company committed to the future issuance of warrants to
purchase 125,000 shares of the Company's common stock at a price of $8.24 per
share (see NOTE 3).
In June and July of 1996, warrants to purchase 156,250 shares of common stock at
$.04 per share were exercised.
In February 1997, the Company issued warrants to three outside consultants to
purchase a total of 25,500 shares of common stock at $6.00 per share. These
warrants vested immediately upon issuance and expire in 2004.
In April 1997, the Company issued warrants to purchase 50,000 shares of common
stock at $8.00 per share (see NOTE 7). Such warrants vest on various dates
through April 1998 and expire in July 2002.
F-23
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
In July 1997, warrants were issued to a consultant to purchase 45,000 shares of
common stock at $4.50 per share. Such warrants were to vest upon the occurrence
of certain milestones and were exercisable for a period of five years. In
December 1997, these warrants were canceled and new warrants to purchase 115,000
shares of common stock at $3.50 per share were issued to the consultant. Such
warrants vest upon the occurrence of certain milestones and are exercisable for
a period of five years.
In December 1997, warrants were issued to a consultant to purchase 200,000
shares of common stock at $3.75 per share. Such warrants vest upon the
achievement of certain performance-based milestones and are exercisable for a
period of five years.
Authorized but unissued shares of common stock were reserved for issuance at
December 31, 1997 as follows:
Series B convertible preferred stock (NOTE 4) 5,325,866
Stock option plan 437,500
Non Plan options 1,152,016
Warrants to purchase common stock 579,500
Warrants to purchase Series B convertible preferred
stock (NOTE 4) 673,564
===================
8,168,446
===================
SFAS NO. 123 DISCLOSURES
Pro forma information regarding net loss and net loss per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
applicable stock options and warrants under the fair value method of the
statement.
The fair value for these options and warrants was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996, including a risk free interest rate of 5.50%, a
volatility factor of the expected market price of the Company's common stock of
.392 and a weighted-average expected life of the option or warrant of 44 months.
F-24
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
This model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumption,
including the expected stock price volatility. Because the Company's stock
options and warrants have characteristics significantly different from those of
traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options or warrants.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option or warrant vesting period. The effects
of applying SFAS No. 123 for pro forma disclosures are not likely to be
representative of the effects on reported net income or losses for future years.
The Company's pro forma information follows:
1997 1996
-------------------------------
Pro forma net loss attributable to common
stockholders $(2,707,135) $(4,392,301)
Pro forma net loss per share (.85) (1.17)
A summary of applicable stock option and warrant activity and related
information for the years ended December 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------------------ ------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS AND EXERCISE OPTIONS AND EXERCISE
WARRANTS PRICE WARRANTS PRICE
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year 203,362 $1.74 1,549,636 $3.21
Granted 1,502,524 3.08 999,213 4.43
Exercised 156,250 0.04 88,769 2.59
Forfeited - - 25,000 6.00
================== ==================
Outstanding at end of year 1,549,636 3.21 2,435,080 3.70
================== ==================
</TABLE>
F-25
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
------------------------------------ ------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS AND EXERCISE OPTIONS AND EXERCISE
WARRANTS PRICE WARRANTS PRICE
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C>
Exercisable at end of year 862,168 $3.83 1,104,047 $3.82
</TABLE>
The weighted-average fair value of options and warrants granted during 1996 and
1997 was $1.41 and $1.39, respectively. Exercise prices for options and warrants
outstanding range from $.04 to $11.00.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1997 consist of the
following:
Professional fees $104,750
Other 248,976
-------------------
$353,726
===================
6. INCOME TAXES
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $8,000,000 for federal income tax purposes that expire in varying
amounts through the year 2012 if not utilized.
F-26
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities for federal income tax
purposes are as follows:
DECEMBER 31,
1997
--------------------
Deferred tax assets:
Net operating losses $3,094,000
Deferred compensation 147,000
Other 19,000
--------------------
Total deferred tax assets 3,260,000
Deferred tax liabilities:
Gain on sale of the Product treated as an installment
sale for income tax purposes (377,000)
--------------------
2,883,000
Valuation allowance (2,883,000)
====================
Net deferred tax assets $ -
====================
The valuation allowance at December 31, 1996 was $1,234,000.
Under Section 382 of the Tax Reform Act of 1986, the Company's net operating
loss carryforward could be subject to an annual limitation if it should be
determined that a change in ownership of more than 50% of the value of the
Company's stock occurred over a three-year period.
F-27
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
The following summary reconciles the federal statutory rate with the actual
income tax provision (benefit):
DECEMBER 31
1996 1997
----------------------------------
Income taxes (benefit) at statutory rate $(522,000) $(1,450,000)
State income taxes, net of federal benefit (71,000) (197,000)
Change in the valuation allowance 587,000 1,649,000
Other 6,000 (2,000)
----------------------------------
Provision for income taxes (benefit) $ - $ -
==================================
7. COMMITMENTS
LEASES
In August 1996, the Company entered into a three-year lease for office
facilities. The lease commenced in October with a monthly rental of
approximately $5,400, beginning in the fourth month. This lease was amended in
December 1997 to add additional office space for the remainder of the original
lease term which increased the monthly rental by approximately $2,700. This
lease is secured by an irrevocable standby letter of credit of which the lessor
is the named beneficiary. This $107,000 letter of credit expires at the end of
the original lease term and is automatically reduced by an equal amount each
year.
In December 1997, the Company entered into a 10-year lease agreement for
manufacturing facility space which commences in February 1998 and contains an
option to terminate after five years. The monthly rental is approximately
$10,400. The first month's rent was payable upon signing of the lease along with
a security deposit equivalent to two months rental. The first five months rental
will be rebated at the end of the fifth month. This lease is secured by a
one-year irrevocable standby letter of credit of which the lessor is the named
beneficiary. This $379,530 letter of credit automatically renews each December
and will be reduced by the amortized reduction of the landlord investment each
year.
F-28
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
7. COMMITMENTS (CONTINUED)
Rent expense under these agreements was approximately $79,000 for the year ended
December 31, 1997.
Future minimum lease payments consisted of the following at December 31, 1997:
YEAR ENDING
DECEMBER 31
- ---------------------
1998 $210,847
1999 196,908
2000 124,071
2001 140,318
2002 377,852
EMPLOYMENT AND CONSULTING AGREEMENTS
In May 1996, the Company entered into a letter agreement with the President
pursuant to which the President will receive an annual salary of $200,000, a
minimum annual bonus of $25,000 and an additional discretionary bonus of up to
$175,000. The President was also granted options to purchase common stock (see
NOTE 4). In October 1997, such annual salary was increased to $225,000 and a
$100,000 bonus was paid.
Effective in June 1996, the Company entered into consulting agreements with the
Scientist, a director and a former officer. These agreements are for an initial
term of three years through June 1999. Annual consulting fees payable pursuant
to these agreements approximate $66,000.
In September 1996, the Company entered into letter agreements with its Chief
Financial Officer (the CFO) and Executive Vice President (the Executive V.P.)
pursuant to which these officers will receive annual salaries of $150,000 and
$145,000, respectively, minimum annual bonuses of $25,000 each and additional
discretionary bonuses of up to $125,000 and $83,750, respectively. These
officers were also granted options to purchase common stock (see NOTE 4). In
October 1997, these officers received salary increases bringing each of their
annual salaries to $168,000 and were each paid a $50,000 bonus.
F-29
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
7. COMMITMENTS (CONTINUED)
In October 1996, the Company entered into an agreement with an investment banker
pursuant to which the investment banker may, at the Company's request, perform
certain investment banking services for the Company. In connection with this
agreement, the investment banker was granted warrants to purchase 50,000 shares
of common stock at $6 per share, 25,000 of which were subsequently canceled in
April 1997 (see NOTE 4).
In April 1997, the Company entered into an agreement with another investment
banker pursuant to which the investment banker may, at the Company's request,
perform certain investment banking services for the Company. In connection with
this agreement, the investment banker was granted warrants to purchase 50,000
shares of common stock at $8 per share (see NOTE 4).
In April, May and July 1997, the Company entered into agreements with four
members of the Scientific Advisory Board. These agreements are for initial terms
of two years and require compensation of $2,000 per person per meeting of the
Scientific Advisory Board. In July 1997, the Company entered into a consulting
agreement with a member of its Scientific Advisory Board. In connection with
this agreement, the Company granted options to acquire 30,000 shares of common
stock at $4.50 per share (see NOTE 4).
8. LOANS PAYABLE AND RELATED-PARTY TRANSACTIONS
On March 1, 1994, the Company entered into a line of credit agreement with a
major stockholder. During 1994, the Company received $397,000 and repaid
$190,000. There were no borrowings or repayments under the line of credit during
1995. Borrowings under this line of credit amounted to $207,000 at December 31,
1995, bore interest at 2% above the prime rate (10.5% at December 31, 1995) and
were repaid in full in June 1996.
On November 16, 1994, the Company entered into a term loan with a financial
institution and borrowed $389,000. The outstanding balance at December 31, 1995
was $50,000. The above major stockholder had assigned certain bank deposits as
collateral for this borrowing. This borrowing, which bore interest at the prime,
was repaid in June 1996.
F-30
<PAGE>
AVAX Technologies, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements (continued)
8. LOANS PAYABLE AND RELATED-PARTY TRANSACTIONS (CONTINUED)
In 1995, the Company obtained eight separate bridge loans totaling $600,000
($150,000 of which was obtained from related parties). The lenders also were
granted warrants to purchase 75,000 shares of common stock at $.04 per share. In
connection with these loans, the Company paid commissions totaling $54,000 and
issued warrants to purchase 15,000 shares of common stock at $.04 per share to
the placement agent (the Placement Agent), a related party. The warrants were
considered to have a de minimis value. These loans bore interest at 13% per
annum and were payable in 12 months. Loans totaling $200,000 were repaid in
January and February of 1996, and loans totaling $250,000 that were due in
February 1996 were rolled over for another year through February 1997. Warrants
to purchase 31,250 shares of common stock at $.04 per share were granted in
connection with the rollover of these loans. All bridge loans were payable in
full upon the closing of an initial public offering or private placement of the
Company's stock, with gross proceeds in excess of $2,500,000.
In addition, in January and February of 1996, the Company obtained additional
bridge loans totaling $400,000 ($300,000 of which was obtained from related
parties) with interest payable at 13% per annum and issued additional warrants
to purchase 50,000 shares of common stock at $.04 per share. Also, in connection
with these additional bridge loans, the Company paid commissions totaling
$36,000 and issued warrants to purchase 16,250 shares of common stock at $.04
per share to the Placement Agent, a related party. All bridge loans were repaid
in June 1996.
On June 11, 1996, the Company entered into a financial advisory agreement with
the Placement Agent, pursuant to which the Company will pay a monthly retainer
of $4,000 for a minimum of 24 months, plus expenses and success fees.
9. EMPLOYEE BENEFIT PLAN
During 1996, the Company established a 401(k) plan for all employees over the
age of 21. Employee contributions are subject to normal 401(k) plan limitations,
and the Company has made no matching contributions in 1996 or 1997, although
certain top heavy contributions may be required in the future.
F-31
<PAGE>
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS -----------------------
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN AVAX TECHNOLOGIES, INC.
OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY Common Stock
ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER ---------------------
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS PROSPECTUS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. , 1998
- ------------------------------------------------------ --------------------
--------------------
TABLE OF CONTENTS
AVAILABLE INFORMATION.............................2
PROSPECTUS SUMMARY................................3
COMPANY SUMMARY...................................3
OFFERING SUMMARY..................................5
SUMMARY OF FINANCIAL DATA.........................6
RISK FACTORS......................................7
USE OF PROCEEDS..................................21
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS..................21
DIVIDEND POLICY..................................21
CAPITALIZATION...................................22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS.......23
BUSINESS.........................................25
MANAGEMENT.......................................37
CERTAIN TRANSACTIONS.............................44
PRINCIPAL STOCKHOLDERS...........................46
DESCRIPTION OF SECURITIES........................48
SELLING SECURITYHOLDERS..........................55
SHARES ELIGIBLE FOR FUTURE SALES................61
PLAN OF DISTRIBUTION.............................62
EXPERTS..........................................63
LEGAL COUNSEL....................................63
- ------------------------------------------------------ -----------------------
- ------------------------------------------------------ -----------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145") authorizes a
court to award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article Seven of the Company's Certificate of
Incorporation provides that the Corporation shall indemnify and advance expenses
to its directors ands officers to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law. Article Nine of the Company's Certificate
of Incorporation provides that the liability of its directors is eliminated to
the fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law. Article V, Section 1 of the Company's By-Laws provides for
mandatory indemnification of its directors to the fullest extent authorized by
the Delaware General Corporation Law. Article V, Section 2 of the Company's
By-Laws provides for prepayment of expenses incurred by its directors to the
fullest extent permitted by, and only in compliance with, the Delaware General
Corporate Law. Article V, Section 6 of the Company's By-Laws provides for
permissive indemnification of its officers, employees and agents if and to the
extent authorized by the Board of Directors in compliance with the Delaware
General Corporation Law. These provisions in the Certificate of Incorporation
and the By-Laws do not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provisions also do not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. In addition, there are certain contractual
indemnification provisions contained in the Subscription Agreements of the
Series B Offering (Exhibit 4.6), the Series B Placement Warrants (Exhibit 4.12),
the Bridge Placement Warrants (Exhibit 4.7), the HTM Warrants (Exhibit 4.5), the
Meyerson Warrants (Exhibit 4.13), the Shear/Kershman and Castelli Warrants
(Exhibit 4.16), the Rutgers Warrants (Exhibit 4.17) and the warrants to be
issued to Drs. Wertheimer, Spana and Mermelstein (Exhibit 4.15) indemnifying
against certain liabilities the Company, its officers, directors, affiliates
and/or controlling person, including, in certain cases, Paramount Capital, Inc.,
a company wholly owned by a substantial shareholder of the Company, Lindsay A.
Rosenwald, M.D. In addition, the Company has obtained certain liability
insurance coverage for its directors and officers.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
securities being registered. The following table includes costs and expenses
relating to securities being registered for resale by certain securityholders,
all which amounts will be paid by the Company. All amounts are estimates except
the SEC registration fee and the Nasdaq filing fees.
SEC Registration fee $15,398.36
Nasdaq filing fee 10,000.00
NASD Corporate Financing Rule filing fee 4,966.00
Printing and engraving 100,000.00
Legal fees and expenses of the Company 350,000.00
Accounting fees and expenses 60,000.00
Blue sky fees and expenses 20,000.00
Transfer agent fees and expenses 20,000.00
Miscellaneous 39,635.64
---------
Total $620,000.00
===========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the last three years, the Company has issued and sold the following
securities (as adjusted to reflect two-for one reverse stock splits effected on
March 26, 1996 and May 13, 1997):
1. On May 11, 1996 and June 11, 1996 (the "Closing Dates"), the Company
consummated a private placement of an aggregate amount of approximately
$25,800,000 of shares ("Units") of Series B Preferred Stock and Common
Stock (the "Series B Offering"). The issuance of the above referenced
securities was deemed to be exempt from registration under the Act in
reliance on Section 4(2) thereof and Rule 506 of Regulation D
promulgated thereunder.
The offer and sale of Units were conducted through the Company's
Placement Agent (as defined below). In offering the Units, the
Placement Agent confined its actions to activities sanctioned by
Regulation D and did not engage in any form of general advertising or
general solicitation in offering the Units. All investors of the Units
represented to the Company that they were accredited investors and the
Company believed that such investors were accredited investors. The
Closing Dates were the only dates that the Company sold Units, and the
Company timely filed a Form D (or amended Form D, as the case may be)
on each of the Closing Dates. Each of the purchasers of the Units
represented their intentions to acquire the securities for investment
only and not with a view to, or for sale in connection with, any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. The purchasers in such
offering of Units were all the Selling Securityholders listed as such
in the Registration Statement except for James D. Wolfensohn, Seymour
Buehler and William J. Vanden Heuvel who are included in the list of
selling Shareholders because of their ownership of shares of Common
Stock issued upon exercise of Bridge Placements Warrants being
registered hereby, and, employees of Paramount that are not included in
the Registration Statement notwithstanding their purchase of units in
the Series B Offering.
2. In connection with services rendered by Paramount Capital, Inc., as
placement agent in the offering (the "Placement Agent"), the Company
issued to the Placement Agent or its designees warrants to purchase an
aggregate of approximately 25,820 shares of Series B Preferred Stock.
The issuance of the above referenced securities was deemed to be exempt
from registration under the Act in reliance on Section 4(2) thereof and
Rule 506 of Regulation D promulgated thereunder. Each of such
recipients had the sophistication, knowledge and experience in
financial matters as to be capable of evaluating the merits and risks
of its investment in the Company, and had access to information, and
the opportunity prior to its investment to ask questions of and receive
answers from representatives of the Company, in each case concerning
the finances, operations and
II-2
<PAGE>
business of the Company. In addition, the recipients of securities in
each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were
affixed to the certificates issued in such transactions.
3. On November 20, 1995, the Company entered into a License Agreement (the
"TJU License Agreement') with Thomas Jefferson University ("TJU")
pursuant to which TJU licensed to the Company certain patent and patent
applications relating to a process for the modification of a patient's
own tumor cells into a cancer vaccine (the "TJU License"). Pursuant to
the TJU License Agreement, the Company issued 229,121.5 shares of
Common Stock to each of TJU and Dr. David Berd, TJU's chief oncologist
and the inventor of its cancer vaccine. In the stock subscription
agreements ("Subscription Agreements") entered into by the Company, TJU
and Dr. Berd on November 20, 1995, relating to the issuance of Common
Stock to each of TJU and Dr. Berd, each of TJU and Dr. Berd
represented, among other things, to the Company, and the Company
believed, the following: that (i) it acquired the Common Stock for
investment purposes only and not for resale for an indefinite period of
time for its own account; (ii) it had such sophistication, knowledge
and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Company; (iii)
it had the ability to bear the economic risks of its investment for an
indefinite period of time and could afford a complete loss of its
investment; and (iv) it had access to information, and the opportunity
prior to its purchase of the Common Stock to ask questions of and
receive answers from representatives of the Company, in each case
concerning the finances, operations and business of the Company. Also,
as stated in the Subscription Agreements, the share certificates issued
in connection with the above issuance of Common Stock had endorsed
thereon legends regarding restrictions on the transfer of the Common
Stock. Because of, among other things, the foregoing, the issuances of
the above referenced securities was deemed to be exempt from
registration under the Act in reliance on Section 4(2) thereof.
4. The Castle Group, LLC ("The Castle Group") which may be deemed an
affiliate of both the Company and the Placement Agent, identified,
negotiated and acquired for the Company the TJU License. In connection
therewith, The Castle Group and/or its designees were granted 916,485.5
of Common Stock of the Company at a price of $.004 per share pursuant
to an Engagement & Technology Acquisition Agreement dated October 20,
1995 between The Castle Group and the Company. In the stock
subscription agreements ("Castle Subscription Agreements") entered into
by the Company, The Castle Group and its designees in September, 1995,
relating to the Common Shares issued to each of The Castle Group and
its designees, each of them represented, among other things, to the
Company, and the Company believed, the following: that (i) it acquired
the Common Stock for investment purposes only and not for resale for an
indefinite period of time for its own account; (ii) that each of The
Castle Group and its designees had such sophistication, knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Company; (iii)
it had the ability to bear the economic risks of its investment for an
indefinite period of time and could afford a complete loss of its
investment; and (iv) it had access to information, and the opportunity
prior to its purchase of the Common Stock to ask questions of and
receive answers from representatives of the Company, in each case
concerning the finances, operations and business of the Company. Also,
as stated in the Subscription Agreements, the share certificates issued
in connection with the above issuance of Common Stock had endorsed
thereon legends regarding restrictions on the transfer of the Common
Stock. Because of the foregoing, the issuances of the above referenced
securities were deemed to be exempt from registration under the Act in
reliance on Section 4(2) thereof because such issuances did not involve
a public offering. In addition, each of the recipients of securities in
such transaction represented their intention to acquire the securities
for investment only and not with a view to or for sale in connection
with any distribution thereof and conform to appropriate legends were
affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the
Company, to information about the Company.
5. In 1995 and 1996, the Company, pursuant to certain bridge financing
transactions issued to nine persons or entities namely, The Aries
Domestic Fund, L.P., The Aries Fund, A Cayman Island Trust, Seymour
Buehler, Yonah J. Hamlet, M.D., Trustee FBO Yonah J. Hamlet, M.D.
Profit Sharing Plan Dtd. 1/1/86, South Ferry #2, L.P., Herman Tauber,
Myron M. Teitelbaum, M.D., William J. Vanden Heuvel and James D.
Wolfensohn ("Warrant Holders"), (i) bridge notes aggregating $1,000,000
and (ii) warrants to purchase an aggregate of 156,250 shares of Common
II-3
<PAGE>
Stock at an exercise price of $.004 per share. In June 1996, such
bridge notes were paid by the Company and all the warrants were
exercised by the holders thereof. In connection with services rendered
as the placement agent of the bridge financing, Paramount Capital, Inc.
("Paramount") was issued warrants to purchase 31,250 shares of Common
Stock at an exercise price of $.004 per share. In connection with the
issuances of the Warrants and the Placement Warrants, each of the
Warrant Holders and Paramount represented, and the Company believed,
among other things, the following: that (i) it acquired the Common
Stock for investment only and not for resale for an indefinite period
for its own account; (ii) it had such sophistication, knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Company; (iii)
it had the ability to bear the economic risks of its investment for an
indefinite period of time and could afford a complete loss of its
investment; and (iv) it had access to information, and the opportunity
prior to its purchase of the Common Stock to ask questions of and
receive answers from representatives of the Company, in each case
concerning the finances, operations and business of the Company. Also,
as stated in the Subscription Agreements, the share certificates issued
in connection with the above issuances of Common Stock had endorsed
thereon legends regarding restrictions on the transfer of the Common
Stock. The issuances of the above referenced securities were deemed to
be exempt from registration under the Act in reliance on Section 4(2)
thereof because such issuances did not involve a public offering.
6. On October 24, 1996, the Company entered into an agreement with M. H.
Meyerson & Co., Inc. ("Meyerson"), pursuant to which Meyerson performed
certain investment banking and financial advisory services on a
non-exclusive basis for the Company (the "Meyerson Investment Banking
Agreement"). Pursuant to the Meyerson Investment Banking Agreement,
which was terminated by the Company on April 17, 1997, Meyerson
acquired warrants to purchase an aggregate of 50,000 shares of Common
Stock of the Company at an exercise price of $6.00 per share. At the
time of the Company's termination, 25,000 of the Meyerson Warrants had
vested. The issuance of the Meyerson Warrants was deemed to be exempt
from registration under the Act in reliance on Section 4(2) thereof
because such issuance did not involve a public offering. In addition,
Meyerson represented its intention to acquire the securities for
investment only and not with a view to or for sale in connection with
any distribution thereof and appropriate legends are required to be
affixed to the warrant certificates issuable in such transactions.
Meyerson had adequate access, through its negotiations with the Company
of the terms of the Investment Banking Agreement, to information about
the Company.
7. On December 10, 1996, the Company entered into a license agreement with
Rutgers, the State University of New Jersey and the University of
Medicine and Dentistry of New Jersey (collectively, "Rutgers") pursuant
to which Rutgers licensed to the Company certain patent applications
relating to a series of compounds for the potential treatment of cancer
and infectious diseases (the "Rutgers License"). Pursuant to the
Rutgers License, the Company issued warrants to purchase 125,000 shares
of Common Stock at a price of $8.24 per share to Rutgers (the "Rutgers
Warrants"). The issuance of the Rutgers Warrants was deemed to be
exempt from registration under the Act in reliance on Section 4(2)
thereof because such issuance did not involve a public offering. In
addition, Rutgers represented its intention to acquire the securities
for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends are required to
be affixed to the warrant certificates issued in such transactions.
Rutgers had adequate access, through its negotiations with the Company
of the terms of the Rutgers License, to information about the Company.
8. In consideration of services rendered on behalf of the Company in
connection with the acquisition and negotiation of the Rutgers License,
in February 1997, the Company agreed to pay Samuel P. Wertheimer,
Ph.D., $25,000 and to issue to Dr. Wertheimer warrants to purchase
6,375 shares of Common Stock at an exercise price of $6.00 per share,
exercisable for seven years (the "Wertheimer Warrants"). The issuance
of the Wertheimer Warrants was deemed to be exempt from registration
under the Act in reliance on Section 4(2) thereof because such issuance
did not involve a public offering. In addition, Dr. Wertheimer
represented his intention to acquire the securities for investment only
and not with a view to or for sale in connection with any distribution
thereof and appropriate legends are required to be affixed to the
warrant certificates issued in such transactions. Dr. Wertheimer had
adequate access, through his negotiations with the Company of the terms
of the Rutgers License, to information about the Company. Moreover, Dr.
Wertheimer represented to the Company that he was sophisticated and
expert in financial matters.
II-4
<PAGE>
9. In consideration of services rendered on behalf of the Company in
connection with the acquisition and negotiation of the Rutgers License,
in February 1997, the Company agreed to pay Carl Spana, Ph.D., $15,000
and to issue to Dr. Spana warrants to purchase 6,375 shares of Common
Stock at an exercise price of $6.00 per share, exercisable for seven
years (the "Spana Warrants"). The issuance of the Spana Warrants was
deemed to be exempt from registration under the Act in reliance on
Section 4(2) thereof because such issuance did not involve a public
offering. In addition, Dr. Spana represented his intention to acquire
the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends are
required to be affixed to the warrant certificates issued in such
transactions. Dr. Spana had adequate access to information about the
Company through his negotiations with the Company of the terms of the
Rutgers License and through his position as a Director of the Company.
10. In consideration of services rendered on behalf of the Company in
connection with the acquisition and negotiation of the Texas A&M
License, in February 1997, the Company agreed to pay Fred Mermelstein,
Ph.D., $40,000 and to issue to Dr. Mermelstein warrants to purchase
12,750 shares of Common Stock at an exercise price of $6.00 per share,
exercisable for seven years (the "Mermelstein Warrants"). The issuance
of the Mermelstein Warrants was deemed to be exempt from registration
under the Act in reliance on Section 4(2) thereof because such issuance
did not involve a public offering. In addition, Dr. Mermelstein
represented his intention to acquire the securities for investment only
and not with a view to or for sale in connection with any distribution
thereof and appropriate legends are required to be affixed to the
warrant certificates issued in such transactions. Dr. Mermelstein had
adequate access, through his negotiations with the Company of the terms
of the Texas A&M License, to information about the Company. Moreover,
Dr. Mermelstein represented to the Company, and the Company believed,
that he was sophisticated and expert in financial matters.
11. In connection with services rendered by Ladenberg, Thalmann & Co., Inc.
("Ladenberg"), and D. H. Blair Investment Banking Corp. ("D. H.
Blair"), as placement agents in the offering of Series A Preferred
Stock conducted from June 1992 to September 1992 (the "Series A
Offering"), the Company granted Ladenberg and D. H. Blair and/or their
respective designees certain warrants ("Series A Placement Warrants")
to purchase Common Stock at any time until June 26, 1997. In April and
June 1997, Ladenberg and D.H. Blair and/or their respective designees
were issued approximately 49,770 shares of Common Stock pursuant to the
cashless exercise provisions of the Series A Placement Warrants. The
issuance of (i) the Series A Placement Warrants and (ii) the issuance
of Common Stock upon the exercise of the Series A Placement Warrants,
were deemed to be exempt from registration under the Act in reliance on
Section 4(2) thereof because such issuances did not involve a public
offering. In addition, each of Ladenberg and D. H. Blair and their
respective designees represented its intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were
required to be affixed to the warrant certificates. Ladenberg and D. H.
Blair and/or their respective designees each had adequate access,
through their negotiations with the Company as placement agents in the
Series A Offering, to information about the Company. The shares of
Common Stock were issued without restrictive legends pursuant to
exemptions afforded by Rule 144(k).
12. On April 17, 1997, the Company entered into an agreement with Hill,
Thompson, Magid & Co. ("HTM"), pursuant to which HTM may perform
certain investment banking and financial advisory services on a
non-exclusive basis for the Company (the "HTM Investment Banking
Agreement"). Among the services that might be provided by HTM are
general advice and guidance on long-term strategic planning, assistance
with debt and equity financings, identification of potential
strategic/corporate partners, financial and transaction feasibility
analysis, and mergers and acquisitions advisory services. Pursuant to
the Investment Banking Agreement, the Company granted to HTM warrants
to purchase an aggregate of 50,000 shares of Common Stock of the
Company at an exercise price of $8.00 per share. The issuance of the
HTM Warrants was deemed to be exempt from registration under the Act in
reliance on Section 4(2) thereof because such issuance did not involve
a public offering. In addition, HTM represented its intention to
acquire the securities for investment only and not with a view to or
for sale in connection with any distribution thereof and appropriate
legends are required to be affixed to the warrant certificates issuable
in such transactions. HTM had adequate access, through its negotiations
with the Company of the terms of the HTM Investment Banking Agreement,
to information about the Company.
II-5
<PAGE>
13. In July 1997, in consideration of services being rendered by the
Company's real estate advisor who is representing it in connection with
the identification and negotiation of potential biopharmaceutical
clinical manufacturing sites throughout the country, the Company issued
warrants to purchase 45,000 shares of Common Stock at an exercise price
of $4.50 per share. In December 1997, these warrants were canceled and
new warrants to purchase 115,000 shares of common stock at $3.50 were
issued to the real estate advisor. Such warrants will vest and are
exercisable on the same terms as the original warrants. The issuance of
such warrants was deemed to be exempt from registration under the Act
in reliance on Section 4(2) thereof because such issuance did not
involve a public offering. In addition, such real estate advisor
represented his intention to acquire the securities for investment only
and not with a view to or for sale in connection with any distribution
thereof and appropriate legends are required to be affixed to the
warrant certificates issued in such transactions. Such real estate
advisor had adequate access, through his negotiations with the Company
in connection with potential biopharmaceutical clinical manufacturing
sites, to information about the Company. Moreover, such real estate
advisor represented to the Company, and the Company believed, that he
was sophisticated and expert in financial matters.
14. In December 1997, the Company issued warrants to purchase 200,000
shares of Common Stock at an exercise price of $3.75 per share. Such
warrants were issued in consideration of services being rendered by the
Company's investment relations advisor. Such warrants will vest upon
the achievement of certain performance-based milestones relating to the
Company's stock price and trading volume and are exercisable in whole,
or in part, over a five-year period. The issuance of such warrants was
deemed to be exempt from registration under the Act in reliance on
Section 4(2) thereof because such issuance did not involve a public
offering. In addition, such investment relations advisor represented
his intention to acquire the securities for investment only and not
with a view to or for sale in connection with any distribution thereof
and appropriate legends are required to be affixed to the warrant
certificates issued in such transactions. Such investment relations
advisor had adequate access, through his negotiations with the Company,
to information about the Company. Moreover, such investment relations
advisor represented to the Company, and the Company believed, that he
was sophisticated and expert in financial matters.
II-6
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
* 2.1 Asset Purchase Agreement dated December 27, 1995, by and between the Registrant, InterNuria, Inc.
and Interneuron Pharmaceuticals, Inc.
## 3.1 Certificate of Incorporation of the Registrant, as amended to date.
* 3.2 By-laws of the Registrant, as amended to date.
* 4.1 Reference is made to Exhibits 3.1 and 3.2.
* 4.2 Specimen of Common Stock certificate.
* 4.3 Specimen of Series B Convertible Preferred Stock certificate.
* 4.4 Investors' Rights Agreement dated November 20, 1995, by
and between the Registrant and certain investors.
** 4.5 Form of Subscription Agreement, by and between the
Registrant and certain purchasers of Series B Preferred
Stock and Common Stock.
* 4.6 Form of Placement Warrant Relating to Offering of Series B Placement Warrants.
**** 4.7 Meyerson Investment Banking Agreement and Common Stock Warrants dated October 24, 1996, by and
between the Registrant and M.H. Meyerson & Co., Inc.
***** 4.8 Form of Amendment to Subscription Agreement--Lock-Up Provisions.
5.1 Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
10.1 Reference is made to Exhibit 2.1.
###+ 10.2 Clinical Study and Research Agreement dated November
20, 1995, by and between the Registrant and Thomas
Jefferson University.
* 10.3 The Registrant's 1992 Stock Option Plan.
## 10.4 Letter of Employment dated May 17, 1996, between the Registrant and Dr. Jeffrey M. Jonas.
* 10.5 Consulting Agreement dated February 22, 1996, between the Registrant and Dr. Carl Spana.
* 10.6 Consulting Agreement dated May 9, 1996, between the Registrant and Dr. David Berd.
* 10.7 Financial Advisory Agreement dated June 12, 1996, by and between the Registrant and Paramount
Capital, Inc.
###+ 10.8 License Agreement dated November 20, 1995, by and
between the Registrant and Thomas Jefferson University.
## 10.9 Letter of Employment dated September 13, 1996, between the Registrant and David L. Tousley.
## 10.10 Letter of Employment dated September 13, 1996, between the Registrant and Ernest W. Yankee, Ph.D.
###+ 10.11 License Agreement dated December 10, 1996, by and
between the Registrant and Rutgers, The State University of
New Jersey and the University of Medicine and Dentistry.
II-7
<PAGE>
###+ 10.12 License Agreement dated February 17, 1997, by and
between the Registrant and The Texas A&M University System.
## 10.13 Investment Banking Services Agreement dated April 17,
1997, by and between the Registrant and Hill, Thompson,
Magid & Co.
####+ 10.14 Sponsored Research Agreement dated May 2, 1997, by
and between the Registrant and Rutgers, The State
University of New Jersey and the University of Medicine and
Dentistry.
####+ 10.15 Sponsored Research Agreement dated May 12, 1997, by
and between the Registrant and The Texas A&M University
System.
10.16 Lease Agreement dated December 1, 1997 for Kansas City Facility, as amended.
10.17 Lease Agreement dated December 1, 1997 for Philadelphia Facility.
* 20.1 Stockholder Information Statement of the Registrant dated June 15, 1995.
23.1 Consent of Roberts, Sheridan & Kotel, a Professional Corporation.
Reference is made to Exhibit 5.1.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
* Previously filed with the Registration Statement on Form SB-2 filed
with the Commission on August 1, 1996.
** Previously filed with Amendment No. 1 to the Registration Statement of
Form SB-2 filed with the Commission in September 23, 1996 and which
superseded such exhibit as previously filed with the Registration
Statement on Form SB-2 filed with the Commission on August 1, 1996.
**** Previously filed with Amendment No. 2 to the Registration Statement on
Form SB-2 filed with the Commission on November 6, 1996.
***** Previously filed with Amendment No. 4 to the Registration Statement on
Form SB-2 filed with the Commission on February 26, 1997.
## Previously filed with Amendment No. 6 to the Registration Statement on
Form SB-2 filed with the Commission on May 7, 1997.
### Previously filed with Amendment No. 9 to the Registration Statement on
Form SB-2 filed with the Commission on July 3, 1997.
#### Previously filed with Post Effective Amendment No. 1 to the
Registration Statement on Form SB-2 filed with the Commission on
August 14, 1997.
+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted.
II-8
<PAGE>
ITEM 28. UNDERTAKINGS
The Company hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the Delaware General Corporation Law, the Certificate of Incorporation or the
By-Laws of the Company, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer, or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, the Company
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Company hereby undertakes that it will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Company pursuant to Rule 424(b)(1), or (4) or 497(h) under the Act as part of
this registration statement as of the time it was declared effective.
(2) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of such securities at that time as the initial BONA FIDE
offering of those securities.
II-9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the Company certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this March 16, 1998.
AVAX TECHNOLOGIES, INC.
By: /s/ Michael S. Weiss
--------------------------
Michael S. Weiss
Secretary and Director
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE NAME & TITLE DATE
--------- ------------ ----
<S> <C> <C>
/s/ Jeffrey M. Jonas, M.D.* Jeffery M. Jonas, M.D.
President, Chief Executive Officer and Director March 16, 1998
/s/ David L. Tousley* David L. Tousley
Chief Financial Officer
(Principal Financial Officer) March 16, 1998
/s/ Edson D. de Castro* Edson D. de Castro
Director March 16, 1998
/s/ John K. A. Prendergast, Ph.D.* John K. A. Prendergast, Ph.D.
Director March 16, 1998
/s/ Carl Spana, Ph.D.* Carl Spana, Ph.D.
Director March 16, 1998
/s/ Michael S. Weiss Michael S. Weiss
Secretary and Director March 16, 1998
</TABLE>
*By: /s/ Michael S. Weiss
--------------------
Michael S. Weiss
Attorney-in-Fact
II-10
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
EXHIBITS
TO
POST-EFFECTIVE
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
AVAX TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
* 2.1 Asset Purchase Agreement dated December 27, 1995, by and between the Registrant, InterNuria, Inc.
and Interneuron Pharmaceuticals, Inc.
## 3.1 Certificate of Incorporation of the Registrant, as amended to date.
* 3.2 By-laws of the Registrant, as amended to date.
* 4.1 Reference is made to Exhibits 3.1 and 3.2.
* 4.2 Specimen of Common Stock certificate.
* 4.3 Specimen of Series B Convertible Preferred Stock certificate.
* 4.4 Investors' Rights Agreement dated November 20, 1995, by
and between the Registrant and certain investors.
** 4.5 Form of Subscription Agreement, by and between the
Registrant and certain purchasers of Series B Preferred
Stock and Common Stock.
* 4.6 Form of Placement Warrant Relating to Offering of Series B Placement Warrants.
**** 4.7 Meyerson Investment Banking Agreement and Common Stock Warrants dated October 24, 1996, by and
between the Registrant and M.H. Meyerson & Co., Inc.
***** 4.8 Form of Amendment to Subscription Agreement--Lock-Up Provisions.
5.1 Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
10.1 Reference is made to Exhibit 2.1.
###+ 10.2 Clinical Study and Research Agreement dated November
20, 1995, by and between the Registrant and Thomas
Jefferson University.
* 10.3 The Registrant's 1992 Stock Option Plan.
## 10.4 Letter of Employment dated May 17, 1996, between the Registrant and Dr. Jeffrey M. Jonas.
* 10.5 Consulting Agreement dated February 22, 1996, between the Registrant and Dr. Carl Spana.
* 10.6 Consulting Agreement dated May 9, 1996, between the Registrant and Dr. David Berd.
* 10.7 Financial Advisory Agreement dated June 12, 1996, by and between the Registrant and Paramount
Capital, Inc.
###+ 10.8 License Agreement dated November 20, 1995, by and
between the Registrant and Thomas Jefferson University.
## 10.9 Letter of Employment dated September 13, 1996, between the Registrant and David L. Tousley.
## 10.10 Letter of Employment dated September 13, 1996, between the Registrant and Ernest W. Yankee, Ph.D.
###+ 10.11 License Agreement dated December 10, 1996, by and
between the Registrant and Rutgers, The State University of
New Jersey and the University of Medicine and Dentistry.
<PAGE>
###+ 10.12 License Agreement dated February 17, 1997, by and
between the Registrant and The Texas A&M University System.
## 10.13 Investment Banking Services Agreement dated April 17,
1997, by and between the Registrant and Hill, Thompson,
Magid & Co.
####+ 10.14 Sponsored Research Agreement dated May 2, 1997, by
and between the Registrant and Rutgers, The State
University of New Jersey and the University of Medicine and
Dentistry.
####+ 10.15 Sponsored Research Agreement dated May 12, 1997, by
and between the Registrant and The Texas A&M University
System.
10.16 Lease Agreement dated December 1, 1997 for Kansas City Facility, as amended.
10.17 Lease Agreement dated December 1, 1997 for Philadelphia Facility.
* 20.1 Stockholder Information Statement of the Registrant dated June 15, 1995.
23.1 Consent of Roberts, Sheridan & Kotel, a Professioinal Corporation.
Reference is made to Exhibit 5.1.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
* Previously filed with the Registration Statement on Form SB-2 filed
with the Commission on August 1, 1996.
** Previously filed with Amendment No. 1 to the Registration Statement of
Form SB-2 filed with the Commission in September 23, 1996 and which
superseded such exhibit as previously filed with the Registration
Statement on Form SB-2 filed with the Commission on August 1, 1996.
**** Previously filed with Amendment No. 2 to the Registration Statement on
Form SB-2 filed with the Commission on November 6, 1996.
***** Previously filed with Amendment No. 4 to the Registration Statement on
Form SB-2 filed with the Commission on February 26, 1997.
## Previously filed with Amendment No. 6 to the Registration Statement on
Form SB-2 filed with the Commission on May 7, 1997.
### Previously filed with Amendment No. 9 to the Registration Statement on
Form SB-2 filed with the Commission on July 3, 1997.
#### Previously filed with Post Effective Amendment No. 1 to the
Registration Statement on Form SB-2 filed with the Commission on August
14, 1997.
+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted.
[Letterhead of
Roberts, Sheridan & Kotel]
March 16, 1998
AVAX Technologies, Inc.
4520 Main Street, Suite 930
Kansas City, MO 64111
AVAX Technologies, Inc.
Registration on Form SB-2
Dear Sirs:
We have acted as counsel for AVAX Technologies, Inc., a
Delaware corporation (the "Issuer"), in connection with the preparation of
Post-Effective Amendment No. 3 to the Registration Statement on Form SB-2 (the
"Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") on March 16, 1998, Registration Number 333-09349, under the
Securities Act of 1933 (the "Act") for the registration under the Act of the
following securities of the Issuer:
(i) 1,209,234 shares of common stock, par value $.004 per
share ("Common Stock");
(ii) 5,096,785 shares of Common Stock issuable upon conversion
of currently outstanding shares of Series B Convertible
Preferred Stock, par value of $.01 per share (the "Series B
Preferred Stock"); and
(iii) up to 49,229 shares of Common Stock issuable upon (a)
the conversion of shares of Series B Preferred Stock issuable
upon exercise of the warrants issued to the placement agent
and/or its designees relating to the offering of the Series B
Preferred Stock (the "Series B Placement Warrants") and (b)
exercise of warrants issued to the placement agent and/or its
designees for certain bridge financing transactions of the
Company (the "Bridge Placement Warrants," and together with
the Series B Placement Warrants, the "Placement Warrants").
In that connection, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of certificates of public
officials and corporate records, instruments and documents of or affecting the
Issuer, including, without limitation, (i) the Certificate of
<PAGE>
2
Incorporation of the Issuer, as amended to date; (ii) the Bylaws of the Issuer,
as amended to date; (iii) resolutions adopted by the Board of Directors and
Stockholders of the Issuer; (iv) the Certificate of Designations for the Series
B Preferred Stock; (v) a form of specimen stock certificate for the Common
Stock; (vi) a form of specimen stock certificate for the Series B Preferred
Stock; (vii) a form of the Series B Placement Warrant; and (viii) a form of the
Bridge Placement Warrant. We have also examined originals or copies, certified
or otherwise identified to our satisfaction, of certificates of officers of the
Issuer, and have reviewed such questions of law and made such other inquiries,
as we have deemed necessary or appropriate for the purpose of rendering this
opinion.
In rendering our opinion, we have relied, as to matters of
fact, upon representations and warranties of the Issuer and upon such
certificates and other instruments of officers of the Issuer and public
officials as we have deemed necessary or appropriate for the purpose of
rendering this opinion, in each case without independent investigation or
verification. Additionally, without any independent investigation or
verification, we have assumed (i) the genuineness of all signatures, (ii) the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as certified,
conformed or photostatic copies, (iii) the authority of all persons signing any
document other than the officers of the Issuer, where applicable, signing in
their capacity as such, (iv) the enforceability of all the agreements we have
reviewed in accordance with their respective terms against the parties thereto,
and (v) the truth and accuracy of all matters of fact set forth in all
certificates and other instruments furnished to us.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that:
1. The Issuer is a corporation duly incorporated and is in
good standing under the laws of the State of Delaware.
2. The 1,209,234 shares of Common Stock which may be sold in
accordance with the provisions of the Registration Statement have been legally
issued and are fully paid and nonassessable.
3. The 5,096,785 shares of Common Stock issuable upon
conversion of currently outstanding shares of Series B Preferred Stock have been
duly authorized for issuance, and when issued upon conversion of the Series B
Preferred Stock will be legally issued, fully paid and nonassessable.
4. The aggregate of up to 37,979 shares of Common Stock
issuable upon conversion of the Series B Preferred Stock after exercise of the
Series B Placement Warrants have been duly authorized for issuance, and when
issued upon conversion of the Series B Preferred Stock after exercise of the
Series B Placement Warrants, and the payment of the applicable exercise price
thereof or the use of the cashless exercise provision thereof will be legally
issued, fully paid and nonassessable.
<PAGE>
3
5. The aggregate of up to 11,250 shares of Common Stock
issuable upon exercise of the Bridge Placement Warrants have been duly
authorized for issuance, and when issued upon exercise of the Bridge Placement
Warrants, and the payment of the applicable exercise price thereof or the use of
the cashless exercise provision thereof will be legally issued, fully paid and
non-assessable.
Members of this Firm are admitted to practice law only in the
State of New York and do not purport to be experts on, and are not expressing
any opinion with respect to, any laws other than the laws of the State of New
York, the General Corporation Law of the State of Delaware and the Federal laws
of the United States of America.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and the reference to us under the heading "Legal
Counsel" in the Prospectus included in Part I of the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ Roberts, Sheridan & Kotel
TWENTIETH CENTURY TOWER II
LEASE AGREEMENT
TWENTIETH CENTURY REALTY, INC.,
a Missouri Corporation
"Landlord"
and
AVAX TECHNOLOGIES, [NC
a Delaware Corporation
"Tenant"
<PAGE>
TABLE OF CONTENTS
I. PREMISES Page
1.1 Lease Premises 1
II. LEASE TERM
2.1 Initial Lease Term 2
2.2 Relocation 2
III. USE
3.1 Use of Premises 3
3.2 Compliance with Laws 3
3.3 Peaceful Enjoyment 3
3.4 Entry by Landlord 3
3.5 Warranty of Clear Title and Possession 3
3.6 Miscellaneous Restrictions 3
IV CONSTRUCTION AND IMPROVEMENTS
4.1 Improvements 4
4.2 Cost of Improvements 4
4.3 Delay in Completion 4
4.4 Ownership of Improvements 4
V. RENTAL
5.1 Base Rental 5
5.2 Additional Rent Adjustments 5
5.3 Interest on Past Due Rent 7
V. LANDLORD'S OBLIGATIONS
6.1 Services to be Furnished by Landlord 7
6.2 Obligation to Repair Maintain 8
VII. OBLIGATIONS OF TENANT
7.1 Care of the Premises by Tenant 9
7.2 Repairs and Alterations by Tenant 9
7.3 Use of Electrical Services by Tenant 9
7.4 Building Rules 10
VIII. DAMAGE OR DESTRUCTION
8.1 Damages Covered by Insurance 10
8.2 Damages Not Covered by Insurance 11
8.3 Abatement or Reduction in Rent 12
(i)
<PAGE>
IX. CONDEMNATION
9.1 Total Taking 12
9.2 Partial Taking 13
9.3 Condemnation Award 13
9.4 Temporary Taking 13
X. DEFAULT, TERMINATION AND REMEDIES
10.1 Events of Default of Tenant 13
10.2 Remedies of Landlord 14
10.3 Events of Default of Landlord 16
10.4 Personal Liability of Landlord 16
10.5 Surrender at End of Term 16
XI. INSURANCE
11.1 Property Insurance 16
11.2 Liability Insurance 17
11.3 Waiver of Subrogation Rights 17
XII. PROPERTY TAXES
12.1 Real Property 17
12.2 Personal Property 17
XIII. MECHANIC'S AND LANDLORD'S LIENS/
SECURITY DEPOSIT
13.1 Mechanic's Lien 18
13.2 Landlord's Lien 18
13.3 Security Deposit 19
XIV. INDEMNIFICATION AND NONLIABILITY
14.1 Indemnification 19
14.2 Nonliability of Landlord 20
XV. SUBORDINATION; ATTORNMENT 20
XVI. ESTOPPEL CERTIFICATE 20
XVII. ASSIGNMENT AND SUBLETTING;
SALE OF PREMISES
17.1 Assignment and Subletting 21
17.2 Sale of Premises by Landlord 22
XVIII. HOLDING OVER 22
XIX. FORCE MAJEURE 22
(ii)
<PAGE>
XX. PARKING
XXI. GENERAL PROVISIONS
21.1 Notices 23
21.2 Survival of Tenant's Obligations 23
21.3 Covenants Running with the Land 24
21.4 Waivers 24
21.5 Modifications 24
21.6 Legal Expenses 24
21.7 Broker's Commission 24
21.8 Authority to Execute 24
21.9 Captions 25
21.10 Cumulative Remedies 25
21.11 Time of Performance 25
21.12 Severability 25
21.13 Entire Agreement 25
21.14 Successors in Interest 25
21.15 Recording 25
21.16 Effect of Delivery of Lease 25
21.17 Choice of Law 25
EXHIBIT SUMMARY
Exhibit A Description of Real Property
Exhibit B Description of Premises
Exhibit C General Description of Improvements
Exhibit C-l Plans and Specifications of Improvements
Exhibit D Rules and Regulations
Exhibit E Parking Space Rental Agreement
(iii)
<PAGE>
LEASE AGREEMENT
TWENTIETH CENTURY TOWER II
This LEASE AGREEMENT ("Lease"), is made and entered into on this 23rd
day of August, 1996, by and between Twentieth Century Realty, Inc. a Missouri
corporation ("Landlord") and AVAX Technologies, Inc., a Delaware corporation
("Tenant").
RECITALS
WHEREAS, Landlord is the owner of that certain real property located
at 4520 Main, in the City of Kansas City, County of Jackson, State of Missouri,
as more particularly described on Exhibit "A" attached hereto and incorporated
herein by reference ("Real Property"), and which has been improved with a
commercial building known as Twentieth Century Tower II ("Tower II"); and
WHEREAS, Tenant desires to rent a portion of Tower II
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, Landlord and Tenant hereby enter into this
Lease and agree as follows:
ARTICLE I
PREMISES
Lease Premises. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, that portion of Tower II consisting of
approximately 2,809 square feet of Net Rentable Area as delineated on the floor
plan attached hereto as Exhibit "B" and incorporated herein by reference
("Premises"). "Net Rentable Area" in or within the Premises shall mean the gross
area within the inside surface of the outer glass or other material comprising
the exterior walls of the Premises, to the midpoint of any walls separating
portions of the Premises Tom those of adjacent tenants, and to the Common Area
or Service Area (defined below) side of walls separating the Premises Tom Common
Areas and Service Areas, subject to the following:
(a) Net Rentable Area shall not include any Service Areas (but shall
include any such areas for the exclusive use of Tenant). "Service Areas" shall
mean those areas within the outside walls of Tower II used for elevator
mechanical rooms, building stairs, fire towers, elevator shafts, flues, vents,
stacks, pipe shafts and vertical ducts.
(b) Net Rentable Area shall include a pro rata portion of the Common
Areas on the floor of Tower II on which the Premises are located, a pro rata
portion of the Common Areas located in Tower II other than on the floor of Tower
II on which the Premises are located and a pro rata portion of the Common Areas
in the two story link building between Tower I and Tower II. Such prorations
shall be based upon an allocation of Common Areas to each floor of Tower II in
the ratio the
1
<PAGE>
Net Rentable Area of each floor is to the total Net Rentable Area in Tower II
(exclusive of Common Areas), and by allocating a portion of the Common Areas on
the floor on which the Premises are located in the ratio the Net Rentable Area
within the Premises is to the total Net Rentable Area on such floor (exclusive
of Common Areas). "Common Areas" shall mean those areas devoted to lobbies,
entryways, corridors, elevator foyers, restrooms, mechanical rooms, janitorial
closets, electrical and telephone closets, vending areas and other similar
facilities provided for the common use or benefit of tenants generally and/or
the public. The Common Areas in Tower II in which the Premises are located shall
be adjusted as determined by Landlord Tom time to time to conform such
allocation to changes in the configuration of rented spaces and Common Areas in
Tower II; provided, however, that no adjustment in the Common Areas shall
increase the Net Rentable Area of the Premises above 2,900 square feet.
(c) Net Rentable Area shall include any columns and or projection(s)
which protrude into the Premises and or the Common Areas.
(d) Landlord may, upon completion of the tenant finish improvements
pursuant to Section 4.1, cause precise measurements of the Premises and Tower II
to be made, and the Net Rentable Area in the Premises and Tower II, as well as
the Base Rental (hereinafter defined) shall be adjusted upward or downward
accordingly, effective as of the Commencement Date (as defined below); provided,
however, that in no event shall such measurements result in an increase in Net
Rentable Area above 2,900 square feet with a corresponding increase in Base
Rental. subleases
ARTICLE II
LEASE TERM
2.1 Initial Lease Term. This Lease shall commence on the earlier of
(i) November 1, 1996, or (ii) subject to Section 4.3, the earlier to occur of
actual occupancy by Tenant or substantial completion of the Improvements
("Commencement Date"), and shall end on the third succeeding anniversary of the
Commencement Date, unless sooner terminated as provided herein ("Initial Lease
Term").
2.2 Relocation. Landlord shall be entitled to cause Tenant to relocate
from the Premises to a comparable space which shall be defined, at a minimum, as
space of comparable size (Net Rentable Area with the limitations on adjustments
to Net Rentable Area as set forth in Section I. I(b) and Section I. I (d)) with
comparable Improvements at the same rate of Base Rental and the same terms for
payment of Additional Rent ("Relocation Space") within Tower II at any time
Offer reasonable written notice of Landlord's election, not to exceed ninety
(90) days but in no event less than fifteen (15) business days, is given to
Tenant. Any such relocation shall be entirely at the expense of Landlord or the
third party tenant replacing Tenant in the Premises. Such a relocation shall not
terminate or otherwise affect or modify this Lease except that from and after
the date of such relocation, "Premises" shall refer to the Relocation Space into
which Tenant has been moved, rather than the original Premises as herein
defined. Following the expiration of the Initial Lease Term, and provided Tenant
is not in default under the Lease, Landlord shall use reasonable efforts to
either allow Tenant to remain in the Premises upon such terms and conditions as
may be mutually agreed upon, or to relocate Tenant to other space in Tower II
upon terms and conditions mutually agreeable to Landlord and Tenant.
ARTICLE III
2
<PAGE>
USE
3.1 Use of Premises. The Premises shall be used for office purposes
and for no other purpose. Such office use shall not include any use that would
cause the Premises to be deemed a "place of public accommodation" under the
Americans with Disabilities Act of 1990. Tenant agrees not to use or permit the
use of the Premises for any purpose which is illegal, or which, in Landlord's
opinion, creates a nuisance or would increase the cost of insurance coverage
with respect to Tower II.
3.2 Compliance with Laws. Tenant covenants that Tenant will comply at
no cost or expense to Landlord, with all directions, laws, ordinances, orders,
rules, regulations and requirements of all federal, state, county or municipal
governments and appropriate departments, commissions, boards and officers
thereof which are applicable or which may become applicable to the Premises and
the Tenant's particular use therefor after the Commencement Date including, but
not limited to, the Americans with Disabilities Act of 1990.
3.3 Peaceful Enjoyment. Tenant shall, and may peacefully have, hold,
and enjoy the Premises, subject to the other terms hereof, provided that Tenant
pays the rent and other sums herein recited to be paid by Tenant and performs
all of Tenant's covenants and agreements herein contained. This covenant and any
and all other covenants of Landlord shall be binding upon Landlord and its
successors only with respect to breaches occurring during its or their
respective periods of ownership of the Landlord's interest herein.
3.4 Entry by Landlord. Tenant agrees to permit Landlord or its agents
or representatives upon twenty-four (24) hours prior written notice to enter
into and upon any part of the Premises at all reasonable hours (and in
emergencies at all times) to inspect, repair and/or clean the same, to show the
Premises to prospective purchasers, mortgagees, tenants, or insurers, or make
alterations or additions thereto, and Tenant shall not be entitled to any
abatement or reduction of rent by reason thereof.
3.5 Warranty of Clear Title and Possession. Landlord warrants that, as
of the date hereof, it is the owner in fee simple of the Premises and that it
has the right to enter into this Lease and to perform the obligations of
Landlord set forth herein. Nothing herein shall be construed as prohibiting
Landlord from further encumbering Landlord's reversionary interest by a deed of
trust and or mortgage, or from assigning the rents and profits hereunder.
3.6 Miscellaneous Restrictions. Tenant agrees in using the Premises
not to commit any waste or suffer any waste to be committed upon the Premises,
nor to do or permit anything to be done on or about the Premises which will in
any way allow the Premises to be used for any unlawful purpose, nor to use or
permit to be used the Premises in any manner so as to create a hazard of fire or
other casualty, nor to cause, maintain or permit any nuisance in, on or about
the Premises.
ARTICLE IV
CONSTRUCTION AND IMPROVEMENTS
3
<PAGE>
4.1 Improvements. Landlord agrees to provide the improvements pursuant
to the plans and specifications attached (or to be attached) hereto as Exhibits
"C" and "C-l" and incorporated herein by reference ("Improvements") at Tenant's
expense. In the event the plans and specifications are not attached to this
Lease as of the date of execution hereof, this Lease shall terminate at
Landlord's option, on the day next following the 14th day Tom the date hereof
unless Landlord and Tenant initial and attach the plans and specifications to
this Lease on or before such date. "Building Grade" and/or "Building Standard"
shall mean the type, brand, and/or quality of the materials Landlord designates
from time to time to be the minimum quality to be used in Tower II or the
exclusive type, grade or quality of material to be used in Tower II. Landlord
shall provide Tenant a tenant finish allowance for the Improvements of Twenty
Three and No/100 Dollars ($23.00) per square foot of Net Rentable Area as a
credit against the total cost of the Improvements as expended by Tenant.
4.2 Cost of Improvements. Except to the extent otherwise agreed
pursuant to Section 4.1 (and described elsewhere herein or on an addendum to the
plans and specifications), Tenant shall pay the cost of all Tenant Improvements
and any ad valorem taxes and increased insurance thereto.
4.3 Delay in Completion. (a) If by the date specified in Section 2.1
the Improvements have not been substantially completed pursuant to the plans
described on Exhibits "C" and "C-l", and a certificate of occupancy issued by
the City of Kansas City, Missouri, due to omission, delay or default by Tenant
or anyone acting under or for Tenant, Landlord shall have no liability, and the
obligations of this Lease (including without limitation, the obligation to pay
rent) shall nonetheless commence as of the date specified in Section 21(i).
(b) If the Improvements are not substantially completed pursuant to
the specifications contained in Exhibits "C" and "C-l", and a certificate of
occupancy issued by the City of Kansas City, Missouri, due to any reason other
than an omission, delay or default by Tenant or someone acting under or for
Tenant, then, as Tenant's sole remedy for the delay in Tenant's occupancy of the
Premises, Commencement Date shall be delayed as set forth in Section 2.1 and the
rent herein provided shall not commence until the earlier to occur of actual
occupancy by Tenant or substantial completion of the Improvements.
4.4 Ownership of Improvements. Unless Landlord requires their removal
pursuant hereto or unless Tenant notifies Landlord in writing and obtains
Landlord's consent prior to making any such alterations of its intent to remove
same upon termination of this Lease, all alterations, repairs, additions,
utility installations, fixtures (except for movable equipment or furniture owned
by Tenant) and improvements of any nature to the Premises shall, at the
expiration or earlier termination of this Lease, become the sole property of
Landlord and remain upon and be surrendered with the Premises. Landlord shall
not, in any way, be responsible for reimbursement to Tenant for any of Tenant's
alterations, repairs, additions, improvements, utility installations, fixtures
and/or decorations.
ARTICLE V
RENTAL
4
<PAGE>
5.1 Base Rental. Subject to the adjustments to Net Rentable Area set
forth in Section l.l (b) and Section l. l (d) and the limitations to such
adjustments set forth therein, Tenant agrees to pay to Landlord during the
Initial Lease Term, without prior demand therefore and without any offset or
deduction whatsoever, the monthly rent set forth below, as adjusted under
Section 5.2 hereof ("Base Rental"):
Rent per
Monthly Rent Square Foot Time Period
- ------------ ----------- -----------
0 0 Commencement Date through Month 3
$5,383.91 $23 Month 4 through Month 36
The monthly Base Rental for each month, or portion thereof during the
Initial Lease Term, together with any estimated adjustments pursuant to Section
5.2 hereof, shall be due and payable in advance on the first day of each
calendar month during the Initial Lease Term and any extensions or renewals
thereof, and Tenant hereby agrees to pay such Base Rental and any adjustments
thereto to Landlord at Landlord's address provided herein (or such other address
as may be designated by Landlord in writing from time to time). The Base Rental
for the first month of the Lease Term for which Base Rental is due has been
deposited with Landlord by Tenant contemporaneously with the execution hereof If
the term of this Lease commences on a day other than the first day of the month
or terminates on a day other than the last day of the month, then the
installments of Base Rental and any adjustments thereto for such month or months
shall be prorated, based on the number of days in such month, and Landlord shall
return any overpayment made by Tenant.
5.2 Additional Rent Adjustments. The Base Rental payable hereunder
shall be adjusted upward from time to time in accordance with the following
provisions:
(a) Tower II contains 240,914 square feet of Net Rentable Area in
aggregate. Tenant's Base Rental is based, in part, upon the estimate that annual
Operating Costs (hereinafter defined) will be equal to $5.00/square foot of Net
Rentable Area in Tower II. Tenant shall, during the term of this Lease, pay as
an adjustment to Base Rental hereunder an amount (per each square foot of Net
Rentable Area within the Premises, including those portions of Common Areas
allocated to the Premises from time to time) equal to the excess of actual
Operating Costs per square foot in Tower II over the amount of $5.00/square foot
("Additional Rent"). Landlord may collect any Additional Rent in arrears on a
yearly basis. Landlord shall also have the option to make a good faith estimate
of the Additional Rent for each upcoming calendar year based on the actual
Operating Costs for the preceding calendar year, and may require the monthly
payment of Base Rental adjusted in accordance with such estimate of Additional
Rent. Any amounts paid based on such an estimate shall be subject to adjustment
pursuant to Subsection 5.2(b) when actual Operating Costs are available for each
calendar year.
(b) If the actual Operating Costs in the previous calendar year are
more than the amount paid by Tenant through the course of the year, Tenant
agrees to pay the difference within ten (10) days of such determination. If the
actual Operating Costs in the previous calendar year are less than the amount
paid by Tenant and Tenant has overpaid Landlord, the amount of such overpayment
shall be credited to Tenant's continuing payments of Additional Rent until
exhausted, except that for the final year of the
5
<PAGE>
Initial Lease Term, or any extension thereof, any overpayment will be rebated to
Tenant, provided Tenant shall not be in default under the Lease.
For the purpose of determining the Additional Rent under this Lease,
the term "Operating Costs" shall mean all direct and indirect costs and expenses
in each calendar year of operating, maintaining, repairing, managing and owning
Tower II, the first floor of the link building between Twentieth Century Tower I
and Tower II and the Exterior Common Areas. "Exterior Common Areas" shall mean
those areas of the Real Proper SEW are not located within Tower II and which are
provided and maintained for the common use and benefit of Landlord and tenants
of Tower II generally and the employees, invitees and licensees of Landlord and
such tenants including, without limitation, all parking areas, enclosed or
otherwise and all streets, sidewalks and landscaped areas located within the
Real Property. Operating Costs shall not include the cost of any capital
improvements, depreciation, interest, and principal payments on mortgage and
other non-operating debts of Landlord. Operating Costs shall, however, include
the amortization of capital improvements which are primarily for the purpose of
reducing Operating Costs, or which are required by governmental authorities. The
Operating Costs shall include, but are not limited to, the following:
1. The wages and salaries (including insurance benefits, vacation and
sick leave) of all employees directly engaged in the operation and
maintenance of the Premises, including employers' social security taxes
and any other taxes which may be levied on such wages and salaries.
2. The cost of all property management fees and maintenance and service
agreements covering the Premises, including, but not limited to,
equipment maintenance.
3. Insurance premiums for fire, extended coverage and general liability
coverage and for such other coverage with respect to the Premises that
Landlord reasonably deems desirable, and legal and accounting expenses
directly related to the Premises.
4. The cost of repairs and general maintenance of the Premises
including, but not limited to, those services enumerated in Sections
6.1 and 6.2 (exclusive of expenses to accommodate other tenant(s)), and
all other reasonable costs and expenses incurred by Landlord in
performing its obligations hereunder. 5. All taxes and assessments
(excluding penalties not due to the fault of Tenant), and governmental
charges whether federal, state, county or municipal, which are levied
on or charged against the Real Property, personal property, or rents,
or on the right or privilege of leasing real estate or collecting rents
thereon, and any other taxes and assessments attributable to the
Premises, excluding, however, federal and state income taxes.
The taxes and assessments allocable to the Operating Costs which are
to be paid by Tenant shall be the sum of the following:
(i) the product obtained by multiplying the taxes assessed against the
Real Property by a fraction, the numerator of which is the total number of
square feet of floor area within the Premises, and the
6
<PAGE>
denominator of which is the total number of square feet of floor area contained
within all of the improvements on the Real Property; plus
(ii) the product obtained by multiplying the taxes and assessments
assessed against the improvements on the Real Property by a fraction, the
numerator of which is the total number of square feet of floor area contained
within the Premises, and the denominator of which is the total number of square
feet of floor area contained within all of the improvements on the Real
Property.
(c) Tenant shall have the right, upon ten (10) days' written notice to
Landlord, to audit the books and records of Landlord relating to Operating Costs
during the year preceding the audit. Such audit shall be performed at the sole
expense of Tenant, within twenty-four (24) months after the end of the calendar
year for which such records are being questioned, no more than one time per year
and at the location where such books and records are normally kept by Landlord.
In the event such an audit demonstrates Additional Rent collected for such
preceding year to be higher or lower than the amount of Additional Rent actually
due pursuant to Subsection 5.2(a) above, then Landlord shall refund any
overpayment or Tenant shall remit any underpayment within ten (10) days of such
determination.
5.3 Interest on Past Due Rent. If Tenant shall fail to pay within ten
(10) days after the same is due and payable any Base Rental or any Additional
Rent, Tenant shall, upon demand, pay Landlord interest on the past due amount
from the due date thereof to the date of payment at a rate equal to the lesser
of (i) two percent (2%) in excess of the prime rate Tom to time announced by
Boatmen's First National Bank of Kansas City, or (ii) the highest lawful rate
that may be charged to Tenant under the laws of the State of Missouri.
ARTICLE VI
LANDLORD'S OBLIGATIONS
6.1 Services to be furnished by Landlord. Landlord agrees to furnish
(with the cost thereof being included in Operating Costs) Tenant the following
services:
(a) Hot and cold water at those points of supply provided for general
use of other tenants in Tower II, central heat and air conditioning in season,
at such temperatures and in such amounts as are considered by Landlord to be
standard or as required by governmental authority; provided, however, heating
and air conditioning service at times other than during "Normal Business Hours"
for Tower II (which are 7:30 a.m. to 6:00 p.m. on Mondays through Fridays and
8:00 a.m. to 1:00 p.m. on Saturdays, exclusive of normal business holidays),
shall be furnished to Tenant by Landlord with Tenant bearing the entire actual
cost of additional service allocable to the Premises as such costs are
determined by Landlord from time to time (but in no event shall such cost exceed
either Landlord's actual cost of furnishing such additional service or
Landlord's charge for similar additional services to any other user of space in
Tower II);
(b) Routine maintenance and electric lighting service for all Exterior
Common Areas, Common Areas and Service Areas in the manner and to the extent
deemed by Landlord to be standard;
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(c) Janitor service, Mondays through Fridays, exclusive of normal
business holidays; provided, however, that janitorial services shall not include
the cleaning of plates, cups, glasses, mugs, silverware and like items, and if
Tenant's floor covering or other improvements require special treatment, Tenant
shall pay the additional cleaning cost attributable thereto as additional rent
upon presentation of a statement therefor by Landlord. Tenant shall cooperate
with Landlord's employees in the furnishing by Landlord of janitorial services
at such times (including Normal Business Hours) as Landlord elects to have the
necessary work performed; provided, however, that janitorial services performed
by Landlord during Normal Business Hours shall be performed in such a manner as
to not unreasonably interfere with Tenant's use of the Premises;
(d) Subject to the provisions of Section 7.3, facilities to provide
all electrical current required by Tenant in its use and occupancy of the
Premises;
(e) All Building Standard fluorescent bulb replacement in the Premises
and fluorescent and incandescent bulb replacement in the Common Areas and
Service Areas.
(f) Security in the form of (i) limited access to Tower II during
other than Normal Business Hours through the use of master entry cards, and (ii)
a security guard stationed within Tower II during all hours other than Normal
Business Hours shall be provided by Landlord (with the cost thereof being
included in the Operating Costs). Landlord agrees to provide Tenant with master
entry cards which shall be surrendered upon the expiration or earlier
termination of this Lease. Any lost cards shall be cancelled and Tenant shall
pay Landlord the sum of Fifteen and no/100 Dollars ($15.00) for each additional
replacement card(s). Landlord shall have no liability to Tenant, its employees,
agents, invitees or licensees for losses due to theft or burglary, or for
damages done by unauthorized persons on the Premises and neither shall Landlord
be required to insure against any such losses. Tenant shall fully cooperate in
Landlord's efforts to maintain security in Tower II and shall follow all
regulations promulgated by Landlord with respect thereto; and
(g) Maintenance services including, but not limited to, lawn care,
landscaping, parking lot cleaning and striping and exterior water.
The failure by Landlord to any extent to furnish or the interruption
or termination of these defined services in whole or in part, resulting Tom
causes beyond the reasonable control of Landlord, shall not render Landlord
liable in any respect nor be construed as an eviction of Tenant, nor work an
abatement of rent, nor relieve Tenant from the obligation to fulfill any
covenant or agreement hereof Should any of the equipment or machinery used in
the provision of such services for any cause cease to function properly, Tenant
shall have no claim for offset or abatement of rent or damages on account of an
interruption in service occasioned thereby or resulting therefrom.
6.2 Obligation to Repair Maintain. Except for damage caused by any
negligent or intentional act or omission of Tenant, Tenant's agents, employees,
or invitees, Landlord (at Landlord's expense) shall keep in reasonably good
order, condition and repair (including replacement if necessary) the
foundations, beams and columns, bearing and structural portions of exterior
walls and window walls (including glass breakage), Common Area and Service Area
walls of the Premises, heating, ventilation and air conditioning to the extent
such equipment jointly services both the Premises and any other
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portions of Tower II, and all wiring, plumbing, pipes, conduits, water, sewage,
utility and sprinkler fixtures, equipment, lines and systems within or affecting
the Common Area walls between the Premises and the rest of Tower II, and the
exterior roof of the Premises.
ARTICLE VII
OBLIGATIONS OF TENANT
7.1 Care of the Premises by Tenant. Tenant shall, at Tenant's sole
cost and expense, keep the Premises and every part thereof in good condition and
repair. Tenant agrees not to commit or allow any waste to be committed on any
portion of the Premises, and at the termination of this Lease to deliver up the
Premises to Landlord in as good a condition as at the Commencement Date of the
Lease, ordinary wear and tear excepted.
7.2 Repairs and Alterations by Tenant. covenants and agrees with
Landlord, at Tenant's own cost and expense, to repair or replace any damage done
to Tower II, adjacent premises, or any part thereof, caused by Tenant or
Tenant's agents, employees, invitees, or visitors, and such repairs shall
restore Tower II to as good a condition as it was in prior to such damage, and
shall be effected in compliance with all applicable laws; provided, however, if
Tenant fails to make such repairs or replacements promptly, Landlord may, at its
option, make repairs or replacements, and Tenant shall pay the cost thereof to
the Landlord on demand. Tenant agrees with Landlord not to make or allow to be
made any alterations or additions to the Premises, other than the Improvements,
without first obtaining the written consent of Landlord in each such instance,
which consent may be given on such conditions as Landlord may elect but which
consent shall not be unreasonably withheld. Landlord's approval of any plans,
specifications or working drawings for Tenant's alterations shall create no
responsibility or liability on the part of Landlord for their completeness,
design sufficiency or compliance with all laws, rules and regulations of
governmental agencies or authorities. Landlord may require Tenant to remove any
and all fixtures, equipment and other improvements installed on the Premises. In
the event that Landlord so elects, and Tenant fails to remove such improvements,
Landlord may remove such improvements at Tenant's cost, and Tenant shall pay
Landlord on demand the cost of restoring the Premises to Building Standard.
7.3 Use of Electrical Services by Tenant. The Premises are designed to
provide standard office electrical facilities and standard office lighting.
Tenant shall not use any electrical equipment which in Landlord's reasonable
opinion will overload the wiring installations or interfere with the reasonable
use thereof by Landlord or by other tenants in Tower II Tenant's use of
electrical service is generally as set out below:
(a) Tenant's electrical equipment shall be restricted to that
equipment which individually does not have a rated capacity greater than .5
kilowatts per hour and/or require voltage other than 120/208 volts, single
phase. Collectively, Tenant's equipment shall not have an electrical design load
greater than an average of 2 watts per square foot.
(b)Tenant's lighting shall not have a design load greater than an
average of 2 watts per square foot.
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(c) If Tenant's consumption of electrical services exceeds either the
rated capacities and/or design loads as per Subsections 7.3(a) and 7.3(b), or
generates heat in excess of that Landlord's air conditioning system is designed
to handle, then Tenant shall remove such equipment and or lighting to achieve
compliance within ten (10) days after receiving notice from Landlord, or upon
receiving Landlord's prior written approval, such equipment and/or lighting may
remain in the Premises, subject to the following:
(i) Tenant shall pay for all costs of installation and maintenance of
submeters, wiring, additional air conditioning systems and other items required
by Landlord, in Landlord's discretion, to accommodate Tenant's excess design
loads and capacities or heat production.
(ii) Tenant shall pay to Landlord, upon demand, the cost of the excess
demand and consumption to electrical service at rates determined by Landlord
(which rates shall be in accordance with any applicable laws) as well as all
costs of operating additional air conditioning systems deemed necessary by
Landlord on account of Tenant's excess consumption.
(iii) Landlord may, at its option, upon not less than thirty (30)
days' prior written notice to Tenant, discontinue the availability of such
extraordinary utility service. If Landlord gives any such notice, Tenant will
contract directly with such public utility for the supplying of such utility
service to the Premises.
7.4 Building Rules. Tenant will comply with the rules of Tower II and
the Real Property adopted and altered by Landlord from time to time and will
cause all of its agents, employees, invitees and visitors to do so. All changes
to such rules will be sent by Landlord to Tenant in writing with the initial
rules being attached hereto as Exhibit "D" and incorporated herein by reference.
ARTICLE VIII
DAMAGE OR DESTRUCTION
8.1 Damages Covered by Insurance. (a) If the Premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give prompt
written notice thereof to Landlord. In case Tower II shall be so damaged that
substantial alteration or reconstruction of Tower II shall, in Landlord's sole
opinion, be required (whether or not the Premises shall have been damaged by
such casualty) or in the event any mortgagee of Landlord's should require that
the insurance proceeds payable as a result of a casualty be applied to the
payment of the mortgage debt then, Landlord may repair and restore the Premises,
with rent and other charges payable by Tenant during this period abated or
equitably reduced as set forth in Section 8.3, or terminate this Lease as
provided in Subsection 8.1(b). If Landlord does not elect to terminate this
Lease, then Landlord shall within thirty (30) days after the occurrence of such
damage or destruction give notice to Tenant of the date by which Landlord
reasonably believes that restoration of the Premises and/or Tower II shall be
substantially completed (such date being herein referred to as the "Restoration
Date"). If such notice indicates that the Restoration Date shall not be on or
before a date which shall be ninety (90) days following the date of such damage
or destruction, then, Tenant shall have the right to terminate this Lease by
giving notice to Landlord not later than twenty (20) days after
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receiving such notice, and in the event Tenant gives such notice, this Lease
shall be deemed terminated as of the date ten (10) days after Landlord's receipt
of Tenant's termination notice as if such date were the expiration date of the
Lease; provided, however, that Tenant shall have no right of termination in the
event the damage or destruction affects a part of Tower II that does not include
the Premises and does not impact Tenant's use of or access to the Premises. If
the foregoing proviso does not apply and Tenant has the right to termination but
does not elect to terminate this Lease, but Landlord shall thereafter fail to
substantially complete the restoration of the Premises and/or Tower II within
ninety (90) days following the date of such damage or destruction, then Tenant
shall have the right to terminate this Lease by giving written notice to
Landlord not later than one hundred (100) days following the date of the damage
or destruction and if Landlord shall fail to so complete such restoration within
fifteen (15) days following Landlord's receipt of Tenant's termination notice,
this Lease shall be deemed terminated as of the date of the casualty as if such
date were the expiration date of the Lease. The Premises shall be repaired and
restored by Landlord to substantially the same condition in which it was
immediately prior to the happening of the casualty, except that Landlord's
obligation to pay for such restoration shall not exceed the scope of the work
required to be done by Landlord at Landlord's expense in originally constructing
Tower II and installing the Improvements. Tenant shall pay to Landlord, on
demand, the cost of the reconstruction of all improvements in excess of those
Improvements originally installed at Landlord's expense, and Tenant shall be
responsible for the restoration of Tenant's furniture, equipment and other
personal property.
(b) Landlord may elect to terminate this Lease pursuant to Subsection
8.1 (a) by giving notice to Tenant of its election to do so within thirty (30)
days after such occurrence. If Landlord exercises its right to terminate this
Lease, then this Lease shall cease, effective as of the date of such damage or
destruction, and all rent and other charges payable by Tenant shall be adjusted
as of that date.
8.2 Damages Not Covered by Insurance. (a) If the Premises shall be at
any time damaged or destroyed by a casualty uninsured under the insurance
provisions of Article XI, so as to become partially or totally untenantable,
then Landlord shall have the right of either (i) repairing and restoring the
Premises, with rent and other charges payable by Tenant during this period
abated or equitably reduced as set forth in Section 8.3, or (ii) terminating
this Lease. Said election shall be made by Landlord within thirty (30) days of
Tenant's notice to Landlord of the occurrence of such casualty by giving notice
thereof to Tenant within such period.
(b) If Landlord elects to rebuild and repair the Premises as set forth
in Subsection 8.2(a), then Landlord shall within thirty (30) days after the
occurrence of such damage or destruction give notice to Tenant of the date by
which Landlord reasonably believes that restoration of the Premises and/or Tower
II shall be substantially completed (such date being herein referred to as the
"Restoration Date"). If such notice indicates that the Restoration Date shall
not be on or before a date which shall be ninety (90) days following the date of
such damage or destruction, then, Tenant shall have the right to terminate this
Lease by giving notice to Landlord not later than twenty (20) days after
receiving such notice, and in the event Tenant gives such notice, this Lease
shall be deemed terminated as of the date ten (10) days after Landlord's receipt
of Tenant's termination notice as if such date were the expiration date of the
Lease; provided, however, that Tenant shall have no right of termination in the
event the damage or destruction affects a part of Tower II that does not include
the Premises and does not impact Tenant's use of or access to the Premises. If
the foregoing proviso does not apply and Tenant has the right to termination
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but does not elect to terminate this Lease, but Landlord shall thereafter fail
to substantially complete the restoration of the Premises and/or Tower II within
ninety (90) days following the date of such damage or destruction, then Tenant
shall have the right to terminate this Lease by giving written notice to
Landlord not later than one hundred (100) days following the date of the damage
or destruction and if Landlord shall fail to so complete such restoration within
fifteen (15) days following Landlord's receipt of Tenant's termination notice,
this Lease shall be deemed terminated as of the date of the casualty as if such
date were the expiration date of the Lease Landlord shall be required to
complete the repair and restoration of Tenant's property to substantially the
same condition in which it was immediately prior to the happening of the
casualty, except that Landlord's obligation to pay for such restoration shall
not exceed the scope of the work required to be done by Landlord at Landlord's
expense in originally constructing Tower II and installing the Improvements.
Tenant shall pay to Landlord, on demand, the cost of the reconstruction of all
improvements in excess of those Improvements originally installed at Landlord's
expense, and Tenant shall be responsible for the restoration of Tenant's
furniture, equipment and other personal property.
(c) If Landlord elects to terminate this Lease, then this Lease shall
terminate effective as of the date of the occurrence of the casualty and the
rent and other charges payable by Tenant shall be adjusted as of the date of
such casualty.
8.3 Abatement or Reduction in Rent. If this Lease is not terminated as
set forth in Subsection 8.1(b) or Subsection 8.2(c), then (and as Tenant's sole
right against Landlord by reason of such damage or destruction), the annual rent
and other charges hereunder shall be abated or equitably reduced during any
period in which the Premises are rendered wholly or partially untenantable to
the extent such damage or destruction interferes with the operation of Tenant's
business in the Premises; provided, however, if the Premises or any other
portion of Tower II be damaged by fire or other casualty resulting from the
fault or negligence of Tenant or any of Tenant's agents, employees, or invitees,
the rent hereunder shall not be diminished during the repair of such damage and
Tenant shall be liable to Landlord for the cost of the repair and restoration of
Tower II caused thereby to the extent such cost and expense is not covered by
insurance proceeds. Such abatement or reduction shall continue for the period
commencing with such destruction or damage and ending fifteen (15) days after
Landlord completes its repair or restoration as set forth in Subsection 8.1(a)
or Subsection 8.2(b), or when Tenant reopens the Premises for business,
whichever is earlier. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from such damage or the repair thereof, except with respect to the fair
diminution of rent during the time and to the extent the Premises are wholly or
partially untenantable.
ARTICLE IX
CONDEMNATION
9.1 Total Taking If the whole of Tower II or the Premises shall be
condemned by eminent domain for any public or quasi-public use or purpose or be
conveyed in lieu thereof, then the term of this Lease shall terminate as of the
date possession shall be taken by the acquiring authority, and all rent and
other charges hereunder shall be adjusted as of that date.
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9.2 Partial Taking If twenty percent (20%) or more of Tower II shall
be acquired or condemned as aforesaid, and if such partial taking or acquisition
renders the Premises unsuitable for the operation of Tenant's business therein,
then the term of this Lease shall terminate as of the date possession shall be
taken by the acquiring authority, and Base Rental and other charges shall be
adjusted as of the date of such termination. In the event of a partial taking or
acquisition which is not extensive enough to render Tower II or the Premises
unsuitable for such use then Landlord shall, to the extent only of the
condemnation proceeds received by Landlord, promptly restore Tower II and
Premises to a condition comparable to its condition at the time of such
condemnation, less the portion lost in the taking, and this Lease shall continue
in full force and effect and the rent shall be reduced in the same proportion
that the floor area remaining in the Premises after the taking bears to the
floor area in the Premises immediately prior to such taking.
9.3 Condemnation Award. In the event of any condemnation or conveyance
in lieu thereof of the Premises, whether whole or partial, Tenant shall have no
claim against Landlord or the condemning authority for the value of the
unexpired Lease Term, and Tenant shall not be entitled to any part of the
compensation or award, whether paid as compensation for diminution in value to
the leasehold or to the fee of the Premises, and Landlord shall receive the full
amount thereof, Tenant hereby waiving any right to any part thereof and
assigning to Landlord its interest therein; provided, however, (i) Tenant shall
have the right to claim and recover from the condemning authority (but not from
Landlord) such compensation as may be separately awarded to Tenant in Tenant's
own name and right on account of all damage to Tenant's business by reason of
the condemnation and any cost which Tenant may incur in removing its personal
property from the Premises including the increase, if any, of the lease rate for
the new premises over the Base Rental described in Section 5.1, for the duration
of the Initial Lease Term or any extension thereof; and (ii) if this Lease is
terminated by reason of a condemnation of all or a part of the Premises,
Landlord shall pay to Tenant, to the extent of the condemnation award only,
Tenant's unamortized cost of installing permanent leasehold improvements (less
Landlord's contribution toward the Improvements) in the Premises as disclosed on
the books used by Tenant for federal income tax purposes; provided, however,
Tenant's rights to recover under this paragraph shall be subordinate to the
rights of the holder of the first mortgage on the Premises.
9.4 Temporary Taking The taking of the Premises or any part of the
Premises by public authority shall constitute a taking of the Premises by
condemnation only when the use and occupancy by the taking authority is
continued for longer than one hundred eighty (180) consecutive days. During the
one hundred eighty (180) day period all provisions of this Lease shall remain in
full force and effect, except that rent shall be abated or reduced during such
period of taking based on the extent to which the taking interferes with
Tenant's use of the Premises.
ARTICLE X
DEFAULT, TERMINATION AND REMEDIES
10.1 Events of Default of Tenant. The occurrence of any of the
following shall constitute a material "Event of Default" and breach of this
Lease by Tenant:
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(a) Any failure by Tenant to pay any installment of rent or other
monetary required to be paid hereunder when due, ten (10) business days after
written notice thereof from Landlord to Tenant;
(b) Any failure by Tenant to perform or observe any covenant,
condition or agreement to be performed by Tenant under this Lease, other than a
failure to pay rent or any other sum when due, where such failure continues for
thirty (30) days after written notice from Landlord to Tenant specifying the
nature of such breach, or, if such failure cannot be cured within thirty (30)
days thereafter, if curative action is not commenced and thereafter prosecuted
to completion with due diligence;
(c) Tenant shall fail to promptly move into and take possession of the
Premises when the Premises are ready for occupancy or shall cease to do business
in or abandon any substantial portion of the Premises; or
(d) The occurrence of any of the following:
(i) All or substantially all of the Tenant's assets being placed
in the hands of a receiver or trustee, and such receivership or trusteeship
continues for a period of thirty (30) days;
(ii) Tenant making an assignment for the benefit of creditors,
being finally adjudicated a bankrupt, or becoming insolvent in either the equity
or bankruptcy sense;
(iii) Tenant instituting any proceedings under the Bankruptcy Act
as the same now exists or under any amendment thereto which may hereafter be
enacted, or under any other act relating to the subject of bankruptcy including,
but not limited to, any proceeding wherein the Tenant seeks to be adjudicated a
bankrupt, or to be discharged of its debts, or to effect a plan of liquidation,
composition, extension or reorganization;
(iv) Any involuntary proceeding being filed against the Tenant
under any such Bankruptcy laws and such proceeding not being dismissed within
sixty (60) days thereafter; or
(v) Dispossession of Tenant from the Premises due to attachment,
levy, imposition of Federal tax lien or other legal proceedings which cause
Tenant to remain out of possession for a continuous period of five (5) or more
days.
In the event any of the above provisions of this Subsection 10.1(d)
should occur, then this Lease, and any interest of Tenant in and to the
Premises, shall not become an asset in any of such proceedings and, in any such
events and in addition to any and all rights or remedies of the Landlord
hereunder or by law provided, it shall be lawful for the Landlord to declare the
term hereof ended and to reenter the Premises and take possession thereof and
remove all persons therefrom, and the Tenant shall have no further claim thereon
or hereunder. The provisions of this Article X shall also apply to any guarantor
of this Lease.
10.2 Remedies of Landlord. Without waiving any other remedies,
Landlord, upon the occurrence of any Event of Default or breach by Tenant, may,
at Landlord's option:
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(a) Continue this Lease in effect without terminating Tenant's right to
possession, even though Tenant has breached this Lease and abandoned the
Premises, and enforce all of Landlord's rights and remedies under this Lease,
including the right to recover, by suit or otherwise, all sums and installments
required to be paid in accordance with the provisions of this Lease, or other
monetary performance as it becomes due hereunder, or to enforce, by suit or
otherwise, any other term or provision hereof on the part of Tenant required to
be performed, it being specifically agreed that the aggregate unpaid
indebtedness shall bear interest at the maximum rate allowed by law until paid;
provided, however, that Landlord may, at any time thereafter, elect to terminate
this Lease for such previous breach by notifying Tenant, in writing, that
Tenant's right to possession of the Premises has been terminated;
(b) Immediately terminate Tenant's right to possession of the Premises
and Tenant shall quit and surrender possession of the Premises;
(c) Terminate Tenant's right to possession of the Premises and, without
further notice or demand, reenter and take possession and remove Tenant. Tenant
hereby waives notice of Landlord's reentry or repossession and Landlord's intent
to reenter or take possession, and all claims that may be asserted against
Landlord in reentering and taking possession of the Premises as herein provided;
(d) Landlord may reenter the Premises, eject all persons, and without
terminating this Lease, at any time and from time to time, relet the Premises or
any part or parts thereof for the account of Tenant or otherwise. Landlord shall
receive and collect the rents, applying them first to the payment of such
expenses (including attorneys' fees or brokers' commissions or both) as it may
have paid or incurred in recovering possession, placing the Premises in good
condition, and preparing or altering the Premises for reletting, and then apply
them to the fulfillment of Tenant's covenants. Any such reletting may be for the
remainder of the Lease Term or for a longer or shorter period. Landlord may
execute any lease(s) made under this Article X and shall be entitled to all
rents Tom such subleases, licenses, and concessions. Tenant shall nevertheless
pay to Landlord, on the due dates specified in this Lease for the payments of
rent, the equivalent of all sums required of Tenant under this Lease less the
avails of such reletting, if any, after Landlord's expense. Landlord may proceed
to collect these sums, or any installment or installments of them, either before
or after the expiration of the Lease Term, but the period of limitations shall
not begin to run until the due date of the final installment to which Landlord
is entitled under the Lease. No reentry by Landlord shall constitute an election
to terminate this Lease unless Landlord gives Tenant written notice of
Landlord's election to terminate. Landlord may, without prejudice to any other
remedy which it may have for possession or arrearages in rent, expel or remove
Tenant and any other person who may be occupying said Premises or any part
thereof;
(e) In the event that Tenant vacates or abandons the Premises, Landlord
shall have the right to secure the Premises by changing the locks or placing
additional locks thereon or by such other action as Landlord shall determine to
be reasonable to secure the Premises, and no such action taken to secure the
Premises shall be deemed an exclusion of Tenant Mom the Premises, nor shall any
such action be deemed to be an election by Landlord to take possession of the
Premises and to terminate this Lease; or
(f) Exercise all other remedies available to Landlord at law or in
equity, including, without limitation, injunctive relief of all varieties. All
Landlord's remedies shall be cumulative and not exclusive. Forbearance by
Landlord to enforce one or more of the remedies herein provided upon an
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Event of Default shall not be deemed or construed to constitute a waiver of such
default. In addition, the provisions of Article XVIII hereof shall apply with
respect to the period from and after the giving of notice of such termination to
Tenant.
10.3 Events of Default of Landlord. Landlord shall be in default
hereunder in the event Landlord has not begun and pursued with reasonable
diligence the cure of any failure of Landlord to meet its obligations hereunder
within thirty (30) days of the receipt by Landlord of written notice From Tenant
of the alleged failure to perform. In no event shall Tenant have the right to
terminate or rescind this Lease as a result of Landlord's default as to any
covenant or agreement contained in this Lease or as a result of the breach of
any promise of inducement hereof whether in this Lease or elsewhere. Tenant
hereby waives such remedies of termination and recision and hereby agrees that
Tenant's remedies for default hereunder and for breach of any promise of
inducement shall be limited to a suit for damages and/or injunction. In
addition, Tenant hereby covenants that, prior to the exercise of any such
remedies, it will give the mortgagees holding mortgages on Tower II notice and a
reasonable time to cure any default by Landlord.
10.4 Personal Liability of Landlord. The liability of Landlord to
Tenant for any default by Landlord under the terms of this Lease shall be
limited to the interest of Landlord in Tower II and the Real Property and Tenant
agrees to look solely to Landlord's interest in Tower II and the Real Property
for the recovery of any judgment from the Landlord, it being intended that
Landlord shall not be personally liable for any judgment or deficiency.
10.5 Surrender at End of Term. Upon the expiration of the Initial
Lease Term, or any extension thereof, or sooner termination of this Lease,
Tenant shall surrender to Landlord the entire Premises, or, if requested by
Landlord or the right reserved by Tenant with Landlord's consent, Tenant shall
have removed any improvements, personal property and rubble Tom the Premises. If
Tenant has left any property belonging to Tenant on the Premises, Landlord shall
give Tenant written notice to remove such property, and in the event the
property is not removed within ten (10) days after delivery of notice, Landlord
may dispose of such property in any manner whatsoever, and Tenant hereby waives
any claim Tom the sale thereof.
ARTICLE XI
INSURANCE
11.1 Property Insurance. Landlord shall maintain fire and extended
coverage insurance on Tower n and the Premises and such other insurance as
Landlord's mortgagee may require, all in such amounts as Landlord's mortgagees
shall require, payable solely to Landlord or the mortgagees of Landlord as their
interests shall appear. Tenant shall maintain at its expense, in an amount equal
to full replacement cost, fire and extended coverage insurance on all of its
personal property, including removable trade fixtures, located in the Premises
and in such additional amounts as are required to meet Tenant's obligations
pursuant to Section 8.1 hereof. Tenant shall, at Landlord's request from time to
time, provide Landlord with current certificates of insurance evidencing
Tenant's compliance with this Section 11.1. Tenant shall obtain the agreement of
Tenant's insurers to notify Landlord that a policy is due to expire at least
thirty (30) days prior to such expiration.
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11.2 Liability Insurance. Tenant and Landlord shall, each at its own
expense, maintain a policy or policies of comprehensive general liability
insurance with respect to the respective activities of each in Tower II and Real
Property with the premiums thereon fully paid on or before due date, issued by
and binding upon some insurance company approved by Landlord, such insurance to
afford minimum protection of not less than $1,000,000 combined single limit
coverage of bodily injury, property damage or combination thereof Landlord shall
be listed as an additional insured on Tenant's policy or policies of
comprehensive general liability insurance, and Tenant shall provide Landlord
with current Certificates of Insurance evidencing Tenant's compliance with this
Section 11.2. Tenant shall obtain this agreement of Tenant's insurers to notify
Landlord that a policy is due to expire at least thirty (30) days prior to such
expiration. Landlord shall not be required to maintain insurance against thefts
within the Premises, Tower II or the Real Property generally.
11.3 Waiver of Subrogation Rights. Anything in this Lease to the
contrary notwithstanding, Landlord and Tenant each hereby waive any and all
rights of recovery, claim, action, or cause of action, against the other, its
agents, officers, or employees, for any loss or damage that may occur to the
Premises, or any improvements thereto, or Tower II of which the Premises are a
part, or any improvements thereto, or any personal property of such party
therein, by reason of fire, the elements, or any other cause(s) which are
insured against under the terms of the standard fire and extended coverage
insurance policies referred to in Section 11. I hereof, regardless of cause or
origin, including negligence of the other party hereto, its agents, officers, or
employees.
ARTICLE XII
PROPERTY TAXES
12.1 Real Property. shall pay all real property taxes, if any,
applicable and levied upon the Premises during this Lease Term and shall be
reimbursed therefor by Tenant as provided pursuant to Section 5.2.
12.2 Personal Property. Tenant shall pay during the pendency of this
Lease, and prior to delinquency, all taxes assessed against and levied upon all
fixtures, furnishings, equipment and all other property of Tenant contained in
the Premises. Tenant and Landlord shall cooperate (at Tenant's expense) in
causing said fixtures, famishing, equipment and all other property owned by
Tenant but located within the Premises to be assessed and billed separately Tom
the Real Property of Landlord.
(b) If any of Tenant's property shall be assessed with Landlord's Real
Property, or if the assessed value of Landlord's property is increased by
inclusion of personal property and trade fixtures placed by Tenant in the
Premises, Tenant shall pay Landlord the taxes attributable to Tenant within
twenty (20) calendar days after Tenant's receipt of a written statement setting
forth the taxes applicable to Tenant's property.
(c) Tenant shall have the right to contest the amount or validity of
any property taxes, assessments and governmental charges in whole or in part, by
appropriate administrative and legal proceedings, either in its own name, or
jointly with Landlord, without any cost or expense to Landlord.
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ARTICLE XIII
MECHANIC'S AND LANDLORD'S LIENS/SECURITY DEPOSIT
13.1 Mechanic's Lien. Tenant shall not suffer or permit any liens to
be enforced against Landlord's reversionary estate in the Premises, nor against
Tenant's leasehold interest therein by reason of work, labor, services, or
materials supplied or claimed to have been supplied to Tenant or anyone holding
the Premises, or any part thereof, through or under Tenant, and Tenant agrees to
defend and indemnify Landlord against such liens. If any such lien shall at any
time be filed against the Premises, Tenant shall, within thirty (30) days after
notice to Tenant of the filing thereof, pay and cause the same to be discharged
of record. In the event that Tenant shall not, within thirty (30) days following
the imposition of any such lien, cause such lien to be released of record by
payment or posting of a proper bond, Landlord shall have, in addition to all
other remedies provided herein and by law, the right (but not the obligation) to
cause the same to be released by such means as Landlord shall deem proper,
including payment of the claim giving rise to such lien. All such amounts paid
by Landlord and all expenses incurred by Landlord in connection therewith,
including without limitation reasonable attorneys' fees and costs, shall be
payable to Landlord by Tenant on demand, with interest at the rate specified in
Section 5.3.
13.2 Landlord's Lien. Tenant hereby grants to Landlord a lien, an
express contract and security interest on all property of tenant now or
hereafter placed in or upon the Premises, and also upon all proceeds of any
insurance which may accrue to Tenant by reason of damage, destruction, or loss
of such property, and such property shall be and remain subject to such lien and
security interest of Landlord for payment of all rent and other sums agreed to
be paid by Tenant herein. The provisions of this paragraph relating to such lien
and security interest shall constitute a security agreement under and subject to
the Missouri Uniform Commercial Code so that Landlord shall have and may enforce
a security interest on all fixtures, machinery, equipment, furnishings and other
property of Tenant now or hereafter placed in or on the Premises, in addition to
and cumulative of the Landlord's liens and rights provided by law or by the
other terms and provisions of this Lease. All exemption rights or laws available
to Tenant with respect to such personal property are expressly waived by Tenant.
From time to time throughout the Lease Term, Tenant shall submit to Landlord,
within thirty (30) days following a request by Landlord, a written inventory
setting forth all of Tenant's furniture, fixtures, equipment and any other
personal property of Tenant located in or upon the Premises (including, without
limitation, all model and serial numbers of such furniture, fixtures, equipment
and other personal property). Tenant agrees to execute as debtor any and all
financing statements as Landlord may now or hereafter request. Landlord may at
its election at any time file a copy of this Lease as a financing statement. At
anytime after a default by Tenant hereunder, Landlord shall be entitled to seize
and take possession of any and all personal property owned by Tenant and located
in the Premises. If Tenant fails to cure such default within twenty (20) days of
the written notice to Tenant of Landlord's intention to sell such property,
Landlord shall be entitled to sell such property at public or private sale and
upon such terms and conditions as Landlord shall determine. Proceeds Tom sale
shall be applied first to the payment of costs and expenses of such sale, next
to the payment of any and all sums due to Landlord pursuant to this Lease, and
finally, any remaining proceeds shall be paid to Tenant.
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13.3 Security Deposit. Contemporaneously with the execution of this
Lease, Tenant shall deposit One Hundred Seven Thousand and No/100 Dollars
($107,000.00) into a Twentieth Century Cash Reserve account in the name of Avax
Technologies, Inc. and Tenant shall authorize Landlord's Senior Vice President
of Facilities and Real Estate as co-signer with individual authority on such
Cash Reserve account ("Security Deposit"). Such Security Deposit shall be
security for the performance by Tenant of Tenant's covenants and obligations
under this Lease, it being expressly understood that such Security Deposit shall
not be considered an advance payment of rental or a measure of Tenant's damages
in case of default by Tenant. Landlord may, Mom time to time, without prejudice
to any other remedy, withdraw the Security Deposit to the extent necessary to
make good any arrearages of rent or to satisfy any other covenant or obligation
of Tenant hereunder. Following any such application of the Security Deposit,
Tenant shall invest in the Cash Reserve account on Landlord's demand the amount
so applied in order to restore the Security Deposit to its original amount. All
interest and earnings on the Cash Reserve account shall be payable to Tenant. If
Tenant is not in default at the termination of this Lease, the balance of the
Security Deposit remaining after any such application may be withdrawn by Tenant
and Landlord's Senior Vice President of Facilities and Real Estate shall no
longer be authorized on the Cash Reserve account. If Landlord transfers its
interest in the Premises during the term of this Lease, Landlord may assign the
Security Deposit to the transferee, and an authorized signer of such transferee
shall be authorized on the Cash Reserve account in lieu of a representative of
Landlord and thereafter Landlord shall have no further liability for the return
of such Security Deposit. Notwithstanding the foregoing, Tenant may, at Tenant's
option, in lieu of providing the Security Deposit in the form of cash invested
in a Twentieth Century Cash Reserve account as described above, provide such
Security Deposit in the form of an irrevocable letter of credit in a form
satisfactory to Landlord from a commercial bank with a B Rating or better
according to Scheshunoff Bank Quarterly or if no longer available, a similar
publication satisfactory to Landlord, which will be converted to cash to be
retained by Landlord, in the event of a default under this Lease. Such letter of
credit may provide for a proportionate reduction in the amount required to be
provided by Tenant each year during the Initial Lease Term.
ARTICLE XIV
INDEMNIFICATION AND NONLIABILITY
14.1 Indemnification. Each party ("Indemnitor") agrees to protect,
defend, indemnify and save harmless the other party ("Indemnitee") against and
From any and all claims by or on behalf of any person, firm, corporation or
governmental authority arising Tom the occupation, use, possession, conduct or
management of or Tom any work or thing whatsoever done in or on the Premises or
Tower II by or under Indemnitor, and will further protect, defend, indemnify and
save Indemnitee harmless against and from any and all claims arising during the
Initial Lease Term, or any extension thereof, Mom any condition on, within or
about the Premises or Tower II or any improvements constructed by Indemnitor, or
Tom any accident, injury or damages whatsoever caused to any person, firm or
corporation (other than through the negligence or willful conduct of Indemnitee
or its agents) occurring during the Initial Lease Term, or any extension
thereof, or arising Tom any breach or default on the part of Indemnitor in the
performance of any covenant or agreement on the part of Indemnitor to be
performed, pursuant to this Lease, or Mom any act or negligence of Indemnitor,
or any of its agents, contractors, servants, assignees, subleases, employees or
licensees occurring during the Initial Lease
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Term, or any extension thereof, in or about the Premises or Tower II, and Tom
and against all costs, expenses and liabilities incurred in connection with any
such claim, action or proceeding brought thereon, including without limitation,
reasonable attorney's fees.
14.2 Nonliability of Landlord. Landlord shall not be liable for any
claims, demands, liabilities, and/or obligations resulting from or arising out
of any loss, damage or injury to the property or person of any person
whomsoever, at any time occasioned by or arising out of any act or omission of
Tenant, or of anyone holding under Tenant, or the occupancy or use of the
Premises or any part thereof by or under Tenant.
ARTICLE XV
SUBORDINATION: ATTORNMENT
Tenant accepts this Lease subject and subordinate to any mortgage,
deed of trust or other lien presently existing or hereafter arising upon the
Premises, upon Tower II or upon the Real Property as a whole, and to any
renewals, refinancing and extensions thereof but Tenant agrees that any such
mortgagee shall have the right at any time to subordinate such mortgage, deed of
trust or other lien to this Lease on such terms and subject to such conditions
as such mortgagee may deem appropriate in its discretion. Landlord is hereby
irrevocably vested with full power and authority to subordinate this Lease to
any mortgage, deed of trust or other lien now existing or hereafter placed upon
the Premises, Tower II or the Real Property as a whole, and Tenant agrees upon
demand to execute such further instruments subordinating this Lease or attoming
to the holder of any such liens as Landlord may request. In the event that
Tenant should fail to execute any instrument of subordination herein required to
be executed by Tenant promptly as requested, Tenant hereby irrevocably
constitutes Landlord as its attorney-in-fact to execute such instrument in
Tenant's name, place and stead, it being agreed that such power is one coupled
with an interest
ARTICLE XVI
ESTOPPEL CERTIFICATE
Tenant agrees, at any time, and Mom time to time, upon not less than
ten (10) days' prior notice by Landlord, to execute, acknowledge and deliver to
Landlord, a statement in writing addressed to Landlord or other party designated
by Landlord certifying that this Lease is 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 actual commencement and expiration
dates of the Lease, stating the dates to which rent, and other charges, if any,
have been paid, that the Premises have been completed on or before the date of
such certificate and that all conditions precedent to the Lease taking effect
have been carried out, that Tenant has accepted possession, that the Lease Term
has commenced, Tenant is occupying the Premises and is open for business, and
stating whether or not there exists any default by either party in the
performance of any covenant, agreement, term, provision or condition contained
in this Lease, and, if so, specifying each such default of which the signer may
have knowledge and the claims or offsets, if any, claimed by the Tenant, it
being intended that any such statement delivered
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pursuant hereto may be relied upon by Landlord or a purchaser of Landlord's
interest and by any mortgagee or prospective mortgagee of any mortgage affecting
the Premises.
ARTICLE XVII
ASSIGNMENT AND SUBLETTING;
SALE OF PREMISES
17.1 Assignment Subletting (a) Tenant shall not voluntarily,
involuntarily, or by operation of law, assign this Lease in whole or in part,
nor sublet all or any part of the Premises without following the procedures
detailed herein and obtaining the prior written consent of Landlord in each
instance, which consent may be granted or withheld in Landlord's sole
discretion. The consent by Landlord to any assignment or subletting shall not
constitute a waiver of the necessity for such consent in any subsequent
assignment or subletting. The foregoing shall be construed to include a
prohibition against any assignment or subletting by operation of law.
(b) Tenant hereby agrees that, in the event Tenant requests Landlord's
consent to any assignment or subletting (in those cases in which Landlord's
consent is necessary), Tenant shall make such request by written notice, given
at least ten (10) business days prior to the effective date of such proposed
assignment or subletting, specifying the name and address of the proposed
transferee and the terms of such proposed assignment or subletting.
(c) Notwithstanding any assignment or sublease, Tenant shall remain
fully liable on this Lease and shall not be released from performing any of the
terms, covenants and conditions hereof If Tenant is a corporation, any sale,
transfer or other disposition of fifty-one percent (51%) or more of the
corporate stock shall be deemed to be an assignment. Notwithstanding the
foregoing, Tenant may, upon delivery of notice thereof to Landlord but without
Landlord's consent, assign this Lease or sublet all or any part of the Premises
to any entity in which Tenant owns a majority or controlling interest or to any
entity owned or controlled by the same entity as Tenant, or to any entity which
acquires (by purchase, merger or otherwise) all or a controlling interest in
Tenant; provided Tenant is not in default under the terms, covenants or
conditions of the Lease at the time of such assignment or subletting, and
provided that such assignee or sublessee does not intend to alter the use being
made of the Premises by Tenant and does not violate any exclusive use commitment
granted to any third party tenant. With respect to a corporation, "controlling
interest" shall mean the right to exercise fifty percent (50%) or more of the
voting rights attributable to the shares of such corporation. With respect to a
non-corporation, such control shall mean the possession of the power to direct
or cause the direction of the management or policies of such affiliate..
Tenant's assignee or sublessee shall be required to assume all of Tenant's
obligations under this Lease as to the space assigned or sublet.
(d) If (i) the Premises are underlet or occupied by anybody other than
Tenant and Tenant is in default hereunder, or (ii) this Lease is assigned by
Tenant, then Landlord may collect rent Tom the assignee, undertenant or
occupant, and apply the net amount collected to the rent herein reserved; but no
such collection shall be deemed a waiver of the provision of this Article XVII,
or the acceptance of such assignee, subtenant or occupant as Tenant, or a
release of Tenant Tom further performance of the covenants herein contained.
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17.2 Sale of Premises by Landlord. Landlord shall have the right to
sell, convey, transfer or assign all or any part of its interest in the Real
Property and Tower II of which the Premises are a part or its interest in this
Lease. In the event of any sale of the Premises by Landlord, Landlord shall be
and is hereby entirely freed and relieved of all liability under any and all of
its covenants and unaccrued obligations contained in or derived Tom this Lease
arising out of any act, occurrence or omission occurring after the consummation
of such sale, provided that the purchaser at such sale or any subsequent sale of
the Premises, covenants in writing to and with Tenant to caky out any and all of
the covenants and obligations of the Landlord under this Lease.
ARTICLE XVIII
HOLDING OVER
In the event of holding over by Tenant after expiration or other
termination of this Lease, or in the event Tenant continues to occupy the
Premises after the termination of Tenant's right of possession pursuant to
Article X hereof, Tenant shall, throughout the entire hold over period, pay rent
equal on a per diem basis, to one hundred fifty (150%) of the Base Rental which
would have been applicable during the last year of the Initial Lease Term, or
any extension thereof, had the term of this Lease continued. No holding over by
Tenant after the expiration of the term of this Lease shall be construed to
extend the term of the Lease.
ARTICLE XIX
FORCE MAJEURE
In the event either party hereto shall be delayed or hindered in or
prevented from the performance of any act required under this Lease by reason of
strikes, blackouts, labor troubles, inability to procure materials, failure of
power, restrictive governmental law or regulations, riots, insurrection, war,
inclement weather, flood or other reason of a like nature not the fault of the
party delayed in performing work or doing acts required under the terms of this
Lease, then performance of such act shall be excused for the period of such
delay. The provisions of this Article XIX shall not be applicable to delays
resulting from the inability of a party to obtain financing or to proceed with
its obligations under this Lease because of a lack of funds.
ARTICLE XX
PARKING
During the term of this Lease, Tenant shall have the non-exclusive use
in common with Landlord, other tenants of Tower II, their guests and invitees,
of the non-reserved common automobile parking areas, driveways, and footways,
subject to rules and regulations for the use thereof as prescribed from time to
time by Landlord, and the execution of the Agreement in the form attached hereto
as Exhibit "E" and incorporated herein by reference. Landlord reserves the right
to designate parking areas within the Real Property or in reasonable proximity
thereto, for Tenant and Tenant's agents and
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employees. All covered parking located within the Real Property is reserved for
tenants of Tower II who rent such parking spaces. Tenant shall have the option
to lease from Landlord throughout the Initial Lease Term up to nine (9) spaces
in such covered parking area, such spaces to be on a first come-first serve
basis. In consideration of the leasing to Tenant of such spaces, Tenant shall
pay a monthly rental of $45.00 per space throughout the Initial Lease Term,
regardless of when the option to lease additional spaces is exercised. Such
rental shall be due and payable each month without demand at the time herein set
for the payment of monthly Base Rental and Additional Rent, in addition to such
other rentals.
ARTICLE XXI
GENERAL PROVISIONS
21 1 Notices. Any notice required or permitted to be given hereunder
shall be in writing and may be served personally, by registered or certified
mail, postage prepaid and return receipt requested, and by Federal Express or
other commonly recognized overnight courier service, to the party to be notified
at the address set forth herein or at such other address as either party may
from time to time designate in writing.
If notice is to Landlord, address to:
Twentieth Century Realty, Inc.
4500 Main, Suite 1600
P.O. Box 418210
Kansas City, MO 64141 -9210
If notice is to Tenant, address to:
AVAX Technologies, Inc.
4520 Main St., Suite
Kansas City, MO 64111
with a copy to:
Roberts, Sheridan & Kotel
640 Fifth Avenue
New York, NY 10019
Notwithstanding anything to the contrary herein contained, any notices
or documents which may be delivered by mail or courier service pursuant to this
Section must be deemed received by the other party seventy-two (72) hours after
deposit in the mail or with the courier service in the manner specified.
21.2 Survival of Tenant's Obligations. All obligations of Tenant which
by their nature involve performance, in any particular, after the end of the
Initial Lease Term, or any extension thereof, or which cannot be ascertained to
have been fully performed until after the end of the Initial Lease Term, or any
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extension thereof, shall survive the expiration or sooner termination of the
Initial Lease Term, or any extension thereof
21 3 Covenants Running with the Land. All of the covenants,
agreements, conditions and restrictions set forth in this Lease are intended to
be and shall be construed as covenants running with the land, binding upon,
inuring to the benefit of and enforceable by the parties hereto and their
successors and assigns. Each provision of this Lease to be performed by Tenant
shall be deemed both a covenant and a condition.
21.4 Waivers. No delay or omission by either party hereto in
exercising any right or power accruing upon the compliance or failure of
performance by the other party hereto under the provisions of this Lease shall
impair any such right or power or be construed to be a waiver thereto. A waiver
by either party hereto of any of the covenants, conditions or agreements hereof
to be performed by the other party shall not be construed as a waiver of any
succeeding breach of the same or other covenants, agreements, restrictions and
conditions hereof
21.5 Modifications. Any alteration, change or modification of or to
this Lease, in order to become effective, shall be made by written instrument or
endorsement hereon and in each such instance executed on behalf of each party
hereto.
21.6 Legal Expenses. In case suit shall be brought because of the
breach of any covenant herein contained on the part of Tenant or Landlord to be
kept or performed, and a breach shall be established, the prevailing party shall
be entitled to recover all expenses incurred therefor, including reasonable
attorneys' fees.
21 7 Broker's Commission. (a) Tenant represents and warrants to
Landlord that it has not incurred or caused to be incurred any liability for
real estate brokerage commissions or finder's fees in connection with the
execution of this Lease for which Landlord may be liable.
(b) Except as set forth in Subparagraph (c) below, Landlord represents
and warrants to Tenant that it has not incurred or caused to be incurred any
liability for real estate brokerage commissions or finder's fees in connection
with the execution of this Lease for which Tenant may be liable.
(c) The parties hereto acknowledge that (1) Winbury Realty of K.C.,
Inc. is the listing agent for the Premises; (2) Winbury Realty of K.C., Inc. and
its agents hold real estate licenses in the states of Kansas and Missouri; and
(3) Winbury Realty of K.C., Inc. has negotiated on behalf of Landlord and will
receive a fee from Landlord for its services.
21.8 Authority to Execute. Tenant is a corporation and, therefore,
each individual executing this Lease on behalf of said corporation represents
and warrants that he is duly authorized to execute and deliver this Lease on
behalf of said corporation, in accordance with a duly adopted resolution of the
board of directors of said corporation, a copy of which shall be delivered to
Landlord upon request, in accordance with the bylaws of said corporation, and
that this Lease is binding upon said corporation in accordance with its terms.
Landlord is a corporation and, therefore, each individual executing this Lease
on behalf of said corporation represents and warrants that he is duly authorized
to execute and deliver
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this Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the board of directors of said corporation, a copy of which will
be delivered to Tenant upon request in accordance with the bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
21.9 Captions. The captions, section numbers and table of contents
appearing in this Lease in no way define, limit, construe or describe the scope
or intent of such sections or articles of this Lease. The language in all parts
of this Lease shall in all cases be construed as a whole according to its fair
meaning, and not strictly for nor against either Landlord or Tenant.
21.10 Cumulative Remedies. No remedy or election of any party shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
21.11 Time of Performance. Except as expressly otherwise herein
provided, with respect to all required acts of Tenant, time is of the essence of
this Lease.
21.12 Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and enforced to the fullest
extent pertained by law.
21.13 Entire Agreement. This Lease contains the entire agreement of
the parties hereto with respect to the matters covered hereby, and no other
agreement, statement or promise made by either party hereto which is not
contained herein shall be binding or valid.
21.14 Successors in Interest. Each of the covenants, conditions and
agreements herein contained shall inure to the benefit of and shall apply to and
be binding upon the parties hereto and their respective heirs, legatees,
devisees, executors, administrators, successors, assigns, subleases or any
person who may come into possession of the Premises or any part thereof in any
manner whatsoever. The breach of any of Tenant's obligations hereunder caused by
a subtenant of Tenant shall be deemed a breach by Tenant.
21.15 Recording Neither party shall record this Lease in its entirety.
However, upon the request of either party, the other party shall join in the
execution of a memorandum or so-called "short form" of this Lease for the
purpose of recordation.
21.16 Effect of Delivery of This Lease. Landlord has delivered a copy
of this Lease subject to review by Landlord's lender or mortgagee and it is
expressly contingent upon such lender or mortgagee approving the terms hereof
This Lease shall not be effective until an executed copy signed by both Landlord
and Tenant, is approved by such lender or mortgagee and delivered to and
accepted by Landlord.
21.17 Choice of Law. This Lease shall be governed by the laws of the
State of Missouri.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.
ATTEST: TWENTIETH CENTURY REALTY, INC.,
a Missouri Corporation
_________________ By: ________________________
Secretary Robert M. Bigley
Senior Vice President -
Facilities & Real Estate
"LANDLORD"
ATTEST: AVAX TECHNOLOGIES, INC.,
a Delaware corporation
_________________ By: ________________________
Secretary (Name) _____________________
(Title) _____________________
"TENANT"
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ACKNOWLEDGEMENTS
STATE OF MISSOURI )
) SS
COUNTY OF JACKSON ) )
On this __ day of _______, 1996, before me appeared Robert M. Bigley
and Wendy B. Welte to me personally known who, being by me duly sworn, did say
that they are the Senior Vice President - Facilities & Real Estate and
Secretary, respectively, of Twentieth Century Realty, Inc., a Missouri
corporation, and that the seal affixed to the foregoing instrument is the
corporate seal of said corporation, and that said instrument was signed in
behalf of said corporation, by authority of its Board of Directors and
acknowledged the execution of the same to be the act and deed of said
corporation and partnership.
-----------------------
Notary Public
DEBBY L HERMAN
Notary Public- Notary Seal
State of Missouri
STATE OF MISSOURI )
) SS:
COUNTY OF JACKSON )
On this __ day of _________, 1996, before me appeared __________ and
________________ to me personally known who, being by me duly sworn, did say
that they are the ___________ and _____________, respectively, of AVAX
Technologies, Inc., a corporation of the State of Delaware, and that the seal
affixed to the foregoing instrument is the corporate seal of said corporation
and that said instrument was signed and sealed in behalf of said corporation, by
authority of its Board of Directors, and acknowledged said instrument to be the
free act and deed of said corporation.
---------------------
Notary Public
DEBBY L, HERMAN
Notary Public Notary Seal
State of Missouri
27
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EXHIBIT "A"
DESCRIPTION OF REAL PROPERTY
All that part of Lot 1, FOUNTAINVIEW, a subdivision in Kansas City, Jackson
County, Missouri, lying Southerly of the following described courses: Commencing
at the Northeast comer of said Lot 1; thence South 2 degrees 31 minutes 08
seconds West, along the East line of said Lot 1, being also the West line of
Main Street, as now established, 301.14 feet to the point of beginning of the
courses to be herein described; thence North 87 degrees 28 minutes 52 seconds
West, 22.20 feet, thence South 82 degrees 19 minutes 38 seconds West, 163.96
feet; thence South 76 degrees 19 minutes 38 seconds West, 34.78 feet to a point
on the Westerly line of said Lot 1, which is 339.84 feet Southerly of the
Northwest comer thereof, measured along said Westerly line and
All that part of Lots 3 and 4 of SOUTHMORELAND TERRACE, a subdivision in Kansas
City, Jackson County, Missouri, described as follows: Beginning at a point 33
feet North of the Southeast comer of said Lot 3; thence West at right angles to
the West line of Main Street 90.33 feet; thence South and parallel to the West
line of Main Street 30 feet; thence Southeasterly along a line which deflects to
the left 12 degrees 22 minutes from the last described course 18.68 feet; thence
Southeasterly along a line which deflects to the left 20 degrees 25 minutes from
the last described course 61.55 feet; thence East at right angles to the West
line of Main Street 53 feet; thence North 100 feet to the point of beginning,
according to the recorded plat thereof and
That part of Lots 4 and 5, SOUTHMORELAND TERRACE, a subdivision in Kansas City,
Jackson County, Missouri, according to the recorded plat thereof, described as
beginning in the East line of said Lot 4 at a point 30 feet North of the
Southeast comer of said Lot and running thence West and parallel with the South
line of said Lot 4, a distance of 81.83 feet; thence South and parallel with the
East lines of said Lots 4 and 5, a distance of 70.75 feet of a point 40.75 feet
South of the North line and 81.83 feet West of the East line of said Lot 5;
thence Southeasterly in a straight line to a point 70 feet South of the North
line and 51.50 feet West of the East line of said Lot 5, a distance of 51.50
feet to the East line of Lot 5; and thence North along the East lines of said
Lots 5 and 4, a distance of 100 feet to the point of beginning.
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EXHIBIT "B"
[ILLUSTRATED FLOORPLAN OF PREMISES]
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EXHIBIT "C"
GENERAL DESCRIPTION OF IMPROVEMENTS
The purpose of this Exhibit "C" is to set forth how the Tenant
Improvements in the Premises are to be constructed, who will undertake the
construction for the Tenant Improvements, who will pay for the construction of
the Tenant Improvements, the time schedule for completion of the construction of
the Tenant Improvements, and a general description of the Improvements.
I. PREPARATION OF PLANS AND DRAWINGS AND PROCEDURES
Tenant shall arrange for the construction of the Tenant Improvements
in accordance with the following schedule:
(1) SELECTION OF ARCHITECT AND ENGINEER. Tenant shall select an
architect ("Architect") and an engineer ("Engineer") familiar with all laws,
regulations and building codes applicable to Tower II ("Applicable Law"). The
Architect and the Engineer shall be selected by Tenant subject to Landlord's
consent, which consent shall not be unreasonably withheld or delayed. Tenant
shall continue to submit names to Landlord until the Architect and the Engineer
are finally approved by Landlord and written consent has been delivered to and
received by Tenant. Landlord hereby approves Rees Architecture as the Architect
and the parties agree that no Engineer will be utilized for the Improvements.
(2) PREPARATION AND APPROVAL OF SPACE PLAN. Tenant shall submit to the
Architect all information including occupancy requirements for the Premises
("Information") necessary to enable the Architect to prepare, at Tenant's
expense, a space plan showing all demising walls, corridors, entrances, exits,
doors, interior partitions, and the locations of all offices, conference rooms,
computer rooms, mini-service kitchens, reception area(s), library, file room(s),
etc. ("Space Plan"). Such Space Plan may also include other tenant improvements,
including, but not limited to, interconnecting stairwells (subject to code),
interconnecting risers (with necessary floor penetrations into the riser
closets), fire suppressant systems to protect Tenant's computers, telephone or
other equipment, dining room(s), lunch room(s), vertical improved mail system
(VIM), furniture systems and any other special facilities incidental to Tenant's
operations. Tenant shall cause the Architect to submit to Landlord the Space
Plan for Landlord's review and approval. Landlord shall either approve or
disapprove the Space Plan within ten (10) days of receipt, for reasonable and
material reasons (which shall be limited to the following: (i) adverse effect on
the structural integrity of Tower II (ii) possible damage to the Tower II
systems, (iii) non-compliance with applicable codes; (iv) adverse affect on the
appearance of Tower II [each a "Design Problem"]) and return the Space Plan to
Tenant. In the event of a disapproval of the Space Plan, Tenant shall make the
changes necessary in order to correct the Design Problem(s) and shall return the
Space Plan to Landlord, which Landlord shall approve or disapprove within three
(3) days of receipt. This procedure shall be repeated until the Space Plan is
finally approved by Landlord and written approval has been delivered to and
received by Tenant.
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(3) PREPARATION AND APPROVAL OF WORKING DRAWINGS. After the final
Space Plan approval by Landlord, Tenant shall submit to Landlord drawings and
specifications prepared by the Architect, at Tenant's expense ("Working
Drawings"), which shall be compatible with the design, construction and
equipment of Tower II, comply with all laws, be capable of logical measurement
and construction, contain all such information as may be required for the
construction of the Tenant Improvements, and contain all partition locations,
plumbing locations, air conditioning system and duct work, special air
conditioning requirements, reflected ceiling plans, office equipment locations,
and special security systems. Landlord shall approve the Working Drawings, or
such portion as has from time to time been submitted, or designate by notice
given to Tenant the specific changes reasonably required to be made to the
Working Drawings in order to correct any Design Problem and shall return the
Working Drawings to Tenant within ten (10) days of receipt. In the event of a
disapproval of the Working Drawings, Tenant shall make the changes necessary in
order to correct any such Design Problem(s) and shall return the Working
Drawings to Landlord, which Landlord shall approve or disapprove within three
(3) days of receipt. This procedure shall be repeated until all of the Working
Drawings are finally approved by Landlord and written approval has been
delivered to and received by Tenant.
II. CONTRACTOR AND REVIEW OF PLANS
(1) CONTRACTOR. Landlord shall, within fifteen (15) days of receipt of
Tenant's Working Drawings ("Final Plans"), provide Tenant an estimate of the
cost of constructing the Improvements. Tenant shall pay for the entire cost of
the Tenant improvements in excess of the tenant finish allowance ("TFA") as
provided in Section 4.1 of the Lease.
(2) LANDLORD'S REVIEW RESPONSIBILITIES. Tenant agrees and understands
that the review of all plans pursuant to this Agreement by Landlord is solely to
protect the interests of Landlord in Tower II and the Premises, and Landlord
shall not be the guarantor of, nor responsible for, the correctness or accuracy
of any such plans or compliance of such plans with Applicable Laws.
III. CONSTRUCTION OF PREMISES
(1) AMOUNT Landlord shall provide on behalf of Tenant the TFA as set
forth in Section 4.1 of the Lease.
(2) USE. Tenant may use the TFA solely for the purpose of paying for
the services provided by the Architect, Contractor and Engineer described above,
and the construction of, and the costs of materials used in the construction of,
the Tenant Improvements.
(3) DISBURSEMENT OF TFA. Landlord shall disburse to Tenant, within
thirty (30) business days of receipt by Landlord of a written request for
payment of fees to the Architect, accompanied by conditional lien releases in
connection therewith (and unconditional lien releases with respect to the prior
month's payment), payment equal to each request for payment, not to exceed the
total TFA to be provided by Landlord. Tenant shall be entitled to submit
requests for payments with respect to fees paid to the Architect monthly. Prior
to the
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commencement of construction, Tenant and Landlord shall agree upon a schedule of
values for the work similar in form and content to A.I.A. Document No. G702
(Contractor's Application for Payment) itemizing the cost of the work by trade
category and specifying the cost of the work as estimated by the Architect. If
Landlord serves as the Contractor, Landlord shall pay its subcontractors in full
directly until the total TFA is exhausted. Thereafter, Landlord shall continue
to pay its subcontractors in full directly but shall submit progress billings to
Tenant for the work completed to date based on the schedule of values, and
Tenant shall pay such progress billings to Landlord within thirty (30) days of
receipt. Landlord shall not have any obligation to disburse any of the TFA at
any time while Tenant is in default under the Lease or following any event or
occurrence which, with the passage of time or the giving of notice or both, will
ripen into or constitute a default under the Lease; provided, however, that if
Tenant is granted the right to cure or correct the event or occurrence which,
with the passage of time or the giving of notice or both, will ripen into or
constitute a default under the Lease, then if Tenant shall so cure or correct
such event or occurrence within the time periods provided herein, Tenant shall
have the right, following the completion of such cure or correction of such
event or occurrence, to again receive disbursements of the TFA as provided
herein. In no event shall Landlord be obligated to expend or disburse any amount
in excess of the TFA in connection with the work and the construction of the
Tenant Improvements.
IV. CHANGE ORDERS
In the event that Tenant requests any changes in the Final Plans,
Landlord shall not unreasonably withhold its consent to any such changes, and
shall grant its consent to such changes, provided the changes do not create a
Design Problem.
V. INDEMNITY
Tenant hereby releases and agrees to defend, indemnify and otherwise
hold Landlord harmless Tom any and all claims, costs, expenses, losses, damages
or liabilities, including reasonable attorneys' fees, arising From design and
upon notice Tom Landlord, Tenant will defend Landlord from and against any such
claims, costs, expenses, losses, damages or liabilities, using counsel
reasonably acceptable to Landlord.
VI. GENERAL DESCRIPTION OF IMPROVEMENTS
It is hereby agreed that the Landlord shall provide, up to the amount
of the TEA, the Tenant Improvements as noted below and per the attached plans
labeled as Exhibit "C-l."
Tenant agrees to pay any additional expense incurred in connection
with improving the Premises in excess of the TEA provided by Landlord. The
Improvements shall include the following:
(1) Building standard 2' x 2' ceiling system in all areas.
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(2) Building standard 2' x 4" parabolic light fixtures in all areas at
1:150 sf
(3) Building standard fire sprinkler system modified as required.
(4) Building standard mini blinds on all exterior windows.
(5) Building standard signage at entry door.
(6) Building standard partitions as shown per Exhibit "C-l.
(7) (11) Building standard solid core doors, (1) pair French doors at
an allowance of $1100 and hardware as shown per Exhibit "C-l."
(8) Building standard fire speakers, extinguishers, and exit lights per
Exhibit "C-l."
(9) Carpet with rubber base throughout the space at an allowance of
S15.50/sy installed. The break/copy/work room will receive VCT. There is 60
lineal feet of carpet border included.
(10) I wall switch, 10 motion detectors, 2 dedicated outlets, 25 wall
duplex outlets and 11 j-boxes for telephone/data per Exhibit "C-l."
(11) Seven lineal feet of coat closet including rod and shelf per
Exhibit "C-l."
(12) One building standard sink with hot water heater in the breakroom
and (1) refrigerator.
(13) Building standard upper and lower cabinets in the breakroom
totaling 13 lineal feet in length. Cabinets to be made of p. lam.
(14) 105 lineal feet each of crown molding and wood base.
(15) Allowances of 2000 sf each of wall paints, vinyls and fabrics at
typical building standard allowances.
(16) All clean up, supervision and permit fees required to build
standard tenant improvements.
(17) All walls except those so denoted are estimated to ceiling grid
only. No provisions have been made for any rated corridors.
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EXHIBIT I'D 11
RULES AND REGULATIONS
1. Sidewalks, doorways, vestibules, halls, stairways and similar areas shall
not be obstructed nor shall refuse, furniture, boxes or other items be
placed therein by Tenant or its officers, agents, servants and employees,
or be used for any purpose other than ingress and egress to and from the
Premises, or for going from one part of Tower II to another part of Tower
II. Canvassing, soliciting and peddling in Tower II are prohibited.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which constructed, and no unsuitable materials shall be placed therein.
3. No signs, directories, posters, advertisements, or notices shall be
painted or affixed on or to any of the windows or doors, or in corridors
or other interior or exterior parts of Tower II, except in such color,
size, and style, and in such places, as shall be first approved in
writing by Landlord in its discretion. One Building Standard suite
identification sign will be prepared by Landlord at Landlord's expense.
No additional signs shall be posted without Landlords prior written
consent as to location and form, and the cost of preparing and posting
such sign shall be borne fully by Tenant. Landlord shall have the right
to remove all unapproved signs without notice to Tenant, at the expense
of Tenant.
4. Tenant shall not do, or permit anything to be done in or about Tower II,
or bring or keep anything therein, that will in any way increase the rate
of fire or other insurance on Tower II, or on property kept therein or
otherwise increase the possibility of fire or other casualty.
5. Landlord shall have the power to prescribe the weight and position of
heavy equipment or objects which may overstress any portion of the floor.
All damage done to Tower II by the improper placing of such heavy items
will be repaired at the sole expense of Tenant.
6. Tenant shall notify the designated Tower II manager when safes or other
heavy equipment are to be taken in or out of Tower II, and the moving
shall be done after written permission is obtained from Landlord on such
conditions as Landlord shall require. Any moving in or moving out of
Tenant's equipment, furniture, files and/or fixtures shall be done only
with prior written notice to Landlord, and Landlord shall be entitled to
prescribe the hours of such activity, the elevators which shall be
available for such activity and shall, in addition, be entitled to place
such other conditions upon Tenant's moving activities as the Landlord
deems appropriate. Tenant shall bear all risk of loss relating to damage
incurred with respect to Tenant's property in the process of such a move
and, in addition, shall indemnify and hold Landlord harmless as to all
losses, damages, claims, causes of action, costs and/or expenses relating
to personal injury or property damage sustained by Landlord or any third
party on account of Tenant's moving activity.
7. Corridor doors, when not in use, shall be kept closed.
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8. All deliveries must be made via the service entrance and elevators,
designated by Landlord for services, if any, during Normal Business
Hours. Landlord's written approval must be obtained for any delivery
after Normal Business Hours.
9. Tenant shall cooperate with Landlord's employees in keeping the Premises
neat and clean.
10. Tenant shall not cause or permit any improper noises in Tower II or allow
any unpleasant odors to emanate from the Premises, or otherwise
interfere, injure or annoy in any way other tenants, or persons having
business with them.
11. No animals shall be brought into or kept in or about Tower 11.
12. No boxes, crates or other such material shall be stored in hallways or
other Common Areas. When Tenant must dispose of crates, boxes, etc. it is
the responsibility of Tenant to dispose of them prior to or after the
hours of 7:30 a.m. and 5:30 p.m., so as to avoid having such debris
visible in the Common Areas during Normal Business Hours.
13. No machinery of any kind, other than ordinary office machines such as
typewriters and calculators, shall be operated on the Premises without
the prior written consent of Landlord, nor shall Tenant use or keep in
Tower II any inflammable or explosive fluid or substance (including
Christmas trees and ornaments), or any illuminating materials, except
candles. No space heaters or fans shall be operated in Tower II.
14. No bicycles, motorcycles or similar vehicles will be allowed in Tower II.
15. No nails, hooks or screws shall be driven into or inserted in any part of
Tower 11 except as approved by Tower II maintenance personnel. Nothing
shall be affixed to, or be made to hang Tom the ceiling of the Premises
without Landlord's prior written consent.
16. Landlord has the right to evacuate Tower II in the event of an emergency
or catastrophe.
17. No food and/or beverages shall be distributed Mom Tenant's office without
approval of the designated Tower II manager.
18. No additional locks shall be placed upon any doors without the prior
written consent of Landlord. All keys reasonably necessary in number
shall be furnished by Landlord, and the same shall be surrendered upon
termination of this Lease, and Tenant shall then give Landlord or its
agent an explanation of the combination of all locks on the doors or
vaults. No duplicates of any keys given Tenant by Landlord shall be made
by Tenant. Additional keys shall be obtained only Tom Landlord, at a fee
to be determined by Landlord.
19. Tenant will not locate furnishings or cabinets adjacent to mechanical or
electrical access panels so as to prevent operating personnel Mom
servicing such units as routine or emergency access may require. The cost
of moving such furnishings for Landlord's access
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will be for Tenant's account. The lighting and air conditioning equipment
of Tower n will remain the exclusive charge of Tower n designated
personnel.
20. No portion of Tower II shall be used for the purpose of lodging rooms
21. Vending machines or dispensing machines of any kind will not be placed in
the Premises by Tenant without the consent of Landlord.
22. Prior written approval, which shall be at Landlord's sole discretion,
must be obtained for installation of window shades, blinds, drapes, or
any other window treatment of any kind whatsoever. The color and fabric
of the lining of all drapes, or if unlined, the draperies themselves,
which Tenant desires to place on exterior windows or openings of Tower
II, must be approved by Landlord prior to their installation so that a
uniform color and appearance may be preserved Tom the exterior of Tower
II. Landlord will control all internal lighting that may be visible from
the exterior of Tower II and shall have the right to change any
unapproved lighting, without notice to Tenant, at Tenant's expense.
23. Changes or alterations to any portion of Tower II or Premises for which
Tenant has received Landlords prior written approval, shall be done by
Landlord or by contractors and/or workmen approved by Landlord, working
under Landlords supervision.
24. Tenant shall provide plexiglass or other pads for all chairs mounted on
rollers or casters.
25. Landlord agrees to furnish a directory of the names and locations of the
tenants and to install and maintain the same at a convenient location in
the lobby of Tower II. The initial listings of the name and suite number
of Tenant shall be furnished without charge. Any changes or revisions of
listings shall be made by Landlord at the cost of Tenant except where
Tenant is leasing additional space, in which event the listing shall be
furnished by Landlord at Landlord's cost.
26. Landlord reserves the right to rescind any of these rules and make such
other and further rules and regulations as in its reasonable judgment
shall Mom time to time be necessary for the operation of Tower II, which
rules shall be binding upon Tenant upon delivery to Tenant of notice
thereof in writing.
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Exhibit "E"
PARKING SPACE RENTAL AGREEMENT
This Agreement is made and entered into by and between Twentieth Century
Realty, Inc. a Missouri corporation ("Landlord") and AVAX Technologies, Inc., a
Delaware corporation ("Tenant").
RECITALS:
A. Landlord is "Landlord" and Tenant is "Tenant" under that certain
Lease Agreement ("Lease") dated . 1996, wherein Tenant leased Tom
Landlord certain Premises ("Premises") located in Landlord's
office building known as Twentieth Century Tower 11 ("Tower II")
at 4520 Main, Kansas City, Missouri.
B. Landlord desires to grant and Tenant desires to acquire the right
to use certain of Tower II's parking spaces, which spaces are
located inside Tower lI's parking garage ("Garage"), all upon the
terms and conditions set forth below.
NOW THEREFORE, for and in consideration of Ten and no/100 Dollars
($10.00) and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Landlord hereby grants Tenant a license to use up to nine (9)
parking spaces ("Parking Spaces") throughout the Initial Lease
Term for the purpose of parking motor vehicles for a term
commencing upon the Commencement Date and terminating upon the
termination of the Lease for whatever reason The location of
all Parking Spaces shall vary dependent upon which of the
non-reserved spaces in the Garage are occupied or vacant from
time to time. Tenant hereby agrees to pay a rental fee of
Forty-five and no/100 Dollars ($45.00) per month for each of
the Parking Spaces, regardless of when the option to license
each space is exercised, which fee shall be payable monthly in
advance on or before the first day of each month throughout
the Initial Lease Term. Such fees shall be adjusted to the
then prevailing market rental rate by Landlord in the event
Tenant exercises any option it might have to renew the Lease
2. Landlord hereby agrees to provide, in common to all tenants of
Tower n, not less than seventy-five (75) parking spaces on the
Real Property for guest, invitee and visitor parking.
3. All motor vehicles (including all contents thereof) shall be
parked in all Parking Spaces hereunder at the sole risk of
Tenant, its employees, agents, invitees and licensees, it
being expressly agreed and understood that Landlord has no
duty to insure any of said motor vehicles (including the
contents thereof), and that Landlord is not responsible for
the protection and or security of such vehicles.
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Landlord shall have no liability whatsoever for any property
damage and/or personal injury which might occur as a result of
or in connection with the parking of said motor vehicles in
any of the Parking Spaces, and Tenant hereby agrees to
indemnify and hold Landlord harmless Tom and against any and
all costs, claims, expenses, and or causes of action
(including reasonable attorney's fees) which Landlord may
incur in connection with or arising out of Tenant's use of the
Parking Spaces pursuant to this Agreement.
4. It is further agreed that this Agreement shall not be deemed
to create a bailment between the parties hereto, it being
expressly agreed and understood that the only relationship
created between Landlord and Tenant hereby is that of licensor
and licensee, respectively.
5. In its use of the Parking Spaces, Tenant shall follow all of
the rules of Tower II applicable thereto, as the same may be
amended from time to time. Upon the occurrence of any breach
of any such rules, failure to make rental payments due
hereunder or default by Tenant under the Lease or under this
Agreement, Landlord shall be entitled to immediately terminate
this Lease Agreement, in which event the Tenant's right to
utilize any and all of the Parking Spaces leased hereunder
shall thereupon cease.
6. In the event of substantial casualty damage to the Garage,
this Agreement shall terminate upon and as of the date of such
casualty. If the Garage or the Real Property upon which the
Garage is situated is taken by governmental or
quasi-governmental action or sale in lieu thereof, this
Agreement shall terminate as of the date of such taking or
sale.
7. Landlord shall issue Tenant up to nine (9) security access
cards to the Garage, depending upon how many Parking Spaces
are licensed to Tenant Mom time to time. Landlord shall
further issue Tenant a number of color decals equal to the
total number of the Parking Spaces being leased by Tenant, and
only those automobiles which have a decal affixed shall be
entitled to park in the Parking Spaces. Landlord reserves the
right, Mom time to time, to issue a new color decal for
automobiles leasing the Parking Spaces, to ensure that only
those parties leasing Parking Spaces are utilizing such
spaces.
8. To further ensure that only those parties leasing Parking
Spaces are utilizing such Parking Spaces, Tenant shall provide
Landlord with a complete list of the names of all of the
Tenant's employees issued security access cards, which list
shall contain the corresponding license plate numbers of those
automobiles owned, leased or used by each of said employees.
Such list shall be updated by Tenant periodically, as
necessary, and shall contain a specific designation as to
which automobiles of which employees have been issued decals
for Parking Spaces. In the event any automobile not designated
on the above list as having been issued a decal entitling it
to use Parking Spaces is found parked in any of the Parking
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Spaces, or if Tenant, its agents or employees, park on
portions of the Common Area other than those assigned to
Tenant, Landlord shall be entitled and is hereby authorized to
have said vehicle towed away at Tenants full risk and expense,
and Landlord is further authorized to impose upon Tenant a
penalty of twenty-five and no/100 Dollars ($25.00) for each
such occurrence. Tenant hereby agrees to pay all amounts
falling due hereunder upon demand therefor, and the failure to
pay any such amount shall additionally be deemed an Event of
Default under the Lease, entitling Landlord to all of its
rights and remedies thereunder.
EXECUTED as of the day of . 1996.
LANDLORD:
TWENTIETH CENTURY REALTY, INC.,
a Missouri corporation
By: _________________________
Robert M. Bigley
Senior Vice President -
Facilities & Real Estate
TENANT:
AVAX TECHNOLOGIES, INC.,
a Delaware corporation
By: __________________________
Name: __________________________
Title: __________________________
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FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement ("First Amendment") effective
this ____ day of December, 1997, is entered into by and between AMERICAN CENTURY
REALTY, INC. (formerly known as Twentieth Century Realty, Inc.)
("Landlord") and AVAX TECHNOLOGIES, INC. ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant previously have entered into a Lease
Agreement ("Lease") dated as of August 23, 1996, wherein Landlord leased to
Tenant approximately 2,809 square feet of Net Rentable Area in that certain
office building known as American Century Tower II located at 4520 Main Street,
Kansas City, Missouri; and
WHEREAS, Landlord and Tenant now desire to amend the Lease to add an
additional 1,327 square feet to the Net Rentable Area as more particularly
described below.
NOW THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Section 1.1 is hereby modified by deleting the first sentence and
replacing it with the following sentence:
"1.1 Lease Premises. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, that portion of Tower II consisting of
approximately 4,136 square feet of Net Rentable Area as delineated on
the floor plan attached hereto as Exhibit "B-1" and incorporated herein
by reference ("Premises")."
2. Section 5.1 is hereby modified by deleting the first paragraph and
replacing it with the following paragraph:
"5.1 Base Rental. Subject to the adjustments to Net Rentable Area set
forth in Section 1.1(b) and the limitations to such adjustments set
forth therein, Tenant agrees to pay to Landlord during the Initial
Lease Term, without prior demand therefore and without any offset or
deduction whatsoever, the monthly rent set forth below, as adjusted
under Section 5.2 hereof ("Base Rental"):
Rent per
Monthly Rent Square Feet Square Foot Time Period
------------ ----------- ----------- -----------
0 2809 0 9/23/96-12/22/96
$5,383.91 2809 $23.00 12/23/96-9/22/99
$2,709.29 1327 $24.50 12/1/97-9/22/99"
The following new sentence is added to the end of the second paragraph
of Section 5.1:
"Beginning December 1, 1997 through and including September 22, 1999,
Base Rental for the 1,327 square feet of Net Rentable Area described in
the dark gray cross-hatched area on Exhibit B-1 shall be $24.50 per
square foot of Net Rentable Area."
3. The following new Section 22 shall be added to the Lease:
"22. Second Security Deposit. Contemporaneously with the execution of
this First Amendment, Tenant shall deposit Sixty Six Thousand and
No/100 Dollars ($66,000.00) into an American Century-Benham Cash
Reserve account in the name of Avax Technologies, Inc. and Tenant shall
authorize Landlord's Senior Vice President of Facilities and Real
Estate as co-signer with individual authority on such Cash Reserve
account ("Second Security Deposit"). Such Second Security Deposit shall
be in addition to the Security Deposit described in Section 13.3 of the
Lease
<PAGE>
and shall be additional security for the performance by Tenant of
Tenant's covenants and obligations under this Lease, as amended, it
being expressly understood that such Second Security Deposit shall not
be considered an advance payment of rental or a measure of Tenant's
damages in case of default by Tenant. Landlord may, from time to time,
without prejudice to any other remedy, withdraw the Second Security
Deposit to the extent necessary to make good any arrearages of rent or
to satisfy any other covenant or obligation of Tenant hereunder.
Following any such application of the Second Security Deposit, Tenant
shall invest in the Cash Reserve account on Landlord's demand the
amount so applied in order to restore the Second Security Deposit to
its original amount. All interest and earnings on the Cash Reserve
account shall be payable to Tenant. At the end of each quarter of each
calendar year during the Initial Lease Term, Tenant has the right to
withdraw from the Second Security Deposit in the Cash Reserve account;
provided, however, at all times, the amount invested in such Cash
Reserve account shall be equal to the Base Rental remaining due under
the Initial Lease Term on the 1,327 square feet added under this First
Amendment. If Tenant is not in default at the termination of this
Lease, the balance of the Second Security Deposit remaining after any
such application may be withdrawn by Tenant and Landlord's Senior Vice
President of Facilities and Real Estate shall no longer be authorized
on the Cash Reserve account. If Landlord transfers its interest in the
Premises during the term of this Lease, Landlord may assign the Second
Security Deposit to the transferee, and an authorized signer of such
transferee shall be authorized on the Cash Reserve account in lieu of a
representative of Landlord and thereafter Landlord shall have no
further liability for the return of such Second Security Deposit.
Notwithstanding the foregoing, Tenant may, at Tenant's option, in lieu
of providing the Second Security Deposit in the form of cash invested
in an American Century-Benham Cash Reserve account as described above,
provide such Second Security Deposit in the form of an irrevocable
letter of credit in a form satisfactory to Landlord from a commercial
bank with a B Rating or better according to Scheshunoff Bank Quarterly
or if no longer available, a similar publication satisfactory to
Landlord, which will be converted to cash to be retained by Landlord,
in the event of a default under this Lease, as amended. Such letter of
credit may provide for a reduction at the end of each quarter of each
calendar year during the Initial Lease Term from the amount required to
be provided by Tenant following the effective date of this First
Amendment; provided, however, at all times, the amount provided under
such letter of credit shall be equal to the Base Rental remaining due
under the Initial Lease Term on the 1,327 square feet added under this
First Amendment."
4. Article XX is hereby amended by deleting the fourth sentence and
replacing it with the following sentence:
"Tenant shall have the option to lease from Landlord throughout the
Initial Lease Term up to thirteen (13) spaces in such covered parking
area, such spaces to be on a first come-first serve basis."
5. Except as expressly modified by this First Amendment, Landlord and
Tenant agree that the Lease shall remain in full force and effect in accordance
with its terms, and that all terms used herein shall have the same meaning
ascribed to them as in the Lease.
LANDLORD:
AMERICAN CENTURY REALTY, INC.,
a Missouri corporation
ATTEST:
____________________________________ By: _______________________________
Secretary Robert M. Bigley
Senior Vice President -
Facilities & Real Estate
2
<PAGE>
TENANT:
AVAX TECHNOLOGIES, INC.,
a Delaware corporation
ATTEST:
____________________________________ By:________________________________
Secretary Name:______________________________
Title:_____________________________
3
EXHIBIT 10.17
LEASE AGREEMENT
BETWEEN
RODIN PARTNERS, L.P.,
a Pennsylvania partnership, Landlord
AND
AVAX TECHNOLOGIES, INC,
a Delaware corporation, Tenant
Copy No. 4
Dated: December 1, 1997
<PAGE>
INDEX TO LEASE AGREEMENT
<TABLE>
<CAPTION>
Page
----
ARTICLE I TERM
<S> <C> <C>
Section 1.01 Confirmation of the Term................................ 1
Section 1.02 Inability to Deliver Possession......................... 1
Section 1.03 Failure of Tenant to Open and to
Operate ................................................ 1
Section 1.04 Lease Year.............................................. 1
ARTICLE II CONDUCT OF BUSINESS BY TENANT
Section 2.01 Use of Premises......................................... 2
Section 2.03 Licenses, Permits and
Certificates of Occupancy............................... 3
Section 2.03 Rules and Regulations................................... 3
ARTICLE III FIXED MINIMUM RENT; SECURITY DEPOSIT
Section 3.01 Fixed Minimum Rent...................................... 3
Section 3.02 Time and Place of Payment; Late
Charges ................................................ 3
Section 3.03 Security Deposit ....................................... 4
ARTICLE IV CONDITION OF PREMISES; CHANGES TO BUILDING
Section 4.01 Construction by Landlord ............................... 4
Section 4.02 Tenant's Improvements................................... 5
Section 4.03 Roof, Walls, Changes and Additions to Building.......... 5
Section 4.04 Condition of Premises .................................. 6
ARTICLE V COMMON AREAS; OPERATING COSTS
Section 5.01 Control of Common Areas................................. 6
Section 5.02 Operating Costs......................................... 6
Section 5.03 Payments on Account of Operating Costs.................. 7
Section 5.04 Landlord's Statement of Operating Costs ......... 8
Section 5.05 Payment of Balance of Operating Costs................... 8
Section 5.06 Accounting Period; Proration of Operating Expenses...... 8
vi
<PAGE>
ARTICLE VI TAXES
Section 6.01 Definition of Taxes..................................... 8
Section 6.02 Payments on Account of Tax Rent......................... 9
Section 6.03 Payment of Balance of Tax Rent.......................... 9
Section 6.04 Taxes on Leasehold ..................................... 9
ARTICLE VII UTILITIES
Section 7.01 Utilities............................................... 9
Section 7.02 Application for Utilities............................... 10
ARTICLE VIII REPAIRS AND ALTERATIONS
Section 8.01 Landlord's Repairs...................................... 10
Section 8.02 Tenant's Repairs........................................ 10
Section 8.03 Tenant's Right to Make Alterations...................... 10
ARTICLE IX MECHANICS' LIENS
Section 9.01 Tenant Shall Discharge All Liens........................ 11
ARTICLE X SIGNS
Section 10.01 Landlord's Approval..................................... 11
Section 10.02 Permits ................................................
ARTICLE XI INSPECTION OF PREMISES AND ACCESS THERETO
Section 11.01 Inspection of Premises; Repairs......................... 12
Section 11.02 Displaying "For Sale" and "For Rent" Signs.............. 12
ARTICLE XII INDEMNIFICATION
Section 12.01 Indemnification......................................... 12
Section 12.02 Occupancy at Tenant's Risk.............................. 13
Section 12.03 Release of Liability.................................... 13
Section 12.04 Litigation Involving Landlord........................... 13
ARTICLE XIII INSURANCE
Section 13.01 Required Coverages...................................... 13
Section 13.02 Designated Insureds; Endorsements;
Evidence of Insurance................................... 14
Section 13.03 No Injurious Acts....................................... 14
<PAGE>
Section 13.04 Failure to Maintain Required
Coverage................................................ 15
ARTICLE XIV TRADE FIXTURES
Section 14.01 Title to Property and Removal........................... 15
Section 14.02 Failure to Remove....................................... 15
ARTICLE XV ASSIGNMENT AND SUBLETTING
Section 15.01 Landlord's Consent ..................................... 16
Section 15.02 Transfer of Corporate and Partnership Interests......... 16
ARTICLE XVI SUBORDINATION AND ATTORNMENT
Section 16.01 Mortgages............................................... 17
Section 16.02 Execution of Documents.................................. 17
ARTICLE XVII SURRENDER AND HOLDOVER
Section 17.01 Tenant's Obligation to Surrender Premises............... 17
Section 17.02 Consensual Holdover..................................... 17
Section 17.03 Tenant's Liability for Failure to Surrender............. 18
ARTICLE XVIII DAMAGE OR DESTRUCTION OF PREMISES
Section 18.01 Total or Partial Destruction............................ 18
Section 18.02 Partial Destruction of Building......................... 19
Section 18.03 Notice by Tenant........................................ 19
ARTICLE XIX EMINENT DOMAIN
Section 19.01 Total Condemnation...................................... 19
Section 19.02 Partial Condemnation.................................... 19
Section 19.03 Partial Condemnation of Building........................ 20
Section 19.04 Landlord's Damages...................................... 20
Section 19.05 Tenant's Damages........................................ 20
ARTICLE XX TENANT'S DEFAULT
Section 20.01 Events of Default....................................... 20
ARTICLE XXI REMEDIES OF LANDLORD UPON TENANT'S DEFAULT
Section 21.01 Acceleration of Rent.................................... 22
<PAGE>
Section 21.02 Right to Reenter........................................ 22
Section 21.03 Right to Relet; Damages for Breach...................... 22
Section 21.04 Right to Terminate...................................... 23
Section 21.05 Confession of Judgment.................................. 23
Section 21.06 Recovery of Legal Expenses.............................. 25
Section 21.07 Injunctive Relief; All Remedies
Cumulative.............................................. 26
ARTICLE XXII ESTOPPEL STATEMENT
Section 22.01 Duty of Tenant to Furnish............................... 25
ARTICLE XXIII NOTICES
Section 23.01 Manner and Place of Service............................. 25
ARTICLE XXIV BROKERS
Section 24.01 Tenant's Warranty....................................... 26
Section 24.01 Landlord's Warranty .................................. 26
ARTICLE XXV MISCELLANEOUS
Section 25.01 Binding Effect.......................................... 26
Section 25.02 Quiet Enjoyment......................................... 26
Section 25.03 Waiver ................................................
Section 25.04 Custom and Usage........................................ 27
Section 25.05 Accord and Satisfaction................................. 27
Section 25.06 Entire Agreement........................................ 27
Section 25.07 Captions and Index...................................... 27
Section 25.08 Negation of Personal Liability.......................... 27
Section 25.09 Partial Invalidity; Separate Covenants.................. 28
Section 25.10 Recording............................................... 28
Section 25.11 Controlling Law......................................... 28
Section 25.12 Time of the Essence .................................... 28
Section 25.13 PIDC Assistance .................................... 28
Section 25.14 Acknowledgment ..................................... 29
</TABLE>
EXHIBITS
- --------
SCHEDULE 5.02 Exceptions to Operating Costs
EXHIBIT A Legal Description
EXHIBIT B Floor Plan of Premises
EXHIBIT C Rules and Regulations
EXHIBIT D Landlord's Work
EXHIBIT E Parking Regulations
EXHIBIT F Trash Removal Specifications
EXHIBIT G Amortization Table for LC
SCHEDULE I Letter of Credit Calculation
<PAGE>
LEASE SUMMARY
THIS LEASE SUMMARY is made on the 1 day of December, 1997, by and
between:
RODIN PARTNERS, L.P., a Pennsylvania partnership with an office at 55 Fifth
Avenue, New York, NY 10003 (hereinafter called "Landlord"), and --------
AVAX TECHNOLOGIES, INC., a Delaware corporation, with an address at 4520 Main
Street, Suite 930, Kansas City, MO 64111 (hereinafter called "Tenant").
WITNESSETH:
LEASED PREMISES Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord, in the building
(hereinafter called the "Building") known as "Rodin Place", located at 2000
Hamilton Street, Philadelphia, Pennsylvania 19103, and being more particularly
described in Exhibit A attached hereto and made a part hereof, the space
(hereinafter called the "Premises") designated on Exhibit B attached hereto and
made a part hereof, as follows:
SUITE NUMBERS: 200 AND 204.
The Premises are outlined on the Plan attached hereto as Exhibit B, containing
approximately 9,224 square feet for Suite 200 and 2,651 square feet for Suite
204 square feet (subject to confirmation as set forth below) together with the
right to the nonexclusive use, in common with others entitled to use same, of
all such driveways, malls, courts, corridors and footways, loading facilities
and other facilities as may be designated by Landlord, subject however to the
terms and conditions of this Lease Summary and the Lease Agreement attached
hereto and made a part hereof (hereinafter collectively referred to as the
"Lease"), and to reasonable rules and regulations for the use thereof as
prescribed from time to time by Landlord.
SQUARE FOOTAGE The Premises shall be measured from the center line of interior
walls and from the glass line of exterior walls, deducting any vertical shafts
and columns, and the resulting square footage grossed up by fifteen percent
(15%) to yield the "Final Square Footage." Such measurement shall be undertaken
by Landlord's architect and approved by Tenant's architect.
LENGTH OF TERM The term of this Lease shall be for ten (10) years, plus the
period, if any, between the Commencement Date set forth below, if it falls on a
day other than the first day of a month, and the first day of the next month
("Initial Term"). Upon Landlord's request, Tenant shall execute and deliver to
Landlord an agreement confirming the commencement and expiration dates of the
term of this Lease, the Fixed Minimum Rent, and the initial monthly payments on
account of Tenant's Pro Rata Share of Operating Costs and Tenant's Tax Rent.
<PAGE>
COMMENCEMENT The Initial Term of this Lease shall commence
DATE ("Commencement Date") on the later to occur of (a) sixty (60)
days after the date hereof, or (b) Landlord completing the Landlord's Work (as
defined in Exhibit D), provided that the Commencement Date shall automatically
occur sixty (60) days after the date hereof if Tenant does not, within fifteen
(15) days after the date hereof, provide to Landlord all design information
required by Landlord to permit Landlord to complete Landlord's Work.
FIXED MINIMUM RENT The Fixed Minimum Rent for each Lease Year (as defined in
Section 1.04 of the Lease Agreement) of the Initial Term of this Lease shall be
as follows:
Lease Years Annual Rent Per Square Foot of Final Square Footage
----------- ---------------------------------------------------
1-3 $10.50
4-6 $12.00
7-10 $14.00
Tenant shall pay to Landlord the Fixed Minimum Rent for the first month of the
term hereof upon Tenant's execution of this Lease. All Fixed Minimum Rent shall
be payable in accordance with the terms and conditions of this Lease, including,
without limitation, Article III of the Lease Agreement.
TAXES In accordance with Article VI of the Lease Agreement, Tenant
shall pay to Landlord Tenant's Pro Rata Share of any Taxes, as defined in
Article VI, in excess of the Taxes for calendar year 1998 ("Base Tax Year")..
TENANT'S SHARE OF In accordance with Article V of the Lease Agreement, Tenant
OPERATING COSTS shall pay to Landlord Tenant's Pro Rata share of Operating
Costs, as defined in Section 5.02 of the Lease Agreement, in excess of Operating
Costs for the fiscal year ending September 30, 1998 ("Operating Costs Base
Year").
TENANT'S PRO RATA Tenant's "Pro Rata Share" will equal a fraction, the numerator
SHARE which is the Final Square Footage (less the gross-up factor),
and the denominator of which is 201,000, the stipulated and agreed number of
square feet of leasable floor area of the Building as of the date hereof.
USE OF PREMISES Tenant shall use the Premises, subject to the provisions of
this Lease, solely for the purpose of biopharmaceutical research for clinical
trials, and commercialization, and related activities (including, without
limitation, the use of tumor cells and cancer cells in the development of
vaccines), subject, however, to compliance with applicable laws and ordinances
including, without limitation, the Philadelphia Zoning Code.
SECURITY DEPOSIT Tenant, contemporaneously with the execution of this Lease
Summary, has deposited with Landlord (a) the sum of Twenty
ii
<PAGE>
Thousand Six Hundred Seventy Eight Dollars and Forty Cents ($20,678.40),
representing two (2) months Fixed Minimum Rent, receipt of which is hereby
acknowledged by Landlord, and (b) an irrevocable, unconditional and evergreen
letter of credit in the amount set forth on Schedule 1 attached hereto, being
Landlord's best estimate of Landlord's out of pocket costs of the transaction
(including, without limitation, construction costs and leasing commissions). The
cash deposit and letter of credit are to be held as security for the faithful
performance by Tenant of all of the terms, covenants and conditions of this
Lease by Tenant to be kept and performed during the term hereof, subject to
Section 3.03 of the Lease Agreement.
LEASE DOCUMENTS In addition to this Lease Summary and the Lease Agreement, the
following are attached to this Lease and are incorporated in and made part of
this Lease:
EXHIBITS A THROUGH F, INCLUSIVE, AND SCHEDULE 1
BROKERS The following brokers and/or finders participated in this Lease
transaction: Glaze Commercial Real Estate Advisors and Corporate National
Realty, Inc., on behalf of Tenant, and Smith Mack & Company on behalf of
Landlord, for whose respective commissions Landlord shall be responsible. If
Landlord has not paid such commissions within sixty (60) days, Tenant may, after
five days' notice to Landlord, pay the commissions and deduct the amount thereof
from the next installment(s) of Fixed Minimum Rent.
SPECIAL PROVISIONS
1. Renewal Terms. Provided that no Event of Default has occurred
hereunder and is continuing, Tenant shall have the option to renew the term of
this Lease for up to two (2) additional terms of five (5) years each ("Renewal
Terms"), at a Fixed Minimum Rent per annum, to remain constant throughout the
five-year Renewal Term, equal to the lesser of (a) one hundred twenty percent
(120%) of the average Fixed Minimum Rent per annum in effect over the expiring
Term, or (b) ninety-five percent (95%) of the fair market value (including
applicable concessions, if any) for comparable leases in comparable buildings,
as determined by Landlord ("Fair Market Rent"). Tenant must notify Landlord of
Tenant's interest in renewing this Lease at least nine (9) months prior to the
expiration of the Initial Term, or the first Renewal Term, as the case may be (
failing which notice, Tenant's right to renew this Lease shall terminate and
expire), and Landlord shall, within thirty (30) days after receipt of such
notice, provide Tenant with the Fair Market Rent for the applicable Renewal
Term. Tenant must then notify Landlord of Tenant's renewal of this Lease at
least six (6) months prior to the expiration of the Initial Term, or the first
Renewal Term, as the case may be, failing which notice, Tenant's right to renew
this Lease shall terminate and expire. All terms and conditions of this Lease
other than the Fixed Minimum Rent shall apply to the Renewal Terms. The Initial
Term and Renewal Terms are hereafter collectively called the "Term".
2. Parking. Landlord shall supply Tenant with three (3) free parking
spaces in the Building garage as part of the Fixed Minimum Rent, and all parking
in the garage shall be
iii
<PAGE>
subject to the requirements of Exhibit E, which shall be strictly observed by
Tenant. In addition, if, as and when Landlord obtains control of additional
outdoor parking across 20th Street, Tenant shall have the right, at Tenant's
expense, to purchase monthly parking spaces from Landlord at the same price as
is offered to the public.
3. Option to Terminate. Tenant shall have the one-time option to
terminate this Lease, effective as of the last day of the fifth (5th) Lease
Year, by giving Landlord written notice no later than nine (9) months before
such effective date, accompanied by a termination payment equal to the
unamortized portion, calculated as of the effective date of such termination, of
all expenses incurred by Landlord directly related to the transaction recorded
herein, based upon a ten (10) year amortization period of such expenses,
assuming that the amount of such expenses has accrued interest at ten percent
(10%) per annum, all as shown on Schedule 2. Landlord shall provide Tenant with
the amount of such termination payment within ten (10) business days after
request therefor,
4. Expansion Option. Tenant shall have the right of first offer to
lease all space in the Building immediately adjacent to the Premises, if, as and
when such space becomes vacant during the Term hereof ("Option Space"). To
exercise such right, Tenant must give Landlord notice at least nine (9) months
before the expiration of each of the following leases for Option Space:
Suite Tenant Square Feet Lease Expiration
- ----- ------ ----------- ----------------
210 WGBS UPN-9 22,420 September 30, 2000
Subject to one five-year renewal option
208 SGI 5,817 May 31, 2002
205-6 MCC/ECP 6,160 August, 1999
Landlord shall promptly give Tenant notice of any extensions or renewals of any
of the foregoing leases. All of the terms of this Lease (including, without
limitation, the then-effective Fixed Minimum Rent per square foot and any future
increases, and all parking ratios) shall apply to the Option Space, and Tenant's
lease of the Option Space shall be co-terminus with the expiration of the Term
hereof. Tenant shall not be entitled to exercise its option to add any Option
Space to the Premises if the remaining Term of this Lease on the effective date
of such option is less than three (3) years, unless Tenant exercises any
remaining Renewal Term at the same time as exercising its option to lease the
Option Space. Tenant shall be conclusively deemed to have waived its right to
lease any particular portion of the Option Space if Tenant fails to give timely
notice of the exercise of such option as set forth above.
5. Storage Space. Landlord will make available to Tenant storage space
in the Building if, as and when such space is available from time to time, at
the rate of $4.00 per square foot. Any particular storage space must be vacated
by Tenant on 30 days' notice if such space is
iv
<PAGE>
required by Landlord for other non-storage uses. The Self-Service Storage
business located in the Building will not be available for such storage use by
Tenant.
6. Availability of Premises. Tenant shall have 24 hour, 7 day per week
access to the Premises. Building services will be provided from 6:00 a.m. to
7:00 p.m. weekdays and 7:00 a.m. to 2:00 p.m. on weekends and holidays, with
after-hours access requiring use of an access card.
7. Cleaning. Landlord shall include basic office cleaning services for
the Premises each weekday, but shall not clean lab space or remove any hazardous
materials. Landlord shall only remove regular office trash, which Tenant shall
collect for Landlord separately from other refuse; all other refuse shall be
removed by tenant at Tenant's expense. Attached hereto as Exhibit F are
Landlord's cleaning specifications.
8. Condition Precedent. As a condition precedent to Tenant's
obligations hereunder, Landlord has represented to Tenant that the use described
above is permitted under applicable provisions of the Zoning Code. If Tenant is
unable to obtain written confirmation of Tenant's right to occupy the Premises
for such use within fifteen (15) days after the date hereof, Tenant shall so
inform Landlord and Landlord shall make or complete the zoning use application
on behalf of Tenant. If Landlord does not deliver a zoning use permit within
forty-five (45) days thereafter, Tenant, as Tenant's sole remedy, may either
waive such condition or terminate this Lease and have the security deposit
refunded and the letter of credit returned (such right to terminate to expire if
Tenant does not terminate this Lease within sixty-five (65) days after the date
hereof).
9. Subordination. Tenant may terminate this Lease without liability if
Tenant does not receive a nondisturbance agreement within thirty (30) days after
the date hereof.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands and seals the day and year first above
written.
AVAX TECHNOLOGIES, INC. (Tenant)
By: /s/ Kamy A. Behzadi
---------------------
Kamy A. Behzadi, Ph.D,
Director of Operations
Attest:____________________
RODIN PARTNERS, L.P. (Landlord)
By: Rodin Acquisition Corp.,
a Pennsylvania corporation
By: /s/ Not Legible
---------------------------
President
v
<PAGE>
LEASE AGREEMENT
ARTICLE I
TERM
SECTION 1.01 Confirmation of the Term. The term of this Lease shall commence on
the Commencement Date, as defined in the Lease Summary, and shall terminate at
the end of the term without the necessity of any notice from either Landlord or
Tenant.
SECTION 1.02 Inability to Deliver Possession. If Landlord is unable to deliver
to Tenant possession of the Premises, as herein provided, by reason of any cause
beyond the reasonable control of Landlord, including, without limitation, the
holding over of a prior tenant, Landlord shall have no liability to Tenant
therefor, and during the period that Landlord is unable to deliver possession,
all rights and remedies of both parties hereunder shall be suspended. However,
if Landlord can deliver possession of Suite 200, Tenant shall accept occupancy
of such portion and the Fixed Minimum Rent shall be pro rated accordingly, based
on the square footage of the portion being delivered, until the full Premises
becomes available. In the event that Landlord is unable to deliver to Tenant
possession of the Premises within 120 days after the date hereof (for reasons
not within Tenant's control), Tenant shall receive a credit against the Fixed
Minimum Rent in the amount of one-half day's rent for each day after 120 that
delivery of possession is so delayed.
SECTION 1.03 Failure of Tenant to Open and to Operate. Tenant agrees that upon
receiving possession of the Premises from Landlord, Tenant shall with due
diligence proceed to install such fixtures and equipment and to perform such
other work as shall be necessary or appropriate in order to prepare the Premises
for the opening of business. If Tenant fails to open the Premises for the
conduct of its business or vacates the Premises prior to the expiration of the
term hereof, Landlord, in addition to all other remedies hereunder, shall have
the option of terminating this Lease by giving Tenant written notice of such
termination, whereupon this Lease shall be terminated.
SECTION 1.04 Lease Year. The term "Lease Year" as used in this Lease shall mean
the twelve (12) month period beginning with the Commencement Date and ending on
the next anniversary of the Commencement Date and each successive twelve (12)
month period thereafter during the term of this Lease.
<PAGE>
ARTICLE II
CONDUCT OF BUSINESS BY TENANT
SECTION 2.01 Use of Premises.
(a) Tenant shall use and occupy the Premises solely for the
conduct of the business set forth in the Lease Summary. Tenant shall not use or
permit or suffer the use of the Premises for any other business or purpose.
(b) Tenant shall not use the Premises for the generation,
manufacture, refining, transportation, treatment, storage or disposal of any
hazardous substance or waste or for any purpose which poses a substantial risk
of damage to the environment and shall not engage in any activity which would
subject Tenant to the provisions of the Federal Comprehensive Environmental
Response, Liability and Cleanup Act (42 U.S.C. Section 9601 et seq.), the
Federal Water Pollution Control Act (33 U.S.C.A. Section 1151 et seq.), the
Clean Water Act of 1977 (33 U.S.C.A. Section 1251 et seq.), the Pennsylvania
Hazardous Sites Clean-up Act (35 P.S. Sec. 6020.101 et seq.), and the
Pennsylvania Solid Waste Management Act (35 P.S. Sec. 6018 et seq.), or any
other federal, state or local environmental law, regulation or ordinance
(collectively, "Environmental Laws"), provided that Tenant may: (i) in
accordance with all applicable law, temporarily accumulate for up to 90 days
those hazardous materials and wastes used or generated on the Premises by Tenant
and which are necessary and incidental to the use and operation of the Premises
as permitted under this Lease; (ii) in accordance with applicable law, process
special handling waste that is generated in the Premises, and (iii) in
accordance with all applicable law, handle, store and process materials or
products generated or manufactured in the development and manufacture of
vaccines in the ordinary course of Tenant's business. Upon written request,
Tenant shall deliver to Landlord and any mortgagee of Landlord a certificate
expressly stipulating whether Tenant is engaged in or has been engaged in the
treatment of any hazardous substance or waste in or affecting the Premises, and
whether Tenant has caused a spill, contamination, discharge, leakage, release or
escape (collectively, "Spill") of any such substance or waste in or affecting
the Premises, and whether, to the best of Tenant's knowledge, such a Spill has
otherwise occurred at or affecting the Premises.
(c) Tenant shall be responsible for the immediate cleanup and
removal, to the extent required under EPA and PADEP standards and the standards
of any other Federal or state or local agency having jurisdiction, and to the
extent required to return the Premises to its previous condition, of any and all
spills, discharges, emissions, disposals or other releases of hazardous
materials or wastes occurring after to the Commencement Date and not expressly
permitted or allowed in accordance with applicable law (hereinafter,
collectively referred to as "Unpermitted Releases"), and Tenant shall be
responsible for all costs, expenses, liabilities and damages associated
therewith.
(d) Upon request, Tenant shall provide to Landlord copies of
(i) all applications or other documents submitted to any governmental agency by
Tenant with respect to all Environmental Laws, (ii) any notification or
correspondence submitted to any person pursuant
-2-
<PAGE>
to Environmental Laws, (iii) any permit, license, approval, identification
number, or amendment or modification thereto, granted pursuant to Environmental
Laws; and (iv) any record or manifest required to be maintained pursuant to
Environmental Laws.
(e) Upon receipt, Tenant or its agent shall submit to Landlord
copies of any and all documents pertaining to non-compliance with Environmental
Laws, such as notices of violation, summons, orders, complaints, penalty
assessments, judgments, injunctions and warnings.
(f) Upon request by Landlord or any mortgagee, Tenant shall
deliver to the requesting party such affidavits, reports or responses to
questions and certifications of compliance or non-applicability from the
appropriate governmental authorities as have been delivered by Tenant to such
authorities or received by Tenant from such authorities. Tenant shall provide
access to the Premises, upon request of Landlord or any mortgagee, for
inspections and/or testing for compliance with the requirements set forth in
this Section.
(g) The authorization of the use of the Premises for the
business purpose set forth herein shall not constitute a representation by
Landlord that such use of the Premises is now or shall continue to be permitted
or lawful under applicable laws or regulations.
SECTION 2.02 Licenses, Permits and Certificates of Occupancy. Tenant, at
Tenant's sole expense, shall obtain and maintain at all times during the term of
this Lease all licenses, permits and certificates of occupancy which may be
required by any governmental agency or authority.
SECTION 2.03 Rules and Regulations. Tenant shall comply with the rules and
regulations set forth in Exhibit C, attached hereto and made a part hereof, and
such additional reasonable non-discriminatory rules and regulations as shall
hereafter be promulgated by Landlord.
ARTICLE III
FIXED MINIMUM RENT; SECURITY DEPOSIT
SECTION 3.01 Fixed Minimum Rent. Tenant shall pay to Landlord the Fixed Minimum
Rent set forth in the Lease Summary, payable in advance in equal monthly
installments without any prior demand therefor and without deduction or set off
whatsoever, on the first day of each calendar month during the term hereof,
commencing as set forth in the Lease Summary. In the event that the Commencement
Date shall be a day other than the first day of a month, Tenant shall pay the
Fixed Minimum Rent in advance for the fractional month on a per diem basis
calculated on the basis of a thirty (30) day month. Tenant shall pay to Landlord
the Fixed Minimum Rent for the sixth full calendar month of the term hereof upon
Tenant's execution of this Lease.
SECTION 3.02 Time and Place of Payment; Late Charges. Tenant shall promptly pay
all rent and other charges and render all statements herein prescribed at the
management office of
-3-
<PAGE>
Landlord located in the Building or at such other office as Landlord shall
notify Tenant. All sums of money required to be paid by Tenant under this Lease,
whether or not the same are designated "additional rent", shall for all purposes
hereunder be deemed and shall be paid by Tenant as rent. In the event that
Tenant shall fail to pay any installment of Fixed Minimum Rent or any other
money or charges required to be paid by Tenant within ten (10) days after the
date the same is due and payable, then Landlord shall have, in addition to all
other remedies to which Landlord may otherwise be entitled, the right to receive
from Tenant, in addition to such amount due and owing, (i) a late charge equal
to five percent (5%) of the overdue amount, and (ii) interest at the rate of 18%
per annum, beginning ten (10) days after the date any such payment is due, as
and for a late charge to defray Landlord's costs and expenses in collecting such
delinquent rental. Such late charge and interest shall be due and payable as set
forth above without regard to any notice requirements set forth in Section 20.01
hereof.
SECTION 3.03 Security Deposit. The security deposit shall be held as collateral
security for the payment by Tenant of all rents and other charges under this
Lease, and for the faithful performance of all other covenants and agreements of
Tenant hereunder; the cash portion of the security deposit, with interest at
five percent (5%) per annum, shall be repaid to Tenant, and the letter of credit
will be returned to Tenant, within thirty (30) days after the termination of
this Lease or any renewal or extension thereof, provided Tenant shall have made
all such payments and performed all such covenants and agreements. Upon any
Event of Default by Tenant hereunder, all or part of the deposit (including,
without limitation, the proceeds of the letter of credit) may, at Landlord's
option, be applied on account of such default, and thereafter Tenant shall
restore the resulting deficiency in the deposit upon Landlord's demand. Landlord
may deliver the deposit to any purchaser of Landlord's interest in the Premises
and, thereupon, Landlord shall be discharged from any further liability with
respect to the deposit, and Tenant shall look solely to such purchaser for the
return of the deposit. Landlord may also draw down the proceeds of the letter of
credit if Landlord fails to receive a substitute letter of credit at least
thirty (30) days before the expiration or termination of the letter of credit.
. ARTICLE IV
CONDITION OF PREMISES; CHANGES TO BUILDING
SECTION 4.01 Construction by Landlord. Landlord, at Landlord's sole expense,
shall perform the work required to be performed by Landlord in Exhibit D,
attached hereto and made a part hereof ("Landlord's Work"). Landlord shall
complete Landlord's Work within sixty (60) days after receipt of any required
permits, which permits shall be based on drawings prepared by Tenant at Tenant's
expense, and shall deliver possession of the Premises to Tenant in broom clean
condition. Landlord shall have the exclusive right to determine the
architectural design and the structural, mechanical and other details and
specifications of Landlord's Work, including, but not limited to, the type of
materials and the manufacturer and supplier thereof. Landlord's Work shall
consist solely of the installation (but not the connection) of rooftop air
conditioning units, with a capacity equal to one ton per 300 feet of floor area
in the portion of the Premises designated as Suite 200 ("Rooftop Units"),
sufficient to supply normal office air conditioning to the Premises and in
locations appropriate for Tenant's design of the Premises. Landlord agrees
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that at the time Landlord completes Landlord's Work, the sprinkler system in the
Premises and the mechanical systems in Suite 204 will be in good working order.
Tenant shall have thirty (30) days after occupancy to report any deficiencies in
Landlord's Work to Landlord, and Landlord shall have thirty (30) days thereafter
to repair or complete such items.
SECTION 4.02 Tenant's Improvements.
(a) Landlord shall also contribute an amount (the "Allowance")
not to exceed Twenty-Five Dollars ($25.00) per rentable square foot (including
the gross-up factor) in Suite 200 and not to exceed Ten Dollars ($10.00) per
rentable square foot (including the gross-up factor) in the remainder of the
Premises, plus the sum of $51,696 ("Additional Allowance") (representing the
equivalent of five (5) months' Fixed Minimum Rent), all of which funds may be
drawn upon by Tenant for improvements to the Premises (but not furniture,
furnishings or equipment) at any time or from time to time during the first
Lease Year, provided that the Allowance will be drawn first. If the Additional
Allowance is not fully drawn within five (5) months after the date hereof, the
remaining Additional Allowance will be disbursed by Landlord to Tenant on the
fifth (5th) business day of the sixth (6th) month, without any right of setoff.
Landlord hereby acknowledges that costs associated with the construction of
Tenant's clean room (but not costs for furniture, furnishings or equipment)
shall be eligible for reimbursement from the Allowance. Any portion of the
Allowance unused after the first Lease Year shall no longer be available. Tenant
may make draws against the Allowance once each month for work in place, and each
draw shall be accompanied by invoices from Tenant's contractors in an amount
equal to at least the amount requested in such draw, and shall specify in which
Suite the work was done. All draws shall be subject to receipt by Landlord of
lien waivers, releases of liens and other similar requirements imposed by
Landlord's lender.
(b) Upon receipt of Landlord's prior written approval of
Tenant's plans and specifications, such approval not to be unreasonably
withheld, and receipt of necessary permits, Tenant shall commence and thereafter
promptly complete all the work required to prepare the Premises for the
operation of Tenant's business ("Tenant's Work"). All costs of the Tenant's Work
in excess of the Allowance shall be Tenant's sole responsibility.
SECTION 4.03 Roof, Walls, Changes and Additions to Building. Landlord reserves
the exclusive right at any time and from time to time to use all or any part of
the roof, exterior walls and air space above the finished ceiling of the
Premises to install or affix equipment, signs, antennae or other objects or
structures, to erect scaffolds, protective barriers or other aids to
construction and for other purposes, provided Landlord does not unreasonably
interfere with Tenant's operations; and to enter the Premises to shore the
foundations and walls thereof and to install, maintain and repair pipes, ducts,
conduits and wires in and adjacent to the Premises and serving other parts of
the Building, provided Landlord does not unreasonably interfere with Tenant's
operations. Landlord reserves the right at any time and from time to time to
make alterations or additions to, and to build additional stories on the
Building, and to build adjoining the same, and to construct other buildings and
improvements in the Building, provided Landlord does not unreasonably interfere
with Tenant's operations. Landlord reserves the right to reduce, enlarge and
change the area, level, location and arrangement of the Common Areas, as herein
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defined, and the Building, provided Landlord does not unreasonably interfere
with Tenant's operations or prevent Tenant from operating its business.
SECTION 4.04 Condition of Premises. Tenant acknowledges that Tenant has
inspected the Premises, is fully familiar with the physical condition thereof
and has agreed to lease the Premises as a result of such inspection and not in
reliance upon any representation made by Landlord or any of its officers,
employees, salespeople or agents. Except for such work as Landlord is required
to perform pursuant to Exhibit D, Tenant shall lease the Premises in "as is"
condition as of the date hereof.
ARTICLE V
COMMON AREAS; OPERATING COSTS
SECTION 5.01 Control of Common Areas. All areas, facilities, signs and equipment
to the extent made available by Landlord for the common and joint use and
benefit of Landlord, Tenant and other tenants and occupants of the Building, and
their respective employees, agents, subtenants, concessionaires, licensees,
customers and other invitees, are collectively referred to as "Common Areas". If
and to the extent made available by Landlord, Common Areas shall include, but
not be limited to, parking areas, streets, sidewalks, canopies, roadways,
loading platforms, washrooms, shelters, ramps, landscaped areas and other
facilities. All Common Areas shall be subject to the exclusive control and
management of Landlord, and Landlord shall have the right from time to restrict
parking by tenants and their employees to employee parking areas; to construct,
maintain and operate lighting facilities therefor; to police the same; to
enforce parking charges; to close all or any portion of the Common Areas to such
extent as may, in the opinion of Landlord's counsel, be legally sufficient to
prevent a dedication thereof or the accrual of any rights to any person or the
public therein; to close temporarily all or any portion of the Common Areas and
do or perform such other acts in and to Common Areas as Landlord shall determine
to be advisable; and to make all rules and regulations pertaining to and
necessary for the proper operation and maintenance of the Common Areas. Landlord
shall operate and maintain such Common Areas in such manner as Landlord, in its
sole discretion, shall determine from time to time. Subject to Section 4.03 and
this Section 5.01, Tenant is hereby given the license in common with all others
to whom Landlord has or may hereafter grant rights to use the Common Areas as
they may from time to time exist. Landlord may discontinue all facilities
furnished and services rendered by Landlord to the extent such facilities and
services are not expressly covenanted for herein and are not reasonably required
for Tenant's use of the Premises.
SECTION 5.02 Operating Costs. Subject to reimbursement as herein set forth,
Landlord shall operate and maintain or cause to be operated and maintained the
Common Areas and the Building. For each Accounting Period (as defined in Section
5.06) during the term of this Lease, Tenant shall pay to Landlord, as Tenant's
Pro Rata Share of Operating Costs (as defined below), the amount obtained by
multiplying (a) the total of all Operating Costs for such Accounting Period, to
the extent such Operating Costs exceed the Operating Costs for the Operating
Costs Base Year, by (b) Tenant's Pro Rata Share. "Operating Costs" are defined
as all actual costs incurred by Landlord in operating, managing, equipping,
lighting, repairing, replacing and
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maintaining the Building, including, without limitation, gardening, landscaping,
sanitary control, cleaning, lighting, preventive maintenance, snow, ice,
rubbish, debris, garbage and waste collection, removal and disposal,
resurfacing, painting, fire protection, insurance (including, but not limited to
liability insurance, fire insurance with extended coverage, workmen's
compensation insurance, plate glass insurance, boiler and machinery vandalism
and malicious mischief insurance, rent insurance and fidelity bonds),
maintenance of signs and awnings, repairs, security and policing, traffic
control, rental and depreciation of machinery, equipment and other assets used
in the operation and maintenance of the Building, parking charges imposed by any
governmental authority, interest expense in connection therewith, building
supplies, repairs and replacements to the roof, the structure and the
electrical, plumbing, heating, air conditioning and mechanical systems of the
Building, utilities not separately charged to individual tenants, loudspeakers,
public address and musical broadcasting systems, the cost of personnel to
implement such services and maintain the Building (including, without
limitation, the salaries of the management staff and all other personnel
employed to operate the Building and to carry out the maintenance and promotion
of the Building and all contributions toward fringe benefits, unemployment
insurance, pension plan contributions and similar contributions therefor), plus
fifteen percent (15%) of all of the foregoing costs to cover administrative and
overhead costs. Operating Costs shall not include depreciation other than as
specifically referred to above, replacements of capital items or capital
improvements or the items listed on Schedule 5.02. Tenant shall have the right
to have Landlord's Operating Costs audited at Tenant's expense as set forth
below, provided that an audit shall not delay or postpone payment of Tenant's
Pro Rata Share of Operating Costs or any deficiency as set fort in Section 5.05.
In the event of any dispute as to the floor area in the Building or any portion
thereof, the determination of Landlord shall be binding upon the parties absent
manifest error. Tenant will have the right to audit books and records detailing
Operating Costs and Taxes. If Tenant desires to audit Landlord's books and
records with respect to a calendar year, Tenant shall notify Landlord within
ninety (90) days after Tenant's receipt of a statement of Operating Costs with
respect to such calendar year. Tenant will then have sixty (60) days after the
giving of such notice within which to conduct such audit, and, if required, to
notify Landlord of Tenant's complaint. If any such audit should disclose that
Tenant's Pro Rata Share of Operating Costs or of Taxes have been overstated by
more than five percent (5%), then Landlord will immediately pay Tenant the full
amount of overpayment by Tenant together with interest on such overpayment the
rate of ten percent (10%) per year. In addition, if any such audit should
disclose that Tenant's Pro Rata Share of Operating Costs and Taxes have been
overstated by more than ten percent (10%), then Landlord will immediately pay
Tenant's reasonable out of pocket expenses, including, without limitation, all
accounting fees, incurred by Tenant in such audit.
SECTION 5.03 Payments on Account of Operating Costs. On the first day of each
calendar month after receipt of notice from Landlord that Taxes have increased
above the Base Tax Year or projected Operating Costs have increased above the
Operating Costs Base Year, Tenant shall pay to Landlord, in advance, without
demand and without any set off or deduction, as a payment on account of Tenant's
Pro Rata Share of Operating Costs, the amount equal to one twelfth (1/12) of the
annual amount estimated by Landlord from time to time to be Tenant's Pro Rata
Share of Operating Costs. If the Commencement Date shall not be the first day of
a calendar month, Tenant's payment of its share of Operating Costs for the
fractional month
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between the Commencement Date and the first day of the first full calendar month
in the term shall be prorated on a per diem basis (calculated on a thirty (30)
day month) and shall be paid together with the first payment of fixed minimum
rent. Landlord may at any time and from time to time adjust the monthly payments
on account on the basis of Landlord's revised estimate of Operating Costs, and
Tenant shall pay such adjusted amount upon notice from Landlord.
SECTION 5.04 Landlord's Statement of Operating Costs. Following the end of each
Accounting Period, Landlord shall furnish to Tenant a written statement covering
the Accounting Period just expired showing the total Operating Costs for such
Accounting Period (with reasonable back-up), the amount of Tenant's Pro Rata
Share thereof and payments made by Tenant with respect thereto.
SECTION 5.05 Payment of Balance of Operating Costs. If Tenant's Pro Rata Share
of Operating Costs exceeds Tenant's payments with respect to any Accounting
Period, Tenant shall pay to Landlord the deficiency within thirty (30) days
after the date of the furnishing of the statement from Landlord; if Tenant's
payments exceed Tenant's Pro Rata Share of the Operating Costs, Landlord shall
apply such excess to future payments on account of Operating Costs; provided, if
such overpayment is for the last Accounting Period, Landlord shall not be
obligated to refund to Tenant the amount of such overpayment until Tenant has
fully performed all of its obligations under this Lease. In the event Tenant is
indebted to Landlord for any reason whatsoever, Landlord may deduct such amount
owed from such overpayment.
SECTION 5.06 Accounting Period; Prorations of Operating Expenses. The words
"Accounting Period" mean the period consisting of twelve (12) consecutive
calendar months, commencing on a date determined by Landlord from time to time
(the initial Accounting Period shall run from October 1 to September 30) and
each succeeding twelve (12) calendar month period thereafter commencing in the
term of this Lease. If the term of this Lease commences other than on the first
day of an Accounting Period or terminates (other than by reason of Tenant's
default) prior to the last day of any Accounting Period, Tenant's obligations
for Tenant's share of Operating Costs for such Accounting Period shall be
prorated on a per diem basis (calculated on a 360 day year).
ARTICLE VI
TAXES
SECTION 6.01 Definition of Taxes. The word "Taxes" shall include all taxes
(excluding taxes for any period prior to the date hereof) attributable to land
or improvements now or hereafter made to the Building, all real estate taxes,
assessments, water and sewer fees, rents or charges not based on usage, and
other governmental impositions and charges of any kind whatsoever, nonrecurring
as well as recurring, special or extraordinary as well as ordinary, foreseen and
unforeseen. The word "Taxes" shall not include any charge, such as a water meter
charge and sewer rent based thereon, which is measured by the consumption by the
actual user of the item or service for which the charge is made.
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SECTION 6.02 Payments on Account of Tax Rent. For each Lease Year, Tenant shall
pay to Landlord the amount (hereinafter called "Tax Rent") obtained by
multiplying the total of all Taxes payable during such Lease Year, to the extent
such Taxes exceed the Taxes for the Base Tax Year, by Tenant's Pro Rata Share.
On account of Tax Rent, Tenant shall pay monthly, in advance, together with each
monthly installment of fixed minimum rent, without demand, set off or
counterclaim, an amount equal to one twelfth (1/12) of the annual amount
estimated by Landlord from time to time to be Tenant's Pro Rata Share of all
Taxes. Such amount may be adjusted by Landlord at any time and from time to time
during the term hereof on the basis of Landlord's revised estimate of Taxes, and
Tenant shall pay such adjusted amount upon notice from Landlord. If Tenant's
total payments on account of Tax Rent for any Lease Year exceed the actual
amount payable by Tenant as Tax Rent for such Lease Year, Landlord shall retain
such excess on account of future Tax Rent. In the event Tenant is indebted to
Landlord for any reason whatsoever, Landlord may deduct such amount owed from
such overpayment. At the termination of the Lease, Landlord may retain any
overpayment until Tenant has performed all of its obligations under the Lease.
SECTION 6.03 Payment of Balance of Tax Rent. Landlord shall have the right to
bill Tenant for Tax Rent at any time after each receipt by Landlord of a bill
for taxes ("Tax Bill"). Tenant shall pay the balance of its Tax Rent within
twenty (20) days after receipt from Landlord of a written statement setting
forth the taxes for which Landlord has received a Tax Bill, Tenant's share of
taxes, and Tenant's payments theretofore made on account of such Tax Rent.
SECTION 6.04 Taxes on Leasehold. Tenant shall pay prior to delinquency all taxes
assessed against any leasehold interest or personal property owned by Tenant or
placed in or about the Premises by Tenant. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, TENANT SHALL PAY ITS USE AND OCCUPANCY TAX TO LANDLORD, AS
REQUIRED BY LAW, AND LANDLORD SHALL REMIT ANY AMOUNTS SO PAID TO THE APPROPRIATE
GOVERNMENTAL AUTHORITY.
ARTICLE VII
UTILITIES
SECTION 7.01 Utilities. Commencing on the Commencement Date, Tenant shall pay
all charges for electricity (including air conditioning), gas, heat, water,
sewer and all other utilities used or consumed in or upon the Premises and
separately metered to Tenant, as and when the charges therefor shall become due
and payable. Tenant acknowledges that Landlord intends to furnish electricity to
the Building and the Premises, and Tenant agrees to pay Landlord promptly upon
billing Tenant's electricity usage based on the local utility company's general
service rate and upon Tenant's usage as determined by a separate demand register
KW/KWH to be installed by Landlord at Landlord's expense. Landlord shall be
entitled to terminate electric service in the event that Tenant fails to pay any
electric bill for a period of forty-five (45) days. In the event any utility is
furnished by the local utility company, and the Building is billed as a single
entity therefor, Landlord shall have the right to determine Tenant's share of
such charges and bill Tenant therefor, which bill Tenant shall pay promptly upon
receipt. Landlord shall not be liable
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to Tenant for damages or otherwise for any interruption, curtailment or
suspension of any or all utility services in the event of a default by Tenant
under this Lease, or due to repairs, action of public authority, strikes, acts
of God or public enemy, or any other cause, whether similar or dissimilar to the
foregoing.
SECTION 7.02 Application for Utilities. If Landlord shall elect not to supply or
shall elect to discontinue supplying Tenant with any utilities, Tenant, at
Tenant's sole expense, shall promptly make all appropriate arrangements with the
local utility companies for the hookup and supply of such utilities to the
Premises, including, without limitation, any metering expense and installation
costs. Landlord shall supply water to the Premises and Tenant shall pay for its
usage on a monthly basis based on a separate meter.
ARTICLE VIII
REPAIRS AND ALTERATIONS
SECTION 8.01 Landlord's Repairs. Subject to reimbursement as set forth in
Article V, Landlord shall keep the roof and the exterior walls of the Premises
in proper repair; provided, however, if Landlord is required to make such
repairs by reason of Tenant's negligence or breach of this Lease, Landlord may
collect the cost of such repairs from Tenant upon demand. If, without Landlord's
consent, Tenant performs any alterations or improvements which affect the roof
or exterior walls, such action by Tenant shall release Landlord from its repair
obligation and Tenant shall thereafter be responsible for the maintenance of the
roof and exterior walls so affected, provided, however, nothing herein contained
shall be construed to grant Tenant the right to perform any alterations or
improvements which affect the roof or exterior walls. Except as herein provided,
Landlord shall have no obligation to repair or maintain the Premises, including,
without limitation, any plumbing, heating, electrical, air conditioning or other
mechanical installation therein.
SECTION 8.02 Tenant's Repairs. Tenant, at Tenant's sole expense, shall maintain,
repair and replace all portions of the Premises not required to be maintained by
Landlord pursuant to Section 8.01 hereof in the same condition as on the
Commencement Date, normal wear and tear excepted, including, without limitation,
all partitions, fixtures, signs, doors, glass, equipment and all electrical,
plumbing, heating, air conditioning and other mechanical installations therein,
in good order and repair, using materials and labor of kind and quality equal to
the original work. Tenant shall repair promptly at Tenant's sole expense any
damage to the Premises caused by any construction or alterations performed by
Tenant, or by the delivery, installation or removal of Tenant's property, or by
Tenant's negligence.
SECTION 8.03 Tenant's Right to Make Alterations. Tenant shall not make any
alterations, improvements or additions to the Premises without the prior written
consent of Landlord, which Landlord will not unreasonably withhold. Tenant shall
supply Landlord with plans and specifications for all such alterations,
improvements and additions prior to requesting such consent. All alterations,
improvements and additions made by Tenant shall remain upon the
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Premises at the expiration or earlier termination of this Lease and shall become
the property of Landlord unless Landlord shall, prior to the commencement of
work on such alterations, improvements or additions, have given written notice
to Tenant to remove same, in which event Tenant shall remove such alterations,
improvements and additions and restore the Premises to the same good order and
condition in which it was on the date of this Lease except for any Landlord's
Work. Should Tenant fail so to do, Landlord may do so, and Tenant shall
reimburse Landlord for Landlord's expenses, on demand. All of such alterations,
improvements or additions shall be made solely at Tenant's expense; and Tenant
agrees to indemnify and save harmless Landlord (a) on account of any injury to
third persons or property by reason of any such changes, additions or
alterations and (b) from the payment of any claim on account of bills for labor
or materials furnished or claimed to have been furnished in connection
therewith. Tenant agrees to procure all necessary permits before undertaking
such work and to do all such work in a good and workmanlike manner, employing
materials of first quality and complying with all applicable governmental
requirements.
ARTICLE IX
MECHANICS' LIENS
SECTION 9.01 Tenant Shall Discharge All Liens. Tenant shall promptly pay all
contractors and materialmen retained by Tenant so as to minimize the possibility
of a mechanic's or materialman's lien attaching to the Premises or the Building.
Should any such lien be made or filed, Tenant shall bond against or discharge
the same within ten (10) days after written request by Landlord and, in the
event that Tenant shall fail to do so, Landlord, in addition to its other
remedies, may discharge the lien by payment of the amount secured thereby, or
otherwise as provided by law, and any amount so paid by Landlord, together with
any attorney's fees or other costs relating to the discharge of such lien, shall
be immediately payable by Tenant to Landlord. Prior to the commencement of any
work or the delivery of any material to the Premises by any contractor,
subcontractor or materialman ("Contractor"), Tenant shall deliver to Landlord a
recordable waiver of liens from each such Contractor in form and content
reasonably acceptable to Landlord. Prior to opening the Premises for business
with the public, Tenant shall deliver to Landlord a release of liens from each
such Contractor in form and content reasonably acceptable to Landlord.
ARTICLE X
SIGNS
SECTION 10.01 Landlord's Approval. Tenant shall not erect or maintain any sign,
awning, canopy, advertisement, notice, lettering or decoration ("Sign") on any
part of the outside of the Premises or of the Building, or inside the Premises
if visible from the outside, without first submitting to Landlord a plan or
sketch of the proposed Sign and without first obtaining Landlord's written
approval thereof, such approval not to be granted unless, inter alia, the
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proposed Sign conforms with the general regulations regarding Signs which may be
promulgated from time to time by Landlord for the Building as to size, style,
location and design. Tenant may erect interior signs, including, without
limitation, signs on the doors to the Premises. Landlord will, at Landlord's
expense, add Tenant's name to the Building directory in the office lobby; any
additional signs or changes in the directory shall be at Tenant's expense.
SECTION 10.02 Permits. Tenant, at Tenant's sole expense, shall obtain all
permits required in connection with such Signs, and shall comply with all laws,
orders, rules and regulations of governmental authorities relative to the
erection, maintenance and repair of such Signs.
ARTICLE XI
INSPECTION OF PREMISES AND ACCESS THERETO
SECTION 11.01 Inspection of Premises; Repairs. Landlord reserves the right at
all reasonable times, after one day's notice, by itself or its duly authorized
agents, to go upon and inspect the Premises and, at Landlord's option, to make
repairs, alterations and additions to the Premises or the Building, provided,
however, that nothing herein contained shall be deemed or construed as an
obligation of Landlord to undertake or effect any such repairs, alterations or
additions other than as herein specifically set forth, and any performance
thereof by Landlord shall not constitute a waiver of Tenant's default in failing
to perform the same.
SECTION 11.02 Displaying "For Sale" and "For Rent" Signs. Landlord reserves the
right to display a "For Sale" sign at any time, and, after notice from either
party of intention to terminate this Lease, or at any time within six (6) months
prior to the expiration of this Lease, a "For Rent" sign, or both "For Rent" and
"For Sale" signs, and all of said signs shall be placed upon said part of the
Premises as Landlord shall require, except on door or doors leading into the
Premises. Prospective purchasers or tenants authorized by Landlord may inspect
the Premises at reasonable hours at any time during business hours upon
reasonable prior notice, Landlord acknowledging that access to the Premises may
be restricted due to the nature of Tenant's operations.
ARTICLE XII
INDEMNIFICATION
SECTION 12.01 Indemnification. Tenant shall indemnify and save harmless Landlord
from suits, actions, damages, liabilities and expenses (including court costs
and reasonable attorney's fees) arising out of any occurrence in or at the
Premises or the occupancy or use by Tenant of the Premises, or occasioned wholly
or in part by any act or omission of Tenant, its agents, contractors, employees,
servants, invitees, licensees or concessionaires.
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SECTION 12.02 Occupancy at Tenant's Risk. Tenant shall store its property in,
and shall occupy, the Premises and all other portions of the Building at its own
risk, and hereby releases Landlord from all claims of every kind relating to
loss of life, personal or bodily injury or property damage. Landlord shall not
be responsible or liable at any time for any loss or damage to Tenant's
merchandise, equipment, fixtures or other personal property of Tenant or to
Tenant's business. Landlord shall not be responsible or liable to Tenant or to
those claiming by, through or under Tenant for any loss or damage that may be
occasioned by the acts or omissions of persons occupying adjacent, connecting or
adjoining premises. Landlord shall not be responsible or liable for any defect,
latent or otherwise, in the Premises or in the Building or in any of the
equipment, machinery, utilities, appliances or apparatus therein.
SECTION 12.03 Release of Liability. Landlord shall not be liable for, and Tenant
waives all claims for, loss or damage to Tenant's business or damage to person
or property sustained by Tenant or any person claiming through Tenant resulting
from any accident or occurrence in or upon the Premises, or any other part of
the Building, including, but not limited to, claims for damage resulting from:
(i) any equipment or appurtenances being out of repair; (ii) any defect in or
failure of plumbing, heating or air conditioning equipment, electric wiring or
the installation thereof, gas, water and steam pipes, stairs, porches, railings
or walks; (iii) fire, explosion, collapse or broken glass; (iv) the backing up
of any sewer pipe or downspout; (v) the bursting, leaking or running of any
tank, tub, washstand, water closet, waste pipe, drain or any other pipe or tank
in, upon or about the Premises or the Building; (vi) the escape of steam or hot
water; (vii) water, snow, or ice being upon or coming through the roof,
skylight, trap door, stairs, doorways, show windows, walks or any other place
upon or near the Premises or the Building or otherwise; (viii) the falling of
any fixture, plaster, tile or stucco; and (ix) any act, omission or negligence
of other tenants, licensees or of any other persons or occupants of the
Building, or of owners of adjacent or contiguous property, or the public, unless
such damage arises from Landlord's negligence or willful misconduct or
Landlord's breach of this Lease.
SECTION 12.04 Litigation Involving Landlord. In the event that Landlord shall be
made a party to any litigation commenced against Tenant by a third party not
arising from Landlord's negligence or misconduct, Tenant shall indemnify and
hold harmless Landlord from and against any liability arising therefrom, and
shall pay all costs, expenses and reasonable attorneys' fees.
ARTICLE XIII
INSURANCE
SECTION 13.01 Required Coverages. Tenant, at Tenant's sole expense, shall obtain
and maintain in full force and effect during the term of this Lease, the
following policies of insurance:
(a) Fire and extended coverage insurance covering all of
Tenant's stock in trade, fixtures, furniture, furnishings, and all other
improvements and decorations placed
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by Tenant in or upon the Premises, to the extent of 100% of their full insurable
value and replacement cost without deduction for depreciation;
(b) Comprehensive general public liability insurance on
an occurrence basis with minimum limits of liability in an amount of not less
than $1,000,000.00 for bodily, personal injury or death to any one person, not
less than $1,000,000.00 for bodily, personal injury or death to more than one
person and not less than $500,000.00 with respect to damage to property
including water damage and sprinkler leakage legal liability;
(c) Plate glass insurance covering all plate glass in
the Premises.
SECTION 13.02 Designated Insureds; Endorsements; Evidence of Insurance. All
insurance policies to be obtained by Tenant hereunder shall be in the names of
both Landlord and Tenant, as their respective interests may appear, together
with such other party or parties as may be designated by Landlord, including,
without limitation, Landlord's mortgagees, as their interests may appear. All
such policies of insurance shall be issued by financially responsible companies
licensed to do business in Pennsylvania, and shall contain endorsements
providing as follows: (a) that any such insurance shall not be subject to
cancellation, termination or change except after ten (10) days' prior written
notice by registered or certified mail to Landlord and such party or parties as
may be designated by Landlord (collectively "Landlord's Group") by the insurance
company; and (b) that Landlord's Group shall not be liable for any damage by
fire or other casualty covered by such insurance, it being understood that
Tenant shall look solely to its insurer or insurers for reimbursement. Tenant
waives its right to recover damages against Landlord's Group for any reason
whatsoever to the extent the damage or destruction is covered by such insurance.
Any insurance policy procured by Tenant which does not name all the members of
Landlord's Group as additional insureds shall contain an express waiver of any
right of subrogation by the insurance company against Landlord's Group. All
public liability and property damage policies shall contain an endorsement that
the members of Landlord's Group, although named as insureds, shall nevertheless
be entitled to recover under said policies for any loss or damage occasioned to
them, their servants, agents and employees by reason of the negligence of
Tenant. All policies of fire and/or extended coverage or other insurance
covering the Premises or its contents shall contain a clause or endorsement
providing in substance that the insurance shall not be prejudiced if the
insureds have waived right of recovery from any person or persons prior to the
date and time of loss or damage, if any. All policies shall contain a provision
substantially as follows: "The insurance afforded by this policy for more than
one named insured shall not operate to increase the limits of the company's
liability, but otherwise, shall not operate to limit or void the coverage of any
one named insured as respects claims against the same insured by any other named
insured or the employees of such other named insured". The original policy or
policies, or duly executed certificates for the same, together with satisfactory
evidence of payment of the premium thereof shall be delivered to Landlord's
Group upon the execution of this Lease, and upon renewals of such policies, not
less than fifteen (15) days prior to the expiration of the term of any such
coverage.
SECTION 13.03 No Injurious Acts. Tenant shall not do or keep anything in or
about the Premises which will violate the provisions of Landlord's insurance
policies, or which will
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adversely affect Landlord's fire or liability insurance premium rating or which
will prevent Landlord from procuring and maintaining such policies with
insurance companies acceptable to Landlord. If anything is done, omitted to be
done or kept by Tenant in or about the Premises which causes the rate of any
insurance on the Premises or other property of Landlord in companies acceptable
to Landlord to be increased, Tenant will pay the amount of such increase
promptly upon Landlord's demand (provided that any other tenant of the Building
whose acts or omissions increase the insurance premiums of the Building shall
likewise be solely responsible for such increases).
SECTION 13.04 Failure to Maintain Required Coverage. In the event that Tenant
shall fail to obtain or maintain in full force and effect the insurance policies
and coverages required of it hereunder, Landlord may obtain such insurance or
coverage, pay the premiums thereon, and take such other steps as may be
necessary to meet the requirements of this Article and upon demand, obtain
reimbursement of the costs so expended (including service charges in the amount
of 1-1/2% per month upon all such costs paid by Landlord) from Tenant.
ARTICLE XIV
TRADE FIXTURES
SECTION 14.01 Title to Property and Removal. All trade fixtures (including,
without limitation, hoods, equipment, tanks and other items to be placed in the
"clean room" and designated as trade fixtures by Tenant) installed by Tenant in
the Premises shall remain the property of Tenant and shall be removable at the
expiration or earlier termination of this Lease, provided Tenant shall not at
such time be in default under this Lease; and provided further, that in the
event of such removal, Tenant shall repair any damage caused by such removal,
and Tenant shall promptly restore the Premises to its original order and
condition, normal wear and tear excepted. Any such trade fixture not removed at
or prior to such termination shall be and become the property of Landlord.
Subject to the foregoing, lighting fixtures and air conditioning equipment,
whether or not installed by Tenant, shall not be removable at the expiration or
earlier termination of this Lease and shall become the property of Landlord.
SECTION 14.02 Failure to Remove. In the event, at the expiration or earlier
termination of this Lease, Tenant fails to remove any trade fixtures installed
by Tenant, then Landlord may remove such fixtures and recover all costs
incidental to such removal from Tenant, and Landlord may dispose of such
fixtures in any manner Landlord deems fit without the necessity of accounting to
Tenant for the proceeds of same.
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ARTICLE XV
ASSIGNMENT AND SUBLETTING
SECTION 15.01 Landlord's Consent. Tenant shall not voluntarily, involuntarily or
by operation of law assign, mortgage, pledge or encumber (collectively
"Assignment") this Lease, in whole or in part, or sublet the whole or any part
of the Premises, or permit the use or occupancy of the whole or any part of the
Premises by others, including, without limitation, the operation of all or any
part of the Premises by a licensee or concessionaire, without first obtaining in
each and every instance the prior written consent of Landlord, which Landlord
will not unreasonably withhold. Such consent shall be based on, inter alia, the
net worth of the proposed assignee/subtenant, the proposed use and the rent to
be paid. Landlord will consent to a sublease or assignment to an affiliate or
subsidiary of Tenant so long as the overall lease credit is not impaired. Any
consent by Landlord to an Assignment or subletting or use or occupancy by others
shall be held to apply only to the specific transaction thereby authorized and
shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting or use or occupancy by others. If this Lease
or any interest herein be assigned or if the Premises or any part thereof be
sublet or used or occupied by anyone other than Tenant with Landlord's prior
written consent, Tenant shall pay to Landlord monthly the excess of the
consideration received or to be received during such month for such Assignment,
sublease, or occupancy (whether or not denoted as rent) over the rent reserved
for such month in this Lease applicable to such portion of the Premises so
assigned, sublet or occupied, after deduction of Tenant's reasonable expenses.
If this Lease or any interest of Tenant herein be assigned or if the whole or
any part of the Premises be sublet or used or occupied by others (including,
without limitation, an affiliate or subsidiary of Tenant), after having obtained
Landlord's prior written consent thereto, Tenant shall nevertheless remain fully
liable for the full performance of all obligations under this Lease to be
performed by Tenant and Tenant shall not be released therefrom in any manner.
SECTION 15.02 Transfers of Corporate and Partnership Interests. If Tenant is a
corporation, the transfer at any time during the term of this Lease of part or
all of the corporate shares of Tenant, or of a parent corporation of which
Tenant is a direct or indirect subsidiary, which results, either individually or
cumulatively, in a change in the effective voting control of Tenant or of such
parent corporation shall constitute a prohibited assignment of this Lease;
provided however that (i) Landlord shall not unreasonably withhold its consent
to such a transfer if the transferee demonstrates to Landlord's satisfaction a
net worth greater than the net worth of the transferor on the date of this
Lease, and (ii) this provision shall not apply in the event that over fifty
percent (50%) of the voting power of the Tenant corporation or of such parent
corporation is held by fifty (50) or more unrelated shareholders. If Tenant is a
partnership, and if at any time during the term of this Lease any person who at
the time of the execution of this Lease owns a general partner's interest ceases
to own such general partner's interest, such cessation of ownership shall
constitute a prohibited Assignment of this Lease.
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ARTICLE XVI
SUBORDINATION AND ATTORNMENT
SECTION 16.01 Mortgages. This Lease and the Tenant's interest hereunder shall be
subject and subordinate at all times to any and all mortgages, deeds of trust,
and other security instruments, including all renewals, extensions,
consolidations, assignments and refinancings of the same (collectively
"Mortgage") as well as all advances made upon the security thereof, which now or
hereafter become liens upon the Landlord's interest in the Premises and/or the
Building. Notwithstanding the foregoing, so long as no Event of Default has
occurred hereunder, Tenant shall not be disturbed in its quiet enjoyment of the
Premises. In case Landlord's interest under the Mortgage shall terminate for any
reason and if the holder of any such Mortgage ("Mortgagee") or if the grantee of
a deed in lieu of foreclosure, or if the purchaser at any foreclosure sale or at
any sale under a power of sale contained in any such Mortgage shall at its sole
option so request, Tenant shall attorn to, and recognize such Mortgagee, grantee
or purchaser, as the case may be, as Landlord under this Lease for the balance
then remaining of the term of this Lease, subject to all terms of this Lease.
The aforesaid provisions shall be self-operative and no further instrument or
document shall be necessary unless required by any such Mortgagee, grantee or
purchaser. Notwithstanding anything to the contrary set forth above, any
Mortgagee may at any time subordinate its Mortgage to this Lease, without
Tenant's consent, by execution of a written document subordinating such Mortgage
to this Lease, and thereupon this Lease shall be deemed prior to such Mortgage.
SECTION 16.02 Execution of Documents. Tenant agrees to execute such documents as
may be required by any such Mortgagee, grantee or purchaser for the purpose of
confirming such subordination or attornment. In the event Tenant fails to
execute such documents within ten (10) days after a written request therefor
shall have been forwarded to Tenant by Landlord, then Tenant shall be deemed to
have appointed Landlord, and Landlord shall thereupon be regarded as the
irrevocable attorney-in-fact of the Tenant, duly authorized to execute and
deliver the required documents for and on behalf of Tenant.
ARTICLE XVII
SURRENDER AND HOLDOVER
SECTION 17.01 Tenant's Obligation to Surrender Premises. Tenant, upon expiration
or earlier termination of this Lease, shall peaceably surrender to Landlord the
Premises in broom-clean condition and in good repair as required by the terms of
this Lease subject to reasonable wear and tear. Tenant shall surrender all keys
for the Premises to Landlord. Tenant shall remove all trade fixtures before
surrendering the Premises as aforesaid and shall repair any damage to the
Premises caused thereby.
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SECTION 17.02 Consensual Holdover. In the event Tenant shall remain in
possession of the Premises with Landlord's consent but without having executed a
new lease or an extension or renewal of this Lease, then Tenant shall be deemed
to be in occupancy and possession of the Premises as a tenant from month to
month, subject to all the other terms and conditions of this Lease insofar as
the same are applicable to a month-to-month tenancy. In the event that there
occurs such a consensual holdover, either party may terminate said occupancy at
the end of any one month period following the expiration date of the term of
this Lease upon at least thirty (30) days' written notice to the other party.
SECTION 17.03 Tenant's Liability for Failure to Surrender. If Tenant fails to so
surrender the Premises upon the expiration or earlier termination of this Lease,
Tenant shall pay, for the period Tenant retains possession of the Premises, an
amount equal to 150% of the Fixed Minimum Rent and other charges payable
immediately prior to the expiration or earlier termination of this Lease, and
Tenant shall indemnify and hold harmless Landlord from loss or liability
resulting from such failure including, without limitation, any claims made by
any succeeding tenant founded on such failure. Nothing contained in this section
shall be deemed or construed as conferring upon Tenant a right to remain in
possession of the Premises beyond the expiration or termination of this Lease or
any extension or renewal hereof.
ARTICLE XVIII
DAMAGE OR DESTRUCTION OF PREMISES
SECTION 18.01 Total or Partial Destruction. If the Premises shall be damaged by
fire or other casualty covered by Landlord's policies of fire and broad form
extended coverage insurance but are not thereby rendered untenantable in whole
or in part, Landlord shall at its own expense cause such damage to be repaired,
and the rent shall not be abated. If by reason of such occurrence, the Premises
shall be rendered untenantable in whole or in part and such damage can, in
Landlord's reasonable judgment, be repaired within 180 days, Landlord shall at
its own expense cause the damage to be repaired and the Fixed Minimum Rent and
other charges due hereunder meanwhile shall be abated proportionately as to the
portion of the Premises rendered untenantable until Landlord has restored the
Premises. If the Premises shall be damaged or destroyed by a fire or casualty
not covered by Landlord's policies of fire and broad form extended coverage
insurance and Landlord decides not to repair and restore the Premises, Landlord
shall have the right, to be exercised by notice in writing delivered to Tenant
within ninety (90) days from and after the occurrence of such damage or
destruction, to elect to terminate this Lease. Landlord shall have the right, to
be exercised by notice in writing, delivered to Tenant within thirty (30) days
after any occurrence which renders the Premises wholly untenantable to terminate
this Lease if said destruction of the Premises occurs within the last three (3)
years of the original term or the last three (3) years of any renewal term
hereof. In any of said events, the termination shall take effect thirty (30)
days after the receipt of such notice by Tenant and the rent and other charges
shall be payable through such date, subject to proportional abatement. In no
event shall Landlord be obligated to expend for any repairs or reconstruction an
amount in excess of the insurance proceeds recovered by it and allocable to the
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damage of the Premises after deduction therefrom of any amounts required to be
paid to any Mortgagee. Landlord shall not be liable for delays occasioned by
adjustment of losses with insurance carriers or by any other cause so long as
Landlord shall proceed in good faith. If Landlord is required to repair or
reconstruct the Premises pursuant to the provisions of this section, Landlord's
obligation shall be limited to the construction of the Building shell. Tenant,
at Tenant's expense, shall submit to Landlord for Landlord's approval plans and
specifications for all other work not required to be done by Landlord and, upon
approval of such plans and specifications and within fifteen (15) days after
Tenant has been notified that Landlord has completed its work on the Premises,
Tenant shall reenter the Premises and therein diligently pursue to completion
such work at Tenant's expense and thereafter commence doing business all in
accordance with the provisions of this Lease within forty-five (45) days after
said notice.
SECTION 18.02 Partial Destruction of Building. In the event that more than one
third (1/3) of the gross leasable area of the Building shall be damaged or
destroyed by fire or other cause, notwithstanding that the Premises may be
unaffected by such fire or other cause, Landlord shall have the right, to be
exercised by notice in writing delivered to Tenant within sixty (60) days after
said occurrence, to terminate this Lease. Upon the giving of such notice, the
term of this Lease shall expire fifteen (15) days after such notice is given,
the rent and other charges shall be payable through such date, subject to
proportional abatement, and Tenant shall vacate the Premises and surrender the
same to Landlord.
SECTION 18.03 Notice by Tenant. Tenant shall immediately notify Landlord of any
damage by fire or other casualty to the Premises or to the Building.
ARTICLE XIX
EMINENT DOMAIN
SECTION 19.01 Total Condemnation. If the whole of the Premises shall be taken by
any public or quasi-public authority under the power of eminent domain,
condemnation or expropriation or in the event of a conveyance in lieu thereof,
then the term of this Lease shall terminate as of the date on which possession
of the Premises is required to be surrendered to the condemning authority, all
rent and other charges shall be paid up to that date, and Tenant shall have no
claim against Landlord for the value of any unexpired term of this Lease.
SECTION 19.02 Partial Condemnation. If any part of the Premises shall be so
taken or conveyed, and in the event that such partial taking or conveyance shall
render the Premises unsuitable for the business of Tenant in Tenant's , then the
term of this Lease shall terminate as of the date on which possession of the
Premises is required to be surrendered to the condemning authority, all rent and
other charges shall be paid up to that date, and Tenant shall have no claim
against Landlord for the value of any unexpired term of this Lease. In the event
of a partial taking or conveyance which is not extensive enough to render the
Premises unsuitable for the business of Tenant, then Landlord shall promptly
restore the Premises to the extent of condemnation proceeds available for such
purpose to a condition comparable to their condition at
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the time of such condemnation less the portion lost in the taking, Tenant shall
promptly make all necessary repairs, restoration and alterations of Tenant's
fixtures, equipment and furnishings and shall promptly reenter the Premises and
commence doing business in accordance with the provisions of this Lease and this
Lease shall continue in full force and effect. In such event, the Fixed Minimum
Rent shall be reduced in the same proportion that the floor area of the Premises
so taken or conveyed bears to the floor area of the Premises immediately prior
to such taking or conveyance, such reduction commencing as of the date Tenant is
required to surrender possession of such portion. For purposes of determining
the amount of funds available for restoration of the Premises from the
condemnation award, said amount shall be deemed to be that part of the award
which remains after payment of Landlord's reasonable expenses incurred in
recovering same and any amounts due to any Mortgagee, and which represents a
portion of the total sum so available (excluding any award or other compensation
for land) which is equitably allocable to the Premises.
SECTION 19.03 Partial Condemnation of Building. If (a) more than one third (1/3)
of the floor area of the Building or more than one third (1/3) of the Common
Areas shall be so taken or conveyed, or (b) any part of the parking area in the
Building shall be so taken or conveyed and if, as the result of such partial
taking or conveyance of the parking area, the size, layout or location of the
remaining parking facilities shall violate the requirements of the applicable
zoning or similar laws, then Landlord shall have the right to terminate this
Lease as of the date on which possession of the property is required to be
surrendered to the condemning authority, and all rent and other charges shall be
paid up to that date. Tenant shall have no claim against Landlord for the value
of any unexpired term of this Lease.
SECTION 19.04 Landlord's Damages. In the event of any taking or conveyance as
herein provided, Tenant shall not be entitled to any part of the award for such
taking or conveyance, and Landlord and any Mortgagee shall receive the full
amount of such award as their respective interests may appear. Tenant expressly
waives any right or claim to any part thereof and assigns to Landlord any such
right or claim to which Tenant might become entitled.
SECTION 19.05 Tenant's Damages. Although all damages in the event of any
condemnation shall belong to Landlord and any Mortgagee, Tenant shall have the
right, to the extent that same shall not diminish Landlord's or such Mortgagee's
award, to claim and recover from the condemning authority, but not from Landlord
or such Mortgagee, such compensation as may be separately awarded or recoverable
by Tenant in Tenant's own right for or on account of, and limited solely to, any
cost to which Tenant might be put in removing Tenant's merchandise, furniture,
fixtures, leasehold improvements and equipment.
ARTICLE XX
TENANT'S DEFAULT
SECTION 20.01 Events of Default. Each of the following shall constitute an Event
of Default ("Event of Default"):
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(a) Tenant defaults in the payment of any installment of Fixed
Minimum Rent for a period of ten (10) days after such payment is due. Landlord
shall give Tenant three days' notice of such default before any exercising any
remedy, but shall not be obligated to give such notice more than twice in any
12-month period and thereafter may exercise Landlord's remedies without any
notice; or
(b) Tenant defaults in the payment of any installment of, or
on account of, Tax Rent, Tenant's Pro Rata Share of Operating Costs or any other
charge or payment due or payable by Tenant under this Lease on any day upon
which the same shall be due and payable and such default continues for ten (10)
days after the date on which the same was due and payable; or
(c) Tenant defaults in the performance of any obligation,
covenant or agreement of Tenant to be performed or observed under this Lease,
other than those specifically set forth elsewhere in this Section 20.01, and
such default continues and is not cured by Tenant within thirty (30) days after
Landlord has given to Tenant a notice specifying the same, or, in the case of a
default which cannot with due diligence be cured within a period of thirty (30)
days and the continuance of which for the period required for cure will not
subject Landlord to the risk of criminal liability or termination of any
superior lease or foreclosure of any Mortgage, if Tenant does not in good faith
duly institute within such thirty (30) day period all steps necessary to cure
the same and promptly and diligently prosecute to completion such cure within
ninety (90) days after said Landlord's notice, provided however that, in the
event there are defaults under this Section 20.01(c) on two occasions within any
twelve (12) month period, then regardless of whether said defaults shall have
been cured within the applicable period set forth above, any further default
under this Section 20.01(c) shall be deemed a "Deliberate Event of Default". In
the event of a Deliberate Event of Default, Landlord, without giving Tenant any
notice or opportunity to cure such default, may exercise all of Landlord's
rights under this Lease, at law, in equity or otherwise; or
(d) Tenant abandons the Premises, whether the Premises are
vacant or not, or Tenant permits the Premises to be vacant; or
(e) Tenant removes, attempts to remove or expresses or
displays any intention to remove any of the goods or property in the Premises
other than in the ordinary and usual course of business; or
(f) Any execution or attachment is issued against Tenant or
any of Tenant's property and is not discharged or vacated within thirty (30)
days after the issuance thereof; or
(g) Tenant is in breach of the terms of Article XV of this
Lease; or
(h) Tenant or any guarantor of Tenant makes an assignment for
the benefit of creditors or becomes a party or subject to any liquidation or
dissolution action or proceeding, or the institution of any bankruptcy,
reorganization, insolvency or other proceeding for the relief of financially
distressed debtors with respect to Tenant or said guarantor, or the appointment
of a receiver, liquidator, custodian or trustee for Tenant or said guarantor or
a substantial part of
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Tenant's or said guarantor's assets and, if any of the same shall occur
involuntarily, the same is not dismissed or discharged within sixty (60) days;
or the entry of an order for relief against Tenant or said guarantor under Title
II of the United States Code entitled "Bankruptcy"; or Tenant or said guarantor
taking any action to effect, or which indicates Tenant's or said guarantor's
acquiescence in, any of the foregoing.
ARTICLE XXI
REMEDIES OF LANDLORD UPON TENANT'S DEFAULT
SECTION 21.01 Acceleration of Rent. Upon the occurrence of an Event of Default,
the entire rent and all other sums payable hereunder for the balance of the term
shall immediately become due and payable as if by the terms of this Lease they
were payable in advance, and Landlord may immediately proceed to distrain,
collect, confess judgment or bring action for said rent and other sums, as being
in arrears, or may file a proof of claim in any bankruptcy or insolvency
proceedings for such rent and other sums, or Landlord may institute any other
proceedings to enforce payment thereof.
For the purposes of this Section 21.01, the rent and all other sums
payable hereunder for the balance of the term shall be deemed to be the sum of
(a) the aggregate of the Fixed Minimum Rent reserved for the balance of the term
of this Lease and (b) the annual average of the Tax Rent, Tenant's Pro Rata
Share of Operating Costs, Tenant's utility charges and other charges payable in
the Lease Year immediately preceding the Event of Default (collectively "Annual
Lease Payments") multiplied by the number of years and fraction of a year then
constituting the unexpired term of this Lease (in each case exclusive of
unexercised renewal periods).
SECTION 21.02 Right to Reenter. Upon the occurrence of an Event of Default,
Landlord may terminate all services (including, without limitation, the
furnishing of utilities) and may reenter the Premises, either by summary
proceeding or otherwise, and may remove all persons and property from the
Premises, and such property may be removed and stored in public warehouse at the
cost of and for the account of Tenant. Landlord, without further demand or
notice, may proceed to distress and sell the goods there found and to levy the
rent and all other charges herein, and Tenant shall pay all costs and officers'
commissions, including watchmen's wage, and further including a sum equal to
five percent (5%) of the amount of the levy chargeable as commissions to the
constable or other person making the levy and, in such cases, all costs,
officers' commissions and other charges shall immediately attach and become a
part of the claim of Landlord for rent, and any tender of rent without said
costs, commissions and charges made after the issue of a warrant of distress
shall not be sufficient to satisfy the claim of Landlord.
SECTION 21.03 Right to Relet; Damages for Breach. Should Landlord elect to
reenter the Premises as herein provided, or should Landlord take possession
pursuant to legal proceedings or pursuant to any notice provided for by law,
Landlord may relet the Premises or any part thereof for such term or terms
(which may be for a term extending beyond the term of this Lease) and at
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such rental or rentals and upon such other terms and conditions as Landlord in
its sole discretion may deem advisable; Landlord may make such alterations and
repairs as Landlord deems necessary in order to relet the Premises; upon each
such reletting all rentals received by Landlord from such reletting shall be
applied, first, to the payment of any costs and expenses of such reletting,
including brokerage fees, attorneys' fees and costs of such alterations and
repairs; second, to the payment of any indebtedness other than rent due
hereunder from Tenant to Landlord; third, to the payment of rent due and unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same may become due and payable hereunder. If such
rents received from such reletting during any month are less than that to be
paid during that month by Tenant hereunder, Tenant shall pay any such deficiency
to Landlord. Such deficiency shall be calculated and paid monthly. No such
reentry or taking possession of the Premises by Landlord shall be construed as
an election on its part to terminate this Lease unless a written notice of such
intention be given to Tenant or unless the termination thereof be decreed by a
court of competent jurisdiction. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for such previous breach.
SECTION 21.04 Right to Terminate; Right to Discontinue Services. Upon the
occurrence of an Event of Default, Landlord may give Tenant a notice of
intention to end the term of this Lease at the expiration of five (5) days from
the service of such notice of intention, and upon the expiration of said five
(5) day period, this Lease (whether or not the term hereof shall theretofore
have commenced), as well as all of the right, title and interest of Tenant
hereunder, shall wholly cease and expire and become void (except as to Tenant's
liability) in the same manner and with the same force and effect as if the date
fixed in such notice were the date herein originally specified for the
expiration of the term hereof; and Tenant shall then immediately quit and
surrender to Landlord the Premises, and Landlord may enter into and repossess
the Premises by summary proceedings, detainer, ejectment or otherwise and remove
all occupants thereof and, at Landlord's option, any property thereon, without
being liable to indictment, prosecution or damage therefor. Tenant shall not
have the right to prevent said termination by payment of any sum due or the
performance of any other obligations under this Lease.
SECTION 21.05 Confession of Judgment. THE FOLLOWING PARAGRAPHS SET FORTH
WARRANTS OF AUTHORITY FOR AN ATTORNEY TO CONFESS JUDGMENTS AGAINST TENANT. IN
GRANTING THESE WARRANTS OF ATTORNEY TO CONFESS JUDGMENTS AGAINST TENANT, TENANT
HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND, ON THE ADVICE OF THE
SEPARATE COUNSEL OF TENANT, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TENANT HAS
OR MAY HAVE WITH RESPECT TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER
THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH
OF PENNSYLVANIA.
21.05.1 Upon the occurrence of an Event of Default, Tenant
hereby empowers any Prothonotary or attorney of any court of record to appear
for Tenant in any and all actions which may be brought for rent and/or any other
sums due hereunder by Tenant, and to
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confess judgment against Tenant for all or any part of the rent and/or such
other sums, including, at Landlord's option, the rent and/or such other sums for
the entire unexpired balance of the term of this Lease, and for interest and
costs, together with an attorneys' commission of five percent (5%), but without
deduction therefrom for the fair rental value of the Premises. Such authority
shall not be exhausted by one exercise thereof, but judgment may be confessed as
aforesaid from time to time and as often as there is an occurrence of an Event
of Default, and such powers may be exercised during the original term, any
extension or renewal term, and after the expiration of any such term.
21.05.2 Upon (a) the occurrence of an Event of Default, or (b)
the termination of this Lease during the original term hereof or any renewal or
extension thereof on account of any default by Tenant hereunder, or (c) upon the
expiration of the original term of this Lease or any renewal or extension
thereof, it shall be lawful for any Prothonotary or attorney of any court of
record to appear for Tenant as well as for all persons claiming by, through or
under Tenant, to confess judgment in ejectment, without any stay of execution or
appeal, against Tenant and all persons claiming by, through or under Tenant for
the recovery by Landlord of possession of the Premises, without any liability on
the part of the such attorney, for which this Lease or a true and correct copy
thereof shall be a sufficient warrant; whereupon, if Landlord so desires, a writ
of possession may issue forthwith, without any prior writ or proceedings
whatsoever. If for any reason after such action has been commenced, the same
shall be determined and the possession of the Premises remain in or be restored
to Tenant, Landlord shall have the right upon any subsequent Event(s) of
Default, or upon the termination or expiration of this Lease or of Tenant's
right of possession as herein set forth, to confess judgment from time to time
in the manner and form herein set forth to recover possession of the Premises.
No such determination of this Lease, no taking, nor recovering possession of the
Premises shall deprive Landlord of any remedies or action against Tenant for
rent or for damages due or to become due for Tenant's breach of this Lease, nor
shall the bringing of any such action for rent, or breach of covenant or
condition nor the resort to any other remedy herein provided for the recovery of
rent or damages for such breach be construed as a waiver of the right to insist
upon the forfeiture and to obtain possession in the manner herein provided.
21.05.3 In any action of ejectment or for rent in arrears,
Landlord shall first cause to be filed in such action an affidavit made by it or
someone acting for it setting forth the facts necessary to authorize the entry
of judgment, of which facts such affidavit shall be conclusive evidence, and, if
a true copy of this Lease be filed in such action, it shall not be necessary to
file the original as a warrant of attorney, any rule of court, custom or
practice to the contrary notwithstanding.
21.05.4 The right to enter judgment against Tenant by
confession and to enforce all of the other provisions of this Lease herein
provided for may, at the option of any assignee of this Lease, be exercised by
any assignee of Landlord's right, title and interest in this Lease in said
assignee's name, any statute, rule of court, custom or practice to the contrary
notwithstanding.
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<PAGE>
SECTION 21.06 Recovery of Legal Expenses. In the event Landlord shall engage the
services of an attorney for recovery of possession of the Premises, for the
recovery of rent or any other amount due under this Lease, or because of
Tenant's breach of any of the terms hereof, regardless of whether suit shall be
brought, and a breach shall be established, Tenant shall pay to Landlord all
reasonable expenses incurred therefor, including all court costs and reasonable
attorneys' fees.
SECTION 21.07 Injunctive Relief; All Remedies Cumulative. In the event of a
breach by Tenant of any of the terms hereof, Landlord shall have the right to
injunctive relief to restrain Tenant and the right to invoke any remedy allowed
by law or in equity whether or not other remedies are herein provided. Each
right and remedy of Landlord provided for in this Lease shall be cumulative and
shall be in addition to every other right or remedy provided for in this Lease
or now or hereafter existing at law, in equity, by statute or otherwise, and the
exercise of any one or more of such rights and remedies shall not preclude the
simultaneous or later exercise of any or all other such rights and remedies.
ARTICLE XXII
ESTOPPEL STATEMENT
SECTION 22.01 Duty of Tenant to Furnish. At any time and from time to time,
within ten (10) days after request therefor by Landlord, Landlord's Mortgagee or
purchaser ("Requesting Party"), Tenant shall execute and deliver to Requesting
Party, without charge and in a form provided by the Requesting Party, a written
statement in recordable form, certifying that this Lease is in full force and
effect and has not been amended except by such writings as shall be stated;
certifying that to Tenant's knowledge, Landlord is not in default under this
Lease and there are no defenses or offsets thereto or else stating those claimed
by Tenant; certifying the commencement and expiration dates of the term of this
Lease; certifying that Tenant is in occupancy of the Premises; certifying the
advance rent and security paid to or deposited with Landlord and the date to
which rent and other charges have been paid; and certifying such additional
information as may be reasonably requested by Requesting Party.
ARTICLE XXIII
NOTICES
SECTION 23.01 Manner and Place of Service. Wherever in this Lease it shall be
required or permitted that notice, demand or consent be given or served by
either party to this Lease to or on the other, such notice, demand or consent
shall not be deemed to have been duly given or served unless in writing and
either personally delivered, sent by certified mail, return receipt requested,
postage prepaid, or by private delivery service guaranteeing overnight delivery
(such as Federal Express), addressed to Landlord at Landlord's address set forth
in the Lease Summary, and addressed to Tenant at Tenant's address set forth in
the Lease Summary, before the
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<PAGE>
Commencement Date, and at the Premises, after the Commencement Date. Each party
hereto may change its address for receipt of notices upon notification to the
other parties in conformance herewith. All notices shall be deemed given on the
date personally delivered, five (5) days after deposited in the United States
mail, or one (1) business day after deposited with said private delivery
service.
ARTICLE XXIV
BROKERS
SECTION 24.01 Tenant's Warranty. Tenant represents and warrants to Landlord that
Tenant has had no dealing, negotiations or consultations with respect to the
Premises, the Building or this transaction with any broker or finder except as
disclosed in the Lease Summary and that no other broker or finder called the
Premises or any other space in the Building to Tenant's attention. In the event
that any broker or finder (other than those listed in the Lease Summary) claims
to have submitted the Premises or any other space in the Building to Tenant, to
have induced Tenant to lease the Premises or to have taken part in any dealings,
negotiations or consultations with respect to the Premises, the Building or this
transaction, Tenant shall be responsible for and shall defend, indemnify and
save Landlord harmless from and against all costs, fees (including, without
limitation, reasonable attorney's fees), expenses, liabilities and claims
incurred or suffered by Landlord as a result thereof.
SECTION 24.02 Landlord's Warranty. In the event that any broker or finder (other
than those listed in the Lease Summary) claims to have submitted the Premises or
any other space in the Building to Landlord, to have induced Landlord to lease
the Premises or to have taken part in any dealings, negotiations or
consultations with respect to the Premises, the Building or this transaction,
Landlord shall be responsible for and shall defend, indemnify and save Tenant
harmless from and against all costs, fees (including, without limitation,
reasonable attorney's fees), expenses, liabilities and claims incurred or
suffered by Tenant as a result thereof. Landlord shall be solely responsible for
the fees payable to the Brokers listed in the Lease Summary.
ARTICLE XXV
MISCELLANEOUS
SECTION 25.01 Binding Effect. All rights, obligations and liabilities herein
given to or imposed upon the respective parties hereto shall extend to and bind
the several respective heirs, personal representatives, successors and assigns
of the said parties; and if there shall be more than one Tenant, they shall all
be bound jointly and severally by the terms, covenants and agreements herein.
SECTION 25.02 Quiet Enjoyment. So long as no Event of Default occurs hereunder,
Tenant shall peaceably and quietly hold and enjoy the Premises for the term of
this Lease without
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<PAGE>
hindrance or interruption by Landlord or any other person or persons lawfully
claiming by, through or under Landlord, subject, nevertheless, to the terms and
conditions of this Lease.
SECTION 25.03 Waiver. The waiver by Landlord of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or a waiver of any other term, covenant or
condition herein contained. No covenant, term or condition of this Lease shall
be deemed to have been waived by Landlord, unless such waiver be in writing and
executed by Landlord.
SECTION 25.04 Custom and Usage. Landlord shall have the right at all times to
enforce the covenants and conditions of this Lease in strict accordance with the
terms hereof, notwithstanding any conduct or custom on the part of Landlord in
refraining from so doing at any time or times with respect to Tenant hereunder
or with respect to other tenants of the Building. The failure of Landlord at any
time or times to enforce its rights under said covenants and provisions strictly
in accordance with the same shall not be construed as having created a custom in
any way or manner contrary to the specific terms, provisions and covenants of
this Lease or as having in any way or manner modified the same.
SECTION 25.05 Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of a lesser amount than any payment of rent or other charges herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent or other charges then due and payable. Landlord shall not be
bound by any endorsement or statement on any check or any letter accompanying
any check or payment and no such endorsement, statement or letter shall be
deemed an accord and satisfaction. Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
other charges or pursue any other remedy.
SECTION 25.06 Entire Agreement. The Lease Summary, this Lease Agreement and the
Exhibits, set forth all the agreements and understandings between Landlord and
Tenant concerning the Premises and there are no agreements or understandings,
either oral or written, between them other than as herein set forth. All prior
arrangements and understandings, whether oral or written, between the parties
hereto are merged herein and extinguished, this Lease superseding and canceling
the same. No amendment to this Lease shall be binding upon Landlord or Tenant
unless reduced to writing and executed by the party against which such amendment
is to be enforced.
SECTION 25.07 Captions and Index. The captions and index appearing in this Lease
are inserted only as a matter of convenience and in no way define, limit,
construe or describe the scope or intent of this Lease nor in any way affect
this Lease.
SECTION 25.08 Negation of Personal Liability. Notwithstanding anything contained
herein to the contrary, Tenant agrees that Landlord shall have no personal
liability with respect to this Lease and Tenant shall look solely to the estate
and property of Landlord in the Building for the satisfaction of Tenant's
remedies. No other assets of Landlord or any principal of Landlord shall be
subject to levy, execution or other judicial process for the satisfaction of
Tenant's claim
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<PAGE>
and, in the event Tenant obtains a judgment against Landlord, the judgment
docket shall be so noted. In the event of any sale of the Premises or the
Building, Landlord shall be and hereby is entirely freed and relieved of all
obligations of Landlord hereunder. This section shall inure to the benefit of
Landlord and Landlord's successors and assigns and their respective principals.
SECTION 25.09 Partial Invalidity; Separate Covenants. If any portion of this
Lease or the application thereof to any person or circumstances shall be invalid
or unenforceable, the remainder of this Lease and the application of such
portion to persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each term, covenant
and condition of this Lease shall be valid and be enforced to the fullest extent
permitted by law. Furthermore, each covenant, agreement, obligation and other
provision contained in this Lease is, and shall be deemed and construed as, a
separate and independent covenant of the party bound by, undertaking or making
the same, and not dependent on any other provision of this Lease.
SECTION 25.10 Recording. This Lease shall not be recorded. If Landlord requests,
the parties shall execute and acknowledge a short form of lease for recording
purposes which shall be recorded at Landlord's expense.
SECTION 25.11 Controlling Law. This Lease shall be interpreted and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
SECTION 25.12 Time of the Essence. Time shall be of the essence of all of
Tenant's obligations hereunder.
SECTION 25.13 PIDC Assistance. Landlord acknowledges that Tenant may receive
certain economic assistance from the Philadelphia Industrial Development
Corporation in connection with Tenant's decision to operate in the City of
Philadelphia, and Landlord further acknowledges that Landlord has no claim to
such assistance.
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<PAGE>
SECTION 25.14 Acknowledgment. TENANT ACKNOWLEDGES THAT THIS LEASE INCLUDES
WARRANTS OF AUTHORITY FOR AN ATTORNEY TO CONFESS JUDGMENTS AGAINST TENANT. IN
GRANTING THESE WARRANTS OF ATTORNEY TO CONFESS JUDGMENTS AGAINST TENANT, TENANT
HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND, ON THE ADVICE OF THE
SEPARATE COUNSEL OF TENANT, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TENANT HAS
OR MAY HAVE WITH RESPECT TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER
THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH
OF PENNSYLVANIA.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands and seals the day and year set forth in
the Lease Summary.
AVAX TECHNOLOGIES, INC.
(Tenant)
By: /s/ Illegible Signature
-----------------------
RODIN PARTNERS, L.P., a
Pennsylvania partnership
(Landlord)
By: Rodin Acquisition Corp.,
a Pennsylvania corporation
By: /s/ Illegible Signature
-----------------------------
President
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<PAGE>
SCHEDULE 5.02
EXCEPTIONS TO OPERATING COSTS
Operating Costs shall not include:
Promotional, advertising and marketing costs for specific tenants
Leasing fees including commissions
Gifts to tenants, receptions and subscriptions
Tenant improvements
Late charges on billings
Expenses caused by the negligence of other tenants
Expenses to be billed directly by Landlord to another tenant(s) or paid
directly to another tenant(s) including repairs, janitorial cost, separately
metered utilities and after-hours HVAC service
Back taxes caused by Landlord's default
Payment of revenue bonds for capital items
Costs not directly attributable to the Building or the costs that are
properly allocated among other properties or accounts
Interest or amortization payments on any mortgage
Expenses for repair or other work occasioned by fire or other casualty
which is covered under a standard fire policy with extended coverage
Bad debt expenses
Costs to correct defects in the design, construction or equipment
of the Building
Rental under any ground lease or other underlying lease
Depreciation (except as expressly set forth in Section 5.02)
The costs of any item for which Landlord will be reimbursed by
insurance or otherwise
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<PAGE>
The cost(s) of installing, operating and maintaining any specialty
service, such as any observatory, broadcasting facilities, luncheon club,
athletic or recreation club
-2-
<PAGE>
EXHIBIT A
DEED DESCRIPTION
RODIN PLACE
PARCEL 'A' (2000 Hamilton Street)
All that certain lot or piece of ground together with the improvements thereon
situate in the 8th Ward of the City of Philadelphia and described in
accordance with the subdivision plan prepared by Barton and Martin Engineers
dated August 7, 1995, last revised November 5, 1997.
Beginning at the point of intersection of the Easterly side of the 21st Street
(54 feet 7 inches wide) with the Southerly side of Hamilton Street (66 feet
wide); thence from said point of beginning, extending South 78 degrees 59
minutes 00 seconds East along the said Southerly side of Hamilton Street 490
feet 7 3/4 inches to a point on the Westerly side of 20th Street (50 feet wide);
thence extending South 11 degrees 21 minutes 00 seconds West along the said
Westerly side of 20th Street 199 feet 9 inches to a point thence extending North
78 degrees 59 minutes 00 seconds West 117 feet 10 inches to a point; thence
extending North 74 degrees 11 minutes 46 seconds West 91 feet 2 7/8 inches to a
point; thence extending North 33 degrees 59 minutes 00 seconds West 12 feet 11
1/2 inches to a point; thence extending North 11 degrees 01 minute 00 seconds
East 12 feet 0 inches to a point; thence extending North 78 degrees 59 minutes
00 seconds West approximately along the face of a building 28 feet 1 1/2 inches
to a point; thence extending North 73 degrees 40 minutes 15 seconds West
approximately along the face of a building 66 feet 1 inch to a point; thence
extending North 62 degrees 22 minutes 00 seconds West approximately along the
face of a building 60 feet 3 7/8 inches to a point; thence extending North 79
degrees 03 minutes 40 seconds West partially along the face of a building 38
feet 1 1/2 inches to a point; thence extending North 56 degrees 20 minutes 30
seconds West approximately along the face of a building 89 feet 7 inches to a
point on the Easterly side of 21st Street; thence extending North 11 degrees 30
minutes 21 seconds East along the to the point and place of beginning.
Containing in Area 84,428 square feet.
<PAGE>
EXHIBIT B
[ILLUSTRATED FLOOR PLAN OF PREMISES]
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. Compliance with Laws. Tenant, at Tenant's sole expense, shall comply
with all of the laws, ordinances, regulations and other requirements of all
municipal, county, state, federal and other governmental authorities and all
recommendations of the Association of Fire Underwriters, Factory Mutual
Insurance Companies, The Insurance Services Organization of Pennsylvania and
other similar bodies establishing standards for fire insurance ratings which are
applicable to Tenant or its use of the Premises, and shall save Landlord
harmless from penalties, fines, costs, expenses or damages resulting from the
failure to do so.
2. Loading and Unloading. Tenant agrees that all loading and unloading
of goods shall be done only at such times, in the areas and through such
entrances as may be designated for such purposes by Landlord. Trailers or trucks
shall not be permitted to remain parked overnight in any part of the Building,
whether loaded or unloaded. Tenant's delivery trucks and private buses traveling
to and from the Building shall be directed to take such routes and to travel to
and from the Building at reasonable times so as to reduce the impact upon the
neighborhoods surrounding the Building.
3. Refuse. Tenant agrees to keep all garbage and refuse in accordance
with municipal regulations; not to burn, place or permit any trash, garbage,
rubbish, obstructions or merchandise in common areas; and to keep the Premises
clean, orderly, sanitary and free from objectionable odors and from insects,
vermin and other pests. Tenant shall cooperate with Landlord's recycling program
or legal regulations. In no event shall Landlord remove any construction debris,
office furniture or equipment or any other debris whatsoever from Tenant at
Landlord's expense. If items are placed by Tenant in any Landlord trash removal
receptacle, Tenant shall pay for the charges for the removal of such waste at
Landlord's prevailing rate. Tenant shall segregate recyclable items as directed
by Landlord in accordance with applicable law and regulations.
4. Heat. Tenant agrees to keep the Premises sufficiently heated to
prevent freezing of water and pipes and fixtures.
5. Parking. Tenant agrees for itself and its employees, customers and
invitees to park their cars only in those portions of the garage as may be
designated for that purpose by Landlord. Tenant shall furnish Landlord with the
automobile license numbers of Tenant's and Tenant's employees' cars within five
(5) days after a request therefor and shall thereafter notify Landlord of any
changes within five (5) days after such changes occur. In the event that Tenant
or Tenant's employees park their cars in areas other than such designated
parking areas, then Landlord, after giving notice to Tenant of such violation,
shall have the right to charge Tenant Ten Dollars ($10.00) per day per car
parked in any areas other than those designated.
6. Operations. Tenant agrees to conduct its business in the Premises in
all respects in a dignified manner and in accordance with high standards of
operation.
<PAGE>
7. Hazardous Material and Equipment. Tenant shall not keep any
flammable, combustible or explosive material, high pressure steam generating
equipment or other hazardous or toxic material and equipment on the Premises.
8. Machinery; Loud Speakers. Tenant shall not, without the prior
written consent of Landlord, use or operate any machinery which, in Landlord's
opinion, is harmful to the Building or disturbing to other tenants in the
Building; nor shall Tenant use any loud speakers, televisions, phonographs,
radios or other devices in a manner so as to be heard or seen outside of the
Premises, nor display merchandise on the exterior of the Premises nor on the
walkways or sidewalks appurtenant thereto either for sale or for promotion
purposes.
9. Awnings. Tenant shall not, without the prior written consent of
Landlord, attach any awning, canopy, antenna or other projection to the roof or
the outside walls of the Premises or the Building.
10. Auctions. Tenant shall not, without the prior written consent of
Landlord, conduct any auction, fire, bankruptcy, or selling out sale on or about
the Premises.
11. Glass. Tenant shall promptly replace at Tenant's own expense with
glass of like kind and quality any plate glass, door or window glass of the
Premises which may become cracked or broken.
12. Plumbing Facilities. Tenant shall not use the plumbing facilities
for any other purpose than that for which they were constructed and shall not
permit any foreign substance of any kind to be thrown therein, and the expense
of repairing any breakage, stoppage, seepage or damage whether occurring on or
off the Premises resulting from a violation of this provision by Tenant or
Tenant's employees, agents or invitees shall be borne by Tenant. All grease
traps and other plumbing traps in the Premises shall be kept clean and operable
by Tenant at Tenant's sole expense.
13. Burglary. Tenant shall, notwithstanding anything in this Lease to
the contrary, be responsible for all repairs and replacements to the Premises
necessitated by a burglary or attempted burglary, or any illegal or forcible
entry into the Premises.
14. Solicitation of Business. Tenant and Tenant's employees and agents
shall not solicit business or distribute handbills or other advertising matter
in the parking or other common areas of the Building.
15. Conduct of Business. Tenant shall not operate or maintain the
Premises in a manner which emits noxious or offensive odors, emanates unpleasant
noises or loud noise levels, is not consistent with the conduct and management
of a first class retail area in the vicinity of the Building, transmits
vibrations, transmits flashing lights or search lights, is inconsistent with the
rights of any other tenants of the Building or causes the overburdening of any
pipes or other utilities in the Building serving the Premises. Tenant shall not
place any weight in the Premises beyond the safe carrying capacity of the
structure of the Building.
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<PAGE>
16. Further Rules and Regulations. Tenant shall comply with all further
rules and regulations from time to time promulgated by Landlord, which Landlord
in its sole discretion shall deem necessary in connection with the Premises and
the Building including, without limitation, the installation of such fire
extinguishers, water buckets and other safety equipment as Landlord may
reasonably require.
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<PAGE>
EXHIBIT D
LANDLORD WORK
Scope of Work and Outline Specifications September 19, 1995
AVAX TECHNOLOGIES, Inc. - Tenant
Rodin Partners, L.P. - Landlord
Landlord agrees, at its sole cost and expense and without charge to Tenant, to
do the following work, all of which shall be of material, manufacture, design,
capacity and finish selected by the Landlord as Standard of the Building. The
following shall define the scope of work.
1. HVAC
- -------
Landlord shall purchase and set in place new roof-top package heating,
ventilating and air-conditioning equipment for suite 200. For example, if the
final rentable square footage is determined to be 9,000 square feet then the
Landlord shall provide 30 tons of equipment. The equipment will be provided
in sizes and locations as determined by Tenant provided that Landlord
undertakes no extraordinary expense for the installation thereof. Tenant
shall provide Landlord with the locations and respective sizes on a
dimensioned architectural roof-plan within fifteen days* of the date of the
Lease execution. Landlord shall perform any roofing changes and any
structural changes necessary to support to the HVAC equipment. Tenant shall
perform any utility connections and ductwork distribution to or from the
units under the Tenant Improvement allowance. The units shall be 480volt, 3
phase units unless the particular units are not available in that voltage.
The HVAC equipment for suite 204 is as existing.
2. ELECTRIC
- -----------
Landlord shall install a 480volt 3 phase electric meter and a main-disconnect
breaker to service the Premises at the common electric room located on the
second floor in the Building. Tenant shall connect its service for all
electric connections within the premises to the metered service at the
electric room under the Tenant Improvement allowances.
2. As Is
- --------
Except for the foregoing, the premises shall be delivered "as is" with
respect to the existing conditions and improvements. Tenant has not relied on
Landlord, Landlord's architect or Landlord's agents for consultation as to
the suitability of the premises for Tenant's use. Tenant has consulted with
its own professionals and relies on its own knowledge of its requirements and
outside consultants to understand the outline specifications described
herein. Landlord warrants that its work will be constructed in accordance
with all applicable building, fire and life safety codes.
- ----------
* A delay in Tenant's later submission of Air-conditioning plans and
specifications shall be limited to removing Landlord's completion of Landlord
Work timetable (60 days) as specified in the Commencement Date section on
page ii of the Lease Summary.
<PAGE>
EXHIBIT E - RODIN PLACE GARAGE RULES AND PROCEDURES
Rodin Place Garage *2000 Hamilton Street * Philadelphia, PA 10310
AGREEMENT BY AND BETWEEN RODIN PARTNERS, L.P. "OPERATOR" AND VEHICLE OWNER
"OWNER"
- --------------------------------------------------------------------------------
Lessee of parking access in Garage, Owner of Automobile, hereafter called
Owner" _________________________________________________________________________
Owner's Home Address: ____________________________ City ________________________
State ________________ Zip Code _______________ Home Phone #: ________________
Business Address:_______________________________________________________________
Business Phone#: ____________________
Auto Make/Model: ________________________ Year ________ Color: _________________
To Be Billed To (if other than Owner): ____________________ Address: ___________
Billing Authorization required if other than Owner ______________ Title: _______
Name of Authorizing Party: _______________________ Date Signed: ________________
Date Parking is to begin: ___________________ Pass Card Number: ________________
Owner must put Sticker # _______________ on Vehicle for which the access plate
is issued. Vehicle Plate # ________________
TERMS AND CONDITIONS
--------------------
1. This is a Lease parking place only, and no bailment is intended to be
created. Operator reserves the right to have a garage attendant to take
Owner's keys and accept the possession and control of the Owner's
automobile. [In the case of accepting control of the vehicle by taking the
keys, Operator's liability is limited to $15,000 per vehicle.] If Operator
does not take possession of the vehicle and vehicle is parked by the Owner
then Operator is not responsible for any loss, damage or theft to Owner's
car or its contents while in or about the garage. Owner agrees to carry any
necessary insurance in case of damage to persons or property while Owner's
vehicle is in the garage for loss, theft, damage or other casualty.
2. Owner is not entitled to the use of a specified or assigned space. Monthly
Use is defined as the right of the Owner to park a vehicle in the Garage.
3. All monthly Owners must park in designated month area and, when appropriate
direct visitors to park in Daily area.
4. No allowance is made for time parking space is not used.
5. Contract is terminable immediately without notice if terminated for cause.
6. Owner and all persons is Owner's vehicle must act in lawful, reasonable, and
proper manner at all times in and about the facility and must obey all
posted regulations. Owner reserves the right to change any rules without
notice at any time for any reason uniformly applied to all vehicle owners.
7. Intentionally Deleted.
8. Vehicle owner must put sticker on the vehicle for which the access pass is
issued. No vehicle substitution is allowed except with advance notice to
Operator. This rule shall not apply if Municipal regulations no longer
requires monthly stickers be pre-assigned to individual vehicles under its
public parking lot license regulations. No multiple stickers or passes will
be issued for any parking user. One sticker and pass, per space.
9. Any misuse of parking equipment or garage, absence of display of sticker or
unauthorized entry by swipe cardholder will cause revocation of parking
privileges.
10. Intentionally Deleted.
11. If Owner's use of the parking is pursuant to a tenant lease for space in the
building, Operator reserves the right to immediately terminate the parking
without notice if the underlying lease rent obligations are not met,
including, but not limited to, Tenant's payment of rent.
12. The garage may be operated as either a self-park or attendant-park
arrangement. The garage size, use, and access ramps may be charged without
notice at Operator's election.
13. A $15 dollar fee is due together with this application for the issuance of
each access card. A $15 fee will be charged for each lost, broken, bent or
multiplied card that requires replacement. The $15 fee will not be refunded
at the time of the parking term expiration.
SIGNATURE:___________________________ DATE SIGNED/SUBMITTED: ___________________
SOCIAL SECURITY #: _______________________ Operator Approval __________
December 1, 1997
<PAGE>
EXHIBIT F
---------
AVAX TECHNOLOGIES, Inc. Lease Trash Removal Specifications
1. Landlord will provide the following office cleaning services with visits to
the office areas in the premises after normal business hours (6PM to 11PM)
on weekdays excluding national or union holidays at the frequencies
indicated below.
DAILY
-----
a) Vacuum or sweep floor surfaces, as needed but no less than twice weekly.
b) Empty all wastebaskets no less than daily except recyclable material
baskets which shall be emptied when full.
c) Provide lavatory paper supplies and clean toilet rooms no less
frequently that three times weekly.
d) Clean interior glass surfaces as needed.
e) Dust exposed horizontal surfaces on all desks, tables, filing cabinets,
bookcases, shelves and telephones.
f) Clean drinking fountains.
g) Spot clean reception lobby glass, including front door, if applicable.
h) Dust or damp mop resilient and hard floors.
WEEKLY
------
Remove fingerprints from front door, door frame, light switches, kick plates
and handles on doors.
MONTHLY
-------
High dust above hand height all horizontal surfaces, including shelves,
moldings, ledges and heating diffusers.
QUARTERLY
---------
Wash wastebaskets
Spot clean carpet of stains.
ANNUALLY
--------
Clean of all exterior windows (wash interior and exterior).
2. Landlord's cleaning services shall exclude any special medical or
laboratory areas which may expose the cleaning personal to extraordinary
risk or contamination.
3. Tenant Containers. Tenant agrees to keep all refuse in the kind of (tenant
supplied) container specified by Landlord.
<PAGE>
[DEED BLUEPRINT APPEARS HERE]
<PAGE>
Initial Data EXHIBIT G
- -------------- ------------------------------------------------
LOAN DATA TABLE DATA
- ----------------------------- ---------------------------------------------
Loan amount $378,630 Table starts at data:
Annual interest rate: 10.00000% or at payment number: 1
Term in years: 10
Payment per year: 12
First payment due: 01/01/97 per year cost $80,180.20
PERIODIC PAYMENT
- -------------------------------------------------------------------------------
Entered payment THE TABLE USES THE CALCULATED PERIODIC PAYMENT AMOUNT
Calculated payment $8,015.02 unless you enter a value for "Entered Payment"
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Uses payment of:$6,018.82 $7,588.50 Beginning balance at payment 1: 378,530.00
1st payment in table 1 $80,820.80 Cumulative interest prior to payment 1: 0.00
</TABLE>
TABLE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Payment Beginning Ending Cumulative
No. Date Balance Interest Principal Balance Interest
- ----------------------------------------------------------------------------------------------------
1 1/1/97 379,530.00 3,162.75 1,652.77 377,677.23 3,162,75
- ----------------------------------------------------------------------------------------------------
2 2/1/97 377,877.23 3,147.31 1,968.21 375,609.03 6,310,08
3 3/1/97 378,809.03 3,131.74 1,983.78 373,925.25 9,441.80
4 4/1/97 373,825.26 3,116.04 1,899.47 372,025.78 12.957.85
5 5/1/97 372,025.78 3,100.21 1,915.30 370,110.48 15,650.06
6 6/1/97 370,110.48 3,084.26 1,931.26 368,179.21 15,742.31
7 7/1/97 368,179.21 3,068.18 1,947.36 365,231.86 21,810.47
8 8/1/97 366,231.86 3,051.93 1,963.55 354,266.27 24,802.41
9 9/1/97 364,288.27 3,035.57 1,979.45 382,288.32 27,897.95
10 10/1/97 362,288.32 3,019.07 1,998.45 380,291.88 30,817.05
11 11/1/97 360,291.88 3,002.43 2,013.08 358,278.79 30,917.05
12 12/1/97 358,278.79 2,955.66 2,029.66 358,248.93 38,905.13
13 1/1/98 368,248.93 2,966.74 2,048.76 354,202.18 38,673.88
- -----------------------------------------------------------------------------------------------------
14 2/1/98 354,202.16 2,951.88 2,083.83 352,138.32 42,825,56
15 3/1/98 352,158.32 2,934.49 2,081.93 350,057.29 45,780.05
16 4/1/98 350,057.29 2,917.14 2,098.37 347,958.92 48,677.19
17 5/1/98 347,958.92 2,899.68 2,115.88 345,843.08 51,576.85
18 6/1/98 345,543.06 2,882.03 2,133.49 343,709.57 54,458.87
19 7/1/98 343,709.57 2,884.28 2,151.27 341,558.30 57,323.12
20 8/1/98 341,568.30 2,848.32 2,108.20 339,389.10 60,169.44
21 9/1/98 358,359.10 2,828.24 2,187.27 337,201.83 62,997.66
22 10/1/98 337,201.83 2,610.02 2,205.50 334,996.02 65,807.70
23 11/1/98 334,998.32 2,791.64 2,223.55 332,772.44 66,399.33
24 12/1/98 332,772.44 2,773.10 2,242.41 330,530.03 71,372.44
25 1/1/99 330,630.03 2,754.42 2,261.10 328,268.93 74,128.85
- -----------------------------------------------------------------------------------------------------
26 2/1/99 328,268.93 2,735.57 2,279.94 325,968.99 76,862.43
27 3/1/99 325,988.99 2,716.57 2,718.94 323,690.05 79,579.00
28 4/1/99 323,690.05 2,697.42 2,318.10 321,371.95 82,270.42
29 5/1/99 321,371.85 2,678.10 2,337.42 319,034.53 84,954.52
30 6/1/99 318,034.53 2,658.62 2,358.80 318,877.83 87,513.14
31 7/1/99 316,677.83 2,638.98 2,378.64 314,301.10 90,282.12
32 8/1/99 314,301.10 2,619.18 2,396.34 311,904.75 92,671.30
33 9/1/99 311,904.75 2,599.21 2,418.31 308,488.44 95,470.50
34 10/1/99 309,488.44 2,578.07 2,438.45 307,052.00 96,049.67
35 11/1/99 307,052.00 2,558.77 2,456.75 304,596.26 100,808.34
36 12/1/99 304,585.25 2,538.28 2,477.55 302,118.02 103,148.63
37 1/1/00 302,118.02 2,517.66 2,407.87 299,820.18 105,664.28
- -----------------------------------------------------------------------------------------------------
38 2/1/00 299,620.16 2,496.83 2,518.08 298,101.48 108,181.12
39 3/1/00 297,101.48 2,478.85 2,539.67 294,561.80 110,838.96
40 4/1/00 294,561.80 2,454.68 2,560.84 292,000.97 113,091.65
41 5/1/00 292,000.97 2,433.34 2,582.18 289,418.79 115,524,99
42 6/1/00 289,415.79 2,411.62 2,603.68 288,815,10 117,938.81
43 7/1/00 288,815.10 2,390.13 2,625.39 254,189.71 120,328.94
44 8/1/00 264,169.71 2,338.25 2,647.27 281.542.44 122,695.18
45 9/1/00 281,542.44 2,346.19 2,669.33 278,873.11 125,041.37
46 10/1/00 278,873.11 2,323.94 2,691.57 278,181,53 127,385.31
47 11/1/00 278,181.53 2,301.51 2,714.00 273,487.53 128,666.83
48 12/1/00 273,487.53 2,278.80 2,736.62 270,730.91 131,948.72
49 1/1/01 270,730.91 2,256.08 2,758.43 267,971.48 134,201.81
- -----------------------------------------------------------------------------------------------------
50 2/1/01 267,971.48 2,233.10 2,782.42 285,189.08 138,434.81
51 3/1/01 265,189.08 2,209.91 2,805.61 262,383.45 138,644.82
52 4/1/01 262,383.45 2,198.63 2,828.99 250,554.47 140,831.35
53 5/1/01 259,554.47 2,182.85 2,852.56 258,701.90 142,994.30
54 6/1/01 256,701.90 2,150.18 2,676.33 253,826.57 148,133.48
55 7/1/01 253,825.57 2,115.21 2,900.30 250,928.27 147,248.70
56 8/1/01 250,925.27 2,091.04 2,924.47 248,000.79 149,339.74
57 9/1/01 248,000.79 2,948.84 2,948.84 245,061.95 151,408.41
- -----------------------------------------------------------------------------------------------------
58 10/1/01 245,051.95 2,042.10 2,973.42 242,078.55 153,448.51
59 11/1/01 242,078.53 2,017.32 2,998.20 238,080.34 155,465.93
60 12/1/01 239,080.34 1,882.54 3,023.18 236,057.15 157,458.17
</TABLE>
<PAGE>
VALHAL CORP. Schedule 1
12/4/97 Letter of Credit Calculation
AVAX TECHNOLOGIES, INC.
SQUARE FEET*
LESS SHAFTS/COLUMNS 15% GU
Suite 200 8,021.00 9,224.15
Suite 204 2,305.00 2,650.75
------------
11,874.90
Workletter*
Suite 200 $25/RSF $230,604
Suite 204 $10/RSF $26,508
-----------
$257,111
- -------------------------------------------------------------------------------
Rent 200 204 200/204 200/204
rate Rent/year Rent/year Rent/year multi yrs.
--------- ----------- ----------- -----------
yr 1-3 $10.50 $96,853.58 $27,217.05 $124,070.63 $372,212
yr 4-6 $12.00 $110,689.80 $31,105.20 $141,795.00 $425,385
yr 7-10 $14.00 $129,138.10 $36,289.40 $165,427.50 $661,710
---------
$1,459,307
- -------------------------------------------------------------------------------
----------------------------------------------
Commission
4.00% $58,372.28
less abatement $2,068
-----------
CNR/Glaze $56,304.43
1.50% $21,889.60
less abatement $775
------
$21,114
--------
Totals $77,418.59
---------------------------------------------
AIR CONDITIONING* tons a/c 30 $45,000
----------
Total Letter of Credit (Tenant Improvement + Commission + A/C)** $379,530
*Note: Squate Footage and A/C cost is subject to final cost verification and
amount will be adjusted accordingly. After the first lease year if the Tenant
has not fully used the Workletter allowance (above) the Letter of Credit
may, at Tenant's election, be adjusted to reflect the actual draw of the
Workletter Allowance.
**The Total Letter of Credit amount will be reduced upon each Lease anniversary
to the amount indicated in Exhibit G to the Lease reflecting the amortized
reduction of the landlord investment. (For example, the LC amount in the second
Lease year shall be $356,248.93.)
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 16, 1998 (except Note 1, as to which the date is
May 7, 1997) in Post-Effective Amendment No. 3 to the Registration Statement
(Form SB-2 No. 333-09349) and related Prospectus of AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.) for the registration of 6,355,248 shares of
common stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
March 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S REGISTRATION STATEMENT ON FORM SB-2, FILED WITH THE COMMISSION ON
MARCH 16, 1997
</LEGEND>
<CIK> 0001015441
<NAME> AVAX TECHNOLOGIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,820,884
<SECURITIES> 9,102,028
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,277,841
<PP&E> 91,959
<DEPRECIATION> 14,967
<TOTAL-ASSETS> 17,354,833
<CURRENT-LIABILITIES> 1,553,726
<BONDS> 0
0
2,041
<COMMON> 18,329
<OTHER-SE> 15,801,107
<TOTAL-LIABILITY-AND-EQUITY> 17,354,833
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (150,602)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,266,125)
<EPS-DILUTED> 0
<EPS-PRIMARY> (1.14)<F1>
<FN>
<F1> EPS-BASIC
</FN>
</TABLE>
