<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CIRCE BIOMEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 8731 65-0679166
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE LEDGEMONT CENTER
128 SPRING STREET
LEXINGTON, MA 02173
(617) 863-8720
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LASZLO J. EGER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CIRCE BIOMEDICAL, INC.
ONE LEDGEMONT CENTER
128 SPRING STREET
LEXINGTON, MA 02173
(617) 863-8720
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C> <C>
LEWIS J. GEFFEN, ESQ. ROBERT B. LAMM, ESQ. STEVEN D. SINGER, ESQ.
MINTZ, LEVIN, COHN, FERRIS, VICE PRESIDENT AND SECRETARY VIRGINIA H. KINGSLEY, ESQ.
GLOVSKY AND POPEO, P.C. W. R. GRACE & CO. HALE AND DORR LLP
ONE FINANCIAL CENTER ONE TOWN CENTER ROAD 60 STATE STREET
BOSTON, MA 02111 BOCA RATON, FL 33486-1010 BOSTON, MA 02109
(617) 542-6000 (561) 362-2000 (617) 526-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------------
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: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Class A Common Stock, $.001
par value................. 2,875,000 shares (1) $13.00 $37,375,000 $11,326
=======================================================================================================
</TABLE>
(1) Includes 375,000 shares which the Underwriters have an option to purchase to
cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for purposes of calculating the amount of the registration
fee paid pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 20, 1997
PROSPECTUS
2,500,000 SHARES
[CIRCE BIOMEDICAL LOGO]
CLASS A COMMON STOCK
------------------
All of the 2,500,000 shares of Class A Common Stock offered hereby are
being sold by Circe Biomedical, Inc. ("Circe" or the "Company"), currently a
wholly owned subsidiary of W. R. Grace & Co. (together with its other
subsidiaries, "Grace"). Grace currently owns, and upon the consummation of this
Offering will own, all of the 4,600,000 outstanding shares of Class B Common
Stock and no shares of Class A Common Stock. The Class B Common Stock will
represent 39.5% of the voting power of the Class A Common Stock and Class B
Common Stock outstanding (on a combined basis) upon the consummation of this
Offering (36.3% if the Underwriters' over-allotment option is exercised in
full). As the holder of all of the outstanding Class B Common Stock, Grace will
be entitled to elect all of the Class B Directors of the Company; the holders of
the Class A Common Stock, voting as a separate class, will be entitled to elect
all of the Class A Directors. As long as Grace holds a specified amount of the
Class B Common Stock, a majority of the Class B Directors will be required to
approve certain fundamental corporate changes and significant transactions. See
"Risk Factors -- Ownership by Grace; Restrictions on Certain Significant
Transactions," "Relationship with Grace" and "Description of Capital Stock."
Prior to this Offering, there has been no public market for any class of
the Company's capital stock. The Company does not intend that there will ever be
a public market for the Class B Common Stock. It is currently estimated that the
initial public offering price of the Class A Common Stock will be between $11.00
and $13.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied to have the Class A Common Stock approved for quotation on the Nasdaq
National Market under the trading symbol "CRCE."
THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS," BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $ $ $
- --------------------------------------------------------------------------------------------------
Total(3)............................ $ $ $
==================================================================================================
</TABLE>
1. For information regarding indemnification of the Underwriters, see
"Underwriting."
2. Before deducting expenses of the Offering payable by the Company, estimated
at $900,000.
3. The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 375,000 additional shares of
Class A Common Stock on the same terms as set forth above, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public will be $ , the Underwriting Discounts and
Commissions will be $ and the Proceeds to Company will be
$ . See "Underwriting."
------------------
The shares of Class A Common Stock offered by the Underwriters are subject
to prior sale, receipt and acceptance by them and are subject to the right of
the Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York on or about
, 1997.
------------------
UBS SECURITIES MONTGOMERY SECURITIES
, 1997
<PAGE> 3
[GRAPHICS ON INSIDE FRONT COVER INCLUDE ARTIST'S RENDITION AND PHOTOGRAPH OF THE
HEPATASSIST SYSTEM.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
HEPATASSIST(TM), PANCREASSIST(TM) AND CIRCE BIOMEDICAL(TM) ARE TRADEMARKS
OF THE COMPANY FOR WHICH REGISTRATION APPLICATIONS HAVE BEEN FILED WITH THE
UNITED STATES PATENT AND TRADEMARK OFFICE. ALL TRADEMARKS, SERVICE MARKS AND
TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE
OWNERS.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. The factors that might
cause such differences include, but are not limited to, those discussed under
"Risk Factors."
THE COMPANY
Circe Biomedical is engaged in the development, production and
commercialization of novel bioartificial organs. The Company's lead product in
development, the HepatAssist Liver Assist System (the "HepatAssist System"), is
an extracorporeal, bioartificial liver incorporating porcine hepatocytes (pig
liver cells), and is designed to treat acute and chronic liver failure by
temporarily providing essential liver functions. The Company believes that the
HepatAssist System is the most clinically advanced bioartificial liver in the
world. Circe has completed a Phase I/II clinical trial of the HepatAssist System
and has submitted to the United States Food and Drug Administration (the "FDA")
a proposed protocol for a Phase II/III clinical trial that it expects to begin
as early as the third quarter of 1997, subject to FDA approval. The Company's
PancreAssist Artificial Pancreas System (the "PancreAssist System"), which is in
preclinical development, is an implantable bioartificial pancreas, incorporating
porcine pancreatic islets (pig pancreatic cells), and is designed as a novel
therapy for the treatment of insulin-dependent diabetes. In addition to the
HepatAssist and PancreAssist Systems, the Company is pursuing other research and
development programs based on its proprietary technologies. These technologies
enable the Company to (i) isolate, purify, handle and preserve primary mammalian
cells; (ii) fabricate semipermeable, biocompatible membranes designed to
regulate the passage of selected molecules; and (iii) design and develop novel
biomedical systems incorporating these isolated cells and membranes to provide
essential organ functions.
The Company believes that the data from its Phase I/II clinical trial of
the HepatAssist System indicate a safety profile and preliminary evidence of
clinical efficacy sufficient to warrant initiation of the Company's proposed
Phase II/III clinical trial for the treatment of patients with no history of
liver disease who experience rapid liver failure (fulminant hepatic failure or
"FHF") or who have received liver transplants that fail to function (primary
non-function or "PNF"). For example, of the 26 patients with indications of FHF
or PNF treated with the HepatAssist System during the Phase I/II clinical trial,
96% (25 patients) either were temporarily supported until they received a liver
transplant (21 patients) or experienced liver regeneration sufficient to avoid
the need for a transplant (4 patients), and 88% (23 patients) survived at least
30 days after the transplant or, if there was no transplant, after the patient's
most recent HepatAssist System treatment. Survival at 30 days is considered to
be clinically significant and is therefore the anticipated primary end point of
the Company's planned Phase II/III clinical trial. Based on this data, the
Company has submitted to the FDA a proposed protocol for a Phase II/III clinical
trial for the treatment of FHF and PNF patients, which it expects to begin as
early as the third quarter of 1997, subject to FDA approval. The Company
believes that evidence of clinical efficacy sufficient for FDA approval may be
available at an interim review point during the clinical trial and that the
HepatAssist System qualifies for expedited review from the FDA. Based upon these
and other factors, the Company expects that it could file with the FDA for
approval of the HepatAssist System for these indications by the end of 1998. For
a more detailed discussion of the results of the Company's Phase I/II clinical
trial, as well as the anticipated Phase II/III clinical trial, see "Business
- -- Products in Development -- The HepatAssist System -- Clinical Development."
The Company believes that the initial market for the HepatAssist System
will be FHF and PNF patients in late-stage comas. The Company estimates that, in
1996 in the United States, there were approximately 1,700 emergency liver
transplants, 1,000 patients on the waiting list who died while waiting for a
liver transplant and 1,000 patients with FHF or other sudden onsets of liver
failure who either had not been placed on the waiting list or who died before
being placed on the waiting list. Based on data from the United Network for
Organ Sharing ("UNOS") and discussions with physicians, the Company believes
that FHF and PNF patients
3
<PAGE> 5
accounted for approximately half of these 3,700 patients. The Company estimates
that the size of the prospective patient population for the HepatAssist System
in Europe is similar to that of the United States.
The Company believes that, in addition to the FHF and PNF indications, the
HepatAssist System will ultimately be used as a key therapy to enhance liver
function during episodes of acute liver failure in chronic liver disease
patients ("acute-on-chronic" liver failure or "AOC") and to compensate for liver
insufficiency resulting from the surgical removal of liver tissue in cancer and
trauma patients. Based on data from its Phase I/II clinical trial, the Company
is preparing additional protocols for controlled Phase II clinical trials
addressing significant portions of these patient populations. When and if
additional data supporting safety and efficacy become available, the Company
intends to proceed with Phase III clinical trials, subject to FDA approval, and
ultimately to seek approval of the HepatAssist System for these additional
indications. If approved for such indications, the Company believes that
treatment with the HepatAssist System would be an appropriate therapy for a
significant portion of patients admitted to hospitals due to acute liver
failure. Based upon National Center for Health Statistics data, the Company
estimates that there were approximately 350,000 hospitalizations due to liver
failure in the United States in 1996, involving approximately 250,000 patients
and 50,000 deaths. The Company estimates that of these 250,000 hospitalized
patients, approximately 200,000 were AOC or liver cancer patients and over
40,000 of these patients died. The Company estimates that the size of the AOC
and liver cancer patient population in Europe is similar to that of the United
States.
The PancreAssist System, which is currently in preclinical development, is
an implantable, bioartificial pancreas incorporating porcine pancreatic islets
and is designed to treat insulin-dependent diabetes. Based on the Company's
preclinical testing, the Company filed an Investigational New Drug application
("IND") to initiate a Phase I/II clinical trial of a non-reseedable version of
the PancreAssist System. Although the IND was allowed, prior to the treatment of
any patients, the FDA placed the initiation of the trial on clinical hold
pending the resolution of a device failure in preclinical testing. The Company
has investigated the device failure, submitted its findings to the FDA and is in
the process of evaluating its alternatives with the FDA. See "Risk
Factors -- Delays and Uncertainties Relating to the PancreAssist System" and
"Business -- Products in Development -- Additional Applications of the Company's
Core Technologies -- The PancreAssist System."
The Company expects that the PancreAssist System, if successfully
developed, will initially be used as a substitute for pancreatic transplants in
"brittle" diabetics (insulin-dependent diabetics with a history of severe
metabolic complications and erratic response to conventional insulin therapies).
The Company believes that a significant portion of brittle diabetics would
benefit from the PancreAssist System. If the PancreAssist System proves to be a
successful therapy for this indication, the Company believes that it also could
be used for the treatment of other insulin-dependent diabetics.
In addition to the HepatAssist and PancreAssist Systems, the Company is
pursuing, independently and in collaboration with others, other research and
development programs based on the Company's proprietary technologies. These
programs include: (i) a bioartificial kidney system using porcine kidney cells;
(ii) membrane-based immunoisolation devices to facilitate testing of cell/drug
interactions in animal models; and (iii) an implantable device that uses
biocompatible membranes and a proprietary enzymatic process to lower cholesterol
levels. These projects are in various stages of early development, and the
Company, depending on continued technological progress and commercial
feasibility, may or may not seek to commercialize any of them.
The Company's principal executive offices are located at One Ledgemont
Center, 128 Spring Street, Lexington, Massachusetts 02173, and its telephone
number is (617) 863-8720.
Relationship with Grace
The Company was incorporated in Delaware in 1996 and is currently a wholly
owned subsidiary of Grace. From 1986 through 1996, the Company's business was
operated as the biomedical division of Grace (the "Biomedical Division"). On
December 31, 1996, Grace transferred to the Company, as a contribution to
capital, the assets and liabilities of the Biomedical Division relating to the
Company's business. Grace has provided substantially all of the Company's cash
requirements since its inception, funding approximately
4
<PAGE> 6
$72 million of research and development costs and other expenses from 1986
through the first quarter of 1997. Grace has advised the Company that, following
the consummation of this Offering, Grace does not intend to provide any further
financial assistance or support to the Company.
Grace currently owns, and upon the consummation of this Offering will own,
all of the 4,600,000 outstanding shares of the Company's Class B Common Stock,
par value $.001 per share (the "Class B Common Stock"), and no shares of the
Company's Class A Common Stock, par value $.001 per share (the "Class A Common
Stock"). Upon the consummation of this Offering, Grace's ownership of the Class
B Common Stock will represent 63.8% of the outstanding Class A Common Stock and
Class B Common Stock (collectively, the "Common Stock") on a combined basis
(60.7% if the Underwriters' over-allotment option is exercised in full). Each
share of Class A Common Stock entitles its holder to one vote, whereas each
share of Class B Common Stock entitles its holder to 0.37 of a vote.
Accordingly, the Class B Common Stock will represent 39.5% of the voting power
of the outstanding Common Stock upon the consummation of this Offering (36.3% if
the Underwriters' over-allotment option is exercised in full). As the holder of
all of the outstanding Class B Common Stock, Grace will be entitled to elect all
of the Class B Directors of the Company (the "Class B Directors"); the holders
of the Class A Common Stock, voting as a separate class, will be entitled to
elect all of the Class A Directors of the Company (the "Class A Directors"). As
long as Grace holds a specified amount of the Class B Common Stock, a majority
of the Class B Directors will be required to approve certain fundamental
corporate changes and significant transactions. If Grace sells or otherwise
transfers beneficial ownership of any shares of Class B Common Stock (other than
to a wholly owned subsidiary of Grace), such shares will be automatically
converted into shares of Class A Common Stock. See "Risk Factors -- Ownership by
Grace; Restrictions on Certain Significant Transactions," "Relationship with
Grace" and "Description of Capital Stock."
THE OFFERING
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<S> <C>
Common Stock Offered......................... 2,500,000 shares of Class A Common Stock
Common Stock Outstanding after this
Offering................................... 2,606,000 shares of Class A Common Stock(1)(2)
4,600,000 shares of Class B Common Stock
----------
7,206,000 total shares of Common Stock(1)(2)
==========
Use of Proceeds.............................. To fund (i) research and development; (ii)
preclinical testing and clinical trials; (iii)
the payment of $150,000 in connection with the
settlement of certain litigation; (iv) the
prepayment of $300,000 of royalties in
connection with such settlement; and (v)
working capital and general corporate
expenses. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol....... CRCE
</TABLE>
- ---------------
(1) Includes an aggregate of 106,000 shares of Class A Common Stock to be issued
pursuant to restricted stock awards (the "Management Stock Awards") to be
granted to Laszlo J. Eger, Dr. Barry A. Solomon, David A. Butler and Dr.
Claudy J.P. Mullon (each a "Management Stockholder," and collectively, the
"Management Stockholders"), effective upon the consummation of this
Offering. See "Capitalization" and "Management -- Employee Benefit Plans."
(2) Excludes an aggregate of 239,000 shares and 286,000 shares of Class A Common
Stock issuable upon the exercise of stock options to be granted to the
Management Stockholders and other employees of the Company, respectively,
effective upon the consummation of this Offering. Also excludes an aggregate
of 59,000 shares of Class A Common Stock issuable upon the exercise of stock
options to be granted to certain of the Company's directors and to members
of the Company's Scientific Advisory Board, effective upon the consummation
of this Offering. The options to be granted to the Management Stockholders,
directors and Scientific Advisory Board members will have a per share
purchase price equal to the lower of the initial public offering price or
$11.00. The options to be granted to the other employees of the Company will
have a per share purchase price equal to the lower of the initial public
offering price or $10.00. See "Capitalization" and "Management -- Employee
Benefit Plans."
5
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- -------
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STATEMENTS OF OPERATIONS DATA:
Operating costs and expenses:
Research and development........ $ 4,999 $ 4,121 $ 4,312 $ 5,314 $ 7,125 $ 1,405 $ 1,730
General and administrative...... 1,060 838 1,207 922 1,394 206 540
Costs allocated by Grace(1)..... 2,462 2,289 2,593 2,541 2,663 671 681
------- ------- ------- ------- -------- ------- -------
Net loss from operations.......... (8,521) (7,248) (8,112) (8,777) (11,182) (2,282) (2,951)
======= ======= ======= ======= ======== ======= =======
Net loss per share(2)............. $ (2.43) $ (.50) $ (0.64)
Weighted average shares used in
computing net loss per
share(2)........................ 4,600 4,600 4,600
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
ACTUAL AS ADJUSTED(3)
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BALANCE SHEET DATA:
Cash and equivalents............................................... $ -- $ 26,550
Working capital (deficit).......................................... (956) 26,044
Total assets....................................................... 1,589 27,858
Accumulated deficit................................................ (2,951) (2,951)
Total stockholders' equity (deficit)............................... (25) 26,975
</TABLE>
- ---------------
(1) See Note 11 to the Financial Statements.
(2) Computed on the basis described in Note 3 to the Financial Statements.
(3) As adjusted to reflect (i) the sale of 2,500,000 shares of Class A Common
Stock offered hereby and the receipt by the Company of the estimated net
proceeds therefrom, at an assumed initial public offering price of $12.00
per share, after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company, (ii) the issuance of
an aggregate of 106,000 shares of Class A Common Stock pursuant to the
Management Stock Awards and (iii) the grant of options to purchase 35,000
shares of Class A Common Stock to members of the Company's Scientific
Advisory Board, as discussed in Note 14 to the Financial Statements. See
"Use of Proceeds," "Capitalization" and "Management -- Employee Benefit
Plans."
Unless otherwise indicated, all information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option; (ii) reflects the filing
of the amendment and restatement of the Company's Certificate of Incorporation
(as amended and restated, the "Restated Certificate") as described in Note 14 to
the Financial Statements; (iii) reflects the amendment and restatement of the
Company's By-laws (as amended and restated, the "By-laws"); and (iv) excludes an
aggregate of 584,000 shares of Class A Common Stock issuable upon exercise of
stock options to be granted effective upon the consummation of this Offering. In
addition, unless otherwise indicated, all references in this Prospectus to the
Company for the period prior to January 1, 1997 refer to the Biomedical
Division. See "Underwriting" and "Management -- Employee Benefit Plans."
6
<PAGE> 8
RISK FACTORS
Prospective investors in the shares offered hereby should carefully
consider the following risk factors, in addition to the other information
appearing in this Prospectus.
Early Stage of Development; No Product Sales to Date and No Assurance of
Future Sales. The Company is a development stage company. All of its product
candidates are in research or development, and no revenues have been generated
to date from product sales. There is no guarantee that the Company will ever
develop commercially viable products. To achieve profitable operations, the
Company, alone or with others, must successfully develop, obtain regulatory
approval for, produce, market and sell products. There can be no assurance that
the Company's product development efforts will be successfully completed, that
required regulatory approvals will be obtained in a timely manner, if at all,
that its product candidates can be manufactured at an acceptable cost and with
acceptable quality or that any approved product candidates can be successfully
marketed in the future. Moreover, even if the Company's product development
objectives are achieved, the Company does not expect to receive significant
revenue from the sale of any of its product candidates for at least the next few
years, if ever. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Products in Development."
Novel Therapeutic Approach; Technological and Other Uncertainties. The
Company's HepatAssist and PancreAssist Systems are based on the combination of
isolated living porcine cells or tissue with the Company's proprietary membranes
to create xenogeneic (derived from non-human species) biomedical systems for the
treatment of both acute and chronic disease. Although several companies are
conducting research and development activities relating to xenogeneic biomedical
systems, there has been only limited clinical research in this area, and results
obtained to date are inconclusive as to whether such systems will be safe or
effective. To the Company's knowledge, no xenogeneic biomedical product
incorporating living cells has ever been commercialized. Consequently,
regulatory bodies, including the FDA, have limited experience with such
products. To date, only 35 patients have been treated with the HepatAssist
System in a Phase I/II clinical trial, conducted in the United States and
Europe. An additional 12 patients were treated with a previous version of the
system in an independent physician-sponsored study conducted in the United
States. The PancreAssist System has not yet been tested in humans, and there can
be no assurance that this product candidate will be safe or have clinical
benefits. There can be no assurance that either the HepatAssist System or the
PancreAssist System will be approved by the FDA or other regulatory authorities,
or if so approved, that either product will be accepted by the medical community
or third-party payors. If neither product is so approved and accepted, the
Company will be required to dramatically change the scope and direction of its
product development efforts. Such changes would have a material adverse effect
on the Company's business, operating results and financial condition. See
"-- Comprehensive Government Regulation," "-- Uncertainty Associated with
Preclinical Testing and Clinical Trials," "-- Delays and Uncertainties Related
to the PancreAssist System" and "Business -- Government Regulation."
Risks Associated with Xenogeneic Biomedical Systems. Several unique risks
are attendant to xenogeneic biomedical systems. For example, it is possible that
such systems could transmit viruses, infectious diseases or other contaminants
from non-human species to human patients. In September 1996, the United States
Public Health Service issued draft guidelines on infectious disease issues in
xenotransplantation (transplantation from animals to humans), and additional
guidance is anticipated. The FDA has also expressed continuing interest in
developing guidelines or regulations for xenotransplantation and may issue such
guidelines or regulations in the future. Should guidelines or regulations
applicable to the Company's products in development be issued, there can be no
assurance that the Company will be able to comply in a timely manner, if at all.
In addition, unfavorable publicity resulting from unsuccessful efforts by the
Company or others in the xenogeneic biomedical field or in the
xenotransplantation field, or from individuals who oppose the use of xenogeneic
biomedical technologies or xenotransplantation on ethical grounds, could have a
material adverse effect on the Company's business, operating results and
financial condition. Furthermore, the activities of animal rights groups and
other organizations that have protested animal research and development programs
or boycotted the products resulting from such programs could have a material
adverse effect on the Company's business, operating results and financial
condition. See "-- Comprehensive Government Regulation" and "Business --
Government Regulation."
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<PAGE> 9
Comprehensive Government Regulation. The development, production and
marketing of the Company's product candidates are subject to extensive
regulation by governmental authorities in the United States and other countries.
In the United States, the Company's products in development will require FDA
approval prior to commercialization; no such approval has yet been requested or
obtained. Clinical trials are required before submitting an application for FDA
approval. There can be no assurance that the FDA will allow the requisite
clinical trials with respect to any of the Company's product candidates, or that
such trials will be completed successfully within any specific time period, if
at all. If clinical trials are completed successfully, the FDA may deny an
application for approval if applicable regulatory criteria are not satisfied
and/or may require additional testing or information. There can be no assurance
that FDA approval of any application will be granted in a timely manner or at
all. Even if regulatory approval of a product is granted, such approval may
include limitations on the indicated uses for which such product may be
marketed. The failure to receive, or any significant delay in receiving, FDA
approval, or the imposition of significant limitations on the indicated uses of
the Company's products, would have a material adverse effect on the Company's
business, operating results and financial condition. The Company's product
candidates are currently regulated by the FDA as biologics. There can be no
assurance that the FDA will continue to treat the Company's product candidates
as biologics. Any decision to change the designation of such product candidates
could increase costs and delay approval.
If regulatory approval is obtained, the Company will be required to comply
with a number of post-approval requirements, including reporting certain adverse
reactions, if any, to the FDA, post-marketing testing and surveillance to
monitor the safety and efficacy of the Company's product candidates, and
complying with advertising and promotional labeling requirements. In addition,
facilities and procedures used in the manufacture of the Company's products must
comply with Good Manufacturing Practices ("GMP") prescribed by the FDA. Both
before and after approval is obtained, violations of regulatory requirements may
result in various adverse consequences, including the suspension or termination
of clinical trials, delays in approving or refusal to approve a product, the
withdrawal of an approved product from the market, seizures of product, and/or
the imposition of injunctions, criminal penalties and/or civil penalties against
the manufacturer and/or license holder. See "-- Limited Manufacturing and
Marketing Capabilities."
The Company's product candidates will also require regulatory approval in
Europe before they can be marketed there; however, it is not clear which
particular approvals will be required or from which agencies such approvals must
be obtained. Since no products similar to the Company's product candidates are
believed to have been approved in Europe, the regulatory process there is
uncertain. The Company's product candidates may require separate regulatory
approval in each country where they are to be marketed and, due to the
combination of xenogeneic and hardware components in its products in
development, may require multiple regulatory approvals in some European
countries. At a minimum, some components will require regulatory review as
medical devices. The xenogeneic cells used in the Company's product candidates
may also require approval from appropriate agencies. Like regulators in the
United States, European regulators have expressed concern about the potential
for infectious disease transfer associated with xenogeneic biomedical systems,
which could delay the regulatory approval process. See "-- Risks Associated with
Xenogeneic Biomedical Systems." There can be no assurance that any European
country will approve any of the Company's products in a timely manner, if at
all, or that, if the Company's products are approved, the Company will be able
to market the products for the indications which the Company desires or will be
able to comply with post-approval restrictions. Failure to obtain regulatory
approvals and to market the Company's products in Europe would have a material
adverse effect on the Company's business, operating results and financial
condition.
Additionally, the Company is or may become subject to various federal,
state, local and foreign laws, regulations and policies relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with the Company's research and development activities and
manufacturing processes. The Company is unable to predict the nature and extent
of restrictions that might arise from these laws, regulations and policies or
any related governmental action. The Company may be required to incur
significant costs to comply with these laws, regulations and policies, which
could have a material adverse effect on its business, operating results and
financial condition. See "Business -- Government Regulation."
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<PAGE> 10
Uncertainty Associated with Preclinical Testing and Clinical
Trials. Before obtaining regulatory approvals for the commercial sale of any of
the Company's products in development, the products must be subjected to
extensive preclinical testing and clinical trials to demonstrate their safety
and efficacy in humans. The Company has limited experience in conducting
clinical trials and is dependent on third-party contract research organizations
to conduct clinical trials of the HepatAssist System and to conduct preclinical
testing and any future clinical trials of the PancreAssist System and any future
product candidates. The Company has completed a Phase I/II clinical trial of the
HepatAssist System and has submitted to the FDA a proposed protocol for a Phase
II/III clinical trial that it expects to begin as early as the third quarter of
1997, subject to FDA approval. There can be no assurance that the Company will
receive FDA approval to begin the clinical trial on the terms of the Company's
protocol, that the Phase II/III clinical trial will commence in the third
quarter of 1997, that patients will enroll in the trial at the anticipated rate,
that the Company will be able to achieve clinical evidence of efficacy at an
interim review point in the trial and be in a position to file for approval by
the end of 1998, or that the FDA will grant the Company expedited review.
The results of initial preclinical testing and clinical trials of products
under development are not necessarily indicative of results that will be
obtained from subsequent or more extensive preclinical testing and clinical
trials; companies in the biomedical and biotechnology industries have suffered
significant setbacks in advanced clinical trials even after achieving promising
results in earlier trials. Further, clinical trials are often conducted with
patients at the most advanced stages of disease; during the course of treatment,
these patients can suffer adverse medical effects or die for reasons that may
not relate to the product being tested, but which can nevertheless adversely
affect the clinical trials. There can be no assurance that clinical trials of
products under development will demonstrate the safety and efficacy of such
products at all or to the extent necessary to obtain regulatory approvals.
Furthermore, the rate of completion of the Company's clinical trials is
dependent upon, among other things, the rate of patient enrollment, which in
turn is a function of many factors, including the size of the patient
population, the nature of the clinical protocol under which the Company's
products under development will be studied, the proximity of patients to
clinical sites and the eligibility criteria for the study. Delays in patient
enrollment may result in increased costs, regulatory filing delays, or both.
Furthermore, the Company, the FDA or other regulatory authorities may suspend or
terminate clinical trials at any time. The failure to adequately demonstrate the
safety and efficacy of a product under development in a timely manner could have
a material adverse effect on the Company's business, operating results and
financial condition. See "-- Comprehensive Government Regulation," "-- Delays
and Uncertainties Relating to the PancreAssist System," "Business -- Government
Regulation" and "-- Products in Development -- Additional Applications of the
Company's Core Technologies -- the PancreAssist System."
History of Losses; No Assurance of Revenue or Profit. The Company has
experienced significant operating losses since its inception; at March 31, 1997,
the Company's cumulative losses since January 1, 1986 were approximately $72
million. The Company expects to incur substantial additional costs, including
costs related to ongoing research and development activities, preclinical
testing and clinical trials, the expansion of research facilities,
administrative activities, and the development of manufacturing, marketing and
sales capabilities, which will result in significant and increasing losses for
some period. The Company's ability to achieve significant revenue or
profitability is dependent on its ability to successfully research and develop
its product candidates, obtain required regulatory approvals and manufacture,
market and sell its products. There can be no assurance as to whether or when
the Company will successfully accomplish these objectives or achieve
profitability. The failure to accomplish any of these objectives would have a
material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Need for Substantial Additional Funds; Uncertainty of Additional
Funding. The Company will need substantial additional funds to complete
preclinical testing and clinical trials, obtain regulatory approvals and develop
manufacturing, marketing and sales capabilities. Since the Company's inception,
Grace has provided substantially all of the Company's cash requirements, funding
approximately $72 million of research and development costs and other expenses
from 1986 through the first quarter of 1997. Grace has advised the Company that,
following the consummation of this Offering, Grace does not intend to provide
any further financial assistance or support to the Company. The Company
anticipates that the net proceeds from this Offering, including interest
thereon, will be sufficient to fund its currently planned operating expenses and
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<PAGE> 11
capital requirements for approximately 15 to 18 months; however, there can be no
assurance that such funds will be sufficient to fund its operating expenses and
capital requirements during such period. Substantial additional funds will be
required to support the Company's operations beyond such period and to
commercialize the Company's product candidates. To obtain these funds, the
Company intends to seek additional equity, debt and/or lease financings and/or
third-party collaboration opportunities. However, there can be no assurance that
any financing will be available on commercially acceptable terms, if at all, or
that any available financing will be adequate and will not be dilutive to
existing stockholders. Further, so long as the Class B Common Stock owned by
Grace constitutes a majority of the Total Common Shares and Preferred Votes
(defined below), the approval of a majority of the Class B Directors will be
required for the Company to (i) sell capital stock under certain circumstances,
(ii) incur debt in excess of an aggregate principal amount of $10 million or
(iii) enter into certain strategic collaborations. "Total Common Shares and
Preferred Votes" means the aggregate of the number of issued and outstanding
shares of Common Stock plus the number of votes, if any, entitled to be cast by
any of the Preferred Stock, par value $.001 per share (the "Preferred Stock"),
outstanding at the time (prior to or after any conversion rights are exercised).
There can be no assurance that the Class B Directors would approve any such sale
of capital stock, incurrence of debt or participation in a strategic
collaboration. If adequate funds are not available, the Company may be required
to delay, reduce or eliminate certain of its product development programs or to
license to third parties the rights to commercialize products or technologies
that the Company would otherwise seek to develop and commercialize itself, any
of which would have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Relationship with Grace" and "Description of Capital Stock
- -- Delaware Law and Certain Charter and By-law Provisions."
Limited Manufacturing and Marketing Capabilities. Because of the
relatively early stage of its product development activities, the Company has
not yet invested significantly in manufacturing, marketing, distribution or
product sales resources. Although the Company's long-term objective is to
develop increased internal manufacturing capabilities, it will initially rely on
third parties to manufacture most of the components of its product candidates
for research, preclinical testing, clinical trials and commercialization. See
"-- Reliance Upon Third-Party Suppliers."
The Company has no experience in manufacturing the HepatAssist System or
any other product in commercial quantities, and there can be no assurance that
reliable, high-volume manufacturing can be established or maintained at
commercially reasonable costs. In addition, in order to produce commercial
quantities of its products, the Company will need to relocate its manufacturing
facility, which may result in inefficiencies and delays caused by losses in
production yield, the unavailability of technically qualified personnel, quality
issues or other problems. Further, facilities and procedures used in the
manufacture of the Company's products for clinical use or for commercial sale
must comply with GMP requirements. The Company intends to operate its facilities
in compliance with GMP requirements; however, there can be no assurance that the
Company will be able to do so. Failure to comply with applicable regulatory
requirements can result in, among other things, fines, suspensions of approvals,
seizures or recalls of products, operating restrictions or criminal proceedings.
Difficulties in increasing manufacturing capability or the failure to develop
and maintain facilities and processes in accordance with applicable regulations
could delay or halt production, which could have a material adverse effect on
the Company's business, operating results and financial condition.
The Company also has no experience in marketing and distributing products.
To market and distribute the HepatAssist System or any future product
candidates, the Company plans to develop a direct sales and marketing force with
distribution capabilities, but may enter into marketing and distribution
arrangements with third parties that have established capabilities. Significant
additional expenditures, management resources and time will be required for the
Company to develop a sales and marketing force and distribution capability.
There can be no assurance that the Company will be able to establish a direct
sales and marketing force or enter into marketing and distribution arrangements
with third parties, that any such arrangements will be on terms favorable to the
Company or that any third party will market and distribute the Company's
products successfully. If the Company fails to establish marketing and
distribution capabilities or fails to enter into marketing and distribution
arrangements with third parties, or if any marketing or distribution partner
does
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<PAGE> 12
not market and distribute a product successfully, the Company's business,
operating results and financial condition would be materially and adversely
affected. The Company intends to market and sell its products in Europe and may
encounter additional difficulties in managing its European operations. See
"Business -- Sales and Marketing" and "-- Manufacturing."
Reliance Upon Third-Party Suppliers. The Company currently purchases
hardware from several suppliers, including components such as the plasma
reservoir, pump and monitor, charcoal column detoxifier and membrane oxygenator
used in the HepatAssist System. The Company currently purchases pigs from one
supplier and intends to purchase pigs from several suppliers in the future. In
order to meet FDA requirements, the pigs must be free of specific pathogens at
the time of purchase. If the hardware components of the HepatAssist System or
the specific-pathogen-free pigs become unavailable from a particular supplier,
there can be no assurance that the Company would be able to purchase hardware
components and/or such pigs on commercially acceptable terms. With respect to
the hardware components, the integration of any new component could require
system design changes and further regulatory approval and could have a material
adverse effect on the Company's business, operating results and financial
condition. Furthermore, a disease or other catastrophe could destroy all or a
portion of the pigs maintained by the Company, which would interrupt or
significantly delay the development, testing and/or distribution of the
Company's products. See "Business -- Manufacturing."
Uncertainty Relating to Third-Party Reimbursement and Product Pricing. The
successful commercialization of the Company's products will depend substantially
on whether and to what extent the costs of such products and related treatments
are reimbursed at acceptable levels by government authorities, private health
insurers and other third-party payors, such as health maintenance organizations
("HMOs"). Since no products similar to the HepatAssist System are currently
approved for marketing, no reimbursement plan exists for the costs associated
with such treatment, and there can be no assurance that treatment with the
HepatAssist System will be covered. In addition, reimbursement rates may vary
depending on the procedure performed, the third-party payor, the type of
insurance plan and other factors. The Company estimates that it will charge a
health care provider between $15,000 to $50,000 during a typical course of
treatment with the HepatAssist System. Even if third-party reimbursement is
available to the Company, third-party payors may only be willing to provide
coverage for the use of the HepatAssist System for indications where the
HepatAssist System competes favorably on the basis of cost and clinical
effectiveness. Further, there can be no assurance that providers will choose to
use the Company's products, when and if they become available. Moreover, the
Company is unable to predict what legislative or regulatory changes relating to
the health care industry, including any changes affecting governmental and/or
private or third-party coverage and reimbursement, may be enacted in the future
or what effect such legislative or regulatory changes would have on the
Company's business. The failure of physicians, hospitals and other users of the
Company's products to obtain sufficient reimbursement from third-party payors
for the procedures in which the Company's products would be used, or adverse
changes in governmental and/or private third-party payors' policies toward
reimbursement for such procedures, would have a material adverse effect on the
Company's business, operating results and financial condition. If the Company
obtains the necessary European regulatory approvals, market acceptance of the
Company's product candidates in European markets would be dependent, in part,
upon the availability of reimbursement. There can be no assurance that
reimbursement in the United States or other countries will be available for any
products the Company may develop or, if available, that reimbursement amounts
will be at levels sufficient to permit the Company to achieve profitability.
Particularly in the United States, third-party payors carefully review, and
increasingly challenge, the prices charged for medical procedures and medical
products. Also, the trend toward managed health care in the United States and
the concurrent growth of organizations such as HMOs, which can control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reform health care or reduce government
insurance programs, may result in lower prices for therapeutic products. The
cost containment measures that health care providers are instituting, including
practice protocols and guidelines, and the effect of any health care reform,
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- Reimbursement."
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<PAGE> 13
Delays and Uncertainties Relating to the PancreAssist System. In March
1997, prior to the treatment of any patients, the FDA placed on clinical hold
the Company's IND to initiate a Phase I/II clinical trial of a non-reseedable
version of the PancreAssist System, pending the resolution of a device failure
in preclinical testing. The provisions of the IND, which had been allowed in
March 1996, required the Company to upgrade certain procedures and quality
systems before commencing the clinical trial. During the course of an experiment
used to validate the upgraded procedures, a vascular graft connecting the
PancreAssist System to the circulatory system failed in one animal, leading to
its death. The Company subsequently completed a failure analysis of the device
and the graft and reported its findings and recommendations to the FDA in May
1997. In June 1997, the FDA advised the Company that it would require additional
preclinical testing of the non-reseedable version of the PancreAssist System,
which could significantly delay commencement of the Phase I/II clinical trial.
In the event that the Company and the FDA are unable to agree on an acceptable
level of preclinical testing, the Company may elect to (i) seek to proceed only
with the development of the reseedable version, either independently or in
collaboration with a partner; (ii) seek a partner for the development of the
non-reseedable version; or (iii) delay any further development of the
PancreAssist System for an indefinite period of time. There can be no assurance
that the PancreAssist System will ever be successfully developed. See
"Business -- Government Regulation" and "Business -- Products in
Development -- Additional Applications of the Company's Core Technologies -- The
PancreAssist System."
Intense Competition. The Company's product candidates are expected to
compete with new products and technologies being developed by pharmaceutical,
biopharmaceutical, biotechnology and biomedical companies, as well as by
universities and other research institutions. The Company is aware of several
biotechnology companies that are attempting to create bioartificial liver and
pancreas devices and other products that are competitive with those of the
Company.
Competitors are also developing a wide array of products, drugs and other
therapies for diabetes, including products using normal or modified porcine,
human or bovine pancreatic islets, modified forms of insulin or other drugs,
insulin pumps that are either extracorporeal or implantable (certain of which
may be implanted with glucose sensors), and drugs that directly attack the
underlying causes of diabetes. One or more competitors may be successful in
creating and commercializing bioartificial liver or pancreas devices or other
products, drugs, therapies or improvements in the prevention or treatment of
diabetes or liver diseases, any of which could adversely affect the size of the
Company's available markets or eliminate the potential market for one or both of
the Company's product candidates.
Many of the Company's competitors are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products that may be more effective and less costly than those of the Company.
Many of these competitors have significantly greater research and development
capabilities than the Company, as well as substantial marketing, manufacturing,
financial and managerial resources. In addition, many competitors have
significantly greater experience than the Company in undertaking preclinical
testing and clinical trials of products and obtaining FDA and other regulatory
approvals of such products. Accordingly, these competitors may succeed in
commercializing products more rapidly than the Company. These competitors also
compete with the Company in recruiting and retaining scientific personnel. See
"Business -- Competition."
Ownership by Grace; Restrictions on Certain Significant Transactions. The
Company is currently a wholly owned subsidiary of Grace. Grace currently owns,
and upon the consummation of this Offering will own, all of the 4,600,000
outstanding shares of Class B Common Stock and no shares of Class A Common
Stock. Upon the consummation of this Offering, Grace's ownership of the Class B
Common Stock will represent 63.8% of the outstanding Common Stock (60.7% if the
Underwriters' over-allotment option is exercised in full). Each share of Class A
Common Stock entitles its holder to one vote, whereas each share of Class B
Common Stock entitles its holder to 0.37 of a vote. Accordingly, the Class B
Common Stock will represent 39.5% of the voting power of the outstanding Common
Stock upon the consummation of this Offering (36.3% if the Underwriters'
over-allotment option is exercised in full). So long as Grace owns at least 30%
of the Total Common Shares and Preferred Votes, Grace will be entitled to elect
a number of Class B Directors equal to 40% of the Company's Board of Directors
(the "Board"), excluding any directors to be elected, exclusively by holders of
Preferred Stock. So long as Grace owns at least 15% of the Total Common Shares
and Preferred Votes, Grace
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<PAGE> 14
will be entitled to elect a number of Class B Directors equal to 20% of the
Board, excluding any directors to be elected exclusively by holders of Preferred
Stock. In addition, as long as the number of shares of Class B Common Stock
owned by Grace constitutes a majority of the Total Common Shares and Preferred
Votes, a majority of the Class B Directors will be required to approve certain
fundamental corporate changes and significant transactions. Even after Grace's
equity interest in the Company decreases below a majority of the Total Common
Shares and Preferred Votes and, as a consequence, the approval of a majority of
the Class B Directors is no longer required to authorize these changes and
transactions, Grace may, by virtue of its ownership of a significant percentage
of the voting power of the outstanding Common Stock, continue to be able to
influence the outcome of stockholder votes and, by virtue of its ownership of
all of the Class B Common Stock, continue to be able to elect the Class B
Directors. Furthermore, subject to certain exceptions, if the Class B Common
Stock owned or controlled by Grace should cease to constitute at least 50% of
the Total Common Shares and Preferred Votes, then any or all shares of Class B
Common Stock owned by Grace may be converted, at Grace's election, into an equal
number of shares of Class A Common Stock. Although such conversion might result
in Grace no longer being entitled to elect the Class B Directors, such
conversion could cause Grace's voting power to increase and constitute a
significant percentage of the voting power of the Common Stock (since the Class
A Common Stock has greater voting power per share than the Class B Common
Stock). The foregoing rights may limit the manner in which the Company conducts
its business and may have the effect of discouraging an unsolicited acquisition
proposal or limit the price that investors might be willing to pay for shares of
Class A Common Stock. For a more complete description, see "Relationship with
Grace" and "Description of Capital Stock."
Uncertainties Regarding Patents and Proprietary Rights; Potential
Third-Party Claims. The Company's success will depend in part on its ability to
effectively protect its proprietary rights, including obtaining patent
protection for its products and processes and preserving its trade secrets, and
its ability to operate without infringing the proprietary rights of third
parties. The Company's strategy is to actively pursue patent protection in the
United States and other jurisdictions for technology that it believes to be
proprietary and where patenting would offer a potential competitive advantage
for its products.
The Company holds two United States patents relating to the HepatAssist
System, four United States patents relating to the PancreAssist System and seven
United States patents relating to other exploratory development programs. The
Company has also filed ten patent applications in the United States, seven of
which relate to the technologies used in connection with the HepatAssist System
and the PancreAssist System, and three of which relate to other exploratory
technologies and programs. The Company also has the option to negotiate
royalty-bearing licenses for three patents relating to such technologies and
programs. The Company has filed corresponding patent applications in certain
other countries. There can be no assurance that any patents will be issued from
pending or any future patent applications, that the scope of any patent
protection will provide competitive advantages to the Company, that any of the
Company's patents will be held valid if subsequently challenged or that others
will not claim rights in or ownership of the patents and other proprietary
rights held by the Company. In addition, the laws of certain countries other
than the United States may not protect the Company's intellectual property
rights to the same extent as do the laws of the United States. Further, while
the Company generally enters into confidentiality agreements with its employees,
consultants and strategic collaborators, there can be no assurance that the
Company's proprietary technology will not become known or be independently
developed by competitors in such a manner that leaves the Company with no
practical recourse.
Moreover, substantially all patents and proprietary rights presently owned
by the Company were transferred from Grace to the Company. In connection with
such transfer, Grace made no representations or warranties with respect to its
title to these assets; consequently, there can be no assurance that the Company
received such patents and proprietary rights free and clear of defects in title.
See "Business -- Patents and Proprietary Rights" and "Relationship with
Grace -- Transfer and Assumption Agreement."
A significant portion of the Company's technology has been developed in
collaboration with third parties such as hospitals, universities and independent
research laboratories. The Company is licensing certain know-how and technology
relating to the HepatAssist System from Cedars-Sinai Medical Center and Rhode
Island Hospital. These third parties generally have retained certain rights to
use technology developed in the
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<PAGE> 15
collaborations, or pre-existing technology that they contributed to research
projects, and the Company has agreed to pay royalties on certain technology that
it may use in commercial products. Depending on the final configuration of the
Company's products, the Company may need to negotiate additional royalty-bearing
licenses from some of these third parties in order to produce and sell its
products commercially or to preserve its exclusive use of key technology. In
addition, if the Company fails to pay the royalties due under any of these
licenses, then, under certain circumstances, these licenses may be terminated.
The termination of any license or the failure to negotiate any needed additional
licenses could have a material adverse effect on the Company's business,
operating results and financial condition. Certain of the technology relating to
the HepatAssist System was developed by Dr. Achilles Demetriou under federal
research grants at a number of research institutions. This development occurred
prior to his joining the Cedars-Sinai Medical Center in 1993 and commencement of
the Company's collaboration with Cedars-Sinai in 1994. Much of Dr. Demetriou's
prior work regarding such technology has been published. Dr. Demetriou has
agreed to serve as a member of the Company's Scientific Advisory Board.
The medical products market has been characterized by extensive litigation
regarding patents, trade secrets and other intellectual property rights.
Administrative proceedings or litigation, which could result in substantial cost
and uncertainty to the Company, may be necessary to enforce patent or other
intellectual property rights of the Company or to determine the scope and
validity of other parties' proprietary rights. The Company and Grace have
recently entered into a settlement agreement with a third party involving
portions of the technology relating to the PancreAssist System. See
"Business -- Legal Proceedings." There can be no assurance that third parties
will not assert patent infringement claims in the future with respect to the
Company's current or future products; such claims could potentially require the
Company to enter into license arrangements or result in litigation, regardless
of the merits of such claims. No assurance can be given that any necessary
licenses can be obtained on commercially acceptable terms, if at all. Litigation
with respect to any infringement claims or any other patent, trade secret or
intellectual property rights could be expensive and time consuming and could
have a material adverse effect on the Company's business, operating results and
financial condition, regardless of the outcome of such litigation. See
"Business -- Patents and Proprietary Rights."
Risk of Technological Obsolescence. The development of immunosuppressant
drugs, biomechanical organ systems, xenotransplantation and other technological
improvements is marked by rapid and significant change, and the Company expects
that this development will continue at a rapid pace. The Company's success will
depend in large part on its ability to maintain a competitive position with
respect to these technologies. Technological developments by the Company or
others may result in the obsolescence of products or processes before the
Company recovers the research, development and commercialization expenses it has
incurred. There can be no assurance that the Company will successfully address
these technological challenges or other challenges that may arise in the course
of development. Any failure by the Company to anticipate or respond adequately
to technological developments will have a material adverse effect on the
Company's business, operating results and financial condition.
Potential Product Liability. The Company's business exposes it to
potential product liability risks inherent in the testing, manufacturing,
marketing and sale of xenogeneic biomedical products, and there can be no
assurance that the Company will be able to avoid significant product liability
claims. Product liability insurance for the biomedical product industry is
generally expensive, if available at all. The Company currently obtains through
Grace product liability insurance covering its preclinical testing and clinical
trials. However, such coverage will not be available from Grace following the
consummation of this Offering. There can be no assurance that, following this
Offering, the Company will be able to independently obtain and maintain such
insurance on commercially acceptable terms or that such insurance will provide
adequate protection against potential liabilities. Any inability to obtain
sufficient insurance coverage at an acceptable cost or otherwise to protect
against potential product liability claims could prevent or limit the
commercialization of products developed by the Company. Furthermore, a product
liability claim, and any related adverse publicity, could have a material
adverse effect on the business, operating results and financial condition of the
Company.
Dependence on Key Personnel. The Company depends to a considerable degree
on a limited number of key personnel. The Company does not maintain "key person"
life insurance on any of its employees. The loss of certain members of senior
management or certain scientific personnel could have a material adverse effect
on
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<PAGE> 16
the Company's business, operating results and financial condition. Recruiting
and retaining qualified scientific personnel to perform research and development
work is also critical to the Company's success. In addition, the Company's
anticipated growth and expansion into areas and activities requiring additional
expertise, such as clinical testing, regulatory compliance, manufacturing and
marketing, will require the addition of new management personnel and the
development of additional expertise by existing management personnel. There is
intense competition for qualified personnel in these areas, and there can be no
assurance that the Company will be able to attract and retain such personnel on
acceptable terms. The failure to attract and retain such personnel could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Scientific Advisory Board" and
"Management."
No Prior Public Market; Stock Price Volatility. Prior to this Offering,
there has been no public market for the Company's capital stock. Accordingly,
there can be no assurance that an active trading market will develop and
continue upon consummation of this Offering or that the market price of the
Class A Common Stock will not decline below the initial public offering price.
The initial public offering price of the Class A Common Stock will be determined
by negotiations among the Company, Grace and the Representatives. See
"Underwriting." The market price of the Company's securities, like those of the
securities of many other emerging companies, is likely to be highly volatile.
Factors such as the results of preclinical testing and clinical trials by the
Company and/or its competitors, other evidence of the safety or efficacy of
products of the Company and/or its competitors, announcements of technological
innovations or new products by the Company and/or its competitors, governmental
regulation, health care legislation, developments affecting patent or other
proprietary rights of the Company and/or its competitors, including litigation,
fluctuations in the Company's operating results and market conditions for
biotechnology stocks in general, could have a significant impact on the future
price of the Class A Common Stock. It is not intended that there ever will be a
public market for the Class B Common Stock.
Possible Adverse Impact of Shares Eligible for Future Sale. Sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of outstanding options) in the public market, or the availability of such shares
for sale, could adversely affect the market price of the Class A Common Stock
and may have a material adverse effect on the Company's ability to raise any
necessary capital to fund its future operations. Upon completion of this
Offering, the Company will have 7,206,000 shares of Common Stock outstanding.
The 2,500,000 shares of Class A Common Stock offered hereby will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), except for any shares held by the
Company's "affiliates," within the meaning of the Securities Act, which will be
subject to the resale limitations of Rule 144 promulgated under the Securities
Act ("Rule 144"). Of the remaining 4,706,000 shares of Common Stock outstanding
upon the consummation of this Offering, 4,600,000 will be shares of Class B
Common Stock held by Grace and will be "restricted securities," as that term is
defined in Rule 144, that may be sold only if registered under the Securities
Act or in accordance with an applicable exemption from registration, such as
Rule 144. The remaining 106,000 shares will be shares of Class A Common Stock
issued pursuant to the Management Stock Awards to the Management Stockholders,
who are "affiliates" of the Company within the meaning of the Securities Act,
these shares will be subject to the resale limitations of Rule 144, as well as
restrictions on transferability and to forfeiture until they vest. Grace has
agreed that it will not, without the prior written consent of UBS Securities
LLC, offer, sell, or otherwise dispose of any securities of the Company owned by
Grace for a period of one year after the date of this Prospectus (the "Grace
Lock-Up Period"). The Management Stockholders (who will hold the Management
Stock Awards and options to purchase 239,000 shares of Class A Common Stock) and
the directors and members of the Scientific Advisory Board of the Company (who
will hold options to purchase an aggregate of 59,000 shares of Class A Common
Stock), have agreed that they will not, without the prior written consent of UBS
Securities LLC, offer, sell, or otherwise dispose of any securities of the
Company owned by them for a period of 180 days after the date of this Prospectus
(the "Management Lock-Up Period"). The Grace Lock-Up Period and the Management
Lock-Up Period are collectively referred to hereafter as the "Lock-Up Periods."
Upon the expiration of the Lock-Up Periods, the 4,600,000 shares of Common Stock
held by Grace, and 35,333 shares of Common Stock held by the Management
Stockholders (if such shares have vested), will be eligible for sale in the
public market, subject to the volume limitations of Rule 144. In addition, Grace
has the right under certain circumstances to require the Company to register its
shares of Class B Common Stock under the Securities Act for resale to the
15
<PAGE> 17
public. The Class B Common Stock would be converted into shares of Class A
Common Stock upon sale by Grace. If Grace, by exercising its registration
rights, causes a large number of shares to be registered and sold in the public
market, such sales could have a material adverse effect on the market price of
the Class A Common Stock. See "Shares Eligible for Future Sale," "Relationship
with Grace -- Stockholder Agreement" and "Underwriting."
Anti-Takeover Effect of Certain Charter and By-law Provisions and Delaware
Law. Grace's ownership of the Class B Common Stock, as well as its right to
elect the Class B Directors, could delay or make more difficult a merger, tender
offer or proxy contest involving the Company. However, even if Grace disposed of
all of its Class B Common Stock, certain provisions of the Restated Certificate,
the By-laws and the Delaware General Corporation Law (the "DGCL") could have the
effect of discouraging an unsolicited acquisition proposal or limiting the price
that investors might be willing to pay for shares of Class A Common Stock. The
Restated Certificate authorizes the Board to issue, without stockholder
approval, up to 5,000,000 shares of Preferred Stock with voting, conversion and
other rights and preferences that could adversely affect the voting power or
other rights of the holders of Common Stock. The Restated Certificate also
provides for staggered terms for members of the Board other than Class B
Directors. These provisions may have the effect of deterring unsolicited
acquisition proposals or delaying or preventing changes in control or changes in
management of the Company, including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices.
Further, certain provisions of the DGCL applicable to the Company could also
delay or make more difficult a merger, tender offer or proxy contest involving
the Company, including Section 203 of the DGCL, which prohibits a Delaware
corporation from engaging in any business combination with any stockholder
owning 15% or more of the Company's outstanding voting stock ("interested
stockholder") for a period of three years from the date a stockholder becomes an
interested stockholder, unless certain conditions are met. These provisions
could also limit the price that investors might be willing to pay in the future
for shares of Class A Common Stock. See "-- Ownership by Grace; Restrictions on
Certain Significant Transactions" and "Description of Capital Stock."
Discretion in Application of Proceeds. Substantially all of the net
proceeds of this Offering will initially be applied to the working capital of
the Company. Accordingly, the Company's management will have broad discretion as
to the application of such proceeds. See "Use of Proceeds."
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Class A Common Stock offered hereby are estimated to be $27,000,000 ($31,185,000
if the Underwriters' over-allotment option is exercised in full), at an assumed
initial public offering price of $12.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company expects to use the net proceeds (i) for research and
development; (ii) to fund preclinical testing and clinical trials; (iii) to pay
$150,000 in connection with the settlement of certain litigation; (iv) to prepay
$300,000 of royalties in connection with such settlement (see "Business -- Legal
Proceedings"); and (v) for working capital and general corporate expenses.
Except for the payments relating to the settlement, the Company is not yet able
to estimate the allocation of the net proceeds among the various uses, as the
timing and amount of expenditures will vary depending upon numerous factors. The
Board and management will have complete discretion with respect to the
allocation of the net proceeds and the timing of expenditures. Although the
Company may use a portion of the net proceeds to acquire or license products
and/or technologies complementary to those of the Company, there are no current
plans or commitments to do so. Pending the above uses, the Company plans to
invest the net proceeds from this Offering in investment grade, interest-bearing
securities.
The Company anticipates that the net proceeds from this Offering, including
interest thereon, will be sufficient to fund its currently planned operating
expenses and capital requirements for approximately 15 to 18 months; however,
there can be no assurance that such funds will be sufficient to fund its
operating expenses and capital requirements during such period. Substantial
additional funds will be required to support the Company's operations beyond
such period and to commercialize the Company's product candidates. To obtain
these funds, the Company intends to seek additional equity, debt and/or lease
financings and/or third-party collaboration opportunities. However, there can be
no assurance that any financing will be available on commercially acceptable
terms, if at all, or that any available financing will be adequate and will not
be dilutive to existing stockholders. Further, so long as the Class B Common
Stock owned by Grace constitutes a majority of the Total Common Shares and
Preferred Votes, the approval of a majority of the Class B Directors will be
required for the Company to (i) sell capital stock under certain circumstances,
(ii) incur debt in excess of an aggregate principal amount of $10 million or
(iii) enter into certain strategic collaborations. There can be no assurance
that the Class B Directors would approve any such sale of capital stock,
incurrence of debt or participation in a strategic collaboration. See "Risk
Factors -- Discretion in Application of Proceeds," "-- Need for Substantial
Additional Funds; Uncertainty of Additional Funding," "Description of Capital
Stock -- Delaware Law and Certain Charter and By-law Provisions" and
"Relationship with Grace."
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock and
does not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain earnings, if any, to finance the development of its
business. In addition, so long as the Class B Common Stock owned by Grace
constitutes a majority of the Total Common Shares and Preferred Votes, a
majority of the Class B Directors must approve the declaration and payment of
any dividend. See "Description of Capital Stock -- Common Stock -- Dividends."
17
<PAGE> 19
CAPITALIZATION
The following table sets forth as of March 31, 1997 (i) the actual
capitalization of the Company, after giving effect to the filing of the Restated
Certificate as described in Note 14 to the Financial Statements, and (ii) the
capitalization of the Company as adjusted to reflect the sale of 2,500,000
shares of Class A Common Stock offered hereby and the receipt by the Company of
the estimated net proceeds therefrom (after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company) and the issuance of 106,000 shares of Class A Common Stock pursuant to
the Management Stock Awards. This table should be read in conjunction with the
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity (deficit):
Preferred Stock, par value $.001 per share, 5,000,000 shares
authorized; no shares issued or outstanding, actual and as
adjusted........................................................ $ -- $ --
Class A Common Stock, par value $.001 per share, 15,000,000 shares
authorized; no shares issued or outstanding, actual; 2,606,000
shares issued and outstanding, as adjusted...................... -- 3
Class B Common Stock, par value $.001 per share, 5,000,000 shares
authorized; 4,600,000 shares issued and outstanding, actual and
as adjusted..................................................... 5 5
Additional paid-in capital......................................... 2,921 31,376
Deferred compensation(2)........................................... -- (1,458)
Accumulated deficit................................................ (2,951) (2,951)
------- -------
Total stockholders' equity (deficit)....................... (25) 26,975
------- -------
Total capitalization....................................... $ (25) $ 26,975
======= =======
</TABLE>
- ---------------
(1) Excludes an aggregate of 549,000 shares of Class A Common Stock issuable
upon the exercise of stock options to be granted upon the consummation of
this Offering. See Note 14 to the Financial Statements and "Management --
Employee Benefit Plans."
(2) Reflects the issuance of an aggregate of 106,000 shares of Class A Common
Stock pursuant to the Management Stock Awards and the grant of options to
purchase 35,000 shares of Class A Common Stock to members of the Company's
Scientific Advisory Board, as discussed in Note 14 to the Financial
Statements.
18
<PAGE> 20
DILUTION
At March 31, 1997, the Company had a net tangible book value (deficit) of
$(25,000), or ($.01) per share. Net tangible book value (deficit) per share is
determined by dividing the net tangible book value (tangible assets less total
liabilities) of the Company by the 4,600,000 shares of Common Stock outstanding
at such date, after giving effect to the filing of the Restated Certificate. Net
tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of Class A Common Stock in this Offering and
the net tangible book value per share of Class A Common Stock immediately after
the consummation of this Offering. Without taking into account any changes in
net tangible book value after March 31, 1997 other than as described above and
to give effect to (i) the sale by the Company of 2,500,000 shares of Class A
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share and the receipt by the Company of the estimated net proceeds
therefrom, and (ii) the issuance of 106,000 shares of Class A Common Stock
pursuant to the Management Stock Awards, the net tangible book value of the
Company as of March 31, 1997 would have been $3.74 per share. This represents an
immediate increase in net tangible book value of $3.75 per share to Grace, and
an immediate dilution in net tangible book value of $8.26 per share to new
investors purchasing shares of Class A Common Stock in this Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $ 12.00
Net tangible book value (deficit) per share as of March 31,
1997............................................................. $(.01)
Increase per share attributable to this Offering............. 3.75
-----
Net tangible book value per share after this Offering.............. 3.74
-------
Dilution per share to new investors................................ $ 8.26
=======
</TABLE>
The following table summarizes, at March 31, 1997, the total consideration
paid and the average price per share paid by Grace, the Management Stockholders
and the investors purchasing the shares offered hereby.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
--------------------- ----------------------- ----------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Grace............................... 4,600,000 63.8% $ 2,926,000(1) 8.9% $ 0.64(1)
Management Stockholders(2).......... 106,000 1.5 0 0.0 0.00
Investors in this Offering.......... 2,500,000 34.7 30,000,000 91.1 12.00
--------- ----- ----------- -----
Total......................... 7,206,000 100.0% 32,926,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) The $2,926,000 reflects Grace's advances to the Company during the first
three months of 1997, which have been treated as contributions to capital.
Since the Company's inception, Grace has provided substantially all of the
Company's cash requirements, funding approximately $71,850,000 of research
and development costs and other expenses from 1986 through the first quarter
of 1997. Had such advances been included in this table, the total
consideration paid by Grace would have been approximately $71,850,000 and
the average price per share paid by Grace would have been $15.62.
(2) Represents the Management Stock Awards. See "Management -- Employee Benefit
Plans."
Effective upon the consummation of this Offering, options to purchase an
aggregate of 584,000 shares of Class A Common Stock will be outstanding and the
Company will have reserved an additional 485,000 shares of Class A Common Stock
for future option and stock grants. The exercise of options will result in
further dilution to new investors. See Note 14 to the Financial Statements and
"Management -- Employee Benefit Plans."
19
<PAGE> 21
SELECTED FINANCIAL DATA
The following Selected Financial Data should be read in conjunction with
the Financial Statements and the Notes thereto, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included elsewhere in this Prospectus. The data set forth below for
each of the three years in the period ended December 31, 1996 are derived from
the Company's financial statements, which have been audited by Price Waterhouse
LLP, independent public accountants, and which are included elsewhere in this
Prospectus. The Selected Financial Data for the two years in the period ended
December 31, 1993, and at March 31, 1997 and for the three months ended March
31, 1996 and 1997, are derived from, and are qualified by reference to, the
Company's unaudited financial statements, which in the opinion of the Company,
include all adjustments (consisting only of normal recurring adjustments),
necessary for a fair presentation of the Company's financial position at such
dates and results of operations for those periods. The operating results set
forth below are not necessarily indicative of the results to be realized for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating costs and expenses:
Research and development....... $ 4,999 $ 4,121 $ 4,312 $ 5,314 $ 7,125 $ 1,405 $ 1,730
General and administrative..... 1,060 838 1,207 922 1,394 206 540
Costs allocated by Grace(1).... 2,462 2,289 2,593 2,541 2,663 671 681
------- ------- ------- ------- -------- ------- -------
Net loss from operations......... (8,521) (7,248) (8,112) (8,777) (11,182) (2,282) (2,951)
======= ======= ======= ======= ======== ======= =======
Net loss per share(2)............ $ (2.43) $ (.50) $ (0.64)
Weighted average shares used in
computing net loss per
share(2)....................... 4,600 4,600 4,600
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.................................................. $ -- $ 26,550
Working capital (deficit)............................................. (956) 26,044
Total assets.......................................................... 1,589 27,858
Accumulated deficit................................................... (2,951) (2,951)
Total stockholders' equity (deficit).................................. (25) 26,975
</TABLE>
- ---------------
(1) See Note 11 to the Financial Statements.
(2) Computed on the basis described in Note 3 to the Financial Statements.
(3) As adjusted to reflect (i) the sale of 2,500,000 shares of Class A Common
Stock offered hereby and the receipt by the Company of the estimated net
proceeds therefrom, at an assumed initial public offering price of $12.00
per share, after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company, (ii) the issuance of
an aggregate of 106,000 shares of Class A Common Stock pursuant to the
Management Stock Awards and (iii) the grant of options to purchase 35,000
shares of Class A Common Stock to members of the Company's Scientific
Advisory Board, as discussed in Note 14 to the Financial Statements. See
"Use of Proceeds," "Capitalization" and "Management -- Employee Benefit
Plans."
20
<PAGE> 22
PRO FORMA STATEMENTS OF OPERATIONS
The following table sets forth the unaudited Pro Forma Statements of
Operations of the Company for the year ended December 31, 1996 and for the three
months ended March 31, 1997. The Pro Forma Statements of Operations were
prepared by the Company to illustrate the estimated effects of this Offering and
the related transactions described in the Notes following the table as if they
had occurred as of January 1, 1996. The Pro Forma Statements of Operations do
not purport to represent what the results of operations of the Company would
actually have been if this Offering and the related transactions had in fact
occurred on such dates or to project the results of operations of the Company
for any future period. The Pro Forma Statements of Operations should be read
together with the Financial Statements and Notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 1996 MARCH 31, 1997
---------------------------------- -----------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ----------- ------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating costs and expenses:
Research and development............ $ 7,125 $ 2,059(1) $ 9,184 $ 1,730 $ 526(1) $ 2,256
General and administrative.......... 1,394 1,227(2) 2,621 540 254(2) 794
Costs allocated by Grace (3)........ 2,663 (2,663) -- 681 (681) --
------- ---- ------- ------ ---- -------
Net loss from operations.............. (11,182) (623) (11,805) (2,951) (99) (3,050)
======= ==== ======= ====== ==== =======
Pro forma net loss per share.......... $ (1.64) $ (0.42)
Weighted average shares used in
computing pro forma net loss per
share(4)............................ 7,206 7,206
</TABLE>
- ---------------
(1) Represents research and development expenses allocated by Grace that the
Company expects to directly incur subsequent to this Offering. See Note 11
to the Financial Statements.
(2) Adjustments to general and administrative expenses reflect the following:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1996 March 31, 1997
----------------- ------------------
<S> <C> <C>
Costs allocated by Grace (a).......................................... $ 273 $ 93
Additional services and employees (b)................................. 458 37
Management Stock Awards (c)........................................... 424 106
Scientific Advisory Board annual cash retainers and option
grants(d)........................................................... 72 18
---- ----
1,227 254
==== ====
</TABLE>
(a) Represents general and administrative expenses allocated by Grace that
the Company expects to directly incur subsequent to this Offering. See
Note 11 to the Financial Statements.
(b) Represents services to be provided by third parties, by Grace pursuant
to an agreement to be entered into between the Company and Grace, and by
additional employees assumed to be hired by the Company to provide
services previously provided by Grace. See "Relationship with
Grace -- Transitional Services Agreement."
(c) Represents the compensation expense the Company will recognize in
connection with the issuance of 106,000 shares of Class A Common Stock
pursuant to the Management Stock Awards. The Company estimates that it
will recognize approximately $1.3 million of total expense related to
the Management Stock Awards during the three years following this
Offering (based on an assumed fair market value of $12.00 per share at
the date of grant. See "Management -- Employee Benefit Plans."
(d) Represents the compensation expense the Company will recognize in
connection with the annual issuance of options to purchase 1,000 shares
of Class A Common Stock to be granted to each member of the Company's
Scientific Advisory Board (the "SAB") as discussed in Note 14 to the
Financial Statements and the $5,000 annual cash retainer to be paid to
each SAB member. See "Management -- Employee Benefit Plans."
(3) See Note 11 to the Financial Statements.
(4) Reflects the issuance and sale of the 2,500,000 shares offered hereby and
the issuance of 106,000 shares of Class A Common Stock pursuant to the
Management Stock Awards.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. The factors that might
cause such differences include, but are not limited to, those discussed under
"Risk Factors."
OVERVIEW
Circe is engaged in the development, production and commercialization of
novel bioartificial organs. The Company's lead product in development, the
HepatAssist System, is an extracorporeal, bioartificial liver designed to treat
acute and chronic liver failure by temporarily providing essential liver
functions. Circe has completed a Phase I/II clinical trial of the HepatAssist
System and has submitted to the FDA a protocol for a Phase II/III clinical trial
that it expects to begin as early as the third quarter of 1997, subject to FDA
approval. The Company's PancreAssist System, which is in preclinical
development, is an implantable bioartificial pancreas designed as a novel
therapy for the treatment of insulin-dependent diabetes.
The Company was incorporated as a wholly owned subsidiary of Grace in June
1996. From 1986 through 1996, the Company's business was operated as the
Biomedical Division of Grace. On December 31, 1996, Grace transferred to the
Company, as a contribution to capital, the assets and liabilities of the
Biomedical Division relating to the Company's business. Grace has invested a
significant amount of developmental capital in the Company's business, which has
generated no revenues from product sales and has experienced significant
operating losses since inception. Grace has provided substantially all of the
Company's cash requirements since the inception of its business, funding
approximately $72 million in research and development costs and other expenses
from 1986 through the first quarter of 1997, and intends to continue to provide
such requirements only until the consummation of this Offering.
Losses are expected to continue and increase for the foreseeable future, as
the Company continues to expend significant amounts of developmental capital,
primarily to fund preclinical testing, clinical trials and other research and
development activities. Additionally, the Company expects to incur substantial
production, sales, marketing and other expenses in order to launch its products
in development. The Company expects that these losses will be substantial.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996
Research and Development Expenses. Total research and development expenses
were $1,730,000 in the three months ended March 31, 1997 compared to $1,405,000
in the three months ended March 31, 1996, an increase of $325,000, or 23%. This
increase was primarily due to increased staffing for research and development,
production, and quality assurance, as well as increased expenses related to the
anticipated commencement of clinical trials of the HepatAssist System. The
Company expects that research and development expenses will continue to increase
as a result of these factors, as well as the possible resumption of preclinical
testing and/or clinical trials related to the PancreAssist System, and the
undertaking of research efforts relating to other development programs. See
"Business -- Products in Development -- Additional Applications of the Company's
Core Technologies -- The PancreAssist System."
General and Administrative Expenses. General and administrative expenses
were $540,000 in the three months ended March 31, 1997 compared to $206,000 in
the three months ended March 31, 1996, an increase of $334,000, or 162%. The
increase was primarily due to increases in executive and administrative staffing
to support activities leading to clinical trials and to provide functions and
services, currently provided by Grace, that the Company will require following
the consummation of this Offering. The Company expects that its general and
administrative expenses will continue to increase as a result of these factors.
22
<PAGE> 24
Costs Allocated by Grace. Allocated costs were $681,000 for the three
months ended March 31, 1997 compared to $671,000 for the three months ended
March 31, 1996, an increase of $10,000, or 2%.
Net Loss. The Company incurred net losses of $2,951,000 for the three
months ended March 31, 1997 and $2,282,000 for the three months ended March 31,
1996, a change of $669,000, or 29%, primarily as a result of the increased
expenses described above.
Years Ended December 31, 1996 and 1995
Research and Development Expenses. Total research and development expenses
were $7,125,000 in the 12 months ended December 31, 1996 compared to $5,314,000
in the 12 months ended December 31, 1995, an increase of $1,811,000, or 34%.
This increase was primarily due to increased staffing for research and
development, production, and quality assurance, as well as increased
expenditures related to the production of products for use in, and the
commencement of, the Phase I/II clinical trial of the HepatAssist System.
General and Administrative Expenses. General and administrative expenses
were $1,394,000 in 1996 compared to $922,000 in 1995, an increase of $472,000,
or 51%. This increase was primarily due to increases in administrative staffing
to support activities leading to clinical trials and to prepare for this
Offering.
Costs Allocated by Grace. Allocated costs were $2,663,000 in 1996 compared
to $2,541,000 in 1995, an increase of $122,000, or 5%. The increase was
primarily attributable to increased costs to support clinical trials and the
Company's quality assurance program.
Net Loss. The Company incurred net losses of $11,182,000 during 1996 and
$8,777,000 in 1995, a change of $2,405,000, or 27%, primarily as a result of the
increased expenses described above.
Years Ended December 31, 1995 and 1994
Research and Development Expenses. Total research and development expenses
were $5,314,000 in the 12 months ended December 31, 1995 compared to $4,312,000
in the 12 months ended December 31, 1994, an increase of $1,002,000, or 23%.
This increase was primarily due to increases in payments under third-party
research contracts, as well as increases in staffing for production and quality
assurance.
General and Administrative Expenses. General and administrative expenses
were $922,000 in 1995 compared to $1,207,000 in 1994, a decrease of $285,000, or
24%. This decrease was primarily due to reductions in travel and legal expenses.
Costs Allocated by Grace. Allocated costs were $2,541,000 in 1995 compared
to $2,593,000 in 1994, a decrease of $52,000, or 2%.
Net Loss. The Company incurred net losses of $8,777,000 during 1995 and
$8,112,000 during 1994, a change of $665,000, or 8%, primarily as a result of
increased expenditures on staffing for research and development.
LIQUIDITY AND CAPITAL RESOURCES
Since the inception of the Company's business, Grace has provided
substantially all of the Company's cash requirements, funding approximately $72
million in research and development costs and other expenses from 1986 through
the first quarter of 1997. Net cash used in operating activities was $7,921,000,
$8,657,000, $10,385,000 and $2,711,000 in 1994, 1995, 1996 and the three months
ended March 31, 1997, respectively. The cash used in operations was primarily
directed to fund research and development activities and, to a lesser extent,
for general and administrative expenses. Grace has advised the Company that,
following the completion of this Offering, Grace does not intend to provide any
further financial assistance or support to the Company.
The Company anticipates that the net proceeds from this Offering, including
interest thereon, will be sufficient to fund its currently planned operating
expenses and capital requirements for approximately 15 to 18
23
<PAGE> 25
months; however, there can be no assurance that such funds will be sufficient to
fund its operating expenses and capital requirements during this period. The
Company expects to make continued expenditures during this period for research
and development activities, preclinical testing and clinical trials, the
expansion of laboratory, manufacturing and administrative activities and the
development of marketing and sales capabilities. With the exception of the
$150,000 payment in connection with the settlement of certain litigation and the
prepayment of $300,000 of royalties in connection with such settlement (see
"Business -- Legal Proceedings"), the Company has not entered into any
commitments to use the net proceeds from this Offering for any purpose.
Substantial additional funds will be required to support the Company's
operations beyond the 15 to 18 month period following this Offering and to
commercialize the Company's product candidates. To obtain these funds, the
Company intends to seek additional equity, debt and/or lease financings and/or
third-party collaboration opportunities. However, there can be no assurance that
any financing will be available on commercially acceptable terms, if at all, and
that any available financing will be adequate and will not be dilutive to
existing stockholders. Further, so long as the Class B Common Stock owned by
Grace constitutes a majority of the Total Common Shares and Preferred Votes, the
approval of a majority of the Class B Directors will be required for the Company
to (i) sell capital stock under certain circumstances, (ii) incur debt in excess
of an aggregate principal amount of $10 million or (iii) enter into certain
strategic collaborations. There can be no assurance that a majority of the Class
B Directors would approve any such sale of capital stock, incurrence of debt or
participation in a strategic collaboration. See "Risk Factors -- Need for
Substantial Additional Funds; Uncertainty of Additional Funding," "Use of
Proceeds," "Business -- Legal Proceedings" and "Description of Capital
Stock -- Delaware Law and Certain Charter and By-law Provisions."
INCOME TAXES
The Company's net operating losses have been used by Grace, as the Company
has been included in Grace's income tax returns. Although net operating loss
carryforwards are shown in the Financial Statements under the separate taxpayer
approach required by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," the Company does not have any net operating loss
carryforwards available to reduce any future taxable income.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Boards issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"). SFAS No. 128 simplifies the earnings per share ("EPS") computation
and replaces the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 also requires dual presentation of basic and diluted EPS on the
face of the income statement for entities with a complex capital structure and
requires a reconciliation of the numerator and denominator used for the basic
and diluted EPS computations. Early adoption is not permitted; therefore, the
Company will implement SFAS No. 128 in 1998.
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<PAGE> 26
BUSINESS
OVERVIEW
Circe Biomedical is engaged in the development, production and
commercialization of novel bioartificial organs. The Company's lead product in
development, the HepatAssist System, is an extracorporeal, bioartificial liver
using porcine hepatocytes, and is designed to treat acute and chronic liver
failure by temporarily providing essential liver functions. The Company believes
that the HepatAssist System is the most clinically advanced bioartificial liver
in the world. Circe has completed a Phase I/II clinical trial of the HepatAssist
System and has submitted to the FDA a proposed protocol for a Phase II/III
clinical trial that it expects to begin as early as the third quarter of 1997,
subject to FDA approval. The Company's PancreAssist System, which is in
preclinical development, is an implantable bioartificial pancreas incorporating
porcine pancreatic islets, and is designed as a novel therapy for the treatment
of insulin-dependent diabetes. In addition to the HepatAssist and PancreAssist
Systems, the Company is pursuing other research and development programs based
on its proprietary technologies. These technologies enable the Company to (i)
isolate, purify, handle and preserve primary mammalian cells; (ii) fabricate
semipermeable, biocompatible membranes designed to regulate the passage of
selected molecules; and (iii) design and develop novel biomedical systems
incorporating these isolated cells and membranes to provide essential organ
functions.
The Company believes that the data from its Phase I/II clinical trial of
the HepatAssist System indicate a safety profile and preliminary evidence of
clinical efficacy sufficient to warrant initiation of the Company's proposed
Phase II/III clinical trial for the treatment of FHF and PNF patients. For
example, of the 26 patients with indications of FHF or PNF treated with the
HepatAssist System during the Phase I/II clinical trial, 96% (25 patients)
either were temporarily supported until they received a liver transplant (21
patients) or experienced sufficient liver regeneration to avoid the need for a
transplant (4 patients), and 88% (23 patients) survived at least 30 days after
the transplant or, if there was no transplant, after the patient's most recent
HepatAssist System treatment. Survival at 30 days is considered to be clinically
significant and is therefore the anticipated primary end point of the Company's
planned Phase II/III clinical trial. Based on this data, the Company has
submitted to the FDA a proposed protocol for a Phase II/III clinical trial for
the treatment of FHF and PNF patients, which it expects to begin as early as the
third quarter of 1997, subject to FDA approval. The Company believes that
evidence of clinical efficacy sufficient for FDA approval may be available at an
interim review point during the clinical trial and that the HepatAssist System
qualifies for expedited review from the FDA. Based upon these and other factors,
the Company expects that it could file with the FDA for approval of the
HepatAssist System for these indications by the end of 1998. For a more detailed
discussion of the results of the Company's Phase I/II clinical trial, as well as
the anticipated Phase II/III clinical trial, see "-- Products in
Development -- The HepatAssist System -- Clinical Development."
The Company believes that the initial market for the HepatAssist System
will be FHF and PNF patients in late-stage comas. The Company estimates that, in
1996 in the United States, there were approximately 1,700 emergency liver
transplants, 1,000 patients on the waiting list who died while waiting for a
liver transplant and 1,000 patients with FHF or other sudden onsets of liver
failure who either had not been placed on the waiting list or who died before
being placed on the waiting list. Based on data from UNOS and discussions with
physicians, the Company believes that FHF and PNF patients accounted for
approximately half of these 3,700 patients. The Company estimates that the size
of the prospective patient population for the HepatAssist System in Europe is
similar to that of the United States.
The Company believes that, in addition to the FHF and PNF indications, the
HepatAssist System will ultimately be used as a key therapy to enhance liver
function during episodes of acute liver failure in AOC patients and to
compensate for liver insufficiency resulting from the surgical removal of liver
tissue in cancer and trauma patients. Based on data from its Phase I/II clinical
trial, the Company is preparing additional protocols for controlled Phase II
clinical trials addressing significant portions of these patient populations.
When and if additional data supporting safety and efficacy become available, the
Company intends to proceed with Phase III clinical trials, subject to FDA
approval, and ultimately to seek approval of the HepatAssist System for these
additional indications. If approved for such indications, the Company believes
that treatment with the HepatAssist System would be an appropriate therapy for a
significant portion of patients admitted to
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<PAGE> 27
hospitals due to acute liver failure. Based upon National Center for Health
Statistics data, the Company estimates that there were approximately 350,000
hospitalizations due to liver failure in the United States in 1996, involving
approximately 250,000 patients and 50,000 deaths. The Company estimates that of
these 250,000 hospitalized patients, approximately 200,000 were AOC or liver
cancer patients and over 40,000 of these patients died. The Company estimates
that the size of the AOC and liver cancer patient population in Europe is
similar to that of the United States.
The PancreAssist System, which is currently in preclinical development, is
an implantable, bioartificial pancreas incorporating porcine pancreatic islets
and is designed to treat insulin-dependent diabetes. Based on the Company's
preclinical testing, the Company filed an IND application to initiate a Phase
I/II clinical trial of a non-reseedable version of the PancreAssist System.
Although the IND was allowed, prior to the treatment of any patients, the FDA
placed the initiation of the trial on clinical hold pending the resolution of a
device failure in preclinical testing. The Company has investigated the device
failure, has submitted its findings to the FDA and is in the process of
evaluating its alternatives with the FDA. See "Risk Factors -- Delays and
Uncertainties Relating to the PancreAssist System" and "-- Products in
Development -- Additional Applications of the Company's Care Technologies -- The
PancreAssist System."
The Company expects that the PancreAssist System, if successfully
developed, will initially be used as a substitute for pancreatic transplants in
brittle diabetics. The Company believes that a significant portion of brittle
diabetics would benefit from the PancreAssist System. If the PancreAssist System
proves to be a successful therapy for this indication, the Company believes that
it also could be used for the treatment of other insulin-dependent diabetics.
In addition to the HepatAssist and PancreAssist Systems, the Company is
pursuing, independently and in collaboration with others, other research and
development programs based on the Company's proprietary technologies. These
programs include: (i) a bioartificial kidney system using porcine kidney cells;
(ii) membrane-based immunoisolation devices to facilitate testing of cell/drug
interactions in animal models; and (iii) an implantable device that uses
biocompatible membranes and a proprietary enzymatic process to lower cholesterol
levels. These projects are in various stages of early development, and the
Company, depending on continued technological progress and commercial
feasibility, may or may not seek to commercialize any of them.
BUSINESS STRATEGY
The Company's goal is to become a leading commercial manufacturer and
marketer of novel bioartificial organs that serve as therapies of choice for
acute and chronic diseases. The Company will focus its initial efforts on the
treatment of liver failure. In executing its business strategy, the Company
intends to:
- Obtain Regulatory Approval of the HepatAssist System for FHF and PNF
Indications. The Company believes that the data from its Phase I/II
clinical trial of the HepatAssist System indicate a safety profile and
preliminary evidence of clinical efficacy sufficient to warrant
initiation of the Company's proposed Phase II/III clinical trial for the
treatment of patients. Based on this data, the Company has submitted to
the FDA a proposed protocol for a Phase II/III clinical trial for the
treatment of FHF and PNF patients, which it expects to begin as early as
the third quarter of 1997, subject to FDA approval. The Company believes
that evidence of clinical efficacy sufficient for FDA approval may be
available at an interim review point during the clinical trial and that
the HepatAssist System qualifies for expedited review from the FDA. Based
upon these and other factors, the Company expects that it may be able to
file with the FDA for approval of the HepatAssist System for these
indications by the end of 1998. The Company also intends to seek
regulatory approval of the HepatAssist System in Europe, initially in
France.
- Obtain Regulatory Approval for Additional Indications for the HepatAssist
System. Based on data from its Phase I/II clinical trial, the Company is
preparing additional protocols for controlled Phase II clinical trials
addressing significant portions of the AOC and liver cancer patient
populations. When and if additional data supporting safety and efficacy
becomes available, the Company intends to proceed with
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<PAGE> 28
Phase III clinical trials, subject to FDA approval, and ultimately seek
approval of the HepatAssist System for these additional indications.
- Focus Sales and Marketing Efforts for the HepatAssist System on the
Highest-Volume Liver Transplant Centers. Following the receipt of
required regulatory approvals, the Company intends to sell and market the
HepatAssist System through a direct sales force, initially targeting the
75 highest-volume liver transplant centers in the United States and
Europe, which account for approximately 75% of all liver transplants in
the United States and Europe. The Company believes that it will be
essential for leading experts in the field of liver transplantation to
become advocates of the HepatAssist System in order for it to become the
standard of care for FHF and PNF indications, as well as for further
indications. Therefore, its focused sales effort will be supported by a
program to educate key, opinion-leading physicians regarding the clinical
benefits of the HepatAssist System.
- Leverage Key Aspects of the Company's Proprietary Technologies to Develop
the PancreAssist System and Build a Product Pipeline. In addition to the
HepatAssist System, the Company is pursuing, independently and in
collaboration with others, other research and development programs based
on its proprietary technologies. The most advanced of these programs is
the PancreAssist System, which is currently in preclinical development
and is subject to a clinical hold by the FDA under an allowed IND. Other
programs include a bioartificial kidney system using porcine kidney
cells, membrane-based immunoisolation devices to facilitate testing of
cell/drug interactions in animal models, and an implantable device that
uses biocompatible membranes and a proprietary enzymatic process to lower
cholesterol levels. These projects are in various stages of early
development, and, depending on continued technological progress and
commercial feasibility, the Company may or may not seek to commercialize
any of them.
- Scale-up Manufacturing of the HepatAssist System. Circe currently
supplies each of its clinical testing centers with a fully designed,
commercially feasible HepatAssist System. While the Company's current
manufacturing capability is sufficient to meet anticipated demand through
the early stages of commercialization, the Company intends to build
full-scale commercial manufacturing capabilities for the HepatAssist
System. The Company also intends to expand its animal housing and
manufacturing facilities and further refine its proprietary methods, as
well as gain full regulatory clearance of its facilities.
PRODUCTS IN DEVELOPMENT
The HepatAssist System
Liver Disease. The liver is one of the largest and most complex organs in
the body, serving many metabolic functions, such as detoxifying blood by
removing alcohol, chemicals and certain drugs and regulating the amounts of
glucose, protein, fat and other components that enter the bloodstream. Unlike
most other organs, the liver has multiple sections that are responsible for the
same tasks and can regenerate itself by repairing or replacing injured tissue.
If tissue in one section is injured by disease or trauma, another section or
sections can perform the functions of the injured section indefinitely or until
the damage has been repaired. A liver in an otherwise healthy patient that is
functioning at a minimal level can typically regenerate itself in one to two
weeks to a level that would enable the patient to avoid intensive care therapy,
and can generally completely regenerate itself in two to three months. Despite
the protections of overlapping functions and tissue regeneration, the liver can
fail as a result of disease or damage. Death occurs when approximately 80% to
90% of liver function is lost, depending on the effectiveness of the remaining
liver tissue and other factors.
The most common liver diseases are cirrhosis (scarred or hardened liver
tissue due primarily to viral or bacterial infection, as well as alcohol abuse),
hepatitis (inflammation of the liver, usually as a result of viral infection or
alcohol abuse) and cancer. In addition to cancer originating in the liver,
cancers from other tissues often metastasize to the liver. Other causes of liver
damage include drug overdoses, metabolic and autoimmune disorders, chemical
toxins and trauma. Liver failure can progress extremely rapidly, as in FHF, or
more slowly, as with chronic liver diseases.
Limited Treatments for Liver Failure. Based upon National Center for
Health Statistics data, the Company estimates that there were approximately
350,000 hospitalizations due to liver failure in the United States in 1996,
involving approximately 250,000 patients and 50,000 deaths. Currently, there is
no direct treatment for
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<PAGE> 29
liver failure, except for a successful liver transplant. Transplantation has
limitations however, due to the scarcity of donor livers and the significant
failure rate of transplants in many recipients, particularly those receiving
emergency liver transplants. All other treatments are short-term, palliative
measures to either permit liver regeneration or sustain a potential transplant
recipient until an acceptable donor organ becomes available.
In an attempt to ensure the equitable and efficient distribution of scarce
donor livers, UNOS enforces stringent criteria for accepting patients onto the
liver transplant waiting list. Approximately 4,100 liver transplants are
performed in the United States each year, but more than twice as many patients
are on the waiting list. According to UNOS, as of May 21, 1997 there were 8,342
patients on the waiting list in the United States. UNOS data further indicate
that this number of patients has increased by an average of 34% each year over
the last five years. The consequence of this shortage is that approximately
1,000 patients who were on the waiting list in 1996 died while waiting for a
liver transplant, and that number has increased by an average of 18% per year
over the past four years. Additionally, most liver disease patients are not
placed on the waiting list. Because of the shortage of donor livers, patients
are typically excluded from the waiting list if they possess characteristics
that make survival following the transplant less likely, such as alcohol or drug
abuse, cancer, cardiovascular disease or inadequate post-operative support by
family or others.
While liver transplants have significantly increased the chances of
survival for patients with acute liver failure, emergency liver transplantation
is expensive and the uncertainty of the outcome following transplantation
remains significant. Based upon American Liver Foundation estimates and other
sources, the Company believes that a liver transplant for an average patient
costs between $100,000 and $300,000. Liver transplants requiring more
complicated procedures, such as those involving patients in advanced comas, can
cost in excess of $500,000. According to UNOS, of the patients who receive an
emergency liver transplant, only 72% survive for at least 90 days following
transplantation.
The Circe Solution. The Company has designed the HepatAssist System to
provide temporary liver support in acute situations, similar to the application
of artificial heart systems for patients suffering from heart failure. The
Company believes that the HepatAssist System will ultimately be used to:
- INCREASE SURVIVAL RATE PRIOR TO TRANSPLANTATION. The Company believes
that the HepatAssist System, by temporarily providing essential liver
functions, will increase survival rates prior to transplantation and will
potentially also provide more time for a patient to receive a
well-matched liver. A well-matched liver would help not only the
transplant patient, but also other patients waiting for donor livers,
because it would reduce the likelihood of rejection of the donor livers
and the need for retransplants, avoiding the waste of scarce donor
livers.
- INCREASE SURVIVAL RATE AFTER TRANSPLANTATION. The Company believes that
the essential liver functions provided by the HepatAssist System will not
only prevent further deterioration of, but will improve, the patient's
vital functions while waiting for a liver transplant, thereby enhancing
survival rates after transplantation.
- SERVE AS A BRIDGE TO LIVER REGENERATION IN ACUTE LIVER FAILURE
PATIENTS. A significant number of hospitalized liver failure patients
die each year because palliative therapy does not lead to liver
regeneration or because they are ineligible or unable to receive liver
transplants. The Company believes that the HepatAssist System would
benefit many such patients by temporarily providing essential liver
function until regeneration can occur. Also, liver regeneration could
diminish the need for liver transplantation for many patients on the
liver transplant waiting list.
- ENABLE MORE AGGRESSIVE SURGICAL REMOVAL OF LIVER TISSUE IN CANCER AND
TRAUMA PATIENTS. The Company believes the HepatAssist System could
enable more aggressive surgical removal of liver tissue in cancer and
trauma patients by temporarily compensating for the diminished capacity
of the smaller liver remaining following surgery.
- REDUCE HEALTH CARE COSTS. The Company believes that liver failure
patients treated with the HepatAssist System will likely experience
shorter hospitalizations, fewer complications, a reduced need
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<PAGE> 30
for both transplants and retransplants and reduced post-operative care,
resulting in reduced health care costs.
Circe's Product. The HepatAssist System incorporates several proprietary
components and technologies into an integrated liver assist system. It consists
of a bioartificial liver cartridge (the "Liver Cartridge"), a single-use plasma
circuit (the "HepatAssist Circuit"), and a reusable HepatAssist 2000 machine
(comprised of hardware to control the fluid flow through the Liver Cartridge and
HepatAssist Circuit and to monitor associated safety mechanisms). The Liver
Cartridge is a cylindrical plastic cartridge that contains thousands of
capillary-like hollow fiber membranes through which the patient's plasma flows.
These biocompatible membranes are produced using the Company's proprietary
fabrication technology. Isolated and purified porcine hepatocytes are placed in
the Liver Cartridge so that they surround the membranes. The HepatAssist Circuit
consists of a charcoal column detoxifier, a combined oxygenator/blood warmer,
and special tubing that connects the HepatAssist Circuit to the Liver Cartridge,
the HepatAssist 2000 machine and a plasmapheresis device. The HepatAssist 2000
machine conforms to current extracorporeal medical machine standards. A
schematic diagram of the HepatAssist System is shown below:
LOGO
During a HepatAssist System treatment, the plasmapheresis device draws
blood from the patient and separates it into plasma and other blood components.
The separated plasma enters the HepatAssist System through the HepatAssist
Circuit, which continuously circulates the plasma through the Liver Cartridge.
As it passes through the Liver Cartridge, the plasma flow divides into thousands
of capillary-like hollow fiber membranes. The pore size of the membranes in the
Liver Cartridge allows the patient's plasma to flow into the space surrounding
the hollow fiber membranes, which is also occupied by the porcine hepatocytes.
The plasma provides nutrients and oxygen to the hepatocytes, allowing them to
perform essential metabolic functions of the liver. However, the pore size of
the membrane prevents the hepatocytes from passing through the membrane wall and
into the patient's bloodstream by way of the plasma. Once the patient's plasma
is treated
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by the HepatAssist System via multiple passes through the Liver Cartridge, it is
returned to the plasmapheresis device, where it is recombined with the patient's
other blood components and returned to the patient.
Because the HepatAssist System circulates the patient's plasma in a
self-contained, extracorporeal circuit, it provides certain advantages over
circulating whole blood, including the ability to use lower levels of
anticoagulants and the ability to adjust the flow rate in the HepatAssist
Circuit, independently of the blood flow rate from the patient, in order to
allow for multiple passes of the plasma through the Liver Cartridge for the
optimal provision of essential liver functions. Under the current protocols, one
HepatAssist System treatment is administered for approximately six hours and can
be performed up to twice daily, ideally until regeneration or transplantation
occurs. However, in the Company's Phase I/II clinical trial, patients were
generally not treated more than once a day and no patient received more than six
treatments.
The Company has developed expertise in animal selection and in isolating,
purifying and handling porcine hepatocytes that, together with a quality control
and assurance program, enables it to produce isolated porcine hepatocytes that
meet strict sterility specifications. The Company also has developed a
proprietary method of storage in which the porcine hepatocytes are frozen at
extremely cold temperatures and can remain viable for at least two years. These
cryopreserved hepatocytes are carefully tested to assure quality before shipment
to hospitals or transplant centers, where they remain in a cryopreserved state
until used. At these medical centers, the hepatocytes are thawed and washed,
using commercially available cell-washing equipment, in a closed-loop sterile
system that minimizes the risk of contamination. During the preparation of the
cells, the HepatAssist 2000 machine is set up with the components of a
single-use, pre-sterilized kit, supplied by the Company, which contains a Liver
Cartridge and a HepatAssist Circuit. The porcine hepatocytes are then infused
into the Liver Cartridge at the patient's bedside for the beginning of
treatment.
Clinical Development. Thirty-five patients were treated under the
protocols for the Company's Phase I/II clinical trial, which allowed treatment
for acute liver failure and other indications, and was conducted at three
clinical sites: Cedars-Sinai Medical Center in Los Angeles, California, Paul
Brousse Hospital in Villejuif, France and The University of California, Los
Angeles Medical Center.
The following table shows the results of the Company's Phase I/II clinical
trial.
SUMMARY DATA REGARDING PATIENTS TREATED IN PHASE I/II TRIAL
<TABLE>
<CAPTION>
LIVER REGENERATED
DIED WITHOUT WITHOUT RECEIVED SURVIVED AT LEAST
NUMBER OF TRANSPLANT TRANSPLANT TRANSPLANT 30 DAYS(1)
PATIENTS ----------------------- ----------------------- ----------------------- -----------------------
INDICATION TREATED PATIENTS % OF TREATED PATIENTS % OF TREATED PATIENTS % OF TREATED PATIENTS % OF TREATED
- --------------- --------- -------- ------------ -------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FHF............ 23 1 4% 3 13% 19 83% 20 87%
PNF............ 3 0 0% 1 33% 2 67% 3 100%
AOC/Liver
Cancer....... 9 6 67% 0 0% 3 33% 3 33%
-- - - -- --
Total.......... 35 7(2) 20% 4 11% 24 69% 26 74%
</TABLE>
- ---------------
(1) Following transplant or most recent HepatAssist System treatment.
(2) Of the seven patients who died without a transplant, one FHF patient and one
AOC patient died after being removed from the transplant waiting list
because of complications related to other organ failure and coexisting
conditions, and the other five AOC or liver cancer patients died after being
treated on a compassionate basis. These five patients were treated at the
request of a physician and were near death as a result of end-stage liver
failure, complicated by the failure of other organs or coexisting conditions
that rendered the patient ineligible for liver transplantation. All of these
patients showed signs of clinical improvement, but died shortly after
treatment.
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Prior to the commencement of the Company's Phase I/II clinical trial, a
total of 12 patients with acute liver failure were treated with a device
developed by Dr. Achilles Demetriou that was functionally equivalent to the
HepatAssist System. These patients were treated under an independent
physician-sponsored study conducted by Dr. Demetriou, currently the Director of
the Liver Support Unit at the Cedars-Sinai Medical Center in Los Angeles. Dr.
Demetriou served as the principal investigator for the Company's Phase I/II
clinical trial and has agreed to serve as the principal investigator for the
Company's proposed Phase II/III clinical trial and on the Company's Scientific
Advisory Board. Although this previous version of the system was not produced by
the Company, the data regarding patients treated with the previous version of
the system were shown to the FDA as part of the Company's request to obtain the
IND. While the data regarding the patients treated with the previous version of
the system are not, and could not be, included in the Company's Phase I/II
clinical trial results submitted to the FDA, the Company believes that all 12
patients treated with such previous version would have qualified as candidates
under the Company's Phase I/II clinical trial. The following table shows the
results of the 12 patients treated with the previous version of the system,
prior to the commencement of the Company's Phase I/II clinical trial.
SUMMARY DATA REGARDING PATIENTS TREATED DURING PHYSICIAN-SPONSORED STUDY
<TABLE>
<CAPTION>
DIED LIVER REGENERATED
WITHOUT WITHOUT RECEIVED SURVIVED AT LEAST
NUMBER OF TRANSPLANT TRANSPLANT TRANSPLANT 30 DAYS(1)
PATIENTS ---------------------- ---------------------- ---------------------- ----------------------
INDICATION TREATED PATIENTS % OF TREATED PATIENTS % OF TREATED PATIENTS % OF TREATED PATIENTS % OF TREATED
- ------------------- --------- -------- ------------ -------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FHF................ 7 0 0% 0 0% 7 100% 7 100%
PNF................ 1 0 0% 0 0% 1 100% 1 100%
AOC/Liver
Cancer(2)........ 4 3 75% 0 0% 1 25% 1 25%
-- - - -- --
Total.............. 12 3 25% 0 0% 9 75% 9 75%
</TABLE>
- ---------------
(1) Following transplant or most recent treatment.
(2) None of the four AOC patients was a candidate for liver transplantation at
the time of treatment, but one patient whose liver regenerated after
treatment with the system was successfully transplanted six months after
treatment. All of the other three AOC patients showed signs of clinical
improvement, but died shortly after treatment.
The following table shows the results of the 34 FHF and PNF patients
treated to date, either with the HepatAssist System under the Company's Phase
I/II clinical trial (26 patients) or with a previous version of the system under
the physician-sponsored study conducted by Dr. Demetriou (8 patients).
SUMMARY DATA REGARDING TREATMENT OF FHF/PNF PATIENTS ONLY(1)
<TABLE>
<CAPTION>
DIED LIVER REGENERATED
WITHOUT WITHOUT RECEIVED SURVIVED AT LEAST
NUMBER OF TRANSPLANT TRANSPLANT TRANSPLANT 30 DAYS(2)
PATIENTS ---------------------- ---------------------- ---------------------- ----------------------
INDICATION TREATED PATIENTS % OF TREATED PATIENTS % OF TREATED PATIENTS % OF TREATED PATIENTS % OF TREATED
- ------------------- --------- -------- ------------ -------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FHF................ 30 1 3% 3 10% 26 87% 27 90%
PNF................ 4 0 0% 1 25% 3 75% 4 100%
-- - - -- --
Total FHF/ PNF..... 34 1 3% 4 12% 29 85% 31 91%
</TABLE>
- ---------------
(1) Data from the Phase I/II clinical trial and the physician-sponsored study
have never been presented on a combined basis in any submission to the FDA.
(2) Following transplant or most recent treatment with the HepatAssist System or
a previous version of the system.
The Company believes that the data from the Phase I/II clinical trial of
the HepatAssist System indicate a safety profile and preliminary evidence of
clinical efficacy sufficient to warrant initiation of the Company's proposed
Phase II/III clinical trial for the treatment of FHF and PNF patients. The
results of the treatment of FHF patients with the HepatAssist System compare
favorably to figures published by Paul Brousse Hospital, the largest liver
transplant center in Europe. These figures indicate that of the 175 FHF patients
listed for transplantation between 1986 and 1995, approximately 14% died prior
to receiving a transplant, approximately 1% regenerated their livers
sufficiently to avoid the need for a transplant, 86% received liver transplants
and
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<PAGE> 33
67% of the 175 patients survived at least 30 days. Comparative survival rate
figures at 30 days on similar patient populations in the United States are not
readily available. Survival rates at one year for a small number of selected FHF
patients have been reported to be as high as 78%. However, the Company believes
that 50% to 60% is more typical. The Company believes that the survival profile
for PNF patients is similar to that of FHF patients.
The Company has completed its analysis of the Phase I/II clinical trial
data and has submitted such data to the FDA, along with a proposed protocol for
a Phase II/III clinical trial for use of the HepatAssist System in the treatment
of FHF and PNF patients. The protocol currently contemplates that a maximum of
150 patients will be enrolled in the trial, with up to 75 of the patients being
randomly selected to receive HepatAssist System treatments and up to 75 to
undergo conventional palliative therapy. The actual number of patients treated
in the trial may be less, depending on the statistical significance, determined
at certain interim points in the trial, between the survival rate in the
treatment group as compared to that in the control group. Based upon historical
clinical data, the Company believes that evidence of clinical efficacy
sufficient for FDA approval may be available with 120 patients or less. Subject
to FDA approval of the protocol, the Company expects to begin the Phase II/III
clinical trial for these indications as early as the third quarter of 1997.
Based upon these assumptions and other factors, including patient enrollment
rates, the Company expects that it could file with the FDA for approval of the
HepatAssist System for these indications by the end of 1998. There can be no
assurance that the Company will receive FDA approval to begin the Phase II/III
clinical trial on the terms of the Company's protocol, that the clinical trial
will commence in the third quarter of 1997, that patients will enroll in the
trial at the anticipated rate, that the Company will be able to achieve clinical
evidence of efficacy at an interim review point in the trial and be in a
position to file for approval by the end of 1998, or that the FDA will grant the
Company expedited review. The Company is also seeking regulatory approval of the
HepatAssist System in Europe, initially in France. See "Risk Factors --
Uncertainty Associated with Preclinical Testing and Clinical Trials" and "--
Comprehensive Government Regulation."
To date, the Company has trained and equipped Cedars-Sinai Medical Center,
Paul Brousse Hospital and the University of California, Los Angeles Medical
Center, and is currently in the process of negotiating final agreements to train
and equip three additional centers to participate in the Company's planned Phase
II/III clinical trial. The Company also expects to equip and train from six to
nine additional clinical trial centers over the next twelve months.
The Company believes that the preclinical and clinical data of the
HepatAssist System indicate a safety profile and limited preliminary evidence of
clinical efficacy sufficient to warrant initiation of controlled Phase II
clinical trials for the treatment of acute liver failure in AOC and liver cancer
patients. Accordingly, based on discussions with the FDA, the Company is
preparing additional protocols for controlled Phase II clinical trials
addressing significant portions of these patient populations. The Company
intends to initiate these clinical trials before the end of 1997, subject to
regulatory approval. When and if additional data supporting safety and efficacy
become available, the Company intends to proceed with Phase III clinical trials,
subject to FDA approval, and ultimately seek approval of the HepatAssist System
for these additional indications.
Market Opportunities for the HepatAssist System. The Company believes that
the initial market for the HepatAssist System will be FHF and PNF patients in
late-stage comas. The Company estimates that, in 1996 in the United States,
there were approximately 1,700 emergency liver transplants, 1,000 patients on
the waiting list who died while waiting for a liver transplant and 1,000
patients with FHF or other sudden onsets of liver failure who either had not
been placed on the waiting list or who died before being placed on the waiting
list. Based on data from UNOS and discussions with physicians, the Company
believes that FHF and PNF patients accounted for approximately half of these
3,700 patients. The Company estimates that the size of the prospective patient
population for the HepatAssist System in Europe is similar to that of the United
States.
The Company believes that in addition to the FHF and PNF indications, the
HepatAssist System will ultimately be used as a key therapy for the treatment of
AOC and liver cancer patients. Based upon National Center for Health Statistics
data, the Company estimates that of the approximately 250,000 patients
hospitalized with acute liver failure in the United States in 1996,
approximately 200,000 were AOC and liver
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cancer patients and over 40,000 of these patients died. The Company estimates
that the size of the AOC and liver cancer patient population in Europe is
similar to that of the United States.
Additional Applications of the Company's Core Technologies
The PancreAssist System
Diabetes and Existing Therapies. Diabetes is a chronic, life-threatening
disease for which there is no known cure. In diabetics, the body either does not
produce or does not respond adequately to insulin, a hormone produced by the
islet cells of the pancreas, that is critical for the metabolic regulation of
blood glucose levels. Diabetes is typically classified into two types. The
first, more severe form of diabetes, known as Type I diabetes, is controlled by
patients through daily insulin therapy. The second, more prevalent form of
diabetes, known as Type II, is usually controlled by patients through diet,
exercise and various oral medications. Brittle diabetes is a particularly severe
form of Type I diabetes in which patients have severe metabolic complications
resulting from poor glucose control and do not respond well to conventional
insulin therapies. According to estimates of the American Diabetes Association,
there are currently approximately 700,000 Type I diabetics in the United States.
Based on this and other information, the Company believes that there are
approximately 16,000 brittle diabetics in the United States.
Diabetics who tightly control their blood glucose levels with multiple
daily injections of insulin may avoid the acute effects of diabetes and reduce
its associated complications. However, since a patient's blood glucose level
will vary depending upon factors such as food intake, insulin levels, exercise,
stress and illness, maintaining the proper level of insulin is complex and time
consuming and often leads to erroneous conclusions by the patient regarding the
amount of insulin needed. Patients who have received a pancreas transplant
report significant improvements in their quality of life because the
transplanted pancreas naturally provides insulin to match the metabolic demands
of the patient. However, pancreatic transplants are rare and are not the
standard of care due to the difficulty of the procedure and the post-operative
recovery, as well as the shortage of donor organs (according to UNOS,
approximately 1,000 were performed in the United States in 1996).
Circe's Product. The PancreAssist System, currently in preclinical
development, is an implantable, membrane-based system designed to improve blood
glucose control in diabetics by providing insulin in response to changes in the
patient's blood glucose level. The PancreAssist System consists of a single
tubular membrane surrounded by insulin-producing porcine islets, which are, in
turn, enclosed within a disk-shaped housing. The tubular membrane is porous and
permeable to glucose and insulin. The Company is designing the PancreAssist
System to be implanted near the kidney and surgically connected directly to the
patient's circulatory system using standard vascular grafts and a common
surgical procedure. As the patient's blood flows through the center of the
tubular membrane, the porcine islets are able to detect changes in the patient's
blood glucose levels and to respond by producing insulin, which diffuses across
the membrane into the patient's blood. The small pores in the membrane are
designed to prevent the white blood cells and antibodies in the patient's blood
from attacking the porcine islets, thereby providing an immunologically isolated
compartment for the islets so that the use of immunosuppressant drugs is not
required. The Company has conducted preclinical testing of a non-reseedable
version of the PancreAssist System, which must be surgically replaced when the
islets are no longer functioning (which the Company expects will be between six
and twelve months) and has developed a prototype of, and has begun preclinical
testing of, a reseedable version in which the islets can be replaced while the
device remains implanted, through a minimally invasive procedure similar to an
injection. A schematic diagram of the reseedable PancreAssist System is shown
below.
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LOGO
The Company is designing the PancreAssist System to provide the following
key advantages: (i) rapid response to changes in blood glucose levels through a
direct connection of the PancreAssist System to the patient's circulatory
system; (ii) an acceptable and plentiful cell source as a result of the use of
normal porcine islets (as compared to alternate therapies that use human or
genetically altered animal cells); (iii) no need for anticoagulation or
immunosuppressant therapy; and (iv) long-term implantation, which is made
possible in the reseedable version. The Company expects that the PancreAssist
System could be used as a substitute for pancreatic transplants in brittle
diabetics, subject to regulatory approval and further development. If the
PancreAssist System proves to be a successful therapy for this indication, the
Company believes that it also could be used for the treatment of other
insulin-dependent diabetics.
The Company has conducted preclinical testing of a non-reseedable version
of the PancreAssist System to evaluate its safety and efficacy using normal
large animals (primarily dogs) and large animal models of diabetes (animals from
which the pancreas has been surgically removed). The Company believes that the
data from these preclinical tests, conducted in over 275 large animals, indicate
that the PancreAssist System achieved the targeted level of blood glucose
control and provided 65% to 75% of the insulin requirement for up to nine months
in severely diabetic dogs, without the need for immunosuppressant drugs. In
other preclinical tests on normal non-human primates, the PancreAssist System
performed like similarly sized, commercially available vascular shunts with
respect to clotting behavior and permitted continuous blood flow without
clotting when an unseeded device was implanted in normal, healthy animals for up
to four years without the use of anticoagulants. In the small number of animals
tested with the reseedable version, the PancreAssist System was reseeded with
fresh islets without removing the device.
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In March 1996, the FDA allowed the Company's IND to initiate a preliminary
Phase I/II clinical trial of the non-reseedable version of the PancreAssist
System for implantation for up to six months in up to six brittle diabetics. The
provisions of the IND required the Company to upgrade its islet isolation and
device manufacturing procedures and quality systems before commencing the
clinical trial. During the course of an experiment used to validate the upgraded
procedures, a vascular graft connecting the PancreAssist System to the
circulatory system failed in one animal, leading to its death. As a result of
this event, the FDA placed the initiation of the clinical trial on clinical hold
in March 1997. The Company subsequently completed a failure analysis of the
device and the graft, and reported its findings and recommendations to the FDA
in May 1997. After an initial review of the Company's analysis and
recommendations, the FDA advised the Company in June 1997 that it would require
additional preclinical testing of the non-reseedable version of the PancreAssist
System, which could significantly delay commencement of the Phase I/II clinical
trial. In the event that the Company and the FDA are unable to agree on an
acceptable level of preclinical testing, the Company may elect to (i) seek to
proceed only with the development of the reseedable version, either
independently or in collaboration with a partner; (ii) seek a partner for the
development of the non-reseedable version; or (iii) delay any further
development of the PancreAssist System for an indefinite period of time. There
can be no assurance that the PancreAssist System will ever be successfully
developed. See "Risk Factors -- Delays and Uncertainties Relating to the
PancreAssist System."
Other Projects
In addition to the HepatAssist System and the PancreAssist System, the
Company is pursuing, independently and in collaboration with others, other
research and development programs based on its proprietary technologies. These
programs include: (i) a bioartificial kidney system using porcine kidney cells;
(ii) membrane-based immunoisolation devices to facilitate testing of cell/drug
interactions in animal models; and (iii) an implantable device that uses
biocompatible membranes and a proprietary enzymatic process to lower cholesterol
levels. These projects are in various stages of early development, and the
Company, depending on continued technological progress and commercial
feasibility, may or may not seek to commercialize any of them. See "-- Patents
and Proprietary Rights."
SALES AND MARKETING
The Company plans to sell and market its products both in the United States
and internationally, subject to receipt of required regulatory approvals. The
Company's sales and marketing efforts will initially focus on launching the
HepatAssist System for the FHF and PNF indications. The Company intends to
market and sell HepatAssist 2000 machines and single-use treatment kits
containing Liver Cartridges and HepatAssist Circuits. The Company will initially
focus on marketing the HepatAssist System in the United States and Europe, where
it believes the majority of liver transplants are performed.
In the United States and Europe, the Company intends to sell and market the
HepatAssist System through a direct sales force, initially targeting the 75
highest-volume liver transplant centers, which account for approximately 75% of
all liver transplants in the United States and Europe. The Company believes that
it will be essential for leading experts in the field of liver transplantation
to become advocates of the HepatAssist System in order for it to become the
standard of care for FHF and PNF indications, as well as for further
indications. Therefore, its focused sales efforts will be supported by a program
to educate key, opinion-leading physicians regarding the clinical benefits of
the HepatAssist System.
The Company intends to eventually sell and market its products in countries
outside of the United States and Europe either directly or through established
distributors or other strategic partners. To date, the Company does not have a
direct sales force in the United States or in Europe and has not established
relationships with distributors or other strategic partners for sales and
marketing in countries outside of the United States and Europe. There can be no
assurance that the Company will be able to successfully establish a direct sales
force or commercialize any of its product candidates. See "Risk Factors --
Limited Manufacturing and Marketing Capabilities."
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MANUFACTURING
The Company's products incorporate membranes and living porcine cells or
tissue, as well as Company-designed and commercially available components. The
Company currently purchases pigs from one supplier and intends to purchase pigs
from several suppliers in the future. In order to meet FDA requirements, the
pigs must be free of specific pathogens at the time of purchase. Currently, the
Company leases an animal facility in North Grafton, Massachusetts, where the
Company houses and maintains pigs and surgically removes their organs. The
Company monitors the health of these pigs and the cells obtained from the pigs
to assure that the pigs and cells remain free from infection and meet specific
sterility requirements.
After surgical removal, the organ is transported to the Company's
manufacturing facility in Lexington, Massachusetts, where the Company isolates,
washes, purifies and stores the cells, using the Company's proprietary isolation
process and, in the case of porcine hepatocytes, its proprietary
cryopreservation storage process. These processes result in viable cells that
maintain essential cell functions. The Lexington facility is also the site at
which the Company manufactures its proprietary membranes and assembles Liver
Cartridges and PancreAssist System devices. Components of the HepatAssist 2000
machine and the HepatAssist Circuit are designed to general industry standards,
and the machine and circuit are built by third-party vendors to the Company's
specifications and design. The Company believes that the current facilities for
animal housing and cell purification provide the Company with sufficient
capacity to meet its anticipated requirements through 1998. Site selection and
planning are underway for a new facility to meet the increased commercial sales
demand anticipated for the HepatAssist System; the new facility will require
significant time, money and effort.
The Company has developed a quality assurance and quality control program
that focuses on the donor animals, cell processing and hardware component
manufacturing. The Company's quality program includes (i) the operation of a
specialized bio-secure animal facility with monitoring and quarantine programs
in place; (ii) the application of microbiological and virological testing for
contaminants in its final cell product; (iii) the use of a functionally closed
system to thaw and wash its cryopreserved cells at the clinical sites; and (iv)
a comprehensive GMP training program of clinical site personnel in cell handling
and preparation as well as in overall system operation. The Company believes
that it has adequate quality control of its manufacturing process in place to
permit clinical trials of the HepatAssist System. Facilities and manufacturing
procedures used for the manufacture of commercial products must be operated in
conformity with GMP requirements. The Company expects to expend significant
time, money and effort in the area of production and quality control to comply
with GMP requirements.
Because of the relatively early stage of its product development
activities, the Company has not yet invested significantly in manufacturing
resources. Although the Company's long-term objective is to develop increased
internal manufacturing capabilities, it will initially rely on third parties to
manufacture most of the components of its product candidates for research,
preclinical testing, clinical trials and commercialization. The Company
currently purchases hardware from several suppliers, including components such
as the plasma reservoir, pump and monitor, charcoal column detoxifier and
membrane oxygenator used in the HepatAssist System. If the hardware components
of the HepatAssist System or the specific-pathogen-free pigs become unavailable
from a particular supplier, there can be no assurance that the Company would be
able to purchase hardware components and/or such pigs on commercially acceptable
terms. With respect to the hardware components, the integration of any new
component could require system design changes and further regulatory approval
and could have a material adverse effect on the Company's business, operating
results and financial condition. Furthermore, a disease or other catastrophe
could destroy all or a portion of the pigs maintained by the Company, which
would interrupt or significantly delay the development, testing and/or
distribution of the Company's products. See "Risk Factors -- Reliance Upon
Third-Party Suppliers."
The Company has no experience in manufacturing the HepatAssist System or
any other product in commercial quantities, and there can be no assurance that
reliable, high-volume manufacturing can be established or maintained at
commercially reasonable costs. In addition, in order to produce commercial
quantities of its products, the Company will need to relocate its manufacturing
facility, which may result in
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<PAGE> 38
inefficiencies and delays caused by losses in production yield, the
unavailability of technically qualified personnel, quality issues or other
problems. Further, difficulties in increasing manufacturing capability or the
failure to develop and maintain facilities and processes in accordance with
applicable regulations could delay or halt production, which could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Risk Factors -- Limited Manufacturing and Marketing
Capabilities."
The Company's products are subject to manufacturing quality regulations in
the United States and other countries. In certain countries, regulations also
restrict the import and export of the Company's products. To address these
regulations, the Company has hired quality assurance and control, as well as
regulatory professionals and is designing quality control systems intended to
comply with the applicable regulations. Difficulties in increasing manufacturing
capacity or failure to implement and maintain facilities and processes in
accordance with applicable regulations could delay or halt production or
shipment, which could have a material adverse effect on the Company's business,
operating results and financial condition. See "Risk Factors -- Comprehensive
Government Regulation."
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to effectively
protect its proprietary rights, including obtaining patent protection for its
products and processes and preserving its trade secrets, as well as its ability
to operate without infringing the proprietary rights of third parties. The
Company's strategy is to actively pursue patent protection in the United States
and other jurisdictions for technology that it believes to be proprietary and
where patenting would offer a potential competitive advantage for its products.
The Company holds two United States patents relating to the HepatAssist
System, four United States patents relating to the PancreAssist System and seven
United States patents relating to other exploratory development programs. The
Company has also filed ten patent applications in the United States, seven of
which relate to the HepatAssist System and the PancreAssist System, and three of
which relate to other exploratory technologies and programs. The Company also
has the option to negotiate royalty-bearing licenses for three patents relating
to such technologies and programs. The Company has filed corresponding patent
applications in certain other countries. The Company's patents and patent
applications relate to cell and tissue isolation, purification and preservation,
membrane technology and biomedical systems technology. There can be no assurance
that any patents will be issued from pending or any future patent applications,
that the scope of any patent protection will provide competitive advantages to
the Company, that any of the Company's patents will be held valid if
subsequently challenged or that others will not claim rights in or ownership of
the patents and other proprietary rights held by the Company. In addition, the
laws of certain countries other than the United States may not protect the
Company's intellectual property rights to the same extent as do the laws of the
United States.
Substantially all patents and proprietary rights presently owned by the
Company were transferred from Grace to the Company. In connection with such
transfer, Grace made no representations or warranties with respect to its title
to these assets. Grace has delivered to the United States Patent and Trademark
Office instruments of recordation in order to perfect the assignment of the 23
United States patents and applications related to the Company's systems and
programs. However, there can be no assurance that the Company received such
patents and applications and their attendant proprietary rights free and clear
of defects in title.
A significant portion of the Company's technology has been developed in
collaboration with third parties such as hospitals, universities and independent
research laboratories. The Company is licensing certain know-how and technology
relating to the HepatAssist System from Cedars-Sinai Medical Center and Rhode
Island Hospital. These third parties generally have retained certain rights to
use technology developed in the collaboration, or pre-existing technology that
they contributed to research projects, and the Company has agreed to pay
royalties on certain technology that it may use in commercial products.
Depending on the final configuration of the Company's products, the Company may
need to negotiate additional royalty-bearing licenses from some of these third
parities in order to produce and sell its products commercially or to preserve
its exclusive use of key technology. In addition, if the Company fails to pay
the royalties due under any of these licenses, then, under certain
circumstances, these licenses may be terminated. The termination of any
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<PAGE> 39
license or the failure to negotiate any needed additional license could have a
material adverse effect on the Company's business, operating results and
financial condition. Certain of the technology relating to the HepatAssist
System was developed by Dr. Achilles Demetriou under federal research grants at
a number of research institutions. This development occurred prior to his
joining the Cedars-Sinai Medical Center in 1993 and commencement of the
Company's collaboration with Cedars-Sinai in 1994. Much of Dr. Demetriou's prior
work regarding such technology has been published. Dr. Demetriou has agreed to
serve as a member of the Company's Scientific Advisory Board.
The medical products market has been characterized by extensive litigation
regarding patents, trade secrets and other intellectual property rights.
Administrative proceedings or litigation, which could result in substantial cost
and uncertainty to the Company, may be necessary to enforce patent or other
intellectual property rights of the Company or to determine the scope and
validity of other parties' proprietary rights. The Company and Grace have
recently entered into a settlement agreement with a third party involving
portions of the technology relating to the PancreAssist System. See "-- Legal
Proceedings." There can be no assurance that third parties will not assert
patent infringement claims in the future with respect to the Company's current
or future products; such claims could potentially require the Company to enter
into license arrangements or result in litigation, regardless of the merits of
such claims. No assurance can be given that any necessary licenses can be
obtained on commercially acceptable terms, if at all. Litigation with respect to
any infringement claims or any other patent, trade secret or intellectual
property rights could be expensive and time consuming and could have a material
adverse effect on the Company's business, operating results and financial
condition, regardless of the outcome of such litigation.
It is the Company's policy to enter into a confidentiality agreement with
each of its employees and with each consultant and strategic collaborator with
whom the Company commences a relationship. The confidentiality agreements
generally prohibit the disclosure of confidential information to any third party
and, in the case of employees, require disclosure and assignment to the Company
of ideas, developments, discoveries and inventions made by the employee during
the term of such employee's employment. However, there can be no assurance that
the Company's trade secrets or proprietary technology will not become known or
be independently developed by competitors in such a manner that leaves the
Company with no practical recourse. See "Risk Factors -- Uncertainties Regarding
Patents and Proprietary Rights; Third-Party Claims."
GOVERNMENT REGULATION
Virtually all aspects of the Company's operations are subject to extensive
regulation by governmental authorities in the United States and other countries.
In the United States, the FDA regulates therapeutic and diagnostic products
under the Federal Food, Drug, and Cosmetic Act and other laws, including, in the
case of biologics, the Public Health Service Act. Although the HepatAssist
System and the PancreAssist System combine medical devices and biologics. The
Company's product candidates currently are regulated by the FDA as biologics. In
most cases, medical products that depend on living cells to achieve their
primary intended purpose are regulated as biologics. These products will require
FDA approval prior to commercialization; no such approval has yet been obtained.
The steps required before a biologic may be approved for marketing in the United
States generally include (i) preclinical laboratory and animal tests; (ii) the
submission to the FDA of an IND for human clinical testing, which must become
effective before human clinical trials may commence; (iii) adequate and well-
controlled human clinical trials to establish the safety and efficacy of the
product; (iv) the submission to the FDA of either a Product License Application
("PLA") and an Establishment License Application ("ELA") or a Biologics License
Application ("BLA"); (v) FDA review of the PLA/ELA or BLA; and (vi) satisfactory
completion of an FDA inspection of the manufacturing facility or facilities at
which the product is made to assess compliance with GMP.
Preclinical tests include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and efficacy of the product. The
results of the preclinical tests, together with manufacturing information and
analytical data, are submitted to the FDA as part of an IND, which must become
effective before human clinical trials may be commenced. The IND will
automatically become effective 30 days after
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<PAGE> 40
receipt by the FDA, unless before that time the FDA raises concerns or questions
about the conduct of the trials as outlined in the IND. In such a case, the IND
sponsor and the FDA must resolve any outstanding concerns before clinical trials
can proceed.
Human clinical trials typically involve three sequential phases that may
overlap or be combined. Each trial must be reviewed and approved by an
independent Institutional Review Board before it can begin. Phase I involves the
initial introduction of the experimental product into human subjects to evaluate
its safety and, if possible, to gain early indications of efficacy. Phase II
usually involves a trial in a limited patient population to (i) evaluate
preliminarily the efficacy of the product for specific, targeted indications;
(ii) determine dosage tolerance and optimal dosage; and (iii) identify possible
adverse effects and safety risks. Phase III typically involves further
evaluation of clinical efficacy and testing of product safety of a product in
final form within an expanded patient population. Where initial human testing is
done in patients already afflicted with the targeted disease, such studies are
frequently referred to as Phase I/II clinical trials. Where follow-on human
testing of a product in final form is designed to determine safety as well as to
demonstrate more than preliminary efficacy of the product, such studies are
sometimes referred to as Phase II/III clinical trials. The results of
preclinical testing and clinical trials, together with detailed information on
the manufacture and composition of the product, are submitted to the FDA in the
form of a PLA/ELA or BLA requesting approval to market the product. Before
approving a PLA/ELA or BLA, the FDA will inspect the facilities at which the
product is manufactured, and will not approve the product unless GMP compliance
is satisfactory. GMP regulations govern the Company's quality control and
manufacturing procedures. The Company expects to expend significant time, money
and effort in the area of production and quality control to comply with GMP
requirements. See "Risk Factors -- Uncertainty Associated with Preclinical
Testing and Clinical Trials."
The Company's IND for the HepatAssist System became effective August 23,
1994, and, as of June 1, 1997, 35 patients had been treated in the Company's
Phase I/II clinical trial. The Company has completed its analysis of the Phase
I/II clinical trial data and submitted it to the FDA, along with a protocol for
a Phase II/III clinical trial for use of the HepatAssist System in the treatment
of FHF and PNF. The FDA has not yet responded to the proposed Phase II/III
clinical trial. There can be no assurance that the FDA will approve the
Company's protocol for its proposed Phase II/III clinical trial. The Company's
IND for the PancreAssist System became effective March 29, 1996. However, in
March 1997, before any patients were treated, the FDA placed the clinical trial
on hold pending the resolution of a device failure in preclinical testing. It is
expected that the Company will be required to perform additional preclinical
testing prior to initiating the clinical trial, and there can be no assurance
that the FDA will ever allow the clinical trial of the PancreAssist System to
begin. See "-- Products in Development -- The HepatAssist System -- Clinical
Development" and "-- Products in Development -- Additional Applications of the
Company's Core Technologies -- The PancreAssist System."
To the Company's knowledge, no xenogeneic biomedical product incorporating
living cells has ever been commercialized. Consequently, regulatory bodies,
including the FDA, have limited experience with such products. A number of
private parties and regulatory agencies have indicated concern about xenogeneic
products, especially with respect to the potential for unintended transmission
of infectious diseases. In September 1996, the United States Public Health
Service issued draft guidelines on infectious disease issues in
xenotransplantation, and additional guidance is anticipated. The FDA has also
expressed continuing interest in developing guidelines or regulations for
xenotransplantation and may issue such guidelines or regulations in the future.
Should guidelines or regulations applicable to the Company's products in
development be issued, there can be no assurance that the Company will be able
to comply with them in a timely manner, if at all. Because the HepatAssist and
PancreAssist Systems raise important safety questions, and because regulatory
requirements for such products are evolving and uncertain, the Company may
encounter unusual regulatory delays, rejection, or changes in criteria for
approval during the period of product development and regulatory review.
The testing and approval process requires substantial time, effort and
financial resources. There can be no assurance that the FDA will allow the
requisite clinical trials with respect to any of the Company's product
candidates, or that such trials will be completed successfully within any
specific time period, if at all. The FDA or the Company may suspend clinical
trials at any point in the process if either concludes that clinical subjects
are being exposed to an unacceptable health risk, that the trials are not being
conducted in compliance with
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<PAGE> 41
applicable requirements, or for other reasons. The FDA may deny a PLA/ELA or BLA
if applicable regulatory criteria are not satisfied and/or require additional
testing or information. In addition, as a condition to approval, the FDA
generally requires post-marketing testing and surveillance to monitor the safety
or efficacy of a product. There can be no assurance that FDA approval of any
PLA/ELA or BLA submitted by the Company will be granted in a timely manner, if
at all. There can be no assurance that the FDA will determine that Circe's
facilities and manufacturing procedures will conform to GMP requirements. There
can be no assurance that the FDA will continue to treat the Company's product
candidates as biologics. Any decision to change the designation of such product
candidates could increase costs and delay approval. The failure to receive or
any delay in receiving such approval would have a material adverse effect on the
Company's business, operating results and financial condition. Also, if
regulatory approval of a product is granted, such approval may include
limitations on the indicated uses for which such product may be marketed.
If regulatory approval is obtained, the Company will be required to comply
with a number of post-approval requirements. PLA/ELA and BLA license holders are
required to report certain adverse reactions, if any, to the FDA, and to comply
with certain requirements concerning advertising and promotional labeling for
their products. Also, quality control and manufacturing procedures must continue
to conform to GMP after approval, and the FDA periodically inspects
manufacturing facilities to assess compliance with GMP. Accordingly,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to maintain GMP compliance. In addition,
discovery of problems may result in restrictions on a product, manufacturer, or
license holder, including withdrawal of the product from the market.
Both before and after approval is obtained, violations of regulatory
requirements may result in various adverse consequences, including the
suspension or termination of clinical trials, delays in approving or refusal to
approve a product, the withdrawal of an approved product from the market,
seizures of a product, and/or the imposition of injunctions, criminal penalties
and/or civil penalties against the manufacturer and/or license holder.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition," which generally is a
disease or condition that affects fewer than 200,000 individuals in the United
States. Orphan drug designation must be requested before submitting a PLA/ELA or
BLA. After the FDA grants orphan drug designation, the generic identity of the
therapeutic agent and its potential orphan use are publicly disclosed by the
FDA. Orphan drug designation does not convey any advantage in, or shorten the
duration of, the regulatory review and approval process. If a product that has
an orphan drug designation subsequently receives FDA approval for the indication
for which it has such designation, the FDA may not approve any other
applications to market the same product for the same indication, except in
certain limited circumstances, for a period of seven years unless a competitor
pursues approval of a clinically superior product. The Company intends to pursue
this designation with respect to any of its products (including the HepatAssist
System and, possibly, the PancreAssist System) that are intended to treat such a
rare disease or condition. There can be no assurance, however, that any of the
Company's products are eligible for, or will receive, orphan drug status.
The Company's product candidates will also require regulatory approval in
Europe before they can be marketed there; however, it is not clear which
particular approvals will be required or from which agencies such approvals must
be obtained. Since no products similar to the Company's product candidates are
believed to have been approved in Europe, the regulatory process there is
uncertain. The Company's product candidates may require separate regulatory
approval in each country where they are to be marketed, and, due to the
combination of xenogeneic and hardware components in its products in
development, may also require multiple regulatory approvals in some European
countries. At a minimum, some components will require regulatory review as
medical devices. The xenogeneic cells used in the Company's product candidates
may require approval from appropriate agencies. Like regulators in the United
States, European regulators have expressed concern about the potential for
infectious disease transfer associated with xenogeneic biomedical systems, which
could delay the regulatory approval process. The Company intends to seek
regulatory approval of the HepatAssist System in Europe, with its initial
efforts concentrated in France. There can be no assurance that any European
country will approve any of the Company's products in a timely manner, if at
all, or that, if the Company's products are approved, the Company will be able
to market the products for the indications
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which the Company desires or will be able to comply with post-approval
restrictions. Failure to obtain regulatory approvals and to market the Company's
products in Europe would have a material adverse effect on the Company's
business, operating results and financial condition.
COMPETITION
The Company expects that its products will compete primarily on the basis
of safety and efficacy. The Company is not aware of any xenogeneic biomedical
systems that are currently on the market that will compete against the
HepatAssist System. One competitor that had previously received FDA approval for
the treatment of drug detoxification with a combined charcoal/dialyzer system
has obtained FDA approval to market its product as a treatment for patients in
acute hepatic coma. However, this product is a filtration system and adsorption
system that does not provide a broad range of liver function. The Company is
aware that several biotechnology companies are attempting to create
bioartificial liver devices. In particular, some competitors are developing
bioartificial liver devices using normal or modified porcine or human
hepatocytes, and other competitors are using organs, or devices containing
organs, derived from genetically modified transgenic animal donors. However, the
Company is not aware of any other competitors that have completed Phase I
clinical trials of a bioartificial liver and believes that the HepatAssist
System is the most clinically advanced bioartificial liver in the world.
The PancreAssist System, if successfully developed, will compete against
existing devices (such as insulin pumps) and alternate therapies (such as
insulin injections). In addition, competitors are developing a wide array of
products, drugs and other therapies for diabetes, including products using
normal or modified porcine, human or bovine islets, modified forms of insulin or
other drugs, insulin pumps that are either extracorporeal or implantable
(certain of which may be implanted with glucose sensors), and drugs that
directly attack the underlying causes of diabetes. The Company is aware that a
competitor has obtained an IND from the FDA and has treated at least six
patients with implanted human or porcine islets encapsulated in microcapsules or
microbeads. This competitor has received FDA approval to conduct further Phase
I/II clinical trials. However, to the Company's knowledge, none of its
competitors' bioartificial pancreas devices are connected directly to the
patient's circulatory system in a perfusion device like the PancreAssist System.
The Company believes that its products have certain advantages over its
competitors' products. However, despite these potential advantages and the
Company's progress in developing the HepatAssist and PancreAssist Systems, one
or more competitors may be successful in creating and commercializing
bioartificial liver or pancreas devices or other products, drugs, therapies, or
improvements in the prevention or treatment of diabetes or liver diseases, any
of which could adversely affect the size of the Company's available markets or
eliminate the demand for one or both of the Company's product candidates.
Many of the Company's competitors are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products that may be more effective and less costly than those of the Company.
Many of these competitors have significantly greater research and development
capabilities than the Company, as well as substantial marketing, manufacturing,
financial and managerial resources; consequently, they represent significant
competition for the Company. In addition, these competitors have significantly
greater experience than the Company in undertaking preclinical testing and human
clinical trials of products and obtaining FDA and other regulatory approvals of
such products. Accordingly, these competitors may succeed in commercializing
products more rapidly than the Company. These competitors also compete with the
Company in recruiting and retaining scientific personnel. See "Risk Factors --
Intense Competition."
REIMBURSEMENT
The Company expects that sales volumes and prices of its products will be
dependent in large measure on the availability of reimbursement from third-party
payors and that individuals seldom would be willing or able to pay for the costs
associated with the use of the Company's products. The Company expects that its
products will be purchased by hospitals, clinics, doctors and other users that
bill various third-party payors, such as Medicare, Medicaid and other government
insurance programs, and private payors, including indemnity
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<PAGE> 43
insurers, such as Blue Cross/Blue Shield plans and managed care organizations
("MCOs"), including HMOs. Since no products similar to the HepatAssist System
are currently approved for marketing, no reimbursement plan exists for the costs
associated with such treatment, and there can be no assurance that treatment
with the HepatAssist System will be covered. In addition, reimbursement rates
may vary depending on the procedure performed, the third-party payor, the type
of insurance plan and other factors. The Company estimates that it will charge a
health care provider between $15,000 to $50,000 during a typical course of
treatment with the HepatAssist System. Even if third-party reimbursement is
available to the Company, third-party payors may only be willing to provide
coverage for the use of the HepatAssist System for indications where the
HepatAssist System competes favorably on the basis of cost and clinical
effectiveness. Further, there can be no assurance that providers will choose to
use the Company's products, when and if they become available.
Particularly in the United States, third-party payors carefully review, and
increasingly challenge, the prices charged for procedures and medical products.
In addition, an increasing percentage of insured individuals are receiving their
medical care through MCOs, which monitor and often require preapproval of the
services that a member will receive. Many MCOs are paying their providers on a
capitated basis, which puts the providers at financial risk for the services
provided to their patients by paying them a predetermined payment per member per
month. The percentage of individuals covered by MCOs is expected to grow in the
United States over the next decade. Even Medicare is shifting many of its
beneficiaries into managed care plans.
In countries other than the United States, reimbursement is obtained from a
variety of sources, including governmental authorities, private health insurance
plans and labor unions. Although not as prevalent as in the United States, HMOs
are emerging in certain European countries. The Company may need to seek
international reimbursement approvals, although there can be no assurance that
any such approvals will be obtained in a timely manner, if at all. Failure to
receive international reimbursement approvals would have a material adverse
effect on market acceptance of the Company's products in the international
markets in which such approvals are sought. See "Risk Factors -- Uncertainty
Relating to Third-Party Reimbursement and Product Pricing."
The Company believes that the overall escalating cost of medical products
and services has led to, and will continue to lead to, increased pressures on
the health care industry to reduce the costs of products and services. There can
be no assurance, in either the United States or international markets, that
third-party reimbursement and coverage will be available or adequate, or that
future legislation, regulation, or reimbursement policies of third-party payors
will not adversely affect the demand for the Company's products in development
or its ability to sell these products on a profitable basis. The unavailability
or inadequacy of third-party payor coverage or reimbursement could have a
material adverse effect on the Company's business, operating results and
financial condition.
EMPLOYEES
As of June 1, 1997, the Company had 62 full-time employees, 51 of whom were
engaged in research and development and 11 of whom were engaged in management,
administration and finance. None of the Company's employees is covered by a
collective bargaining agreement. The Company has never experienced an
employment-related work stoppage and considers its employee relations to be
good.
FACILITIES
The Company leases approximately 33,000 square feet of office, laboratory
and manufacturing space in Lexington, Massachusetts. The lease expires in May
2000, although the Company may, at its option, terminate the lease in May 1998.
The Company also has an option for two five-year extensions of the lease to May
2005 and May 2010, respectively.
The Company also leases approximately 8,000 square feet of space in North
Grafton, Massachusetts for the housing of pigs and the surgical removal of
organs. The lease for this facility expires in September 1998, although the
Company may, at its option, extend the lease until September 2001.
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The Company believes that its current facilities will meet its requirements
at least through 1998. Site selection and planning are under way for a new
facility to meet the anticipated sales demand for the HepatAssist System.
LEGAL PROCEEDINGS
Portions of the technology relating to the PancreAssist System were
developed during the period from 1986 to 1993 under a series of agreements (the
"BHT Agreements") between Grace and BioHybrid Technologies, Inc. and an
affiliate of the latter (collectively, "BHT"). During this period, BHT's primary
development efforts related to the isolation and maintenance of canine
pancreatic islets, and Grace's primary efforts focused on the development,
design and fabrication of synthetic membranes and membrane devices for
biomedical applications and the management of preclinical testing programs. On
December 31, 1996, Grace contributed all of its rights under the BHT Agreements
to the Company.
In June 1997, the Company, Grace and BHT entered into a Settlement
Agreement (the "Settlement Agreement"), primarily to resolve issues arising out
of the BHT Agreements. The Settlement Agreement provides that Grace will pay
$50,000 to BHT and the Company will pay $150,000 to BHT. In addition, the
Company agreed to prepay $300,000 in royalties to BHT. The Company will pay the
$150,000 and the $300,000 in prepaid royalties with a portion of the proceeds of
this Offering. Grace paid the $50,000 following the execution of the Settlement
Agreement. The Settlement Agreement further provides that the Company will have
the exclusive right to use and sublicense the technology developed by the
parties under the BHT Agreements (the "New Technology"), as well as certain
technology developed by BHT prior to 1986 (the "BHT Background Technology") in
the field of perfusion devices (defined as hybrid artificial organs that have
tubular membranes through which blood or other body fluids flow, or that are
connected to the circulatory system, either directly or though a plasmapheresis
device); the Company's PancreAssist System as presently configured is a
perfusion device. Both the Company and BHT will have non-exclusive rights to use
and sublicense the New Technology in all fields other than perfusion devices,
and to use and sublicense the BHT Background Technology for hybrid artificial
organs that are not perfusion devices. BHT will have exclusive rights to use and
license the BHT Background Technology for all fields other than hybrid
artificial organs. The Company will be required to pay BHT royalties on any
sales of the PancreAssist System through 2001, and on sales thereafter only if
the PancreAssist System uses certain New Technology. The Company cannot
currently predict whether its PancreAssist System, when ready for
commercialization, will be configured so as to use the New Technology. In the
event this Offering is not consummated on or before November 30, 1997, the
Company may elect to pay BHT the $150,000 in connection with the settlement and
the $300,000 in prepaid royalties on or before such date to satisfy the terms of
the Settlement Agreement. See "Use of Proceeds."
SCIENTIFIC ADVISORY BOARD
Upon the consummation of this Offering, the Company will establish a
Scientific Advisory Board (the "SAB"). The SAB will be a group of scientists and
physicians in the fields of transplantation biology, biomedical engineering,
microbiology, cell therapy and surgery who will informally advise the Company on
long-term scientific planning, research, and the development of products and
processes for the Company's bioartificial organ business. Members of the SAB
will also evaluate the Company's research programs, recommend personnel to the
Company and advise the Company on technological and clinical laboratory matters.
Effective upon the consummation of this Offering, and subject to each SAB
member's execution of a definitive consulting agreement, each member of the SAB
will be granted an option to purchase 5,000 shares of Class A Common Stock under
the Company's 1997 Outside Director and Consultant Stock Option Plan (the
"Outside Director Stock Plan"), with a purchase price per share equal to the
lower of the initial public offering price and $11.00. The Outside Director
Stock Plan provides that (i) beginning in 1998, each continuing member of the
SAB will be granted an option to purchase 1,000 shares of Class A Common Stock
each year on the date of the Company's annual stockholders' meeting, and (ii)
any new SAB member will be granted an initial option to purchase 2,500 shares of
Class A Common Stock, in both cases with a purchase price per share equal to the
fair market value of the Class A Common Stock on the date of grant. Options
granted under the Outside Director Plan become fully exercisable one year
following the date of grant. See "Management -- Employee Benefit Plans -- 1997
Outside Director and Consultant Stock Option Plan." In
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addition, the Company will pay each member of the SAB an annual retainer of
$5,000 and a fee of $1,500 per SAB meeting attended. The Company will also
reimburse each member of the SAB for travel expenses incurred in connection with
attending SAB meetings. In addition, Dr. Robert S. Langer, who has agreed to
serve as Chairman of the SAB, has a separate consulting agreement with the
Company, pursuant to which Dr. Langer provides consulting services to the
Company, as the Company from time to time requests. Pursuant to this agreement,
Dr. Langer receives a monthly consulting fee of $2,000, plus reimbursement of
his out-of-pocket expenses. The members of the SAB are expected to be as
follows:
Robert S. Langer, Sc.D., is the Kenneth J. Germeshausen Professor of
Chemical and Biomedical Engineering in the Department of Chemical Engineering at
the Massachusetts Institute of Technology ("MIT"). He is a member of the
National Academy of Science, the National Academy of Engineering and the
Institute of Medicine of the National Academy of Science. He is recognized
internationally as a leader in the development of controlled drug-release
systems using both non-degradable and bio-degradable polymers. He advises the
Company on tissue engineering and biomaterials. Dr. Langer received his Sc.D. in
Chemical Engineering from MIT. Dr. Langer has agreed to serve as Chairman of the
SAB.
Henri Bismuth, M.D., is the Head of the Department of Surgery and Director
of the Hepato-Biliary Center at the Paul Brousse Hospital in Villejuif, France.
Dr. Bismuth is also a Professor of Surgery at the Faculty of Medicine at Paris
South University. He is an expert in surgery of the liver, biliary tract, and
pancreas and in portal hypertension, and has pioneered the use of liver
transplants in Europe. He advises the Company on liver transplantation. Dr.
Bismuth received his M.D. from The University of Paris.
Achilles Demetriou, M.D., Ph.D., is the Chairman of the Department of
Surgery and the Director of the Liver Support Unit at the Cedars-Sinai Medical
Center in Los Angeles, California. He is an expert in surgery, cell-based liver
support systems and hepatocyte transplantation and pioneered the development and
clinical testing of bioartificial liver systems. He advises the Company on liver
support systems. Dr. Demetriou received his M.D. from the Hebrew
University-Hadassah Medical School in Israel and his Ph.D. in Biochemistry from
George Washington University.
Alexander Klibanov, Ph.D., is Professor of Chemistry and a member of the
Biotechnology Process Engineering Center at MIT. He is a leading authority on
protein stabilization and on the food and medical applications of enzymes. He is
a member of the National Academy of Science and the National Academy of
Engineering. He advises the Company on biosystems and biotechnology processes.
Dr. Klibanov received both his M.S. in chemistry and Ph.D. in Chemical
Enzymology from Moscow University in Russia.
Monty Krieger, Ph.D., is the Charles F. Hopewell Professor of Biology and
MacVicar Faculty Fellow in the Department of Biology at MIT. He advises the
Company on cell and molecular biology issues. Dr. Krieger received his Ph.D. in
Chemistry from the California Institute of Technology.
David E.R. Sutherland, M.D., Ph.D., is a Professor of Surgery and the head
of the Division of Transplantation in the Department of Surgery at the
University of Minnesota. Dr. Sutherland is recognized as an expert in pancreas
and islet transplantation and advises the Company on those subjects. Dr.
Sutherland received his M.D. and his Ph.D. in surgery from the University of
Minnesota.
Joseph Vacanti, M.D., is the Director of Organ Transplantation and of the
Laboratory for Transplantation and Tissue Engineering at The Children's
Hospital, Boston, Massachusetts. He is also an Associate Professor of Surgery at
the Harvard Medical School. He is widely regarded as an expert in the area of
liver transplantation, tissue engineering and neomorphogenesis. He advises the
Company on pediatric liver transplantation and tissue engineering. Dr. Vacanti
received his M.D. from the University of Nebraska College of Medicine.
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RELATIONSHIP WITH GRACE
The Company currently is a wholly owned subsidiary of Grace. Upon the
consummation of this Offering, Grace will own 4,600,000 shares of Class B Common
Stock, which will represent 39.5% of the voting power of the outstanding Common
Stock (36.3% if the Underwriters' over-allotment option is exercised in full),
and will be entitled to elect the Class B Directors, a majority of whom must
approve certain fundamental corporate changes and significant transactions
involving the Company. See "Risk Factors -- Ownership by Grace; Restrictions on
Certain Significant Transactions" and "Description of Capital Stock." Grace has
provided substantially all of the Company's cash requirements since inception,
funding approximately $72 million of research and development costs and other
expenses from 1986 through March 31, 1997. Grace has advised the Company that,
following the consummation of this Offering, it does not intend to provide any
further financial assistance or support to the Company.
Since the Company's inception, Grace has also paid for or provided
substantially all of the Company's administrative and other staff functions and
services, including financial and legal services and participation in Grace's
employee benefits and insurance programs. Grace has agreed to provide certain of
these functions and services to the Company for a brief transitional period
following the consummation of this Offering, as described below under
"Transitional Services Agreement." Following such transitional period, Grace
expects that it will not provide any further administrative services or support
to the Company. In addition, the Company and Grace have entered into agreements
concerning their respective rights and obligations with respect to the functions
and services provided by Grace prior to this Offering and other related matters.
The Company believes that the terms of such agreements are no less favorable
than those that could be obtained from third parties.
The following are descriptions of the agreements between the Company and
Grace; except for the Transfer and Assumption Agreement (which was executed in
1996), these agreements will be executed prior to the consummation of this
Offering. Each description is qualified in its entirety by reference to the
applicable agreement, a copy of which is filed as an exhibit to the registration
statement of which this Prospectus is a part.
Transfer and Assumption Agreement. On December 31, 1996, Grace transferred
to the Company, as a contribution to capital, all of the assets, properties and
rights of the Biomedical Division, other than cash, interests in bank accounts
and certain intercompany accounts. In connection with such transfer, Grace made
no representations or warranties concerning the assets, properties and rights
transferred to the Company, including whether Grace had valid title or rights to
transfer such assets to the Company or whether the assets as a whole were
sufficient to conduct the Company's business as Grace had conducted it prior to
such transfer. The Company assumed all of Grace's obligations with respect to
the transferred assets and rights. Effective January 1, 1997, substantially all
of the employees of the Biomedical Division became employees of the Company.
Stockholder Agreement. The Company and Grace will enter into a Stockholder
Agreement (the "Stockholder Agreement"), to be effective upon the consummation
of this Offering, that provides for certain rights and restrictions with respect
to the 4,600,000 shares of Class B Common Stock owned by Grace and any shares
issued in respect of such shares. Under the terms of the Stockholder Agreement,
if the Company proposes to register, at any time beginning one year from the
date of this Prospectus, any shares of Class A Common Stock under the Securities
Act for its own account or otherwise (other than in connection with employee
benefit plans and certain business combinations), Grace is entitled to notice of
such registration and to include shares of Class B Common Stock in the
registration statement (which shares would be converted into shares of Class A
Common Stock upon sale by Grace), subject to certain conditions and limitations,
such as the right of the underwriters of a registered offering to limit, for
marketing reasons, the number of shares included in such registration. In
addition, Grace has "demand" registration rights pursuant to which, on not more
than three occasions at any time after the second anniversary of the date of
this Prospectus, Grace may require the Company to register for resale shares of
Class B Common Stock owned by Grace (which shares would be converted into shares
of Class A Common Stock upon sale by Grace), subject to certain conditions and
limitations (including the requirement that the number of shares being
registered is at least 20% of the number of shares of Common Stock owned or
controlled by Grace). The Company is required to bear all expenses
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(other than selling expenses and the fees of Grace's counsel) in connection with
all such "demand" registrations.
The Stockholder Agreement further provides that Grace will not sell,
transfer, assign or otherwise dispose of, any capital stock of the Company owned
by Grace until one year from the date of this Prospectus. Following the first
anniversary of the date of this Prospectus, Grace may sell capital stock (i) in
a registered public offering pursuant to the registration rights described
above, (ii) through sales pursuant to Rule 144, (iii) in one or more private
sales or (iv) in connection with a tender offer or exchange offer, which, if
commenced by a person other than the Company, is either (A) approved by the
Board or (B) subject to the non-waivable requirement that, upon consummation of
such offer, such person be the beneficial owner of at least 90% of the Company's
then outstanding capital stock.
Also, under the terms of the Stockholder Agreement, Grace has agreed that
for the four years following the date of this Prospectus, it will not acquire
any of the Company's securities, unless such an acquisition is made (i) in
connection with a sale of assets or rights by Grace to the Company, (ii) in
connection with a bona fide tender offer by Grace for 100% of the Company's then
outstanding securities or (iii) with the approval of the Board. In addition,
Grace may acquire shares of Class A Common Stock in an aggregate amount not
exceeding 5% of the number of shares of Common Stock outstanding upon the
consummation of this Offering.
Transitional Services Agreement. Prior to this Offering, Grace has
provided administrative services to the Company. As a transitional accommodation
to the Company, Grace has agreed to continue to provide certain of these
services, primarily payroll and related services, for fees equal to Grace's
estimated costs (including allocations of overhead) of providing these services.
This agreement expires on December 31, 1997; however, the Company may terminate
the agreement at any earlier time on 15 days' notice.
Tax Sharing and Indemnification Agreement. Grace has agreed to prepare and
file all tax returns that the Company is required to file with Grace on a
consolidated, combined or unitary basis with respect to any period beginning
prior to the consummation of this Offering, whether such period ends prior to or
after that date (the "Pre-Closing and Straddle Periods"). Grace will be
responsible for the payment of, and Circe will have no liability for, any taxes
reflected on such returns ("Consolidated Taxes"). Other tax returns which are
not required to be filed on a consolidated, combined or unitary basis will be
prepared and filed by, and the taxes with respect thereto will be paid by, the
party upon whom the tax is imposed by law. The Company is prohibited from taking
any action that would have the effect of increasing any tax liability of Grace,
unless the Company satisfies certain conditions. Grace will be entitled to
refunds for any overpayments of tax liabilities with respect to any Pre-Closing
and Straddle Periods, to the extent the refund is attributable to a payment of
Consolidated Taxes made by Grace. Grace will also be entitled to all other tax
benefits allowed or allowable with respect to the calculation of Consolidated
Taxes and attributable to the portion of any Pre-Closing and Straddle Period
occurring prior to the consummation of this Offering.
Employee Benefits Agreement. Upon the consummation of this Offering, the
Company's employees will cease participation in Grace's retirement, savings,
disability and other employee benefit plans, and will commence participation in
the Company's disability, medical, dental, and group life insurance plans;
provided that the Company's employees may continue to participate in certain
Grace benefit plans for up to 30 days following the consummation of this
Offering, if necessary to facilitate the transition to coverage under the
Company's benefit plans. There will be no transfer of assets from Grace's
retirement plan to any Company plan; however, the Company's employees will
become fully vested in the Grace retirement plan, which will be liable for any
accrued benefits in accordance with such plan. Within 21 days after the
consummation of this Offering, the Company's employees will be eligible to
participate in a savings plan established by the Company and will be given full
credit for service to Grace for purposes of determining eligibility and vesting
under such plan. The Grace long-term disability plan will be liable to any
employee whose total disability commenced prior to the date that this Offering
is consummated, and the Company's long-term disability plan will be liable for
any employee whose total disability commences on or after that date. Grace's
benefit plans (other than its long-term disability plan) will be liable for the
payment of benefits for claims related to services performed, supplies furnished
or deaths occurring prior to the date this Offering is consummated, and the
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Company's benefit plans (other than its long-term disability plan) will be
liable for the payment of benefits for claims related to services performed,
supplies furnished or deaths occurring on or after that date. The Company's
medical plan may include coverage through one or more organizations that
provided coverage to the Company's employees under the Grace medical plans prior
to the consummation of this Offering, but only in accordance with a contract
between the Company and such organization that does not impose liability upon
Grace. The Company's medical plan will be the primary payor in relation to
post-retirement medical expenses provided by Grace, but only for the period that
the employee is employed by the Company. The Company will assume all accrued
vacation liabilities and continue Grace's vacation policy through at least 1998.
This agreement provides that the Company will indemnify Grace for, among other
things, any liabilities resulting from the Company's hiring practices and
decisions and the employment, or termination of employment, of any Company
employee, whether relating to events occurring or circumstances existing before,
on or after the consummation of this Offering.
Insurance Procedures Agreement. Prior to this Offering, the Company was
covered under insurance policies maintained by Grace, and a portion of the
premiums for such insurance was allocated to the Company. Following the
consummation of this Offering, the Company will be required to obtain and
maintain its own insurance coverage. The Company will continue to be covered
under Grace's insurance coverage for events or occurrences resulting in damage
or injury prior to the consummation of this Offering, except that excess
liability insurance coverage with respect to events or occurrences resulting in
damage or injury prior to the consummation of this Offering shall terminate on
June 30, 1998, and the right to make claims under Grace's business interruption
and blanket crime insurance coverage will terminate upon the consummation of
this Offering. There can be no assurance that the Company will be able to obtain
adequate insurance coverage on commercially acceptable terms.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND DIRECTOR NOMINEES
The executive officers and directors of the Company, and certain other
individuals who have agreed to serve as directors upon the consummation of this
Offering, and their respective ages as of June 1, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ---- ------------------------------------------------------
<S> <C> <C>
Laszlo J. Eger(1)................ 51 President, Chief Executive Officer and Director
Barry A. Solomon, Ph.D........... 50 Executive Vice President and Chief Scientific Officer
David A. Butler.................. 52 Vice President, Finance
Claudy J.P. Mullon, Ph.D......... 41 Vice President, Research and Development
Larry Ellberger (2)(3)........... 49 Director
Martin B. Sherwin, Ph.D. 58 Director
(3)(4).........................
Timothy J. Barberich (2)(4)(5)... 49 Director Nominee
James J. Mauzey(2)(4)(6)......... 48 Director Nominee
</TABLE>
- ---------------
(1) Will become a Class A - III Director upon the consummation of this Offering;
term will expire in 2000.
(2) Will become a member of the Compensation Committee upon the consummation of
this Offering.
(3) Will become a Class B Director upon the consummation of this Offering; term
will expire in 1998 and annually thereafter.
(4) Will become a member of the Audit Committee upon the consummation of this
Offering.
(5) Will become a Class A - I Director upon the consummation of this Offering;
term will expire in 1998.
(6) Will become a Class A - II Director upon the consummation of this Offering;
term will expire in 1999.
Laszlo J. Eger has acted as Chief Executive Officer since joining the
Company on November 1, 1996, was formally elected President and Chief Executive
Officer effective January 1, 1997, and has served as a Director since January
1997. From 1994 to October 1996, he served as a consultant in Europe and the
United States on strategic alliances in the medical area. From 1973 to 1994, he
held a number of management positions with American Cyanamid Company, then a
publicly traded biotechnology and chemical company ("American Cyanamid"), most
recently as President of Lederle-Cyanamid France. Mr. Eger received his B.S. in
Physics from Yale University and his M.B.A. from Stanford University.
Barry A. Solomon, Ph.D. has served as Executive Vice President of the
Company since January 1, 1997. Prior to that he held a variety of managerial and
technical positions with the Biomedical Division and Grace's Corporate Research
Division from 1985. Dr. Solomon is a Fellow of the American Institute for
Medical and Biological Engineers and a member of the Advisory Committee of the
Biomedical Engineering Department and Chairman of the Visiting Committee of the
Chemical Engineering Department at The Johns Hopkins University. Dr. Solomon
received his B.E.S. in Chemical Engineering from The Johns Hopkins University
and his Ph.D. in Biomedical/Biochemical Engineering from Yale University, and
has had post-doctoral training at MIT.
David A. Butler has served as Vice President, Finance since January 1997.
From 1988 to November 1996, Mr. Butler served as a financial officer of Sequoia
Systems, Inc., a publicly traded computer company, most recently as Vice
President and Treasurer. Mr. Butler received both his B.S. in Finance and his
M.B.A. from Boston University.
Claudy J.P. Mullon, Ph.D. has served as Vice President, Research and
Development since January 1, 1997. Prior to that he held a variety of managerial
and technical positions with the Biomedical Division from 1987. Dr. Mullon
received his M.S. in Chemical Engineering from Oregon State University and his
Ph.D. in both Chemical and Biomedical Engineering from Washington University in
St. Louis, and has had post-doctoral training at MIT.
Larry Ellberger has served as a Director since July 1996. Since 1995, Mr.
Ellberger has served as Senior Vice President, Strategic Planning and
Development of Grace. He was named Grace's Chief Financial Officer in November
1996. From 1991 to 1995, he served as a corporate Vice President and Director of
Corporate Development and Planning of American Cyanamid. Mr. Ellberger received
his B.A. in Economics from Columbia College and his B.S. in Chemical Engineering
from the Columbia School of Engineering.
48
<PAGE> 50
Martin B. Sherwin, Ph.D. has served as a Director since July 1996. In
February 1997, Dr. Sherwin retired as a Vice President of Grace, a position he
had held since April 1992. At Grace, he was responsible for the
commercialization of various research and development projects, including the
HepatAssist and PancreAssist Systems. Dr. Sherwin received his B.S. in Chemical
Engineering from City College of New York, his M.S. in Chemical Engineering from
Brooklyn Polytech and his Ph.D. in Chemical Engineering from the City University
of New York.
The following individuals have agreed to serve as Class A Directors of the
Company upon the consummation of this Offering:
Timothy J. Barberich has served as President and Chief Executive Officer of
Sepracor Inc., a publicly traded pharmaceutical company, since 1984. Mr.
Barberich received his B.S. in Chemistry from King's College and currently
serves as a director of Sepracor Inc., HemaSure Inc. and BioSepra, Inc.
James J. Mauzey has served as Chairman and Chief Executive Officer of
Alteon Inc., a publicly traded biopharmaceutical company, since 1994. From 1992
to 1994, Mr. Mauzey served as Senior Vice President, Industry and Public
Affairs, for the Bristol-Myers Squibb Worldwide Pharmaceutical Group and as
President of the Corporate Accounts Division of Bristol-Myers Squibb Company.
Mr. Mauzey received his B.A. in Business Management from Lewis University and
his M.B.A. from Xavier University.
ELECTION AND COMPENSATION OF DIRECTORS
Upon the consummation of this Offering, Grace will own 63.8% of the Total
Common Shares and Preferred Votes (60.7% if the Underwriters' over-allotment
option is exercised in full) and consequently will be entitled to elect Class B
Directors constituting 40% of the authorized number of members of the Board, or
two of the five members of the Board as it will be constituted upon the
consummation of this Offering. See "Description of Capital Stock -- Common
Stock -- Voting Rights." Grace has designated Mr. Ellberger and Dr. Sherwin as
the initial Class B Directors, and Messrs. Eger, Barberich and Mauzey will be
the initial Class A Directors.
Each Class B Director will serve for a term ending on the date of the next
annual meeting of stockholders following such director's election. The Restated
Certificate provides for the Class A Directors to be divided into three classes,
with the Class A Directors as of the consummation of this Offering serving
initial terms expiring at the 1998, 1999 and 2000 annual stockholders' meetings,
respectively. Thereafter, Class A Directors in each class will be elected for
three-year terms. Each director will serve until the election and qualification
of his or her successor or his or her earlier resignation or removal.
Directors do not receive cash compensation for their services as directors.
However, the Outside Director Stock Plan provides for the grant of stock options
to all nonemployee directors of the Company, except for Grace employees
(currently, only Mr. Ellberger). Effective upon the consummation of this
Offering, each nonemployee director (other than Mr. Ellberger) will be granted
an option to purchase 8,000 shares of Class A Common Stock under the Outside
Director Stock Plan, with a purchase price per share equal to the lower of the
initial public offering price and $11.00. Any new nonemployee director (other
than any Grace employee) will be granted an initial option to purchase 4,000
shares of Class A Common Stock, and beginning in 1998 each continuing
nonemployee director (other than any Grace employee) will be granted an option
to purchase 2,000 shares of Class A Common Stock each year on the date of the
Company's annual stockholders' meeting, in both cases with a purchase price per
share equal to the fair market value of the Class A Common Stock on the date of
grant. Options granted under the Outside Director Stock Plan become fully
exercisable one year following the date of grant. See "Management -- Employee
Benefit Plans -- 1997 Outside Director and Consultant Stock Option Plan." In
addition, with the exception of Grace employees, all directors will be
reimbursed for travel and other expenses incurred in attending meetings of the
Board and its committees, and are expected to be covered by the Company's
business travel accident insurance.
49
<PAGE> 51
COMMITTEES OF THE BOARD
Upon the consummation of this Offering, the Board will establish an Audit
Committee (whose members are expected to be Dr. Sherwin and Messrs. Barberich
and Mauzey) and a Compensation Committee (whose members are expected to be
Messrs. Ellberger, Barberich and Mauzey).
The Audit Committee will oversee the engagement of the Company's
independent accountants, review the annual financial statements and the scope of
annual audits and consider matters relating to accounting policy and internal
controls.
The Compensation Committee will review, approve and make recommendations to
the Board concerning the Company's compensation policies, practices and
procedures. The Compensation Committee will also administer the Company's 1997
Stock Incentive Plan (the "Employee Stock Plan") and the Outside Director Stock
Plan. See "-- Employee Benefit Plans."
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by (i)
the individuals who served as Chief Executive Officer of the Company during
1996, and (ii) the additional executive officers of the Company whose salary and
bonus earned during 1996 exceeded $100,000 (collectively, the "Named Executive
Officers"), for services rendered to the Company in all capacities during 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION(1)
----------------- --------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) LTIP PAYOUTS($) COMPENSATION($)(2)
- ------------------------------------------------ -------- ------- --------------- ------------------
<S> <C> <C> <C> <C>
Laszlo J. Eger(3)............................... 32,000 -- -- 114
President and Chief Executive Officer
Barry A. Solomon, Ph.D(4)....................... 138,584 33,000 114,168 4,648
Executive Vice President and Chief Scientific
Officer
Claudy J.P. Mullon, Ph.D.(4).................... 103,000 15,000 -- 3,647
Vice President, Research and Development
Melvin D. Soule(4)(5)........................... 111,208 20,000 -- 3,032
Former President
</TABLE>
- ---------------
(1) Long-Term Compensation consists of payments made by Grace under its
Long-Term Incentive Program.
(2) All Other Compensation consists of matching contributions made by Grace
under its Salaried Employee Savings & Investment Plan in the amounts of
$4,098, $3,432 and $2,624 for Dr. Solomon, Dr. Mullon and Mr. Soule,
respectively, and premiums paid under Grace's standard term life insurance
programs in the amounts of $114, $550, $215 and $408 for Mr. Eger, Dr.
Solomon, Dr. Mullon and Mr. Soule, respectively.
(3) Mr. Eger has acted as Chief Executive Officer since joining the Company on
November 1, 1996; he was formally elected President and Chief Executive
Officer of the Company effective January 1, 1997. Salary shown for Mr. Eger
reflects his services for November and December 1996 at an annual rate of
$192,000. See "-- Employment Arrangements."
(4) In addition to the amounts shown in the above table, Dr. Solomon, Dr. Mullon
and Mr. Soule realized $409,718, $7,842 and $15,399, respectively, from the
exercise of options to purchase shares of Grace common stock in 1996. At
year-end 1996, Dr. Solomon, Dr. Mullon and Mr. Soule held options with
respect to 7,452, 1,346 and 1,139 shares of Grace common stock,
respectively. These options will remain outstanding following the
consummation of this Offering.
(5) Mr. Soule resigned as President of the Company effective January 1, 1997.
EMPLOYEE BENEFIT PLANS
1997 Stock Incentive Plan
The Company has adopted the Employee Stock Plan, effective upon the
consummation of this Offering. The purpose of the Employee Stock Plan is to
attract and retain employees of the Company and to link their incentives
directly to the performance of the Class A Common Stock. The Employee Stock Plan
provides for the grant of stock incentives, which may be granted in the form of
stock options, stock awards or a combination of the two, to such persons
(generally limited to "key" persons), for such consideration and upon such other
terms as the Compensation Committee may determine from time to time, including
the purchase price (see below), the number of shares subject to options or stock
awards and the time or times at which such
50
<PAGE> 52
options or stock awards become exercisable. Up to 1,050,000 shares of Class A
Common Stock (subject to adjustment for stock splits, recapitalizations and
similar events) may be issued pursuant to stock incentives under the Employee
Stock Plan. The purchase price of all stock options granted under the Employee
Stock Plan must equal at least 90% of the fair market value of a share of Class
A Common Stock on the date of grant, except the options to be granted to the
Management Stockholders and other employees effective upon consummation of this
Offering. The term of any stock option granted under the Employee Stock Plan may
not exceed ten years and one month.
Effective upon the consummation of this Offering, the Management Stock
Awards will be granted to the Management Stockholders under the Employee Stock
Plan. The Management Stock Awards will vest in three equal annual installments
beginning one year following the consummation of this Offering, and are subject
to forfeiture by a Management Stockholder in the event that such Management
Stockholder's employment with the Company terminates prior to vesting or
specified performance objectives are not achieved by the end of the three-year
period following the consummation of this Offering, in which case the Management
Stockholder will be granted an option under the Employee Stock Plan covering the
number of shares forfeited, having a purchase price equal to the fair market
value of the Class A Common Stock on the date of grant. In addition, effective
upon the consummation of this Offering, options to purchase an aggregate of
239,000 shares and 286,000 shares of Class A Common Stock will be granted under
the Employee Stock Plan to the Management Stockholders and other employees of
the Company, respectively. Such options will also vest in three equal annual
installments beginning one year following the consummation of this Offering. The
options to be granted to the Management Stockholders will have a purchase price
per share equal to the lower of the initial public offering price and $11.00.
The options to be granted to the other employees of the Company will have a
purchase price per share equal to the lower of the initial public offering price
and $10.00.
1997 Outside Director and Consultant Stock Option Plan
The Company has adopted the Outside Director Stock Plan, effective upon the
consummation of this Offering. The Outside Director Stock Plan provides for the
grant of stock options to the Company's nonemployee directors, except for
employees of Grace (currently, only Mr. Ellberger), as well as to consultants
and members of the SAB. A total of 125,000 shares of Class A Common Stock has
been reserved for issuance under the Outside Director Stock Plan, of which
options covering 8,000 shares will be granted to each nonemployee director
(other than Mr. Ellberger) and 5,000 shares will be granted to each SAB member
(or an aggregate of 59,000 shares to the directors and SAB members), effective
upon the consummation of this Offering. Such outstanding options will have a
purchase price per share equal to the lower of the initial public offering price
and $11.00, and will become fully exercisable one year following the
consummation of this Offering.
The Outside Director Stock Plan provides for automatic grants of stock
options to nonemployee directors and SAB members, as well as discretionary
grants to those persons and consultants. Any nonemployee director (other than
any Grace employee) elected to the Board after the consummation of this Offering
will, upon election, be granted an option to purchase 4,000 shares of Class A
Common Stock at the fair market value of the Class A Common Stock on the date of
grant. On the date of each annual stockholders' meeting, each nonemployee
director (other than any Grace employee) will receive an option to purchase
2,000 shares of Class A Common Stock at the fair market value of the Class A
Common Stock on the date of grant. Any SAB member elected to the SAB after the
consummation of this Offering will, upon election, be granted an option to
purchase 2,500 shares of Class A Common Stock at the fair market value of the
Class A Common Stock on the date of grant. On the date of each annual
stockholders' meeting, each SAB member will receive an additional option to
purchase 1,000 shares of Class A Common Stock at the fair market value of the
Class A Common Stock on the date of grant. All of the options described above
will become fully exercisable one year after the date of grant.
Under the Outside Director Stock Plan, no option may be exercised more than
three months following termination of service unless the termination is due to
death or disability, in which case the option shall be exercisable for a maximum
of one year after such termination. It is intended that options granted under
the Outside Director Stock Plan will expire a maximum of ten years and one month
following the date of grant.
51
<PAGE> 53
The Outside Director Stock Plan will be administered by the Compensation
Committee. Subject to the provisions of the Outside Director Stock Plan, the
Compensation Committee will have the authority to select the optionees and
determine the terms of any discretionary option grants, including (i) the number
of shares subject to each option, (ii) when the option becomes exercisable,
(iii) the purchase price of the option, (iv) the duration of the option, and (v)
the time, manner and form of payment due upon exercise of an option.
401(k) Plan
Effective upon the consummation of this Offering (or as soon as practicable
thereafter), the employees of the Company will become eligible to participate in
an employee savings plan sponsored by the Company that is intended to satisfy
the requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
including Section 401(k) thereof (the "Circe 401(k) Plan"). The employees of the
Company who participate in the Circe 401(k) Plan will be permitted to make
contributions to the Circe 401(k) Plan, on a pre-tax and after-tax basis. These
contributions will also be subject to certain limitations under the Code.
Initially, employee contributions to the Circe 401(k) Plan will not be matched
by the Company. The Company, however, will reserve the ability, at its sole
discretion, to provide a periodic match or other type of contribution to the
Circe 401(k) Plan on behalf of its employees. Certain employees of the Company
are currently active participants in Grace's Salaried Employee Savings &
Investment Plan (the "Grace 401(k) Plan"). The active participation of the
Company's employees in the Grace 401(k) Plan will cease upon the consummation of
this Offering, whereupon such employees will have the option of either
transferring their aggregate contributions in the Grace 401(k) Plan to the Circe
401(k) Plan or maintaining their account balances in the Grace 401(k) Plan
indefinitely.
EMPLOYMENT ARRANGEMENTS
In November 1996, Grace entered into a letter agreement with Mr. Eger
setting forth the terms of his employment as the Company's President. The letter
agreement provides that Mr. Eger is entitled to a base salary of $192,000 per
annum plus possible annual incentive compensation approximating 30% of such base
salary. Mr. Eger is also entitled to participate in certain of the Company's
employee benefit plans. If Mr. Eger's employment with the Company is terminated
(other than by death, disability, voluntary resignation or for cause) before, or
within 12 months after, the consummation of this Offering, Mr. Eger will be
entitled to receive a severance payment equal to his annual base salary, less
any amount he receives from a third party. The letter agreement does not provide
for any specified term of employment.
In December 1996, the Company entered into a letter agreement with Mr.
Butler setting forth the terms of his employment as the Company's Vice
President, Finance. The letter agreement, as amended in January 1997, provides
that Mr. Butler is entitled to a base salary of $130,000 per annum plus possible
annual incentive compensation approximating 25% of such base salary. Mr. Butler
is also entitled to participate in certain of the Company's employee benefit
plans. The agreement provides that if Mr. Butler's employment with the Company
terminates on or before January 20, 1998 as a result of the sale of the Company,
Mr. Butler will be entitled to receive a severance payment equal to half of his
annual base salary, less any amount he receives from a third party in connection
with such termination. The letter agreement does not provide for any specified
term of employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are expected to be Messrs.
Ellberger, Barberich and Mauzey. No executive officer of the Company serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as members of the Board or the
Compensation Committee.
52
<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 1, 1997 and as adjusted to
reflect the sale of the Class A Common Stock offered hereby, certain information
regarding beneficial ownership of Class A Common Stock and Class B Common Stock
by (i) Grace, the only person to beneficially own 5% or more of the outstanding
shares of either the Class A Common Stock or the Class B Common Stock, (ii) each
director of the Company and each person who has consented to become a director
upon the consummation of this Offering, (iii) each of the Named Executive
Officers, and (iv) all directors, director nominees and executive officers of
the Company as a group. Except as indicated in the footnotes to this table, the
Company believes, based on information provided to the Company, that the persons
named in these tables have sole voting and investment power with respect to all
shares of Common Stock shown to be beneficially owned by them.
<TABLE>
<CAPTION>
BEFORE THIS OFFERING AFTER THIS OFFERING
------------------------------------- -------------------------------------------
NUMBER % OF VOTING NUMBER % OF VOTING
NAME OF SHARES OUTSTANDING(1) POWER(1) OF SHARES OUTSTANDING(1) POWER(1)(2)
- ------------------------- --------- -------------- -------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A COMMON STOCK(3)(4)(5)
NAMED EXECUTIVE OFFICERS:
Laszlo J. Eger........... 0 -- -- 52,755(6) * 1.2%
Claudy J. P. Mullon...... 0 -- -- 16,317(6) * *
Barry A. Solomon......... 0 -- -- 26,377(6) * *
Melvin D. Soule.......... 0 -- -- 0 -- --
NONEMPLOYEE DIRECTORS:
Larry Ellberger(7)....... 0 -- -- 0 -- --
Martin B. Sherwin........ 0 -- -- 0 -- --
DIRECTOR NOMINEES:
Timothy J. Barberich..... 0 -- -- 0 -- --
James J. Mauzey.......... 0 -- -- 0 -- --
All directors, director
nominees and executive
officers as a group (9
persons):.............. 0 -- -- 106,000 1.5% 2.5%
CLASS B COMMON STOCK(3)
5% STOCKHOLDER:
W. R. Grace &
Co.(5)(8).............. 4,600,000 100% 100% 4,600,000 63.8% 39.5%
One Town Center Road
Boca Raton, FL 33486-
1010
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Represents percentage of all outstanding Common Stock.
(2) Except for the election or removal of directors, the amendment of certain
provisions of the Restated Certificate and By-laws and any class votes
required by law, holders of both classes of Common Stock vote as a single
class on all matters, with each share of Class A Common Stock having one
vote and each share of Class B Common Stock having 0.37 of a vote. See
"Description of Capital Stock -- Common Stock -- Voting Rights."
(3) Upon the occurrence of certain events, or the satisfaction of certain
conditions, each share of Class B Common Stock will be converted into one
share of Class A Common Stock. See "Description of Capital Stock -- Common
Stock -- Conversion."
(4) Excludes options to be granted effective upon the consummation of this
Offering, none of which will be exercisable for one year.
(5) No shares of Class A Common Stock will be issued and outstanding prior to
the consummation of this Offering. Grace will not own any shares of Class A
Common Stock upon consummation of this Offering.
(6) Represents the Management Stock Awards.
(7) Excludes the shares of Class B Common Stock held by Grace, as to which Mr.
Ellberger disclaims beneficial ownership. Mr. Ellberger is Senior Vice
President and Chief Financial Officer of Grace.
(8) The shares of Class B Common Stock are owned by a wholly owned subsidiary of
Grace.
53
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares
of Class A Common Stock, par value $.001 per share, of which 2,606,000 shares
will be outstanding upon the consummation of this Offering (2,981,000 shares if
the Underwriters' over-allotment option is exercised in full); 5,000,000 shares
of Class B Common Stock, par value $.001 per share, of which 4,600,000 shares
will be outstanding upon the consummation of this Offering; and 5,000,000 shares
of undesignated Preferred Stock, par value $.001 per share, none of which will
be outstanding upon the consummation of this Offering.
The following summary of certain provisions of the Common Stock, Preferred
Stock, Restated Certificate and By-laws is not intended to be complete and is
qualified by reference to the provisions of applicable law and to the Restated
Certificate and By-laws included as exhibits to the registration statement of
which this Prospectus is a part. See "Additional Information."
COMMON STOCK
Voting Rights. Except for the election or removal of directors, the
amendment of certain provisions of the Restated Certificate and By-laws, and any
class votes required by law, holders of both classes of Common Stock vote as a
single class on all matters, with each share of Class A Common Stock having one
vote and each share of Class B Common Stock having 0.37 of a vote. Upon the
consummation of this Offering, Grace will own 4,600,000 shares of Class B Common
Stock, which will represent 39.5% of the voting power of all outstanding classes
of Common Stock (36.3% if the Underwriters' over-allotment option is exercised
in full). Accordingly, Grace will be able to influence the outcome of
stockholder votes, including votes concerning the amendment of the Restated
Certificate or By-laws and the approval of fundamental corporate changes and
significant corporate transactions. Further, under certain circumstances, the
4,600,000 shares of Class B Common Stock held by Grace upon the consummation of
this Offering may be converted into an equal number of shares of Class A Common
Stock, thereby significantly increasing Grace's voting power, while
simultaneously decreasing the voting power of the holders of Class A Common
Stock. See "-- Conversion."
As described below in greater detail, the Restated Certificate provides
that the holders of the Class B Common Stock, voting as a separate class, are
entitled to elect the Class B Directors. The holders of Class A Common Stock,
voting as a separate class, are entitled to elect the Class A Directors, subject
to any rights of the holders of any shares of Preferred Stock that may be issued
in the future to elect one or more Class A Directors or to vote as a single
class with the holders of Class A Common Stock in the election of all Class A
Directors. After this Offering, Grace will own all of the outstanding shares of
Class B Common Stock and will be entitled to elect the Class B Directors,
subject to the conditions discussed below.
So long as Grace owns Class B Common Stock constituting at least 30% of the
Total Common Shares and Preferred Votes, Grace will be entitled to elect a
number of Class B Directors equal to 40% of the Company's directors (excluding
any directors to be elected exclusively by holders of Preferred Stock). So long
as Grace owns Class B Common Stock constituting at least 15% of the Total Common
Shares and Preferred Votes, Grace will be entitled to elect a number of Class B
Directors equal to 20% of the Company's directors (excluding any directors to be
elected exclusively by holders of Preferred Stock). If Grace ceases to own Class
B Common Stock constituting at least 15% of the Total Common Shares and
Preferred Votes, then all shares of Class B Common Stock will automatically be
converted into an equal number of shares of Class A Common Stock, Grace's right
to elect the Class B Directors will terminate, and there will be no Class B
Directors. See "- Conversion." In addition, if Grace sells or otherwise
transfers beneficial ownership of any shares of Class B Common Stock to a third
person or entity (other than a wholly owned subsidiary of Grace), such shares
will be automatically converted into shares of Class A Common Stock. Immediately
after this Offering, Grace will own 63.8% of the Total Common Shares and
Preferred Votes (60.7% if the Underwriters' over-allotment option is exercised
in full) and will be entitled to elect Class B Directors constituting 40% of the
authorized number of members of the Board. At that time, the Board will consist
of five members. Consequently, Grace (as the holder of the Class B Common Stock)
will be entitled to elect two directors, and the holders of the Class A Common
Stock will be entitled, voting as a separate class, to elect the remaining three
directors.
54
<PAGE> 56
So long as Grace owns Class B Common Stock constituting at least 15% of the
Total Common Shares and Preferred Votes, Grace may remove a Class B Director
from office without cause. Class A Directors may be removed from office only for
cause by the affirmative vote of the holders of a majority of the voting power
of the outstanding shares of Class A Common Stock. A Class A Director may be
removed for cause only after such director receives reasonable notice and an
opportunity to be heard before the stockholders proposing to remove such
director. Vacancies in the office of any class of director may be filled by the
remaining directors of that class or, if no directors of that class remain in
office, by the vote of the class of shares entitled to elect directors in such
class.
So long as Grace owns Class B Common Stock constituting a majority of the
Total Common Shares and Preferred Votes, the Company may not, without the
affirmative vote of Grace and a majority of the entire Board, amend the
provisions of the By-laws requiring that a majority of the Class B Directors
approve certain fundamental corporate changes and significant transactions. See
"-- Delaware Law and Certain Charter and By-law Provisions." So long as Grace
owns Class B Common Stock constituting at least 15% of the Total Common Shares
and Preferred Votes, the Company may not, without the affirmative vote of Grace,
amend the provisions of the Restated Certificate relating to the declaration and
payment of dividends, the liquidation rights of the Common Stock and the
amendment of the Restated Certificate and By-laws.
Dividends. Holders of record of Class A Common Stock and Class B Common
Stock shall be entitled to receive, when, if and as declared by the Board, such
dividends of cash, property or stock of the Company as the Board shall from time
to time declare, except that (i) no cash dividends shall be declared and paid on
one class of Common Stock unless at the same time an equal cash dividend is
declared and paid, per share, on the other class of Common Stock; and (ii) no
dividend of property (including capital stock of the Company) shall be declared
and paid on one class of Common Stock unless a dividend of an equal amount of
the same property has also been declared and paid, per share, on the other class
of Common Stock. The declaration and amount of future dividends will be within
the discretion of the Board and may depend, in part, on restrictions that may be
contained in agreements to which the Company is a party or by which it is
otherwise bound. Further, so long as the Class B Common Stock owned by Grace
constitutes a majority of the Total Common Shares and Preferred Votes, the
Company may not, without the approval of both a majority of a quorum of the
Board and a majority of the Class B Directors, declare or pay a dividend. See
"-- Delaware Law and Certain Charter and By-law Provisions" and "Dividend
Policy."
Conversion. If Grace sells or otherwise transfers beneficial ownership of
any shares of Class B Common Stock (other than to a wholly owned subsidiary of
Grace), each share shall be automatically converted into one share of Class A
Common Stock. In addition, if the Class B Common Stock owned by Grace ceases to
constitute at least 50% of the Total Common Shares and Preferred Votes, then, at
Grace's option, each share of Class B Common Stock may be converted at any time
into one share of Class A Common Stock, unless such conversion would result in
Grace's ownership of capital stock having more than 50% of the voting power of
all of the Company's capital stock. If the Class B Common Stock owned by Grace
ceases to constitute at least 15% of the Total Common Shares and Preferred
Votes, all shares of Class B Common Stock will automatically be converted into
an equal number of shares of Class A Common Stock. Shares of Class A Common
Stock may not be converted into shares of Class B Common Stock.
Other Rights. Stockholders of the Company have no preemptive or other
rights to subscribe for additional shares. Upon the liquidation, dissolution, or
winding up of the Company, all holders of Common Stock, regardless of class, are
entitled to share ratably in any assets available for distribution to holders of
shares of Common Stock. No shares of either class of Common Stock are subject to
redemption. All outstanding shares are, and all shares of Class A Common Stock
offered in this Offering will be, when sold, legally issued, fully paid, and
nonassessable. The Company may not subdivide or combine shares of either class
of Common Stock without at the same time proportionally subdividing or combining
shares of the other class. See "-- Preferred Stock" and "-- Delaware Law and
Certain Charter and By-law Provisions."
55
<PAGE> 57
PREFERRED STOCK
The Restated Certificate permits the Board, without further vote or action
by the stockholders, to issue shares of Preferred Stock in one or more series,
and to determine the designations, preferences, voting powers, qualifications
and special or relative rights and privileges of the shares of each such series,
including the dividend rights, dividend rate, conversion rights, voting rights,
terms of redemption (including sinking fund provisions), redemption price or
prices, liquidation preferences, the number of shares constituting any series
and the designation of such series. These rights and privileges could limit the
voting power of holders of Common Stock and restrict their rights to receive
dividends or liquidation proceeds.
The Company has granted the Board sole authority to issue Preferred Stock
and to determine its rights and preferences to eliminate delays associated with
a stockholder vote on specific issuances. The Company believes that this
authority will provide flexibility in connection with possible corporate
transactions. However, it could also have the effect of making it more difficult
for a third party to acquire, or discouraging a third party from attempting to
acquire, control of the Company. Further, the issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and restrict their
rights to receive payments upon liquidation of the Company. The Board could also
use shares of Preferred Stock in order to adopt a stockholders' rights plan (a
so-called "poison pill"), which could also have the effect of discouraging or
delaying an unsolicited acquisition of the Company. The Company has no present
plans to issue any shares of Preferred Stock or to adopt a stockholders' rights
plan.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the DGCL
("Section 203"). Subject to certain exceptions, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
interested stockholder attains such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes certain mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with his or her affiliates and associates, owns, or within three prior
years owned, 15% or more of the corporation's voting stock. Pursuant to an
exception in the DGCL, the provisions of Section 203 will not apply to Grace.
The Restated Certificate provides that, effective upon the consummation of
this Offering, the Class A Directors will be divided into three classes, as
nearly equal in number as possible, with Class A Directors at that time serving
initial terms expiring at the 1998, 1999 and 2000 annual stockholders' meetings,
respectively. Thereafter, Class A Directors in each class will be elected for
three-year terms. Each Class A Director will serve until the election and
qualification of his or her successor or his or her earlier resignation or
removal. See "Management -- Election and Compensation of Directors." The Board
is authorized to increase the size of the Board and thereby the number of Class
A Directors, subject to the rights of the holders of Class B Common Stock. The
Class A Directors have sole authority to fill new Class A Director positions and
to determine the class to which any Class A Director may be assigned. In
addition, the Class A Directors have sole authority to fill vacancies among the
Class A Directors occurring for any reason for the remainder of the term of the
vacant position. Further, Class A Directors may only be removed for cause. These
provisions are likely to increase the time required for stockholders to change
the composition of the Board.
The By-laws provide that, so long as the number of shares of Class B Common
Stock owned by Grace constitutes a majority of the Total Common Shares and
Preferred Votes, a majority of the Class B Directors must approve certain
fundamental corporate changes and significant transactions, including those
involving (i) the issuance and sale of any capital stock or other equity
securities of the Company or any subsidiary, subject to certain exceptions; (ii)
the incurrence of debt in excess of an aggregate principal amount of $10,000,000
at any time outstanding; (iii) the declaration or payment of dividends or other
distributions, or the repurchase or redemption of capital stock; (iv) stock
splits, stock combinations or other recapitalizations; (v) the making of capital
expenditures in excess of $4,000,000 per project; (vi) business activities other
than the
56
<PAGE> 58
research, development, production and commercialization of biomedical devices
and systems incorporating synthetic membranes and/or biologically active agents
(cells, tissue or biomolecules) for therapeutic, diagnostic or toxicological
applications; (vii) any acquisition of, or merger or partnership with, any other
entity, unless otherwise permitted by the By-laws and, after such transaction,
the Company would continue to be engaged exclusively in the above business
activities; (viii) the sale, lease (as lessor), transfer or other disposition of
a majority (in either book value or fair market value) of the assets of the
Company; (ix) a voluntary plan of liquidation or reorganization; or (x) the
cessation of business operations. Even after Grace's percentage equity interest
in the Company has decreased to a point that the approval of a majority of the
Class B Directors is no longer required to authorize of these transactions,
Grace may, by virtue of its ownership of a significant percentage of the voting
power of the outstanding Common Stock, be able to influence the outcome of
stockholder votes, including votes concerning the amendment of the Restated
Certificate or the By-laws and the approval of fundamental corporate changes.
The Restated Certificate contains provisions eliminating or limiting the
personal financial liability of the Company's directors to the fullest extent
permitted by the DGCL. The DGCL provides that a director will not be personally
liable to a corporation or its stockholders for monetary damages for breach of
his or her fiduciary duties as a director, except for liability where there has
been a breach of the duty of loyalty, a failure to act in good faith, an act of
intentional misconduct, a knowing violation of law, certain unlawful payments of
dividends, stock repurchases or redemptions, or any transaction from which the
director derives an improper personal benefit. In addition, the Restated
Certificate and the By-laws include provisions to indemnify the Company's
officers and directors, and persons serving in various other capacities at the
request of the Company, to the fullest extent permitted by the DGCL, against
expenses, judgments, fines and amounts paid in connection with threatened,
pending or completed suits and proceedings against such persons by reason of
having served the Company as officers or directors or in other capacities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission (the
"Commission"), such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is State
Street Bank & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 7,206,000
shares of Common Stock outstanding. Of these shares, the 2,500,000 shares of
Class A Common Stock offered hereby will be freely tradeable without restriction
or further registration under the Securities Act, except for shares held by the
Company's "affiliates," as that term is defined in Rule 144. Of the remaining
4,706,000 shares of Common Stock outstanding upon the consummation of this
Offering, 4,600,000 shares will be Class B Common Stock held by Grace and will
be "restricted securities," as that term is defined in Rule 144, that may be
sold only if registered under the Securities Act or in accordance with an
applicable exemption from registration, such as Rule 144. The remaining 106,000
shares will be shares of Class A Common Stock issued pursuant to the Management
Stock Awards to the Management Stockholders who are "affiliates" of the Company
within the meaning of the Securities Act; these shares will be subject to the
resale limitations of Rule 144 (the 4,600,000 shares and the 106,000 shares
being collectively referred to as the "Restricted Shares"). Sales of Restricted
Shares in the public market, or the availability of such shares for sale, could
adversely affect the market price of the Class A Common Stock. Grace has agreed
that it will not, without the prior written consent of UBS Securities LLC,
offer, sell or otherwise dispose of any securities of the Company owned by Grace
for a period of one year after the date of this Prospectus. The Management
Stockholders (who will hold the Management Stock Awards and options to purchase
239,000 shares of Class A Common Stock) and the directors of the Company and SAB
members (who will hold options to purchase an aggregate of 59,000 shares of
Class A Common Stock) have agreed that they will not, without the prior written
consent of UBS Securities LLC, offer, sell or otherwise dispose of any
securities of the Company owned by them for a period of 180 days after
57
<PAGE> 59
the date of this Prospectus; further, the 106,000 shares of Class A Common Stock
to be issued under the Management Stock Awards will be subject to restrictions
on transferability and forfeiture until they are vested (in three equal annual
installments beginning one year from the consummation of this Offering, subject
to the achievement of certain performance objectives). See
"Management -- Employee Benefit Plans," "Relationship with Grace -- Stockholder
Agreement," "Description of Capital Stock -- Common Stock" and "Underwriting."
Upon the expiration of the Grace Lock-Up Period, the 4,600,000 Restricted
Shares held by Grace, and 35,333 of the Restricted Shares held by the Management
Stockholders (if such shares have vested), will be eligible for sale in the
public market, subject to the volume limitations of Rule 144 described below. If
and when the remaining 70,667 shares held by the Management Stockholders vest,
they may be sold pursuant to the volume limitations of Rule 144.
In general, under Rule 144, a person (or persons whose shares are
aggregated with those of others), including any affiliate of the Company, is
entitled to sell in brokers' transactions or directly to market makers, within
any three-month period, a number of Restricted Shares that does not exceed the
greater of (i) 1% of the class of such shares then outstanding or (ii) the
average weekly trading volume of the class of such shares in the
over-the-counter market during the four calendar weeks preceding the date on
which notice of such sale is filed with the Commission, provided that certain
current public information concerning the Company is then available, that the
seller complies with certain manner-of-sale provisions and notice requirements,
and that at least one year has elapsed since the Restricted Shares were fully
paid for and acquired from the Company or an affiliate of the Company. A person
(or persons whose shares are aggregated with those of others) who is not an
affiliate of the Company at any time during the three months preceding any sale
by such person, is entitled to sell such shares under Rule 144(k) without regard
to the limitations described above, provided that at least two years have lapsed
since the Restricted Shares were fully paid for and acquired from the Company or
an affiliate of the Company. (However, Rule 144(k) is not expected to be
available to Grace or the Management Stockholders for the foreseeable future.)
The above is a summary of Rule 144 and is not intended to be a complete
description thereof or of the rights of the parties to sell shares of Common
Stock thereunder.
In addition, upon the consummation of this Offering, the Company intends to
file a Form S-8 registration statement under the Securities Act to register the
1,050,000 shares of Class A Common Stock reserved for issuance under the
Employee Stock Plan, including the 106,000 shares of Class A Common Stock
subject to the Management Stock Awards, and the 125,000 shares of Class A Common
Stock reserved for issuance under the Outside Director Stock Plan. That
registration statement is expected to become effective immediately upon filing.
Shares so registered will be eligible for sale in the public market after the
effective date of such registration, subject to, if applicable, the Rule 144
limitations applicable to affiliates and the Management Lock-Up Period and, with
respect to the Management Stock Awards, the restrictions on transferability and
forfeiture referred to above.
Except as indicated above, the Company is unable to estimate the amount,
timing or nature of future sales of outstanding Common Stock. There was no
market for the Common Stock prior to this Offering, and no predictions can be
made as to the effect, if any, that market sales of shares or the availability
of shares for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Common Stock in the public
market may have an adverse effect on the market price thereof, and could impair
the Company's ability to raise capital through the future sale of its equity
securities.
In addition, upon consummation of this Offering and the expiration of the
Grace Lock-Up Period, Grace will have certain rights with respect to the
registration under the Securities Act of the 4,600,000 shares of Class B Common
Stock that it will own. The registration of such shares under the Securities Act
would result in such shares becoming freely tradable without restriction under
the Securities Act (except for shares purchased by affiliates of the Company)
immediately upon effectiveness of such registration. See "Relationship with
Grace -- Stockholder Agreement."
58
<PAGE> 60
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Montgomery Securities are acting as representatives (the "Representatives"),
have agreed to purchase from the Company the following respective number of
shares of Class A Common Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
UBS Securities LLC................................................................
Montgomery Securities.............................................................
-------
Total................................................................... 2,500,000
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Class A Common Stock offered hereby if any of such shares
are purchased. The Underwriting Agreement contains certain provisions whereby if
any Underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the Underwriter so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Class A Common Stock directly to the public at the
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the public
offering of the shares of Class A Common Stock, the offering price and other
selling terms may be changed by the Underwriters.
The Company has granted the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Class A Common Stock to cover over-allotments, if any, at
the public offering price set forth on the cover page of this Prospectus, less
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Class A Common Stock to be purchased by it shown in the above table bears to the
total number of shares of Class A Common Stock offered hereby. The Company will
be obligated, pursuant to the option, to sell such shares to the Underwriters to
the extent the option is exercised.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The directors and executive officers of the Company, who will beneficially
own an aggregate of 106,000 shares of Class A Common Stock upon the consummation
of this Offering, have agreed that they will not, without the prior written
consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares of
Class A Common Stock, options or warrants to acquire shares of Class A Common
Stock or securities exchangeable for or convertible into shares of Class A
Common Stock owned by them for a period of 180 days
59
<PAGE> 61
after the date of this Prospectus. The Company has agreed that it will not,
without the prior written consent of UBS Securities LLC, offer, sell or
otherwise dispose of any shares of Class A Common Stock, options or warrants to
acquire shares of Class A Common Stock or securities exchangeable for or
convertible into shares of Class A Common Stock for a period of 180 days after
the date of this Prospectus, except that the Company may grant additional stock
incentives and options under the Employee Stock Plan and the Outside Director
Stock Plan, or issue shares upon the exercise of outstanding options.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
In the Underwriting Agreement, Grace has agreed that, during the 365 days
following the date of this Prospectus, it will not, and will not permit any
affiliated company to, sell, offer, or agree to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exchangeable for Common Stock, except with the prior written consent of
UBS Securities LLC. See "Relationship with Grace -- Stockholder Agreement" for
information concerning the Stockholder Agreement, which restricts Grace's
ability to dispose of its Common Stock and other matters.
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot this Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Class A Common Stock in the open market to cover
syndicate short positions or to stabilize the price of the Class A Common Stock.
Finally, the underwriting syndicate may reclaim selling concessions from
syndicate members in this Offering if the syndicate repurchases previously
distributed Class A Common Stock in syndicate covering transactions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Class A Common Stock above independent
market levels. The Underwriters are not required to engage in these activities
and may end any of these activities at any time.
Prior to this Offering, there was no public market for any class of the
Company's capital stock. The initial public offering price will be determined by
negotiations among the Company, Grace and the Representatives. Among the factors
to be considered in determining the initial public offering price of the Class A
Common Stock, in addition to prevailing market and economic conditions, will be
certain financial information of the Company, the history of, and the prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, its past and present operations, the prospects for, and
timing of, future revenues of the Company, the present stage of the Company's
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to those of
the Company. The initial public offering price set forth on the cover page of
this Prospectus should not, however, be considered an indication of the actual
value of the Class A Common Stock. Such price is subject to change as a result
of market conditions and other factors. There can be no assurance that an active
trading market will develop for the Class A Common Stock or that the Class A
Common Stock will trade in the public market subsequent to this Offering at or
above the initial offering price.
The Company has applied for quotation of the Class A Common Stock on the
Nasdaq National Market.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts. Certain legal matters in connection with this Offering will be
passed upon for the Underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The financial statements at December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996, and for the cumulative
development stage period from January 1, 1986 (inception) through December 31,
1996, included in this Prospectus have been so included in reliance on the
report of
60
<PAGE> 62
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The statements in this Prospectus under the captions "Risk
Factors -- Uncertainties Regarding Patents and Proprietary Rights; Potential
Third-Party Claims," other than the first paragraph thereof, and "Business --
Patents and Proprietary Rights," other than the first paragraph thereof, have
been reviewed and approved by Fish & Richardson P.C., Boston, Massachusetts, as
experts on such matters, and are included in this Prospectus in reliance upon
that review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1, including amendments thereto (the "Registration Statement"), under the
Securities Act with respect to the Class A Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Class A Common Stock offered
hereby, reference is hereby made to such Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
regarding the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being deemed to be qualified in its entirety by such
reference. The Registration Statement, including all exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: the New York regional office located at 7
World Trade Center, Suite 1300, New York, New York 10048, and the Chicago
regional office located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of this material may
also be obtained from the Commission's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such
material may also be accessed electronically at the Commission's Internet home
page: (http://www.sec.gov).
All annual reports containing financial statements audited by the Company's
independent public accountants, quarterly reports for the first three quarters
of each fiscal year containing unaudited financial information, and such other
periodic reports as the Company may determine to be appropriate or as may be
required by law, will be made available to the stockholders of the Company at
the Company's principal executive offices located at One Ledgemont Center, 128
Spring Street, Lexington, Massachusetts 02173.
61
<PAGE> 63
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Statements of Operations -- For the years ended December 31, 1994, 1995 and 1996, for
the cumulative development stage period January 1, 1986 (inception) through December
31, 1996,
for the three months ended March 31, 1996 and 1997 (unaudited) and for the
cumulative development stage period January 1, 1986 (inception) through March 31,
1997 (unaudited).................................................................... F-3
Balance Sheets -- At December 31, 1995 and 1996 and at March 31, 1997 (unaudited)..... F-4
Statements of Cash Flows -- For the years ended December 31, 1994, 1995 and 1996, for
the cumulative development stage period January 1, 1986 (inception) through December
31, 1996, for the three months ended March 31, 1997 (unaudited) and for the
cumulative development stage period January 1, 1986 (inception) through March 31,
1997 (unaudited).................................................................... F-5
Notes to Financial Statements......................................................... F-6
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Circe Biomedical, Inc.
The capital restructuring described in Note 14 to the financial statements has
not been consummated at June 18, 1997. When it has been consummated, we will be
in a position to furnish the following report:
"In our opinion, the financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Circe Biomedical, Inc., a wholly owned development stage subsidiary of W.
R. Grace & Co., at December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1996, and for the cumulative development stage period
from January 1, 1986 (inception) through December 31, 1996, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As disclosed in the financial statements, the Company has extensive
transactions and relationships with W. R. Grace & Co. Because of these
relationships, it is possible that the terms of these transactions are not
the same as those that would result from transactions among unrelated
parties."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Linthicum, Maryland
June 18, 1997
F-2
<PAGE> 65
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE CUMULATIVE FOR THE CUMULATIVE
DEVELOPMENT FOR THE THREE DEVELOPMENT
FOR THE YEARS ENDED DECEMBER STAGE PERIOD MONTHS ENDED STAGE PERIOD
31, JANUARY 1, 1986 MARCH 31, JANUARY 1, 1986
------------------------------ (INCEPTION) THROUGH ----------------- (INCEPTION) THROUGH
1994 1995 1996 DECEMBER 31, 1996 1996 1997 MARCH 31, 1997
------- ------- -------- ------------------- ------- ------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......... $ -- $ -- $ -- $-- $ -- $ -- $--
------- ------- -------- -------- ------- ------- --------
Expenses:
Research and
development... 4,312 5,314 7,125 41,402 1,405 1,730 43,132
General and
administrative... 1,207 922 1,394 8,905 206 540 9,445
Costs allocated
by Grace..... 2,593 2,541 2,663 18,592 671 681 19,273
------- ------- -------- -------- ------- ------- --------
Net loss.......... $(8,112) $(8,777) $(11,182) $ (68,899) $(2,282) $(2,951) $ (71,850)
======= ======= ======== ======== ======= ======= ========
Net loss per
share........... $ (2.43) $ (.50) $ (.64)
======== ======= =======
Weighted average
shares used in
computing net
loss per
share........... 4,600 4,600 4,600
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 66
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1995 1996 1997
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Research grant receivable..................................... $ 24 $ 82 $ 77
Prepaid expenses.............................................. 97 409 581
---- ------ -------
Total current assets....................................... 121 491 658
---- ------ -------
Properties and equipment, net................................. 863 954 931
---- ------ -------
Total assets.......................................... $984 $1,445 $ 1,589
==== ====== =======
LIABILITIES, OWNER'S NET INVESTMENT AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable and other accrued liabilities................ $335 $1,248 $ 1,614
---- ------ -------
Total current liabilities.................................. 335 1,248 1,614
---- ------ -------
Commitments and contingencies................................... -- -- --
---- ------ -------
Owner's net investment.......................................... 649 -- --
---- ------ -------
Stockholder's equity (deficit):
Preferred stock, par value $.001 per share -- 5,000,000 shares
authorized; no shares issued or outstanding at December 31,
1996 and March 31, 1997.................................... -- -- --
Class A common stock, par value $.001 per share -- 15,000,000
shares authorized; no shares issued or outstanding at
December 31, 1996 and March 31, 1997....................... -- -- --
Class B common stock, par value $.001 per share -- 5,000,000
shares authorized; 4,600,000 shares issued and outstanding
at December 31, 1996 and March 31, 1997.................... -- 5 5
Additional paid-in capital.................................... -- 192 2,921
Accumulated deficit........................................... -- -- (2,951)
---- ------ -------
Total stockholder's equity (deficit)....................... -- 197 (25)
---- ------ -------
Total liabilities, owner's net investment and stockholder's
equity................................................... $984 $1,445 $ 1,589
==== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 67
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
CUMULATIVE CUMULATIVE
DEVELOPMENT DEVELOPMENT
STAGE PERIOD FOR THE STAGE PERIOD
FOR THE YEARS ENDED JANUARY 1, 1986 THREE MONTHS ENDED JANUARY 1, 1986
DECEMBER 31, (INCEPTION) MARCH 31, (INCEPTION)
---------------------------- THROUGH ----------------------- THROUGH
1994 1995 1996 DECEMBER 31, 1996 1996 1997 MARCH 31, 1997
------- ------- -------- ----------------- ------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(8,112) $(8,777) $(11,182) $ (68,899) $(2,282) $(2,951) $ (71,850)
Depreciation..................... 217 202 254 1,478 25 41 1,519
Adjustments to reconcile net loss
to net cash used in operating
activities:
Changes in net assets and
liabilities:
(Increase) decrease in
research grant
receivable................. -- (24) (58) (82) (9) 5 (77)
(Increase) decrease in
prepaid expenses........... (124) 34 (312) (409) (4) (172) (581)
Increase (decrease) in
accounts payable and
accrued liabilities........ 98 (92) 913 1,248 80 366 1,614
------- ------- -------- -------- ------- ------- --------
Net cash used in operating
activities....................... (7,921) (8,657) (10,385) (66,664) (2,190) (2,711) (69,375)
------- ------- -------- -------- ------- ------- --------
Cash flows from investing
activities:
Capital expenditures............. (77) (472) (345) (2,432) (47) (18) (2,450)
------- ------- -------- -------- ------- ------- --------
Net cash used in investing
activities....................... (77) (472) (345) (2,432) (47) (18) (2,450)
------- ------- -------- -------- ------- ------- --------
Cash flows from financing
activities:
Advances from W. R. Grace &
Co............................. 7,998 9,129 10,730 69,096 2,237 2,729 71,825
------- ------- -------- -------- ------- ------- --------
Net cash provided by financing
activities....................... 7,998 9,129 10,730 69,096 2,237 2,729 71,825
------- ------- -------- -------- ------- ------- --------
Net change in cash and cash
equivalents...................... -- -- -- -- -- -- --
------- ------- -------- -------- ------- ------- --------
Cash and cash equivalents,
beginning of period.............. -- -- -- -- -- -- --
------- ------- -------- -------- ------- ------- --------
Cash and cash equivalents,
end of period.................... $ -- $ -- $ -- $-- $ -- $-- $--
======= ======= ======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 68
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BUSINESS AND BASIS OF PRESENTATION
On June 28, 1996, W. R. Grace & Co. ("Grace") formed Circe Biomedical, Inc.
("Circe" or the "Company"), as a wholly owned subsidiary incorporated under the
laws of Delaware. Throughout the period covered by the audited financial
statements, the Company's operations were conducted by the biomedical division
of Grace ("Biomedical Division"). On December 31, 1996, Grace transferred to the
Company the assets and liabilities of the Biomedical Division relating to the
Company's business to facilitate the sale of, or other strategic alternatives
for, the Company, including the possible sale of shares through an initial
public offering.
Circe is engaged in the development, production and commercialization of
novel bioartificial organs. The Company's lead product in development, the
HepatAssist System, is an extracorporeal, bioartificial liver designed to treat
acute and chronic liver failure by temporarily providing essential liver
functions. Circe has completed a Phase I/II clinical trial of the HepatAssist
System and has submitted to the FDA a proposed protocol for a Phase II/III
clinical trial that it expects to begin as early as the third quarter of 1997,
subject to FDA approval. The Company's PancreAssist System, which is in
preclinical development, is an implantable bioartificial pancreas designed as a
novel therapy for the treatment of insulin-dependent diabetes.
These financial statements present the historical financial position,
results of operations and cash flows of the Company previously included in
Grace's consolidated financial statements. In accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 55, these financial statements
have been adjusted to include all costs directly attributable to the Company,
including costs for facilities and services used by the Company at shared sites
and costs for certain services provided by Grace to the Company. See Note 11 for
a description of the allocation methodologies employed. Although the Company's
technologies existed prior to January 1, 1986, the financial statements reflect
January 1, 1986 as the date of inception, since no significant costs associated
with the technologies transferred to the Company were incurred by Grace prior to
such date.
All charges for and allocations of costs of facilities, functions and
services provided by Grace to the Company are settled through intercompany
billings and have been reported as part of the owner's net investment.
NOTE 2 -- STAGE OF OPERATIONS
To date, the Company has been engaged in research and development,
preclinical testing and clinical trials. Consequently, the Company's continued
financial viability is dependent upon obtaining adequate financing to fund the
Company's research and development activities, preclinical testing and clinical
trials through technological feasibility and regulatory and commercial
acceptance. The Company intends to raise capital through a public offering of
the Company's Class A Common Stock (the "Offering"). Grace has represented its
intentions to continue to fund the operating cash requirements of the Company
through the earlier of (1) mid-1998 or (2) such time as alternative sources of
funds are made available through the Offering.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with initial
maturities of three months or less to be cash equivalents.
F-6
<PAGE> 69
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Properties and Equipment
Properties and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are depreciated over the shorter of the lease term or
useful life, and machinery and equipment over 5 to 20 years.
The cost and accumulated depreciation of properties and equipment sold or
otherwise disposed of are removed from the accounts at the date of disposal, and
any resulting gain or loss is reflected in results of operations.
Maintenance and repairs are charged to operations; replacements and
betterments are capitalized.
Income Taxes
The Company has been included in Grace's tax returns. As a result, separate
income tax returns have not been prepared or filed for the Company.
For all periods presented, current and deferred income taxes have been
calculated as if the Company was a separate taxpayer. Deferred income taxes are
determined using the asset and liability method prescribed by Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Under SFAS 109, deferred tax assets and liabilities reflect the expected
future tax consequences of carryforwards and temporary differences between the
financial reporting and income tax bases of assets and liabilities. SFAS 109
generally requires that all expected future events, other than changes in tax
laws or tax rates, be considered in estimating future tax consequences. A
valuation allowance has been established to reduce deferred tax assets by the
amount of any tax benefits that, based on available evidence, are not expected
to be realized.
Research and Development
Research and development costs are expensed as incurred and include costs
related to the conceptual formulation and design of products and processes,
experimental equipment, preclinical testing, clinical trials and regulatory
approval. The Company is a party to certain contracts that provide for the
partial funding of its research and development costs by third parties. Funding
under these contracts of $24 and $195 for 1995 and 1996, respectively, has been
recognized as an offset to research and development expense.
Net Loss Per Share
The Company was operated as a division of Grace until December 31, 1996.
Accordingly, historical net loss per common share is not considered meaningful
and has not been presented herein. As discussed in Note 14, prior to the
effective date of the registration statement relating to the Offering, the
Company will consummate a capital restructuring which will, among other things,
authorize the Class A Common Stock, the Class B Common Stock and shares of
undesignated preferred stock. The weighted average shares used in computing net
loss per share at December 31, 1996, reflect the retroactive effect of this
capital restructuring.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make reasonable estimates
and assumptions, based upon all known facts and circumstances, that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Actual results could
differ from those estimates.
F-7
<PAGE> 70
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interim Financial Statements
The interim financial statements at March 31, 1997 and for the three months
ended March 31, 1996 and 1997 are unaudited and include all adjustments
(consisting of normal recurring adjustments) that are, in the opinion of
management, necessary for the fair statement of the results for such interim
periods. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the entire year.
NOTE 4 -- PENSION PLAN
Grace maintains defined benefit pension plans covering employees of certain
units, including the Company, who meet age and service requirements. Benefits
are generally based on final average salary and years of service. Grace funds
its pension plans in accordance with federal laws and regulations. Plan assets
are invested primarily in common stocks and fixed income securities.
For purposes of these financial statements, all salaried and hourly
employees of the Company are considered to have participated in a multiemployer
pension plan, as defined in Statement of Financial Accounts Standards No. 87
("SFAS 87"), "Employer's Accounting for Pensions." For multiemployer plans,
employers are required to recognize as net pension expense total contributions
for the period. With respect to these plans, the Company recorded expense of
$25, $40 and $62 for 1994, 1995 and 1996, respectively. There were no
contributions due and unpaid at December 31, 1995 and 1996.
NOTE 5 -- OTHER POSTRETIREMENT BENEFIT COSTS
Grace provides certain postretirement health care and life insurance
benefits for retired employees, including eligible retired employees of the
Company. These retiree medical and life insurance plans provide various levels
of benefits to employees (depending on their dates of hire) who retire after age
55 with at least 10 years of service. The plans are currently unfunded.
Effective January 1, 1992, Grace adopted Statement of Financial Accounting
Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement
Benefits Other Than Pensions," on the immediate recognition basis, which
requires the accrual method of accounting for the future costs of postretirement
health care and life insurance benefits over the employees' years of service.
The "pay as you go" method of accounting, used prior to 1992, recognized these
costs on a cash basis. For the purposes of these financial statements, the
Company is considered to have participated in a multiemployer postretirement
benefit plan as defined in SFAS 106.
For multiemployer plans, employers are required to recognize as net
postretirement benefit costs the total contributions for the period. With
respect to these plans, the Company recorded expense of $15, $21, and $25, for
1994, 1995 and 1996, respectively. There were no contributions due and unpaid at
December 31, 1995 and 1996.
F-8
<PAGE> 71
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INCOME TAXES
The Company has incurred operating losses since inception. Additionally, at
least until such time as the Company achieves profitability, the realizability
of its deferred tax assets is questionable. As a result, the Statements of
Operations do not reflect an income tax provision or benefit associated with the
historical results of the Company.
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Capitalized research and development costs..................... $ 5,784 $ 6,625
Net operating loss carryforwards (1)........................... 14,417 17,419
-------- --------
20,201 24,044
Less: Valuation allowance (1).................................. (20,201) (24,044)
-------- --------
$ -- $ --
======== ========
</TABLE>
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate.................................... (34)% (34)% (34)%
Effects of change in valuation allowance (1)............... 34 % 34 % 34 %
--- --- ---
0 % 0 % 0 %
=== === ===
</TABLE>
- ---------------
(1) The Company's net operating losses have been used by Grace, as the Company
has been included in Grace's income tax returns. The net operating loss
carryforwards are shown solely for determining income taxes under the
separate taxpayer approach of SFAS 109 and will not be available to the
Company.
NOTE 7 -- PROPERTIES AND EQUIPMENT
Properties and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements................................. $ 57 $ 57 $ 75
Equipment.............................................. 1,383 1,659 1,659
Furniture and fixtures................................. 289 203 203
------ ------ -------
1,729 1,919 1,937
Less: Accumulated depreciation......................... (866) (965) (1,006)
------ ------ -------
Properties and equipment, net.......................... $ 863 $ 954 $ 931
====== ====== =======
</TABLE>
F-9
<PAGE> 72
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- PREPAID EXPENSES
Prepaid expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------- -----------
1995 1996 1997
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Research contracts.................................... $97 $109 $ --
Royalties............................................. -- 300 300
Offering costs........................................ -- -- 281
---- ---- ----
$97 $409 $ 581
==== ==== ====
</TABLE>
NOTE 9 -- ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
Accounts payable and other accrued liabilities are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1995 1996 1997
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable and accrued expenses............... $191 $ 424 $ 456
Accrued research contracts.......................... 144 374 427
BHT settlement liability............................ -- 450 450
Offering costs...................................... -- -- 281
---- ---- ----
Total..................................... $335 $1,248 $ 1,614
==== ==== ====
</TABLE>
NOTE 10 -- STOCKHOLDER'S EQUITY (DEFICIT) AND OWNER'S NET INVESTMENT
As discussed in Note 14, after giving retroactive effect to the Company's
capital restructuring, at March 31, 1997 the Company had 5,000,000 shares of
Preferred Stock, par value $.001 per share, authorized, no shares issued or
outstanding; 15,000,000 shares of Class A Common Stock, par value $.001 per
share, authorized, no shares issued or outstanding; and 5,000,000 shares of
Class B Common Stock, par value $.001 per share, authorized, 4,600,000 shares
issued and outstanding. Intercompany transactions and related charges and
credits, as well as operating losses funded by Grace through December 31, 1996,
have been recorded as part of the owner's net investment in the accompanying
balance sheets. No interest has been charged on the
F-10
<PAGE> 73
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- STOCKHOLDER'S EQUITY (DEFICIT) AND OWNER'S NET INVESTMENT (CONTINUED)
owner's net investment. The owner's net investment was contributed to the
Company's capital by Grace at December 31, 1996. A summary of changes in owner's
net investment and stockholder's equity (deficit) is as follows:
<TABLE>
<CAPTION>
OWNER'S NET COMMON ADDITIONAL ACCUMULATED
INVESTMENT STOCK PAID-IN CAPITAL DEFICIT
----------- ------ --------------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993..................... $ 411
Net loss....................................... (8,112)
Advances from Grace............................ 7,998
------- --- ------ -------
Balance at December 31, 1994..................... 297
Net loss....................................... (8,777)
Advances from Grace............................ 9,129
------- --- ------ -------
Balance at December 31, 1995..................... 649
Net loss....................................... (11,182)
Advances from Grace............................ 10,730
Contribution of owner's net investment......... (197) $ 5 $ 192
------- --- ------ -------
Balance at December 31, 1996..................... -- 5 192
Net loss....................................... -- -- -- $(2,951)
Advances from Grace............................ -- -- 2,729 --
------- --- ------ -------
Balance at March 31, 1997 (unaudited)............ $ -- $ 5 $ 2,921 $(2,951)
======= === ====== =======
</TABLE>
NOTE 11 -- RELATED PARTY TRANSACTIONS AND COSTS ALLOCATED BY GRACE
Cash
For all periods covered by the financial statements, the Company has used
Grace's centralized cash management services, under which disbursements are
funded centrally on demand. As a result, the Company carries no cash but records
charges to and credits against owner's net investment for cash used and
collected.
Corporate and Divisional Services
Grace provides the Company with certain services (including human
resources, accounting, data processing, patent and legal services) facilities,
equipment and supplies for which the Company is charged. Additionally, Grace
allocates a portion of its corporate expenses to the Company. These include
Grace's expenses for executive management and corporate overhead; postretirement
benefits and pensions; benefit administration; risk management/insurance
administration; tax and treasury/cash management services; litigation
administration services; and other support and executive functions.
Grace also charges the Company for its share of premiums and claims for
Grace's workers' compensation, employee life, medical and dental, and other
liability insurance. These charges are based upon a combination of experience
and payroll costs. Such allocations and charges are based on either actual costs
or allocations based on factors such as management time and headcount.
Management believes that the basis used for allocating Grace's costs and
expenses to the Company is reasonable. However, the amounts charged to the
Company may differ from those that would result from transactions among
unrelated parties.
F-11
<PAGE> 74
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE -- 12 LEASES
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
<S> <C>
1997................................................................ $ 655
1998................................................................ 659
1999................................................................ 581
2000................................................................ 248
Thereafter.......................................................... --
------
Total minimum lease payments.............................. $ 2,143
======
</TABLE>
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
Throughout the period covered by these financial statements, the Company
entered into various agreements with third parties to perform research and
development activities on behalf of the Company. These agreements provide for
royalty payments by the Company to these third parties, subject to certain
conditions, upon the commercialization and sale of the products as to which the
research was performed.
NOTE 14 -- SUBSEQUENT EVENTS
Offering
The Company intends to file a Registration Statement on Form S-1 with the
Securities and Exchange Commission in connection with the Offering. The net
proceeds of the Offering are expected to be used for research and development,
preclinical testing and clinical trials, working capital and general corporate
expenses, as well as the payments discussed in "Litigation Settlement" below.
Deferred costs associated with the Offering of $281 at March 31, 1997, which
represent legal and accounting costs, will be recorded as a reduction of
stockholders' equity if the Offering is consummated. If the Offering is not
consummated, the deferred costs will be charged to operations.
Capital Restructuring
In June 1997, the Company's Board of Directors approved a capital
restructuring which will change the Company's authorized capital stock to
5,000,000 shares of Preferred Stock, par value $.001 per share, and 20,000,000
shares of Common Stock, par value $.001 per share, consisting of 15,000,000
shares of Class A Common Stock and 5,000,000 shares of Class B Common Stock. As
part of this restructuring, the 1,000 shares of common stock, $1.00 par value
per share, currently outstanding will be reclassified into 4,600,000 shares of
Class B Common Stock. The anticipated consummation of the capital restructuring
has been given retroactive effect in the accompanying financial statements.
Stock Incentive Plans
In June 1997, the Board of Directors approved the 1997 Stock Incentive Plan
(the "Employee Stock Plan"), effective upon the consummation of the Offering.
Stock incentives under the Employee Stock Plan may be granted in the form of
stock options, stock awards or a combination of the two, for such consideration
and upon such other terms as the Compensation Committee of the Board of
Directors may determine from time to time.
F-12
<PAGE> 75
CIRCE BIOMEDICAL, INC.
(A WHOLLY OWNED DEVELOPMENT STAGE SUBSIDIARY OF W. R. GRACE & CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- SUBSEQUENT EVENTS (CONTINUED)
Effective upon the consummation of the Offering, certain management
personnel (the "Management Stockholders") will be granted an aggregate of
106,000 shares of Class A Common Stock (the "Management Stock Awards"). The
Management Stock Awards will vest in three equal annual installments beginning
one year following the consummation of the Offering, subject to restrictions on
transferability and forfeiture in the event employment with the Company
terminates prior to vesting or in the event that certain performance goals are
not satisfied. In addition, effective upon the consummation of the Offering,
options to purchase an aggregate of 239,000 shares and 286,000 shares of Class A
Common Stock will be granted under the Employee Stock Plan to the Management
Stockholders and other employees of the Company, respectively. These options
will vest in three equal annual installments beginning one year following the
consummation of the Offering. Options granted to the Management Stockholders
will have a purchase price per share equal to the lower of the price to be paid
by the public in the Offering and $11.00. The options granted to other employees
of the Company will have a purchase price per share equal to the lower of the
price to be paid by the public in the Offering and $10.00.
In June 1997, the Company's 1997 Outside Director and Consultant Stock
Option Plan (the "Outside Director Stock Plan") was also approved by the Board
of Directors, effective upon the consummation of the Offering. The Outside
Director Stock Plan provides for the grant of stock options to nonemployee
directors of, and consultants to, the Company and members of the Company's
Scientific Advisory Board ("SAB"). Effective upon the consummation of the
Offering, an option covering 5,000 shares will be granted to each SAB member
(35,000 total shares) and an option covering 8,000 shares will be granted to
each nonemployee director, other than employees of Grace (24,000 total shares).
Options will be granted at a purchase price equal to the lower of the price to
be paid by the public in the Offering and $11.00, and will become fully
exercisable one year following the consummation of the Offering. In accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," option grants to SAB members will be treated as
compensatory, and the value of these options (estimated at $5.30 for each share
subject to the options) will be recognized as expense over the related vesting
period.
Litigation Settlement
In June 1997, Grace and BioHybrid Technologies, Inc. ("BHT") entered into a
Settlement Agreement in order to, among other things, resolve issues arising out
of a series of agreements (the "BHT Agreements") relating to the development of
the PancreAssist System during the 1985-1993 period. The Settlement Agreement
provides that, upon the payment to BHT of a total of $500, the Company will have
the exclusive right to use and sublicense the technology developed by the
parties under the BHT Agreements (the "New Technology"), as well as certain
technology developed by BHT prior to 1985 (the "BHT Background Technology"), in
the field of perfusion devices (defined as hybrid artificial organs that have
tubular membranes through which blood or other body fluids flow, or that are
connected to the circulatory system). The Company's PancreAssist System, as
presently configured, is a perfusion device. Of the $500 total payment referred
to above, $50 was paid following the execution of the Settlement Agreement and
the balance, which includes $300 of prepaid royalties, is to be paid out of the
proceeds of the Offering (but no later than November 30, 1997). Both the Company
and BHT will have non-exclusive rights to use and sublicense the New Technology
in all fields other than perfusion devices, and to use and sublicense the BHT
Background Technology for hybrid artificial organs that are not perfusion
devices. BHT will have exclusive rights to use and sublicense the BHT Background
Technology for all fields other than hybrid artificial organs.
F-13
<PAGE> 76
============================================================
No dealer, salesperson or any other person has been authorized to give any
information or make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, Grace or the Underwriters. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date of this
Prospectus or that there has been no change in the affairs of the Company since
such date.
------------------------
Table of Contents
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 7
Use of Proceeds................................. 17
Dividend Policy................................. 17
Capitalization.................................. 18
Dilution........................................ 19
Selected Financial Data......................... 20
Pro Forma Statements of Operations.............. 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 22
Business........................................ 25
Relationship with Grace......................... 45
Management...................................... 48
Principal Stockholders.......................... 53
Description Of Capital Stock.................... 54
Shares Eligible For Future Sale................. 57
Underwriting.................................... 59
Legal Matters................................... 60
Experts......................................... 60
Additional Information.......................... 61
Index To Financial Statements................... F-1
</TABLE>
------------------------
Until , 1997 (25 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
============================================================
============================================================
2,500,000 SHARES
[CIRCE BIOMEDICAL LOGO]
CLASS A COMMON STOCK
------------------------------
PROSPECTUS
, 1997
------------------------------
UBS Securities
Montgomery Securities
============================================================
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's expenses in connection with
the issuance and distribution of the securities being registered. Except for the
SEC Registration Fee, the NASD Filing Fee and the Nasdaq National Market Listing
Fee, the amounts listed below are estimates:
<TABLE>
<S> <C>
SEC Registration Fee.................................................... $ 11,326
NASD Filing Fee......................................................... 4,238
Nasdaq National Market Listing Fee...................................... 19,375
Legal Fees and Expenses................................................. 300,000
Blue Sky Fees and Expenses.............................................. 15,000
Accounting Fees and Expenses............................................ 300,000
Printing and Engraving Expenses......................................... 150,000
Transfer Agent and Registrar Fees....................................... 20,000
Miscellaneous Expenses.................................................. 80,061
--------
TOTAL......................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of the State of Delaware and the Registrant's
Amended and Restated Certificate of Incorporation and Amended and Restated
By-Laws provide for indemnification of the Registrant's directors and officers
for liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. Reference is made to the Registrant's Form of Restated Certificate of
Incorporation and Form of Amended and Restated By-Laws filed as Exhibits 3.2 and
3.4 hereto, respectively.
In addition, the Underwriting Agreement, the form of which is filed as
Exhibit 1.1 hereto, contains provisions for indemnification by the Underwriters
of the Registrant and its officers, directors and controlling stockholders
against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Corporation has sold the following securities that were not registered under the
Securities Act:
On June 28, 1996, the Registrant sold 1,000 shares of its common stock, par
value $1.00 per share, to W. R. Grace & Co.-Conn. for an aggregate purchase
price of $1,000. As part of a capital restructuring, such 1,000 shares will be
reclassified into 4,600,000 shares of Class B Common Stock upon the filing of
the Restated Certificate of Incorporation. No other stock, either preferred or
common, has been issued during the three years preceding the date of this
Registration Statement. No person acted as an underwriter with respect to the
transaction referred to in this Item 15. In the foregoing instance, the
Registrant relied on Section 4(2) of the Securities Act for the exemption from
the registration requirements of the Securities Act, since no public offering
was involved.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------
<C> <C> <S>
*(1.1) -- Form of Underwriting Agreement
(3.1) -- Certificate of Incorporation of the Registrant
</TABLE>
II-1
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------
<C> <C> <S>
(3.2) -- Form of Restated Certificate of Incorporation of the Registrant, to be
effective prior to the consummation of this Offering
(3.3) -- By-laws of the Registrant
(3.4) -- Form of Amended and Restated By-laws of the Registrant, to be effective prior
to the consummation of this Offering
(4.1) -- Article Fourth of the Restated Certificate of Incorporation (see Exhibit 3.2)
*(4.2) -- Form of Class A Common Stock Certificate
*(5.1) -- Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with respect to
the legality of the securities being registered
(10.1) -- Form of 1997 Stock Incentive Plan
(10.2) -- Form of 1997 Outside Director and Consultant Stock Option Plan
(10.3) -- Transfer and Assumption Agreement, dated as of December 31, 1996, between the
Registrant and W. R. Grace & Co.--Conn.
*(10.4) -- Amendment No. 1, dated 1997, to the Transfer and Assumption Agreement
dated December 31, 1996, between the Registrant and W. R. Grace & Co.--Conn.
**(10.5) -- Lease Agreement, dated as of May 31, 1988, as amended, between W. R. Grace &
Co.--Conn. and Ledgemont Realty Trust
**(10.6) -- Lease Agreement, dated as of June 16, 1995, between W. R. Grace & Co.--Conn.
and Trustees of Tufts College
**+(10.7) -- Sponsored Research Agreement, dated as of December 1, 1992, between W. R. Grace
& Co.--Conn. and Rhode Island Hospital
**+(10.8) -- Research, Technology Development and License Agreement, dated as of August 1,
1994, between W. R. Grace & Co.--Conn. and Cedars--Sinai Medical Center
+(10.9) --- Settlement Agreement, Mutual Release and Restatement of Rights and Obligations,
dated as of June 12, 1997, among the Registrant, W. R. Grace & Co.--Conn.,
BioHybrid Technologies Limited Partnership, BioHybrid Technologies Incorporated
and BioHybrid Technologies Development Company
*(10.10) -- Form of Stockholder Agreement, dated 1997, between the Registrant and
W. R. Grace & Co.--Conn.
*(10.11) -- Form of Circe Biomedical Transitional Services Agreement, dated 1997,
between the Registrant and W. R. Grace & Co.--Conn.
*(10.12) -- Form of Tax Sharing and Indemnification Agreement, dated 1997,
between the Registrant and W. R. Grace & Co.--Conn.
*(10.13) -- Form of Employee Benefits Agreement, dated 1997, between the
Registrant and W. R. Grace & Co.--Conn.
*(10.14) -- Form of Insurance Procedures Agreement, dated 1997, between the
Registrant and W. R. Grace & Co.--Conn.
(10.15) -- Employment Agreement and Response Letter, dated November 6, 1996 and November
8, 1996, respectively, between Laszlo J. Eger and W. R. Grace & Co.--Conn.
(10.16) -- Employment Letters, dated December 20, 1996 and January 3, 1997, from the
Registrant to David A. Butler
*(11.1) -- Statement Regarding Computation of Per Share Earnings
(21.1) -- Subsidiaries of the Registrant
(23.1) -- Consent of Price Waterhouse LLP
*(23.2) -- Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see Exhibit 5)
(23.3) -- Consent of Fish & Richardson P.C.
(23.4) -- Consent of Timothy J. Barberich, director nominee
</TABLE>
II-2
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------
<C> <C> <S>
(23.5) -- Consent of James J. Mauzey, director nominee
#(24.1) -- Power of Attorney
(27.1) -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Assigned by W. R. Grace & Co.--Conn. to the Registrant, pursuant to the
Transfer and Assumption Agreement listed as Exhibit (10.3).
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
# As filed in Part II of this Registration Statement.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(3) That for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding), is asserted by
such director, officer or controlling person of the Registrant in connection
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Town of Lexington, Commonwealth of
Massachusetts, on June 20, 1997.
CIRCE BIOMEDICAL, INC.
BY: /s/ LASZLO J. EGER
------------------------------------
LASZLO J. EGER, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Each person whose signature appears below constitutes and appoints Laszlo
J. Eger, Barry A. Solomon, Ph.D., David A. Butler and Robert B. Lamm, and each
of them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them for him and in his name, place and stead, and in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement (or any other Registration Statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- --------------------------------- ------------------
<S> <C> <C>
/s/ LASZLO J. EGER President and Chief Executive June 20, 1997
- ------------------------------------- Officer and Director (principal
Laszlo J. Eger executive officer)
/s/ DAVID A. BUTLER Vice President, Finance June 20, 1997
- ------------------------------------- (principal financial and
David A. Butler accounting officer)
/s/ LARRY ELLBERGER Director June 20, 1997
- -------------------------------------
Larry Ellberger
/s/ MARTIN B. SHERWIN Director June 20, 1997
- -------------------------------------
Martin B. Sherwin
</TABLE>
II-4
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------- ------------
<C> <C> <S> <C>
*(1.1) -- Form of Underwriting Agreement.......................................
(3.1) -- Certificate of Incorporation of the Registrant.......................
Form of Restated Certificate of Incorporation of the Registrant, to
(3.2) -- be effective prior to the consummation of this Offering..............
(3.3) -- By-laws of the Registrant............................................
Form of Amended and Restated By-laws of the Registrant, to be
(3.4) -- effective prior to the consummation of this Offering.................
Article Fourth of the Restated Certificate of Incorporation (see
(4.1) -- Exhibit 3.2).........................................................
*(4.2) -- Form of Class A Common Stock Certificate.............................
Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
*(5.1) -- respect to the legality of the securities being registered...........
(10.1) -- Form of 1997 Stock Incentive Plan....................................
(10.2) -- Form of 1997 Outside Director and Consultant Stock Option Plan.......
Transfer and Assumption Agreement, dated as of December 31, 1996,
(10.3) -- between the Registrant and W. R. Grace & Co.--Conn. .................
Amendment No. 1, dated 1997, to the Transfer and Assumption
Agreement dated December 31, 1996, between the Registrant and W. R.
*(10.4) -- Grace & Co.--Conn. ..................................................
Lease Agreement, dated as of May 31, 1988, as amended, between W. R.
**(10.5) -- Grace & Co.--Conn. and Ledgemont Realty Trust........................
Lease Agreement, dated as of June 16, 1995, between W. R. Grace &
**(10.6) -- Co.--Conn. and Trustees of Tufts College.............................
Sponsored Research Agreement, dated as of December 1, 1992, between
**+(10.7) -- W. R. Grace & Co.--Conn. and Rhode Island Hospital...................
Research, Technology Development and License Agreement, dated as of
August 1, 1994, between W. R. Grace & Co.--Conn. and Cedars--Sinai
**+(10.8) -- Medical Center.......................................................
Settlement Agreement, Mutual Release and Restatement of Rights and
Obligations, dated as of June 12, 1997, among the Registrant, W. R.
Grace & Co.--Conn., BioHybrid Technologies Limited Partnership,
BioHybrid Technologies Incorporated and BioHybrid Technologies
+(10.9) Development Company..................................................
---
Form of Stockholder Agreement, dated 1997, between the
*(10.10) -- Registrant and W. R. Grace & Co.--Conn. .............................
Form of Circe Biomedical Transitional Services Agreement, dated
1997, between the Registrant and W. R. Grace &
*(10.11) -- Co.--Conn. ..........................................................
Form of Tax Sharing and Indemnification Agreement, dated
1997, between the Registrant and W. R. Grace &
*(10.12) -- Co.--Conn. ..........................................................
Form of Employee Benefits Agreement, dated 1997, between
*(10.13) -- the Registrant and W. R. Grace & Co.--Conn. .........................
Form of Insurance Procedures Agreement, dated 1997, between
*(10.14) -- the Registrant and W. R. Grace & Co.--Conn. .........................
Employment Agreement and Response Letter, dated November 6, 1996 and
November 8, 1996, respectively, between Laszlo J. Eger and W. R.
(10.15) -- Grace & Co.--Conn. ..................................................
Employment Letters, dated December 20, 1996 and January 3, 1997, from
(10.16) -- the Registrant to David A. Butler....................................
*(11.1) -- Statement Regarding Computation of Per Share Earnings................
(21.1) -- Subsidiaries of the Registrant.......................................
(23.1) -- Consent of Price Waterhouse LLP......................................
Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
*(23.2) -- Exhibit 5)...........................................................
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------- ------------
<C> <C> <S> <C>
(23.3) -- Consent of Fish & Richardson P.C. ...................................
(23.4) -- Consent of Timothy J. Barberich, director nominee....................
(23.5) -- Consent of James J. Mauzey, director nominee.........................
#(24.1) -- Power of Attorney....................................................
(27.1) -- Financial Data Schedule..............................................
</TABLE>
- ---------------
* To be filed by amendment.
** Assigned by W. R. Grace & Co.--Conn. to the Registrant, pursuant to the
Transfer and Assumption Agreement listed as Exhibit (10.3).
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
# As filed in Part II of this Registration Statement.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
CIRCE BIOMEDICAL, INC.
Incorporated in State of Delaware
Filed: June 28, 1996
<PAGE> 2
State of Delaware
OFFICE OF THE SECRETARY OF STATE
-----------------------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "CIRCE BIOMEDICAL, INC.", FILED IN THIS OFFICE ON THE
TWENTY-EIGHTH DAY OF JUNE, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[Great seal of the state of Delaware]
[Seal] /s/ Edward J. FREEL
---------------------------------
Edward J. Freel, Secretary of State
2635812 8100 AUTHENTICATION: 8014948
960191660 DATE:07-05-96
<PAGE> 3
CERTIFICATE OF INCORPORATION
OF
CIRCE BIOMEDICAL, INC.
FIRST: The name of the Corporation is Circe Biomedical, Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805-1297, County of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have the authority to issue is One Thousand (1,000) shares of Common Stock of
the par value of One Dollar ($1.00) per share.
FIFTH: The name and mailing address of the incorporator is as follows:
Name Address
Norma Leardi W.R. Grace & Co.-Conn.
One Town Center Road
Boca Raton, FL 33486-1010
<PAGE> 4
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The affirmative vote, at a meeting of stockholders duly held and
at which a quorum is present, of a majority of the voting power of the shares
represented at such meeting and entitled to vote shall be required for the
election of directors. Elections need not be by written ballot.
EIGHTH: In furtherance, and not in limitation, of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter, amend or repeal the By-Laws of the Corporation.
NINTH: The Corporation reserves the right to amend, alter or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by statute, and all rights of stockholders herein are
granted subject to this reservation.
TENTH: Except as otherwise provided by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this Article shall be prospective only, and shall
not affect any limitation on the personal liability of a director of the
Corporation existing prior to the time of such repeal or modification.
- 2 -
<PAGE> 5
IN WITNESS WHEREOF, I, THE UNDERSIGNED, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this Certificate, hereby
declaring and certifying that this is my act and deed and the facts herein
stated are true and accordingly I have hereunto set my hand this 26th day of
June, 1996.
/S/ Norma Leardi
-----------------------------
Norma Leardi,
Incorporator
- 3 -
<PAGE> 1
EXHIBIT 3.2
DRAFT
-----
FORM OF
RESTATED
CERTIFICATE OF INCORPORATION
OF
CIRCE BIOMEDICAL, INC.
Adopted in accordance with the
provisions of Sections 242 and 245
of the General Corporation Law of the State of Delaware
Circe Biomedical, Inc., a Delaware corporation, hereby certifies as
follows:
1. The name of the corporation is Circe Biomedical, Inc. The date of
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was June 28, 1996.
2. This Restated Certificate of Incorporation amends and restates the
provisions of the Certificate of Incorporation of said corporation and was duly
adopted pursuant to resolutions adopted by the Board of Directors and
Stockholders of the Corporation in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware (the
"Delaware General Corporation Law").
3. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
FIRST: The name of the corporation is Circe Biomedical, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New
Castle; and the name of the registered agent of the Corporation in the
State of Delaware is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity or carry on any business for which corporations may be organized
under the Delaware General Corporation Law or any successor statue.
FOURTH:
A. Designation and Number of Shares.
The total number of shares of all classes of stock which the Corporation
shall have the authority to issue is 25,000,000 shares, consisting of 15,000,000
shares of Class A Common Stock, par value $.001 per share (the "Class A Common
Stock"), 5,000,000 shares of Class B Common Stock, par value $.001 per share
(the "Class B Common Stock"), and 5,000,000 shares of Preferred Stock, par value
$.001 per share (the "Preferred Stock"). The Class A Common Stock and the Class
B Common Stock are sometimes collectively referred to herein as the "Common
Stock."
<PAGE> 2
Each share of common stock, par value $1.00 per share, of the Corporation
issued and outstanding at the time and date that this Restated Certificate of
Incorporation becomes effective (the "Effective Time") is hereby reclassified
and changed, without any action on the part of the holders of any such common
stock or on the part of the Corporation, into 4,600 shares of fully paid and
nonassessable Class B Common Stock, and each person holding of record any shares
of such common stock issued and outstanding at the Effective Time shall be
entitled to receive, upon the surrender of certificates evidencing such shares
to the Corporation, one or more certificates to evidence the number of shares of
Class B Common Stock into which such shares of common stock have been
reclassified.
A statement of the designations of the different classes of stock of the
Corporation and of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, and of the authority conferred upon the
Board of Directors to fix by resolution or resolutions any of the foregoing in
connection with the creation of one or more series of Preferred Stock and the
limitation of variations between or among such series, is set forth below in
this Article FOURTH.
B. Preferred Stock.
1. Shares of Preferred Stock may be issued in one or more series at
such time or times and for such consideration as the Board of Directors may
determine. All shares of any one series shall be of equal rank and identical in
all respects.
2. Authority is hereby expressly granted to the Board of Directors
to fix from time to time, by resolution or resolutions providing for the
establishment and/or issuance of any series of Preferred Stock, the designation
of such series and the powers, preferences and rights of the shares of such
series, and the qualifications, limitations or restrictions thereof, including,
without limitation, the following:
(a) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not
below the number of shares then outstanding) from time to time by action
of the Board of Directors;
(b) The rate of dividends, if any, on the shares of that series,
whether dividends shall be (i) non-cumulative, (ii) cumulative to the
extent earned or (iii) cumulative (and, if cumulative, from which date or
dates), whether dividends shall be payable in cash, property or rights, or
in shares of the Corporation's capital stock, and the relative rights of
priority, if any, of payment of dividends on shares of that series over
shares of any other series or class;
(c) Whether the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption (which amount may vary under different
conditions and at different redemption dates) or the property or rights,
including securities of any other corporation, payable in case of
redemption;
(d) Whether the series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and amounts
payable into such sinking fund;
2
<PAGE> 3
(e) The rights to which the holders of the shares of that series
shall be entitled in the event of the voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series
in any such event;
(f) Whether the shares of that series shall be convertible into or
exchangeable for shares of stock of any other class or any other series
and, if so, the terms and conditions of such conversion or exchange,
including the rate or rates of conversion or exchange, the date or dates
upon or after which they shall be convertible or exchangeable, the period
or periods during which they shall be convertible or exchangeable, the
event or events upon or after which they shall be convertible or
exchangeable or at whose option they shall be convertible or exchangeable,
and the method (if any) of adjusting the rates of conversion or exchange
in the event of a stock split, stock dividend, combination of shares or
similar event;
(g) Whether the issuance of any additional shares of such series, or
of any shares of any other series, shall be subject to restrictions as to
issuance, or as to the powers, preferences or rights of any such
additional shares of such series or shares of such other series;
(h) Whether or not the shares of that series shall have voting
rights, the extent of such voting rights on specified matters or on all
matters, the number of votes to which the holder of a share of such series
shall be entitled in respect of such share, whether such series shall vote
generally with the Common Stock on all matters or (either generally or
upon the occurrence of specified circumstances) shall vote separately as a
class or with other series of Preferred Stock; and
(i) Any other preferences, privileges and powers and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions of such series, as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of
this Restated Certificate of Incorporation and to the full extent now or
hereafter permitted by the Delaware General Corporation Law.
C. Common Stock.
The Class A Common Stock and Class B Common Stock shall be identical in
all respects and shall have equal rights and privileges, except as otherwise
expressly provided herein. The relative powers, preferences, rights,
qualifications, limitations and restrictions of the shares of each of the
classes of Common Stock are as follows:
1. Dividends. The holders of record of Class A Common Stock and
Class B Common Stock shall be entitled to receive, when, if and as declared by
the Board of Directors, such dividends of cash, property or stock of the
Corporation as the Board of Directors shall from time to time declare, subject
to the following rights and restrictions and the rights and restrictions set
forth in paragraph (C)(2) of this Article FOURTH:
(a) No cash dividends shall be declared and paid on the Class A
Common Stock unless at the same time an equal cash dividend is declared
and paid, per share, on the Class B Common Stock. No cash dividends shall
be declared and paid on the Class B Common Stock unless at the same time
an equal cash dividend is declared and paid, per share, on the Class A
Common Stock.
3
<PAGE> 4
(b) No dividend of property (including capital stock of the
Corporation) shall be declared and paid on the Class A Common Stock unless
a dividend of an equal amount of the same property has also been declared
and paid, per share, on the Class B Common Stock. No dividend of property
(including capital stock of the Corporation) shall be declared and paid on
the Class B Common Stock unless a dividend of an equal amount of the same
property has also been declared and paid, per share, on the Class A Common
Stock.
2. Stock Subdivisions and Combinations. The Corporation shall not
subdivide or combine shares of any class of Common Stock by stock split, stock
dividend, reclassification, reorganization or otherwise without at the same time
making a proportionate subdivision or combination of the other class of Common
Stock.
3. Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the Corporation
and the amounts to which the holders of any Preferred Stock shall be entitled,
the holders of Class A Common Stock and Class B Common Stock shall be entitled
(together as one class) to share ratably in the remaining assets of the
Corporation.
4. Voting. Holders of Class A Common Stock and Class B Common Stock
shall in all matters not otherwise specified in this Article FOURTH vote
together as a single class; provided that, with respect to all such matters, the
holders of Class A Common Stock shall have one vote per share and the holders of
Class B Common Stock shall have 0.37 of a vote per share. Notwithstanding
anything in this paragraph (C)(4) of this Article FOURTH to the contrary, and
subject to any rights of the holders of shares of Preferred Stock, the holders
of Class A Common Stock shall have exclusive voting power on all matters at any
time when no Class B Common Stock is issued and outstanding, and the holders of
Class B Common Stock shall have exclusive voting power on all matters at any
time when no Class A Common Stock is issued and outstanding. So long as any
shares of Class A Common Stock and Class B Common Stock are issued and
outstanding, voting power shall be divided between such classes as follows:
(a) If, on the record date for the stockholders meeting at which
directors are to be elected or the record date for any written consent of
the holders of Class B Common Stock pursuant to which directors are
elected, the number of issued and outstanding shares of Class B Common
Stock is greater than or equal to thirty percent (30%) of the Total Common
Shares and Preferred Votes (as defined below), then, with respect to the
election of directors, holders of the Class B Common Stock voting as a
separate class shall be entitled to elect that number of directors which
equals forty percent (40%) of the number of directors constituting the
Whole Board (as defined below), excluding any directors elected
exclusively by the holders of one or more series of shares of Preferred
Stock voting as a separate class or classes. As used herein, "Total Common
Shares and Preferred Votes" means the sum of (i) the number of issued and
outstanding shares of Class A Common Stock, plus (ii) the number of issued
and outstanding shares of Class B Common Stock, plus (iii) the number of
votes authorized to be cast, on issues other than the election of
directors, by the holders of all outstanding shares of Preferred Stock,
or, if greater, the number of such votes such holders would be authorized
to cast after exercising any rights to convert such outstanding shares of
Preferred Stock into any other securities of the Corporation. As used
herein, "Whole Board" means the total number of authorized directors,
whether or not there exist any vacancies in previously authorized
directorships. If, on the record date for the stockholders meeting at
which directors are to be elected or the record date for any written
consent of the holders of Class B Common Stock
4
<PAGE> 5
pursuant to which directors are elected, the number of issued and
outstanding shares of Class B Common Stock is less than thirty percent
(30%), but is greater than or equal to fifteen percent (15%) of the Total
Common Shares and Preferred Votes, then, with respect to the election of
directors, holders of the Class B Common Stock voting as a separate class
shall be entitled to elect that number of directors which equals twenty
percent (20%) of the number of directors constituting the Whole Board,
excluding any directors elected exclusively by the holders of one or more
series of shares of Preferred Stock voting as a separate class or classes.
If the number of directors to be elected by the Class B Common Stock
voting as a separate class pursuant to this paragraph (C)(4)(a) of this
Article FOURTH is not a whole number, and any resulting fractional amount
is less than one-half, then the holders of Class B Common Stock voting as
a separate class shall be entitled to elect the next lower whole number of
directors that is closest to such percentage. If the number of directors
to be elected by the Class B Common Stock voting as a separate class
pursuant to this paragraph (C)(4)(a) of this Article FOURTH is not a whole
number, and any resulting fractional amount is equal to or greater than
one-half, then the holders of Class B Common Stock voting as a separate
class shall be entitled to elect the next higher whole number of directors
that is closest to such percentage, except that in no event shall the
number of directors elected by the holders of the Class B Common Stock
equal or exceed fifty percent (50%) of the Whole Board. Each director whom
the holders of shares of Class B Common Stock are entitled to elect shall
serve for a term ending on the date of the next annual meeting following
such director's election, and shall have the same powers as every other
director of the Corporation. Holders of Class A Common Stock voting as a
separate class shall be entitled to elect the remaining directors, subject
to any rights of the holders of shares of Preferred Stock to elect one or
more of such remaining directors or to vote as a single class with the
holders of Class A Common Stock in the election of all such remaining
directors; provided that, if at any time there are outstanding any shares
of Preferred Stock of any series that are authorized to vote generally for
the election of directors, holders of shares of such series shall, in all
such general elections, vote as a single class with the holders of Class A
Common Stock and not with the holders of Class B Common Stock, and any
reference to voting by the holders of Class A Common Stock in the election
or removal of directors in this Article FOURTH shall be deemed to include
voting by the holders of shares of such series with the holders of Class A
Common Stock as a single class. Directors elected by the holders of Class
A Common Stock voting as a separate class, and directors elected by one or
more other directors or by the holders of Class A Common Stock pursuant to
paragraph (C)(4)(c) of this Article FOURTH to fill vacancies created by
the death, resignation or removal of such directors, shall be designated
as "Class A Directors." Directors elected by the holders of Class B Common
Stock voting as a separate class, and directors elected by one or more
other directors or by the holders of Class B Common Stock pursuant to
paragraph (C)(4)(c) of this Article FOURTH to fill vacancies created by
the death, resignation or removal of such directors, shall be designated
as "Class B Directors."
(b) A Class A Director may be removed from office only for cause by
the affirmative vote of the holders of a majority of the voting power of
all of the outstanding shares of Class A Common Stock voting as a separate
class, in addition to any vote of the stockholders required by law. A
Class B Director may be removed from office without cause by the
affirmative vote of the holders of a majority of the voting power of all
of the outstanding shares of Class B Common Stock voting as a separate
class; provided that, if, on the record date for the stockholders meeting
at which any Class B Director may be removed or on the record date for any
written consent of the holders of Class B Common Stock pursuant to which
any Class B Director may be removed, the Class B Common Stock has been
converted pursuant to
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paragraph (C)(5)(b) of this Article FOURTH, then such Class B Director may
be removed from office only for cause by the affirmative vote of the
holders of a majority of the voting power of all of the outstanding shares
of Class A Common Stock. A director may be removed for cause only after a
reasonable notice and opportunity to be heard before the stockholders
proposing to remove such director.
(c) Any vacancy in the office of a Class A Director may be filled
only by the vote of a majority of the Class A Directors (or by the sole
remaining Class A Director), regardless of any quorum requirements set out
in the By-Laws, or if no Class A Directors remain in office, by the vote
of the holders of a majority of the shares of Class A Common Stock. Any
vacancy in the office of a Class B Director may be filled only by the vote
of a majority of the Class B Directors (or by the sole remaining Class B
Director), regardless of any quorum requirements set out in the By-Laws,
or in the event that there are no remaining Class B Directors, by the vote
of the holders of a majority of the shares of Class B Common Stock. Any
director elected to fill a vacancy shall serve the same remaining term as
that of his or her predecessor and until his or her successor has been
duly elected and qualified. The Board of Directors may increase the number
of directors and any vacancy so created shall be filled by the Board of
Directors as provided in the first two sentences of this paragraph;
provided that, if, at the time of the vote to so increase the number of
directors, the holders of Class B Common Stock have the rights provided in
paragraph (C)(4)(a) of this Article FOURTH to elect Class B Directors,
then the Board of Directors shall be so enlarged by the Board of Directors
so that forty percent (40%) or twenty percent (20%), determined in
accordance with paragraph (C)(4)(a) of this Article FOURTH, of the
enlarged Board of Directors consists of Class B Directors.
(d) The holders of shares of Class A Common Stock shall not be
entitled to vote as a separate class upon any proposed amendment of this
Restated Certificate of Incorporation which would increase or decrease the
aggregate number of authorized shares of Class A Common Stock; such
amendment may be adopted only by the affirmative vote of the holders of
stock of the Corporation representing a majority of the total number of
votes eligible to be cast regarding such proposed amendment, irrespective
of paragraph (b)(2) of Section 242 of the Delaware General Corporation Law
or of any other provision of law; provided that no such amendment may
decrease the authorized shares of Class A Common Stock below the number of
shares thereof then outstanding.
5. Conversion.
(a) Optional Conversion of Class B Common Stock. If at any time the
number of issued and outstanding shares of Class B Common Stock shall be
less than fifty percent (50%) of the Total Common Shares and Preferred
Votes, then each holder of record of Class B Common Stock may at any time
or from time to time, in such holder's sole discretion and at such
holder's option, convert any whole number or all of such holder's shares
of Class B Common Stock into Class A Common Stock at the rate of one share
of Class A Common Stock for each share of Class B Common Stock surrendered
for conversion; provided that no such conversion may be effected that
would result, either immediately or with the lapse of time, in the holders
of Class B Common Stock owning, in the aggregate, capital stock having
more than 50% of the voting power of all of the Corporation's capital
stock. Any such conversion may be effected by any holder of Class B Common
Stock by the surrender of such holder's certificate or certificates for
Class B Common Stock to be converted, duly endorsed, at the office of the
Corporation or any transfer agent for the Class B Common Stock, together
with a
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<PAGE> 7
written notice to the Corporation at such office that such holder elects
to convert all or a specified number of shares of Class B Common Stock and
stating the name or names in which such holder desires the certificate or
certificates for such Class A Common Stock to be issued. Promptly
thereafter, the Corporation shall issue and deliver to such holder, or
such holder's designee or designees, a certificate or certificates for the
number of shares of Class A Common Stock to which such holder shall be
entitled. Such conversion shall be deemed to have been made at the close
of business on the date of such surrender and the person or persons
entitled to receive the Class A Common Stock issuable on such conversion
shall be treated for all purposes as the record holder or holders of such
Class A Common Stock at such time.
(b) Automatic Conversion of Class B Common Stock. If at any time the
number of issued and outstanding shares of Class B Common Stock shall be
less than fifteen percent (15%) of the Total Common Shares and Preferred
Votes, then each share of Class B Common Stock shall automatically be
converted, without any other action on the part of the holders of any such
stock or on the part of the Corporation, into one share of Class A Common
Stock, whether or not the certificate or certificates representing such
shares are surrendered to the Corporation or the transfer agent for the
Class B Common Stock; provided that the Corporation shall not be obligated
to issue a certificate or certificates evidencing the shares of Class A
Common Stock into which such shares of Class B Common Stock are converted
unless the certificate or certificates representing such shares of Class B
Common Stock so converted are either delivered to the Corporation or the
transfer agent for the Class B Common Stock, or the holder notifies the
Corporation or such transfer agent that such certificate or certificates
have been lost, stolen, or destroyed and executes and delivers an
agreement satisfactory to the Corporation to indemnify the Corporation
from any loss incurred by it in connection therewith. Upon the automatic
conversion of Class B Common Stock, each holder of Class B Common Stock
shall surrender the certificate or certificates formerly representing such
holder's shares of Class B Common Stock at the office of the Corporation
or of the transfer agent for the Class B Common Stock. Thereupon, there
shall be issued and delivered to such holder, promptly at such office and
in such holder's name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of
Class A Common Stock into which the surrendered shares of Class B Common
Stock have been converted.
(c) Reserved Shares. The Corporation shall reserve and keep
available out of its authorized but unissued Class A Common Stock such
number of shares of Class A Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B
Common Stock.
6. Transfers of Class B Common Stock.
(a) Except as provided in paragraph 6(b), upon the transfer of
beneficial ownership of any shares of Class B Common Stock, such shares
shall automatically, with no further action being required by any party to
such transfer or otherwise, be converted into shares of Class A Common
Stock at the rate of one share of Class A Common Stock for each share of
Class B Common Stock.
(b) The provisions of paragraph 6(a) shall not apply, and Class B
Common Stock shall be issued to a transferee of Class B Common Stock upon
the transfer of beneficial ownership of any shares thereof, if such
transfer is made to W. R. Grace & Co., a
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<PAGE> 8
Delaware corporation ("Grace"), or to a wholly owned subsidiary thereof (a
"qualifying transfer"); provided that if such transfer is made to a wholly
owned subsidiary of Grace and such wholly owned subsidiary ceases to be a
wholly owned subsidiary of Grace, then such shares shall automatically,
with no further action being required by any party, be converted into
shares of Class A Common Stock at the rate of one share of Class A Common
Stock for each share of Class B Common Stock. Upon any qualifying
transfer, the transferor shall provide written certification to the
transfer agent for the Common Stock of such facts which constitute such
transfer as a "qualifying transfer" and, absent prima facie evidence that
such certification is false, the Corporation or any transfer agent shall
accept such certification as being correct and shall not be required to
conduct any investigation with respect thereto.
7. Classified Board.
(a) On or prior to the Effective Time, the Board of Directors of the
Corporation shall, effective upon the occurrence of the Effective Time,
divide the general directors (as defined below) into three classes, as
nearly equal in number as reasonably possible, with the term of office of
the first class to expire at the 1998 annual meeting of stockholders or
any special meeting in lieu thereof, the term of office of the second
class to expire at the 1999 annual meeting of stockholders or any special
meeting in lieu thereof, and the term of office of the third class to
expire at the 2000 annual meeting of stockholders or any special meeting
in lieu thereof. As used herein, "general directors" means (a) Class A
Directors and (b) directors elected by the holders of shares of any series
of Preferred Stock, whether voting as a single class or with the holders
of shares of Class A Common Stock. At each annual meeting of stockholders
or special meeting in lieu thereof, general directors elected to succeed
those general directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders or
special meeting in lieu thereof after their election and until their
successors are duly elected and qualified.
(b) In the event of any increase or decrease in the Whole Board, (i)
each director then serving as such shall nevertheless continue as a
director of the class of which he is a member until the expiration of his
current term or his prior death, retirement, removal or resignation, (ii)
the newly created or eliminated directorships resulting from such increase
or decrease shall be allocated in accordance with paragraph (C)(4)(a) of
this Article FOURTH, and (iii) the newly created or eliminated
directorships resulting from such increase or decrease that are to be
filled with general directors shall, if reasonably possible, be
apportioned by the general directors among the three classes of general
directors so as to ensure that no class has more than one general director
more than any other class. To the extent reasonably possible, consistent
with the preceding sentence, any newly created directorships that are to
be filled with general directors shall be added to those classes whose
terms of office are to expire at the latest dates following such
allocation and newly eliminated directorships that are allocated to
general directors shall be subtracted from those classes whose terms of
office are to expire at the earliest dates following such allocation,
unless otherwise provided for from time to time by resolution adopted by a
majority of the general directors then in office, although less than a
quorum.
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FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Restated
Certificate of Incorporation or the By-Laws of the Corporation as in effect from
time to time, the directors are hereby empowered to exercise all such powers and
do all such acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the By-Laws so provide.
C. Any action required or permitted to be taken by the stockholders of the
Corporation may be effected only at a duly called annual or special meeting of
stockholders of the Corporation and not by written consent. Notwithstanding the
foregoing, if the holders of Class B Common Stock are entitled to vote as a
separate class on any action, then the holders of Class B Common Stock may act
by written consent.
SIXTH: A. Subject to the rights of (i) holders of Class B Common Stock to
elect Class B Directors as provided in paragraph (C)(4)(a) of this Article
FOURTH and (ii) holders of shares of any series of Preferred Stock then
outstanding to elect additional directors under specified circumstances, the
number of directors shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the Board of
Directors, but shall not be less than five directors.
B. Advance notice of stockholder nominations by any holder of Class A
Common Stock for the election of directors and of business to be brought by
stockholders before any meeting of the stockholders of the Corporation shall be
given in the manner provided in the By-Laws of the Corporation.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal By-Laws of the Corporation. Any adoption, amendment or repeal of the
By-Laws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board; provided that, in addition to the approval of
a majority of the Whole Board, (i) if the number of issued and outstanding
shares of Class B Common Stock is greater than fifty percent (50%) of the Total
Common Shares and Preferred Votes, the approval of a majority of the Class B
Directors shall also be required to amend or repeal Section 8(B) of Article II
or Article IX of the By-Laws of the Corporation and (ii) if the number of issued
and outstanding shares of Class B Common Stock is equal to or greater than
fifteen percent (15%) of the Total Common Shares and Preferred Votes, the
approval of a majority of the Class B Directors shall be required to amend or
repeal Section 7(C)(4) of Article I of the By-Laws of the Corporation. The
stockholders shall also have power to adopt, amend or repeal the By-Laws of the
Corporation; provided that, in addition to any vote of the holders of any class
or series of stock of the Corporation required by law or by this Restated
Certificate of Incorporation (i) the affirmative vote of the holders of stock of
the Corporation representing a majority of the total number of votes eligible to
be cast, voting together as a single class, shall be required for the
stockholders to adopt, amend or repeal any provision of the By-Laws of the
Corporation, (ii) if, on the record date for the stockholders meeting at which
the By-Laws of the Corporation are to be amended or repealed, or on the record
date for any written consent of the holders of Class B Common Stock pursuant to
which the By-Laws of the Corporation are to be amended or repealed, the number
of issued and outstanding
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<PAGE> 10
shares of Class B Common Stock is greater than fifty percent (50%) of the Total
Common Shares and Preferred Votes, then the affirmative vote of the holders of a
majority of the then outstanding shares of Class B Common Stock, voting together
as a single class, shall also be required for the stockholders to amend or
repeal Section 8(B) of Article II or Article IX of the By-Laws of the
Corporation, and (iii) if, on the record date for the stockholders meeting at
which the By-Laws of the Corporation are to be amended or repealed, or on the
record date for any written consent of the holders of Class B Common Stock
pursuant to which the By-Laws of the Corporation are to be amended or repealed,
the number of issued and outstanding shares of Class B Common Stock is equal to
or greater than fifteen percent (15%) of the Total Common Shares and Preferred
Votes, then the affirmative vote of the holders of a majority of the Class B
Common Stock outstanding, voting together as a single class, shall be required
for the stockholders to amend or repeal section 7(c)(4) of Article I of the
By-Laws of the Corporation.
EIGHTH: A. To the fullest extent permitted by the Delaware General
Corporation Law as the same now exists or may hereafter be amended, the
Corporation shall indemnify, and advance expenses to, its directors, officers
and trustees and any person who is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise, if
such person was or is made a party to or is threatened to be made a party to or
is otherwise involved (including, without limitation, as a witness) in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer or trustee of the Corporation or is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan; provided that except
with respect to proceedings to enforce rights to indemnification or as is
otherwise required by law, the By-Laws of the Corporation may provide that the
Corporation shall not be required to indemnify, and advance expenses to, any
director, officer, trustee, or other person in connection with a proceeding (or
part thereof) initiated by such director, officer, trustee, or other person,
unless such proceeding (or part thereof) was authorized by the Board of
Directors. The Corporation, by action of its Board of Directors, may provide
indemnification or advance expenses to employees, members of its Scientific
Advisory Board, other agents of the Corporation or other persons only on such
terms and conditions and to the extent determined by the Board of Directors in
its sole and absolute discretion.
B. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article EIGHTH shall not be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding such office.
C. The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, trustee, member of
its Scientific Advisory Board, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, or of a partnership, joint venture, trust or
other enterprise, against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power to indemnify
such person against such liability under this Article EIGHTH.
D. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article EIGHTH shall, unless otherwise specified when
authorized or ratified, continue as to a person who has ceased to be a director,
officer or trustee and shall inure to the benefit of the heirs, executors and
administrators of such director, officer or trustee. The indemnification and
rights to advancement of expenses that may have been provided to an employee,
member of the Scientific Advisory Board or agent of the Corporation by action of
the Board of Directors, pursuant to the last sentence of paragraph 1 of this
Article EIGHTH, shall, unless otherwise specified when authorized or ratified,
continue as to a person who has ceased to be an employee, Scientific Advisory
Board member or agent of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such
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person, after the time such person has ceased to be an employee, Scientific
Advisory Board member or agent of the Corporation, only on such terms and
conditions and to the extent determined by the Board of Directors in its sole
discretion. No repeal or amendment of this Article EIGHTH shall adversely affect
any rights of any person pursuant to this Article EIGHTH which existed at the
time of such repeal or amendment with respect to acts or omissions occurring
prior to such repeal or amendment.
NINTH: No director shall be personally liable to the Corporation or its
stockholders for any monetary damages for breaches of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability; provided
that this provision shall not eliminate or limit the liability of a director, to
the extent that such liability is imposed by applicable law, (i) for any breach
of the director's duty of loyalty to the Corporation or its stockholders; (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) under Section 174 or successor provisions
of the Delaware General Corporation Law; or (iv) for any transaction from which
the director derived an improper personal benefit. This provision shall not
eliminate or limit the liability of a director for any act or omission if such
elimination or limitation is prohibited by the Delaware General Corporation Law.
No amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
If the Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
TENTH: The Corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation in the manner prescribed
by the Delaware General Corporation Law, and all rights conferred upon
stockholders are granted subject to this reservation; provided that, in addition
to the vote of the holders of any class or series of stock of the Corporation
required by law or by this Restated Certificate of Incorporation, if, on the
record date for the stockholders meeting at which this Restated Certificate of
Incorporation is to be amended or repealed, or on the record date for any
written consent of the holders of Class B Common Stock pursuant to which this
Restated Certificate of Incorporation is to be amended or repealed, the number
of issued and outstanding shares of Class B Common Stock is equal to or greater
than fifteen percent (15%) of the Total Common Shares and Preferred Votes, then
the affirmative vote of the holders of a majority of the then outstanding shares
of Class B Common Stock, voting together as a single class, shall be required to
(i) reduce or increase the number of authorized shares of Class B Common Stock
or (ii) amend or repeal paragraphs (C)(1) through (C)(6) of Article FOURTH,
paragraph (C) of Article FIFTH, Article SIXTH, Article SEVENTH and this Article
TENTH of this Restated Certificate of Incorporation.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the Delaware General Corporation Law or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of the Delaware General
Corporation Law, order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation,
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as the case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its President this _____ day of ______ 1997.
CIRCE BIOMEDICAL, INC.
By: ___________________________
Its
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<PAGE> 1
EXHIBIT 3.3
Adopted and Effective 7/ 9/96
BY-LAWS
OF
CIRCE BIOMEDICAL, INC
------------
ARTICLE I
---------
OFFICES
-------
Section 1.01 REGISTERED OFFICE. The registered office of the Corporation in
the State of Delaware shall be located in the City of Wilmington, New Castle
County.
Section 1.02 OTHER OFFICE. The Corporation may have such other offices and
places of business within or without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
----------
STOCKHOLDERS
------------
Section 2.01 PLACE OF MEETINGS. Meetings of stockholders, other than the
annual meeting, may be held at such place or places, either within or without
the State of Delaware, as shall be designated by the Board of Directors, or by
the President with respect to meetings called by him.
Section 2.02 ANNUAL MEETING. The annual meeting of the stockholders shall
be held on May 24th in each year or on such other date as may be determined by
the Board of Directors, at One Town Center Road, Boca Raton, Florida, or at such
other place as may be specified in the notice of
<PAGE> 2
the meeting. At such meeting, the stockholders shall elect a Board of Directors
and transact such other business as may properly come before the meeting.
Section 2.03 SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by the Board of Directors or by the President, and shall be
called by the President or Secretary at the written request of stockholders
owning a majority of the shares of the Corporation then outstanding and entitled
to vote, which written request shall state the purpose or purposes of the
meeting.
Section 2.04 NOTICE OF MEETING. Written notice of the annual meeting or any
special meeting of stockholders shall be given to each stockholder entitled to
vote thereat, not less than ten nor more than sixty days prior to the meeting,
except as otherwise required by statute, and shall state the time and place and,
in the case of a special meeting, the purpose or purposes of the meeting. Such
notice shall be delivered personally or mailed, first-class postage prepaid,
addressed to each stockholder at his address as it appears in the records of the
Corporation. Notice need not be given, however, to any stockholder who submits a
signed waiver of notice, before or after the meeting, or who attends the meeting
in person or by proxy without objecting to the transaction of business.
Section 2.05 QUORUM. At all meetings of stockholders, the holders of a
majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business, except as otherwise provided by statute, the
Certificate of Incorporation or these By-Laws. When a quorum is once present to
organize a meeting, it is not broken by the subsequent withdrawal of any
stockholder.
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<PAGE> 3
Section 2.06 VOTING. (a) At all meetings of stockholders, each stockholder
having the right to vote thereat may vote in person or by proxy, and, unless
otherwise provided in the Certificate of Incorporation or in any resolution
providing for the issuance of any class or series of stock adopted by the Board
of Directors pursuant to authority vested in the Board of Directors by the
Certificate of Incorporation, shall have one vote for each share of stock
registered in his name.
(b) When a quorum is once present at any meeting of stockholders, a
majority of the votes cast, whether in person or represented by proxy, shall
decide any question or proposed action brought before such meeting, unless the
question or action is one upon which a different vote is required by express
provision or statute, the Certificate of Incorporation or these By-Laws, in
which case such provision shall govern the vote on the decision of such question
or action.
Section 2.07 ADJOURNED MEETING. Any meeting of stockholders may be
adjourned to a designated time and place by a vote of a majority in interest of
the stockholders present in person or by proxy and entitled to vote, even though
less than a quorum is present, or by the President if a quorum of stockholders
is not present. No notice of such adjourned meeting need be given, other than by
announcement at the meeting at which adjournment is taken, and any business may
be transacted at the adjourned meeting which might have been transacted at the
meeting as originally called. However, if such adjournment is for more than
thirty days or if after such adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at such meeting.
Section 2.08 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. Any action of the
stockholders required or permitted to be taken at any regular or special meeting
thereof may be taken without any
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such meeting, notice of meeting or vote if a consent in writing setting forth
the action thereby taken is signed by the holders of outstanding stock having
not less than the number of votes that would have been necessary to authorize
such action at a meeting at which all shares entitled to vote were present and
voted. Prompt notice of the taking of any such action shall be given to any
stockholders entitled to vote who have not so consented in writing.
Section 2.09 STOCKHOLDERS OF RECORD. (a) The stockholders from time to time
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to any corporate action without a
meeting, or entitled to receive payment of any dividend or other distribution or
the allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, shall be the stockholders of record as of the close of business
on a date fixed in advance by the Board of Directors as the record date for any
such purpose, if the Board of Directors fixes such a record date. Such record
date shall not be more than sixty days nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other such action.
(b) If the Board of Directors does not fix a record date, (i) the
record date for the determination of stockholders entitled to notice of or to
vote at a meeting of stockholders shall be as of the close of business on the
day next preceding the day on which notice of such meeting is given, or, if the
notice is waived, on the day next preceding the day on which the meeting is
held; (ii) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, where no prior action
by the Board of Directors is necessary, shall be the close of business on the
day on which the first written consent is expressed by any stockholder; (iii)
the record date for determining stockholders for any other purpose shall be at
the close of business
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on the day on which the resolution of the Board of Directors relating thereto is
adopted.
ARTICLE III
-----------
DIRECTORS
---------
Section 3.01 BOARD OF DIRECTORS. The management of the affairs, property
and business on the Corporation shall be vested in a Board of Directors, the
members of which need not be stockholders. In addition to the power of authority
expressly conferred upon it by these By-Laws and the Certificate of
Incorporation, the Board of Directors may take any action and do all such lawful
acts and things on behalf of the Corporation as are not by statute or by the
Certificate of Incorporation or these By-Laws required to be taken or done by
the stockholders.
Section 3.02 NUMBER. The number of directors shall be as fixed from time to
time by the Board of Directors.
Section 3.03 ELECTION AND TERM OF DIRECTORS. At each annual meeting of the
stockholders, the stockholders shall elect directors to hold office until the
next annual meeting. Each director shall hold office until the expiration of
such term and until his successor has been elected and qualified, or until his
earlier resignation or removal.
Section 3.04 ANNUAL AND REGULAR MEETINGS. The annual meeting of the Board
of Directors shall be held promptly after the annual meeting of stockholders,
and regular meetings of the Board of Directors may be held at such times as the
Board of Directors may from time to time determine. No notice shall be required
for the annual or any regular meeting of the Board of Directors.
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Section 3.05 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the President, by an officer of the Corporation who is also a
director, or by any two directors. Notice of each special meeting, setting forth
the time and place of such meeting, shall be mailed to each director, first
class postage prepaid, addressed to him at his usual place of business, at least
two days before the day on which the meeting is to be held; or shall be
telephoned or delivered by hand to him personally, or delivered by hand to his
usual place of business, addressed to him by name, not later than the day before
the meeting is to be held. Notice of any special meeting need not be given,
however, to any director who submits a signed waiver of notice, before or after
the meeting, or who attends the meeting without objecting to the transaction of
business.
Section 3.06 PLACE OF MEETINGS. (a) The Board of Directors may hold its
meetings, regular or special, at such places, either within or without the State
of Delaware, at it may from time to time determine, or as shall be set forth in
the notice of any such meeting.
(b) Any meeting of the Board of Directors may be held by means of
conference telephone or similar communications equipment whereby all persons
participating in the meeting can hear each other, and such participation shall
constitute presence at the meeting.
Section 3.07 ADJOURNED MEETINGS. A majority of the directors present,
whether or not a quorum, may adjourn any meeting of the Board of Directors to
another time and place. Notice of such adjourned meeting need not be given if
the time and place thereof are announced at the meeting at which the adjournment
is taken.
Section 3.08 QUORUM OF DIRECTORS. A majority of the total number of
directors shall constitute a quorum for the transaction of business. The total
number of directors means the number
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of directors the Corporation would have if there were no vacancies.
Section 3.09 ACTION OF THE BOARD OF DIRECTORS. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors, unless the question or action is one upon which a
different vote is required by express provision of statute, the Certificate of
Incorporation or these By-Laws, in which case such provision shall govern the
vote on the decision of such question or action. Each director present shall
have one vote.
Section 3.10 ACTION BY WRITTEN CONSENT OF DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent thereto
is signed by all members of the Board of Directors or of such committee, and
such written consent is filed with the minutes of proceedings of the Board of
Directors or such committee.
Section 3.11 RESIGNATION. A director may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary of the
Corporation. Unless otherwise specified in the notice, the resignation shall
take effect upon receipt by the Board of Directors of such officer, and the
acceptance of the resignation shall not be necessary to make it effective.
Section 3.12 REMOVAL OF DIRECTORS. Any or all of the directors may be
removed with or without cause by the stockholders.
Section 3.13 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created
directorships resulting from an increase in the number of directors or vacancies
occurring in the Board of Directors for any reason shall be filled by a vote of
the stockholders. A director elected to fill a
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newly created directorship or to fill any vacancy shall hold office until the
next annual meeting of stockholders, and until his successor has been elected
and qualified.
Section 3.14 CHAIRMAN. At all meetings of the Board of Directors the
Chairman of the Board or, if one has not been elected or appointed or in his
absence, a chairman chosen by the directors present at such meeting shall
preside.
Section 3.15 COMMITTEES APPOINTED BY THE BOARD OF DIRECTORS. The Board of
Directors may, by resolution passed by a majority of the entire Board of
Directors, designate one or more committees, each committee to consist of one or
more of the directors. The Board may also designate one or more directors as
alternate members of any committee who may replace any absent or disqualified
committee member of any committee meeting. Any such committee, to the extent
provided in the resolution, except as restricted by law, shall have and may
exercise the powers of the Board of Directors in the management of the affairs,
business and property of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it.
Section 3.16 COMPENSATION. No compensation shall be paid to directors, as
such, for their services, but the Board of Directors may authorize payment of a
fixed sum and expenses for attendance at each annual, regular or special meeting
of the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
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ARTICLE IV
----------
OFFICERS
--------
Section 4.01 OFFICERS, ELECTION AND TERM. (a) At its annual meeting the
Board of Directors shall elect or appoint a President, a Secretary and a
Treasurer, and may, in addition, elect or appoint at any time a Chairman of the
Board, one or more Vice Presidents and such other officers as it may determine.
Any number of offices may be held by the same person.
(b) Unless otherwise specified by the Board of Directors, each officer
shall be elected or appointed to hold office until the annual meeting of the
Board of Directors next following his election or appointment and until his
successor, if any, has been elected or appointed and qualified, or until his
earlier resignation or removal.
(c) Any officer may resign at any time by giving written notice to the
Board of Directors, the President or the Secretary of the Corporation. Unless
otherwise specified in the notice, the resignation shall take effect upon
receipt thereof, and the acceptance of the resignation shall not be necessary to
make it effective.
(d) Any officer elected or appointed by the Board of Directors may be
removed by the Board of Directors with or without cause. Any vacancy occurring
in any office by reason of death, resignation, removal or otherwise may be
filled by the Board of Directors.
Section 4.02 POWERS AND DUTIES IN GENERAL. The officers, agents and
employees of the Corporation shall each have such powers and perform such duties
in the management of the affairs, property and business of the Corporation,
subject to the control of and limitation by the Board of
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Directors, as generally pertain to their respective offices, as well as such
powers and duties as may be authorized from time to time by the Board of
Directors.
Section 4.03 SURETIES AND BONDS. If the Board of Directors shall so
require, any officer, agent or employee of the Corporation shall furnish to the
Corporation a bond in such sum and with such surety or sureties as the Board of
Directors may direct, conditioned upon the faithful performance of his duties to
the Corporation and including responsibility for negligence and for the
accounting for all property, funds or securities of the Corporation which may
come into his hands.
ARTICLE V
---------
CERTIFICATES AND TRANSFER OF SHARES
-----------------------------------
Section 5.01 CERTIFICATES. The shares of stock of the Corporation shall be
represented by certificates, as provided by the General Corporation Law of the
State of Delaware. They shall be numbered and entered in the books of the
Corporation as they are issued.
Section 5.02 LOST OR DESTROYED CERTIFICATES. The Board of Directors may in
its discretion authorize the issuance of a new certificate or certificates in
place of any certificate or certificates theretofore issued by the Corporation,
alleged to have been lost, stolen or destroyed. As a condition of such issuance,
the Board of Directors may require, either generally or in such case, the record
holder of such certificates, or his legal representative, to furnish an
affidavit setting forth the facts of such alleged loss, theft or destruction,
together with proof of advertisement of the alleged loss, theft or destruction,
and a bond with such surety and in such form and amount as the Board may
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specify indemnifying the Corporation, any transfer agent and registrar against
any claim against any of them relating to such lost, stolen or destroyed
certificates.
Section 5.03 TRANSFER OF SHARES. (a) Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares or other
securities of the Corporation duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, the Corporation shall issue a
new certificate to the person entitled thereto, and cancel the old certificate,
except to the extent the Corporation or such transfer agent may be prevented
from so doing by law, by the order or process of any court of competent
jurisdiction, or under any valid restriction on transfer imposed by the
Certificate of Incorporation, these By-Laws, or agreement of security holders.
Each such transfer shall be entered on the transfer books of the Corporation.
(b) The Corporation shall be entitled to treat the holder of record of
any share or other security of the Corporation as the holder in fact thereof and
shall not be bound to recognize any equitable or other claim to or interest in
such share or security on the part of any other person whether or not it shall
have express or other notice thereof, except as expressly provided by law.
ARTICLE VI
----------
INDEMNIFICATION
---------------
Section 6.01 INDEMNIFICATION. The Corporation shall indemnify any person in
the manner and to the extent provided in the General Corporation Law of the
State of Delaware. Such indemnification shall be in addition to any other rights
to which any person seeking indemnification shall be entitled under any
agreement, vote of stockholders or disinterested directors, any provision of
these By-Laws or otherwise.
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The directors, officers, employees and agents of the Corporation shall be
fully protected individually in making or refusing to make any payment or in
taking or refusing to take any other action under this Article VI in reliance
upon the advice of counsel.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
Section 7.01 CORPORATE SEAL. The seal of the Corporation shall be circular
in form and bear the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal on the certificates for shares or
any corporate obligation for the payment of money, or on any other instrument,
may be a facsimile, engraved, printed or otherwise reproduced.
Section 7.02 EXECUTION OF INSTRUMENTS. All corporate instruments and
documents shall be signed or countersigned, executed, verified or acknowledged
by a proper officer or officers or such other person or persons as the Board of
Directors may from time to time designate.
Section 7.03 FISCAL YEAR. The fiscal year of the Corporation shall be as
determined by the Board of Directors.
ARTICLE VIII
------------
AMENDMENTS
----------
Section 8.01 AMENDMENTS. These By-Laws may be altered, amended or repealed
from time to time by the Board of Directors, without the assent or vote of the
stockholders.
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EXHIBIT 3.4
DRAFT
-----
FORM OF
CIRCE BIOMEDICAL, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall fix each year.
Section 2. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes prescribed in the notice of the meeting, may be called by
(i) the Chairman of the Board, the Chief Executive Officer or the President or
(ii) the Board of Directors by the affirmative vote of a majority of the Whole
Board (as defined below). Special meetings of the holders of the Class B Common
Stock (as defined below), for any purpose or purposes prescribed in the notice
of the meeting, may be called by the Class B Directors (as defined below) by the
affirmative vote of a majority of the Class B Directors. Special meetings of the
stockholders shall be held at such place, on such date and at such time as shall
be fixed by the Board of Directors or the person or persons calling the meeting.
The term "Whole Board" as used herein shall mean the total number of authorized
directors, whether or not there exist any vacancies in previously authorized
directorships.
Section 3. Notice of Meetings. Written notice of the place, date, and time
of all meetings of the stockholders shall be given, not less than 10 nor more
than 60 days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or required by law (including, without limitation, the Delaware General
Corporation Law and the Corporation's Restated Certificate of Incorporation, as
it may be further amended and restated from time to time (the "Restated
Certificate").
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided that,
if the date of any adjourned meeting is more than 30 days after the date for
which the meeting was originally noticed, or if a new record date is fixed for
the adjourned meeting, written notice of the place, date, and time of the
adjourned meeting shall be given in conformity herewith. Any business may be
transacted at any adjourned meeting that might have been transacted at the
original meeting.
Section 4. Quorum and Adjournment. At any meeting of the stockholders, the
holders of a majority of the voting power of the outstanding shares of the stock
entitled to vote at the meeting present, in person or by proxy, shall constitute
a quorum for all purposes, unless or except to the
<PAGE> 2
extent that the presence of a larger number may be required by law. Where a
separate vote by one or more classes or series of capital stock of the
Corporation is required, the holders of a majority of the voting power of the
outstanding shares of such classes or series present, in person or by proxy,
shall constitute a quorum entitled to take action with respect to that vote on
that matter.
The chairman of the meeting or the holders of a majority of the voting
power of the shares of stock entitled to vote who are present, in person or by
proxy, may adjourn the meeting to another place, date or time, whether or not
there is a quorum.
Section 5. Organization. Such person as the Board of Directors may have
designated or, in the absence of such a person, the Chairman of the Board, if
any, or, in his absence, the Chief Executive Officer, if any, or, in his
absence, the President, or, in his absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall act as chairman of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman of the meeting appoints.
Section 6. Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as may be deemed by him to be in order. The date and time of the
opening and closing of the polls for each matter upon which the stockholders
will vote at the meeting shall be announced at the meeting.
Section 7. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders.
Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section.
(B) Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the notice of meeting
given pursuant to Section 2 above. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected (a) by or at the direction of the Board of
Directors, (b) by any holder of shares of the Corporation's Class B Common
Stock, par value $.001 per share (the "Class B Common Stock"), but only with
respect to "Class B Directors" (as defined in the Restated Certificate), or (c)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice of the special meeting,
who shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section.
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(C) Certain Matters Pertaining to Stockholder Business and Nominations.
(1) Subject to subparagraph (4) below, for nominations or other
business to be properly brought before an annual meeting by a stockholder
pursuant to paragraph (A) of this Section or a special meeting pursuant to
paragraph (B) of this Section, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such
other business must otherwise be a proper matter for stockholder action.
To be timely, a stockholder's notice pertaining to an annual meeting shall
be delivered to the Secretary at the principal executive office of the
Corporation not later than the close of business on the 60th day nor
earlier than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting; provided that, in the
event that the date of the annual meeting is more than 30 days before or
more than 60 days after such an anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close
of business on the 90th day prior to such annual meeting and not later
than the close of business on the later of the 60th day prior to such
annual meeting or the close of business on the 10th day following the day
on which public announcement of the date of such meeting is first made by
the Corporation. Any stockholder's notice for an annual meeting or a
special meeting shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case, pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including such
person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the
Corporation that are owned beneficially and held of record by such
stockholder and such beneficial owner. A stockholder shall also comply
with all applicable requirements of the Exchange Act (or any successor
provision), and the rules and regulations thereunder, and the applicable
requirements of the principal securities exchange on which the
Corporation's Class A Common Stock, par value $.001 per share (the "Class
A Common Stock"), is then traded.
(2) Notwithstanding anything in the second sentence of subparagraph
(1) above to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the
nominees for election as director or specifying the size of the increased
Board of Directors at least 70 days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more
than 30 days before or 60 days after such anniversary date, at least 70
days prior to such annual meeting), a stockholder's notice required by
this Section shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the
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principal executive office of the Corporation not later than the close of
business on the 10th day following the day on which such public
announcement is first made by the Corporation.
(3) Subject to subparagraph (4) below, in the event the Corporation
calls a special meeting of stockholders for the purpose, among other
things, of electing one or more directors to the Board of Directors, any
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by subparagraph (1) above
shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the 90th day prior to such special
meeting nor later than the close of business on the later of the 60th day
prior to such special meeting, or the 10th day following the day on which
public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting.
(4) Notwithstanding the foregoing provisions of this Section 7(C),
(i) neither the "general directors," as defined in the Restated
Certificate, nor holders of Class A Common Stock, shall be entitled to
nominate "Class B Directors," as defined in the Restated Certificate; and
(ii) so long as the number of issued and outstanding shares of Class B
Common Stock is greater than or equal to 15% of the Total Common Shares
and Preferred Votes (as defined in the Restated Certificate), nominations
of Class B Directors and business proposed to be considered by holders of
the Class B Common Stock shall be deemed to have complied with the notice
procedures set forth in this Section 7(C) if such nominations or proposals
are received a reasonable period prior to (x) the meeting, if the
Corporation is not making a proxy solicitation under the Exchange Act, or
(y) the Corporation's mailing of its proxy statement, if the Corporation
is making a proxy solicitation under the Exchange Act.
D. General.
(1) Except as provided in the Restated Certificate, only such
persons who are nominated in accordance with the procedures set forth in
this Section shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set
forth in this Section. Except as otherwise provided by law or these
by-laws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made or proposed, as the case may be, in accordance
with the procedures set forth in this Section and, if any proposed
nomination or business is not in compliance herewith, to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this Section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section shall be deemed to
affect any rights (i)of stockholders to request the inclusion of proposals
in the Corporation's proxy statements pursuant to Rule 14a-8 under the
Exchange Act or (ii)of the holders of Class B Common Stock or any series
of Preferred Stock to elect directors.
Section 8. Proxies and Voting. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy, authorized by an
instrument in writing or by a transmission permitted by law, filed in accordance
with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
contemplated by this Section may be substituted or used in lieu of the original
writing or transmission for any and all purposes for which the original writing
or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by voice vote. Any vote not taken by voice
shall be taken by ballots, each of which shall state the name of the stockholder
or proxy voting and such other information as may be required under the
procedure established for the meeting. The Corporation may, and to the extent
required by law, shall, in advance of any meeting of stockholders, appoint one
or more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the person presiding at the meeting may, and to the
extent required by law, shall, appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
Except as otherwise provided in the terms of any class or series of
Preferred Stock of the Corporation, all elections of directors by stockholders
shall be determined by a plurality of the votes cast, and except as otherwise
required by law, the Restated Certificate or these by-laws, all other matters
determined by stockholders shall be determined by a majority of the votes cast
affirmatively or negatively.
Section 9. Stock List. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order for each class or
series of stock and showing the address of each such stockholder and the number
of shares registered in such stockholder's name, shall be open to the
examination of any such stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall
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presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office. The business and
affairs of the Corporation shall be managed by or under the direction of its
Board of Directors. Subject to the Restated Certificate, the number of directors
constituting the Whole Board shall be such number as the Board of Directors
shall from time to time have designated.
Section 2. Resignation. Any director may resign at any time upon written
notice to the Corporation at its principal place of business or to the Chief
Executive Officer, President or Secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event.
Section 3. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by a majority of the Whole Board or by the Chairman of the Board,
if any, by the Chief Executive Officer, if a director, or by the President, if a
director, and shall be held at such place, on such date, and at such time as
they or he shall fix. Notice of the place, date, and time of each such special
meeting shall be given each director by whom it is not waived by mailing written
notice not less than 5 days before the meeting, by sending written notice by
recognized overnight courier service not less than 2 days before the meeting or
by facsimile or telephonic transmission of the same (including, in the case of
telephonic transmission, by means of a message left on an answering machine,
voice mail or a similar device) not less than 24 hours before the meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Section 5. Quorum. At any meeting of the Board of Directors, a majority of
the Whole Board shall constitute a quorum for all purposes. If a quorum shall
fail to attend any meeting, a majority of those present may adjourn the meeting
to another place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings by Conference Telephone. Members of
the Board of Directors, or of any committee thereof, may participate in a
meeting of the Board of Directors or committee by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation shall constitute
presence in person at such meeting.
Section 7. Conduct of Business. At any meeting of the Board of Directors,
business shall be transacted in such order and manner as the Board of Directors
may from time to time determine,
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and all matters shall be determined by the vote of a majority of the directors
present, except as otherwise provided herein or required by law. Action may be
taken by the Board of Directors without a meeting if all members of the Board of
Directors who are then in office consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors.
Section 8. Powers. (A) The Board of Directors may, except as otherwise
required by law or as otherwise provided in the Restated Certificate or in these
by-laws, exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, including, without limiting the generality
of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, to borrow funds and guarantee
obligations, and to do all things necessary in connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon
any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase,
bonus or other compensation plans for directors, officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations not inconsistent
herewith, for the management of the Corporation's business and affairs.
(B) Notwithstanding the foregoing, so long as the number of issued and
outstanding shares of Class B Common Stock is greater than fifty percent (50%)
of the Total Common Shares and Preferred Votes, the Corporation shall not, and
shall not permit any of its subsidiaries to, directly or indirectly, without the
affirmative vote of both (i) a majority of a quorum of the Board of Directors,
and (ii) a majority of the Class B Directors:
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(1) Issue, grant or sell any shares of its capital stock or the
capital stock of any subsidiary, or any option, warrant or other right to
acquire any such capital stock, or debt or securities convertible into
such capital stock, except (i) the sale to the public in an underwritten
offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), or corresponding provisions of successor legislation,
of shares of Class A Common Stock, but only if immediately after such
sale, the number of issued and outstanding shares of Class B Common Stock
would be in excess of 50% of the sum of (A) the Total Common Shares and
Preferred Votes, plus (B) the number of shares of Class A Common Stock
reserved for issuance under any "Employee Benefit Plan" (as defined in
Rule 405 of Regulation C under the Securities Act) of the Corporation,
plus (C) the number of shares of Class A Common Stock issuable pursuant to
any other outstanding options, warrants, convertible debt or securities,
or other rights; (ii) the issuance of options to purchase (and the
issuance of shares pursuant to any such options), and grants of, Class A
Common Stock pursuant to the Corporation's 1997 Stock Incentive Plan and
1997 Outside Director and Consultant Stock Option Plan, not in excess of
the aggregate number of shares reserved for issuance under such plans at
the time of the consummation of the initial public offering of the Class A
Common Stock registered under the Securities Act; and (iii) the issuance
to the Corporation of capital stock of its wholly owned subsidiaries;
(2) Incur, assume, guarantee or otherwise become obligated with
respect to, or subject any corporate assets to any mortgage, pledge or
other lien or encumbrance securing, indebtedness for borrowed money, or
enter into other transactions that would be classified as long-term debt
on a balance sheet prepared in accordance with U.S. generally accepted
accounting principles, in excess of an aggregate principal amount of
$10,000,000 at any time outstanding;
(3) Declare or pay any dividend or other distribution of any kind
with respect to its capital stock, or repurchase or redeem any shares of
such capital stock, except dividends or other distributions to the
Corporation from a subsidiary and purchases by the Corporation of stock of
a wholly owned subsidiary;
(4) Effect any stock split, stock combination or other
recapitalization, except transactions involving only capital stock of a
wholly owned subsidiary of the Corporation;
(5) Make any capital expenditures in excess of $4,000,000 per
project;
(6) Engage in any business other than the research, development,
production and commercialization of biomedical devices and systems
incorporating synthetic membranes and/or biologically active agents
(cells, tissue or biomolecules) for therapeutic, diagnostic or
toxicological applications;
(7) Acquire all or substantially all of the assets of any other
business or entity (including a division of another company), or acquire
any capital stock of, or other ownership interest in, any other entity, in
each case in a single transaction or series of
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related transactions, unless (i) after such transaction or transactions
the Corporation and its subsidiaries would continue to be engaged
exclusively in businesses permitted under subparagraph (6) of this
Section, (ii) any capital expenditures by the Corporation and its
subsidiaries for such transaction or transactions are permitted under
subparagraph (5) of this Section, and (iii) any securities issued by the
Corporation and its subsidiaries for such transaction or transactions are
permitted to be issued under subparagraph (1) of this Section;
(8) Merge or consolidate with any other entity, except (i)
acquisitions permitted under subparagraph (7) of this Section and (ii)
transactions among wholly owned subsidiaries of the Corporation;
(9) Enter into any partnership, joint venture or similar business
relationship with any other entity, in a single transaction or series of
related transactions, unless (i) after such transaction or transactions
the Corporation and its subsidiaries would continue to be engaged
exclusively in businesses permitted under subparagraph (6) of this
Section, (ii) any capital expenditures by the Corporation and its
subsidiaries for such transaction or transactions are permitted under
subparagraph (5) of this Section, and (iii) any securities issued by the
Corporation and its subsidiaries for such transaction or transactions are
permitted to be issued under subparagraph (1) of this Section; or
(10) Sell, lease (as lessor), transfer or otherwise dispose of, in a
single transaction or series of related transactions, a majority (in
either book value or fair market value) of the assets of the Corporation
and its subsidiaries, taken as a whole; enter into any voluntary plan of
liquidation, reorganization or otherwise affording relief to creditors; or
cease to carry on business operations.
Section 9. Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors. The Board of Directors,
by a vote of a majority of the Whole Board, may from time to time designate
committees of the Board of Directors, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board of Directors
and shall, for those committees and any others provided for herein, elect at
least two directors to serve as members, designating, if it desires, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of a committee. Subject to the limitations set forth in Section 8
of Article II, any committee so designated may exercise the power and authority
of the Board of Directors to declare a dividend, to authorize the issuance of
stock or to adopt a certificate of ownership and merger pursuant to Section 253
of the Delaware General Corporation Law if the resolution that designates the
committee or a supplemental resolution of the Board of Directors shall so
provide. In the absence or
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disqualification of any member of any committee and any alternate member in his
place, the member or members of the committee present at the meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may by
unanimous vote appoint another member of the Board of Directors to act at the
meeting in the place of the absent or disqualified member.
Section 2. Conduct of Business. Each committee of the Board of Directors
may determine the procedural rules for meeting and conducting its business and
shall act in accordance therewith, except as otherwise provided herein or
required by law. Adequate provisions shall be made for notice to members of all
meetings of committees. A majority of the members of any committee shall
constitute a quorum unless the committee shall consist of two members, in which
event one member shall constitute a quorum; and all matters shall be determined
by a majority vote of the members present. Action may be taken by any committee
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of such
committee.
Section 3. Participation in Committee Meetings by Conference Telephone.
Members of a committee of the Board of Directors may participate in a meeting of
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
ARTICLE IV - OFFICERS
Section 1. Generally. The officers of the Corporation shall consist of a
President, one or more Vice Presidents, a Secretary, a Treasurer and such other
officers as may from time to time be appointed by the Board of Directors,
including, without limiting the generality of the foregoing, a Chairman of the
Board, a Chief Executive Officer, a Vice Chairman of the Board and one or more
Assistant Secretaries and Assistant Treasurers. Officers shall be elected by the
Board of Directors, which shall consider that subject at its first meeting after
every annual meeting of stockholders. The Chief Executive Officer may be
empowered to appoint Assistant Secretaries and Assistant Treasurers from time to
time. Each officer shall hold office until his successor is elected and
qualified or if earlier, until he dies, resigns, is removed or becomes
disqualified, unless a shorter term is specified by the Board of Directors or
the Chief Executive Officer at the time of election or appointment of such
officer. Any number of offices may be held by the same person.
Section 2. Chairman of the Board. Unless otherwise provided by resolution
of the Board of Directors, the Chairman of the Board, if any, shall preside at
all meetings of the stockholders and all meetings of the Board of Directors at
which he is present and shall have such authority and perform such duties as may
be prescribed by these by-laws or from time to time determined by the Board of
Directors. The Chairman of the Board shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized.
Section 3. Vice Chairman of the Board. The Vice Chairman of the Board, if
any, shall have such powers and duties as may be delegated to him by the Board
of Directors. To the extent not otherwise provided herein, the Vice Chairman of
the Board shall perform the duties and
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exercise the powers of the Chairman of the Board in the event of the Chairman's
absence or disability.
Section 4. Chief Executive Officer. The Chief Executive Officer shall be
the chief executive officer of the Corporation and shall, subject to the
direction of the Board of Directors, have general supervision and control of its
business. Unless otherwise provided by resolution of the Board of Directors, in
the absence of the Chairman of the Board, if any, the Chief Executive Officer
shall preside at meetings of the stockholders and, if a director, at meetings of
the Board of Directors. The Chief Executive Officer shall have general
supervision and control of the Corporation's business and shall have general
supervision and direction of all of the officers, employees and agents of the
Corporation.
Section 5. President. Except for meetings at which the Chief Executive
Officer or the Chairman of the Board, if any, presides, the President shall, if
present, preside at meetings of stockholders, and if a director, meetings of the
Board of Directors. Subject to the control and direction of the Chief Executive
Officer and the Board of Directors, the President shall have and perform such
powers and duties as may be prescribed by these by-laws or from time to time be
determined by the Chief Executive Officer or the Board of Directors. The
President shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized. In the absence of a Chief
Executive Officer, the President shall be the chief executive officer of the
Corporation and shall, subject to the direction of the Board of Directors, have
general supervision and control of its business and shall have general
supervision and direction of all of the officers, employees and agents of the
Corporation.
Section 6. Vice President. Each Vice President shall have such powers and
duties as may be delegated to him by the Board of Directors, the Chief Executive
Officer and the President. The Board of Directors may designate a Vice President
to perform the duties and exercise the powers of the President in the event of
the President's absence or disability.
Section 7. Treasurer. The Treasurer shall have the responsibility for
maintaining the financial records of the Corporation. The Treasurer shall make
such disbursements of the funds of the Corporation as are authorized and shall
render from time to time an account of all such transactions and of the
financial condition of the Corporation. The Treasurer shall also perform such
other duties as the Board of Directors may from time to time prescribe.
Section 8. Secretary. The Secretary shall issue all authorized notices
for, and shall keep minutes of, all meetings of the stockholders and the Board
of Directors. The Secretary shall have charge of the corporate books and shall
perform such other duties as the Board of Directors may from time to time
prescribe.
Section 9. Delegation of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provisions hereof.
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Section 10. Removal. Any officer of the Corporation may be removed at any
time, with or without cause, by the Board of Directors. Any officer appointed by
the Chief Executive Officer may be removed at any time by the Board of Directors
or by the Chief Executive Officer.
Section 11. Resignation. Any officer may resign by giving written notice
of his resignation to the Chairman of the Board, if any, the Chief Executive
Officer, if any, the President, or the Secretary, or to the Board of Directors,
and such resignation shall become effective at the time specified therein.
Section 12. Bond. If required by the Board of Directors, any officer shall
give the Corporation a bond in such sum and with such surety or sureties and
upon such terms and conditions as shall be satisfactory to the Board of
Directors, including, without limitation, a bond for the faithful performance of
the duties of his office and for the restoration to the Corporation of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control and belonging to the Corporation.
Section 13. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or the Chief
Executive Officer or any officer of the Corporation authorized by the President
or the Chief Executive Officer shall have power to vote and otherwise act on
behalf of the Corporation, in person or by proxy, at any meeting of stockholders
of or with respect to any action of stockholders of any other corporation in
which this Corporation may hold securities and otherwise to exercise any and all
rights and powers which this Corporation may possess by reason of its ownership
of securities in such other corporation.
ARTICLE V - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer or trustee of the Corporation or is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan (hereinafter an "Indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, trustee, employee
or agent or in any other capacity while serving as a director, officer, trustee,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, excise taxes or penalties under
the Employee Retirement Income Security Act, and amounts paid in settlement)
reasonably incurred or suffered by such Indemnitee in connection therewith;
provided that, except as provided in Section 3 of this Article with respect to
proceedings to enforce rights to indemnification or as otherwise required by
law, the Corporation shall not be required to indemnify or advance expenses to
any such Indemnitee in connection with a proceeding (or part thereof)
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initiated by such Indemnitee unless such proceeding (or part thereof) was
authorized by the Board of Directors.
Section 2. Right to Advancement of Expenses. The right to indemnification
conferred in Section 1 of this Article shall include the right to be paid by the
Corporation the expenses (including attorneys' fees) incurred in defending any
such proceeding in advance of its final disposition; provided that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an Indemnitee in his capacity as a director, officer or trustee (and not in
any other capacity in which service was or is rendered by such Indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such Indemnitee is not entitled to be indemnified for such expenses
under this Section 2 or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Sections 1 and 2 of this Article shall be
contract rights that shall continue as to an Indemnitee who has ceased to be a
director, officer or trustee and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators. Any repeal or modification of any of the
provisions of this Article shall not adversely affect any right or protection of
an Indemnitee existing at the time of such repeal or modification.
Section 3. Right of Indemnitees to Bring Suit. If a claim under Section 1
or 2 of this Article is not paid in full by the Corporation within 60 days after
a written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be 20 days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If the Indemnitee is
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Indemnitee shall also be entitled to be paid the expenses of
prosecuting or defending such suit. In (i) any suit brought by the Indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
Indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
Indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article or otherwise shall be on the Corporation.
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Section 4. Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this Article shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Restated Certificate as amended from time to time, these by-laws,
any agreement, any vote of stockholders or disinterested members of the Board of
Directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, trustee, member of its
Scientific Advisory Board, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any trustee, employee or agent of the Corporation or member its Scientific
Advisory Board to the fullest extent of the provisions of this Article with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
ARTICLE VI - STOCK
Section 1. Certificates of Stock. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the Chairman or
Vice Chairman of the Board, the President or a Vice President, and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him. Any or all of the signatures on
the certificate may be by facsimile.
Section 2. Transfers of Stock. Transfers of stock shall be made only upon
the transfer books of the Corporation kept at an office of the Corporation or
upon transfer by one or more transfer agents designated to transfer shares of
the stock of the Corporation. Except where a certificate is issued in accordance
with Section 4 of this Article, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
Section 3. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than 60 nor less than 10 days before the date of any meeting
of stockholders, nor more than 60 days prior to the time for such other action
as hereinbefore described; provided that, if no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which
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notice is given or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held, and, for determining
stockholders entitled to receive payment of any dividend or other distribution
or allotment of rights or to exercise any rights of change, conversion or
exchange of stock or for any other purpose, the record date shall be at the
close of business on the day on which the Board of Directors adopts a resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided that, the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issuance, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VII - NOTICES
Section 1. Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given pursuant to these by-laws to
any director or officer shall be in writing and may be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by recognized courier service or by
facsimile transmission. Any such notice shall be addressed to such director or
officer at his last known address as the same appears on the books of the
Corporation. The time when such notice is received (or, in the case of facsimile
transmission, upon confirmation), shall be the time of the giving of the notice.
Section 2. Waivers. A written waiver of any notice, signed by a director
or officer, whether before or after the time of the event for which notice is to
be given, shall be deemed equivalent to the notice required to be given to such
director or officer. Neither the business nor the purpose of any meeting need be
specified in such a waiver.
ARTICLE VIII - MISCELLANEOUS
Section 1. Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these by-laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal. The Board of Directors may provide a suitable
seal, containing the name of the Corporation, which seal shall be in the charge
of the Secretary.
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Section 3. Reliance upon Books, Reports and Records. Each director, each
member of any committee of the Board of Directors, and each officer of the
Corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account and other records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of its officers or employees or committees of the
Board of Directors so designated, or by any other person as to matters which
such director or committee member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 5. Time Periods. In applying any provision of these by-laws that
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
Section 6. Pronouns. Whenever the context may require, any pronouns used
in these by-laws shall include the corresponding masculine, feminine or neuter
forms.
ARTICLE IX - AMENDMENTS
These by-laws may be amended or repealed by the affirmative vote of a
majority of the Whole Board; provided that, in addition to the approval of a
majority of the Whole Board, (i) if the number of issued and outstanding shares
of Class B Common Stock is greater than fifty percent (50%) of the Total Common
Shares and Preferred Votes, the approval of a majority of the Class B Directors
shall be required to amend or repeal Section 8(B) of Article II or this Article
IX of these by-laws and (ii) if the number of issued and outstanding shares of
Class B Common Stock is equal to or greater than fifteen percent (15%) of the
Total Common Shares and Preferred Votes, the approval of a majority of the Class
B Directors shall be required to amend or repeal Section 7(C)(4) of Article I of
these by-laws. The stockholders shall also have power to adopt, amend or repeal
these by-laws; provided that, in addition to any vote of the holders of any
class or series of stock of the Corporation required by law or by the Restated
Certificate, (i) the affirmative vote of the holders of shares of capital stock
of the Corporation representing a majority of the total number of votes eligible
to be cast, voting together as a single class, shall be required for the
stockholders to adopt, amend or repeal any provision of these by-laws, (ii) if,
on the record date for the stockholders meeting at which these by-laws are to be
amended or repealed, or on the record date for any written consent of the
holders of Class B Common Stock pursuant to which these by-laws are to be
amended or repealed, the number of issued and outstanding shares of Class B
Common Stock is greater than fifty percent (50%) of the Total Common Shares and
Preferred Votes, then the affirmative vote of the holders of a majority of the
Class B Common Stock then outstanding, voting together as a single class, shall
be required for the stockholders to amend or repeal Section 8(B) of Article II
or this Article IX of these by-laws and (iii) if, on the record date for the
stockholders meeting at which these by-laws are to be amended or repealed, or on
the record date for any written consent of the holders of Class B Common Stock
pursuant to which these by-laws are to be
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amended or repealed, the number of issued and outstanding shares of Class B
Common Stock is equal to or greater than fifteen percent (15%) of the Total
Common Shares and Preferred Votes, then the affirmative vote of the holders of a
majority of the Class B Common Stock outstanding, voting together as a single
class, shall be required for the stockholders to amend or repeal Section 7(C)(4)
of Article I of these by-laws.
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EXHIBIT 10.1
DRAFT
FORM OF
CIRCE BIOMEDICAL, INC.
1997 STOCK INCENTIVE PLAN
1. Purposes. The general purposes of this Plan are (a) to enable Key
Persons to have incentives related to Common Stock, (b) to encourage Key Persons
to increase their interest in the growth and prosperity of the Company and to
stimulate and sustain constructive and imaginative thinking by Key Persons, (c)
to further the identity of interests of Key Persons with the interests of the
Company's stockholders, and (d) to induce the service or continued service of
Key Persons and to enable the Company to compete with other organizations
offering similar or other incentives in obtaining and retaining the services of
the most highly qualified individuals.
2. Definitions. When used in this Plan, the following terms shall have
the meanings set forth in this section 2.
Acquisition: The meaning set forth in paragraph (b) of section 8.
Board of Directors: The Board of Directors of the Company.
Cessation of service (or words of similar import): When a person ceases
to be an employee of the Company or a Subsidiary. For purposes of this
definition, if an entity that is a Subsidiary ceases to be a Subsidiary, persons
who immediately thereafter remain employees of that entity (and are not
employees of the Company or an entity that is a Subsidiary) shall be deemed to
have ceased service.
Closing Date: The meaning set forth in paragraph (a) of section 3.
Code: The Internal Revenue Code of 1986, as amended.
Committee: The Compensation Committee of the Board of Directors or any
other committee designated by the Board of Directors to administer stock
incentive and stock option plans of the Company and the Subsidiaries generally
or this Plan specifically.
Common Stock: The Class A Common Stock of the Company, par value $.001
per share, or such other class of shares or other securities or property as may
be applicable pursuant to the provisions of section 8.
Company: Circe Biomedical, Inc., a Delaware corporation.
Exchange Act: The Securities Exchange Act of 1934, as amended.
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Fair Market Value: (a) The closing sales price of a share of Common
Stock in Nasdaq National Market transactions on the day prior to the applicable
date, as reported in The Wall Street Journal or another newspaper of general
circulation, or, if no sales of shares of Common Stock were reported for such
day, for the next preceding day for which such sales were so reported, or (b)
the fair market value of a share of Common Stock determined in accordance with
any other reasonable method approved by the Committee.
Incentive Stock Option: A stock option that states that it is an
incentive stock option and that is intended to meet the requirements of Section
422 of the Code and the regulations thereunder applicable to incentive stock
options, as in effect from time to time.
Issuance (or words of similar import): The issuance of authorized but
unissued Common Stock or the transfer of issued Common Stock held by the Company
or a Subsidiary.
Key Person: An employee of the Company or a Subsidiary who has
contributed or can contribute significantly to the growth and successful
operations of the Company or one or more Subsidiaries. Except as specified in
paragraph (a) of section 3, the grant of a Stock Incentive to an employee shall
be deemed a determination that such employee is a Key Person.
Nonstatutory Stock Option: An Option that is not an Incentive Stock
Option.
Option: An option granted under this Plan to purchase shares of Common
Stock.
Option Agreement: An agreement setting forth the terms of an Option.
Plan: The 1997 Stock Incentive Plan of the Company herein set forth, as
the same may from time to time be amended.
Service: Service to the Company or a Subsidiary as an employee. "To
serve" has a correlative meaning.
Stock Award: An issuance of shares of Common Stock or an undertaking
(other than an Option) to issue such shares in the future.
Stock Incentive: A stock incentive granted under this Plan in one of
the forms provided for in section 3.
Subsidiary: A corporation (or other form of business association) of
which shares (or other ownership interests) having 50% or more of the voting
power regularly entitled to vote for directors (or equivalent management rights)
are owned, directly or indirectly, by the Company, or any other entity
designated as such by the Board of Directors; provided, however, that in the
case of an Incentive Stock Option, the term "Subsidiary" shall mean a
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Subsidiary (as defined by the preceding clause) that is also a "subsidiary
corporation," as defined in section 424(f) of the Code and the regulations
thereunder, as in effect from time to time.
3. Grants of Stock Incentives. (a) Subject to the provisions of this
Plan, Stock Incentives under this Plan may be granted to Key Persons on such
terms as may be determined by (i) the Committee, (ii) the Board of Directors or
(iii) the Chief Executive Officer of the Company; provided, however, that the
Chief Executive Officer (A) may not grant Stock Incentives to any Key Person who
is, in the opinion of counsel to the Company, subject to the provisions of
Section 16 of the Exchange Act, (B) may not grant Stock Incentives with respect
to more than __________ shares of Common Stock to any one Key Person and (C) may
not grant Stock Incentives with respect to more than __________ shares of Common
Stock to all Key Persons in the aggregate; and provided further, that the Board
of Directors may grant Options covering an aggregate of up to 300,000 shares of
Common Stock, to be effective on the date on which the initial public offering
of the Common Stock is consummated ("Closing Date"), to employees of the Company
who are not Key Persons.
(b) A Stock Incentive may be granted to be effective at a specified
future date or upon the future occurrence of a specified event. For the purposes
of this Plan, any such Stock Incentive shall be deemed granted on the date it
becomes effective. An agreement or other commitment to grant a Stock Incentive
that is to be effective in the future shall not be deemed the grant of a Stock
Incentive until the date on which such Stock Incentive becomes effective.
(c) A Stock Incentive may be granted in the form of:
(i) a Stock Award, or
(ii) an Option, or
(iii) a combination of a Stock Award and an Option.
4. Stock Subject to this Plan. (a) Subject to the provisions of
paragraph (c) of this section 4 and the provisions of section 8, the maximum
number of shares of Common Stock that may be issued pursuant to Stock Incentives
granted under this Plan shall not exceed one million fifty thousand (1,050,000).
(b) Authorized but unissued shares of Common Stock and issued shares of
Common Stock held by the Company or a Subsidiary, whether acquired specifically
for use under this Plan or otherwise, may be used for purposes of this Plan.
(c) If any shares of Common Stock subject to a Stock Incentive shall
not be issued and shall cease to be issuable because of the termination, in
whole or in part, of such Stock Incentive or for any other reason, or if any
such shares shall, after issuance, be
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reacquired by the Company or a Subsidiary from the recipient of such Stock
Incentive, or from the estate of such recipient, for any reason, such shares
shall no longer be charged against the limitation provided for in paragraph (a)
of this section 4 and may again be made subject to Stock Incentives.
(d) Of the total number of shares specified in paragraph (a) of this
section 4 (subject to adjustment as provided in section 8), during the term of
this Plan as specified in section 9, (i) no more than __________ may be subject
to Options granted to any one Key Person and (ii) no more than __________ may be
subject to Stock Incentives granted to any one Key Person.
5. Stock Awards. Except as otherwise provided in section 12, Stock
Incentives in the form of Stock Awards shall be subject to the following
provisions:
(a) Shares of Common Stock subject to a Stock Award may be issued to a
Key Person at the time the Stock Award is granted, or at any time subsequent
thereto, or in installments from time to time. In the event that any such
issuance shall not be made at the time the Stock Award is granted, the Stock
Award may provide for the payment to such Key Person, either in cash or shares
of Common Stock, of amounts not exceeding the dividends that would have been
payable to such Key Person in respect of the number of shares of Common Stock
subject to such Stock Award (as adjusted under section 8) if such shares had
been issued to such Key Person at the time such Stock Award was granted. Any
Stock Award may provide that the value of any shares of Common Stock subject to
such Stock Award may be paid in cash, on each date on which shares would
otherwise have been issued, in an amount equal to the Fair Market Value on such
date of the shares that would otherwise have been issued.
(b) Each Stock Award shall be evidenced by a written instrument
consistent with this Plan. Each Stock Award shall be (i) made contingent upon
the attainment of one or more specified performance objectives and/or (ii)
subject to restrictions on the sale or other disposition of the Stock Award or
the shares subject thereto for a period of three or more years; provided,
however, that (x) a Stock Award may include restrictions and limitations in
addition to those provided for herein and (y) of the total number of shares
specified in paragraph (a) of section 4 (subject to adjustment as provided in
section 8), up to ____% may be subject to Stock Awards not subject to clause
(i) or clause (ii) of this sentence.
(c) A Stock Award shall be granted for such lawful consideration as may
be provided for therein.
6. Options. Except as otherwise provided in section 12, Stock
Incentives in the form of Options shall be subject to the following provisions:
(a) The purchase price per share of Common Stock shall be not less than
90% of the Fair Market Value of a share of Common Stock on the date the Option
is granted; provided, however, that the purchase price per share under any
Option that is granted
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effective on the Closing Date may equal the lesser of (i) $10; (ii) the initial
public offering price at which shares of Common Stock are sold to the public in
the initial public offering of the Common Stock; or (iii) the lowest price in
the range of estimated initial public offering prices set forth on the cover
page of the last form of prospectus setting forth such a range that is included
in a registration statement filed with the United States Securities and Exchange
Commission relating to such offering. The purchase price and any withholding tax
that may be due on the exercise of an Option may be paid (i) in cash; (ii) if so
provided in the Option Agreement, (A) in shares of Common Stock (including
shares issued pursuant to the Option being exercised and shares issued pursuant
to a Stock Award granted subject to restrictions as provided for in paragraph
(b) of section 5), or (B) in a combination of cash and such shares (provided,
however, that no shares of Common Stock delivered in payment of the purchase
price may be "immature shares," as determined in accordance with generally
accepted accounting principles in effect at the time); or (iii) if authorized by
the Committee, in accordance with a cashless exercise program established with a
securities brokerage firm. Any shares of Common Stock delivered to the Company
in payment of the purchase price or withholding tax shall be valued at their
Fair Market Value on the date of exercise. No certificate for shares of Common
Stock shall be issued upon the exercise of an Option until the purchase price
for such shares has been paid in full.
(b) Each Option may be exercisable in full at the time of grant, or may
become exercisable in one or more installments, and at such time or times or
upon the occurrence of such events, as may be specified in the Option Agreement.
Unless otherwise provided in the Option Agreement, an Option, to the extent it
is or becomes exercisable, may be exercised at any time in whole or in part
until the expiration or termination of such Option.
(c) Each Option shall be exercisable during the life of the holder only
by him or her and, after his or her death, only by his or her estate or by a
person who acquires the right to exercise the Option by will or the laws of
descent and distribution. An Option, to the extent that it shall not have been
exercised or canceled, shall terminate as follows after the holder ceases to
serve: (i) if the holder shall voluntarily cease to serve without the consent of
the Committee or shall have his or her service terminated for cause, the Option
shall terminate immediately upon cessation of service; (ii) if the holder shall
cease to serve by reason of death, incapacity or retirement, the Option shall
terminate three years after the date on which he or she ceases to serve; and
(iii) except as provided in the next sentence, in all other cases the Option
shall terminate no later than three months after the date on which the holder
ceases to serve, unless the Committee shall approve a longer period (which
approval may be given before or after cessation of service) not to exceed three
years. If the holder shall die or become incapacitated during the three-month
period (or such longer period as the Committee may approve) referred to in the
preceding clause (iii), the Option shall terminate three years after the date on
which he or she ceases to serve. A leave of absence for military or governmental
service or other purposes shall not, if approved by the Committee (which
approval may be given before or after the leave of absence commences), be deemed
a cessation of service within the meaning of this paragraph (c). Notwithstanding
the foregoing provisions of this paragraph (c) or any other
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provision of this Plan, no Option shall be exercisable after expiration of a
period of ten years and one month from the date the Option is granted. Where a
Nonstatutory Option is granted for a term of less than ten years and one month,
the Committee may, at any time prior to the expiration of the Option, extend its
term for a period ending not later than ten years and one month from the date
the Option was granted. Such an extension shall not be deemed the grant of a new
Option under this Plan.
(d) No Option nor any right thereunder may be assigned or transferred
except by will or the laws of descent and distribution and except, in the case
of a Nonstatutory Option, pursuant to a qualified domestic relations order (as
defined in the Code), unless otherwise provided in the Option Agreement.
(e) An Option may, but need not, be an Incentive Stock Option. All
shares of Common Stock that may be made subject to Stock Incentives under this
Plan may be made subject to Incentive Stock Options; provided, however, that (i)
no Incentive Stock Option may be granted more than ten years after the effective
date of this Plan, as provided in section 9; and (ii) the aggregate Fair Market
Value (determined as of the time an Incentive Stock Option is granted) of the
shares subject to each installment becoming exercisable for the first time in
any calendar year under Incentive Stock Options granted (under all plans,
including this Plan, of his or her employer corporation and its parent and
subsidiary corporations) to the Key Person to whom such Incentive Stock Option
is granted shall not exceed $100,000.
(f) Each Option shall be evidenced by a written instrument consistent
with this Plan, and shall specify whether the Option is an Incentive Stock
Option or a Nonstatutory Option. An Option may include restrictions and
limitations in addition to those provided for in this Plan.
(g) Options shall be granted for such lawful consideration as may be
provided for in the Option Agreement.
7. Combination of Stock Awards and Options. Stock Incentives authorized
by paragraph (c)(iii) of section 3 in the form of combinations of Stock Awards
and Options shall be subject to the following provisions: (a) A Stock Incentive
may be a combination of any form of Stock Award and any form of Option;
provided, however, that the terms and conditions of such Stock Incentive
pertaining to a Stock Award are consistent with section 5 and the terms and
conditions of such Stock Incentive pertaining to an Option are consistent with
section 6.
(b) Such combination Stock Incentive shall be subject to such other
terms and conditions as may be specified therein, including without limitation
a provision terminating in whole or in part a portion thereof upon the exercise
in whole or in part of another portion thereof.
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(c) Each combination Stock Incentive shall be evidenced by a written
instrument consistent with this Plan.
8. Adjustment Provisions. (a) If the shares of Common Stock shall be
subdivided or combined into a greater or smaller number of shares, or if the
Company shall issue any shares of Common Stock or other capital stock or other
securities or property of the Company as a dividend on its outstanding Common
Stock, the number of shares of Common Stock deliverable upon the exercise of
each outstanding Option shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
of each outstanding Option to reflect such subdivision, combination or stock
dividend. The number of shares of Common Stock specified in paragraph (a) of
section 4 shall also be proportionately adjusted upon the occurrence of such
events.
(b) If the Company is to be consolidated with or acquired by another
entity in a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of any
entity assuming the obligations hereunder shall, as to each outstanding Option,
either (i) make appropriate provision for the continuation of such Option by
substituting on an equitable basis for the shares then subject to such Option
either the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition or securities of any successor
or acquiring entity; or (ii) upon written notice to the holder of each
outstanding Option, provide that such Option must be exercised to the extent
then exercisable (or, at the discretion of the Committee and solely for purposes
of this paragraph, in full), within a specified number of days of the date of
such notice, at the end of which period such Option shall terminate; or (iii)
terminate all outstanding Options in exchange for a cash payment equal to the
excess of the Fair Market Value of the shares subject to such Options to the
extent then exercisable (or, at the discretion of the Committee and solely for
purposes of this paragraph, in full), over the purchase price thereof.
(c) In the event of a recapitalization or reorganization of the Company
(other than a transaction described in paragraph (b) above) pursuant to which
securities of the Company or of another corporation are issued with respect to
the outstanding shares of Common Stock, the holder of an Option shall be
entitled to receive, upon exercising an Option for the purchase price paid upon
such exercise, the securities which would have been received if such Option had
been exercised prior to such recapitalization or reorganization.
9. Term. This Plan shall be deemed adopted on the date as of which it
is approved by the sole stockholder of the Company and shall become effective on
the Closing Date. No Stock Incentives shall be granted under this Plan after the
tenth anniversary of the Closing Date.
10. Administration. (a) This Plan shall be administered by the
Committee. No director shall be designated as or continue to be a member of the
Committee unless he or
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she shall, at the time of designation and at all times during service as a
member of the Committee, be (i) an "outside director" within the meaning of
Section 162(m) of the Code and (ii) a "non-employee director" within the meaning
of Rule 16b-3 under the Exchange Act. Notwithstanding any other provision of
this Plan, the Board of Directors may exercise any and all powers of the
Committee with respect to this Plan, except to the extent that the possession or
exercise of any power by the Board of Directors would cause any Stock Incentive
to become subject to, or to lose an exemption from, Section 162(m) of the Code
or Section 16(b) of the Exchange Act.
(b) The Committee may establish such rules and regulations, not
inconsistent with the provisions of this Plan, as it deems necessary for the
proper administration of this Plan, and may amend or revoke any rule or
regulation so established. The Committee may make such determinations and
interpretations under or in connection with this Plan as it deems necessary or
advisable. All such rules, regulations, determinations and interpretations
shall be binding and conclusive upon the Company, its Subsidiaries, its
stockholders and its directors, officers and employees, and upon their
respective legal representatives, beneficiaries, successors and assigns, and
upon all other persons claiming under or through any of them.
(c) Members of the Board of Directors and members of the Committee
acting under this Plan shall be fully protected in relying in good faith upon
the advice of counsel and shall incur no liability in the performance of their
duties, except as otherwise provided by applicable law.
11. General Provisions. (a) Nothing in this Plan or in any instrument
executed pursuant hereto shall confer upon any person any right to continue in
the service of the Company or a Subsidiary, or shall affect the right of the
Company or of a Subsidiary to terminate the service of any person with or
without cause.
(b) No shares of Common Stock shall be issued pursuant to a Stock
Incentive unless and until all legal requirements applicable to the issuance of
such shares have, in the opinion of counsel to the Company, been complied with.
In connection with any such issuance, the person acquiring the shares shall, if
requested by the Company, give assurances, satisfactory to counsel to the
Company, in respect of such matters as the Company or a Subsidiary may deem
desirable to assure compliance with all applicable legal requirements.
(c) No person (individually or as a member of a group), and no
beneficiary or other person claiming under or through him or her, shall have any
right, title or interest in or to any shares of Common Stock allocated or
reserved for the purposes of this Plan or subject to any Stock Incentive except
as to such shares of Common Stock, if any, as shall have been issued to him or
her.
(d) In the case of a grant of a Stock Incentive to a person who is
employed by a Subsidiary, such grant may provide for the issuance of the shares
covered by the Stock
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Incentive to the Subsidiary, for such consideration as may be provided, upon the
condition or understanding that the Subsidiary will transfer the shares to the
person in accordance with the terms of the Stock Incentive.
(e) In the event the laws of a country in which the Company or a
Subsidiary has employees prescribe certain requirements for Stock Incentives to
qualify for advantageous tax treatment under the laws of that country
(including, without limitation, laws establishing options analogous to Incentive
Stock Options), the Committee, may, for the benefit of such employees, amend, in
whole or in part, this Plan and may include in such amendment additional
provisions for the purposes of qualifying the amended plan and Stock Incentives
granted thereunder under such laws; provided, however, that (i) the terms and
conditions of a Stock Incentive granted under such amended plan may not be more
favorable to the recipient than would be permitted if such Stock Incentive had
been granted under this Plan as herein set forth, (ii) all shares allocated to
or used for the purposes of such amended plan shall be subject to the
limitations of section 4, and (iii) the provisions of the amended plan may
restrict but may not extend or amplify the provisions of sections 9 and 13.
(f) The Company or a Subsidiary may make such provisions as either may
deem appropriate for the withholding of any taxes that the Company or a
Subsidiary determines is required to be withheld in connection with any Stock
Incentive.
(g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or benefits to directors,
officers or employees generally, or to any class or group of such persons, that
the Company or any Subsidiary now has or may hereafter put into effect,
including, without limitation, any incentive compensation, retirement, pension,
group insurance, stock purchase, stock bonus or stock option plan.
12. Acquisitions. If the Company or any Subsidiary should merge or
consolidate with, or purchase stock or assets or otherwise acquire the whole or
part of the business of, another entity, the Company, upon the approval of the
Committee, (a) may assume, in whole or in part and with or without modifications
or conditions, any stock incentives granted by the acquired entity to its
directors, officers, employees or consultants in their capacities as such, or
(b) may grant new Stock Incentives in substitution therefor. Any such assumed or
substitute Stock Incentives may contain terms and conditions inconsistent with
the provisions of this Plan (including the limitations set forth in paragraph
(d) of section 4), including additional benefits for the recipient; provided,
however, that if such assumed or substitute Stock Incentives are Incentive Stock
Options, such terms and conditions are permitted under the plan of the acquired
entity. For the purposes of any applicable plan provision involving time or a
date, a substitute Stock Incentive shall be deemed granted as of the date of
grant of the original stock incentive.
13. Amendments and Termination. (a) This Plan may be amended or
terminated by the Board of Directors upon the recommendation of the Committee;
provided, however, that, without the approval of the stockholders of the
Company, no amendment shall be
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made which (i) causes this Plan to cease to comply with applicable law, (ii)
permits any person who is not a Key Person to be granted a Stock Incentive
(except as otherwise provided in paragraph (a) of section 3 or in section 12),
(iii) amends the provisions of paragraph (a) or paragraph (d) of section 4, (iv)
amends paragraph (a) of section 6, (v) amends section 9 to extend the date set
forth therein, or (vi) amends this section 13; and provided further, that,
without the approval of the holders of a majority of the issued and outstanding
shares of the Company's Class B Common Stock, par value $.001 per share, no
amendment shall be made which amends paragraph (a) of section 3, paragraph (a)
of section 4, paragraph (a) of section 6 or this section 13.
(b) No amendment or termination of this Plan shall adversely affect any
Stock Incentive theretofore granted, and no amendment of any Stock Incentive
granted pursuant to this Plan shall adversely affect such Stock Incentive,
without the consent of the holder thereof.
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EXHIBIT 10.2
ML DRAFT 6/16/97
FORM OF
CIRCE BIOMEDICAL, INC.
1997 OUTSIDE DIRECTOR AND CONSULTANT STOCK OPTION PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise requires,
the following terms, as used in this 1997 Outside Director and
Consultant Stock Option Plan, have the following meanings:
ADMINISTRATOR means the Board, unless it has delegated power
(either complete and total power or selective power) to act on
its behalf to the Committee, in which case the Administrator
means the Committee.
AFFILIATE means a corporation which, for purposes of Section
424 of the Code, is a direct or indirect parent or subsidiary
of the Company.
BOARD means the Board of Directors of the Company.
CODE means the United States Internal Revenue Code of 1986, as
amended.
COMMITTEE means the committee of the Board to which the Board
has delegated power (either complete and total power or
selective power) to act under or pursuant to the provisions of
this Plan.
COMMON STOCK means shares of the Company's Class A Common
Stock, $.001 par value per share.
COMPANY means Circe Biomedical, Inc., a Delaware corporation.
CONSULTANT means any advisor to the Company, including, but
not limited to, any member of the Company's Scientific
Advisory Board, who is not also serving as an employee or
officer of the Company or of an Affiliate or as a member of
the Board, designated by the Administrator to be eligible to
be granted one or more Options under this Plan.
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DIRECTOR means a member of the Board who is not also serving
as an employee of the Company or of an Affiliate, designated
by the Administrator to be eligible to be granted one or more
Options under this Plan.
DISABILITY or DISABLED means permanent and total disability as
defined in Section 22(e)(3) of the Code.
FAIR MARKET VALUE of a Share of Common Stock means:
(1) the closing sales price of a share of
Common Stock in Nasdaq National Market transactions
on the day prior to the applicable date, as reported
in The Wall Street Journal or another newspaper of
general circulation, or, if no sales of shares of
Common Stock were reported for such day, for the next
preceding day for which such sales were so reported,
or
(2) such value as the Administrator, in good
faith, shall determine in accordance with any other
reasonable method.
IPO DATE means the date on which the initial underwritten
public offering of the Common Stock is consummated.
OPTION means an option to purchase Common Stock which is not
intended to qualify as an incentive stock option under Section
422 of the Code.
OPTION AGREEMENT means an agreement between the Company and a
Participant delivered pursuant to this Plan, in such form as
the Administrator shall approve.
PARTICIPANT means a Director or Consultant to whom one or more
Options are granted under this Plan. As used herein,
"Participant" shall also include (i) the Participant's
Survivors and (ii) any permitted transferee of one or more
Options from such Participant, in each case where the context
requires.
PARTICIPANT'S SURVIVORS means a deceased Participant's legal
representatives and/or any person or persons who acquire the
Participant's rights to an Option by will or by the laws of
descent and distribution.
PLAN means this 1997 Outside Director and Consultant Stock
Option Plan.
PLAN YEAR means the period beginning on the day of an annual
meeting of the Company's stockholders, and ending on the day
immediately prior to the succeeding annual meeting of the
Company's stockholders.
SCIENTIFIC ADVISORY BOARD means the Scientific Advisory Board
of the Company.
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SHARES means shares of the Common Stock as to which Options
have been or may be granted under this Plan or any shares of
capital stock into which the Shares are converted or changed
or for which they are exchanged pursuant to the provisions of
Paragraph 3 of this Plan. The Shares issued upon exercise of
Options granted under this Plan may be authorized and unissued
shares or shares held by the Company in its treasury, or a
combination of the two.
1933 ACT means the Securities Act of 1933, as now in force or
hereafter amended.
2. PURPOSES OF THIS PLAN.
This Plan is intended to encourage ownership of Shares by Directors and
Consultants in order to attract such people, to induce them to work for the
benefit of the Company or a subsidiary of the Company and to provide additional
incentive for them to promote the success of the Company or a subsidiary of the
Company.
3. SHARES SUBJECT TO THIS PLAN.
The number of Shares which may be issued from time to time pursuant to
this Plan shall be 125,000, or the equivalent of such number of Shares after the
Administrator, in its sole discretion, has interpreted the effect of any stock
split, stock dividend, combination, recapitalization or similar transaction in
accordance with Paragraph 16 of this Plan.
If an Option is terminated or canceled for any reason, in whole or in
part, any Shares that were subject to such Option, but that were not issued
pursuant to the exercise of such Option, shall be available for the granting of
other Options under this Plan. Any Option shall be treated as outstanding, and
therefore not terminated or canceled, until such Option is exercised in full, or
terminates or expires under the provisions of this Plan, or by agreement of the
parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THIS PLAN.
Subject to the provisions of this Plan, the Administrator is authorized
to:
a. interpret the provisions of this Plan or of any Option or
Option Agreement and to make all rules and determinations
which it deems necessary or advisable for the administration
of this Plan;
b. determine which Directors and Consultants shall be granted
Options;
c. determine the number of Shares for which an Option or Options
shall be granted, provided, however, that in no event shall
Options to purchase more than [ ] Shares be granted to any
Participant in any fiscal year; and
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d. specify the terms and conditions upon which an Option or
Options may be granted.
Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of this Plan or any Option granted under this
Plan shall be final, unless otherwise determined by the Board, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
The Administrator will, in its sole discretion, name the Participants
in this Plan, provided, however, that each Participant must be a Director or a
Consultant at the time an Option is granted. Notwithstanding any of the
foregoing provisions, the Administrator may grant an Option to a person not then
a Director or Consultant, provided, however, that such grant shall be
conditioned upon such person becoming eligible to become a Participant at or
prior to the time of the delivery of the Option Agreement evidencing such Option
and that such Option shall not be effective until such time. The grant of an
Option to any individual shall neither entitle that individual to, nor
disqualify him or her from, participation in any other grant of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. Options may be granted subject to such conditions
as the Administrator may deem appropriate including, without limitation, the
subsequent approval of this Plan or any amendments thereto by the stockholders
of the Company. Nevertheless, each Option shall be subject to at least the
following terms and conditions:
A. DIRECTOR FORMULA GRANTS: Each Director who is first elected to
the Board effective on the IPO Date shall be granted an Option
to purchase eight thousand (8,000) Shares. Each Director who
is first elected to the Board effective after the IPO Date
shall be granted an Option to purchase four thousand (4,000)
Shares. Thereafter, each Director shall be granted an Option
to purchase two thousand (2,000) Shares on the first business
day of each Plan Year immediately following the date of such
Director's election. If any Director should cease to be a
Director and thereafter shall be re-elected to the Board, such
Director shall be granted an Option to purchase two thousand
(2,000) Shares on the first business day of each Plan Year
immediately following the date of such Director's re-election.
Each Option granted to a Director shall (i) have a purchase
price equal to the Fair Market Value (per share) of the Shares
on the date of grant of the Option, (ii) have a term of ten
(10) years, and (iii) become fully exercisable one (1) year
following the date of grant of the Option. Any Director
entitled to receive an Option grant under this Subparagraph
may elect to decline the Option.
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<PAGE> 5
B. CONSULTANT FORMULA GRANTS: Each Consultant who is first
appointed a Consultant effective on the IPO Date shall be
granted an Option to purchase five thousand (5,000) Shares.
Each Consultant who is first appointed a Consultant effective
after the IPO Date shall be granted an Option to purchase two
thousand five hundred (2,500) Shares. Thereafter, each
Consultant shall be granted an Option to purchase one thousand
(1,000) Shares on the first business day of each Plan Year
immediately following the date of such Consultant's
appointment. If any Consultant should cease to be a Consultant
and thereafter shall be re-appointed as a Consultant, such
Consultant shall be granted an Option to purchase one thousand
(1,000) Shares on the first business day of each Plan Year
immediately following the date of such Consultant's
re-appointment. Each Option granted to a Consultant shall (i)
have an purchase price equal to the Fair Market Value (per
share) of the Shares on the date of grant of the Option, (ii)
have a term of ten (10) years, and (iii) become fully
exercisable one (1) year following the date of grant of the
Option. Any Consultant entitled to receive an Option grant
under this Subparagraph may elect to decline the Option.
C. NON-FORMULA GRANTS: Each Option not intended by the
Administrator to be a Formula Grant, as described in
Subparagraphs 6A and 6B above, shall be subject to the terms
and conditions which the Administrator determines to be
appropriate and in the best interest of the Company, subject
to the following minimum standards:
a. Each Option Agreement shall state the purchase price
(per share) of the Shares covered by each Option,
which purchase price shall be determined by the
Administrator but shall not be less than the par
value per share of the Common Stock.
b. Each Option Agreement shall state the number of
Shares to which it pertains.
c. Each Option Agreement shall state the date or dates
on which it first is exercisable and the date after
which it may no longer be exercised, and may provide
that the Option becomes exercisable in installments
over a period of months or years, or upon the
occurrence of certain conditions or the attainment of
stated goals or events.
d. The exercise of any Option may be conditioned upon
the Participant's execution of a share purchase
agreement in form satisfactory to the Administrator
providing for certain protections for the Company and
its other stockholders, including requirements that:
i. the Participant's or the Participant's
Survivors' right to sell or transfer the
Shares may be restricted; and
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<PAGE> 6
ii. the Participant or the Participant's
Survivors may be required to execute letters
of investment intent and must also
acknowledge that the Shares will bear
legends noting any applicable restrictions.
7. EXERCISE OF OPTIONS AND ISSUANCE OF SHARES.
An Option (or any part or installment thereof) shall be exercised by
giving written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other conditions set forth in the Option Agreement.
Such written notice shall be signed by the person exercising the Option, shall
state the number of Shares with respect to which the Option is being exercised
and shall contain any representation required by Paragraph 14, if applicable, or
the Option Agreement. Payment of the purchase price for the Shares as to which
such Option is being exercised shall be made (a) in United States dollars in
cash or by check, or (b) at the discretion of the Administrator, through
delivery of shares of Common Stock having a Fair Market Value equal as of the
date of the exercise to the cash purchase price of the Option, determined in
good faith by the Administrator; provided, however, that no shares of Common
Stock delivered in payment of the purchase price may be "immature shares," as
determined in accordance with generally accepted accounting principles in effect
at the time, (c) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator or (d) at the discretion of the Administrator, by
any combination of (a), (b) and (c) above.
The Company shall then reasonably promptly deliver the Shares as to
which such Option was exercised to the Participant (or to the Participant's
Survivors, as the case may be). In determining what constitutes "reasonably
promptly," it is expressly understood that the delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation which
requires the Company to take any action with respect to the Shares prior to
their issuance. The Shares shall, upon delivery, be evidenced by an appropriate
certificate or certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of
exercise of any installment of any Option, and may, in its discretion, amend any
term or condition of an outstanding Option provided (i) such term or condition
as amended is permitted by this Plan and (ii) any such amendment shall be made
only with the consent of the Participant to whom the Option was granted, or in
the event of the death of the Participant, the Participant's Survivors, but only
if the amendment is adverse to the Participant or to the Participant's
Survivors, as the case may be.
8. RIGHTS AS A STOCKHOLDER.
No Participant to whom an Option has been granted shall have rights as
a stockholder with respect to any Shares covered by such Option, except after
due exercise of the Option and
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<PAGE> 7
tender of the full purchase price for the Shares being purchased pursuant to
such exercise and registration of the Shares in the Company's share register in
the name of the Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
By its terms, an Option granted to a Participant shall not be
transferable by the Participant other than (i) by will or by the laws of descent
and distribution, or (ii) as otherwise determined by the Administrator and set
forth in the applicable Option Agreement. The designation of a beneficiary of an
Option by a Participant shall not be deemed a transfer prohibited by this
Paragraph. Except as provided above, an Option shall be exercisable, during the
Participant's lifetime, only by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Option or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon an Option, shall be null and void.
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE," DISABILITY OR
DEATH.
Except as otherwise provided in the pertinent Option Agreement, in the
event of a termination of service (whether as a Director or Consultant) with the
Company or an Affiliate before the Participant has exercised all Options, the
following rules apply:
a. A Participant who ceases to be a Director or Consultant (for
any reason other than termination "for cause," Disability, or
death, for which events there are special rules in Paragraphs
11, 12, and 13, respectively) may exercise any Option granted
to him or her, to the extent that the Option is exercisable on
the date of such termination of service, within six (6) months
after the date of the Participant's termination of director
status or consultancy, but in no event after the date of
expiration of the Option.
b. The provisions of this Paragraph, and not the provisions of
Paragraph 12 or 13, shall apply to a Participant who becomes
Disabled or dies after the termination of director status or
consultancy, provided, however, if a Participant becomes
Disabled or dies within six (6) months after the termination
of director status or consultancy, the Participant or the
Participant's Survivors may exercise the Option within one (1)
year after the date of the Participant's termination of
director status or consultancy, but in no event after the date
of expiration of the Option.
c. A Participant to whom an Option has been granted under this
Plan whose service to the Company or an Affiliate has been
suspended because of temporary disability (any disability
other than a Disability), or who is on leave of absence for
any purpose, shall not, during the period of any such absence,
be deemed, by
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<PAGE> 8
virtue of such absence alone, to have terminated such
Participant's director status or consultancy with the Company
or with an Affiliate, except as the Administrator may
otherwise determine in its sole discretion.
d. Except as required by law or as set forth in the pertinent
Option Agreement, Options granted under this Plan shall not be
affected by any change of a Participant's status within or
among the Company and any Affiliates, so long as the
Participant continues to be a Director or Consultant.
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
The following rules apply if the Participant's service (whether as a
Director or Consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all of his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the time the
Participant is notified that his or her service is terminated
"for cause" will immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not
limited to) dishonesty with respect to the Company or any
Affiliate, insubordination, substantial malfeasance or
non-feasance of duty, unauthorized disclosure of confidential
information, and conduct substantially prejudicial to the
business of the Company or any Affiliate. The determination of
the Administrator as to the existence of "cause" will be
conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to
a Participant's termination of service, nor is it necessary
that the Administrator's finding of "cause" occur prior to
termination. If the Administrator determines, subsequent to a
Participant's termination of service but prior to the exercise
of an Option, that either prior or subsequent to the
Participant's termination the Participant engaged in conduct
which would constitute "cause," then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting
definition of "cause" for termination and which is in effect
at the time of such termination, shall supersede the
definition in this Plan with respect to such Participant.
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<PAGE> 9
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be a Director or Consultant by reason of Disability
may exercise any Option granted to such Participant to the extent exercisable
but not exercised on the date of Disability. In the event of such a Disability,
such Option shall immediately become fully exercisable.
A Disabled Participant may exercise such rights only within a period of
not more than one (1) year after the date that the Participant became Disabled
(but in no event after the date of expiration of the Option), notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later date if the Participant had not become Disabled and
had continued to be a Director or Consultant.
The Administrator shall make the determination both of whether
Disability has occurred and the date of its occurrence. If requested, the
Participant shall be examined by a physician selected or approved by the
Administrator, the cost of which examination shall be paid for by the Company.
13. EFFECT OF DEATH WHILE A DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is a Director or
Consultant, such Option may be exercised by the Participant's Survivors to the
extent exercisable but not exercised on the date of death. In the event of such
a death, such Option shall immediately become fully exercisable.
If the Participant's Survivors wish to exercise the Option, they must
exercise the Option within one (1) year after the date of death of such
Participant (but in no event after the date of expiration of the Option),
notwithstanding that the decedent might have been able to exercise the Option as
to some or all of the Shares on a later date if he or she had not died and had
continued to be a Director or Consultant.
14. PURCHASE FOR INVESTMENT.
Unless the offering and sale of the Shares to be issued upon the
particular exercise of an Option are registered pursuant to an effective
registration statement under the 1933 Act, the Company shall be under no
obligation to issue the Shares covered by such exercise unless and until the
following conditions have been fulfilled:
a. The person(s) who exercise(s) such Option shall warrant to the
Company, prior to the receipt of such Shares, that such
person(s) are acquiring such Shares for their own respective
accounts, for investment, and not with a view to, or for sale
in connection with, the distribution of any such Shares, in
which event the person(s) acquiring such Shares shall be bound
by the provisions of the following legend
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<PAGE> 10
which shall be endorsed upon the certificate(s) evidencing
their Shares issued pursuant to such exercise or such grant:
"The shares represented by this certificate have been
taken for investment and they may not be sold or
otherwise transferred by any person, including a
pledgee, unless (1) either (a) a Registration
Statement with respect to such shares shall be
effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an
opinion of counsel satisfactory to it that an
exemption from registration under such Act is then
available, and (2) there shall have been compliance
with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be
issued upon such particular exercise in compliance with the
1933 Act without registration thereunder.
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any Option to
the extent that the Option is exercisable as of the date immediately prior to
such dissolution or liquidation.
16. ADJUSTMENTS.
Upon the occurrence of any of the following events, a Participant's
rights with respect to any Option granted to him or her hereunder which has not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the pertinent Option Agreement:
A. STOCK DIVIDENDS AND STOCK SPLITS. If (i) the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a dividend on its
outstanding Common Stock, or (ii) additional, new or different shares or other
securities of the Company or other non-cash assets are distributed with respect
to such shares of Common Stock, the number of shares of Common Stock deliverable
upon the exercise of such Option may be appropriately increased or decreased
proportionately, and appropriate adjustments may be made in the purchase price
per share to reflect such events. The number of Shares subject to Options to be
granted to Directors and Consultants pursuant to Subparagraphs 6A and 6B,
respectively, shall also be proportionately adjusted upon the occurrence of such
events.
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<PAGE> 11
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Administrator or the
Board of any entity assuming the obligations of the Company hereunder (the
"Successor Board") shall, as to outstanding Options, either (i) make appropriate
provision for the continuation of such Options by substituting on an equitable
basis for the Shares then subject to such Options either the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition or securities of any successor or acquiring entity; or (ii)
upon written notice to the Participants, provide that all Options must be
exercised (either to the extent then exercisable or, at the discretion of the
Administrator, all Options being made fully exercisable for purposes of this
Subparagraph), within a specified number of days of the date of such notice, at
the end of which period the Options shall terminate; or (iii) terminate all
Options in exchange for a cash payment equal to the excess of the Fair Market
Value of the shares subject to such Options (either to the extent then
exercisable or, at the discretion of the Administrator, all Options being made
fully exercisable for purposes of this Subparagraph) over the purchase price
thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in Subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant, upon exercising an Option, shall be entitled to
receive for the purchase price paid upon such exercise the securities which
would have been received if such Option had been exercised prior to such
recapitalization or reorganization.
17. ISSUANCES OF SECURITIES.
Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to Options. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.
18. FRACTIONAL SHARES.
No Options to purchase fractional Shares shall be issued under this
Plan, and the person exercising an Option shall receive from the Company cash in
lieu of such fractional Shares equal to the Fair Market Value thereof on the
date of exercise.
19. WITHHOLDING.
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary or wages, the Company may withhold from the
Participant's compensation, if any, or may require that the
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<PAGE> 12
Participant advance in cash to the Company, or to any Affiliate of the Company
which employs or employed the Participant, the amount of such withholdings
unless a different withholding arrangement, including the use of shares of the
Company's Common Stock, is authorized by the Administrator (and permitted by
law). For purposes hereof, the Fair Market Value of the shares withheld for
purposes of payroll withholding shall be determined as of the most recent
practicable date prior to the date of exercise. If the Fair Market Value of the
shares withheld is less than the amount of payroll withholdings required, the
Participant may be required to advance the difference in cash to the Company or
the Affiliate employer. The Administrator in its discretion may condition the
exercise of an Option for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
20. TERMINATION OF THIS PLAN.
This Plan will terminate on [INSERT A DATE WHICH IS 10 YEARS AFTER THE
DATE OF THIS PLAN'S ADOPTION] the date which is ten (10) years from the EARLIER
of the date of its adoption and the date of its approval by the stockholders of
the Company. This Plan may be terminated at an earlier date by vote of the
stockholders of the Company; provided, however, that any such earlier
termination shall not affect any Option Agreements executed prior to the
effective date of such termination.
21. AMENDMENT OF THIS PLAN AND AGREEMENTS.
This Plan may be amended by the stockholders of the Company. This Plan
may also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify the Shares issuable upon exercise of any outstanding
Options granted, or Options to be granted, under this Plan for listing on any
national securities exchange or quotation in any national automated quotation
system of securities dealers. Any amendment approved by the Administrator which
the Administrator determines is of a scope that requires stockholder approval
shall be subject to obtaining such stockholder approval. Any modification or
amendment of this Plan shall not, without the consent of a Participant,
adversely affect his or her rights under an Option previously granted to him or
her. With the consent of the Participant affected, the Administrator may amend
outstanding Option Agreements in a manner which may be adverse to the
Participant but which is not inconsistent with this Plan. In the discretion of
the Administrator, outstanding Option Agreements may be amended by the
Administrator in a manner which is not adverse to the Participant.
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22. STATUS; RELATIONSHIP.
Nothing in this Plan or any Option Agreement shall be deemed to (i)
prevent the Company or an Affiliate from terminating the director status or
consultancy of a Participant, (ii) prevent a Participant from terminating his or
her own director status or consultancy, or (iii) give any Participant a right to
be retained in employment, directorship, consultancy or other service by the
Company or any Affiliate for any period of time.
23. GOVERNING LAW.
This Plan shall be construed and enforced in accordance with the law of
the State of Delaware, applied without giving effect to any conflicts-of-law
principles.
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EXHIBIT 10.3
TRANSFER AND ASSUMPTION AGREEMENT
AGREEMENT dated December 31, 1996 by and between W. R. GRACE & CO.-CONN., a
Connecticut corporation ("Grace"), and CIRCE BIOMEDICAL, INC., a Delaware
corporation ("Circe").
WHEREAS, Grace, through its Biomedical Division, is engaged in the
development, manufacture and sale of biomedical devices based upon the
utilization of mammalian cells and membrane materials;
WHEREAS, Grace wishes to transfer the business and assets of the Biomedical
Division to Circe, a wholly owned subsidiary of Grace; and
WHEREAS, Grace and Circe wish to set forth certain agreements in connection
with such transfer,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions
-----------
As used in this Agreement, the following defined terms shall have the
meanings set forth in this Article. All Article, Section and Schedule numbers
used in this Agreement refer to Articles and Sections of this Agreement and
Schedules attached hereto.
<PAGE> 2
"Agreement" means this Transfer and Assumption Agreement.
"Biomedical Assets" has the meaning set forth in Section 2.01.
"Biomedical Division" means the division of Grace engaged in the
development, manufacture and sale of biomedical devices based upon the
utilization of mammalian cells and membrane materials.
"Circe" means Circe Biomedical, Inc., a Delaware corporation and a wholly
owned subsidiary of Grace.
"Environmental Law" means any law, regulation, rule, ordinance, by-law, or
order of any Governmental Authority which relates to or otherwise imposes
liability, obligations, or standards with respect to pollution, the protection
of the environment or human health and safety, including without limitation any
liability, obligations or standards with respect to the investigation or
remediation of releases of hazardous substances in or into the environment.
"Excluded Assets" means (a) cash (subject to Section 2.03) and interests in
bank accounts, other than petty cash, (b) claims with respect to insurance
coverage obtained from or in conjunction with Grace or any affiliate of Grace,
and prepayments and refunds of amounts previously paid on account of such
insurance, and (c) employee benefit plans and funds maintained by or in
conjunction with Grace or any affiliate of Grace, and prepay-
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ments and refunds of amounts previously paid on account of such employee benefit
plans and funds.
"Excluded Liabilities" means (a) payroll, withholding and similar taxes for
all periods prior to the date hereof, (b) obligations for payment for management
or administrative services provided by Grace to the Biomedical Division, (c)
obligations for payment with respect to third-party items (trade and other) that
are allocated to the Biomedical Division but are not specifically directed to
it, and pertain partly to the Biomedical Division and partly to other units of
Grace, (d) the cost of premiums with respect to insurance coverage obtained
from, or in conjunction with, Grace or any affiliate of Grace, and (e)
liabilities and obligations with respect to employee benefit plans and funds
maintained by, or in conjunction with, Grace or any affiliate of Grace.
"Governmental Authority" means any entity exercising executive,
legislative, judicial, regulatory or administrative functions of government,
whether the scope of such functions is transnational, national, or limited to
certain states, provinces, municipalities or other political subdivisions,
including but not limited to agencies, departments, boards, commissions or other
instrumentalities of any country or any political subdivisions thereof in which
Grace conducts the operations of the Biomedical Division.
"Grace" means W. R. Grace & Co.-Conn., a Connecticut corporation.
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<PAGE> 4
2. Transfer And Assumption
-----------------------
2.01 (a) Upon the terms and subject to the conditions set forth in this
Agreement, Grace hereby contributes to the capital of Circe, all of the assets,
properties and rights of every type and description (other than the Excluded
Assets) directly and primarily related to the Biomedical Division, whether real,
personal or mixed, tangible or intangible, and wherever located, including, but
not limited to, patents, inventions, and technology, trademarks, trade names,
and copyrights; good will; buildings, improvements and fixtures; vehicles,
machinery, equipment and other operating properties; notes and accounts
receivable; inventories; prepaid expenses; rights under contracts, agreements
and commitments; books and records; and all other properties and rights of every
kind and nature owned or held by the Biomedical Division on the date hereof,
whether or not specifically referred to in this Agreement and whether under its
control or under the control of others (collectively, the "Biomedical Assets").
(b) Without limiting the generality of Section 2.01(a), the Biomedical
Assets shall include:
(i) the patents, patent applications, and unfiled inventions; and the
trademarks and trademark applications listed in Schedule 1 hereto;
(ii) the contracts, agreements and commitments listed in Schedule 2
hereto; and
(iii) the capital assets (including but not limited to
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leasehold improvements, machinery and equipment, furniture and fixtures and
office equipment) listed in Schedule 3 hereto, to the extent located at the
Biomedical Division's facilities at One Ledgemont Center, Lexington,
Massachusetts or held by third parties pursuant to contracts listed in
Schedule 2.
2.02 Circe hereby accepts such contribution to capital and, in
consideration therefor, Circe hereby assumes and agrees to perform and fulfill
all liabilities and obligations whatsoever directly and primarily related to the
Biomedical Division or the Biomedical Assets, whether accrued or unaccrued,
absolute or contingent and whether relating to periods before or after the date
hereof (including but not limited to liabilities and obligations under
Environmental Laws and liabilities and obligations related to the action W. R.
Grace & Co.-Conn. v. Biohybrid Technologies Inc. and Biohybrid Technologies
Limited Partnership, Civil Action No. 96-40048, Dist. Ct., MA), other than the
Excluded Liabilities.
2.03 To the extent that the aggregate liabilities set forth on the
unaudited balance sheet of the Biomedical Division as of the date hereof exceeds
the aggregate tax basis of the Biomedical Assets, as determined from the tax and
accounting records of Grace, then Grace hereby contributes, as an additional
contribution to the capital of Circe, cash in an amount equal to such excess.
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<PAGE> 6
3. Other Covenants.
---------------
Without the prior written consent of the Treasurer or any Assistant
Treasurer of Grace, Circe shall not renew or extend the term of, increase its
obligations under, or transfer to a third party, any lease, loan, contract or
other obligation for which Grace or any affiliate of Grace is or may be liable,
as guarantor, assignor, original tenant, primary obligor, or otherwise, unless
all obligations of Grace (or its affiliate) with respect thereto are thereupon
terminated by documentation satisfactory in form and substance to Grace.
4. Representations And Warranties By Grace
---------------------------------------
Grace hereby represents and warrants to Circe as follows:
4.01 Grace is a corporation duly organized, validly existing and in good
standing under the laws of the State of Connecticut with full corporate power to
enter into this Agreement and perform its obligations hereunder.
4.02 The execution and delivery of this Agreement by Grace, and the
performance by Grace of its obligations hereunder, have been duly and validly
authorized by all necessary corporation action of Grace. This Agreement has been
duly executed and validly delivered by Grace and is legally binding on Grace.
5. Representations And Warranties Of Circe
---------------------------------------
Circe hereby represents and warrants to Grace as
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<PAGE> 7
follows:
5.01 Circe is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full corporate power to
enter into this Agreement and to perform its obligations hereunder.
5.02 The execution and delivery of this Agreement by Circe and the
performance by Circe of its obligations hereunder have been duly and validly
authorized by all necessary corporate action of Circe. This Agreement has been
duly executed and validly delivered by Circe and is legally binding on Circe.
6. Indemnification
- ------------------
Circe shall indemnify and hold Grace harmless from and against any damage,
liability, loss or cost (including, without limitation, any penalties, fines,
reasonable attorneys' fees and other costs and expenses incident to proceedings
or investigations or the prosecution or defense of any claim) that are caused by
or arise out of the failure of Circe to pay and discharge, or perform and
fulfill, any liability or obligation assumed by Circe pursuant to Section 2.02,
or perform or fulfill any other covenant to be performed or fulfilled by it
under this Agreement.
7. Expenses
--------
Circe shall be responsible for, and shall indemnify and hold Grace harmless
from and against all sales, transfer or similar taxes, and all recording and
filing fees (including but
- 7 -
<PAGE> 8
not limited to the fees and expenses of recording the transfer of patents,
patent applications, trademarks and trademark applications in jurisdictions
outside the United States) applicable to the transfer of the Biomedical Assets
pursuant to this Agreement.
8. Notices
-------
8.01 All notices, requests, demands and other communications required or
permitted to be given hereunder shall be deemed to have been duly given if in
writing and delivered personally or by facsimile transmission or by overnight
courier service, at the following addresses:
If to Grace:
W. R. Grace & Co.-Conn.
One Town Center Road
Boca Raton, Florida 33486-1010
Attention: Secretary
Facsimile number: (561) 362-1635
Confirmation number: (561) 362-1645
If to Circe:
Circe Biomedical, Inc.
One Ledgemont Center
128 Spring Street
Lexington, Massachusetts 02173
Attention: Chief Financial Officer
Facsimile number: (617) 863-7936
Confirmation number: (617) 861-8720
8.02 Either Grace or Circe may change the address to which such
communications are to be directed to it by giving written notice to the other
party in the manner provided in Section 8.01.
- 8 -
<PAGE> 9
9. General
--------
9.01 This Agreement sets forth the entire agreement and understanding of
the parties with respect to the transactions contemplated hereby and supersedes
all prior agreements, arrangements and understandings relating to the subject
matter hereof, whether written or oral.
9.02 No representation, promise, inducement or statement of intention
relating to the transactions contemplated by this Agreement has been made by or
on behalf of any party hereto which is not set forth in this Agreement.
9.03 The Article and Section headings contained in this Agreement are for
convenient reference only, and shall not in any way affect the meaning or
interpretation of this Agreement.
9.04 This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, excluding the conflict of
laws provisions thereof that would otherwise require the application of the law
of any other jurisdiction.
9.05 This Agreement may be executed in multiple counterparts (including
counterparts executed by one party), each of which shall be an original, but all
of which shall constitute a single agreement.
9.06 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but this
Agreement shall not be assignable
- 9 -
<PAGE> 10
by any party without the prior written consent of the other party.
9.07 This Agreement may be amended only in a writing executed by the
parties hereto which specifically states that it amends this Agreement.
9.08 Failure of any party to insist upon strict observance of or compliance
with any term of this Agreement in one or more instances shall not be deemed to
be a waiver of its rights to insist upon such observance or compliance with the
other terms hereof, or in the future.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
W. R. GRACE & CO.-CONN.
By: /s/ Bernd Schulte
-----------------------
Bernd Schulte
Vice President
CIRCE BIOMEDICAL, INC.
By: /s/ Martin B. Sherwin
----------------------
Martin B. Sherwin
Vice President
<PAGE> 1
EXHIBIT 10.5
14611-111 5/24/88
LEDGEMONT REALTY TRUST
----------------------
LEASE TO
--------
W. R. GRACE & COMPANY - CONN.
-----------------------------
INDEX
-----
ARTICLE
NUMBER CAPTION
- ------ -------
I FUNDAMENTAL LEASE PROVISIONS
----------------------------
1.1 Reference Subjects
II PREMISES AND TERM
-----------------
2.1 Premises
2.2 Acceptance of Premises
2.3 Delay in Delivering Possession
2.4 Term
III LANDLORD WORK AND TENANT WORK
-----------------------------
3.1 Landlord Work
3.2 Tenant Work
3.2.1 General
3.2.2 Construction Documents
3.2.3 Performance of Tenant Work
3.2.4 Payment for Tenant Work
IV RENT
----
4.1.1 Annual Fixed Rent Initial Term
4.2.1 Method of Payment
4.2.2 Net Return to Landlord
4.3.1 Additional Rent - Landlord's Taxes
4.3.2 Landlord's Taxes - Definition
4.4.1 Additional Rent - Operating Expenses
4.4.2 Landlord's Operating Expenses Definition
4.5 Allocation of Certain Operating Expenses
V ADDITIONAL COVENANTS
--------------------
<PAGE> 2
5.1 Tenant's Covenants
5.1.1 Utilities and Services
5.1.2 Maintenance
5.1.3 Use and Compliance with Law
5.1.4 Liens and Encumbrances
5.1.5 Indemnity
5.1.6 Landlord's Right to Enter
5.1.7 Personal Property at Tenant's Risk
5.1.8 Overloading, Nuisance, Etc.
5.1.9 Yield Up
5.1.10 Holding Over
5.1.11 Assignment, Subletting
5.2 Building Services
5.2.1 Landlord's Maintenance
5.2.2 Electricity
5.2.3 Office Identification
5.2.4 Grounds Maintenance
5.2.5 Chemical Waste Disposal Systems
5.3 Interruptions
VI INSURANCE; CASUALTY; TAKING
---------------------------
6.1.1 Public Liability Insurance
6.1.2 Insurance By Landlord
6.2 Waivers of Subrogation
6.3 Damage or Destruction of Premises
6.4 Eminent Domain
VII DEFAULT
-------
7.1 Events of Default
7.2 Remedies for Default
7.3 Remedies Cumulative
7.4 Effect of Waivers of Default
7.5 No Accord and Satisfaction; No Surrender
7.6 Waivers of Jury
7.7 Landlord's Curing and Enforcement
7.8 Landlord's Default
7.9 Minimum Net Worth
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<PAGE> 3
VIII MISCELLANEOUS PROVISIONS
------------------------
8.1 Notice from One Party to the Other
8.2 Quiet Enjoyment
8.3 Limitation of Landlord's Liability
8.4 Excusable Delay
8.5 Applicable Law and Construction
8.6 Successors and Assigns
8.7 Relationship of the Parties
8.8 Estoppel Certificate
8.9 Notice of Lease
8.10 Construction on Adjacent Premises
8.11 Tenant as Business Entity
8.12 Relocation
IX 9.1 Brokers
X. LANDLORD'S FINANCING
--------------------
10.1 Superiority of Lease
10.2 Subordination
10.3 Assignment for Financing
10.4 Other Instruments
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<PAGE> 4
.EB3 TAYD 5/24/88
LEASE
-----
ARTICLE I
---------
FUNDAMENTAL LEASE PROVISIONS
----------------------------
1.1 REFERENCE SUBJECTS. Each reference in this Lease to any of the
following subjects shall be construed to incorporate the information stated for
that subject in this Section.
DATE: May 31, 1988
PREMISES: Portions of the Building known generally as the "300 Level" of
Building C and the East Wing of One Ledgemont Center more
particularly described by hatching on Appendix A attached.
BUILDING: The Building complex known as Ledgemont Development Center and
consisting of the "Richards House", "Building B," "B Annex,
"Building C," the parking garage and other appurtenances
thereto located at 128 Spring Street, Lexington,
Massachusetts.
LANDLORD: LEDGEMONT REALTY TRUST u/d/t dated December 12, 1984
ORIGINAL ADDRESS OF LANDLORD: c/o Beal & Company, Inc.
15 Broad Street
Boston, MA 02109
LANDLORD'S MANAGING AGENT: Beal & Company, Inc.
15 Broad Street
Boston, MA 02109
TENANT: W.R. Grace & Co.- Conn., a Connecticut corporation
ORIGINAL ADDRESS OF TENANT: 25 Hartwell Avenue
Lexington, MA 02173
INITIAL TERM: The period between the Lease Commencement Date and the Lease
Ending Date, subject to the Tenant Termination Option
described below in this Section
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<PAGE> 5
LEASE COMMENCEMENT DATE: June 1, 1988 or the date on which Landlord shall
have delivered possession of the Premises to
Tenant upon substantial completion of Landlord's
work (hereinafter defined), whichever date is
later. Notwithstanding the foregoing, if Landlord
shall deliver possession to Tenant of the portion
of the Premises generally known as the "300 Level"
of Building C (the "300 Level") prior to the
portion generally known as the East Wing of One
Ledgemont Center (the "East Wing"), or vice versa,
then the parties agree that the Lease Commencement
Date shall commence solely for the portion of the
Premises (whether it be the 300 Level or the East
Wing) for which Landlord shall be able to deliver
possession to Tenant, and the Annual Fixed Rent
and any additional rent payable hereunder
(prorated on the basis of the square footage
attributable to such portion) shall commence for
such portion. It is understood and agreed that
Tenant will accept delivery of the 300 Level broom
clean, and otherwise in its as is condition, and
that Landlord's Work to such area will be
performed promptly thereafter (and within 30 days
after receiving Tenant's plans).
LEASE ENDING DATE: May 31, 1993, subject to the Tenant Termination
Option described below in this Section.
ANNUAL FIXED RENT--INITIAL TERM:
$0 per month from the Lease Commencement Date until the date which is
the 181st day after the Lease Commencement Date.
$26,130 per month (or ratable portion thereof) from the date which
is the 181st day after the Lease Commencement Date through May 31,
1989
$366,219 per annum for the second Lease year (being June 1, 1989
through May 31, 1990)
$377,111 per annum for the third Lease year, subject to the Tenant
Termination Option described below in this Section
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<PAGE> 6
$377,111 per annum for the fourth Lease year, subject to the Tenant
Termination Option described below in this Section
$399,244 per annum for the fifth Lease year
SECURITY DEPOSIT: None, except if, as when and to the extent provided for in
[section]5.1.11.
PARKING SPACES: 44
TENANT'S PERCENTAGE SHARE: 16.62%. Landlord covenants and agrees that, for the
purposes of this Lease, Tenant's Percentage Share shall not, except as provided
in [section]4.5, be increased for any reason whatsoever, unless Tenant shall
lease additional space in the Project.
PERMITTED USES: Laboratories for research and related offices.
PUBLIC LIABILITY INSURANCE: $5,000,000 BROKER: Coldwell Banker Commercial Real
Estate Group
APPENDICES: Appendix A - Premises Sketch Plan
Appendix B - Special Maintenance and Operation
Requirements
Appendix C - Initial Hazardous Substances or
Materials per Section 5.1.8
Appendix D - Tenant Work Insurance Schedule
Appendix E - Standard Tenant Improvement Work
Letter
LANDLORD'S
WORK: Landlord covenants and agrees that the following described
work (hereinafter collectively referred to as "Landlord's
Work"), shall be performed with due diligence, at no cost or
expense to Tenant, in a good and workmanlike manner and using
new materials. Landlord shall submit to Tenant within 10 days
after the date hereof, for Tenant's prior written approval not
to be unreasonably withheld or delayed, Landlord's plans and
specifications for incorporating the work described in
Appendix E in the East Wing. If Tenant has not given Landlord
its approval, or has not notified Landlord of its disapproval,
of such plans and specifications within 5 business days after
receipt of the same by Tenant, such plans and specifications
shall be deemed approved. If Tenant notifies Landlord of its
disapproval of all or any portion of such plans and
specifications, Tenant shall provide Landlord with a
reasonable description of the matters thereon as to which
Tenant disapproves Landlord shall promptly (but in no event in
more than 10 days) revise such plans
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<PAGE> 7
and specifications and resubmit same to Tenant. Landlord shall
use its best efforts substantially to complete the performance
of Landlord's Work (except for punchlist items, mechanical
systems adjustments and the like) such that a temporary or
permanent certificate of occupancy can be issued if Landlord's
Work were the only work to the Premises within 4 months after
the date of Tenant's approval of such plans and specifications
subject to delays described in [section]8.4. If Landlord shall
fail so to deliver possession of the entire premises, subject
to delays described in [section]8.4, within 4 months after
Tenant's such approval and Tenant shall not have occupied all
or any part of such East Wing Premises, then Tenant shall be
given a partial rent abatement in the amount of 2,500 per
month (or ratable portion thereof), not, however, to exceed
$5,000, for such delay exceeding 4 months from such approval,
subject to [section]8.4, until such delivery or occupancy; and
if such possession has not been delivered or occupancy
occurred within 6 months from such approval, subject to delays
due to the act or neglect of Tenant, its employees, agents or
independent contractors, then Tenant shall have the right, at
its sole option, to terminate this Lease on written notice to
Landlord delivered before such delivery of possession, and
upon delivery of such notice, this Lease shall be null and
void.
1. Installation of a reasonable number of benches in the
laboratories from Landlord's inventory in the 300
Level.
2. Installation of a reasonable number of
partitions/walls to create additional office space in
the 300 Level of Building C, as mutually agreed upon.
3. Access to outside solvent storage shed shown on
Appendix A-1 of this Lease.
4. Cosmetic improvements, such as touch-up painting and
new ceiling tiles, as needed in the 300 Level.
5. Building standard improvements to the office space in
the East Wing in accordance with the Standard Tenant
Improvement Work Letter attached as Appendix E, and
certain space plans dated May 16, 1988.
TENANT
TERMINATION
OPTION:
By (1) notice given to Landlord at least 9, but not more than
12) months prior to May 31, 1991 ("First Cancellation Date")
or prior to May 31, 1992 ("Second Cancellation Date") and (2)
Tenant
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<PAGE> 8
thereafter making the following Termination Payments when and
as due, Tenant may terminate the term of this Lease
respectively upon the First Cancellation Date or Second
Cancellation Date. If the Lease is to be so determined on the
First Cancellation Date, then Tenant shall pay to Landlord, as
consideration for such termination option, the sum of $150,000
on the First Cancellation Date and, upon such payment the Term
of this Lease shall be deemed to have expired by its terms and
such date shall be deemed the last day of the Term; and if the
Lease is to be so terminated on the Second Cancellation Date,
then Tenant shall pay to Landlord, as consideration for such
termination option, the sum of $75,000 on the Second
Cancellation Date and, upon such payment the Term of this
Lease shall be deemed to have expired by its terms and such
date shall be deemed the last day of the Term.
ARTICLE II
----------
PREMISES AND TERM
-----------------
2.1 PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the Premises identified in Section 1.1, subject to and with the
benefits of the terms, covenants and conditions of this Lease, and of rights,
agreements, easements and restrictions of record applicable to the property of
which the Premises are a part, all of which Tenant shall perform and observe
insofar as the same are applicable to the Premises. Subject to the rules and
regulations reasonably established by Landlord from time to time, provided such
rules and regulations are enforced without discrimination against all tenants in
the Building, Tenant shall have the appurtenant rights in common with others to
use (a) the exterior walkway, sidewalks, driveways, grounds, elevators and other
common areas of the Building serving the Premises; and (b) up to the number of
Parking Spaces as set forth in Section 1.1 for the non-exclusive use of Tenant
and Tenant's employees and business invitees in areas designated from time to
time by Landlord and which Landlord will not materially diminish without
reasonably promptly providing replacement parking without Tenant's prior written
consent. The existing parking area is shown on Appendix A-2 of this Lease.
Landlord excepts and reserves the right from time to time (a) to install,
use, maintain, repair, replace and relocate within the Premises (provided the
same shall not materially reduce the size of the Premises and provided in the
case of the East Wing only the same shall to the extent practicable be concealed
behind the existing floors and ceilings of the Premises) and other parts of
Building, pipes, meters and other equipment, machinery, apparatus and
appurtenant fixtures; and (b) to make additions to the Building and alter or
relocate any entranceways, common areas or other facilities (including without
limitation all access driveways, walkways and parking areas) serving the
Premises.
-8-
<PAGE> 9
2.2 ACCEPTANCE OF PREMISES. Tenant acknowledges that it has inspected the
Premises and accepts the same in the condition they are now in, or may be in on
the Commencement Date, it being expressly agreed that Landlord shall have no
obligation, liability or risk whatsoever with respect to the Premises or their
condition except as expressly set forth herein with respect to the performance
of Landlord's Work, and except for latent defects not discoverable through
prudent inspection by a competent professional engineer. Tenant further
acknowledges that neither Landlord nor any agent or employee of Landlord has
made any representations or warranties, express or implied, concerning the
Premises, their condition or this Lease.
2.3 DELAY IN DELIVERING POSSESSION. If there is a holding over or retention
of possession of the Premises, or any portion thereof, by any prior tenant or
occupant, or if Landlord shall otherwise be unable to deliver possession of the
Premises due to causes beyond its reasonable control, then Landlord shall not be
subject to any liability for the failure or delay in giving possession; but
Annual Fixed Rent, additional rent and any other charges or amounts payable
hereunder by Tenant shall be entirely abated until the same is delivered to
Tenant or until Tenant occupies all or any part of the Premises (in which case
Tenant shall be subject to all obligations with respect to the portion of either
the 300 Level or the East Wing so occupied, or both if any part of both is so
delivered or occupied). No such failure to give possession shall in any other
respect affect the validity of this Lease (including the date on which the Term
ends) or any other of the obligations of Tenant; provided, however, that none of
Tenant's obligations hereunder shall commence until Landlord shall deliver
possession as aforesaid or Tenant shall occupy all or any part of the Premises.
If Landlord shall not have delivered possession to Tenant of (and Tenant shall
not have so occupied) the East Wing Space, then Tenant shall have the right,
upon written notice to Landlord, to terminate this Lease upon the terms set
forth in [section]1.1 under "Landlord's Work".
2.4 TERM. This Lease is for an initial Term beginning on the Commencement
Date and ending on the Ending Date as set forth in Section 1.1.
ARTICLE III
-----------
LANDLORD WORK AND TENANT WORK
-----------------------------
3.1 LANDLORD WORK. Except as provided in Section 5.2 , Landlord shall not
be required to perform any work in connection with Tenant's occupancy of the
Premises.
3.2 TENANT WORK.
3.2.1 GENERAL. "Tenant Work" shall mean all work, including demolition,
improvements, additions and alterations (which will not include hanging
pictures, screens for video projection, removable shelving and the like), in or
to the premises, without
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<PAGE> 10
limiting the generality of the foregoing, Tenant work shall specifically include
all attached carpeting, all signs visible from the exterior of the Premises, and
any change in the exterior appearance of the windows in the Premises (including
shades, curtains and the like). All Tenant Work shall be subject to Landlord's
prior written approval, which approval shall not be unreasonably withheld or
delayed, and shall be arranged and paid for by Tenant as provided herein. Tenant
shall neither propose nor effect any Tenant work (i) which affect any structural
component of the Building (including, without limitation, exterior walls,
exterior windows, core walls, roofs, or floor slabs), (ii) which is incompatible
with the electrical or mechanical components or systems of the Building, (iii)
which affects in any respect other space in the Building other than the
Premises, including the exterior of the Building), (iv) which diminishes the
value of the Premises for any general purpose office use, (v) or which might
require any unusual expense to re-adapt the Premises for any general purpose
office use. In addition, with respect to any floor not occupied entirely by
Tenant, Tenant shall neither propose nor effect any Tenant Work consisting of
improvements, additions, or alterations to the entranceway to the Premises or
any adjoining elevator lobby, corridor, or common area; and with respect to
floors entirely occupied by Tenant, any such work will be in compliance with
this Article III.
3.2.2 CONSTRUCTION DOCUMENTS. No Tenant Work shall be effected except
in accordance with complete, consistent, final construction drawings and
specifications ("Construction Documents") approved in advance by Landlord in
writing, which approval shall not be unreasonably withheld or delayed. The
Construction Documents shall be prepared by an architect ("Tenant's Architect")
experienced in the construction of tenant space improvements in buildings in the
greater Boston" area and approved by Landlord in writing, which approval shall
not be unreasonably withheld or delayed. Tenant shall be solely responsible for
the liabilities of and expenses of all architectural and engineering services
relating to Tenant Work and for the adequacy, accuracy, and completeness of the
Construction Documents approved by Landlord, even if Tenant's architect has been
otherwise engaged by Landlord in connection with the Building. The Construction
Documents shall set forth in reasonable detail the requirements for construction
of the Tenant Work (including all architectural, mechanical, electrical and
structural drawings and detailed specifications), shall be fully coordinated
with one another and with field conditions as they exist in the Premises and
elsewhere in the Building, and shall show all work necessary to complete the
Tenant Work, including all cutting, fitting, and patching and all connections to
the mechanical and electrical systems and components of the Building. Submission
of the Construction Documents to Landlord for all shall be deemed a
determination by Tenant's Architect exercised reasonably, jointly an severally,
that all Tenant Work described in the Construction Documents (i) complies with
all applicable laws, regulations and building codes, (ii) does not materially
and adversely affect any structural component of the Building (including,
without Limitation, exterior walls, exterior windows, core walls, roofs or floor
slabs) (iii) is compatible with the electrical and mechanical components and
systems of the building, (iv) does not affect any space in the Building other
than the premises (including the exterior of the Building), and (v) conforms to
floor loading limits. Landlord's approval of Construction Documents shall only
signify Landlord's consent to the Tenant Work shown thereon and shall not result
in any
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<PAGE> 11
responsibility of Landlord concerning compliance of the Tenant Work with laws,
regulations, or codes, coordination of any aspect of the Tenant work with any
other aspect of the Tenant Work or any component or system of the Building, or
the feasibility of constructing the Tenant Work without damage or harm to the
Building, all of which shall be the sole responsibility of Tenant.
3.2.3 PERFORMANCE OF TENANT WORK. The identity of any person or entity
(including any employee or agent of Tenant) performing any Tenant Work ("Tenant
Contractor") shall be subject to Landlord's prior written approval, which
approval shall not be unreasonably withheld or delayed. Once any Tenant
Contractor has until been approved, then the same may thereafter be used by
Tenant until Landlord notifies that such Tenant Contractor is no longer
approved, using reasonable standards and stating with reasonable specificity the
reason for Landlord's withdrawal of its approval. Tenant shall procure all
necessary governmental permits, licenses and approvals before undertaking any
Tenant Work. Tenant shall perform all Tenant Work at Tenant's risk in compliance
with all applicable laws, codes and regulations and in a good and workmanlike
manner employing new materials of good quality and producing a result at least
equal in quality to the other parts of the premises. When any Tenant Work is in
progress, Tenant shall cause to be maintained (i) insurance as described in the
Tenant Work Insurance Schedule attached hereto as Appendix D and such other
insurance as may be reasonably required by Landlord covering any additional
hazards due to such Work, and (ii) a statutory lien bond pursuant to M.G.L.
c.254, (TradeMark)12 or any successor statute (or such other protection of
Landlord's interest in the Building against liens as Landlord may reasonably
require), in each case for the benefit of Landlord. It shall be a condition of
Landlord's approval of any Tenant Work that certificates of such insurance and a
lien bond in recordable form, both issued by responsible insurance companies
qualified to do business in Massachusetts and reasonably approved by Landlord,
shall have been deposited with Landlord, that Tenant has provided Tenant's
certification of its reasonable estimate of the insurable value of the work in
question for casualty insurance purposes, and that all of the other conditions
of the Lease, which are Tenant's obligation to perform or for which Tenant is
liable under the terms hereof, have been satisfied. Tenant shall reimburse
Landlord's reasonable costs of reviewing proposed Tenant Work reasonably
estimated to cost more than $10,000 in any one instance and inspecting
installation of the same in a timely manner. At a times while performing Tenant
Work Tenant, Tenant shall require any Tenant Contractor to comply with all
applicable laws, regulations, permits and policies relating to such work of the
City. In performing Tenant Work each Tenant Contractor shall comply with
Landlord's reasonable requirements relating to the time and methods for such
work, use of delivery elevators and other Building materially facilities; and
each Tenant Contractor shall not materially interfere or disrupt any other
tenant or other person using the Building. Each Tenant Contractor shall in all
events work on the Premises without causing labor disharmony, delay or impair
any guaranties, warranties or obligations of any contractors of Landlord. If any
Tenant Contractor uses any Building services or facilities, such Contractor,
jointly and severally with Tenant, shall agree to reimburse Landlord for the
actual cost thereof based on Landlord's schedule of charges established from
time to time (and if no such charges have been established, then based on
Landlord's reasonable charge
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<PAGE> 12
established at the time). Each Tenant Contractor shall, by entry into the
Building, be deemed to have agreed to indemnify and hold the Indemnities
harmless from any claim, loss or expense arising in whole or in part out of any
act or neglect committed by such person while in the Building, to the same
extent as Tenant has so agreed in this Lease, the indemnities of Tenant and
Tenant Contractor to be joint and several.
3.2.4 PAYMENT FOR TENANT WORK. Tenant shall pay the cost of all Tenant Work
in a timely manner so that the Premises shall always be free of liens for labor
or materials. If any mechanic's lien (which term shall include all similar liens
relating to the furnishing of labor and materials) is filed against the Premises
or the Building or any part thereof which is claimed to be attributable to
Tenant, its agents, employees or contractors, Tenant shall promptly discharge
the same by payment or filing any necessary bond within 10 days after Tenant has
notice (from any source) of such mechanic's lien. Landlord may, as a condition
of its approval of any Tenant work, require Tenant to deposit with Landlord a
bond, letter of credit or other similar security in the amount of Landlord's
reasonable estimate of the value of such work securing Tenant's obligations to
make payments for such Work.
ARTICLE IV
----------
RENT
----
4.1.1 ANNUAL FIXED RENT - INITIAL TERM. Annual Fixed Rent during the
initial Term of this Lease shall be the amount per annum set forth in Section
1.1.
4.2.1 METHOD OF PAYMENT. Tenant covenants and agrees to pay the Annual
Fixed Rent to Landlord in advance in equal monthly installments (or in the
appropriate monthly installments for monthly periods during any Lease year, if
and as referred to in Section 1.1) on the first day of each calendar month
during the Term beginning on the Commencement Date. "Lease year" shall mean the
twelve month period following the Commencement Date (unless the Commencement
Date is other than the first day of a month, in which case "Lease year" shall
mean the twelve month period following the initial partial month). Tenant shall
make ratable payment of Annual Fixed Rent for any portion of a Lease year (or
month) in which the same accrues, all payments of Annual Fixed Rent and
additional rent and other sums due hereunder to be paid in current U.S. exchange
at the Original Address of Landlord or such other place as Landlord may by
Notice in writing to Tenant from time to time direct, without demand and without
set-off or deduction.
Without limiting the generality of the foregoing, Tenant's obligation so to
pay shall not be discharged or otherwise affected by reason of the application
of any law or regulation now or hereafter applicable to the Premises, or any
other restriction of or interference with the use thereof by Tenant, or (except
as and to the extent expressly provided herein) any damage to or destruction of
the Premises by casualty or taking, or on account of any failure by Landlord to
perform hereunder or otherwise, or due to any other occurrence; nor (except as
expressly provided herein) shall Tenant ever be entitled and
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Tenant hereby waives all rights now or hereafter conferred by statute or
otherwise to quit, terminate or surrender this Lease or the Premises or any part
thereof, or to assert any defense in the nature of constructive eviction to any
action seeking to recover rent. Tenant shall, however, have and maintain,
subject to the provisions hereof, the right to seek and obtain from time to time
judgments for direct money damages occasioned by Landlord's breach of the
covenants of this Lease.
4.2.2 NET RETURN TO LANDLORD. It is intended that Annual Fixed Rent payable
hereunder shall be a net return to Landlord throughout the Term, free of
expense, charge, offset, diminution or other deduction whatsoever on account of
the Premises (excepting financing expenses, federal and state income taxes of
general application and those expenses which this Lease expressly makes the
responsibility of Landlord), and all provisions hereof shall be construed in
terms of such intent.
4.3.1 ADDITIONAL RENT - LANDLORD'S TAXES. Tenant covenants and percentage
agrees to pay to Landlord, as additional rent, Tenant's Percentage Share (as set
forth in Section 1.1) of Landlord's Taxes (hereafter defined) for each fiscal
tax period, or ratable portion hereof, included in the Lease Term in monthly
installments on the first day of each month in amounts reasonably estimated from
time to time by Landlord to provide for the full payment of Tenant's obligation
with respect to Landlord's Taxes on the date such Taxes are due. When the actual
amount of Landlord's Taxes are determined from time to time, the parties agree
to promptly make adjustments for any overpayments or underpayments made by
Tenant. Any overpayment will be promptly reimbursed to Tenant and any
underpayments will promptly be paid by Tenant upon receipt of a statement
setting forth with reasonable specificity the amount of such underpayment.
Landlord agrees that, if any amount of such underpayment. Landlord agrees that,
it any such estimations are more than 25% higher than the actual amount of
Landlord's Taxes payable by Landlord without taking into account abatements or
other efforts by Landlord to reduce real estate tax assessments, then Landlord
will promptly remit to Tenant Tenant's Percentage share of the amount by which
such estimations proceed such actual amount, together with interest thereon at
the rate of 9% per annum, such interest to be payable for the period beginning
on the date Tenant shall have paid Tenant's Percentage Share of Landlord's Taxes
based upon such estimation, and ending on the day preceding Landlord's repayment
to Tenant of such excess.
4.3.2 LANDLORD'S TAXES - DEFINITION. "Landlord's Taxes" shall mean all
taxes, assessments, betterments, excises, user fees and all other governmental
charges and fees of any kind or nature, or impositions or agreed payments in
lieu thereof (including any so called "linkage payments") and all penalties and
interest thereon (if due to Tenant's failure to make timely payments on account
of Landlord's taxes), assessed or imposed against the Premises or the property
of which the premises are a part, or upon Landlord by virtue of its ownership
thereof ("Landlord's Taxes"), other than a federal or state income tax of
general application. If during the Term the present system of ad valorem
taxation of property shall be changed so that, in lieu of or in addition to the
hole or any part of such ad valorem tax there shall be assessed, levied or
imposed on such property or Premises or
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on Landlord any kind or nature of federal, state, county, municipal or other
governmental capital levy, income, sales, franchise, excise or similar tax,
assessment, levy, charge or fee (as distinct from the federal and state income
tax in effect on the Commencement Date) measured by or based in whole or in part
upon Building valuation, mortgage valuation, rents or any other incidents,
benefits or Measures of real property or real property operations, then any and
all of such taxes, assessments, levies, charges and fees shall be included
within the term Landlord's Taxes.
Landlord's Taxes include reasonable expenses, including fees of attorneys,
appraisers and other consultants, incurred in connection with any efforts to
obtain abatements or reductions or to assure maintenance of Landlord's Taxes for
any tax fiscal year wholly or partially included in the Term, whether or not
successful and whether or not such efforts involve filing of actual abatement
applications or initiation of formal proceedings. If Landlord obtains a refund
(including any interest) of Landlord's Taxes previously paid by Tenant, Landlord
promptly shall remit to Tenant Tenant's Percentage Share of any such refund,
after first deducting from such refund Landlord's reasonable, actual expenses in
obtaining the same, including fees of attorneys, appraisers and other
consultants incurred in connection with such efforts to the extent such expenses
have not previously been included in Landlord's Taxes paid by Tenant.
4.4.1 ADDITIONAL RENT - OPERATING EXPENSES. Tenant covenants and agrees to
pay to Landlord, as additional rent, Tenant's Percentage Share (as set forth in
Section 1.1) of Landlord's Operating Expenses (hereafter defined) for each of
Landlord's fiscal years, or ratable portion thereof, included in the Lease Term
in monthly installments on the first day of each month in advance, based on
amounts reasonably estimated from time to time by Landlord, and with a final
payment adjustment between the Parties within 14 days after Landlord provides
Tenant a statement of Landlord's Operating Expenses for Landlord's most recent
fiscal year. When the actual amount of Landlord's Operating Expenses are
determined from time to time, the parties agree to promptly make adjustments for
any overpayments or underpayments made by Tenant. Any overpayment will be
promptly reimbursed to Tenant and any underpayments will promptly be paid by
Tenant upon receipt of a statement setting forth with reasonable specificity the
amount of such underpayment. Landlord agrees that, if any such estimations are
more than 25% higher than the actual amount of Landlord's Operating Expenses
payable by Landlord without taking into account abatements or other efforts by
Landlord to reduce real estate tax assessments, then Landlord will promptly
remit to Tenant Tenant's Percentage Share of the amount by which such
estimations proceed such actual amount, together with interest thereon at the
rate of 9% per annum, such interest to be payable for the period beginning on
the date Tenant shall have paid Tenant's Percentage Share of Landlord's
Operating Expenses based upon such estimation, and ending on the day preceding
Landlord's repayment to Tenant of such excess.
4.4.2 LANDLORD'S OPERATING EXPENSES - DEFINITION. "Landlord's Operating
Expenses" means all costs actually paid or incurred in servicing, operating,
managing, maintaining, and repairing the Building and the land, facilities and
appurtenances thereto,
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including without limitation the costs of the following: (i) supplies, materials
and total wage and labor costs and all costs and expenses of independent
contractors paid or incurred on account of all persons engaged in the operation,
maintenance, security, cleaning and repair of the Building and the land,
facilities and appurtenances therefor including social security unemployment
compensation, pension vacation, sick pay and other so-called "fringe benefits";
(ii) services furnished to tenants of the Building, including Tenant, by
Landlord; (iii) utilities consumed and expenses incurred in the operation of the
Building and the land, facilities and appurtenances thereto; (iv) casualty,
liability, workmen's compensation and all other insurance expenses (and the
amount of any deductible in the event of an insured loss), all insurance to be
in such amounts and insuring against such risks as Landlord may, in its sole
discretion from time to time decide; (v) snow removal, planting, landscaping,
grounds and parking ration, maintenance and repair expenses; (vi) management
fees to third parties, including Landlord's Managing Agent, which do not exceed
those customarily paid with respect to buildings in the area which are similar
to the Building, and fees for required licenses or permits; (vii) rental or
reasonable depreciation of equipment used in the operation of the Building and
the land, facilities and appurtenances thereto, and personal property taxes
assessed upon such equipment; and (viii) expenses of periodic testing to assure
that the premises and surrounding land are free of hazardous materials, agents
or substances, and to assure compliance with codes, regulations and laws. In
addition, if Landlord from time to time (i) repairs or replaces any existing
improvements or equipment or (ii) installs any new improvements or equipment to
the Building in order to retain the existing functions of the Building, comply
with laws or conserve energy, (including without limitation energy conservation
improvements or other improvements), then the cost of such items amortized over
their reasonable life, together with an actual or imputed interest rate (at the
level then being charged by institutional first mortgagees for new permanent
first mortgage loans on buildings in the area which are similar to the Building)
shall be included in Landlord's Operating Expenses. Costs and expenses referred
to in this Section shall be ascertained in accordance with generally accepted
accounting principles, including allowance for appropriate reserves, and
allocated to appropriate fiscal periods on the accrual method of accounting
Landlord's Operating Expenses shall not include payments of principal, interest
or other charges on mortgages or payments of any rent by Landlord on account of
any ground lease of the land on which the Building is situated, any lease of the
Building, or any real property facilities and appurtenances thereto; costs of
work or services for particular tenants separately reimbursable to Landlord by
such tenants; advertising, marketing costs and leasing commissions; costs of
so-called leasehold improvements to rentable areas in the Building, leasehold
improvements made for new or prospective tenants; the cost of any work or
services performed for any tenant(s) in the Building (including Tenant), whether
at the expense of Landlord or such tenant(s), to the extent that such work or
service is in excess of work or services Landlord is required to furnish to
Tenant under the Lease at Landlord's expense; legal and other professional
expenses incurred in connection with the enforcement of leases in the Building;
and compensation to executives of Landlord above the level of building manager.
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4.5 ALLOCATION OF CERTAIN OPERATING EXPENSES. If at any time during the
Term, Landlord provides services only with respect to portions of the Building
which include the Premises or incurs other Operating Expenses allocable to
portions of the Building which include the Premises alone, then such Operating
Expenses shall be charged entirely to those tenants, including Tenant, of such
portions, notwithstanding the provisions hereof referring to Tenant's Percentage
Share. If, during any period for which Landlord's Operating Expenses are being
computed, less than all of the Building is occupied by tenants, or if Landlord
is not supplying all tenants with the services being supplied hereunder,
Operating Expenses shall be reasonably estimated and extrapolated by Landlord to
determine the Operating Expenses that would have been incurred if the Building
were fully occupied for such year and such services were being supplied to all
tenants, and such estimated and extrapolated amount shall be deemed to be
Landlord's Operating Expenses for such period.
ARTICLE V
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ADDITIONAL COVENANTS
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5.1 TENANT'S COVENANTS. Tenant covenants that at all times during the Term
and such further time as Tenant (or persons claiming by, through or under it)
occupies the Premises or any part thereof, it shall perform and observe the
following conditions, all at its sole cost and expense:
5.1.1 UTILITIES AND SERVICES. Tenant shall provide and pay all charges and
deposits for gas, water, sewer, electricity, and other energy, utilities and
services used or consumed on the Premises during the Term which now or hereafter
separately serve the Premises, or are not expressly to be provided by Landlord
elsewhere hereunder. It is understood and agreed that except as may be expressly
provided hereunder, Landlord shall be under no obligation whatsoever to furnish
any such services to the Premises, and shall not be liable for (nor suffer any
reduction in any rent on account of) any interruption or failure in the supply
of the same, unless the same shall have arisen from the acts or omissions of
Landlord, its partners, agents, employees, independent contractors, invitees or
other persons acting under Landlord.
5.1.2 MAINTENANCE. Tenant shall clean, maintain, repair and secure the
Premises,. all improvements and appurtenances ;thereto, all access areas
thereof, and all utilities, facilities, installations and equipment used in
connection therewith, and shall pay all costs and expenses of so doing, keeping
the Premises in good order, repair and condition, reasonable wear and tear, and
damage by casualty and taking (to the extent Provided in Article VI only)
excepted. Without limiting the generality of the foregoing, Tenant shall keep
all interior walls, floor surfaces and coverings, glass, windows, doors,
partitions, all fixtures and equipment, utilities, pipes and drains and other
installations used in connection with the Premises and located inside the
demising walls of the Premises in such good order, repair and condition, shall
provide all cleaning, lighting and floor covering to the Premises(except with
respect to the Landlord's Work), and shall remove
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all refuse from and provide its own janitorial services for the Premises.
Notwithstanding the foregoing, Tenant shall not be obligated to, and Landlord,
at its sole cost and expense promptly shall, repair any part of the Premises if
such repair arises out of the acts or omissions of Landlord, its partners,
agents, employees, independent contractors, invitees or other persons acting
under Landlord.
Attached as Appendix B and a part hereof are particular requirements of
certain aspects of maintenance and operation of the premises which Tenant shall
perform and conform to in addition to, and not in limitation of, the foregoing.
5.1.3 USE AND COMPLIANCE WITH LAW. Tenant shall use the Premises only for
the Permitted Uses set forth in Section 1.1, and then only as permitted under
laws, regulations and orders applicable from time to time, including without
limitation municipal by-laws, land use and environmental laws and regulations,
and shall procure all approvals, licenses and permits necessary therefor, in
each case giving Landlord true and complete copies of the same and all
applications therefor except, however, Tenant shall not be obligated to obtain
any certificate of occupancy for the Premises or the Building. Tenant shall
promptly comply with all present and future laws applicable to Tenant's manner
of or particular use of the Premises or Tenant's signs thereon, foreseen or
unforeseen, and whether or the same necessitate structural or other
extraordinary changes or improvements to the Premises or interfere with its use
and enjoyment of the premises, and shall keep the Premises equipped with
adequate safety appliances and comply with all requirements of insurance
inspection or rating bureaus having jurisdiction in light of the use Tenant is
making of the Premise. If Tenant's manner of or particular use of the Premises
results in any increase in the premium for any insurance carried by Landlord,
then upon Landlord's notice to Tenant of such increase Tenant shall pay the same
to Landlord upon demand as additional rent. Tenant shall, in any event,
indemnify and save Landlord harmless from all loss, claim, damage, cost or
expense (including reasonable attorneys' fees of counsel of Landlord's choice
against whom Tenant makes no reasonable objection) on account of Tenant's
failure so to comply with the obligations of this Section (paying the same to
Landlord upon demand as additional rent). Tenant shall bear the sole risk of all
present or future laws affecting the premises or appurtenances thereto relating
solely to Tenant's manner of or particular use of the Premises and Landlord
shall not be liable for (nor suffer any reduction in any rent on account of) any
interruption, impairment or prohibition affecting the premises or Tenant's use
thereof resulting from the enforcement of laws. Tenant shall conform to all
reasonable rules and regulations from time to time promulgated by Landlord for
the operation, care and use of the common areas of the Building and appurtenant
improvements and areas in which Tenant is granted rights of use by the terms of
this Lease. To the extent Landlord enforces said rules and regulations, it will
do so without discrimination against all tenants in the Building.
5.1.4 LIENS AND ENCUMBRANCES. Tenant shall not create or suffer,
shall -- property, the Premises and Tenant's keep Landlord's pr leasehold free
of, and shall promptly remove and discharge, any lien, notice of contract,
charge, security interest, mortgage or other encumbrance which arises for any
reason, voluntarily or involuntarily,
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as a result of any acts or omission by Tenant or persons claiming by, through or
under Tenant, or any of their agents, employees or independent contractors,
including without limitation liens which arise by reason of labor or materials
furnished or claimed to have been furnished to Tenant or for the Premises.
5.1.5 INDEMNITY. Tenant shall assume exclusive control of all areas of the
Premises, including all improvements, utilities, facilities and installations
now or hereafter thereon, and all liabilities, including without limitation tort
liabilities, incident thereto; and Tenant shall indemnify, save harmless and
defend Landlord, its partners, mortgagees, agents, employees, independent
contractors, invitees and other persons acting under Landlord (collectively
"Indemnitees") from all liability, claim or independent contractors, cost
(including reasonable attorneys' fees of counsel of an Indemnitee's choice
against whom Tenant makes no reasonable objection) arising in whole or in part
out of any injury, loss, theft or damage (except if such is due to the
negligence of Landlord or its employees) to any person or property while on or
about the Premises, or out of any condition within the Premises, or arising out
of any breach of any Lease covenant, or from any act or omission of Tenant or
persons claiming by, through or under Tenant, or any of their agents, employees,
independent contractors, or invitees (paying the to Landlord upon demand as
additional rent). The provisions of this Section shall survive the Term of this
Lease.
5.1.6 LANDLORD'S RIGHT TO ENTER. Landlord and its agents or employees may
upon" reasonable notice enter the Premises during business hours (and in case of
emergency at any time] for the purpose of performing repairs or replacements, or
exercising any of the rights reserved to Landlord herein, or securing or
protecting Landlord's property or the Premises, and similarly upon reasonable
notice may show the Premises to prospective purchasers and lenders, and during
the last nine months of the Term to prospective tenants, and may keep affixed in
suitable places notices for letting and selling. Except in case of emergency,
Landlord shall be subject in entering the Premises to reasonable Security
conditions, if any, set forth by Tenant in writing to Landlord.
5.1.7 PERSONAL PROPERTY AT TENANT'S RISK. All of the furnishings, fixtures,
equipment, effects and kind, nature and description which, during the occupancy
of the premises by Tenant (or persons claiming by, through or under Tenant) may
be on the Premises or elsewhere on Landlord's property, shall be at the sole
risk and hazard of Tenant Except to the extent such damage is caused by Landlord
or its employees, Landlord shall not be liable for, and Tenant expressly waives
all claims against Landlord, its agents and employees, for damage to person or
property sustained by Tenant, or any person claiming by, through or under
Tenant, resulting from any accident or occurrence in or on the Premises or the
property of which the Premises are a Part, including but not limited to, claims
for damage resulting from water, wind, ice, steam, explosion or otherwise, or
from the rising or water or the leakage or bursting of water pipes, steam pipes,
gas pipes, the sprinkler system or other pipes, or from theft, vandalism, or
from any other cause whatsoever, and except only to the extent provided above in
this Section, no part of said loss or damage shall be charged to or borne by
Landlord or Landlord's agents
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or employees, unless the same is attributable to the acts or omissions of
Landlord, Landlord's partner: agents, employees independent contractors,
investors or other persons acting under Landlord.
5.1.8 OVERLOADING, NUISANCE, ETC. Tenant shall not, either with or
without negligence, injure, overload, deface, damage or otherwise harm
Landlord's property, the Premises (except for decorations and alterations
permitted in this Lease) or any part of component thereof; commit any nuisance;
permit the emission of any hazardous agents or substances; allow the release or
other escape of any biologically, radioactive or chemically active or other
hazardous substances or materials (collectively "hazardous substances") so as to
impregnate, impair or in manner adversely affect, even temporarily, any element
or part of Landlord's property or the Premises, or allow the storage or use of
such substances or materials in any manner not sanctioned by law or by the
highest standards prevailing in the industry for the storage and use of such
substances or materials; nor shall Tenant bring onto the Premises any such
materials or substances except to use in the ordinary course of Tenant's
business, and then only after written notice is given to Landlord of the
identity of such substances or materials (the identity of all such substances
and materials, if any, so used on the date hereof being set forth on Appendix
C); permit the occurrence of objectionable noise or odors; or make, allow or
suffer any waste whatsoever to Landlord's property or the Premises. Landlord may
inspect the Premises from time to time, and Tenant will cooperate with such
inspections. Without limitation, hazardous substances shall include such
substances described in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended 42 U.S.C. 9601 et seq. and the regulations
adopted thereunder, and hazardous materials shall include such materials
described in the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
6901 et seq.; in the Massachusetts Hazardous Waste Management Act, as amended,
M.G.L. Chapter 21, and the Massachusetts Oil and Hazardous Material Release
Prevention Act, as amended M.G.L. Chapter 21E, and the regulations adopted under
these acts. In addition, Tenant shall execute affidavits, representations and
the like from time to time at Landlord's request concerning Tenant's best
knowledge and belief regarding the presence or absence of hazardous substances
on the Premises or land pertaining thereof. In all events, Tenant shall
indemnify Landlord and mortgagees in the manner elsewhere provided from any
release of hazardous substances on the Premises occurring while Tenant is in
possession. (At the request of Landlord, Tenant directly with such mortgagees.)
Landlord represents and warrants that, as of the date hereof, to Landlord's
knowledge no hazardous substances have been released on the Premises.
5.1.9 YIELD UP. At the expiration or earlier termination of this Lease,
Tenant (and all persons claiming by, through or under it) shall, without
necessity of any notice, surrender the Premises (including all Tenant Work and
all replacements thereof, except such additions, alterations and other Tenant
Work as Landlord may direct to be removed, which shall be removed by Tenant and
the Premises restored to their pre-existing condition) and all keys to the
Premises, remove all of its trade fixtures and personal property not bolted or
otherwise attached to the Premises (and such trade fixtures and other property
bolted or attached to the Premises as Landlord may direct), and all Tenant
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signs wherever located, in each case repairing damage to the Premises which
results in the course of such removal and restoring the Premises to the same
condition on the Lease Commencement Date or are put in compliance with the terms
of this Lease thereafter (including the filling of all floor holes, the removal
of all disconnected wiring back to junction boxes and the replacement of all
damaged ceiling tiles). Tenant shall yield up the Premises broom-clean and in
good order, repair and condition, reasonable wear and tear and damage by
casualty and taking (to the extent provided in Article VI only) excepted. Any
property not so removed within thirty (30) days after the expiration or
termination of the Lease shall be deemed abandoned and may be removed and
disposed of by Landlord in such manner as Landlord shall determine, and Tenant
shall pay to Landlord the entire reasonable cost and expense incurred by it in
effecting such removal and disposition and in making any reasonable incidental
repairs to the Premises.
5.1.10 HOLDING OVER. If Tenant (or anyone claiming by, through or under
Tenant) shall remain in possession of the premises or any part thereof after the
expiration or earlier termination of this Lease with respect to any portion] of
the Premises without any agreement in writing executed with Landlord, the person
remaining in possession shall be deemed a tenant at sufferance, Tenant shall
thereafter pay Annual Fixed Rent at double the amount payable for the twelve
month period immediately preceding such expiration or termination and with all
additional rent payable and covenants of Tenant in force as otherwise herein
provided, and Tenant shall be liable to Landlord for all direct damages. After
acceptance of the full amount of such rent by Landlord the person remaining in
possession shall be deemed a tenant from month-to-month at such rent and
otherwise subject to and having agreed to perform all of the provisions of this
Lease, but, Landlord will not be deemed to have relinquished any claims for
direct damages.
5.1.11 ASSIGNMENT, SUBLETTING. Tenant shall not assign this Lease, or
sublet or license the Premises or any portion thereof, or advertise the premises
for assignment or subletting or permit the occupancy of all or any portion of
the Premises by anybody other than Tenant (all of the foregoing actions are
sometimes collectively referred to as a "transfer") without obtaining, on each
occasion, the prior consent of Landlord which consent shall not be unreasonably
withheld or delayed. A transfer shall include, without limitation, any transfer
of Tenant's interest in this Lease by operation of law, merger or consolidation
of Tenant into any other firm or corporation or any liquidation of Tenant or a
substantial part of Tenant's assets resulting in Tenant's having less than 80%
of the net worth (as reflected in its most recent fiscal year end financial
statements) that it has on the date hereof. Tenant shall not offer to make or
enter into negotiations with respect to a transfer to (i) any tenant (or any
affiliate of such tenant) in the Building, in Ledgemont Research Park or in any
building within a 10 mile radius in which, to Tenant's actual knowledge,
principals of The Beal Companies hold ownership interests; (ii) any party with
whom, to Tenant's actual knowledge, Landlord is then negotiating with respect to
space in the Building or Ledgemont Research Park; (iii) any party which would be
of such type, character or condition as to be inappropriate as a tenant for a
first class office building. Notwithstanding the foregoing, Landlord hereby
agrees to the assignment of this Lease, or the subletting or licensing of the
Premises or any portion thereof to any entity which is a
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parent, subsidiary or sister affiliate of Tenant or Tenant's Corporate Technical
Group in Greater Boston will not be unreasonably withheld so long as the
acquiring entity, after the acquisition, has a net worth of at least 80% of the
net worth (as reflected in its most recent fiscal year end financial statements)
that Tenant has on the date hereof. If Tenant's net worth (as reflected in its
most recent fiscal year end financial statements) falls below 80% of its net
worth on the date hereof, Landlord shall have the right to require Tenant to
post a bank letter of credit (in form reasonably satisfactory to Landlord), as a
security deposit for Tenant's obligations hereunder, in the amount of the Annual
Fixed Rent then due and payable. If Tenant proposes a transfer of this Lease or
a sub-letting of all or substantially all of the Premises, Landlord may elect by
written notice to Tenant to terminate this Lease contingent upon the proposed
transferee becoming directly obligated to Landlord upon such proposed terms; and
upon the proposed assignee or sub-tenant so obligating itself, Tenant shall
thereafter be free of further obligation hereunder (except that a proposal to so
transfer or sublet to any of the entities in the foregoing sentence shall not
give rise to Landlord's right to terminate this Lease). If Tenant does transfer
with Landlord's consent, and if the consideration, rent, or other charges
payable to Tenant under such transfer exceed the rent and other charges to be
paid hereunder (pro-rated based on floor area in the case of a sub-letting,
license or other occupancy of less than the entire floor area of the Premises in
question), then Tenant shall pay to Landlord, as additional rent, the amount of
such excess when and as received. Without limiting the generality of the
foregoing, any lump-sum payment or series of payments due (including for the
purchase of so-called leasehold improvements) on account of any transfer shall
be deemed to be in excess of rent and other charges in its or their entirety.
For the purposes of this Paragraph, "excess" shall mean the amount by which (1)
the Annual Fixed Rent, additional and all other charges and consideration of any
kind payable with respect to such assignment or sublet (the "Excess") exceeds
(2) the Annual Fixed Rent, additional rent and all other charges payable by
Tenant under this Lease applicable (on a prorated basis) to the Premises or
portion thereof being sublet, plus, with respect to each such assignment or
sublet, Tenant's actual costs incurred in entering into such sublease or in
granting such assignment, for brokerage commissions, professional fees, costs
for redecorating, alterations and renovations and any reasonable rent concession
given with respect to a sublease. Excess shall not include any consideration
paid to Tenant which is not reasonably attributable to such assignment or
sublease, as distinct from consideration which may have been given for other
identifiable assets of Tenant in connection with an assignment or sublease which
is part of a larger transaction involving the disposition or reorganization of
one or more of Tenant's businesses, groups or divisions; nor shall it include
any payment to Tenant for any items of personality included in such assignment
or sublet.
Landlord's Managing Agent, Beal and Company, Inc. (or such other manager of
the Building appointed from time to time by Landlord) shall be Tenant's
exclusive broker for a period of six months with respect to any proposed
transfer so long as such Agent uses its good faith best efforts to market in
accordance with Tenant's directions; and after such period Tenant may appoint a
co-exclusive broker to serve along with Landlord's Managing Agent. Such Agent
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shall be paid a brokerage fee for any transfer in accordance with such Agent's
commission schedule then in effect so long as such schedule and other terms are
competitive with similar schedules of major Greater Boston brokerage firms.
Notwithstanding any transfer of this Lease, Tenant's (and any guarantor's)
liability to Landlord shall in all events remain direct and primary. In the case
of any requested consent to a transfer, Tenant shall deliver to Landlord at the
time thereof (i) a true and complete copy of the proposed instrument containing
all of the terms and conditions of such transfer, and (ii) a written agreement
of the assignee, sub-tenant or licensee, in recordable form reasonably approved
by Landlord, agreeing with Landlord to perform and observe all of the terms,
covenants and conditions of this Lease. Tenant shall pay to Landlord, as
additional rent, Landlord's reasonable attorneys' fees in reviewing any transfer
contemplated by this Section, which fees shall not exceed $1,000, whether or not
Landlord consents to the same. Any transferee of all or a substantial part of
Tenant's interest in the Premises shall be deemed to have agreed directly with
Landlord to be jointly and severally liable with Tenant for the performance of
all of Tenant's covenants under this Lease; and such assignee shall upon request
execute and deliver such instruments as Landlord reasonably requests in
confirmation thereof (and agrees that its failure to do so shall be subject to
the default provisions). Landlord may collect rent and other charges from such
transferee (and upon notice such transferee shall pay directly to Landlord) and
apply the net amount collected to the rent and other charges herein reserved,
but no transfer shall be deemed a waiver of the provisions of this Section, or
the acceptance of the transferee as a tenant, or a release of Tenant or any
guarantor from direct and primary liability for the performance of all of the
covenants of this Lease. The consent by Landlord to any transfer shall not
relieve Tenant from the obligation of modification of obtaining the express
consent of Landlord to any amendment or other modification of such transfer or a
further assignment, subletting, license or occupancy; nor shall Landlord's
consent alter in any manner whatsoever the terms of this Lease, to which any
transfer at all times shall be subject and subordinate.
5.2 BUILDING SERVICES. Landlord shall furnish the services and utilities
hereafter described. Tenant may obtain additional services and utilities from
time to time if the same are obtainable by Landlord upon reasonable advance
request, or Landlord may furnish the same without request if Landlord determines
that reasonably Tenant's use or occupancy of the Premises reasonably
necessitates the same; and in either case Tenant shall pay-for the same at
reasonable rates from time to time established by Landlord upon demand as
additional rent. Landlord's obligation shall be subject to the other provisions
of this Lease, reasonable wear and tear and damage caused by or resulting from
the acts or omissions of Tenant or its transferees (or their agents, employees,
invitees and independent contractors), fire, casualty or eminent domain takings.
5.2.1 LANDLORD'S MAINTENANCE. Landlord shall reasonably maintain the
foundations, exterior walls, masonry, structural floors and roof, the heating,
ventilating and air conditioning systems, and elevators and common areas of the
Building insofar as such elements affect the Premises, and the exterior
walkways, sidewalks, landscaping driveways and parking areas referred to in
Section 2.1 in a manner which is consistent
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with maintenance standards for first class buildings in Greater Boston; but in
no event shall Landlord be obligated (except as provided in s. 6.3) to repair
glass, windows or doors of the Premises, whether interior or exterior (which
responsibility shall be Tenant's).
5.2.2 ELECTRICITY. Until separately metering the Premises, Landlord shall
furnish electricity for ordinary laboratory and office purposes through
transmission facilities heretofore installed by Landlord in the Building, by
means of alternating electric current to be used by Tenant in connection with
lighting fixtures and electrical receptacles presently installed in the Premises
and/or to be installed as part of Landlord's Work. Tenant shall use such
electric current for lighting and, insofar as Landlord's facilities are not
burdened thereby and applicable laws permit, for operation of such equipment and
appliances as are customarily used in connection with an office and laboratory.
Tenant shall pay the cost of such electricity, as reasonably estimated by
Landlord from time to time, as the actual cost to Landlord, within 10 days after
receipt of Landlord's statement, which statement shall not be submitted more
frequently than monthly, and shall pay the cost of separately metering the
Premises if Landlord decides to separately meter the premises. If Tenant from
time to time at reasonable intervals disagrees with Landlord's estimate of
Tenant's electrical consumption, such consumption shall be determined by a
reputable independent electrical engineer or consultant, selected by Landlord
and approved by Tenant, which approval shall not be unreasonably withheld or
delayed. Such engineer or consultant shall promptly make a survey of the
electrical wiring and power load in the Premises to determine Tenant's projected
average annual electric current consumption therein. The cost of said survey
shall be borne by Tenant unless the findings such consultant are that Landlord
has over-billed Tenant by more than 20% of actual consumption; in which case
Landlord will pay the cost of such survey. Said survey shall be conclusive upon
the parties. If Landlord decides to separately meter the Premises, Landlord
shall give Tenant reasonable prior written notice that Landlord intends to do
so. Such separate metering shall mean that Tenant shall obtain electric current
directly from the utility company furnishing electric current to the Building.
Such current shall be furnished to Tenant by means of the then existing Building
system feeders, risers and wiring. All meters and additional panel boards,
risers, feeders, wiring and other conductors and equipment which may be required
to obtain electric current directly from such public utility company shall be
installed and maintained by Tenant. Landlord shall continue providing electric
current to Tenant until such separate meter is installed and operable, provided
Tenant is acting diligently to obtain the same.
5.2.3 OFFICE IDENTIFICATION. Subject to Section 5.1.3, install at Tenant's
expenses and if Landlord shall provide and install, requested, letters or
numerals on entry doors to the Premises to identify Tenant's official name and
Building address; all such letters and numerals to be in the Building standard
graphics. Landlord shall provide Tenant, at no additional cost to Tenant, one
directory listings on the directory for tenants in the lobby for the Building.
Landlord will also erect and maintain a directional sign noting Tenant's
location in Ledgemont Research Center.
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5.2.4 GROUNDS MAINTENANCE. Landlord shall reasonably maintain the grounds
adjacent to the Building and the walkways, driveways and parking areas referred
to in Section 2.1.
5.2.5 CHEMICAL WASTE DISPOSAL SYSTEMS. Landlord shall use reasonable
efforts to maintain the existing chemical waste disposal systems, subject always
to Section 5.1; and if any law, regulation or order (including without
limitation any law respecting the disposal or discharge of hazardous waste)
shall ever require such service to be modified, then Landlord shall promptly
modify such service, or it may continue or modify such service upon such
conditions as it deems appropriate under the circumstances. If, as a condition
of continuing such service, modifications to such systems are required or
appropriate, or if inspections or reporting or other maintenance of a kind
different from that now performed shall ever be required or appropriate, then
Landlord shall promptly in its sole discretion carry out the same, and all of
the costs and expenses of so doing shall be charged to and borne by Tenant alone
in the manner provided under Section 4.4.1 and 4.4.2; except that if other
tenants of the Building are then using the system affected such costs shall be
apportioned among all such tenants based on the number of laboratory sinks
discharging into the system in question, or on such other equitable basis as
Landlord reasonably may determine.
5.3 INTERRUPTIONS. Landlord shall not be liable to Tenant in damages or by
reduction of rent or otherwise by reason of inconvenience or annoyance or for
loss of business arising from Landlord or its agents or employees entering the
Premises for any of the purposes authorized in this Lease or for repairing,
altering or improving the Building in a manner reasonable in light of the
circumstances; nor shall Tenant be entitled to cure any failure by Landlord to
make repairs (and recover its reasonable costs thereof) unless Tenant has given
notice thereof to Landlord and Landlord has failed to commence performance
within thirty (30) days after receipt of such notice, or fails thereafter to
prosecute any cure with reasonable diligence. In case Landlord is prevented or
delayed from making any repairs or replacements or furnishing any Services or
performing any other covenant or duty to be performed on Landlord's part by
reason of cause reasonably beyond Landlord's control, Landlord shall not liable
to Tenant therefor, nor shall the same give rise to a claim Tenant's favor that
such failure constitutes actual or constructive, total or partial, eviction from
the Premises. Landlord reserves the right to stop, any service or utility
system, when reasonably necessary by reason of accident or emergency, or until
necessary repairs have been completed; provided, however, that in each instance
of stoppage, Landlord shall give Tenant such notice as is reasonably practicable
under the circumstances of the expected duration of such stoppage and will
exercise reasonable diligence to eliminate the cause thereof. Except in case of
emergency repairs Landlord will give Tenant reasonable advance notice of any
contemplated stoppage and will use reasonable efforts to avoid unnecessary
inconvenience to Tenant by reason thereof.
ARTICLE VI
----------
INSURANCE; CASUALTY; TAKING
---------------------------
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6.1.1 PUBLIC LIABILITY INSURANCE. Tenant shall obtain and maintain
throughout the Term comprehensive public liability insurance against claims and
demands for any injury to persons or property which have occurred on or in
connection with the Premises, naming Landlord and, if requested, Landlord's
mortgagees and other persons designated by Landlord as additional insureds, in
an amount which shall, at the beginning of the Term, be at least equal to the
amounts forth in Section 1.1. Such insurance shall provide that it will not be
subject to cancellation, termination or change except after at least 30 days
prior written notice to Landlord (and Landlord's mortgagees and such additional
insureds). The policy or policies, or a duly executed certificate or
certificates for the same, shall be deposited with Landlord at the beginning of
the Term, and renewals of such policies shall be so deposited not less than 30
days prior to the expiration of coverage.
6.1.2 INSURANCE BY LANDLORD. In the event Tenant breaches any covenant or
fails to observe any condition set forth above in this Article VI, then without
limiting any other right or remedy, and notwithstanding any other provision
herein concerning notice and cure of defaults, Landlord may immediately and
without notice to Tenant obtain such insurance, and Tenant shall pay the cost
thereof and Landlord's expenses related thereto upon demand as additional rent.
6.2 WAIVERS OF SUBROGATION. Any insurance carried by either Landlord or
Tenant with respect to the Premises or property therein or occurrences thereon
shall include a clause or endorsement denying to the insurer rights of
subrogation against the other party to the extent rights have been waived by the
insured hereunder prior to occurrence of injury or loss. Without limiting any
other provisions of this Lease, each party hereby waives any rights of recovery
against the other for injury or loss due to hazards covered by such insurance,
to the extent only of the indemnification received thereunder.
6.3 DAMAGE OR DESTRUCTION OF PREMISES. If through no act or neglect of
Tenant or persons acting under Tenant the Premises or any part thereof shall be
damaged by fire or other insured casualty then, subject to the following
provisions of this Section, Landlord shall proceed with diligence, subject to
then applicable statutes, building codes, zoning ordinances and other laws and
regulations of any governmental authority, and at the expense of Landlord (but
only to the extent of insurance proceeds received and made available to Landlord
by any mortgagee) to repair or cause to be repaired such damage, excluding any
items installed or paid for by Tenant which Tenant is permitted to remove upon
expiration, (which items shall be Tenant's responsibility to repair.) However,
if any damage occurs through the act or neglect of persons acting under Tenant
or if any act or neglect of Tenant or such person prevents Landlord or its
mortgagees from collecting all insurance proceeds, then the cost of repairing
the casualty damage shall be paid by Tenant except to the extent any insurance
proceeds are actually received by Landlord or mortgagees (they being under no
obligation to litigate their entitlement), and there Shall be no abatement of
rent. If (i) all or any substantial part (meaning more than 25% of insurable
value) of the Premises are materially damaged by fire or other casualty (whether
or nor
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insured) or (ii) the Building (whether or nor including any portion of the
Premises) is so damaged by fire or other casualty (whether or not insured) that
substantial alteration, reconstruction or demolition of the Building shall in
Landlord's sole discretion be appropriate, or (iii) if any casualty occurs to
the Premises during the last year of the Term and its repair will reasonably
cost more than $100,000, then in any such case, this Lease and the Term hereof
may be terminated at the election of Landlord by a notice in writing of its
election so to terminate given to Tenant within six (6) months following
adjustment of such casualty loss with the insurer, the effective termination
date being not less than thirty (30) nor more than sixty (60) days thereafter
which Landlord will use reasonable efforts to obtain.
Tenant shall be entitled to a just abatement of Annual Fixed Rent (but nor
for additional rent on account of Landlord's Taxes and Operating Expenses)
during the period of impaired use of the Premises, in no event, however,
exceeding 12 months, but only if, as and to the extent that full payment is made
to Landlord on account thereof under any rent continuation insurance. If any
mortgagee refuses without fault by Tenant to permit insurance proceeds to be
applied to replacement of the Premises, or if neither Landlord nor such
mortgagee has commenced such replacement within five (5) months following such
casualty loss with the insurer, then Tenant may, until any such replacement
commences, terminate this Lease by giving at least thirty (30) days prior
written notice thereof to Landlord. Except as provided in this paragraph,
Tenant's obligation to pay all rent and to perform and observe all other
covenants and conditions of this Lease shall not observe a and the Term of this
Lease be affected by any damage or casualty, and rent hereunder shall continue
nonetheless.
6.4 EMINENT DOMAIN. In the event that all or any substantial part of the
Premises or the Building (meaning either case more than % of floor area of
either the Premises or the Building, respectively) are taken, or if the sole
means of access to the Building is taken, or if more than 25% of the parking
spaces existing on the date hereof are taken and the number of spaces below 25%
are not replaced reasonably promptly, are taken (other than for temporary use,
hereafter described) by public authority under power of eminent domain (or by
conveyance in lieu thereof), then by notice given within three months following
the recording of such taking (or conveyance) in the appropriate registry of
deeds, this Lease may be terminated at either party's election 30 days after
such notice, and rent shall be apportioned as of the date of termination (except
that if such taking so reduces only the Building and not also the Premises, then
Tenant will have no termination right unless such taking also is of the sole
means of access to the Building). If this Lease is not terminated as aforesaid,
Landlord shall within a reasonable time thereafter, diligently restore what may
remain of the Premises (excluding any items installed or paid for by Tenant
which Tenant is permitted or may be required to remove upon expiration) to a
tenantable condition. In the event some portion of rentable floor area is taken
(other than for temporary use) and this Lease is not terminated, Annual Fixed
Rent shall be proportionally abated for the remainder of the Term. In the event
of any taking of the Premises or any part thereof, or any taking of access to
the Building or of more than 25% of the parking spaces existing on the date
hereof and the number of spaces below 25% are
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not replaced reasonably promptly, for temporary use, (i) this Lease shall be and
remain unaffected thereby and rent shall not abate, and (ii) Tenant shall be
entitled to receive for itself such portion or portions of any award made for
such use with respect to the period of the taking which is within the Term. If
such temporary taking shall continue for more than 60 days, then Tenant shall
have the same right to terminate this Lease and be reimbursed as if such taking
had been a permanent taking.
Any specific damages which are expressly awarded to Tenant on account of
its relocation expenses, and specifically so designated, shall belong to Tenant.
Except as provided in the preceding sentences of this paragraph, Landlord
reserves to itself, and Tenant releases and assigns to Landlord, all rights to
damages accruing on account of any taking or by reason of any act of any public
authority for which damages are payable. Tenant agrees to execute such further
instruments of assignment as may be reasonably requested by Landlord, and to
turn over to Landlord any damages that may be recovered in any proceeding or
otherwise.
ARTICLE VII
-----------
DEFAULT
-------
7.1 EVENTS OF DEFAULT. (a) If Tenant defaults in paying Annual Fixed Rent
or any additional rent or other charge hereunder and such default continues for
ten (10) days after notice, or defaults in performing any other covenant,
agreement or condition hereunder within thirty (30) days after notice (provided,
however, that such 30 day period shall be reasonably extended if the matters
complained of can be corrected, but the cure cannot be completed within such
period and Tenant begins promptly to cure within such period and thereafter
diligently completes the correction, and if such matters cannot be corrected
then there shall neither be a 30 day cure period nor any, extension thereof), or
if more than three notices of default are duly and properly given in any twelve
month period, or (b) if any assignment shall be made by Tenant, or any assignee,
sublessee or guarantor of Tenant, for the benefit of creditors, or (c) if
Tenant's leasehold interest shall be taken on execution or by other process of
law, or (d) if a petition is filed by Tenant, or any assignee, sublessee or
guarantor of Tenant, for adjudication as a bankrupt, or for reorganization or an
arrangement under any provision of any bankruptcy act then in force and effect,
or (e) if an involuntary petition under the provisions of bankruptcy act is
filed against Tenant, or any assignee, sublessee or guarantor of Tenant, and
such involuntary petition is not dismissed within thirty (30) days thereafter,
or (f) if Tenant or any such assignee, sublessee or guarantor shall be declared
bankrupt or insolvent according to law, or (g) if a receiver, trustee or
assignee shall be appointed for the whole or any part of Tenant's (or such
assignee's, sublessee's or guarantor's) property and shall not be removed within
thirty (30) days thereafter, or (h) if a warranty contained in Section 8.11
shall be untrue in some material respect then, and in any such case, Landlord
and its agents and employees lawfully may, in addition to and not in derogation
of any remedies for any preceding breach, immediately or at any time thereafter,
without demand or notice and with or without process of law, enter into and upon
the Premises or
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any part thereof in the name of the whole, or mail a notice of termination of
the Term addressed to Tenant at the Premises, and thereby repossess the same as
of Landlord's former estate. Notwithstanding the foregoing, if any event
described in clauses (d), (e) and (f) shall occur, but Tenant otherwise shall
not be in default hereunder, then the occurrence of such event shall not
constitute a default by Tenant hereunder. Upon such entry or mailing, as the
case may be, the Term shall terminate, all executor rights of Tenant and all
obligations of Landlord under this Lease shall immediately cease, and Landlord
may expel Tenant and all persons claiming by, through or under Tenant and remove
its and their effects without being deemed guilty of any manner of trespass and
without prejudice to any remedies which might otherwise be used for arrears of
rent .. prior breach of covenants; Tenant hereby waiving all statutory and
equitable rights to its leasehold (including without limitation rights in the
nature of further cure or of redemption, if any). Landlord may, without notice,
store Tenant's effects, and those of any person claiming by, through or under
Tenant, at the expense and risk of Tenant. Tenant agrees that a notice by
Landlord alleging any default shall, at Landlord's option (the exercise of such
option shall be indicated by the inclusion of the words "notice to quit" in such
notice), constitute a statutory notice to quit and waives any further notices to
quit or of intention to re-enter, and any grace periods provided for herein
shall run concurrently with any statutory notice periods. If any payment of
Annual Fixed Rent, additional rent, or other payment due from Tenant to Landlord
is not paid when due, then Landlord may, at its option, in addition to all other
remedies hereunder, impose a late charge on Tenant equal to 5% of the amount in
question if such payment is more than 3 days late, which late charge will be due
upon demand as additional rent.
7.2 REMEDIES FOR DEFAULT. In the event of termination far of this Lease or
otherwise, default under any of the provisions Tenant covenants and agrees to
pay forthwith to Landlord, at Landlord's election, a single lump sum payment
equal to the sum of (i) all Annual Fixed Rent, additional rent and all other
sums due hereunder to the date of payment, plus (ii) the excess of the then
present value to Landlord of the rent reserved for the residue of the Term over
the then present value of the fair marker rental value of the Premises for said
residue of the Term (which fair market rental value shall take into account
Landlord's reasonable expenses of reletting described below). The present value
to Landlord shall be calculated as though the Term had not been terminated, and
shall be a discounted value based on the projected periodic rent which would
have come due hereunder: fair market rental value shall likewise be a discounted
value. (for the purpose of calculating the additional rent which would have been
paid hereunder for the lump sum calculation, the last full year's charges for
additional rent is to be deemed constant for each year thereafter. The Federal
Reserve discount rate (or equivalent) shall be used in calculating present
values.) Should the parties be unable to agree on a fair market rental value,
the matter shall be submitted, upon the demand of either party, to the Boston,
Massachusetts office of the American Arbitration Association, with a request for
arbitration by a single arbitrator who shall be an MAI or ASREC appraiser who
has had at least 10 years experience in the leasing, owning or management of at
least 1,000,000 square feet of office space in the Greater Boston area, in
accordance with the rules of the Association. The parties agree that a decision
of the arbitrator shall be conclusive and
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binding upon them. If, at the end of the Term, the rent which Landlord has
actually received from the premises is less than the aggregate fair market rent
estimated as aforesaid, Tenant shall thereupon pay Landlord the amount of such
difference.
Unless Landlord elects such lump sum payment, Tenant covenants, as an
additional cumulative obligation after such termination, to pay punctually to
Landlord all the sums and so long as Tenant, or persons claiming under Tenant,
remains in possession perform all the obligations which Tenant covenants in this
Lease to pay and to perform in the same manner and to the same extent and at the
same time as if this Lease had not been terminated. In calculating the amounts
to be paid by Tenant pursuant to the preceding sentence Tenant shall be credited
with the net proceeds of any rent received by Landlord by reletting the
Premises, after deducting all Landlord's reasonable expenses in connection with
such reletting, including without limitation, all repossession costs, brokerage
commissions, fees for legal services, tenant allowances and expenses of
preparing the Premises for reletting, it being agreed by Tenant that Landlord
may (i) relet the Premises or any part or parts thereof for a term or terms
which may at Landlord's option be equal to or less than or exceed the period
which would otherwise have constituted the balance of the Term, and may grant
such concessions as Landlord in its sole judgment considers advisable or
necessary, and (ii) make such alterations, repairs and decorations in the
Premises as Landlord in its sole judgment considers advisable or necessary, and
no action of Landlord in accordance with the foregoing or failure to relet or to
collect rent under any reletting shall operate or be construed to release or
reduce Tenant's liability as aforesaid. Any obligation to relet the Premises
imposed upon Landlord by law shall be subject to Landlord's reasonable
objectives of developing its property in a harmonious manner with appropriate
mixes of tenants, uses, floor areas, terms, etc.
7.3 REMEDIES CUMULATIVE. Any and all rights and remedies Landlord may have
under this Lease, and at law and equity, shall be Landlord may have under
cumulative and Shall not be deemed inconsistent with each other, and any two or
more of all such rights and remedies may be exercised at the same time insofar
as permitted by law. Nothing contained in this Lease shall, however, limit or
prejudice the right of Landlord to prove and obtain in proceedings for
bankruptcy or insolvency by reason of the termination of this Lease, an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when and governing the proceedings in which the damages are to be proved,
whether such amount be greater, equal to, or less than the amount of the loss or
damages referred to in the preceding Section.
7.4 EFFECT OF WAIVERS OF DEFAULT. Any consent or permission by Landlord or
Tenant to any act or omission which otherwise would be a breach of any covenant
or condition, or any waiver by Landlord or Tenant of any shall not in any way be
held breach of any covenant or condition, or construed to operate so as to
impair the continuing obligation of such covenant or condition, or otherwise
operate to permit other similar acts or omissions. No breach shall be deemed to
have been waived unless and until such waiver be in writing and signed by the
party against whom such waiver shall be enforceable. The failure of Landlord to
seek redress for violation of or insist upon the strict performance of
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any covenant or condition of this Lease, or the receipt by Landlord of rent with
knowledge of any violation, shall not be deemed a consent to or waiver of such
violation, nor shall it prevent a subsequent act, which would otherwise
constitute a violation, from in fact being a violation.
7.5 NO ACCORD AND SATISFACTION; NO SURRENDER. No acceptance by Landlord of
a lesser sum than the Annual Fixed Rent, additional rent or any other sum or
charge then due shall be deemed to he other than on account of the earliest
installment of such rent, sum or charge due; nor shall any endorsement or
statement on any check or in any letter accompanying any check or payment be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such installment
or pursue any other right or remedy available to it. The delivery of keys (or
any similar act) to Landlord or any agent or employee of Landlord shall not
operate as a termination of this lease or an acceptance of a surrender of the
Premises.
7.6 WAIVER OF JURY. Landlord and Tenant hereby waive trial by jury in any
summary proceeding in any emergency or other statutory remedy, or in any action
based, in whole or in part, on non-payment of rent; and Tenant further agrees
that it shall not interpose any counterclaim or set-off in any such proceeding.
7.7 LANDLORD'S CURING AND ENFORCEMENT. If Tenant shall neglect or fail to
perform or observe any covenant or condition of this Lease and shall not cure
such default within the applicable cure period, Landlord may, at its option,
without waiving any claim for breach, at any time thereafter cure such default
for the account of Tenant, and any amount paid or any liability incurred by
Landlord in so doing shall be deemed paid or incurred for the account of Tenant,
and Tenant shall reimburse Landlord therefor, together with, administrative
charge of fifteen (15%) per cent of the amount thereof, on demand as additional
rent; and Tenant shall further indemnify and save Landlord harmless in the
manner elsewhere provided in this Lease in connection with all of Landlord's
actions in effecting any such cure. Notwithstanding any other provision herein
concerning cure periods, Landlord may cure any default for the account of Tenant
after such notice to Tenant, if any, as is reasonable under the circumstances (
including telephone notice) if the curing of such default prior to the
expiration of the applicable cure period is reasonably necessary to prevent
likely damage to the Premises or other improvements or possible injury to
persons, or to protect Landlord's interest in its property or the Premises.
Tenant shall pay to Landlord on demand as additional rent all of the costs and
expenses of Landlord, including such administrative charge and reasonable
attorneys' fees, incurred in enforcing any covenant or condition of this Lease.
without limiting any of its other rights or remedies, any sum due hereunder
shall, in addition, bear interest from the date due at the greater of (i) one
and one-half (1 1/2%) per cent for each month (or ratable portion thereof) the
same remains unpaid, or (ii) three (3%) per cent per annum (or ratable portion
thereof) above the so-called base or prime lending rate charged by State Street
Bank and Trust Company of Boston from time to time on 90 day loans to its most
credit-worthy
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borrowers; provided that interest shall never exceed the maximum rate permitted
under applicable law.
7.8 LANDLORD'S DEFAULT. In no event shall Landlord be in default unless
notice thereof has been given to Landlord (and all mortgagees of which Tenant
has notice) and Landlord (or any such mortgagee at its sole discretion) fails to
perform with reasonable promptness under the circumstances (provided, however,
that such period shall be reaonsably extended if such performance begins within
such period and thereafter is diligently pursued, or if such mortgagee notifies
Tenant within such period that it intends to cure on behalf of Landlord and
thereafter begins and diligently pursues curing with reasonable promptness).
7.9 SECURITY DEPOSIT. Tenant shall pay to Landlord as a security deposit
for the performance of the obligations of Tenant hereunder any amount as
specified therefor in Sections 1.1 and 5.1.11. Said security deposit may be
mingled with other funds of landlord and no fiduciary relationship shall be
created with respect to such deposit, nor shall Landlord be liable to pay Tenant
interest thereon. If Tenant shall fail to perform any of its obligations under
this Lease, Landlord may, but shall not be obliged to, apply the security
deposit to the extent necessary to cure the default, and Tenant shall be obliged
to reinstate such security deposit to the original amount thereof upon demand.
Within 30 days after the expiration or sooner termination of the Term the
security deposit, to the extent not applied, shall be returned to the Tenant,
without interest.
ARTICLE VIII
------------
MISCELLANEOUS PROVISIONS
------------------------
8.1 NOTICE FROM ONE PARTY TO THE OTHER. All notices required or permitted
hereunder shall be in writing and shall be deemed duly served if mailed by
certified mail, postage prepaid or by a regularly scheduled overnight courier,
with provision made for payment, and receipting of delivery, addressed, if to
Tenant, at the Original Address of Tenant or such other address as Tenant shall
have last designated by notice in writing to Landlord and, if to Landlord, at
the Original Address of Landlord or such other address as Landlord shall have
last designated by notice in writing to Tenant. If requested, Tenant shall send
copies of all such notices in like manner to Landlord's mortgagees and any other
persons having an interest in the Premises and designated by Landlord. Any
Notice so addressed shall be deemed duly served on the second business day
following the day of mailing if so mailed by registered or certified mail,
return receipt requested, whether or not accepted.
8.2 QUIET ENJOYMENT. Landlord agrees that upon Tenant's paying all rent and
performing and observing all covenants, conditions and other provisions on its
part to be performed and observed, Tenant may peaceably and quietly have, hold
and enjoy the Premises during the Term without disturbance by Landlord or anyone
claiming by,
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through or under it, subject always to the terms of this Lease, provisions of
law, and rights or interests of record to which this Lease may be or become
subject and subordinate.
8.3 LIMITATION OF LANDLORD'S LIABILITY. Landlord shall be liable only for
breaches of Landlord's obligations occurring while Landlord is owner of the fee
of which the Premises are a part (provided, however, that if Landlord shall ever
sell and lease-back such fee, or the ground thereof or the improvements thereon,
then "fee" shall, in such event, be deemed to mean Landlord's leasehold
interest). Tenant (and all persons claiming by, through or under Tenant) agrees
to look solely to Landlord's interest from time to time in the fee of which the
Premises are a part for satisfaction of any claim or recovery of any judgment
from Landlord; it being agreed that neither Landlord nor any trustee,
beneficiary, partner, agent or employee of Landlord shall ever be personally or
individually liable for any claim or judgment, or otherwise, to Tenant (or such
persons) . For the purposes of this Paragraph 8.3, the term "Landlord's interest
in the fee of which the Premises are a part"shall include rentals, other
income, condemnation awards, insurance proceeds, sales proceeds or proceeds of
refinancing with respect to such interest. In no event shall Landlord ever be
liable to Tenant (or such persons) or indirect or consequential damages; nor
shall Landlord ever be answerable or liable in any equitable judicial proceeding
or order to the extent that the cost of complying with such proceeding or order
shall exceed its interest in the fee or leasehold of which the Premises are a
part.
8.4 EXCUSABLE DELAY. In any case where either party hereto is required to
do any act (other than the payment of Annual Fixed Rent, additional rent or any
other sum or charge, including without limitation ascertaining the dates when
such rental payments are payable), delays caused by or resulting from war, civil
commotion, fire, flood or other casualty, labor difficulties, shortages or other
unavailability of labor, materials, equipment, energy or utility services,
unusually severe weather, or other like causes beyond such party's reasonable
control shall not be counted in determining the time during which such act shall
be completed, whether such time be a fixed date, a fixed time or "a reasonable
time," and such time shall be deemed to be extended by the period of such delay.
8.5 APPLICABLE LAW AND CONSTRUCTION. This Lease may be executed in
counterpart copies and shall be governed by and construed as a sealed instrument
in accordance with the laws of The Commonwealth of Massachusetts. If any
provision shall to any extent be invalid, the remainder of this Lease shall not
be affected. Other than contemporaneous instruments executed and delivered of
even date, if any, this Lease contains all of the agreements between Landlord
and Tenant with respect to the Premises and supersedes all prior dealings
between them with respect thereto. There are no oral agreements between Landlord
and Tenant affecting this Lease. This Lease may be amended only by an instrument
in writing executed by Landlord and Tenant. The enumeration of specific examples
of a general provision shall not be construed as a limitation of the general
provision. Unless a party's approval or consent is required by its terms not to
be unreasonably withheld, such approval or consent may be withheld in the
party's sole discretion- If Tenant is granted any extension or other option, to
be effective the exercise (and notice thereof) shall be unconditional, time
always being of the essence
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<PAGE> 33
to any options; and if Tenant purports to condition the exercise of any option
or vary its terms in any manner, then the option granted will automatically and
immediately become null and void and the purported exercise will be ineffective.
This Lease and all consents, notices and other related instruments may be
reproduced by any party by photographic, microfilm, microfiche or other
reproduction process and the originals thereof may be destroyed; and each party
agrees that reproductions will be admissible in evidence to the same extent as
the original itself in and judicial or administrative proceeding (whether or not
the original is in existence and whether or not reproduction was made in the
regular course of business), and further reproduction will likewise be
admissible. The titles of the several Articles and Sections are for convenience
only, and shall not be considered a part hereof. The submission of a form of
this Lease or any summary of its terms shall not constitute an offer by Landlord
to Tenant; but a leasehold shall only be created and the parties bound when this
Lease is executed and delivered by both Landlord and Tenant.
8.6 SUCCESSORS AND ASSIGNS. Except as herein provided otherwise, the
agreements and conditions in this Lease contained on the part of Landlord to be
performed and observed shall be binding upon Landlord and its legal
representatives, successors and assigns, and shall inure to the benefit of
Tenant and its legal representatives, successors and assigns; and the agreements
and conditions on the part of Tenant to be performed and observed shall be
binding upon Tenant (and any guarantor of Tenant) and Tenant's legal
representatives, successors and assigns and shall inure to the benefit of
Landlord and its legal representatives, successors and assigns.
8.7 RELATIONSHIP OF THE PARTIES. Nothing herein shall be construed as
creating the relationship between Landlord and Tenant of principal and agent, or
of partners or joint venturers; it being understood and agreed that neither the
manner of fixing rent, nor any other provision of this Lease, nor any act of the
parties, shall ever be deemed to create any relationship between them other than
the relationship of landlord and tenant.
8.8 ESTOPPEL CERTIFICATE. Within 10 days of either party's request,
Landlord and Tenant agree, in favor of the other, to execute, acknowledge and
deliver a statement in writing certifying that this Lease is unmodified and in
full force and effect (or, if there have been any modifications that the same is
in full force and effect as modified and stating the modifications), and the
amount and dates to which the Annual Fixed Rent (and additional rent and all
other charges) have been paid and any other information reasonably requested.
Both parties intend and agree that any such statement may be relied upon by any
prospective purchaser, mortgagee, or other person to whom the same is delivered.
Tenant acknowledges that prompt execution and delivery of such statements, and
all instruments referred to in Article X, constitute essential requirements of
any financings or sales by Landlord, and Tenant will indemnify Landlord in the
manner elsewhere provided against all costs and damages (including consequential
damages directly or indirectly resulting from Tenant's failure to comply
herewith (notwithstanding any grace period) or Landlord's right to execute the
same of Tenant's behalf.
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<PAGE> 34
8.9 NOTICE OF LEASE. Neither party shall record this Lease, but each party
will, upon request of the other, execute a recordable notice of lease in a form
reasonably approved by Landlord and, upon termination for whatever reason, a
like notice of termination of lease.
8.10 CONSTRUCTION OF ADJACENT PREMISES. Landlord shall have the right, in
connection with any development within or adjacent to the Building, to grant
easements through the Building for access and egress to and from such
development and for the installation, maintenance, repair, replacement or
relocation of utilities serving such development and/or the Premises and for the
installation, removal, maintenance, repair and replacement of windows and
walkways related to such development, provided the same do not materially and
adversely affect Tenant's use and occupancy of the Premises or materially reduce
the size of the Premises. Such right shall include the right to grant such
easements through the Premises, provided that installations, replacements or
relocations of utilities in the Premises shall, as far as practicable, be placed
above existing ceiling surfaces, below floor surface or within perimeter walls.
This Lease shall be subject and subordinate to any easements so granted. (Such
subordination shall be self-operative, but in confirmation thereof Tenant shall
execute and deliver whatever instruments may be required to acknowledge such
subordination in recordable form. Landlord and its agents, employees, licensees
and contractors shall also have the right during any construction period for any
such development to enter the Premises to undertake work pursuant to any
easement granted pursuant to the above paragraph; to shore up the foundations
and/or walls of the Premises and Building; to erect scaffolding and protective
barricades around the Premises or in other locations within or adjacent to the
Building; and to do any other act necessary for the safety of the Premises or
Building or the expeditious completion of such construction. Landlord shall not
be liable to Tenant for any compensation or reduction of rent by reason of
inconvenience or annoyance or for loss of business resulting from any act by
Landlord pursuant to this Section. Landlord shall use best efforts so as not to
unreasonably interfere with the conduct of Tenant's business and to minimize the
extent and duration of any inconvenience, annoyance or disturbance to Tenant
resulting from any work pursuant to this Section in or about the Premises or
Building, consistent with accepted construction practice. The exercise of such
rights will not materially result in any substantial permanent reduction in the
floor area of the Premises.
8.11 TENANT AS BUSINESS ENTITY. If Tenant is a business entity, then Tenant
warrants and represents that (a) Tenant is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which such entity was
organized; (b) Tenant has the authority to carry on its business as contemplated
under this Lease; (c) Tenant has duly executed and delivered this Lease; (d) the
execution, delivery and performance by Tenant of this Lease (i) are within the
powers of Tenant, (ii) have been duly authorized by all requisite action, or
(iii) will not violate any provision of law or any order of any court or agency
or government, or any agreement or other instrument to which Tenant is a party
of by which it or any of its property is bound and (e) the Lease is a valid and
binding obligation of Tenant in accordance with its terms. Tenant, if a business
entity, agrees that breach of the foregoing warranty and representation shall at
Landlord's election be a
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<PAGE> 35
default under this Lease for which there shall be no cure. This warranty and
representation Shall survive the termination of the Term.
ARTICLE IX
----------
9.1 BROKERS. Tenant represents and warrants to Landlord that it, has not
dealt with any broker (other than Landlord's Agent and the person identified as
the Broker in Section 1.1, if any) in connection with this Lease or the Premises
and agrees to indemnify and save Landlord harmless from all loss, claim, damage,
cost or expense (including reasonable attorneys' fees of counsel of Landlord's
choice against whom Tenant makes no reasonable objection) arising from any
breach of this representation and warranty. This warranty and representation
shall survive the term or any early termination of this Lease. The fees of
Landlord's Agent and any Broker named in Section 1.1 will be paid by Landlord.
ARTICLE X
---------
LANDLORD'S FINANCING
--------------------
10.1 SUBORDINATION AND SUPERIORITY OF LEASE. Tenant agrees that this Lease
and the rights of Tenant hereunder will be subject and subordinate to the
present or future lien of any first mortgage, (and at Landlord's election, to
the lien of any subordinate mortgage or mortgages) and to the rights of any
lessor under any ground or improvements lease of the Premises (collectively
referred to in this Lease as a "mortgage" and the holder or lessor thereof from
time to time as a "mortgagee" and to all advances and interest thereunder and
all modifications, renewals, extensions and consolidations thereof; provided
however, that with respect to future liens, such subordination only shall be
effective if the mortgagee of any mortgage hereafter granted executes and
delivers to Tenant an agreement in form and substance reasonably satisfactory to
Tenant in which the mortgagee agrees that Tenant shall not be disturbed in its
possession, and for which Tenant attorns to such mortgagee as its possession,
Lease covenants (both of which Landlord and performance of its conditions Tenant
agrees with all mortgagees to perform). Tenant agrees that any mortgagee may at
its option unilaterally elect to subordinate, in whole or in part and by
instrument in form and substance satisfactory to such mortgagee alone, the lien
of its mortgage (or the priority of its ground lease) to some or all provisions
of this Lease.
Tenant agrees that this Lease shall survive the merger of estates of ground
(or improvements) lessor and lessee. Until a mortgagee (either superior or
subordinate to this Lease) forecloses Landlord's equity of redemption (or
terminates in the case of a ground or improvements lease) no mortgagee shall be
liable for failure to perform any of Landlord's obligations (and such mortgagee
shall thereafter be liable only after it succeeds to and holds Landlord's
interest and then only as limited herein). No mortgagee shall be
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<PAGE> 36
bound by any payment of rent more than one month in advance. Tenant shall, if
requested by Landlord or any mortgagee, give notice of any alleged
non-performance on the part of Landlord to any such mortgagee; and Tenant agrees
that such Mortgagee shall have a separate, consecutive reasonable cure period to
Landlord of 30 days of no less than 30 days following a Landlord's cure period
to Landlord of 30 days during which such mortgagee may, but need not, cure any
"non-performance by Landlord. The agreements in this Lease with respect to the
rights and powers of a mortgagee to constitute a continuing offer to any person
which may be accepted by taking a mortgage (or entering into a ground or
improvements lease) of the Premises
10.2 RENT ASSIGNMENT. If from time to time Landlord assigns this Lease or
the rents payable hereunder to any person, whether such assignment is
conditional in nature or otherwise, such assignment shall not be deemed an
assumption by the assignee of any obligations of Landlord; but the assignee
shall be responsible only for non-performance of Landlord's obligations which
occur after it succeeds to and only while it holds Landlord's interest in the
premises.
10.3 OTHER INSTRUMENTS. The provisions of this Article shall be
self-operative; nevertheless, Tenant execute, be self-operative; Tenant agrees
to acknowledge and deliver any subordination, attornment or priority agreements
or other instruments conforming to the provisions of this Article (and being
otherwise commercially reasonable) from time to time requested by Landlord or
any mortgagee in furtherance of the foregoing, and further agrees that its
failure to do so within 10 days after written demand shall be subject to the
monetary default provisions of this Lease.
WITNESS the execution hereof under seal as of the date first set forth
above.
TENANT: W. R. GRACE & CO. - CONN.
By: /S/ F.P. Boer 5/31/88
-------------------------
(Vice) President
By :
--------------------------
(Assistant) Treasurer
LANDLORD : Ledgemont Realty Trust
By: /S/ Robert L. Beal
-------------------------
Trustee, but not individually
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<PAGE> 37
APPENDIX A
[Diagram of the leased premises]
ONE LEDGEMONT CENTER
C BUILDING
-37-
<PAGE> 38
APPENDIX A1
[Overhead diagram of the building,
land and parking facilities]
-38-
<PAGE> 39
APPENDIX A2
[Overhead diagram of the building,
land and parking facilities]
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<PAGE> 40
APPENDIX B
----------
SPECIAL MAINTENANCE AND OPERATION REQUIREMENTS
----------------------------------------------
In addition and not in limitation of Tenant's obligations set forth in
Section 5.1.2 and elsewhere in the Lease, Tenant shall perform or cause to be
performed the following:
1. CHEMICAL WASTE DISPOSAL SYSTEM.
------------------------------
Landlord represents and warrants that to Landlord's knowledge, the
chemical waste disposal system is functioning on the date of this Lease. Tenant
shall not discharge any chemicals or substance into the chemical waste disposal
system, which system, in turn, discharges into the Lexington sewer system, if
such discharge is prohibited by federal, state, municipal, Metropolitan District
Commission or other governmental authority, or will impair or adversely affect
operation of the system, without limiting the generality of the foregoing,
Tenant shall nor discharge cleaning fluids or similar solvents into the system.
Tenant shall at all times be solely responsible for informing itself of the
applicable laws and regulations pertaining to the discharge of such chemicals or
substances and the operation of the chemical waste disposal system (and Landlord
shall cooperate with Tenant by making available such information as it has
regarding the operation of such system). Tenant shall cooperate with all
reasonable requests made by Landlord of Tenant and all other users of the
system. If Landlord reasonably determines there is incompatibility of any
materials being discharged into the system, the Tenant shall abide by such
conditions on discharge as Landlord may impose, or if Landlord requires,
terminate such discharge. The failure by Landlord to prevent or terminate any
discharge shall in no event be deemed a waiver of the foregoing provisions, or
of any other Lease provisions; and in all events Tenant shall indemnify and save
Landlord harmless in the manner
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<PAGE> 41
provided in Section 5.1.5 and from the matters referred to in such Section,
including without limitation claims or actions by any person (including
governmental authorities) or from damage to the system attributable in whole or
in part to Tenant's use of such system.
2. DUMPSTER
--------
Tenant shall arrange for its own appropriately sized dumpster, and
shall locate the same in the vicinity of Tenant's loading bay in a manner
reasonably approved by Landlord.
3. No storage, except for the storage shed, shall be permitted outside
of the Premises. Storage inside the Premises shall be in a manner not visible
from outside the Premises. Landlord shall accept and either store or dispose of
hoods and furniture now in the Premises which Tenant has removed.
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<PAGE> 42
APPENDIX D
----------
TENANT WORK INSURANCE SCHEDULE
------------------------------
1. Tenant shall Purchase and, unless waived in writing by the Landlord in
particular instances, shall cause each Tenant Contractor to purchase, in a
company or companies whose A.M. Best rating for the most recent year is not less
than B+, XII against such insurance as will protect him from claims set forth
below which may arise out of or result from the contractor's operations be by
himself or by any subcontractor or by anyone directly or indirectly employed by
any of them, or by anyone for whose acts any of them may be liable:
.1 claims under worker's or workmen's compensation, disability benefit
and other similar employee benefit acts;
.2 claims for damages because of bodily injury, occupational sickness
or disease, or death of his employees;
.3 claims for damages because of bodily injury, sickness or disease, or
death of any person other than his employees;
.4 claims for damages insured by personal injury liability coverage
which are sustained (1) by any person as a result of an offense directly or
indirectly related to the employment of such person by the Contractor, or (2) by
any other person;
.5 claims for damages, other than to the Tenant Work itself, because of
injury to or destruction of tangible property, including loss of use resulting
therefrom;
.6 claims for damages because of bodily injury or death of any person
or property damage arising out of the ownership, maintenance or use of any motor
vehicle; and
.7 claims for contractual liability (written only) under his
undertaking with Tenant.
2. The insurance required by Section 1 of this Schedule shall include all
major divisions of coverage, and shall be on a comprehensive general basis
including Premises and Operations (deleting X-C-U exclusions), Owners' and
Contractor's Protective, Products and Completed Operations, and Owned,
Non-owned, and Hired Motor Vehicles. Workers' Compensation should be written to
include the endorsements following: 1) All States, 2) Voluntary Compensation, 3)
Endemic disease, 4) Foreign Coverage, 5) Repatriation, 6) U.S. Longshoreman's
and Harbor Workers. Such insurance shall be written for not less than any limits
of liability required by law or those set forth below (which amounts may, from
time to time be reasonably increased by Landlord), whichever is greater.
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<PAGE> 43
.1 Workmen's Compensation - Statutory/Employers Liability and all
additional endorsements $500,000.
.2 Public Liability - Single Limit (Combined) Per Occurrence.
Bodily a Personal Injury $1,000,000
Property Damage $1,000,000 Per Occurrence/Aggregate.
.3 Automobile Liability - Single Limit (Combined) Per Occurrence.
Bodily a Personal Injury $1,000,000
Property Damage $1,000,000 Per Occurrence
.4 Independent Contractors - $1,000,000 Per Occurrence.
.5 Products and Completed Operations - $1,000,000 Per Occurrence,
covering liability for claims made within applicable statutes of limitations
following issuance of final Certificate of Payment.
.6. Broad Form Blanket Contractual Liability (written only) $1,000,000
Per Occurrence.
.7 Excess Liability Umbrella - $5,000,000 Per Occurrence.
3. Certificates of insurance as required above shall be filed with
Landlord, if requested by Landlord, prior to commencement of the Tenant Work.
These Certificates shall contain a provision that coverages afforded under the
policies will not be amended, canceled or non-renewed until at least 30 days
prior written notice has been given to Landlord. The form of certificate shall
be reasonably acceptable to Landlord. If by the terms of insurance carried by
Tenant or any Tenant Contractor a mandatory deductible is required, in the event
of a paid claim Tenant or such Tenant Contractor shall be responsible for the
deductible amount. All deductible/self-insured retention amounts shall be shown
on the Certificate of Insurance. In all cases, Landlord and persons designated
by Landlord shall be named as additional insureds, as the insureds may appear.
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<PAGE> 44
FIRST AMENDMENT
---------------
Lease From
----------
LEDGEMONT REALTY TRUST
----------------------
TO
--
W. R. GRACE & CO.-CONN.
-----------------------
This is the First Amendment made as of July 1, 1990 to the Lease dated as
of May 31, 1988 between Ledgemont Realty Trust as Landlord, and W. R. Grace &
Co.-Conn., as Tenant, for the Premises at Ledgemont Center, Lexington,
Massachusetts (the "Lease").
WHEREAS, the Landlord is willing and the Tenant wishes to lease additional
space on the "200 Level" at One Ledgemont Center on the terms and conditions as
provided in this Lease and in accordance with Section 1.1. and as modified in
this First Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Landlord and the Tenant amend
the Lease (a) by substituting the following subjects of Section 1.1, REFERENCE
SUBJECTS for the original subjects of Section 1.1 REFERENCE SUBJECTS and (b) if
any of the following subjects is identified by a parenthetical statement next to
its heading. that it is an "Additional Reference Subject," by adding each such
Additional Reference Subject as an additional provision of the Lease and the
Lease is hereby so amended:
PREMISES:
- --------
Portions of the Building known generally as the "200 Level and 300 Level" of
Building C and the East Wing of One Ledgemont Center more particularly described
by the hatching on Appendix A attached.
LEASE ENDING DATE:
- ------------------
May 31, 1995, subject to Tenant Termination Option described below in this
Section.
ANNUAL FIXED RENT -- INITIAL TERM:
- ----------------------------------
$0.00 per month from the Lease Commencement Date until the date which is the
181st day after the Lease Commencement Date.
$26,135.00 per month (or ratable portion thereof) from the date which is the
181st date after the Lease Commencement Date through May 31, 1989.
<PAGE> 45
$366,019.00 per annum for the period June 1, 1989 through May 31, 1990.
$31,425.92 per month for the period June 1, 1990 through December 31, 1990.
$422,111.00 per annum ($35,175.92 per month) for the period January 1, 1991
through May 31, 1992.
$444,294.00 per annum for the period June 1, 1992 through May 31, 1993.
$465,885.50 per annum for the period June 1, 1993 through May 31, 1994 subject
to the Tenant Termination Option described below in this Section.
$488,550.20 per annum for the period June 1, 1994 through May 31, 1995 subject
to the Tenant Termination Option described below in this Section.
TENANT'S PERCENTAGE SHARE:
- --------------------------
16.62 percent through June 30, 1990 and 19.02 percent thereafter. Landlord
covenants and agrees that, for the purposes of this Lease, Tenant's Percentage
Share shall not, except as provided in Section 4.5, be increased for any reason
whatsoever, unless Tenant shall lease additional space in the project.
ADDITIONAL LANDLORD'S WORK: (Additional Reference Subject)
- ---------------------------
Landlord covenants and agrees to provide Tenant with access to the Premises on
the "200 Level" as shown on the attached plan and agrees to provide the premises
in broom clean condition (including replacing any ceiling tiles as necessary) to
Tenant upon occupancy.
TENANT TERMINATION OPTION:
- --------------------------
It is agreed that Tenant Termination Option as outlined in the original Lease
dated May 31, 1988 has been intentionally omitted from this amendment.
By (1) notice given to Landlord at least 270 (but not more than 360) days prior
to May 31, 1993 ("First Cancellation Date") or prior to May 31, 1994 ("Second
Cancellation Date"), and (2) Tenant thereafter making the following Termination
Payments when and as due, Tenant may terminate the term of this Lease
respectively upon the First Cancellation Date or Second Cancellation Date. If
the Lease is to be so terminated on the First Cancellation Date, then Tenant
shall pay to Landlord, as consideration for such termination option, the sum of
$150,000 on the First Cancellation Date and, upon such payment the Term of this
Lease shall be deemed to have expired by its terms and such date shall be deemed
the last day of the Term; and if the Lease is to be terminated on the Second
Cancellation Date, then Tenant shall pay to Landlord, as consideration for such
termination option, the sum of $75,000 on the Second Cancellation Date and, upon
such payment the Term of this Lease shall be deemed to have expired by its terms
and such date shall be deemed the last day of the Term.
2
<PAGE> 46
RIGHT OF FIRST REFUSAL: (Additional Reference Subject)
- ----------------------
Tenant shall have a right of first offer with respect to certain space
consisting of approximately 10,336 rentable square feet on the 200 Level of the
C Building (the "Expansion Space") as follows: Upon expiration of the rights of
existing tenants of the Expansion Space, and provided such existing tenants
elect not to remain in such Expansion Space beyond the termination of their
lease terms, before marketing such Expansion Space, Landlord will offer the same
to Tenant ("First Offer"). The First Offer will be at $15.00 per rentable square
foot through May 31, 1993 and thereafter at prevailing fair market rental rates
(which First Offer will so state such prevailing rates) for the space in an
"as-is" condition on the date herein with minor cosmetic improvements as
reasonably requested by Tenant. Within 20 days of receiving Landlord's First
Offer Tenant may in writing elect to accept the First Offer, in which case an
appropriate amendment to this Lease shall be executed forthwith, provided
however, that if the First Offer is made during or after the fifth Lease year of
the Term, Tenant may elect to accept the First Offer only if Tenant has already
elected or then simultaneously elects to extend the Term of this Lease. If
Tenant fails to accept such First Offer within such 20 day period (or accepts
such offer but fails to execute an appropriate amendment to this Lease within
the 10 day period following expiration of the 20 day period), then Landlord may
market such Space and may enter into any lease for such Space within the 360 day
period thereafter so long as the rent and other economic terms taken as a whole
are not more than ten percent (10%) less favorable to Landlord than were the
terms of the First Offer (but the term may be longer or shorter than the First
Offer term). Should Landlord desire to conclude a lease on materially less
favorable terms, then Landlord shall make another First Offer to Tenant
reflecting such less favorable terms and Tenant shall have the same rights as
set forth above, except that the 20 day period for accepting such offer shall be
10 days and the 10 day period for executing a lease amendment shall be five days
(with Landlord then being free to enter into a lease on economic terms not
materially less favorable to Landlord than those most recently offered to
Tenant).
PARKING SPACES: Fifty (50) spaces.
- --------------
EXTENSION: (Additional Reference Subject)
- ---------
The Lease may be extended by Tenant for two (2), five (5) year extension terms
by unconditional notice given at least 360 (but not more than 540) days prior to
the end of the expiring term, time being of the essence to such exercise, so
long as at the time of such notice and at the beginning of the Extension Term
Tenant is not in default. All references to the Term shall mean the Initial Term
as it may be extended by any Extension Term.
ANNUAL FIXED RENT - EXTENSION TERM: If the Term is extended for the
Extension Term, then Annual Fixed Rent will be as set forth in Section 1.1 and
as follows:
Fair Market Rent for the premises during the Extension Term shall be no
less per annum than the Annual Fixed Rent payable during the last 360 days of
the expiring term, and shall be ascertained as follows: Not later than 330 days
prior to the end of the expiring term Landlord
3
<PAGE> 47
shall give written notice to Tenant setting forth Landlord's determination of
Fair Market Rent for each of the Lease years of the Extension Term in question
(which may be different from year to year). Within 30 days following Landlord's
notice Tenant shall either propose its determination of Fair Market Rent by
giving notice thereof to Landlord or shall accept Landlord's determination.
Failure on the part of Tenant to give such notice of its determination shall
bind Tenant to Landlord's determination. If Tenant proposes its determination of
Fair Market Rent, then Landlord and Tenant shall meet for the purpose of
reaching agreement. If the parties have been unable to reach agreement by the
beginning of the ninth month preceding the end of the expiring term, then
Landlord shall give notice to Tenant of an appraiser whom Landlord designates to
ascertain such rent. If within 10 days of such notice Tenant objects to such
person, then Tenant shall give notice to Landlord and designate another
appraiser (and failure so to notify Landlord shall bind Tenant to the appraiser
designated by Landlord). If within ten days of such notice Landlord objects to
such person (and failure so to notify Tenant shall bind Landlord to the
appraiser designated by Tenant), then both such appraisers shall meet and within
10 days of such objection designate a third appraiser, who alone shall within 30
days of his or her designation ascertain such Fair Market Rent. (If the two
appraisers fail to designate the third appraiser within such time, then either
Landlord or Tenant may request the then president of the Greater Boston Real
Estate Board, or successor organization to designate the third appraiser; and if
such person fails to designate a third appraiser within 30 days, then the
American Arbitration Association, Boston Office to designate the third
appraiser). Any appraiser designated shall have had at least 10 years experience
in the leasing, ownership or management of 1,000,000 or more square feet of
floor area of office buildings similar in character to the Premises and shall be
a member of A.S.R.E.C. (or successor professional organization) and duly qualify
as an expert witness over objection to give opinion testimony addressed to the
issue in a court of competent jurisdiction. Fair Market Rent shall be the Annual
Fixed Rent which a willing tenant would pay to lease the Premises for each year
of the Extension Term in question under terms and conditions substantially the
same as those of this Lease, with the Premise considered free and clear of this
Lease and as though then available for single or multiple occupancies for the
Permitted Uses (or any higher and better use then being made by Tenant, the mix
of any multiple occupancies being what is then customary in light of good real
estate practice) in the condition in which Tenant is required to maintain the
Premises (or if in Landlord's reasonable judgment Tenant Work has been installed
which adversely affects rental value and Landlord has the right to have Tenant
remove such Work at the termination of the Term, then as though such Tenant Work
were removed), based on rentals for comparable space over a comparable period
with appropriate adjustments made to such rentals as necessary to establish
comparability, and with rental historically paid under this Lease disregarded.
If the parties do not agree in writing on such rent, then the written opinion of
Fair Market Rent of the appraiser so chosen shall conclusively establish such
rent ("Fair Market Rent"). Both parties shall have the opportunity to present
evidence in accordance with reasonable procedures prescribed by the appraiser,
and the fee of the appraiser giving his or her written opinion shall be paid
equally by the parties. If Landlord should delay in giving the notice which
begins the valuation procedures of this paragraph, or if the process should
otherwise be delayed for any reason, then such procedures shall nevertheless
remain in effect and be applicable when and as invoked with respect to Annual
Fixed Rent payable during the Extension Term; but until such procedures are
completed Tenant shall pay on account of Annual Fixed Rent at the rate
established for Annual Fixed Rent for the last twelve months of the expiring
term (and upon Fair
4
<PAGE> 48
Market Rent being established shall pay the same within 10 days retroactively to
the beginning of the Extension Term in question).
Except as so amended, the Lease and all its terms and conditions are hereby
ratified, confirmed and approved.
AGREED TO AND ACCEPTED
TENANT: W. R. Grace & Co.-Conn.
By: /s/ F. van Remoortere
---------------------------
(Vice) President
LANDLORD: Ledgemont Realty Trust
By: /s/ Robert L. Beal
----------------------------
Trustee, but not individually
5
<PAGE> 49
SECOND AMENDMENT
----------------
LEASE FROM
----------
LEDGEMONT REALTY TRUST
----------------------
TO
--
W. R. GRACE & CO., - CONN.
--------------------------
This is the Second Amendment made as of February 1, 1991 to the Lease dated
as of May 31, 1988 between Ledgemont Realty Trust as Landlord, and W.R. Grace &
Co.-Conn., as Tenant, for the Premises at Ledgemont Center, Lexington,
Massachusetts (the "Lease").
WHEREAS, THE Landlord is willing and the Tenant wishes to lease additional
space on the "400 Level" at One Ledgemont Center on the terms and conditions as
provided in this Lease and in accordance with Section 1.1 and as modified in
this Second Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Landlord and the Tenant amend
the Lease (a) by substituting the following subjects of Section 1.1, REFERENCE
SUBJECTS for the original subjects of Section 1.1 REFERENCE SUBJECTS and (b) if
any of the following subjects is identified by a parenthetical statement next to
it stating that it is an "Additional Reference Subject," by adding each such
Additional Reference Subject as an additional provision of the Lease and the
Lease is hereby so amended:
PREMISES:
- ---------
Portions or the Building known generally as the "400 Level and 300 Level" of
Building C and the East Wing of One Ledgemont Center more particularly described
by the hatching on Appendix A attached.
LEASE ENDING DATE:
- ------------------
May 31, 1995, subject to Tenant Termination Option described below in this
Section.
ANNUAL FIXED RENT -- INITIAL TERM:
- ----------------------------------
$0.00 per month from the Lease Commencement Date until the date which is the
18lst day after the Lease Commencement Date.
$26,135.00 per month (or ratable portion thereof) from the date which is the
181st date after the Lease Commencement Date through May 31, 1989.
$366,019.00 per annum for the period June 1, 1989 through May 31, 1990.
$31,425.92 per month for the period June 1, 1990 through January 31, 1991.
<PAGE> 50
$422,111.00 per annum ($35,175.92 per month) for the period February 1, 1991
through December 31, 1991.
$478,361.00 per annum ($39,863.42 per month) for the period January 1, 1992
through May 31, 1992.
$500,544.00 per annum for the period June 1, 1992 through May 31, 1993.
$522,135.50 per annum for the period June 1, 1993 through May 31, 1994 subject
to the Tenant Termination Option described below in this Section.
$544,800.20 per annum for the period June 1, 1994 through May 31, 1995 subject
to the Tenant Termination Option described below in this Section.
TENANT'S PERCENTAGE SHARE:
- --------------------------
16.62 Percent through January 31, 1991 and 21.82 Percent thereafter. Landlord
covenants and agrees that, for the purposes of this Lease, Tenant's Percentage
Share shall not, except as provided in Section 4.5, be increased for any reason
whatsoever, unless Tenant shall lease additional space in the project.
ADDITIONAL LANDLORD'S WORK: (Additional Reference Subject)
- --------------------------
Landlord covenants and agrees to provide Tenant with access to the Premises on
the "400 Level" as shown on the attached plan and agrees to provide the Premises
in broom clean condition to Tenant upon occupancy.
TENANT TERMINATION OPTION:
- --------------------------
It is agreed that Tenant Termination Option as outlined in the original Lease
dated May 31, 1988 has been intentionally omitted from this amendment .
By (1) notice given to Landlord at least 270 (but not more than 360) days prier
to May 31, 1993 ("First Cancellation Date") or prior to May 31, 1994 ("Second
Cancellation Date"), and (2) Tenant thereafter making the following Termination
Payments when and as due, Tenant may terminate the term of this Lease
respectively upon the First Cancellation Date or Second Cancellation Date. If
the Lease is to be so terminated on the First Cancellation Date, than Tenant
shall pay to Landlord, as consideration for such termination option, the sum of
$150,000 on the First Cancellation Date and, upon such payment the Term of this
Lease shall be deemed to have expired by its terms and such date shall be deemed
the last day of the Term; and if the Lease is to be terminated on the Second
Cancellation Date, then Tenant shall pay to Landlord, as consideration for such
termination option, the sum of $75,000 on the Second Cancellation Date and, upon
such
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<PAGE> 51
payment the Term of this Lease shall be deemed to have expired by its terms and
such date shall be deemed the last day of the Term.
RIGHT OF FIRST REFUSAL: (Additional Reference Subject)
- -----------------------
Tenant shall have a right of first offer with respect to certain space
consisting of approximately 20,000 rentable square feet on the 400 Level of the
C Building (the "Expansion Space") as follows: Upon expiration of the rights of
existing tenants of the Expansion Space, and provided such existing tenants
elect not to remain in such Expansion Space beyond the termination of their
lease terms, before marketing such Expansion Space, Landlord will offer the same
to Tenant ("First Offer"). The First Offer will be at $15.00 per rentable square
foot through May 31, 1993 and thereafter at prevailing fair market rental rates
(which First Offer will so state such prevailing rates) for the space in an
"as-is" condition on the date herein with minor cosmetic improvements as
reasonably requested by Tenant. Within 20 days of receiving Landlord's First
Offer, Tenant may in writing elect to accept the First Offer, in which case an
appropriate amendment to this Lease shall be executed forthwith, provided
however, that if the First Offer is made during or after the fifth Lease Year of
the Term, Tenant may elect to accept the First Offer only if Tenant has already
elected or then simultaneously elects to extend the Term of this Lease. If
Tenant fails to accept such First Offer within such 20 day period (or accepts
such offer but fails to execute an appropriate amendment to this Lease within
the 10 day period following expiration of the 20 day period), then Landlord may
market such space and may enter into any lease for such Space within the 360 day
period thereafter so long as the rent and other economic terms taken as a whole
are not more than ten percent (10%) less favorable to Landlord than were the
terms of the First Offer (but the term may be longer or shorter than the First
Offer term). Should Landlord desire to conclude a lease on materially less
favorable terms, then Landlord shall make another First Offer to Tenant
reflecting such less favorable terms and Tenant shall have the same rights as
set forth above, except that the 20 day period for accepting such offer shall be
10 days and the 10 day period for executing the lease amendment shall be five
days (with Landlord then being free to enter into a lease on economic terms not
materially less favorable to Landlord than those most recently offered to
Tenant).
PARKING SPACES: Fifty (50) spaces.
- ---------------
EXTENSION: (Additional Reference Subject)
- ---------
The Lease may be extended by Tenant for two (2), five (5) year extension terms
by unconditional notice given at least 360 (but not more than 540) days prior to
the end of the expiring term, time being of the essence to such exercise, so
long as at the time of such notice and at the beginning of the Extension Term
Tenant is not in default. All references to the Term shall mean the Initial Term
as it may be extended by any Extension Term.
ANNUAL FIXED RENT - EXTENSION TERM: If the Term is extended for the
Extension Term, than Annual Fixed Rent will be as set forth in Section 1.1 and
as follows:
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<PAGE> 52
Fair Market Rent for the Premises during the Extension Term shall be no
less per annum than the Annual Fixed Rent payable during the last 360 days or
the expiring term, and-shall be ascertained as follows: Not later than 330 days
prior to the end of the expiring term Landlord shall give written notice to
Tenant setting forth Landlord's determination of Fair Market Rent for each of
the Lease years of the Extension Term in question (which may be different from
year to year). Within 30 days following Landlord's notice Tenant shall either
propose its determination of Fair Market Rent by giving notice thereof to
Landlord or shall accept Landlord's determination. Failure on the part of Tenant
to give such notice of its determination shall bind Tenant to Landlord's
determination. If Tenant proposes its determination of Fair Market Rent, then
Landlord and Tenant shall meet for the purpose of reaching agreement. If the
parties have been unable to reach agreement by the beginning of the ninth month
preceding the end of the expiring term, then Landlord shall give notice to
Tenant of an appraiser whom Landlord designates to ascertain such rent. If
within 10 days of such notice Tenant objects to such person, then Tenant shall
give notice to Landlord and designate another appraiser (and failure so to
notify Landlord shall bind Tenant to the appraiser designated by Landlord). If
within ten days of such notice Landlord objects to such person (and failure so
to notify Tenant shall bind Landlord to the appraiser designated by Tenant),
then both such appraisers shall meet and within 10 days of such objection
designate a third appraiser, who alone shall within 30 days of his or her
designation ascertain such Fair Market Rent. (If the two appraisers fail to
designate the third appraiser within such time, then either Landlord or Tenant
may request the then president of the Greater Boston Real Estate Board, or
successor organization to designate the third appraiser; and if such person
fails to designate a third appraiser within 30 days, then the American
Arbitration Association, Boston Office to designate the third appraiser). Any
appraiser designated shall have had at least 10 years experience in the leasing,
ownership or management of 1,000,000 or more square feet of floor area of office
buildings similar in character to the Premises and shall be a member of
A.S.R.E.C. (or successor professional organization) and duly qualify as an
expert witness over objection to give opinion testimony addressed to the issue
in a court of competent jurisdiction. Fair Market Rent shall be the Annual Fixed
Rent which a willing tenant would pay to lease the Premises for each year of the
Extension Term in question under terms and conditions substantially the same as
those of this Lease, with the Premise considered free and clear of this Lease
and as though then available for single or multiple occupancies for the
Permitted Uses (or any higher and better use then being made by Tenant, the mix
of any multiple occupancies being what is then customary in light of good real
estate practice) in the condition in which Tenant is required to maintain the
Premises (or if in Landlord's reasonable judgment Tenant Work has been installed
which adversely affects rentable value and Landlord has the right to have Tenant
remove such work at the termination of the Term, then as though such Tenant Work
were removed), based on rentals for comparable space over a comparable period
with appropriate adjustments made to such rentals as necessary to establish
comparability, and with rental historically paid under this Lease disregarded.
If the parties do not agree in writing on such rent, then the written opinion of
Fair Market Rent of the appraiser so chosen shall conclusively establish such
rent ("Fair Market Rent"). Both parties shall have the
4
<PAGE> 53
opportunity to present evidence in accordance with reasonable procedures
prescribed by the appraiser, and the fee of the appraiser giving his or her
written opinion shall be paid equally by the parties. If Landlord should delay
in giving the notice which begins the valuation procedures of this paragraph, or
if the process should otherwise be delayed for any reason, then such procedures
shall nevertheless remain in effect and be applicable when and as invoked with
respect to Annual Fixed Rent payable during the Extension Term; but until such
procedures are completed Tenant shall pay on account of Annual Fixed Rent at the
rate established for Annual Fixed Rent for the last twelve months of the
expiring term (and upon Fair Market Rent being established shall pay the same
within 10 days retroactively to the beginning of the Extension Term in
question).
Except as so amended, the Lease and all its terms and conditions are
hereby ratified, confirmed and approved.
AGREED TO AND ACCEPTED
TENANT: W. R. Grace & Co.-Conn.
By: /s/ Barry A. Solomon
------------------------------
(Vice) President
LANDLORD: Ledgemont Realty Trust
By: /s/ Robert L. Beal
-------------------------------
Trustee, but not individually
5
<PAGE> 54
THIRD AMENDMENT TO LEASE
------------------------
Amendment dated as of July 12, 1993 by and between Ledgemont Realty Trust
u/d/t dated December 12, 1984 ("Landlord") and W. R. Grace & Co.-Conn., a
Connecticut corporation ("Tenant").
Background
----------
A. Landlord and Tenant are parties to a Lease dated May 31, 1988 as amended
by a First Amendment dated July 1, 1990 and by a Second Amendment dated February
1, 1991 (the "Lease") regarding premises (the "Existing Premises") on the 300
and 400 levels in the buildings known as Building C and the East Wing of One
Ledgemont Center.
B. Landlord and Tenant desire to amend the Lease to add space to the
Existing Premises and to reflect certain other agreements between Tenant and
Landlord.
Agreements
----------
FOR VALUATION CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged, and in consideration of the mutual covenants herein
contained, Landlord and Tenant agree as follows:
1. The Existing Premises shall be expanded effective as of the date hereof
by adding to them the space shown on Exhibit A attached hereto (the "Expansion
Premises"). From and after the date hereof, all references in the Lease to the
"Premises" shall be deemed to refer to the Existing Premises and the Expansion
Premises, collectively.
2. From and after September 1, 1993, the Annual Fixed Rent due under the
Lease shall be as follows:
PERIOD ANNUAL FIXED RENT
------ -----------------
September 1, 1993-May 31, 1994 $561,315.50
June 1, 1994-May 31, 1995 $583,980.20
3. From and after September 1, 1993, Tenant's Percentage share shall be
increased to 24.35%.
4. The construction by Tenant of improvements in the Expansion Premises
shall be paid for by Tenant and otherwise shall be subject to the provisions of
the Lease governing Tenant Work
5. Capitalized terms used herein, but not defined shall have the meanings
set forth in the Lease.
<PAGE> 55
6. Except as amended hereby, the Lease is ratified and confirmed.
Executed as a sealed Massachusetts instrument as of the date first
written above.
TENANT:
W. R. Grace & Co.-Conn.
By: /s/ Barry A. Solomon
------------------------------
Name: Barry A. Soloman
Title: Vice President, Research
Director
LANDLORD:
LEDGEMONT REALTY TRUST
By: /s/ Robert L. Beal
------------------------------
Trustee, but not individually
2
<PAGE> 1
EXHIBIT 10.6
TUFTS UNIVERSITY
200 Westboro Road
North Grafton, Massachusetts
LEASE
-----
THIS LEASE is made in North Grafton, Massachusetts effective on the Date of
Lease stated in Article 1 between the Landlord and the Tenant named in Article
1. In consideration of the Rent payable by Tenant and of the agreements to be
performed and observed by Tenant, Landlord hereby leases the Premises to Tenant,
and Tenant hereby takes the Premises from Landlord, subject to the provisions
and for the term stated below:
ARTICLE 1
Reference Data and Definitions
------------------------------
SECTION 1.01 - TERMS REFERRED TO: Each reference in this lease
to any of the following terms incorporate the data stated for that term in this
Section 1.01:
DATE OF LEASE: June 16, 1995
LANDLORD: Trustees of Tufts College, a Massachusetts corporation established
pursuant to the provisions of Massachusetts law its successors and assigns.
LANDLORD'S ADDRESS: Ballou Hall
Medford, Massachusetts 02155
TENANT: W. R. Grace Co. - Conn., a
corporation under the laws of Delaware.
TENANT'S ADDRESS: W. R. Grace & Co. - Conn.
One Ledgemont Center
128 Spring Street
Lexington, Massachusetts 02173
TERM COMMENCEMENT DATE: The date on which Landlord acquires occupancy permit
from the town of Grafton and conditions precedent to the Lease set forth in
Section 2.06 are met, but in no event earlier than September 11, 1995.
STATED EXPIRATION DATE: September 30, 1998 or as defined in Section 1.03, if
different.
<PAGE> 2
PERMITTED USE: General office, animal husbandry and production, veterinary
procedures, biomedical research and development and related accessory uses, to
the extent authorized under applicable Legal Requirements in accordance with the
attached protocol Exhibit C. Tenant may bring animals on the Premises only from
source herds qualified, and, if necessary, re-qualified in strict accordance
with the terms of Exhibit C of this Lease.
LAND: The land on which the Premises are located with the boundaries shown in
Exhibit A to this Lease. Access to the Premises will be provided via the access
road shown on said Exhibit A.
BUILDING: The 8,100 square foot animal husbandry/biomedical research and
development facilities on the Land.
PREMISES: The Land and all structure and improvements now or in the future on
the Land, including the Building, grain bins, generator, gas tank pad and the
Improvements.
LEASE TERM: The period of time between the Term Commencement Date and the Lease
Termination Date.
BASIC RENT: The amounts specified in Sections 1) A, B, and C. of the Rent Rider
attached as Exhibit B.
SECTION 1.02 - GENERAL PROVISIONS. For all purposes of this Lease, unless
the context otherwise requires:
(a) A pronoun in one gender includes and applies to the other
genders as well.
(b) Each definition stated in Section 1.01 or 1.03 of this Lease
applies equally to the singular and the plural forms of the word or term
defined.
(c) Any reference to a document defined in Section 1.03 of this
Lease is to the document as originally executed, or, if amended or supplemented
as provided in this Lease, to the document as amended or supplemented and in
effect at the relevant time of reference.
(d) All accounting terms not otherwise defined in this Lease have
the meanings assigned to them under generally accepted accounting principles.
(e) All references in Section 1.01 are subject to the specific
definitions (if any) in Section 1.03.
SECTION 1.03 - DEFINITIONS. Each underlined word or term in this Section
1.03 has the meaning stated immediately after it.
2
<PAGE> 3
ADDITIONAL RENT. All costs of effluent removal from the effluent storage
tank, all metered costs of electricity, water and sewer charges provided in
Section 2) of Exhibit B to this Lease and other charges agreed to by Tenant and
Landlord under separate written agreement.
AUTHORIZATIONS. All franchises, licenses, permits and other governmental
consents issued by Governmental Authorities under Legal Requirements which are
or may be required for the occupancy of the Premises and the conduct of a
Permitted Use on the Premises.
BUSINESS DAY. A day which is not a Saturday, Sunday or other day on which
banks in Worcester, Massachusetts, are authorized or required by law or
executive order to remain closed.
DEFAULT. Any event or condition specified in Article 20 so long as any
applicable requirements for the giving of notice or lapse of time or both have
not been fulfilled.
EVENT OF DEFAULT. Any event or condition specified in Article 20 if all
applicable requirements for the giving of notice or lapse of time or both have
been fulfilled.
GOVERNMENTAL AUTHORITY. United States of America, Commonwealth of
Massachusetts, Town of North Grafton, County of Worcester, and any political
subdivision, agency, department, commission, board, bureau or instrumentality of
any of them.
HAZARDOUS SUBSTANCES. "Oil", "hazardous materials" "hazardous wastes" and
"hazardous substances" as those terms are defined under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
ET SEQ., as amended, the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901, et sea., as amended, Massachusetts General Laws, Chapters
21C and 21E, as amended, and the regulations from time to time adopted under
those laws.
IMPROVEMENTS. All (i) structures located in and forming a part of the
Building, including but not limited to, walls, ceilings, doors and floor
covering, (ii) pipes, wires, conduits, controls and fixtures relating to
utilities located in and serving the Building, and (iii) structures, fixtures,
equipment and personal property of any kind installed on the Premises in such a
manner that they become part of the Premises or the Building under law or that
they cannot be removed without material damage to the structure, fixture,
equipment or personal property or to the Premises or the Building, provided that
Improvements do not include equipment purchased and installed by Tenant for use
in its research and development business even if affixed to the floor and
connected to the utility systems of the Building.
3
<PAGE> 4
INSURANCE PREMIUMS. The cost of all insurance maintained by landlord under
the provisions of Section 15.03.
INSURANCE REQUIREMENTS. All terms of any policy of insurance maintained by
Landlord or Tenant and applicable to the Premises; all requirements of the
issuer of any such policy; and all orders, rules, regulations and other
requirements of the National Fire Protection Association (or any other body
exercising similar functions) applicable to any condition, operation, use or
occupancy of all or any part of the Premises.
LEASE. This document, all exhibits and riders attached and referred to in
this document and all amendments to this document, the exhibits and riders.
LEASE TERM. The period stated in Section 1.01 beginning on the Term
Commencement Date. The Lease Term includes the period of any extension exercised
by Tenant as provided in this Lease.
LEASE TERMINATION DATE. The earliest to occur of (a) the Stated Expiration
Date, (b) the termination of this Lease by Landlord as the result of an Event of
Default, (c) the termination of this Lease under Article 17 (Damage or
Destruction) or Article 18 (eminent Domain), or Section 24.03 (Option to
Terminate), or (d) the termination of this Lease under Section 3.01 or 24.02.
LEASE YEAR. Each twelve consecutive calendar month period ending on the day
before an anniversary of the Term Commencement Date (or the first day of the
next succeeding calendar month if the Term Commencement Date occurs other than
on the first day of a month); provided that (a) the first Lease Year includes
the partial month, if any, between the Term Commencement Date and the first day
of the next calendar month and (b) the last Lease Year will end on the Lease
Termination Date.
LEGAL REQUIREMENTS. (a) All statutes, codes, ordinances (and rules and
regulations thereunder) and all executive, judicial and administrative orders,
judgments, decrees and injunctions of or by any Governmental Authority which are
applicable to any condition or use of the Premises, Building or Land, and (b)
the provisions of all Authorizations.
MINOR IMPROVEMENTS. Improvements by Tenant which (a) do not cost more than
a total of Three Thousand Dollars ($3,000) and (b) do not involve structural
components, roof, exterior or foundations of the Building, or the effluent
handling system.
OCCUPANCY ARRANGEMENT. With respect to all or any part of the Premises or
this Lease, and whether (a) written or unwritten or (b) for all or any portion
of the Lease Term, an assignment, a sublease, a tenancy at will, a tenancy at
sufferance or any other arrangement (including but not limited to a license or
concession) under which a Person occupies the Premises for any purpose.
4
<PAGE> 5
PERSON. An individual, a corporation, a company, a voluntary association, a
partnership, a trust, an unincorporated organization or a Governmental
Authority.
RENT. Basic Rent and all Additional Rent.
RESTORATION. As defined in Section 17.02.
STATED EXPIRATION DATE. The later to occur of (i) date as stated in Section
1.01, or (ii) last day of the final Lease Year of the Lease Term.
TAKING. The taking or condemnation of title to or of possession or use of
all or any part of the Premises by a Governmental Authority for any public use
or purpose, or any proceeding or negotiations which might result in such a
taking, or any sale or lease in lieu of such a taking.
TOTAL TAKING. (i) a Taking of: (a) the fee interest in all or substantially
all of the Land or the Building or (b) such title to or easement in, over, under
or such rights to occupy and use any part of the Land or the Building to the
exclusion of Landlord as, in the good faith judgment of Landlord, unreasonably
restricts access to the Building by vehicle or renders the portion of the
Building remaining after such taking (even if restoration were made) unsuitable
or uneconomical for the continued use and occupancy of the Building for the
Permitted Use or (ii) a Taking of all or substantially all of the Premises or
such title to or easement in, on or over the Premises to the exclusion of Tenant
which in the good faith judgment of Landlord prohibits access to the Premises or
the exercise, to any material extent, by Tenant of its rights under this Lease.
TUFTS UNIVERSITY. The Trustees of Tufts College, a Massachusetts
not-for-profit corporation established pursuant to the provisions of
Massachusetts law.
ARTICLE 2
Premises
--------
SECTION 2.01 - PREMISES. Landlord hereby leases the Premises to Tenant, and
Tenant hereby takes the Premises from Landlord, subject to the provisions of
this Lease and the Permitted Exceptions.
SECTION 2.02 - TENANT FIT-UP. Landlord agrees that it shall complete the
following tasks to Tenants reasonable satisfaction before the Term Commencement
Date at no cost to Tenant:
(a) Landlord will pave the Land around the Building in accordance
with the site plan attached hereto as Exhibit A. Landlord will
install barrier protections satisfactory to Tenant to protect
equipment and fixtures on the Premises which are located outside
of the building.
5
<PAGE> 6
(b) Landlord will pave the access road to the Premises the entire
distance from the Building out to the existing paved road with
which the access road intersects.
(c) Landlord will arrange for 24-hour per day direct inward
dialing telephone service to the Premises through Landlord's
telephone network, in which case Landlord will pay the one-time
charge for Tenant's connection to the Landlord's telephone
network. Tenant, at its option, and at its sole cost, shall have
the right to cause telephone service which does not go through
the Landlord's telephone network to be installed for the
Premises.
(d) Landlord will install alarms in the Building and link them to
the main office of the Landlord's police such that the said
police will be immediately notified of a power failure, ambient
air temperature changes, pump levels for the effluent handling
system, excess levels of methane gas, or smoke, within the
Building. Landlord shall pay the monthly charges for telephone
lines to the alarm. Landlord and Tenant shall agree on a written
protocol (Exhibit D) for responding to emergencies at the
Premises. Tenant, at its option, and at its sole cost, shall have
the right to use an independent alarm company exclusively to
respond to alarms at the Premises.
(e) Landlord will clean and disinfect all portions of the
Building to be occupied by Tenant. Landlord and Tenant shall
agree on a written protocol (Exhibit D) for such cleaning and
disinfectants.
(f) Landlord shall contribute Ten Thousand Dollars ($10.000.00)
to Tenant to defray a portion of the costs that Tenant will incur
in Fit-Up of the Building.
(g) Landlord shall complete all other items in Exhibit F listed
under the caption "Improvements by Tufts.
Notwithstanding anything to the contrary contained in this Lease, in no
event shall Landlord be liable for any loss, damage, or injury to the Premises
or to any Person or to any Property (including without limitation animals) with
respect to any of Landlord's acts or omissions under Subsections 2.02(d) and
(e), and Tenant shall hold Landlord harmless from same. Tenant shall have the
right to inspect the Premises to determine Landlord's full compliance with the
provisions of this Section prior to taking occupancy of the Premises.
SECTION 2.03 - EFFLUENT SYSTEM.
-------------------------------
(a) The Premises are served by an effluent handling system which
disposes of animal wastes and waste water from the Premises. The
portion
6
<PAGE> 7
of the effluent handling systems beyond the effluent pump station
to and including the effluent holding tank will be maintained
exclusively by Landlord at Landlord's sole cost.
(b) Landlord will be responsible for repairing at its own cost,
the portion of the effluent handling system from beyond the
effluent pump station to and including the effluent holding tank
in the event of malfunctions, leaks, collapses and the like.
(c) Landlord will as often as necessary pump effluent from the
effluent holding tank. The effluent so pumped from the effluent
holding tank shall be spread by Landlord in areas reasonably
acceptable to Tenant. The non-potable water distributed to the
pig housing rooms will be metered. Tenant will pay Landlord a
charge not to exceed $0.02 per gallon of non-potable water used
by Tenant for Landlord's services in pumping the effluent holding
tank and spreading the effluent. If because of some legal
requirements change, the Landlord must change the method of
disposing of effluent from the effluent holding tank, then the
cost of $0.02 per gallon will be adjusted by agreement of
Landlord and Tenant.
SECTION 2.04 - OTHER ANIMALS IN PROXIMITY. In the event that Landlord plans
to maintain animals (particularly primates) on its North Grafton campus within
two hundred and fifty (250) yards of the boundary lines of the Premises,
Landlord agrees (a) to notify Tenant in writing of Landlord's plans as early as
possible, and (b) not to so maintain animals until Tenant consents in writing to
same, provided that: Tenant agrees not to unreasonably delay or withhold said
consent.
SECTION 2.05 - CONFIDENTIALITY. Landlord agrees to maintain in confidence
and not use, and to cause its employees to maintain in confidence and not use,
any and all information of Tenant relating to Tenant's use and occupancy of the
Premises or relating to matters observed or otherwise disclosed to Landlord's
employees while on or about the Premises. This section does not apply to
information which the Landlord can show (a) is known to the public through no
fault of Landlord, or (b) was known to Landlord prior to its disclosure by
Tenant to Landlord.
SECTION 2.06 - CONDITIONS PRECEDENT TO LEASE. This Lease and the rights and
obligations of Landlord and Tenant hereunder are subject to and conditioned upon
the occurrence of each of the following express conditions on or before
September 11, 1995:
(a) Completion of the items of Tenant Fit-Up provided in Section
2.02 of this Lease to the satisfaction of Tenant;
(b) Approval, if required, by the Town of North Grafton of
Tenant's use and occupancy of the Premises for the purposes set
forth in this Lease;
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(c) Satisfactory evidence that the animals to be maintained in
the portion of the Premises licensed to Landlord are in good
health and free from contagious and communicable diseases of
swine to the satisfaction of Tenant;
(d) Execution by Landlord and Tenant of the letter agreement
("Re: Tufts Occupation of 2.500 s.f. at Swine Unit II") of even
date granted by Tenant to Landlord far use of a portion of the
Premises under tenancy at will by Tenant to maintain pigs.
ARTICLE 3
Term
----
SECTION 3.01 - TERM COMMENCEMENT. The Lease Term will begin on the
Term Commencement Date. If the Lease Term cannot begin on or before
September 11, 1995 because no occupancy permit has been granted by
the Town of Grafton or for any other reason not caused entirely by
the fault or omission of Tenant, then Tenant may terminate this Lease
by giving Landlord the (10) days written notice of such termination.
Such right to terminate shall expire if Tenant waives such right in
writing expressly referring to Section 3.01 or if Tenant fully
occupies the Premises for purposes of the Permitted use.
SECTION 3.02 - TERMINATION. The Lease Term will end on the Lease
Termination Date.
SECTION 3.03 - ESTOPPEL CERTIFICATE. If either the Term commencement
Date or the Stated Expiration Date occurs on a date other than as
stated in Section 1.01, Landlord and Tenant agree to execute a
certificate in the form of the estoppel certificate referred to in
Section 25.02 or such other form as either may request, establishing
the Term Commencement Date and the Stated Expiration Date.
ARTICLE 4
Rent
----
SECTION 4.01 - BASIC RENT. Tenant agrees to pay Landlord the Basic Rent
as annual rent for the Premises for each Lease Year, without offset or
deduction and without previous demand. Tenant agrees to pay Basic Rent
in equal monthly installments in advance on the first day of each
calendar month during the Lease Term, except that the first monthly
installment, pro-rated for the partial month in which the Lease Term
begins, is due on the Term Commencement Date.
ARTICLE 5
Additional Rent/Operating Expenses
----------------------------------
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SECTION 5.01 - MONTHLY PAYMENTS OF ADDITIONAL RENT. Tenant agrees to pay
Landlord, as Additional Rent, all costs with respect to the Premises as provided
in Exhibit B. Tenant agrees to pay to Landlord within thirty (30) days of
Tenant's receipt of Landlord's invoice for Additional Rent.
SECTION 5.02 - RECORDS. Landlord agrees to maintain and make available to
Tenant at Tenant's request such reasonable documentation supporting its invoices
for Additional Rent as may be necessary for Tenant to verify the accuracy of the
amounts invoiced to Tenant for Additional Rent hereunder.
ARTICLE 6
Use of Premises
---------------
SECTION 6.01 - USE RESTRICTED. The Premises may be used for the Permitted
Use and for no other purpose. No improvements may be made on or to the Premises
except as provided in this Lease.
ARTICLE 7
Improvements
------------
SECTION 7.01 - TENANT'S ACCESS TO THE PREMISES. Tenant and Tenant's agents,
at Tenant's sole risk, may after notice to Landlord, enter the Premises before
the Term Commencement Date in order to (a) install its furniture, furnishings
and equipment, (b) perform or inspect work necessary to make the premises ready
for Tenant's use and occupancy and to make Tenant Improvements in accordance
with Section 7.02. Permission is conditioned upon (i) Tenant delivering to
Landlord evidence of the insurance required under Section 15.01. Any entry by
Tenant will be deemed to be under all of the provisions of this Lease except the
covenant to pay Rent. Except for negligence of Landlord and its employees, if
Tenant or its agents enter the Premises before the Term Commencement Date,
Landlord will not be liable for and Tenant agrees to assume the entire risk for
any personal injury and any loss or damage which may occur to any Improvements
or to any property placed in the Premises before the term Commencement Date.
Unescorted access by Grace personnel to Tufts facilities shall be limited to the
Premises and to any public areas of the North Grafton campus such as lobbies,
library and cafeteria.
SECTION 7.02 - IMPROVEMENTS BY TENANT. Tenant agrees not to make any
Improvements (other than Minor Improvements) before or during the Lease Term,
except according to plans and specifications and using contractors first
approved by Landlord. Landlord will not unreasonably withhold or delay its
approval of Tenant's plans, specifications and contractors if Tenant
demonstrates to Landlord's satisfaction that the Improvements will not (x)
adversely affect the value, structure or mechanical systems of
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the Building, or (y) change the exterior appearance or roof line of the
Building, or (z) result in a violation of the provisions of any other lease or
agreement binding on the Landlord of which Tenant has received prior written
notice. Tenant agrees not to make any Improvements which would require unusual
expense to readapt the Premises to specialized animal housing and biomedical
research use upon termination of this Lease. All Improvements will become part
of the Premises and property of Landlord upon their completion or installation
except to the extent Landlord specifies that they must be removed at Tenant's
expense on the Lease Termination date as an express condition to Landlord's
approval of their initial installation. The construction of Improvements by
Tenant and the installation of Tenant's furniture, furnishings and equipment
will be coordinated with any work being performed by Landlord and will be
performed in such manner as to maintain harmonious labor relations and not to
damage the Building or the Premises. Except for work done by or through Landlord
before making any Improvements, Tenant will secure all necessary Authorizations;
deliver to Landlord a statement of the names of all its contractors and
subcontractors and the estimated cost of all labor and material to be furnished
by them; cause each contractor to carry (1) worker's compensation insurance in
statutory amounts covering all the contractor's and subcontractor's employees,
(2) comprehensive public liability insurance with such limits as Landlord may
reasonably require, but in no event less than $1,000,000, and (3) property
damage insurance with limits of not less than $300,000 (all such insurance to be
written by companies approved by Landlord and insuring Landlord and Tenant as
well as the contractors), and to deliver to Landlord certificates of all such
insurance; and secure casualty insurance against loss or damage to the
Improvements pending completion and deliver evidence of such insurance to
Landlord. Tenant agrees to pay promptly when due the entire cost of any work
done on the Premises by Tenant, its agents, employees, or independent
contractors, and not to cause or permit any liens for labor or materials
performed or furnished in connection with its work to attach to the Premises and
immediately to discharge any such liens which my attach. All construction work
done by Tenant, its agents, employees or independent contractors will be done in
a good and workmanlike manner and in compliance with all Legal Requirements and
Insurance Requirements. Landlord may inspect the work at any time mutually
agreed upon by Landlord and Tenant and will promptly give notice to Tenant of
any observed defects.
SECTION 7.03 - IMPROVEMENTS BY LANDLORD. Landlord warrants that as of the
Term Commencement Date all Improvements (including heating, ventilation, air
conditioning, effluent, alarm systems, and safety appliances) that are required
by the Legal Requirements and the Insurance Requirements are installed in the
Building and are in operable condition. Landlord shall be responsible for all
installations or replacements of Improvements (including safety appliances)
which Legal requirements or Insurance requirements requires be made to the
Premises before the Lease Term.
SECTION 7.04 - AIR HANDLING EQUIPMENT. Subject to any reasonable and
necessary review under Section 7.02, Landlord agrees that Tenant may install, or
cause to be installed, air handling systems in the area of the Building to be
used by Tenant for procurement.
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Landlord agrees to use all reasonable efforts to assist Tenant in obtaining
any permits, approvals and consents required from the Town of North Grafton for
said installation of said air handling systems and for any other future
Improvements by Tenant in accordance with this Article 7.
ARTICLE 8
Utilities and Landlord's Repairs and Services
---------------------------------------------
SECTION 8.01 - LIMITATIONS ON LANDLORD'S LIABILITY. Landlord will not be
liable in damages nor in default under this Lease for any failure or delay on
the part of any Person in furnishing any utilities to the Premises. No failure
or delay in furnishing any utilities to the Premises may be claimed or pleaded
as an eviction or disturbance of Tenant's possession or give Tenant any right to
terminate this Lease or give rise to any claim for set-off or abatement of Rent
or excuse Tenant from the performance of any of its obligations under this
Lease. Notwithstanding the foregoing, nothing in this Section 8.01 shall apply
to any failure or delay in the provision of utilities caused by physical damage
or interference to conduits, pipes and the like occurring on property owned or
leased by Landlord (including the Premises) to the extent such physical damage
or interference is caused by negligent acts or negligent omissions of Landlord
or of Landlord's employees, agents, contractors, licensees or tenants (other
than Tenant).
SECTION 8.02 - LANDLORD'S REPAIRS. Landlord agrees to make those repairs
and replacements to the structural components, roof, exterior and foundations of
the Building, the emergency generator and effluent handling system.
Landlord agrees, at its expense, to maintain and repair the items listed in
Exhibit F under the caption "Items Included Under Basic Rent."
SECTION 8.03 - LANDLORD'S SERVICES. Landlord agrees in consideration of
Tenant's payment of Basic Rent to provide the following services at the Premises
during the Lease Term at no additional charge to Tenant: up to two hundred (200)
hours per year of repairs and maintenance; trash pickup; pest control; snow
removal; and landscaping.
Such services shall be provided in accordance with written protocols to be
mutually agreed upon by Landlord and Tenant. A draft of said protocols is
attached as Exhibit D so that the concepts described therein is accepted by both
Landlord and Tenant prior to the execution of the Lease.
At the time of executing this Lease Landlord and Tenant estimate that two
hundred (200) hours of repairs and maintenance each year will be sufficient. In
the event that the actual number of hours during the first Lease Year is less
than one hundred and fifty (150) hours or is more than two hundred and fifty
(250) hours, then Tenant shall have the one-time right to exercise the following
options on or before the day that is thirty (30)
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days after the end of the first Lease Year. If less than one hundred and fifty
(150) hours of repairs and maintenance are needed during the first Lease Year,
then Tenant may negotiate a reduction of the Basic Rent in the second and
subsequent Lease Years (including any extended Lease Term). If more than two
hundred and fifty (250) hours of repairs and maintenance are needed during the
first Lease Year, then Tenant may negotiate to increase the Basic Rent in order
to include the additional hours under the Basic Rent in the second and
subsequent Lease Years (including any extended Lease Term).
The two hundred (200) hours of repairs and maintenance which are included
in the Basic Rent includes, but is not limited to, maintenance and repair of all
items in Exhibit F listed under the caption "Items Included Under 200 Hours of
Maintenance" and also included in the Basic Rent is the cost of parts
replacement for normal wear and tear to said items. In addition, the two hundred
(200) hours of maintenance includes maintenance and repair of the effluent
handling system from the pits in the swine handling rooms through the gravity
waste pipes through the small effluent holding tanks to and including the
effluent pump station.
Repairs and maintenance are subject to a limit of two hundred (200) hours
per Lease Year. If two hundred (200) hours of repairs and maintenance are
insufficient in any Lease Year, Tenant shall have the option: (a) to provide
such additional maintenance itself or to cause such additional maintenance to be
provided by independent third parties; or (b) to agree with Landlord as to the
types and amounts of such additional maintenance and as to the costs of
Landlord's providing such additional maintenance.
SECTION 8.04 - REAL ESTATE TAXES. In consideration of the Tenant's payment
of Basic Rent, Landlord shall pay all real estate taxes assessed against or
otherwise applicable or allocated to the Premises.
ARTICLE 9
Tenant's Covenants
------------------
SECTION 9.01 - PAY RENT. Tenant agrees to pay when due all Basic Rent and
Additional Rent as provided in Articles 4 and 6 hereof.
SECTION 9.02 - INJURY TO THE PREMISES, ETC. Tenant will not (i) injure or
deface the Premises, (ii) install any thing on the Premises except in compliance
with Legal Requirements, (iii) permit in the Premises any inflammable fluids or
chemicals not reasonably related to the Permitted Use, nor (iv) permit any
nuisance or use of the Premises which is improper, offensive, contrary to any
Legal Requirement or contrary to any written Insurance Requirement provided to
the Tenant by the Landlord.
SECTION 9.03 - SAFETY. Subject to Section 7.03 hereof, Tenant agrees to
keep the Premises equipped with all safety appliances required by Legal
Requirements or Insurance
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Requirements provided that: nothing in this Section 9.03 shall be construed to
limit or waive Landlord's obligations or Tenant's rights and remedies with
respect to the warranty provided in Section 7.03 by Landlord. Tenant agrees to
procure all Authorizations required because of Tenant's use of the Premises and
to perform at its expense any work required under any Authorization because of
such use, it being understood that the provisions of this Section may not be
construed to broaden in any way the Permitted Use.
SECTION 9.04 - EQUIPMENT. Tenant agrees not to place a load upon the floor
of the Building or to move any safe or other heavy equipment into, about or out
of the Building which causes damage to the Building and to repair promptly all
damage caused by the installation or moving of its equipment. Tenant agrees to
isolate and maintain all of Tenant's equipment which causes or may cause
airborne or structure-borne vibration or noise so as to eliminate such vibration
or noise.
SECTION 9.05 - PAY TAXES. Tenant agrees to pay promptly when due all Taxes
upon personal property (including, without limitation, fixtures and equipment)
on the Premises irrespective of the Person to whom the Taxes may be assessed.
SECTION 9.06 - MAINTENANCE. Subject to Section 7.03, Tenant agrees, at all
time during the term of this Lease, and at its own expense, (including using the
200 hour per year maintenance labor allowance) (i) to maintain the Premises,
excluding maintenance and repairs of the items in Exhibit F listed under the
caption "Items Included in Basic Rent" and excluding repairs to the structural
components, roof, exterior and foundations of the Building, in good repair and
condition (except for ordinary wear and tear), and (ii) to use all reasonable
precautions to prevent waste, Damage or injury to any part of the Premises.
Tenant will be considered to have met its obligations with respect to
maintenance if the interior of the Premises and all Building systems are
maintained in good working order through regular inspections and under service
contracts.
SECTION 9.07 - REDELIVERY. On the Lease Termination Date, Tenant agrees to
leave the Premises and surrender possession to Landlord free of (i) all tenants
or occupants claiming through or under Tenant, (ii) all liens encumbrances,
restrictions or reservations caused or consented to by Tenant, and all Hazardous
Substances released or discharged on or under the Premises by Tenant or by
employees or contractors of Tenant during the Lease Term on the Term
Commencement Date. Tenant agrees subject to the provisions of Articles 17 and
18, to surrender the Premises, including all Improvements except those which
Tenant is required to remove as provided in Section 7.02, to Landlord broom
clean and in good condition and repair (ordinary wear and tear, damage by fire
or other casualty, and repairs which Landlord is obligated to make only
excepted) with all damage resulting from removal of (i) Tenant's furniture,
furnishings and equipment and (ii) any Improvements which Tenant is required to
remove as provided in Section 7.06 repaired at Tenant's expense to Landlord's
reasonable satisfaction.
ARTICLE 10
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Compliance with Requirements
----------------------------
SECTION 10.01 - LEGAL REQUIREMENTS. Subject to Sections 7.03 and 9.03,
Tenant agrees that its use of the Premises shall comply with all applicable
Legal Requirements. Tenant agrees to pay all costs, liabilities, losses,
damages, fines penalties, claims and demands, that may arise out of or be
imposed because of the failure of Tenant to comply with the covenants of this
Article 10.
In the event that Landlord notifies Tenant that one or more employees of
Tenant have failed to comply with any applicable laws then in effect, or with
any reasonable, standing policies of Landlord applied without discrimination to
Tenant, with respect to employees or property of Landlord at the North Grafton
campus, then Tenant shall use all reasonable efforts to cause said employee or
employees of Tenant to promptly cease such non-compliance.
SECTION 10.02 - CONTESTS. Tenant has the right to contest by appropriate
legal proceedings diligently conducted in good faith, in the name of Tenant or
Landlord (if legally required) or both (if legally required), without expense or
liability to Landlord, the validity of application of any Legal Requirement. If
compliance with the terms of any Legal Requirements may legally be delayed
pending the prosecution of any such proceeding, Tenant may delay compliance
until the final determination of the proceeding.
SECTION 10.03 - ENVIRONMENTAL LEGAL REQUIREMENTS. Except to the extent
permitted under applicable Legal Requirements, Tenant agrees not to cause or
permit any Hazardous Substances, including sharps, medical disposables and the
like, to be released on the Premises or into the air, or to be introduced into
the sewage or other waste disposal system serving the Premises. Tenant agrees to
generate, store or dispose of Hazardous Substances on the Premises or dispose of
Hazardous Substances from the Premises to any other location only in compliance
with all applicable Legal Requirements and to notify Landlord of any incident
which would require the filing of a notice under any Legal Requirement. Tenant
agrees to provide Landlord with such information required by Governmental
Authorities as Landlord may reasonably request from time to time with respect to
compliance with this Section. Tenant will not be responsible for the existence
of any Hazardous Substances on or about the Premises on the Term Commencement
Date. Landlord shall be responsible for all effluent stored in the effluent
holding tank and for the proper disposal of that effluent. Tenant agrees not to
store Hazardous Substances on the Premises outside of the Building.
ARTICLE 11
Covenant Against Liens
----------------------
SECTION 11.01 - NO LIENS. Landlord and Tenant each agree not to create any
lien on the Premises and to discharge any lien on the Premises arising out of
any act or omission by it, including, but not limited to, any tar, mechanic's,
laborer's or materialman's
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lien or lien arising under Massachusetts General Laws, Chapter 21E. The
provisions of this Section 11.01 may not be construed to limit (a) Tenant's
right to encumber any equipment installed on the Premises, or (b) Landlord's
right to secure by a mortgage of the Premises (1) capital expenditures or (ii)
the refinancing of the loans used to acquire the Premises.
SECTION 11.02 - DISCHARGE. If any lien is filed against the Premises as a
result of any act or omission by Tenant, Tenant agrees to cause the lien to be
discharged of record by payment, deposit, bond, order of a court of competent
jurisdiction or otherwise, within sixty (60) days after (i) Tenant has actual or
constructive notice that it is filed, or (ii) final judgment in favor of the
holder of the lien. If Tenant fails to cause the lien to be discharged, then, in
addition to any remedies available to Landlord in case of an Event of Default,
Landlord may, but is not obligated to, discharge the lien either by paying the
amount claimed to be due or by procuring the discharge of the lien by deposit or
by bonding proceedings. Any amount paid by Landlord and all costs incurred by
Landlord in connection the removal of any lien will constitute Additional Rent
and will be paid by Tenant to Landlord on demand with interest as provided in
Section 21.06.
ARTICLE 12
Access to Premises
------------------
SECTION 12.01 - ACCESS. Subject to the second paragraph of this Section
12.01, Landlord or Landlord's agents and designees will have the right, but not
the obligation, to enter the Premises at all reasonable times during ordinary
business hours, after reasonable notice except in the case of an emergency, to
examine the Premises, to make necessary repairs, preventive maintenance checks
and replacements, to insure compliance with Legal Requirements and to exhibit
the Premises to prospective purchasers, mortgagees, and, during the last six (6)
months of the Lease Term, prospective tenants. Except in the case of an
emergency, any Person entering the Premises under this Section 12.01 will be
accompanied by a Person designated by Tenant. Reasonable notice is twenty-four
(24) hours or, in the case of a prospective purchaser or tenant, seven (7) days;
and in the latter case, Tenant has the right to secure areas of the Premises to
protect confidential information.
Landlord shall comply, and shall cause its employees, agents and
contractors to comply, with all reasonable rules and practices of Tenant
applicable to persons or animals entering or exiting the Premises or present on
the Premises, provided that: Landlord and its employees, agents and contractors
shall not be responsible for (a) complying with any such rules and practices
which are not posted in writing or of which Landlord is not advised by Tenant in
a written notice; or (b) in the event of emergency, complying with any such
rules and practices not contained in a written emergency response protocol to be
agreed upon by the parties. A preliminary draft of said protocol is attached
hereto as Exhibit D.
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ARTICLE 13
Assignment and Subletting: Occupancy Arrangements
-------------------------------------------------
SECTION 13.01 - ASSIGNMENT AND SUBLETTING. Tenant agrees not to enter into
any Occupancy Arrangement, either voluntarily or by operation of law, (other
than with a Person who is affiliated with Tenant and for a period ending when
and if such Person ceases to be affiliated with Tenant) without the prior
written consent of Landlord. For purposes of this Article 13, a person will be
considered to be affiliated with Tenant if such Person, directly or indirectly,
controls is controlled by or is under common control with Tenant.
Notwithstanding the provisions of Section 25.08 to the contrary, Landlord will
not unreasonably withhold its consent to an Occupancy Arrangement if, in the
reasonable judgment of Landlord, the proposed occupant is financially
responsible and will use the Premises for the Permitted Use.
SECTION 13.02 - PROCEDURE. If Tenant intends to enter into an Occupancy
Arrangement which requires Landlord's consent, Tenant agrees to give Landlord
notice of the name of (and a financial statement with respect to) the proposed
occupant, the exact terms of the Arrangement and a precise description of the
portion of the Premises intended to be subject to the Occupancy Arrangement.
Within thirty (30) days after receipt of the notice, Landlord will (i) consent
to the Occupancy Arrangement, or (ii) refuse to consent to the Occupancy
Arrangement. If Landlord consents to the Occupancy Arrangement, Tenant agrees
(i) to enter into the Arrangement on the exact terms described to Landlord
within thirty (30) days after Landlord's consent and to deliver to Landlord and
to the holder of any first mortgage on the Building an executed original
counterpart of the Occupancy Arrangement and (ii) to remain liable for the
payment and performance of the provisions of this Lease. Any Occupancy
Arrangement will expressly incorporate and be subject to the terms of this
Lease, which terms will be binding on all parties to the Occupancy Arrangement.
If Landlord consents to and Tenant does not enter into the Arrangement within
the thirty (30) day period, such consent will be deemed revoked and Tenant will
again comply with the terms of this Section.
ARTICLE 14
Indemnity
---------
SECTION 14.01 - TENANT'S INDEMNITY. Except to the extent waived by Landlord
under the provisions of Section 16.02, Tenant agrees to indemnify Landlord
against all claims, losses and expenses, including reasonable attorneys' fees,
which may be imposed upon or incurred by Landlord by reason of any of the
following occurrences:
(a) any negligent or wrongful act or omission on the part of Tenant, or any
of its agents, contractors, licensees or invitees, whether or not occurring
on the Premises, but only to the extent that such claims, losses and
expenses were not
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caused by Landlord or by Landlord's employees, agents, contractors,
licensees, tenants or invitees;
(b) any failure on the part of Tenant to comply with any of its obligations
under this Lease, including, but not limited to Exhibit C, whether or not
such failure constitutes a Default or Event of Default, but only to the
extent that such claims, losses and expenses were not caused by Landlord or
by Landlord's employees, agents, contractors, licensees, tenants or
invitees;
(c) any untrue or misleading statement of a material fact or any
misrepresentation of a material fact made by or on behalf of Tenant in
connection with the negotiation of this Lease;
(d) any release or threat of release of Hazardous Substances or Infectious
(porcine to porcine) Agents by Tenant, or any of its agents, contractors,
licensees or invitees, on or under the Premises during the term of this
Lease; or
(e) any other occurrences in the portion of the Building occupied
exclusively by Tenant or connected with the use or condition thereof unless
caused in whole or in part by the negligence of Landlord.
SECTION 14.02 - CLAIMS BY LANDLORD. If any proceeding is brought against
Landlord arising out of any occurrence described in Section 14.01, upon notice
from Landlord Tenant agrees, at its expense, to defend the proceeding using
legal counsel reasonably satisfactory to Landlord or, if applicable, Tenant's
insurer, provided that Tenant has not been prejudiced in any way by failure or
delay on the part of Landlord to give Tenant prompt notice of the proceeding. If
Tenant has supplied Landlord with insurance covering any of the risks described
in Section 14.01, no claim may be made against Tenant unless the insurer fails
or refuses to defend and/or pay all claims, losses and expenses incurred by
Landlord. Notwithstanding the foregoing, Landlord has the right to make claims,
institute legal proceedings, or otherwise seek redress against Tenant before the
expiration of any statute of limitations or other limitation on the time or
manner in which Landlord may seek redress regardless of whether or not any
insurer is responding.
SECTION 14.03 - LANDLORD'S LIABILITY. Except for its intentional or
negligent acts or omissions or the intentional or negligent acts or omissions of
its employees, agents, contractors, invitees, tenants or licensees, Landlord
will not be responsible or liable for any loss, damage or injury to the Premises
or to any Person or property at any time on the Premises. In no event shall
Landlord be held liable for consequential or indirect damages.
Landlord agrees that it, at a minimum, shall in connection with its use and
occupation of its North Grafton campus comply with all requirements set forth in
the protocols attached hereto so as to prevent the occurrence of contagious or
communicable disease which might affect the animals maintained by Tenant on the
Premises. The foregoing will not be construed to inhibit or prevent the practice
of veterinary medicine or
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the teaching of veterinary medicine in Tufts' Foster Hospital (Building 40) or
Wildlife Clinic (Building 17).
ARTICLE 15
Insurance
---------
SECTION 15.01 - TENANT'S INSURANCE. Tenant agrees to provide, at its
expense, and to keep in force:
(a) Comprehensive general liability insurance against claims for personal
injury, death and property damage occurring with respect to Tenant's
occupancy of the Premises having primary combined single limit coverage of
at least $1,000.000 for bodily injury and property damage.
(b) Casualty insurance against loss or damage to (i) all inventory,
furniture, furnishings and equipment owned, controlled or in use by Tenant
and situated on the Premises, (ii) all Improvements made by Tenant pending
completion and (iii) all Improvements made by Tenant which Tenant is
required to remove on the Lease Termination Date under Section 7.02, under
a so-called "All Risk" policy in an amount sufficient to replace the same
without allowance for depreciation, if available, and if not, in the amount
necessary to avoid the effect of co-insurance provisions under the
applicable policies.
(c) Worker's compensation insurance for all Tenant's employees working in
the Premises in an amount sufficient to comply with Legal Requirements.
(d) Such greater limits and such other insurance and in such amounts as may
from time to time be reasonably required by Landlord against other
insurable hazards which at the time are customarily insured against in the
case of buildings similarly situated and used.
Section 15.02 - General Insurance Provisions.
---------------------------------------------
(a) All insurance provided for in Section 15.01 will be written as primary
policies (without "contribution" or "solely in excess of coverage carried
by Lessor" provisions) and will be effected under valid and enforceable
policies, issued by insurers of recognized responsibility authorized to
write such insurance in Massachusetts and having a Best's financial rating
of B or better. Not less than five (5) days before the Term Commencement
Date, and thereafter not less than ten (10) days before the expiration
dates of the expiring policies furnished under to Section 15.01, binders,
certificates or other evidence of such insurance satisfactory to Landlord
bearing no actions evidencing the payment of premiums or accompanied by
other evidence satisfactory of Landlord of such payment, will be delivered
by Tenant to Landlord.
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(b) Nothing in this Article 15 will prevent Tenant from taking out
insurance of the kind and in the amounts provided for under this Article
under a blanket insurance policy or policies covering other properties as
well as the Premises. Any policy or policies of blanket insurance (i) will
specify, or Tenant will furnish Landlord with a written statement from the
insurers specifying, the amounts of the total insurance allocated to the
Premises, which amounts will not be less than the amounts required by
Section 15.01 and will be sufficient to prevent any of the insureds from
becoming a coinsurer within the terms of the applicable policy or policies,
(ii) will contain an "Agreed Amount" clause as to the Premises and (iii)
will otherwise comply as to endorsements and coverage with the provisions
of this Article.
(c) All policies of insurance provided for in Section 15.01 will name
Landlord and Tenant as the insured, as their respective interests may
appear, and also any mortgagee, when requested, as their respective
interests may appear, except that Landlord, and any such mortgagee ,ill
have no interest in the insurance on Tenant's personal property. Each such
policy or certificate issued by the insurer will, to the extent obtainable,
contain an agreement by the insurer that the insurance will not be canceled
without at least twenty (20) days prior written notice to Landlord and to
any other named insureds. Landlord agrees not to carry any insurance
concurrent in coverage and contributing in the event of loss with any
insurance required to be furnished by Tenant if the effect of such separate
insurance would be to reduce the protection or the payment to be made under
Tenant's insurance.
SECTION 15.03 - LANDLORD'S INSURANCE. Landlord agrees to cause the Building
(excluding any Improvements (a) by Tenant prior to their completion, or (b)
which Tenant may be required to remove upon termination of its Lease) to be
insured for the benefit of Landlord, and any mortgagee of Landlord, as their
respective interest may appear, against loss or damage under a so-called "All
Risk" policy in an amount equal to (i) the replacement value or (ii) the amount
necessary to avoid the effect of co-insurance provisions of the applicable
policies. Landlord also agrees to maintain comprehensive form boiler insurance,
rental value insurance and such other insurance against such perils and in such
amounts as may be required by any mortgages of Landlord or as Landlord may
consider prudent.
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ARTICLE 16
Waiver of Subrogation
---------------------
SECTION 16.01 - WAIVER OF SUBROGATION. If available, all insurance policies
carried by either party covering the Building and/or the Premises will contain a
clause or endorsement expressly waiving any right on the part of the insurer to
make any claim against the other party. The parties agree to use their best
efforts to insure that their policies will include such waiver clause or
endorsement.
SECTION 16.02 - WAIVER OF RIGHTS. Landlord and Tenant each waive all
claims, causes of action and rights of recovery against the other and their
respective partners, agents, officers and employees, for any loss or damage to
persons, property or business which occurs on or about the Premises or the
Building and results from any of the perils insured under any policy of
insurance maintained by Landlord and/or Tenant, regardless of cause. This waiver
includes the negligence and intentional wrongdoing of either party and their
respective agents, officers and employees but is effective only to the extent of
recovery, if any, under any such policy. This waiver will be void to the extent
that any such insurance is invalidated by reason of this waiver.
ARTICLE 17
Damage and Restoration
----------------------
SECTION 17.01 - SUBSTANTIAL DAMAGE.If the Premises is damaged by fire or
other casualty, Tenant agrees to give prompt notice to Landlord. If as a result
of fire or other casualty (i) the Premises is so damaged that substantial
alteration or reconstruction of the Premises is, in Landlord's sole opinion,
required, or (ii) any mortgagee of the Premises requires that all or a
substantial portion of insurance proceeds payable be used to retire the mortgage
debt, Landlord may, at its option, terminate this Lease by giving notice to
Tenant within sixty (60) days after the date of the damage. If, within sixty
(60) days after the date of the damage, Landlord does not begin to restore the
Premises as provided in Section 17.02 or notify Tenant of its election to
terminate this Lease, Tenant may terminate this Lease by giving notice to
Landlord within ten (10) days after the expiration of the sixty (60) day period.
If the Lease is terminated by Landlord or Tenant as provided in this Section
17.01, Rent will be abated as of the date of the damage.
SECTION 17.02 - RESTORATION. If Landlord does not terminate this Lease as
provided in Section 17.01 within sixty (60) days after the date of the damage,
Landlord agrees to begin to restore the Premises to substantially the same
condition in which it was immediately before the damage, and, subject to
Unavoidable Delays, to continue the restoration with reasonable diligence.
Landlord's restoration work will include the scope of the work done by Landlord
in originally finishing the Premises according to the Working Drawings and
subsequent Improvements made by Tenant under the provisions of Section 7.02
which are to remain part of the Premises. Landlord will not be required to
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rebuild, repair, or replace (i) any part of Tenant's furniture, furnishings,
fixtures or equipment, or (ii) any alterations and additions made by Tenant
under Section 7.02 which Tenant is required to remove on the Lease Termination
Date. landlord will not be liable for any inconvenience or annoyance to Tenant
or injury to the business of Tenant resulting from the damage to or the repair
of the Premises, except that Landlord will allow Tenant a fair reduction of
Basic Rent to the extent the Premises are unfit for occupancy from the date of
the occurrence of the damage to a date thirty (30) days after completion of
Landlord's repairs.
ARTICLE 18
Eminent Domain
--------------
SECTION 18.01 - TOTAL TAKING. If there is a Total Taking, then this Lease
will terminate as of the earlier to occur of (i) the date when physical
possession of the Building or the Premises is taken by the condemning authority
or (ii) the date when title vests in the condemning authority.
SECTION 18.02 - PARTIAL TAKING. If there is a Taking of the Premises which
is not a Total Taking, Landlord may terminate this Lease by giving notice to
Tenant within sixty (60) days after receiving notice of the Taking, in which
event this Lease will terminate as of the earlier to occur of (i) the date when
physical possession of such portion of the Premises is taken by the condemning
authority or (ii) the date when title bests in the condemning authority. If this
Lease is not terminated, Basic Rent and, to the extent covered by Landlord's
insurance, Additional Rent, will be abated from the date the Premises are
rendered unfit for occupancy by an amount representing that part of the Basic
Rent properly allocable to the portion of the Premises taken, and Landlord will,
at Landlord's expense, restore the Building and the Premises to substantially
their former condition to the extent that restoration, in Landlord's judgment,
may be feasible. Landlord's restoration work will not exceed the scope of work
done by Landlord in originally finishing the Premises according to the working
drawings and subsequent Improvements made by Tenant under the provisions of
Section 7.02 which are to remain part of the Premises.
SECTION 18.03 -AWARDS AND PROCEEDS. All proceeds payable in respect of a
Taking will be the property of Landlord. Tenant hereby assigns to Landlord all
rights of Tenant in or to such awards and proceeds, provided that Tenant will be
entitled to separately petition the condemning authority for a separate award
for its moving expenses and trade fixtures but only if such a separate award
will not diminish the amount of award or proceeds payable to Landlord.
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ARTICLE 19
Quiet Enjoyment
---------------
SECTION 19.01 - LANDLORD'S COVENANT. Landlord covenants that it has good
title to the Premises, subject to the Permitted Exceptions, and that it has
sufficient authority to enter into this Lease. Landlord also covenants that if
Tenant pays the Rent and performs all of its obligations under this Lease,
subject to the Permitted Exceptions, it will quietly have and enjoy the Premises
during the Lease Term, without interference from Landlord or any Person lawfully
claiming under Landlord or by paramount title.
SECTION 19.02 - SUBORDINATION AND NON-DISTURBANCE. This Lease is
subordinate to any mortgage now or in the future on the Premises and to each
advance made under any such mortgage, and to all renewals, modifications,
consolidations, replacements and extensions of such mortgage. This Section 19.02
is self-operative and no further instrument of subordination is effective,
Landlord will cause the mortgagee to deliver to Tenant a non-disturbance
agreement, binding upon itself and any successor in interest, to the effect that
no foreclosure of the mortgage will disturb the possession of Tenant under this
Lease or its rights with respect to the options provided in Sections 24.01,
24.02 and 24.03 so long as no Event of Default exists. In confirmation of such
subordination, Tenant agrees to execute and deliver promptly any certificate
that Landlord or any mortgagee may request. if any mortgagee succeeds to the
interest of Landlord and agrees to recognize the interest of Tenant under this
Lease, Tenant agrees to attorn to such mortgagee and to recognize such mortgagee
as its landlord.
SECTION 19.03 - NOTICE TO MORTGAGEE. No act or failure to act on the part
of Landlord which would entitle Tenant under the terms of this Lease, or by law,
to be relieved of Tenant's obligations under or to terminate this lease, will
result in a release or termination of such obligations or a termination of this
Lease unless (i) Tenant first gives written notice of Landlord's act or failure
to act to Landlord's first mortgagee of record, if any, specifying the act or
failure to act on the part of Landlord which could or would give basis to
Tenant's rights; and (ii) the mortgagee, after receipt of such notices, fails or
refuses to correct or cure the condition complained of within a reasonable time.
Nothing contained in this Section 19.03 will be deemed to impose any obligation
on any mortgagee to correct or cure any condition. "Reasonable time" means a
period of not less than the same period which Landlord has to cure the condition
but in no event less than ten (10) Business Days and includes (but is not
limited to) a reasonable time to obtain possession of the Building if the
mortgagee elects to do so and a reasonable time to correct or cure the condition
if the condition is determined to exist. Tenant has no obligation to give notice
under this Section 19.03 until the mortgagee has given Tenant notice of its
interest as such and the address to which notices under this Section 19.03 are
to be sent.
SECTION 19.04 - OTHER PROVISIONS REGARDING MORTGAGEES. If this Lease or the
Rent is assigned to a mortgagee as collateral security for any obligation, the
mortgagee
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will not be deemed to have assumed any of Landlord's obligations under
this Lease Solely as a result of the assignment. A mortgagee to whom this Lease
has been assigned will be deemed to have assumed such obligations only if (i) by
the terms of the assignment the mortgagee has (a) foreclosed its mortgage, (b)
accepted a deed in substitution of foreclosure, or (c) taken possession of the
Premises. Even if the mortgagee assumes the obligations of Landlord, the
mortgagee will be liable for breaches of any of Landlord's obligations only to
the extent the breaches occur during the period of ownership by the mortgagee
after foreclosure (or any conveyance by a deed in substitution of foreclosure)
or after entry, and the mortgagee will have no liability for any act or omission
or for any obligations incurred by any prior Landlord, including liability with
respect to any security deposit except to the extent actually received by such
mortgagee.
ARTICLE 20
Defaults: Events of Default
---------------------------
SECTION 20.01 - DEFAULTS. The following will (i) if any requirement for
notice or lapse of time or both has not been met, constitute Defaults, and (ii)
if there are no such requirements or if such requirements have been met,
constitute Events of Default:
(a) The failure of Tenant to pay Rent when due, and the continuation of
such failure for a period of ten (10) days after notice from Landlord;
(b) The failure of Tenant to perform any of its obligations under this
Lease, other than its obligation to pay Rent, and the continuation of such
failure for a period of thirty (30) days after notice from Landlord
specifying in reasonable detail the nature of such failure;
(c) The occurrence with respect to Tenant of one or more of the following
events: the death, dissolution, termination of existence (other than by
merger or consolidation), insolvency, appointment of a receiver for all or
substantially all of its property, the making of a fraudulent conveyance or
the execution of an assignment or trust mortgage for the benefit of
creditors by it, or the filing of a petition of bankruptcy or the
commencement of any proceedings by or against it under a bankruptcy,
insolvency or other law relating to the relief or the adjustment or
indebtedness, rehabilitation or reorganization of debtors; provided that if
such petition or commencement is involuntarily made against it and is
dismissed within sixty (60) days of the date of such filing or
commencement, such events will not constitute an Event of Default;
(d) The issuance of any execution or attachment against Tenant or any other
occupant of the Premises as a result of which the Premises are taken or
occupied by a Person other than Tenant; and
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(e) he cancellation of, refusal to review or denial of liability under the
insurance with respect to the Premises as a result of the Premises being
unoccupied.
SECTION 20.02 - TENANT'S BEST EFFORTS. If the Default of which Landlord
gives notice is of such a nature that it cannot be cured within thirty (30)
days, then the Default will not be deemed to continue so long as Tenant, after
receiving notice of the Default, begins to cure the Default as soon as
reasonably possible and continues to take all steps necessary to complete the
curing of the Default within a period of time which, under all prevailing
circumstances, is reasonable. No Default will be deemed to continue so long as
Tenant is acting to cure the Default in good faith or is delayed in or prevented
from curing the Default by reason of Unavoidable Delays.
SECTION 20.03 - ELIMINATION OF DEFAULT. If any Default is cured as provided
in this Lease, the Default will be deemed never to have occurred and Tenant's
rights under this Lease will continue unaffected by the Default.
ARTICLE 21
Landlord's Remedies: Damages on Default
---------------------------------------
SECTION 21.01 - LANDLORD'S REMEDIES. Landlord may, at its option, whenever
an Event of Default exists, give Tenant a notice terminating this lease on a
date specified in the notice, which date will be not less than three (3)
Business Days after the date of receipt by Tenant of the notice. On the date
specified in the notice, this Lease and all rights of Tenant under this Lease
will end without further notice or lapse of time, but Tenant will continue to be
liable to Landlord as provided in this Article 21.
SECTION 21.02 - POSSESSION. Upon any termination of this Lease as the
results of an Event of Default, Tenant agrees to leave the Premises peacefully
and surrender possession to Landlord as provided in Section 9.07. Landlord may,
at any time after any termination of this Lease and without further notice,
enter the Premises and recover possession by summary proceedings or any other
manner permitted by law, and may remove Tenant and all other Persons and
property from the Premises and may hold the Premises and the right to receive
all rental income from the Premises.
SECTION 21.03 - RIGHT TO RELET. At any time after termination of this Lease
as a result of an Event of Default, Landlord may relet all or any part of the
Premises in the name of Landlord or otherwise, for such term (which may be
greater or less than the period which would otherwise have constituted the
balance of the Lease Term) and on such conditions (which may include concessions
or free rent) as Landlord, in its reasonable discretion, may determine. Landlord
will not be liable for failure to relet the Premises or for failure to collect
any rent due upon any such reletting.
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SECTION 21.04 - SURVIVAL OF COVENANTS. ETC. If this Lease is terminated as
provided in Section 21.01:
(a) The termination will not relieve Tenant of its obligations under this
lease which obligations will survive the termination. Tenant agrees to
indemnify Landlord against all claims, losses and expenses arising out of
the termination.
( b) At the time of the termination, Tenant agrees to pay to Landlord the
Rent up to the date of termination. Tenant also agrees to pay to Landlord,
on demand, as liquidated damages for Tenant's Default, the difference
between
(1) the total Rent that would have been payable under this Lease by
Tenant from the date of the termination until the Stated Expiration
Date, LESS
(2) the fair and reasonable rental value of the Premises for the same
period reduced by landlord's reasonable estimate of expenses to be
incurred in connection with reletting the Premises, including, without
limitation, all repossession costs, brokerage commissions, legal
expenses, reasonable attorneys' fees and expenses of cleaning the
Premises in preparation for such reletting.
(3) If all or any part of the Premises are relet by Landlord for any
portion of the unexpired Lease Term, before presentation of proof of
such liquidated damages to any court, commission or tribunal, the
amount of rent reserved upon the reletting will be, prima facie, the
fair and reasonable rental value for the part or the whole of the
Premises relet during the term of the reletting.
(4) Nothing contained in this Section 21.04 will limit or prejudice
the right of Landlord to prove and obtain as liquidated damages by
reason of the termination, an amount equal to the maximum allowed by
any statute or rule of law in effect at the time when, and governing
the proceedings in which, such damages are to be proved, whether or
not such amount is greater, equal to, or less than the amount of the
difference referred to in clause (b) above.
SECTION 21.05 - RIGHT TO EQUITABLE RELIEF. If a Default occurs, Landlord
will be entitled to enjoin the Default and may invoke any remedy allowed at law
or in equity or by statue or otherwise as through re-entry, summary proceedings
and other remedies were not provided for in this Lease.
SECTION 21.06 - RIGHT TO SELF HELP: INTEREST ON OVERDUE RENT. Landlord has
the right, but not the obligation, to enter the Premises and to perform any
obligation of Tenant under this Lease notwithstanding the fact that no specific
provision for such substituted
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performance by Landlord is made in this Lease. In performing such obligation,
Landlord may make any payment of money or perform any other act. The total of
(i) all sums paid by Landlord (ii) interest (at the rate of twelve percent (12%)
a year) on such sums plus all Rent not paid when due and (iii) all expenses in
connection with the performance of the obligation by Landlord, will be deemed to
be Rent under this lease and payable to Landlord on demand. Landlord may
exercise the foregoing rights without waiving any other of its rights or
releasing Tenant from any of its obligations under this lease. If Landlord fails
to perform any of its obligations as provided in this Lease, and the failure
continues for a period of thirty (30) days after notice from Tenant, Tenant may
perform those obligations specified in the notice, and Landlord agrees to
reimburse Tenant for any costs incurred by Tenant in performing those
obligations together with interest at the rate of twelve (12%) a year.
ARTICLE 22
Notices
-------
SECTION 22.01 - NOTICES AND COMMUNICATIONS. All notices, demands, requests
and other communications provided for or permitted under this Lease must be in
writing, either delivered by hand or by courier or sent by overnight mail or by
first-class mail, postage prepaid, to the following addresses:
(a) if to Landlord, at the address stated in Section 1.01 (or at such ether
address as Landlord designates in writing to Tenant), with a copy to such
Persons as Landlord designates in writing to Tenant, or
(b) if to Tenant, at the address stated in Section 1.01 (or at such other
address as Tenant designates in writing to Landlord), with a copy to such
Persons as Tenant designates in writing to Landlord.
Any communication provided for in this Lease will become effective only
upon receipt by the Person to whom it is given, unless mailed by overnight mail
or by first-class, registered or certified mail, in which case it will be deemed
to be received on (i) the third Business Day after being mailed or (ii) the day
of its receipt, if a Business Day, or the next succeeding Business Day,
whichever of (i) or (ii) is the earlier.
ARTICLE 23
Waivers
-------
SECTION 23.01 - NO WAIVERS. Failure of Landlord or Tenant to complain of
any act or omission on the part of the other no matter how long the act or
omission may continue, will not be deemed to be a waiver by either Landlord or
Tenant of any of its rights, expressed or implied, of the breach of any
provisions this Lease will be deemed a waiver of a breach of any other provision
of this lease or a consent to any subsequent breach of
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the same or any other provision. No acceptance by Landlord of any partial
payment will constitute an accord or satisfaction but will only be deemed a
partial payment on account. None of Tenant's obligations under this Lease and no
Default or Event of Default may be waived or modified except in writing by
Landlord.
ARTICLE 24
Options
-------
SECTION 24.01 - OPTIONS TO EXTEND. Tenant has the option to extend the
Lease Term for one (1) additional period of three (3) years by giving Landlord
notice of its exercise at least twelve (12) months before the expiration of the
then current Lease Term. During each of the three years of the extended Lease
Term Tenant shall pay to Landlord Basic Rent equal to $169,844.40 each Lease
Year or $14,153.70 each month, plus Additional Rent as described in Exhibit B of
this Lease.
SECTION 24.02 - OPTIONS TO TERMINATE LEASE. Tenant and Landlord each have
the option to terminate this Lease by giving the other notice of its exercise of
the option not less than six (6) months prior to the effective date of such
termination. The Tenant shall have no obligation to pay any termination fees or
other compensation in connection with a termination under this Section 24.02.
Tenant shall have no obligation to pay Basic or Additional Rent after the
effective date of such termination and shall have no obligation to pay any
termination fees or other compensation in connection with a termination under
this Section 24.02
ARTICLE 25
General Provisions
------------------
SECTION 25.01 - UNAVOIDABLE DELAYS. If Landlord or Tenant is delayed,
hindered in or prevented from the performance of any act required under this
Lease by reason of Unavoidable Delays, then performance of the act will be
excused for the period of the delay and the period for the performance of the
act will be extended for a period equivalent to the period of the delay.
SECTION 25.02 - ESTOPPEL CERTIFICATES. Tenant agrees to deliver to Landlord
within ten (10) Business Days after the Term Commencement Date an estoppel
certificate substantially in the form of Exhibit E.
SECTION 25.03 - HOLDING OVER. If Tenant occupies the Premises after the
Lease Termination Date without having entered into a new lease of the Premises
with Landlord, Tenant will be a tenant-at-sufferance only, subject to all of the
terms and provisions of this Lease at one hundred fifty percent (150%) the then
effective Basic Rent. Such a holding over, even if with the consent of Landlord,
will not constitute an extension or renewal of this Lease.
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SECTION 25.04 - GOVERNING LAW. This Lease and the performance of its
provisions will be governed and construed under the laws of the Commonwealth of
Massachusetts.
SECTION 25.05 - PARTIAL INVALIDITY. If any provisions of this Lease of its
application to any Person or circumstances is held to be invalid or
unenforceable, the remainder of this Lease, or the application of the provision
to Persons or circumstances other than those as to which it is held invalid or
unenforceable, will not be affected, and each provision of this Lease will be
enforced to the fullest extent permitted by law.
SECTION 25.06 - NOTICE OF LEASE. The parties will at any time, at the
request of either one, promptly execute duplicate original of a statutory notice
of lease, in recordable form, setting forth a description of the Premises, the
Lease Term and any other terms of this Lease, excepting the rental provisions,
as may be required by law or as either party may request.
SECTION 25.07 - INTERPRETATION. The section headings used in this Lease are
for reference and convenience only, and do not enter into the interpretation of
this Lease. This Lease may be signed in several counterparts, each of which is
an original, but all of which constitute a single instrument. The term
"Landlord" means only the owner at the time of the Premises. Upon any sale of
the Premises or assignment (other than as collateral security for an obligation)
of the interest of Landlord in this Lease, Landlord will be relieved of all
liability under this Lease and its successor in interest and/or assign will be
deemed to be Landlord so long as it owns the Building. The liability of Landlord
under this Lease is limited to Landlord's interest in the Premises, and no
individual officer, trustee or member will have any liability to Tenant or any
other Person on account of this Lease.
SECTION 25.08 - CONSENTS. Consents or approvals required or requested of
either Landlord or Tenant shall not be unreasonably withheld or delayed.
SECTION 25.09 - ENTIRE AGREEMENT: CHANGES. All prior agreements, related to
real estate, between the parties are merged within this Lease, which alone fully
states the entire understanding and agreement of the parties. This Lease does
not affect or alter prior research and service agreements between the parties.
This Lease may not be changed or terminated orally or in any manner other than
by an agreement in writing and signed by the party against whom enforcement of
the change or termination is sought.
SECTION 25.10 - BINDING EFFECT. The provisions of this Lease are binding on
and inure to the benefit of Landlord, its successors and assigns, and Tenant,
its successors and assigns and any Person claiming under Tenant.
SECTION 25.11 - TIME OF THE ESSENCE. Any provision of law or equity to the
contrary notwithstanding, it is agreed that time is of the essence of this
Lease.
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SECTION 25.12 - BROKERS. Landlord and Tenant represent and warrant each to
the other that it has dealt with no brokers or agents with respect to this Lease
in any manner which would give rise to any claim for a commission.
SECTION 25.13 - NO HIRING AWAY. Tenant agrees that it will not actively
solicit any of Landlord's employees to be full-time employees of Tenant without
Landlord's prior consent.
EXECUTED as a sealed instrument as of the Date of Lease specified in
Section 1.01.
LANDLORD:
Tufts University
By: /s/ Stephen Manos
--------------------------------
Name: Stephen Manos
Title: Executive Vice President
TENANT:
W. R. Grace & Company - Conn.
By: /s/ Martin B. Sherwin
--------------------------------
Name: Martin B. Sherwin
Title: Vice President- Comm. Dev.
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EXHIBIT B
RENT RIDER
This Rent Rider is attached to an incorporated by reference into a Lease (the
"Lease") of the Premises known as Swine Unit II on the Campus of Tufts
University School of Veterinary Medicine at 200 Westboro Road, North Grafton,
Massachusetts between Tufts University ("Landlord") and W. R. Grace & Company --
Conn. ("Tenant"). Terms not other wise defined have the same meanings in this
Rent Rider as in the Lease.
1) BASIC RENT. Basic Rent for each Lease Year of the original Lease Term is as
follows:
A. Building rent $131,400 each Lease Year
$ 11,200 monthly installment
B. Building services: $ 20,004 each Lease Year
200 hours of repairs & $ 1,667 monthly installment
maintenance; real estate
taxes, trash pickup, pest
control, snow removal and
landscaping
C. Total Basic Rent $154,404 each Lease Year
$ 12,867 monthly installment
2) ADDITIONAL RENT.
Reimbursement of Operating Expenses
* effluent removal from storage tank billed monthly
* electricity, metered, at the then current rate, billed monthly
* water, metered, at the then current rate, billed monthly
* sewer, prorated, at then current rate, billed monthly
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EXHIBIT E
ESTOPPEL CERTIFICATE
--------------------
, 1995
Gentlemen:
Reference is made to the Lease dated , 19 , from
, as Landlord, to , as Tenant, with
respect to the Premises located at , Massachusetts (the "Lease"). Terms used in
this Certificate which are defined in or by reference to the Lease have the same
meanings in this Certificate as in the Lease.
The undersigned hereby ratifies the Lease and certifies that:
1. The term Commencement Date is
2. The Stated Expiration Date is
3. The premises are presently occupied by
4. Basic Rent is currently payable at the rate of $ per year.
5. Basic rent has been paid through , 19 .
6. Additional Rent for Taxes and Operating Expenses has been paid through
, 19 .
7. The Lease is in full force and effect and has not been assigned,
modified, supplemented or amended in any way (except by agreement(s)
dated ) and represents the entire agreement between Landlord and
Tenant.
8. No Default or Event has been asserted by either party to the Lease
and, to the knowledge of the undersigned, no Default or Event of
Default exists on the part of either party to the Lease except
).
9. On this date, to the knowledge of the undersigned, there are no
existing defenses or offsets which Tenant has against the enforcement
of the Lease by Landlord (except ).
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10. No Rent has been paid in advance of its due date under the Lease.
Very truly yours,
-----------------------------
By: (Title)
-----------------------
<PAGE> 1
EXHIBIT 1O.7
CIRCE BIOMEDICAL, INC. HAS OMITTED FROM THIS EXHIBIT 10.7 PORTIONS OF THE
AGREEMENT FOR WHICH CIRCE BIOMEDICAL, INC. HAS REQUESTED CONFIDENTIAL
TREATMENT FROM THE SECURITIES AND EXCHANGE COMMISSION. THE PORTIONS OF THE
AGREEMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH AN
ASTERISK AND SUCH CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMSSION.
SPONSORED RESEARCH AGREEMENT
BETWEEN
W. R. GRACE & CO.-CONN.
AND
RHODE ISLAND HOSPITAL
<PAGE> 2
RI HOSPITAL-GRACE SPONSORED RESEARCH AGREEMENT
----------------------------------------------
ARTICLE TITLE PAGE
- ------- ----- ----
- - RECITALS............................................................1
I Definitions.........................................................2
II Performance of Project..............................................2
III Payments, Reports and Records.......................................3
IV Scientific Reports and Invention Disclosures........................4
V Publications and Publicity..........................................5
VI Ownership and Grants................................................6
VII Patents and Patent Prosecution......................................8
VIII Sampling...........................................................10
IX Negotiations.......................................................10
X Royalties and Exclusivity Term.....................................11
XI Third-Party Patent Rights and Enforcement..........................14
XII Confidentiality....................................................16
XIII Term and Termination...............................................17
XIV Addresses and Notices..............................................18
XV Assignment; Parties Bound..........................................19
XVI Governing Law......................................................19
XVII Force Majeure......................................................20
XVIII Miscellaneous......................................................20
- -- Signature Page.....................................................22
- -- Schedule I - Definitions.............................................
- -- Exhibit A: Project Proposal.........................................
- -- Exhibit B: Estimate of Costs and Expenditures.......................
- -- Exhibit C: Employee Agreement.......................................
<PAGE> 3
AGREEMENT
This AGREEMENT, effective as of December 1, 1992 through November 30, 1994,
between W. R. Grace & Co.-Conn. (hereinafter referred to as GRACE), a
corporation of the State of Connecticut and Rhode Island Hospital (hereinafter
referred to as RI HOSPITAL), a corporation duly organized and existing under the
laws of the State of Rhode Island;
WITNESSETH THAT:
WHEREAS, GRACE, through the Research Group located at Lexington,
Massachusetts and RI HOSPITAL, through the tissue culture laboratory of the
Department of Pathology, have been engaged in a collaborative research effort
and wish to continue and expand on that effort; and
WHEREAS, Hugo O. Jauregui of RI HOSPITAL has expertise in the isolation,
purification, modification and culture of mammalian hepatocytes (hereinafter
referred to. as RI Expertise); and
WHEREAS, GRACE, through the Research Division, Columbia, Maryland, wishes
to scale-up existent versions of a liver assist device which was developed by
previous collaboration between Hugo O. Jauregui of RI HOSPITAL and GRACE; and
WHEREAS, GRACE desires to provide funding to enable RI HOSPITAL to perform
certain research projects as outlined in Exhibit A entitled "Project Proposal".
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
<PAGE> 4
ARTICLE I - DEFINITION
----------------------
1.01 The terms defined in Schedule I annexed hereto shall, for all purposes
of this Agreement, have the meanings specified in said Schedule I. These defined
terms are:
Commercial Sale Principal Investigator
Commercial Use Project
Confidential Technical Project Biological System
Information
Project Information
Field
Project Invention
GRACE
Project Patent Rights
GRACE Technical Information
Publication, Publish,
Licensed Patent Publication Date, Publisher
Licensed Process RI HOSPITAL Personnel
Licensed Product RI HOSPITAL Technical Information
Net Sales RI Expertise
ARTICLE II - PERFORMANCE OF PROJECT
-----------------------------------
2.01 The collaborative research efforts of this Agreement will be conducted
in the Field as described in the Proposal entitled "Liver Assist Device"
attached hereto as Exhibit A. RI HOSPITAL shall use its best efforts during the
term of this Agreement as set forth in Paragraph 13.01 to conduct research in
the Field as described in the proposal. All research shall be under the
supervision of the Principal Investigator. Any significant deviations from said
proposal shall be discussed with and approved by GRACE. In the event of a
conflict between this Agreement and the provisions of Exhibit A, the provisions
of this Agreement shall control.
2.02 RI HOSPITAL shall make no changes in: (a) the designation of the
Principal Investigator, or (b) the minimum amount of research time to be devoted
by the Principal Investigator in performing the Project, without the express
written concurrence of GRACE.
2.03 GRACE shall have the right to terminate the Agreement in the event the
Principal Investigator withdraws.
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<PAGE> 5
ARTICLE - III - PAYMENTS, REPORTS AND RECORDS
---------------------------------------------
3.01 In consideration for the performance by RI HOSPITAL of research on the
Project pursuant to Paragraph 2.01, GRACE agrees to pay RI HOSPITAL those
amounts set forth in the research budget (Exhibit B to this Agreement) as the
total estimated cost and expenditures for the Project. Such payments shall be
used solely for the conduct of the Project under this Agreement. The total
annual estimated research cost for the Project as specified in Exhibit B shall
not be exceeded without prior specific written authorization from GRACE. GRACE
is under no obligation, express or implied, to authorize expenditures pursuant
to any revised budget.
3.02 GRACE shall make quarterly payments to RI HOSPITAL, each being
one-fourth of the total annual budget of Exhibit B. The first quarterly payment
shall be made within ten (10) days following the Execution Date of this
Agreement.
3.03 RI HOSPITAL shall deliver to GRACE within thirty (30) days following
each quarterly payment by GRACE, a Progress Report of all Project Information
and a Project Invoice which reflects costs incurred during said preceding
quarterly period. These costs include: (i) salaries, wages, and established
employee benefits for the Project; (ii) costs of purchased materials and
supplies for the Project; (iii) other costs and expenses for the Project,
including but not limited to, maintenance of equipment, report preparation, and
communication costs; and (iv) the grand total. GRACE may withhold subsequent
payments if said quarterly Progress Report and/or Project Invoice is not
delivered to GRACE within said thirty (30) day period.
3.04 RI HOSPITAL represents that all invoices, financial statements,
billings, and financial reports to GRACE will accurately reflect all activities
and transactions handled for the account of GRACE and that such data may be
relied upon in any further recording and reporting by GRACE for whatever
purpose.
3.05 During the life of this Agreement and for two (2) years thereafter, RI
HOSPITAL shall keep or cause to be kept, in accordance with generally accepted
accounting practices, books, records, and accounts covering all information
necessary for the accurate determination of amounts payable hereunder. RI
HOSPITAL agrees to permit independent auditors (chosen by GRACE and to whom RI
HOSPITAL had no reasonable objection) or auditors of the United States Internal
Revenue Service to inspect, copy, and abstract at reasonable intervals and
during regular business hours such books, records, and accounts and all or any
part of the operations and
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<PAGE> 6
activities hereunder as may be necessary to determine the completeness or
accuracy of reports made under this Agreement. GRACE shall be solely responsible
for the costs of an independent audit conducted at GRACE's request.
ARTICLE IV - SCIENTIFIC REPORTS AND INVENTION DISCLOSURES
---------------------------------------------------------
4.01 RI HOSPITAL shall promptly inform GRACE by means of quarterly progress
reports of all Project Information. The Progress Reports shall be sufficiently
detailed to enable GRACE to understand all work undertaken and all results
obtained. Such Progress Reports shall be transmitted to GRACE's address set
forth in Article XIV. RI HOSPITAL shall also promptly inform GRACE in writing of
all Project Inventions. Said written disclosures shall indicate that RI HOSPITAL
considers the subject matter described to be inventive and shall be labeled
"Report of Invention" or the like. Following the expiration or termination of
this Agreement, RI HOSPITAL shall promptly provide GRACE with a final written
progress report which shall describe, in reasonable detail, all Project
Information.
4.02 GRACE and RI HOSPITAL agree to meet periodically at mutually agreeable
times and places to discuss the progress of the Project. Any costs associated
with such meetings, including travel and related costs as authorized by GRACE in
advance, shall be borne solely by GRACE. RI HOSPITAL will use reasonable efforts
to make available at such meetings those RI HOSPITAL Personnel requested by
GRACE. At such meetings, GRACE shall have the opportunity to review all Project
Information generated to that date and, where necessary, RI HOSPITAL (through
the RI HOSPITAL Personnel) shall use its best efforts to explain the
significance of any portion of the Project Information to GRACE. Upon request
and at its own expense, GRACE shall have the right to make copies of all or any
portion of the Project Information and utilize said copies and the information
contained therein for any purpose whatsoever.
4.03 RI HOSPITAL shall secure from all RI HOSPITAL Personnel written
agreements, in the form of Exhibit C (designated "Employee's Agreement")
attached hereto, sufficient to enable RI HOSPITAL to fulfill its obligations
with respect to Project Information, Project Inventions and Project Patent
Rights. RI HOSPITAL Personnel shall keep, or cause to be kept,
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<PAGE> 7
reasonable records of all research work funded under this Agreement, including
dated, witnessed notebooks and idea records.
ARTICLE V - PUBLICATIONS & PUBLICITY
------------------------------------
5.01 RI HOSPITAL and RI HOSPITAL Personnel shall have the right to Publish
Publications comprising the results of research performed under this Agreement,
subject to the provisions of Paragraph 12.03. However, to permit identification
of any patentable subject matter in sufficient time to file a patent application
or applications thereon, RI HOSPITAL agrees to delay Publishing any Publications
for the lesser of ninety (90) days from notice in writing to GRACE of the
intended Publication, or until all United States patent applications on Project
Inventions described in said Publications are filed. For this purpose, RI
HOSPITAL agrees to transmit copies of all proposed Publications to GRACE no
later than ninety (90) days prior to the anticipated Publication Date. When
transmitting a proposed Publication to GRACE, RI HOSPITAL shall state the
anticipated Publication Date. RI HOSPITAL agrees to treat all formal oral
presentations not delivered within RI HOSPITAL or GRACE as if they were
Publications. GRACE may waive the ninety (90) day notice provisions of this
Paragraph and, in any event, agrees not to unreasonably withhold its consent to
early Publication by RI HOSPITAL and/or RI HOSPITAL Personnel. GRACE agrees to
treat the proposed Publication as Confidential Technical Information pursuant to
Article XII, until it becomes available to the public generally.
5.02 All Publications shall contain an appropriate notice acknowledging
GRACE's financial support of the research covered by such Publications.
5.03 Notwithstanding the provisions of Paragraph 5.01, neither party hereto
shall, without obtaining the prior written consent of the other party, do any of
the following acts:
(a) make any announcements or create any publicity regarding this
Agreement; or
(b) release any advertising, promotional, or sales literature which
mentions the name of the other party hereto.
However, nothing in this Paragraph shall be construed to prohibit either party
from disclosing factual information or data relating to this Agreement which is
required by law to be disclosed.
5.04 Written consent pursuant to Paragraph 5.03 is hereby mutually given
for the release of the following information within Paragraph 5.03(a), in the
form of a press release or the
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<PAGE> 8
like or, for example, in the course of discussions of GRACE sponsored research
programs (by GRACE employees) or of sponsored research at RI HOSPITAL (by RI
HOSPITAL employees):
(a) the existence of this RI HOSPITAL- GRACE Sponsored Research Agreement,
(b) the Field of research covered by this Agreement, approximately as
defined herein,
(c) the identity of the Principal Investigator, and
(d) the general subject matter of Project Inventions, after all United
States patent applications covering said inventions have been filed.
ARTICLE VI - OWNERSHIP AND GRANTS
---------------------------------
6.01 GRACE shall own all right, title, and interest in and to all Project
Inventions made solely by GRACE employees and Project Information developed
solely by GRACE employees, including any patent applications and patents arising
therefrom. GRACE may use such GRACE Project Inventions and GRACE Project
Information for any purpose in its business without accounting to RI HOSPITAL.
6.02 RI HOSPITAL shall own all right, title and interest in and to all
Project Inventions made solely by RI HOSPITAL Personnel and Project Information
developed solely by RI HOSPITAL Personnel, including any patent applications and
patents arising therefrom; provided, however, that RI HOSPITAL's ownership
rights shall be subject to the grants made pursuant to the provisions of
Paragraph 6.03.
6.03(a) RI HOSPITAL hereby grants to GRACE a non-exclusive, paid-up license
to practice all Project Information and Project Inventions described in
Paragraph 6.02.
(b) RI HOSPITAL hereby grants GRACE an option to acquire one or more
exclusive licenses (with the right to grant sublicenses) to practice all Project
Information and Project Inventions described in Paragraph 6.02. Grace shall
exercise its option by providing notice in writing to RI HOSPITAL at any time
during the term of this Agreement or up to one (1) year following expiration or
termination of this Agreement.
6.04(a) Any Project Inventions made jointly by GRACE employees and RI
HOSPITAL Personnel and any Project Information developed jointly by GRACE
employees and RI HOSPITAL Personnel, including any patent applications and
patents arising therefrom, shall be owned jointly by GRACE and RI HOSPITAL. The
term "jointly" shall have the meaning
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<PAGE> 9
accorded it under United States patent law governing inventorship. Each of the
joint owners may use joint Project Inventions and joint Project Information in
its business without accounting to the other; provided, however, that such use
shall be according to the provisions of' Article V (Publication) and Article XII
(Confidentiality).
(b) RI HOSPITAL hereby grants GRACE an option to acquire one or more
exclusive licenses to RI HOSPITAL's interest in joint Project Information and
Project Inventions. GRACE shall exercise its option by providing notice in
writing to RI HOSPITAL at any time during the term of this Agreement or up to
one (1) year following expiration or termination of this Agreement.
6.05 GRACE shall have the first option to negotiate a sponsored research
agreement with RI HOSPITAL to fund additional research projects in the Field set
forth in this Agreement and the Exhibits hereto. This option shall be available
to GRACE for the lesser of: (i) six (6) months after the term of this Agreement
or (ii) three (3) months after any such proposal for further research is
presented to GRACE.
6.06 RI HOSPITAL hereby grants to GRACE an irrevocable, worldwide,
royalty-free, nonexclusive license to utilize for any purpose any copyrightable
work created in the performance of the research funded under this Agreement.
6.07 Licenses granted by RI HOSPITAL pursuant to this Article may be
subject to restrictions due to partial sponsorship of the research project by a
Government entity. RI HOSPITAL shall provide GRACE with prompt written notice of
any past, present or future sponsored project agreement which may create such
restrictions.
6.08 GRACE is under no obligation to grant sublicenses to utilize any
License Patent, but may, in its sole discretion, decide to grant sublicenses. If
GRACE decides to grant sublicense(s), the rights of RI HOSPITAL shall be as
follows:
(i) The sublicensee(s) shall pay to GRACE a royalty on all activities
conducted under the sublicense;
(ii) GRACE shall pay RI HOSPITAL the same running royalties provided if
GRACE were to conduct the activities sublicensed; provided, however,
that if a sublicensee defaults on its royalty obligation to GRACE or
declines for any reason to pay said
-7-
<PAGE> 10
royalty to GRACE, GRACE will not be obligated to pay RI HOSPITAL the
defaulted royalties until such time as the default is cured by the
sublicensee;
(iii) [*]
(iv) GRACE shall provide RI HOSPITAL with a true copy of each executed
sublicense agreement within thirty (30) days of the effective date
thereof.
ARTICLE VII - PATENTS AND PATENT PROSECUTION
--------------------------------------------
7.01 Each party shall be responsible, at its own expense, for filing,
prosecuting and maintaining patent applications and patents covering Project
Information and Project Inventions owned pursuant to Article VI; provided,
however, that:
(a) Preparation and prosecution of patent applications by RI HOSPITAL for
any Project Information and/or Project Invention(s) owned by it
pursuant to Article VI shall be conducted in consultation with GRACE
and GRACE's attorneys. Drafts of all patent applications and
prosecution documents shall be exchanged in a timely manner to permit
adequate review, comments and discussion, as appropriate.
(b) Each party filing a U.S. patent application under this Article
("filing party") shall notify the other ("non-filing party") of the
countries in which it will file counterparts. The non-filing party may
designate additional countries at the non-filing party's expense.
(c) If RI HOSPITAL declines to file any patent application which it is
entitled to file pursuant to this Paragraph 7.01, it shall promptly
notify GRACE and GRACE may thereafter file and obtain U.S. and foreign
patents at its own expense and at its sole discretion.
(d) With respect to Project Information and/or Project Inventions jointly
owned pursuant to Paragraph 6.04(a), RI HOSPITAL and GRACE shall
jointly determine whether to file one or more patent applications and
shall consult together with respect to the application, filing and
prosecution as in Paragraph 7.01(a). Expenses of filing, prosecuting,
and maintaining joint patent applications shall be shared equally by
RI HOSPITAL and GRACE.
-8-
<PAGE> 11
(e) All expenses incurred by GRACE in filing, prosecuting, and maintaining
Licensed Patents in any country shall be fully creditable against
royalties generated from the sale or use of Licensed Products or
practice of Licensed Processes in that country.
7.02 RI HOSPITAL Personnel shall render all necessary cooperation and shall
promptly execute all documents as may be necessary for the preparation, filing,
prosecution, issuance, reissuance, and maintenance of all patents covering
Project Inventions, and for the assignment of rights thereto as contemplated by
Article VII.
7.03 RI HOSPITAL shall require RI HOSPITAL personnel who shall be involved
in performing research pursuant to this Agreement to sign a written
acknowledgment of their obligations:
(a) to maintain complete and appropriately documented laboratory notebooks
for all research conducted pursuant to this Agreement,
(b) to assign all right, title and interest in any Project Inventions,
whether patentable or not, to the owning party as designated in
Article VI,
(c) to fully cooperate in filing, prosecuting and maintaining all patent
applications and patents, and
(d) to refrain from disclosing GRACE's Confidential Technical Information
pursuant to the terms and conditions of this Agreement. This
acknowledgment shall be in the form of Exhibit C (designated
"Employee's Agreement") attached hereto.
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<PAGE> 12
ARTICLE VIII - SAMPLING
-----------------------
8.01 RI HOSPITAL agrees that at any time during the term of this Agreement
or any extension thereof agreed upon in writing by the parties, upon written
request by GRACE, RI HOSPITAL will promptly supply GRACE with representative
samples of any Project Biological System, if such transfer is technically
feasible. GRACE shall have the right to use said Project Biological Systems in
conducting research and shall have the exclusive, worldwide right and license to
utilize them commercially. Following expiration of the applicable Licensed
Patent Rights, GRACE shall have a paid- up, irrevocable, worldwide,
non-exclusive license to utilize the Project Biological Systems for any purpose.
8.02 Representative samples of Project Biological Systems shall not be
provided to persons and entities not party to this Agreement.
ARTICLE IX - NEGOTIATIONS
-------------------------
9.01 Pursuant to Article VI, GRACE and RI HOSPITAL shall negotiate one or
more exclusive licenses to practice any of the Project Information and/or
Project Inventions for which GRACE has exercised its option, and will exercise
good faith and will attempt to reach agreement and conclude said negotiations as
promptly as possible. The negotiated royalty rates shall fall within the limits
set forth in Paragraphs 10.01, 10.02 and 10.03.
9.02 In any negotiations conducted pursuant to this Agreement, RI HOSPITAL
shall be represented by Dr. Hugo O. Jauregui and John Schibler and GRACE shall
be represented by the President of the Research Division, or their respective
duly authorized representatives.
9.03 If, after three (3) months from the date the parties begin
negotiating, or one party attempts to begin negotiating pursuant to Paragraph
9.01, the parties have been unable to agree upon all terms of a license
agreement, either party may submit the issues in dispute to arbitration as
provided in this Article IX. The party requesting arbitration shall appoint an
arbitrator by giving notice in writing to the other party, specifying the name
and address of such arbitrator and the issues which said party desires to submit
to arbitration. Within fourteen (14) days following such notification, the
second party shall appoint a second arbitrator by notice in writing to the first
party specifying the name and address of such arbitrator and the issues which
said second party wishes to submit to arbitration. The two arbitrators thus
appointed shall jointly appoint a third
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<PAGE> 13
arbitrator within fourteen (14) days following the appointment of the second
arbitrator. Should one of the parties fail to appoint an arbitrator, or should
the two arbitrators not agree upon the appointment of the third arbitrator
within fourteen (14) days following the appointment of the second arbitrator,
the missing arbitrator or arbitrators shall be appointed by the American
Arbitration Association (AAA), 140 West 51st Street, New York, New York 10020,
said appointment to be made at the request of either party or arbitrator. The
same procedure and the same possible resort to the AAA shall apply if any
arbitrator refuses or is unable to act or has resigned.
9.04 The arbitrators shall decide, by majority vote, all issues submitted
to them. The arbitration proceedings shall be conducted in New York, New York or
any other location which the parties agree upon. The arbitrators shall determine
freely the time and procedures of the arbitration, but always with a view to
avoiding unnecessary delay and expense. The arbitrators shall render their
decision within three (3) months following the appointment of the third
arbitrator. They may order any provisional, conservatory or informative action.
The time necessary for inquiries or expert opinions, set by the arbitrators,
shall be added to the three month time limit herein above provided. The opinion
shall be filed by the arbitrators with any appropriate court at the request of
either party. The expenses and fees of the arbitrators shall be divided equally
between the two parties.
9.05 The arbitration award shall be final and binding on the parties and
shall not be subject to any appeal or other legal recourse delaying or
preventing its enforcement.
ARTICLE X - ROYALTIES AND EXCLUSIVITY TERM
------------------------------------------
10.01 Except as provided in Paragraph 10.02, GRACE shall pay an earned
royalty on all Commercial Sales of Licensed Products which are covered by one or
more issued claims of a Licensed Patent. Said royalty rate shall not exceed [*]
and shall reflect the relative contribution made by the Project Invention to the
overall Licensed Product.
10.02 For each Licensed Product, only one royalty shall be paid regardless
of the number of Licensed Patents applicable to the manufacture, use, or sale of
the Licensed Product. Following the Commercial Sale of a Licensed Product, any
subsequent use or sale shall not create any additional obligation by GRACE or a
GRACE sublicensee to pay a further royalty to RI
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<PAGE> 14
HOSPITAL. No royalty shall be due on Licensed Products employed (directly or
indirectly) in the preparation of one or more subsequent Licensed Products(s)
which are transferred in a Commercial Sale. If a Licensed Product is used
internally by GRACE and is not used directly or indirectly to prepare another
Licensed Product, GRACE shall pay an earned royalty based on the Net Sales
attributable to the most recent Commercial Sale of the same amount of the
internally used Licensed Product; if there are no Commercial Sales within one
(1) year immediately preceding the date of manufacture of such Licensed Product,
the royalty rate of Paragraph 10.01 shall be applied to [*] of the internally
used Licensed Product, determined in accordance with generally accepted
accounting principles consistently applied.
10.03 GRACE shall pay a running royalty on all Commercial Uses of a
Licensed Process which is covered by one or more issued claims of a Licensed
Patent. If GRACE or a GRACE licensee uses the Licensed Process to manufacture
one or more Licensed Products the royalty obligation shall be satisfied by
payment of a royalty on the Licensed Product(s) as specified in Paragraph 10.01.
If GRACE or a GRACE licensee uses the Licensed Process in conjunction or
connection with one or more Licensed Products, the royalty obligation shall be
satisfied by payment of a royalty on the Licensed Product(s) as specified in
Paragraph 10.01. If the Licensed Process is not used to manufacture a Licensed
Product or in conjunction or connection with a Licensed Product, the royalty
shall be determined by agreement between the parties, but shall not exceed [*]
of the economic benefits enjoyed by GRACE (or a GRACE licensee) as a direct
result of using the Licensed Process. In determining the economic benefits to
GRACE or its licensee, the following factors shall be considered: all expenses
to redesign and equip existing facilities to implement the economically
beneficial Licensed Process; any expenses for purchasing and equipping new
facilities; any nonproductive use of existing facilities necessitated by
implementation of the Licensed Process; and measurable savings in plant,
equipment, wages, and salaries. In the calculation of economic benefits,
standard accounting principles and procedures shall be consistently applied. In
negotiating any license agreement for use of the economically beneficial
Licensed Process, GRACE will provide to RI HOSPITAL an accurate calculation of
economic benefits which shall serve as the basis for calculation of royalties.
GRACE shall permit RI HOSPITAL, through RI HOSPITAL's agents or employees or
through independent accountants selected by RI HOSPITAL and at RI HOSPITAL's
expense and to whom GRACE
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<PAGE> 15
has no reasonable objection, during regular business hours to inspect, copy, and
abstract any books, records, and accounts and any of GRACE's operations having a
bearing on such calculation(s). GRACE shall have the obligation to pay royalties
for use of the Licensed Process as running royalties.
10.04 GRACE shall pay to RI HOSPITAL a minimum annual royalty for each
Licensed Patent for which GRACE has acquired an exclusive license. The minimum
annual royalty shall be [*] and shall be payable only if the applicable earned
royalty calculated pursuant to Article X is zero or is less than [*]. In the
event that a minimum annual royalty of [*] is paid because earned royalties are
less than that amount, the earned royalties shall not also be paid. All patent
costs paid by GRACE pursuant to Article VII shall be credited against the
minimum annual royalty to the extent of said royalty, or [*]. In the event that
an earned royalty is paid for a Licensed Patent, patent costs shall be credited
against the earned royalty to the same extent, that is, up to [*] annually. To
the extent that patent costs paid by GRACE are not fully credited (I.E., the
annual costs exceed [*], uncredited patent costs may be carried over to
succeeding years. Failure by GRACE to pay RI HOSPITAL said minimum annual
royalty on a Licensed Patent will give RI HOSPITAL the right to convert GRACE's
exclusive license under Paragraph 6.03 to an irrevocable, royalty-free,
worldwide non-exclusive license with respect to said Licensed Patent. In any
such conversion to a non-exclusive license, GRACE shall be entitled to "most
favored nation" treatment, that is, in the event that RI HOSPITAL grants a
license to any third party that is in any way more favorable than the license
granted to GRACE, RI HOSPITAL shall notify GRACE promptly of such third party
license and shall give GRACE the opportunity of the more favorable term(s) or
provision(s).
10.05 Notwithstanding the provisions of Paragraph 10.04, GRACE shall have
no obligation to pay minimum annual royalties for the first five (5) years
following the filing of any patent application for which the exclusive licensing
provisions of Paragraph are applicable. After the first five years, GRACE shall
be excused from paying minimum annual royalties as long as commercialization for
the relevant Licensed Product(s) or Licensed Process(es) is being pursued with
due diligence. In any year GRACE claims that no minimum annual royalty is due
for this reason, GRACE shall communicate that to RI HOSPITAL. GRACE must be able
to demonstrate that reasonable steps toward commercialization are being taken.
Examples of diligence in this
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<PAGE> 16
regard include, but are not limited to, attempting to sell products or to
license processes, seeking approval from a government agency for use or sale of
one or more products, conducting further research necessary for
commercialization, or having a sublicensee or contractor pursue any of these
activities.
10.06 During the life of any license agreement entered into hereunder and
for two (2) years thereafter, GRACE shall keep in accordance with generally
accepted accounting practices, books, records, and accounts covering its
operations and activities under such license agreement and containing all
information necessary for the complete and accurate determination of amounts
payable to RI HOSPITAL under such license agreement. GRACE also agrees to permit
RI HOSPITAL, through RI HOSPITAL's agents or employees or through independent
accountants selected by RI HOSPITAL and at RI HOSPITAL's expense and to whom
GRACE has no reasonable objection, to inspect, copy, and abstract, at reasonable
intervals and during regular business hours, such books, records, and accounts
and all or any part of GRACE's operations and activities under such license
agreement as may be necessary to determine the completeness or accuracy of any
royalties deemed payable to RI HOSPITAL under such license agreement. If any
such report is not complete or accurate, a correct report shall be provided
promptly by GRACE, and GRACE shall promptly pay any further royalty owed RI
HOSPITAL. GRACE shall not unreasonably withhold its consent to the timing or
performance of such audits.
ARTICLE XI - THIRD-PARTY PATENT RIGHTS AND ENFORCEMENT
------------------------------------------------------
11.01 The parties recognize that unaffiliated third parties may now have or
in the future obtain conflicting United States and/or foreign patents. Any
exclusive license entered into pursuant to this Agreement shall provide that if
any or all of said third-party patents can be licensed, and GRACE, in its sole
discretion, but only after prior consultation with RI HOSPITAL, deems such a
license necessary to practice a Licensed Process or to make, use, or sell a
Licensed Product, GRACE shall be free to enter into a license agreement to
enable GRACE to practice said third-party patents, and the royalties due under
said license shall be fully credited against GRACE's royalty obligations to RI
HOSPITAL. Other than as a credit as described in the preceding sentence, RI
HOSPITAL shall have no obligation to GRACE with respect to any royalties payable
to unaffiliated third-parties. If GRACE or any GRACE sublicensee or customer
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<PAGE> 17
is sued for infringing a third-party patent where the allegation of infringement
arises from manufacture, use, or sale of a Licensed Product or Licensed Process,
the royalty payable to RI HOSPITAL shall be reduced by fifty percent (50%)
during the pendency of any such suit. RI HOSPITAL agrees to fully cooperate with
GRACE in the defense of said infringement suit. Should GRACE prevail in such
legal action, all such obligation by GRACE to pay royalties to RI HOSPITAL shall
be fully and retroactively restored; provided, however, that GRACE shall be
entitled to deduct all expenses reasonably connected with the defense of said
infringement suit from said royalties, up to an amount equal to fifty percent
(50%) of said royalties.
11.02 GRACE shall have the right, but not the obligation, to initiate and
prosecute legal action for infringement by a third party of any claim of a
Licensed Patent. RI HOSPITAL shall voluntarily join such legal action, and RI
HOSPITAL and all RI HOSPITAL Personnel shall render all necessary cooperation
and shall promptly execute all documents as may be necessary during the course
of such legal action. During the prosecution of such legal action, GRACE may, at
its option, pay or withhold payment of royalties to RI HOSPITAL with regard to
the Licensed Patent alleged to be infringed. Should GRACE withhold payment of
royalties and subsequently prevail in such legal action, all such withheld
royalties shall be paid to RI HOSPITAL, together with interest. Any monies
recovered by GRACE as a result of such legal action shall be included in Net
Sales for payment of royalties, pursuant to the terms of this Agreement, after
having deducted all expenses reasonably connected with the litigation.
11.03 If, at any time during the term of a Licensed Patent, GRACE believes,
based upon reasonable evidence, that a material infringement of such Licensed
Patent is being committed by a third party, GRACE may so notify RI HOSPITAL and
at the same time shall furnish to RI HOSPITAL information upon which GRACE's
belief is based. In such notice, GRACE shall advise RI HOSPITAL whether it,
pursuant to Paragraph 11.02 above, will elect to initiate and prosecute legal
action for infringement against such third party. In the event that GRACE elects
not to initiate and prosecute legal action for infringement against such third
party, GRACE may request RI HOSPITAL to advise GRACE whether RI HOSPITAL will
initiate and prosecute such action If RI HOSPITAL declines to initiate and
prosecute such action or if within a period of ninety (90) days after receipt of
such request RI HOSPITAL fails to notify GRACE that it will
-15-
<PAGE> 18
initiate and prosecute such action, GRACE shall be relieved of its obligation to
pay royalties with regard to the Licensed Patent alleged to be infringed. If RI
HOSPITAL initiates and diligently and successfully prosecutes said action,
GRACE's obligation to pay royalties with respect to the Licensed Patent alleged
to be infringed shall remain in full force and effect, and RI HOSPITAL shall be
entitled to keep any monies or retain any other benefits derived therefrom.
ARTICLE XII - CONFIDENTIALITY
-----------------------------
12.01 GRACE may, from time to time, make available to RI HOSPITAL such
GRACE Technical Information as GRACE, in its sole discretion, believes would be
useful to RI HOSPITAL in carrying out research under this Agreement. Part or all
of the GRACE Technical Information may consist of GRACE Confidential Technical
Information. Similarly, RI HOSPITAL may, from time to time, make available to
GRACE such RI HOSPITAL Technical Information as RI HOSPITAL, in its sole
discretion, believes would be useful to GRACE in carrying out research under
this Agreement. Part or all of the RI HOSPITAL Technical Information may consist
of RI HOSPITAL Confidential Technical Information.
12.02 Acceptance by either party of any Confidential Technical Information
of the other party shall be subject to the following:
(a) The transferring party's Confidential Technical Information must be
marked or designated in writing on its face as proprietary to that
party and confidential;
(b) Each party retains the right to refuse to accept any such Confidential
Technical Information which it does not consider to be essential to
performance of research pursuant to this Agreement, or which it
believes to be improperly designated, or for any other reason;
(c) Where either party does accept the other party's Confidential
Technical Information (as evidenced by receipt thereof without
objection), it agrees not to Publish or otherwise reveal said
Confidential Technical Information to third parties without the
permission of the transferring party, and shall restrict dissemination
of said Confidential Technical Information within the receiving party
to those personnel who have executed an employee's agreement as set
forth in Exhibit C; and
-16-
<PAGE> 19
(d) No provision of Paragraph 12.02 shall be construed to prevent
commercial use by GRACE, of any Project Information, RI HOSPITAL:
Technical Information, or RI HOSPITAL Confidential Technical
Information, or to require GRACE to pay royalties for such use unless
such use is pursuant to rights in a Licensed Patent.
12.03 During the period of pre-publication review by GRACE of any RI
HOSPITAL Publication as provided in Paragraph 5.01, GRACE shall be obligated (a)
to examine such Publication to determine whether such Publication inadvertently
discloses any GRACE Confidential Technical Information, (b) to notify RI
HOSPITAL promptly in writing of such determination, and (c) to request the
deletion of such GRACE Confidential Technical Information from such Publication.
RI HOSPITAL agrees to be particularly sensitive to any GRACE request for
deletion of GRACE Confidential Technical Information encompassed by the Field.
Failure by GRACE to promptly provide to RI HOSPITAL the notice contemplated by
this Paragraph shall constitute a full and complete waiver, and RI HOSPITAL
shall thereafter have no liability for the disclosure of such GRACE Confidential
Technical Information.
ARTICLE XIII - TERM AND TERMINATION
-----------------------------------
13.01 Unless renewed or extended by mutual agreement by the parties hereto
or earlier terminated as provided in Paragraph 13.02, this Agreement shall
continue in effect for two (2) years from the effective date hereof. The
Agreement may be renewed by written agreement of the parties, any renewal being
in the complete discretion of both parties. Renewal shall be subject to a
mutually acceptable annual Project proposal (Exhibit A) and Project budget
(Exhibit B).
13.02 Either party may, for any reason whatsoever, terminate this Agreement
by giving written notice of termination to the other party and specifying a
termination date not less than three (3) months subsequent to the date of such
notice. Grace shall in accordance with Paragraph 2.02, have the exclusive right
to immediately terminate this agreement in the event the Principal Investigator
withdraws.
13.03 In the event this Agreement is terminated as provided in Paragraph
13.02, RI HOSPITAL shall exercise its best efforts to provide for an orderly,
gradual phase- out of research during the interval between the date of the
termination notice and the termination date specified in such notice. The
invoicing and payment provisions of Article III shall not apply during
-17-
<PAGE> 20
said interval, but instead GRACE shall be obligated to pay RI HOSPITAL, in
accordance with monthly invoices submitted by RI HOSPITAL, an amount equal to:
(i) actual salaries and wages paid by RI HOSPITAL during said interval for
research performed under this Agreement by RI HOSPITAL Personnel assigned to
perform such research prior to the date of the termination notice; (ii) employee
benefits, if any, and indirect costs; (iii) other itemized costs, if any,
(including travel costs) associated with the performance of research during said
interval; and (iv) noncancellable commitments incurred by RI HOSPITAL prior to
the date of the termination notice. After receipt of the notice of termination,
RI HOSPITAL shall cancel its outstanding commitments covering the procurement of
materials, supplies, equipment and miscellaneous items and shall exercise
reasonable diligence to accomplish where possible the cancellation or diversion
of its outstanding commitments covering personal services and extending beyond
the date of such notice to the extent they relate to the performance of any work
terminated by the notice; provided, however, that GRACE shall reimburse RI
HOSPITAL for commitments for such personal services for the remainder of the
term of this Agreement, as specified in Paragraph 13.01, if such cancellation or
diversion is not possible.
13.04 The expiration of the term of this Agreement or any earlier
termination thereof shall not release either party hereto from any claim of the
other party accrued prior to such expiration or earlier termination.
13.05 The following provisions of this Agreement shall survive the
expiration of the term of this Agreement or any earlier termination thereof:
Articles I and IV through XVIII.
13.06 The following provisions of this Agreement shall not survive the
expiration of the term of this Agreement or any earlier termination thereof:
Articles II and III.
ARTICLE XIV - ADDRESSES AND NOTICES
-----------------------------------
14.01 The addresses of the parties hereto are as follows, but either party
may change its address for the purpose of this Agreement by notice in writing to
the other party:
GRACE: W. R. Grace & Co.-Conn.
Ledgemont Research Center
128 Spring Street
Lexington, Massachusetts 02173
Attention: Barry A. Solomon
-18-
<PAGE> 21
RI HOSPITAL: Rhode Island Hospital
Providence, Rhode Island 21044
Attention: John Schibler
Chief Financial Officer
14.02 All notices, payments, statements and reports required or permitted
to be given under this Agreement shall be in writing and shall be sent by
first-class mail, postage prepaid, to the addresses set forth in Paragraph
14.01; provided, however, that any notice of termination shall be sent by
certified or registered mail. When any of said notices, payments, statements, or
reports are sent by certified or registered mail to the other party entitled
thereto at its address as set forth above, they shall be deemed to have been
given or made as of the date so mailed.
ARTICLE XV - ASSIGNMENT: PARTIES BOUND
--------------------------------------
15.01 This Agreement shall not be assignable by either party hereto,
whether by instrument or by operation of law, without the prior written consent
of the other party. Any and all assignments of this Agreement or of any
interests therein not made in accordance with this Paragraph 16.01 shall be
void. Any licenses granted by RI HOSPITAL to GRACE pursuant to this Agreement
may be assigned by GRACE upon receiving RI HOSPITAL's consent in writing, which
consent shall not be unreasonably withheld.
ARTICLE XVI - GOVERNING LAW
---------------------------
16.01 The validity and interpretation of this Agreement and the legal
relations of the parties to it shall be governed by the laws of the Commonwealth
of Massachusetts, with the exclusion of the choice of laws provisions of that
state. Interpretation of any agreements with the United States Government and
determination of any government rights in inventions and patents, as specified
in Paragraph 6.07, shall be in accordance with published regulations of the
United States Government and, where applicable, decisions of the U.S. Court of
Appeals for the Federal Circuit and any court preceding or succeeding to the
jurisdiction thereof.
-19-
<PAGE> 22
ARTICLE XVII - FORCE MAJEURE
----------------------------
17.01 Neither party hereto shall be responsible to the other for failure to
perform any of the obligations imposed by this Agreement, provided such failure
shall be occasioned by fire, flood, explosion, lightning, windstorm, earthquake,
subsidence of soil, failure or destruction, in whole or in part, of machinery or
equipment or failure of supply of materials, discontinuity in the supply of
power, governmental interference, civil commotion, riot, war, strikes, labor
disturbance, transportation difficulties, labor shortage, or any cause beyond
the reasonable control of the party in question.
ARTICLE XVIII - MISCELLANEOUS
-----------------------------
18.01 RI HOSPITAL's relationship to GRACE under this Agreement shall be
that of an independent contractor, and the RI HOSPITAL Personnel shall not, by
virtue of this Agreement, be considered as employees, agents, or consultants of
GRACE. As between RI HOSPITAL and GRACE, RI HOSPITAL shall have complete and
sole control and responsibility over the RI HOSPITAL Personnel and the physical
surroundings and regulations whereby the work is performed under this Agreement.
18.02 RI HOSPITAL hereby warrants that it complies with the Worker's
Compensation laws of the State of Rhode Island with respect to RI HOSPITAL
Personnel. Each party shall indemnify and hold the other party harmless from any
and all claims, costs or liability for any loss, damage, injuries or loss of
life incurred in the indemnifying party's own performance of the research work
that is conducted on the indemnifying party's own premises; provided, however,
that such indemnification shall not apply for any loss, damage, injuries, or
loss of life attributable in whole or in part to the other party's fault or
negligence.
18.03 RI HOSPITAL shall, subsequent to the expiration or termination of
this Agreement, retain title to all equipment purchased and/or fabricated by RI
HOSPITAL with funds provided by GRACE under Articles III and XIII hereinabove,
and shall be free to use or dispose of said equipment as it sees fit.
18.04 This Agreement embodies the entire understanding between RI HOSPITAL
and GRACE for GRACE's support of this Project at RI HOSPITAL, and any prior or
contemporaneous representations, either oral or written, are hereby superseded.
No amendment,
-20-
<PAGE> 23
change, or modification of this Agreement shall be effective unless in writing
and signed by each of the parties hereto. Any license agreement between GRACE
and RI HOSPITAL arising pursuant to this Agreement shall be consistent herewith
and shall not grant additional rights or impose additional obligations, either
expressly or by implication, unless agreed upon in writing by both parties.
18.05 RI HOSPITAL and GRACE agree to comply with all applicable government
regulations and requirements for protecting health, safety, and the environment.
RI HOSPITAL and GRACE agree to cooperate with any Government agency(ies)
authorized to monitor compliance with such regulations and requirements.
18.06 Dr. Hugo O. Jauregui will have the right, subsequent to the
expiration or termination of this Agreement or in a situation coexistent with
this Agreement, to develop other technologies that will result in the
development of different versions of a liver support device. This new LAD
version or versions should be substantially different in terms of its biological
component. Specifically, Dr. Hugo O. Jauregui should be able to generate
technological data supporting [*]. GRACE shall have the first option to
negotiate the acquisition of or license to [*] or their products.
Dr. Hugo O. Jauregui should be able to pursue any other technological
developments of [*] in order to create new versions of LADs which are not using
technological applications of any research sponsored at RI HOSPITAL by GRACE.
18.07 In the event that a court of competent jurisdiction holds that any
particular provision or requirement of this Agreement is in violation of any
applicable law or is otherwise unenforceable, this Agreement shall be construed
as if such provision or requirement were not written into this Agreement, or,
upon the request of either party, such provision or requirement may be reformed
and construed in a manner which will be valid and enforceable to the maximum
extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate in their respective corporate names by their respective
officers thereunto duly authorized.
-21-
<PAGE> 24
RHODE ISLAND HOSPITAL W. R. GRACE & CO.-CONN.
By /s/ John J. Schibler By /s/ F. Peter Boer
--------------------------- -----------------------------
Name John J. Schibler Name F. Peter Boer
Title Chief Financial Officer Title Executive Vice President
Date 12/23/93 Date 12/17/93
-22-
<PAGE> 25
SCHEDULE I
----------
All terms used in this Agreement with initial capital letters are defined
terms and shall have the meaning set forth in the following definitions.
DEFINITIONS
-----------
1. "Commercial Sale" shall mean the initial transfer by GRACE or any of its
sublicensees of a Licensed Product to a customer in exchange for cash or a
common commercial equivalent of cash. The date of said sale shall be the date
when the Licensed Product is shipped or billed to the customer, whichever occurs
first.
2. "Commercial Use" shall mean use of a Licensed Process to manufacture a
Licensed Product or, if no Licensed Product is prepared, to confer a substantial
economic benefit upon GRACE. "Commercial Use" does not include use for
experimental purposes and shall not include use of a Licensed Process in a pilot
plant.
3. "Confidential Technical Information" shall mean any and all RI HOSPITAL
or GRACE Technical Information, marked or designated in writing on its face as
proprietary to the transferring party and confidential, which is disclosed
pursuant to the provision of Article XII of this Agreement, except:
(a) technical information which at the time of disclosure is in the public
domain;
(b) technical information which after disclosure is published or otherwise
becomes part of the public domain through no fault of the receiving
party (but only after it is published or otherwise becomes part of the
public domain);
(c) technical information which the receiving party can show by written or
other tangible evidence was in its possession at the time of
disclosure hereunder and which the receiving party without breach of
any obligation is free to disclose to others;
(d) technical information which was received by the receiving party after
the time of disclosure hereunder from a third party who did not
acquire it, directly or indirectly, from the transferring party under
an obligation of confidentiality and which the third party without
breach of any obligation is free to disclose to others;
<PAGE> 26
(e) technical information which is required to be disclosed by a court of
law; or
(f) technical information which is independently developed by the
receiving party and which the receiving party can show by written or
other tangible evidence was so independently developed.
For the purposes of this Paragraph, specific disclosures made shall not be
deemed to be within the foregoing exceptions merely because they are embraced by
general disclosures in the public domain or in the possession of the receiving
party. In addition, any combination of features disclosed hereunder shall not be
deemed to be within the foregoing exceptions merely because individual features
are separately in the public domain or in the possession of the receiving party,
but only if the combination itself and its principle of operation are in the
public domain or in the possession of the receiving party.
4. "Field" shall mean Liver Assist Device.
5. "GRACE" shall mean W. R. Grace & Co.-Conn. and any company in which W.
R. Grace & Co.-Conn. now or hereafter owns or controls, directly or indirectly,
fifty percent (50%) or more of the stock having the right to vote for directors
thereof. For the purpose of this definition, the stock owned or controlled by W.
R. Grace & Co.-Conn. shall be deemed to include all stock owned or controlled,
directly or indirectly, by any other company of which W. R. Grace & Co.-Conn.
owns or controls, directly or indirectly, fifty percent (50%) or more of the
stock having the right to vote for directors thereof.
6. "GRACE Technical Information" shall mean all technical information and
data relating to the Field of this Agreement acquired independently by GRACE
prior to the execution of this Agreement which GRACE is free to disclose to RI
HOSPITAL. All technical information and data relating to the Field of this
Agreement which is developed, produced, or generated during the term of this
Agreement shall be considered Project Information.
7. "Licensed Patent" shall mean any patent application or patent having one
or more claims which cover a Project Invention or Project Information, and which
is licensed to GRACE pursuant to Article VI.
8. "Licensed Process" shall mean any process described in one or more
claims of a Licensed Patent which has not been held invalid by a court decision
from which no appeal may be taken.
<PAGE> 27
9. "Licensed Product" shall mean any material manufactured, used, or sold
by GRACE or any of its sublicensees under one or more claims of a Licensed
Patent which has not been held invalid by a court decision from which no appeal
may be taken.
10. "Net Sales" shall mean the invoice amount charged to customers for each
Commercial Sale of a Licensed Product less the amount, if any, for packing,
discounts (including discounts for quantity and prompt payment), charges for
insurance and freight, taxes and/or duties paid or payable to governmental
authorities, and credits for returns and allowances actually granted. Amounts
invoiced to customers in any currency other than United States dollars shall be
converted from the currency or currencies in which sales were made to the U.S.
dollar equivalent based upon the prevailing open market currency conversion rate
(commercial selling rate) as quoted by the City Bank NATIBANK of New York, New
York, U.S.A., ten (10) days prior to the date when any royalty payments
hereunder are due to RI HOSPITAL. If a Licensed Product is not sold
independently, but rather is sold in combination or admixture with another
chemical compound or material which is not a Licensed Product, then (i) the Net
Sales of said Licensed Product shall be deemed to be the current equivalent Net
Sales for the same quantity of said Licensed Product which is sold
independently; or (ii) if there are no independent current sales of said
Licensed Product, the Net Sales shall be deemed to be equal to one hundred fifty
percent (150%).of the direct manufacturing cost of producing said Licensed
Product, determined in accordance with generally accepted accounting procedures
consistently applied.
11. "Principal Investigator" shall mean Dr. Hugo O. Jauregui or such other
member of the RI HOSPITAL staff upon which the parties shall mutually agree,
should Dr. Jauregui withdraw.
12. "Project" shall mean the research program described in Exhibit A and
shall include any modifications, extensions, or additions thereto.
13. "Project Biological System" shall mean and include all biological
systems (E.G., cell cultures, cell-ligand combinations and/or cell
culture-apparatus combinations) and all parts or sub-parts thereof, used in any
manner in the performance of research pursuant to this Agreement.
14. "Project Information" shall mean all scientific or technical
information and data, regardless of form or characteristics, including
descriptions of and information regarding all unpatented inventions relating to
the Field of this Agreement, which have been developed,
<PAGE> 28
produced, or generated in the course of, in connection with, or as a result of
the Project. "[I]n the course of, in connection with, or as a result of" as used
in this definition, shall mean (i) during the period of funding under this
Agreement, or (ii) up to six (6) months following the termination or expiration
of this Agreement; provided that Project Inventions made during the six (6)
months following termination or expiration must reasonably be based on or
derived from Project Information required to be disclosed to GRACE pursuant to
Paragraph 4.01 of this Agreement. "Project Information" as used herein shall not
include financial information incidental to administration of this Agreement.
15. "Project Invention" shall mean any invention, improvement or discovery
in the Field set forth in this Agreement which is first conceived or first
actually reduced to practice in the course of, in connection with, or as a
result of the research funded under this Agreement and includes any method,
process, machine, manufacture, design, or composition of matter or any new or
useful improvement thereof whether or not patentable under the patent laws of
the United States or any foreign country. "In the course of, in connection with,
or as a result of," as used in this definition, shall be defined as in
Definition 14 ("Project Information").
16. "Project Patent Rights" shall mean patents and patent applications in
all countries to the extent that they or the claims thereof describe one or more
features of a Project Invention.
17. "Progress Report" shall mean the quarterly progress report of Project
Information and/or Project Inventions, to be prepared and submitted by RI
HOSPITAL as described in Paragraphs 3.03 and 4.01.
18. "Project Invoice" shall mean the quarterly invoice of expenses for the
Project, to be prepared and submitted by RI HOSPITAL as described in Paragraph
3.03.
19(a) "Publication" shall mean any document, scientific paper, thesis,
report, article, commentary, or notebook, whether in written form or
a tangible form equivalent thereto, (E.G., printed material,
microfilm, microfiche, photocopy, or computer printout) or in the
form of a presentation to persons not bound by this Agreement, which
discloses any Project Invention or Project Information. "Publication"
as used herein shall not include any patent application or patent
within the Project Patent Rights.
<PAGE> 29
(b) "Publish," "Publishing" and "Published" shall mean the act of making a
Publication available to persons other than RI HOSPITAL or GRACE
personnel by any means and in any manner without a restriction
preserving the confidential nature, if any, of the Publication;
(c) "Publication Date" shall mean the date on which the Publication is
Published.
(d) "Publisher" shall mean and include any person or organization
authorized by RI HOSPITAL or any RI HOSPITAL Personnel to Publish a
Publication.
20. "RI HOSPITAL Personnel" shall mean the Principal Investigator, any
individual specifically identified in the budget, Exhibit B to this Agreement,
and any other RI HOSPITAL employee who performs any part of the research work
contemplated by this Agreement.
21. "RI HOSPITAL Technical Information" shall mean all technical
information and data relating to the Field of this Agreement acquired
independently by RI HOSPITAL prior to the execution of this Agreement which RI
HOSPITAL is free to disclose to GRACE. All technical information and data
relating to the Field of this Agreement which is developed, produced, or
generated by RI HOSPITAL during the term of this Agreement shall be considered
Project Information.
22. "RI Expertise" shall mean modified isolation, purification,
modification and culture of mammalian hepatocytes and hepatocyte-like cells.
<PAGE> 30
EXHIBIT A
(four and one-third pages.)
[*]
<PAGE> 31
RHODE ISLAND HOSPITAL
1994 RESEARCH PLAN
(12/93 - 11/94)
(Two and one half pages.)
[*]
<PAGE> 32
EXHIBIT B
RHODE ISLAND HOSPITAL
OPERATING BUDGET
92-93 93-94
--------- ---------
[*]
<PAGE> 33
EXHIBIT C
EMPLOYEE AGREEMENT
- ------------------
I, the undersigned employee of Rhode Island Hospital, hereby acknowledge
that I have read and understand the provisions of the Agreement to be made
effective ___________________, 1984 by and between Rhode Island Hospital (RI
HOSPITAL) and W. R. Grace & Co. (GRACE). I hereby agree as follows:
1. To assign all my rights, title and interest in any invention, whether or
not patentable, forming part of the Project Information encompassed by
Technologies 1 and 2 (as defined in said Agreement) to GRACE;
2. To assign all my right, title, and interest in any invention, whether or
not patentable, forming part of the Project Information encompassed by
Technologies 3 and 4 (as defined in said Agreement) to RI HOSPITAL;
3. To cooperate fully with GRACE and RI HOSPITAL in filing, prosecuting and
maintaining all U.S. and foreign patents and patent applications;
4. To cooperate fully with GRACE and RI HOSPITAL in any litigation
involving any Licensed Patent, Licensed Product, or Licensed Process (as defined
in said Agreement); and
5. Not to disclose GRACE's or RI HOSPITAL's Confidential Technical
Information pursuant to the terms and conditions of said Agreement.
- ----------------------- -------------------------------
(Date) (name of employee)
WITNESSED BY:
- ----------------------- -------------------------------
(Date) (name of witness)
<PAGE> 1
EXHIBIT 10.8
CIRCE BIOMEDICAL, INC. HAS OMITTED FROM THIS EXHIBIT 10.8 PORTIONS OF THE
AGREEMENT FOR WHICH CIRCE BIOMEDICAL, INC. HAS REQUESTED CONFIDENTIAL
TREATMENT FROM THE SECURITIES AND EXCHANGE COMMISSION. THE PORTIONS OF THE
AGREEMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH AN
ASTERISK AND SUCH CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMSSION.
RESEARCH, TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
W. R. GRACE & CO.-CONN.
AND
CEDARS-SINAI MEDICAL CENTER
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
ARTICLE PAGE NO.
- ------- --------
<S> <C>
I DEFINITIONS................................................. 2
II GRACE LAD TECHNOLOGY........................................ 6
III CEDARS-SINAI LAD TECHNOLOGY.................................. 7
IV RESEARCH & TECHNOLOGY DEVELOPMENT PROGRAM.................... 8
V GRACE CONTRIBUTIONS.......................................... 9
VI CEDARS-SINAI CONTRIBUTIONS.................................. 12
VII OWNERSHIP OF TECHNOLOGY..................................... 13
VIII LICENSE GRANT............................................... 14
IX LICENSE ROYALTIES........................................... 15
X PAYMENT PROCEDURES.......................................... 16
XI CONFIDENTIALITY............................................. 19
XII PATENT PROTECTION........................................... 22
XIII PATENT ENFORCEMENT AND THIRD PARTY PATENTS.................. 23
XIV REPRESENTATIONS, WARRANTIES, AND INDEMNIFICATION............ 24
XV NOTICES..................................................... 26
XVI TERM AND TERMINATION........................................ 26
XVII ASSIGNABILITY............................................... 30
XVIII MISCELLANEOUS............................................... 30
APPENDIX A - MILESTONES/RESEARCH & TECHNOLOGY
DEVELOPMENT PLAN....................................
APPENDIX B - RESEARCH & TECHNOLOGY DEVELOPMENT BUDGET.................
APPENDIX C - INVESTIGATORS AGREEMENT..................................
APPENDIX D - CEDARS-SINAI PATENTS/PATENT APPLICATIONS.................
</TABLE>
2
<PAGE> 3
RESEARCH, TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT
------------------------------------------------------
THIS AGREEMENT, made as of the 1st day of August, 1994, by and between W. R.
Grace & Co.-Conn., a company organized and existing under the laws of the State
of Connecticut, U.S.A. and having its principal place of business at One Town
Center Road, Boca Raton, Florida 33486, U.S.A. ("Grace") and Cedars-Sinai
Medical Center ("Cedars-Sinai") a nonprofit public benefit corporation organized
and existing under the laws of California, U.S.A and having its principal place
of business at 8700 Beverly Boulevard, Los Angeles, CA 90048-1865, U.S.A.
("Cedars-Sinai").
WHEREAS, Grace has developed certain expertise and proprietary
technology relating to artificial liver assist devices ("LADs"), including, for
example, membrane technology, hepatocyte isolation and handling technology,
device design technology, cryopreservation technology and the like; and
WHEREAS, Cedars-Sinai has developed certain expertise and
proprietary technology relating to artificial LADs, including, for example,
hepatocyte isolation and handling technology, and the development of a first
generation LAD; and
WHEREAS, Grace and Cedars-Sinai wish to combine their expertise
and their respective LAD technologies in order to make LADs available for human
medical applications worldwide; and
WHEREAS, Cedars-Sinai wishes to continue development of existing
Cedars-Sinai LAD technology, and wishes to continue research aimed at the
development of second and third generation LADs; and
WHEREAS, Grace wishes to fund such research and technology
development at Cedars-Sinai; and
WHEREAS, Grace desires to license the Cedars-Sinai proprietary
technology, and Cedars-Sinai desires to grant such a license to Grace; and
WHEREAS, Cedars-Sinai wishes to participate in the clinical
testing of the first generation Cedars-Sinai LAD and Grace desires that
Cedars-Sinai serve as an initial site for such testing; and
WHEREAS, Grace is willing to undertake product development,
coordinate clinical trials, obtain regulatory approval(s), and conduct marketing
activities for LADs utilizing the Grace and/or Cedars-Sinai proprietary
technology; and
WHEREAS, Grace and Cedars-Sinai have determined that a research,
clinical testing and license program as defined by this Agreement is of mutual
interest and benefit;
<PAGE> 4
NOW, THEREFORE, the parties agree as follows:
ARTICLE I - DEFINITIONS
-----------------------
As used herein, the following terms shall be defined as
specified:
1.01 "Affiliate" means any corporation or other business entity
which directly or indirectly controls, is controlled by, or is under common
control with one of the parties to this Agreement. "Controls" (including
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a corporation or other business entity, whether through the
ownership of voting securities, by contract or otherwise.
1.02 "Agreement" means this Research, Technology Development and
License Agreement.
1.03 "Annual Net Sales" means the total of the Net Sales Prices
for all LADs based in whole or in part on Cedars-Sinai LAD Technology which are
sold during an Annual Royalty Period by Grace and Grace sublicensees, less any
credits generally acceptable in the industry actually given for the LADs.
1.04 "Annual Royalty Period" means each successive twelve (12)
month period beginning on January 1 and ending on December 31 of a calendar
year; provided, however, that the first Annual Royalty Period shall begin on the
date of the first sale of a LAD embodying Cedars-Sinai LAD Technology and end on
December 31 of the same calendar year.
1.05 "Cedars-Sinai" means Cedars-Sinai Medical Center, a
California nonprofit public benefit corporation.
1.06 "Cedars-Sinai LAD Technology" means all Cedars-Sinai
technology in the Field which Cedars-Sinai has the right to disclose and to
grant licenses thereto, including that related to hepatocyte collection,
handling and preparation, including all information and know-how whether or not
patented. Cedars-Sinai LAD Technology would include all LAD-related information
and know-how developed either prior to or during the term of the Agreement which
Cedars-Sinai has the right to use and to grant license rights thereto; patents
and/or patent applications, if any, within the Cedars-Sinai LAD Technology are
listed in Appendix D.[*]
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1.07 "Designated Milestone" means a Milestone which has been
designated by the parties, in advance and by mutual agreement, as being
particularly significant to demonstrate the good faith effort of the party
charged with meeting that Milestone. Grace Designated Milestones are intended to
assure Grace's good faith effort to secure regulatory approval and to proceed
with commercialization of an LAD based in whole or in part on the Cedars-Sinai
LAD Technology. Cedars-Sinai Designated Milestones are intended to assure
Cedars-Sinai's good faith effort to engage in the Technology Development Program
and the Research Program.
1.08 "Effective Date" means August 1, 1994.
1.09 "Field" means the field of artificial liver assist devices
(LADs), including but not limited to all research, technology development,
testing, clinical trials, application(s) for regulatory approval, and the
manufacture, use and sale of LADs. It is understood and agreed by the parties
that the definition of "Field" refers, with respect to activities at
Cedars-Sinai, to the research, technology development, and testing which is
performed by one or more Investigators.
1.10 "First Generation LAD" means the Cedars-Sinai LAD Technology
used to treat human subjects at Cedars-Sinai prior to July 8, 1994 (the date of
Grace's submission of that technology to the FDA in its IND).
1.11 "Grace" means W. R. Grace & Co.-Conn., a corporation
incorporated under the laws of the State of Connecticut, United States of
America, and any Affiliate of Grace.
1.12 "Grace LAD Technology" means all Grace technology in the
Field which Grace has the right to disclose, including that related to
hepatocyte collection, handling and preparation, cryopreservation, device design
and preparation, and membrane technology, including all information and
know-how, whether or not patented, and including any rights licensed to Grace
from Rhode Island Hospital ("RIH") pursuant to a Sponsored Research Agreement,
originally dated February 3, 1985, between Grace and RIH (the "RIH Agreement").
Grace LAD Technology includes all LAD-related information and know-how developed
by Grace or on its behalf either prior to or during the term of the Agreement.
1.13 "Investigators" means the Principal Investigator, any
individual or position specifically identified in the budget (Appendix B to this
Agreement), and any other Cedars-Sinai employee who performs any part of the
work and procedures in furtherance of the Project
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contemplated by this Agreement. All Investigators are to sign the confidential
disclosure agreement appended hereto as Appendix C.
1.14 "LAD" or "Liver Assist Device" means a device which
simulates, supplements or substitutes for functions performed by the liver and
which is composed of a cartridge having a combination of living hepatocytes with
a membrane. "LAD" shall not be considered to include such peripheral or
accessory circuitry components as tubing, oxygenators, charcoal columns,
plasmapheresis equipment, and the like.
1.15 "Licensed Field" means the use of Cedars-Sinai LAD
Technology in human medical care and/or the use of Cedars-Sinai LAD Technology
to make (or have made), use and sell LADs for human medical care pursuant to the
license grant of Article VIII.
1.16 "Licensed Patent Rights" means Project Patent Rights and/or
patents and patent applications, if any, in all countries, which patents and/or
patent applications pre-date this Agreement, to the extent they or the claims
thereof describe one or more features of the Cedars-Sinai LAD Technology.
1.17 "Milestone" means one of the research, technology
development, or product development milestones of Appendix A, or such other
milestones which may be agreed upon by the parties.
1.18 "Net Sales Price" means, with respect to LADs manufactured
and sold by Grace or a Grace sublicensee, the sales price for each LAD sold to
third party customers less: (i) sales, excise, or use taxes separately stated on
the face of the invoice, (ii) separately stated and itemized transportation
charges, (iii) separately stated and itemized packaging costs, (iv) custom
duties, and (v) all trade and discount allowances generally acceptable in the
industry and actually given with respect to the LAD.
1.19 "Principal Investigator" means Dr. Achilles A. Demetriou,
M.D. (or any other person nominated by Cedars-Sinai and acceptable to Grace),
who shall have the duties and responsibilities set forth in Article IV of this
Agreement.
1.20 "Project" means the research and technology development to
be undertaken by Cedars-Sinai in the Field pursuant to the Research Program and
the Technology Development Program (as described in the Research & Technology
Development Plan), including any modifications, extensions or additions thereto.
It is intended by the parties that the term "Project" will include all aspects
of such research and technology development, whether supported financially by
Grace or by Cedars-Sinai.
1.21 "Project Information" means all scientific or technical
information and
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data, regardless of form or characteristics, including descriptions of and
information regarding all unpatented inventions relating to LADs which have been
developed, produced or generated in the course of, in connection with or as a
result of the work performed at Cedars-Sinai pursuant to the Research &
Technology Development Plan. "In the course of, in connection with or as a
result of" as used in this definition shall mean during the period in which the
research portion of this Agreement is funded by Grace. Project Information as
used herein shall not include financial information incidental to administration
of this Agreement.
1.22 "Project Invention" means any invention, improvement or
discovery relating to LADs which is conceived (or conceived and actually reduced
to practice) in the course of, in connection with or as a result of the research
funded pursuant to the Research & Technology Development Plan and includes any
method, process, device, machine, manufacture, design or composition of matter,
or any new or useful improvement thereof, whether or not patentable under the
patent laws of the United States or any foreign country. "In the course of, in
connection with or as a result of" as used in this definition shall mean the
period during which the research portion of this Agreement is funded by Grace.
1.23 "Project Patent Rights" means patents and patent
applications in all countries to the extent that they or the claims thereof
describe one or more features of a Project Invention.
1.24 "Publication" means (a) any document, book, scientific
paper, thesis, report, article, or commentary whether written or in any other
medium, or (b) a verbal or written presentation to any person or persons not
bound by this Agreement, which discloses any Project Information or Project
Invention. Publication as used herein shall not include any patent application
or patent within the Project Patent Rights.
1.25 "Research & Technology Development Plan" means the plan
attached hereto as Appendix A for the conduct of the Research Program and the
Technology Development Program at Cedars-Sinai. An amended Research & Technology
Development Plan, mutually agreed upon by the parties, shall be attached to this
Agreement each year during the research & technology development portion of the
Agreement. If the parties fail to agree on a mutually acceptable amended
Research & Technology Development Plan (Appendix A) and corresponding budget
(Appendix B) for any year, the research and technology development portion of
the Agreement shall terminate as provided in Paragraph 16.02(a).
1.26 "Research Program" means the conduct of research for second
and third generation LADs utilizing Cedars-Sinai LAD Technology.
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<PAGE> 8
1.27 "Technology Development Program" means the development of
supplemental Cedars-Sinai LAD Technology as necessary to support the preparation
of regulatory applications, responses to regulatory agency requests, and the
conduct of clinical trials with respect to the Cedars-Sinai First Generation
LAD.
1.28 "Technology Transfer Report" means the report specified in
Paragraph 3.02 which shall summarize Cedars-Sinai's research findings, results,
data, and shall provide all relevant procedures and protocols for practicing the
Cedars-Sinai LAD Technology, as of the Effective Date.
ARTICLE II - GRACE LAD TECHNOLOGY
---------------------------------
2.01 Grace shall disclose and make available to Cedars-Sinai the
Grace LAD Technology. Cedars-Sinai is hereby authorized to use the Grace LAD
Technology solely for conduct of the Research Program and the Technology
Development Program pursuant to this Agreement.
2.02 Cedars-Sinai recognizes that part of the Grace LAD
Technology has been developed by RIH (Principal Investigator, Dr. Hugo Jauregui)
pursuant to the RIH Agreement, and that Grace anticipates continuing to work
with RIH with respect to the LAD research.
(a) Cedars-Sinai hereby agrees to treat any RIH information or
technology with respect to the LAD which may be disclosed to Cedars-Sinai by
Grace or RIH pursuant to this Agreement in the same manner and with the same
protections as any other Grace LAD Technology.
(b) Grace hereby authorizes Cedars-Sinai in its sole discretion
to disclose to RIH any Grace LAD Technology and/or Cedars-Sinai LAD Technology
which may be necessary to carry out the purposes of this Agreement. RIH has
undertaken to treat Cedars-Sinai LAD Technology in the same manner as Grace LAD
Technology, maintaining its confidentiality and using it only for purposes of
the Grace LAD project.
(c) Cedars-Sinai confirms that it will use RIH information and
technology only for purposes of the Project.
2.03 Grace's obligations to Cedars-Sinai to conduct further
research and/or technology development with respect to the LAD are defined in
the Research & Technology Development Plan, which may from time-to-time be
amended in writing by mutual agreement of the parties. Grace shall not be
obligated to conduct any additional research and/or technology
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<PAGE> 9
development with respect to the LAD, beyond that specified in the Research &
Technology Development Plan.
ARTICLE III - CEDARS-SINAI LAD TECHNOLOGY
-----------------------------------------
3.01 Cedars-Sinai shall disclose and make available to Grace all
Cedars-Sinai LAD Technology. Grace is hereby authorized to use the Cedars-Sinai
LAD Technology solely for conducting technology development, regulatory approval
of, conducting clinical trials of, and commercializing the Cedars-Sinai First
Generation LAD pursuant to the license granted in Article VIII, and to engage in
the same activities for future generation LADs, as they are developed, pursuant
to that license.
3.02 In order to provide sufficient transfer of the Cedars-Sinai
LAD Technology to allow Grace to conduct the activities of Paragraph 3.01 with
respect to the Cedars-Sinai First Generation LAD, the Principal Investigator, on
behalf of Cedars-Sinai, has prepared a Technology Transfer Report and has
delivered it to Grace. Grace has found the general scope and detail of the
information already provided to be acceptable. The Technology Transfer Report is
intended to be of sufficient scope and detail to assist Grace scientists
reasonably skilled in the technology to practice the Cedars-Sinai LAD Technology
existing as of the Effective Date. The Technology Transfer Report therefore may
be supplemented by the consultation and discussion described in Paragraph 3.04,
in order to enable the Grace scientists to practice the Cedars-Sinai LAD
Technology with the same capacity to produce an LAD as when that technology is
practiced at Cedars-Sinai. In the event additional Cedars-Sinai LAD Technology
needs to be transferred, the Principal Investigator agrees to supplement the
Technology Transfer Report as may be reasonably necessary.
3.03 Cedars-Sinai shall provide Grace with copies of all
Cedars-Sinai patents and patent applications, if any, covering Cedars-Sinai LAD
Technology. A list of current patents and patent applications is attached hereto
as Appendix D. Future patent application drafts which may be prepared with
respect to Cedars-Sinai LAD Technology shall be provided to Grace for
consultation pursuant to Article XII.
3.04 (a) Cedars-Sinai shall make one or more Investigators
available to Grace for further consultation and discussion of the Technology
Transfer Report and the details of the Cedars-Sinai LAD Technology at mutually
agreeable times and places. It is preferred that such consultation, which may
take place by telephone conference, would be conducted quarterly. The parties
agree that the discussions would be in sufficient detail to enable Grace to
update the
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Technology Transfer Report after each such discussion.
(b) If Grace requests that extraordinary consultation take place
at a Grace facility, or at any other location requiring travel from the
Cedars-Sinai representative's normal place of employment (that is, consultation
requiring travel beyond that provided for in the budget of Appendix B), Grace
shall arrange for and shall pay for all reasonable travel and living expenses
associated with such extraordinary consultation.
ARTICLE IV - RESEARCH & TECHNOLOGY DEVELOPMENT PROGRAM
------------------------------------------------------
4.01 The parties shall engage in development of the existing
Cedars-Sinai LAD Technology and Grace LAD Technology, and shall proceed through
clinical studies and commercialization of the Cedars-Sinai First Generation LAD,
via conduct of the Technology Development Program under this Agreement. In
addition, Cedars-Sinai shall conduct additional research and development with
respect to second and third generation LADs, via conduct of the Research Program
under this Agreement. Cedars-Sinai and Grace shall collaborate on the Technology
Development Program and the Research Program, collectively referred to as the
Project, as set forth in further detail in Articles V and VI of this Agreement.
4.02 It is understood that Cedars-Sinai and Grace each shall make
contributions in support of the Project, and that the Grace contribution shall
be used solely for support of the Project. Cedars-Sinai contributions shall be
sufficient to supplement the Grace contributions as needed to conduct the
Project. It is anticipated that the Grace support initially will be allocated to
the hiring of additional Investigators and the acquisition of additional
equipment in support of the Project as set forth in the budget, and later also
will be allocated to support for clinical trials.
4.03 The activities of Cedars-Sinai and the Principal
Investigator pursuant to this Agreement shall be governed by the Research &
Technology Development Plan. Any significant deviations from the Research &
Technology Development Plan shall first be discussed with and approved by Grace.
4.04 Cedars-Sinai has designated Dr. Achilles A. Demetriou, M.D.
as Principal Investigator. Cedars-Sinai will provide the services of those
additional Cedars-Sinai Investigators needed to assist the Principal
Investigator as noted in the Research & Technology Development Plan. The
Principal Investigator shall be responsible for the conduct and direction of the
Project and shall supervise all work performed by the Investigators pursuant to
this Agreement.
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4.05 In the event the Principal Investigator leaves Cedars-Sinai
or substantially changes his field of interest, or is unavailable for any reason
to carry out his duties as the Principal Investigator, Cedars-Sinai may propose
by written notice to Grace a nominee to serve as Principal Investigator and,
upon written approval thereof by Grace, which approval shall not be withheld
unreasonably, the nominee shall become and serve as Principal Investigator for
all purposes hereunder and this Agreement shall continue with full force and
effect. However, in the event the candidate is unacceptable to Grace, the
research and technology development portion of this Agreement shall terminate
pursuant to the provisions of Paragraph 16.02(b), at the end of the thirty (30)
day period following Grace notice to Cedars-Sinai that the proposed candidate is
not acceptable.
ARTICLE V - GRACE CONTRIBUTIONS
-------------------------------
5.01 (a) Grace shall provide, at no cost to Cedars-Sinai,
Grace-manufactured hollow fibers and/or hollow fiber devices for use in the
Technology Development Program and/or the Research Program.
(b) Grace LAD Technology, as disclosed to Cedars-Sinai pursuant
to Paragraph 2.01 or as may be developed or acquired by Grace, may be utilized
in the commercialization of the Cedars-Sinai First Generation LAD (and,
potentially, future generation LADs) by Grace pursuant to this Agreement.
Subject to regulatory requirements, such use of Grace LAD Technology shall be at
Grace's discretion.
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5.02 Grace shall fund research and technology development to be
conducted at Cedars-Sinai under the direction of the Principal Investigator
according to the Research & Technology Development Plan.
5.03 Grace shall be responsible for seeking regulatory approval
for the Cedars-Sinai First Generation LAD, and, potentially, for future
generation LADs, including:
(a) preparing an IDE (Investigational Device Exemption), in
consultation with Cedars-Sinai, for joint submission to the
FDA (Food and Drug Administration), and following up on IDE
procedural requirements, attending meetings with FDA,
preparing and filing a PMA (Pre-Market Approval) with the
FDA, and the like; and
(b) coordinating multicenter clinical trials for the First
Generation LAD, which shall include Cedars-Sinai as one of
the centers.
5.04 Grace shall be responsible for commercialization of the
Cedars-Sinai First Generation LAD, and, potentially, future generation LADs,
including:
(a) producing or procuring hepatocytes in sufficient quality and
quantities for clinical trials, in accordance with
Cedars-Sinai and/or Grace LAD Technology;
(b) producing or procuring devices for housing hepatocytes in an
LAD, in quantities sufficient for clinical trials;
(c) engineering and making available prototype facilities for
the production of First Generation LADs, including
facilities for device and hepatocyte processing and, if
necessary, production of devices; and
(d) undertaking all associated marketing, sales, and
distribution activities.
5.05 Grace shall make a good faith effort to market the
Cedars-Sinai LAD Technology in the Licensed Field, but makes no representation
or warranty that regulatory approval can be obtained or that the Cedars-Sinai
First Generation LAD can be successfully marketed. Evidence of a good faith
effort includes but is not limited to the following activities, if undertaken by
Grace or a Grace sublicensee:
(a) completing Milestones in a timely manner;
(b) conducting clinical trials as may be necessary to secure
regulatory approval;
(c) applying for and providing the necessary effort in support
of securing such regulatory approval; and
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(d) promptly marketing one or more LADs for which regulatory
approval has been obtained.
Certain Milestones may be identified by the parties, upon mutual agreement, as
Grace Designated Milestones, at which time the Research & Technology Development
Plan will be amended to indicate such Grace Designated Milestone(s). However,
neither party shall be obligated to agree to any Designated Milestone(s) in
addition to those attached to this Agreement on the Effective Date. Completion
of such Grace Designated Milestones in a timely fashion is required for a
showing of good faith effort by Grace; provided, however, that Grace shall have
the opportunity to offer evidence of a good faith effort despite failure to meet
one or more Designated Milestones and Cedars-Sinai may accept such evidence in
its reasonable discretion, rather than taking action pursuant to Paragraphs 8.02
and 16.04(b).
5.06 Grace shall prepare an annual report of its progress toward
achieving the Milestones, to be forwarded to Cedars-Sinai within ninety (90)
days after the end of each calendar year. In addition to the annual report, upon
achieving any Designated Milestone, Grace agrees to notify Cedars-Sinai of such
achievement, as provided in Paragraph 15.01.
5.07 It is anticipated that Grace ultimately would design, build
and operate a facility for commercial production of LADs, provided that
financial objectives are met to Grace's satisfaction. In the event that Grace
decides not to pursue the commercial production or marketing of LADs the parties
agree to enter into good faith negotiations to effect the return of rights to
the Cedars-Sinai LAD Technology to Cedars-Sinai to enable Cedars-Sinai to pursue
other potential marketing or production relationships based on the Cedars-Sinai
LAD Technology; provided, however:
(a) the return of such rights shall be contingent upon the
execution of a mutually agreeable contract providing
therefor,
(b) such contract shall provide a reasonable recovery on Grace's
expenditures, from the October 13, 1993 date of the
Memorandum of Understanding between the parties, in the
incorporation, development and commercialization of the
Cedars-Sinai LAD Technology into the Grace LAD program,
including those expenses related to activities undertaken to
secure regulatory approval; the parties anticipate that such
recovery would be provided by means of one or more of the
following forms of payment: upfront fee, deferred payments,
and/or earned or minimum royalties; the parties agree that
no payments would be due to
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Grace under this provision unless Cedars-Sinai actually
enters into an agreement with a third party with respect to
the Cedars-Sinai LAD Technology; and
(c) unless otherwise agreed by the parties, all rights to the
Grace LAD Technology which have been granted to Cedars-Sinai
pursuant to this Agreement shall automatically revert to
Grace.
ARTICLE VI - CEDARS-SINAI CONTRIBUTIONS
---------------------------------------
6.01 So long as the research and technology development portion
of this Agreement is in effect, Cedars-Sinai shall conduct research and
technology development according to the Research & Technology Development Plan
in the further refinement of the Cedars-Sinai First Generation LAD and in the
development of second and third generation LADs.
6.02 Cedars-Sinai shall make a good faith effort to conduct the
research and development of Paragraph 6.01, but makes no representation or
warranty that particular technical goals will be successfully achieved. Evidence
of a good faith effort includes but is not limited to the following Cedars-Sinai
activities:
(a) staffing the Research Program and Technology Development
Program with Investigators as set forth in the Research &
Technology Development Plan, or as otherwise agreed by Grace
and Cedars-Sinai;
(b) conducting the Research Program and the Technology
Development Program according to the guidelines of the
Research & Technology Plan; and
(c) completing Milestones in a timely manner.
Certain Milestones may be identified by the parties, upon mutual agreement, as
Cedars-Sinai Designated Milestones, at which time the Research & Technology
Development Plan will be amended to indicate such Cedars-Sinai Designated
Milestone(s). However, neither party shall be obligated to agree to any
Designated Milestone(s) in addition to those attached to this Agreement on the
Effective Date. Completion of such Designated Milestones in a timely fashion is
required for a showing of good faith effort by Cedars-Sinai; provided, however,
that Cedars-Sinai shall have the opportunity to offer evidence of a good faith
effort despite failure to meet one or more Cedars-Sinai Designated Milestones
and Grace may accept such evidence in its reasonable discretion, rather than
taking action pursuant to Paragraph 16.04(a).
6.03 The Principal Investigator, on behalf of Cedars-Sinai, shall
prepare an
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annual report of its progress toward achieving the Milestones, to be forwarded
to Grace within ninety (90) days after the end of each calendar year. In
addition to the annual report, upon achieving any Designated Milestone,
Cedars-Sinai agrees to notify Grace of such achievement, as provided in
Paragraph 15.01.
6.04 The Principal Investigator, on behalf of Cedars-Sinai, shall
consult with and assist Grace in Grace's efforts under Paragraph 5.03 to obtain
regulatory approval for the LAD, according to the Research & Technology
Development Plan.
6.05 Cedars-Sinai shall serve as a site for a portion of the
clinical trials for the First Generation LAD and would be responsible for
conducting those trials, subject to the receipt of all internal institutional
approvals and in accordance with a separately negotiated workplan between the
parties with respect to clinical trials (to be attached to this Agreement as
part of Appendix A). Cedars-Sinai's participation in the clinical trials shall
be in consultation with Grace in Grace's role as multicenter clinical trial
coordinator.
6.06 As partial consideration for this Agreement, the Principal
Investigator, on Cedars-Sinai's behalf, shall provide consultation and training
for surgeons participating in the multicenter clinical trials. It is anticipated
that one or more separately negotiated agreements between the parties
participating in the clinical trials will set forth the terms and conditions for
such consultation and training.
ARTICLE VII - OWNERSHIP OF TECHNOLOGY
-------------------------------------
7.01 All rights contained within the Grace LAD Technology would
continue to be owned by Grace and/or RIH, and would not be changed or affected
by the provisions of the Agreement.
7.02 All rights to Grace hollow fibers and hollow fiber devices
would continue to be owned by Grace, and would not be changed or affected by the
provisions of the Agreement.
7.03 All rights contained within the Cedars-Sinai LAD Technology
would continue to be owned by Cedars-Sinai, and would not be changed or affected
by the provisions of the Agreement.
7.04 In the case of any joint Grace/Cedars-Sinai invention in the
Field, rights would be owned jointly by Grace and Cedars-Sinai. In the event
such invention is deemed by the parties to be patentable, decisions regarding
the filing and prosecution of a patent application would be made jointly, with
the filing and prosecution to be handled by Cedars-Sinai in
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consultation with Grace, as set forth in Paragraph 12.01. Grace would be
responsible for patent expenses for such inventions as set forth in Paragraph
12.01.
ARTICLE VIII- LICENSE GRANT
---------------------------
8.01 Cedars-Sinai hereby grants to Grace an exclusive, worldwide,
royalty-bearing license as follows:
(a) to practice the Cedars-Sinai LAD Technology in the Licensed
Field, including know-how and Licensed Patents within the
Cedars-Sinai LAD Technology, and
(b) to engage in activities associated therewith, such as
seeking government regulatory approvals, conducting clinical
trials, and the like.
As used herein, the term "worldwide" is intended to mean all countries of the
world, subject to U.S. government trade restrictions.
8.02 Cedars-Sinai shall have the right, but not the obligation,
to terminate Grace's exclusive license if Designated Milestones are not met;
provided, however, that Cedars-Sinai may not terminate Grace's license under
this Paragraph if failure to meet Designated Milestones is due to regulatory
delays not subject to Grace's control. Notwithstanding the foregoing, Grace
shall have sixty (60) days in which to cure any breach due to missing a
Designated Milestone, and also shall have the opportunity to provide
Cedars-Sinai with evidence excusing the failure to meet a Designated Milestone,
pursuant to Paragraph 5.05.
8.03 Grace's license shall include the right to sublicense any
third party to practice the Cedars-Sinai LAD Technology in the Licensed Field;
provided that Grace promptly notify Cedars-Sinai of any sublicense. Practice of
Cedars-Sinai LAD Technology by any Grace sublicensee shall be subject to royalty
payments as if practiced by Grace, and Grace shall include in any sublicense
agreement the right for Grace to audit with respect to the sublicensee royalty
obligation, or for Cedars-Sinai to audit if Grace chooses not to. Grace shall
make royalty payments to Cedars-Sinai on behalf of its sublicensee, unless Grace
and Cedars-Sinai mutually agree to allow the sublicensee to make royalty
payments directly to Cedars-Sinai.
8.04 The license granted to Grace pursuant to Paragraph 8.01
shall continue in effect in each country as specified in Paragraph 16.06, unless
earlier terminated according to Article XVI. Following expiration (but not
termination) of Grace's license in any country, Grace shall have a fully
paid-up, irrevocable license to practice the Cedars-Sinai LAD Technology in that
country.
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ARTICLE IX - LICENSE ROYALTIES
------------------------------
9.01 The license granted in Paragraph 8.01 shall be
royalty-bearing, based on the following two-tier royalty structure, with the
exact royalties to be negotiated for each generation of LAD commercialized by or
on behalf of Grace at the time the relevant Cedars-Sinai LAD Technology is
available for use. A lower royalty shall be paid for the use of Cedars-Sinai
know-how only (that is, if no patents are included in the licensed Cedars-Sinai
LAD Technology). A higher royalty would be paid in the event the commercial LAD
is covered by one or more Licensed Patents. No double royalty would be paid. It
is acknowledged by the parties that the presence or absence of patent coverage
for the relevant Cedars-Sinai LAD Technology may vary by country and that the
appropriate royalty from the two-tier structure will be determined on a
country-by-country basis.
9.02 The Cedars-Sinai LAD Technology is available for use insofar
as it covers the Cedars-Sinai First Generation LAD, which has been
patient-tested and which is now ready for use in conducting clinical trials and
proceeding to obtain regulatory approvals for the First Generation LAD. The
Cedars-Sinai First Generation LAD comprises [*]. The royalty rate for the
Cedars-Sinai First Generation LAD shall be [*] of the Net Sales Price for each
LAD sold by Grace or a Grace sublicensee into the chain of distribution.
9.03 Subject to the royalty credit of Paragraph 9.06, the
earned royalty of Paragraph 9.01 shall be payable by Grace to Cedars-Sinai based
on the cumulative Annual Net Sales of LADs for each Annual Royalty Period. All
royalties due Cedars-Sinai by Grace under this Agreement shall be payable in
U.S. dollars, with the rate of exchange for any non-U.S. currencies received for
any sales being the exchange rate specified in the American edition of the Wall
Street Journal. U.S.-dollar equivalence shall be calculated on a quarterly
basis, using the average of the exchange rate on the first and last business day
of the quarter for each of the currencies in which sales of LAD(s) were made
during the quarter.
9.04 The earned royalties of Paragraph 9.01 shall be payable only
once for any LAD.
9.05 All patent expenses paid by Grace pursuant to Article XII
would serve as a credit against future royalties owed to Cedars-Sinai under the
license granted in Article VIII.
9.06 (a) An accounting of the calculation of the earned royalties
by Grace shall accompany each royalty payment, and such an accounting shall be
delivered to Cedars-Sinai even if no earned royalties are payable for that
period. Grace shall keep books of record in
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<PAGE> 18
accordance with generally accepted accounting practices and sufficient to verify
the accuracy and completeness of the accounting under this Article, and shall
cause all its sublicensees to do the same. Such books of record shall be
preserved for a period not less than six years after their creation. Grace also
agrees to permit independent auditors (chosen by Cedars-Sinai and to whom Grace
has no reasonable objection) to inspect, copy and abstract such books, records
and accounts and all or any part of Grace's operations and activities hereunder
as may be necessary to determine the completeness or accuracy of reports made
under this Agreement, upon reasonable notice and at a single location and during
normal business hours. Cedars-Sinai shall be solely responsible for the costs of
an independent audit conducted at Cedars-Sinai's request.
(b) Any royalties due to Cedars-Sinai shall be paid by Grace
immediately and any overpayment shall be credited against the payment due in the
succeeding Annual Royalty Period.
ARTICLE X - PAYMENT PROCEDURES
------------------------------
10.01 Subject to the payment mechanism set forth herein, in
consideration for the performance by Cedars-Sinai of its obligations under this
Agreement, Grace will pay Cedars-Sinai those amounts set forth in the budget
(Appendix B to this Agreement). It is anticipated by the parties that the
research and technology development portion of the Agreement will be for a three
year period, as provided in Paragraph 16.01, with an annual budget of about [*].
As attached hereto at the time of execution of this Agreement, Appendix B sets
forth the total estimated cost and all estimated expenditures for the first year
of the research and technology development portion of this Agreement. An amended
Appendix B, to be agreed upon by the parties, shall be attached hereto for the
total estimated cost and all estimated expenditures for the second year of the
research and technology development portion of the Agreement (no later than
ninety (90) days prior to the end of the first year) and for the third year (no
later than ninety (90) days prior to the end of the second year). Cedars-Sinai
shall use such payments solely for the conduct of activities pursuant to the
Research and the Technology Development Programs. Grace is under no obligation,
express or implied, to authorize additional expenditures beyond the amounts
budgeted for the individual categories. However, Cedars-Sinai shall be permitted
to exceed the individual category budgets by up to twenty percent (20%),
provided that the total annual budget is not exceeded, and further provided that
no budget for any clinical support category (identified in the budget by an
asterisk) may be reduced in order to increase the budget of another category
without Grace's prior written approval.
10.02 Payment of all sums to Cedars-Sinai for the Project shall
be by check
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<PAGE> 19
made payable to: Cedars-Sinai Medical Center. Within ten (10) days following
execution of this Agreement, Grace shall make an initial payment to Cedars-Sinai
of an amount equal to one quarter of the total annual budget (i.e., [*] for Year
1) and shall thereafter make three (3) additional quarterly payments of the same
amount. Subsequent quarterly payments would be due November 10, February 10, and
May 10.
10.03 Cedars-Sinai shall deliver to Grace within sixty (60) days
after the end of each quarter, a quarterly invoice prepared according to its
customary accounting practices, which reflects costs incurred by Cedars-Sinai
pursuant to this Agreement. These costs shall include: (i) salaries, wages and
established employee benefits; (ii) costs of purchased equipment, animals,
materials and supplies; (iii) travel and related expenses; (iv) other costs and
expenses for the Project; and (v) indirect costs (i.e., overhead).
10.04 The quarterly invoices of Paragraph 10.03 are considered to be necessary
prerequisites for the payment of quarterly payments pursuant to Paragraph 10.02,
beginning with the third quarterly payment. In no event will the third quarterly
payment be made by Grace until after receipt and acceptance of the quarterly
invoice for the first quarter, nor will the fourth quarterly payment be made by
Grace until after receipt and acceptance of the quarterly invoice for the second
quarter, etc. Following receipt of each quarterly invoice, Grace shall have
thirty (30) days to review and confirm the data contained therein, prior to
making any subsequent quarterly payment, which shall be made as follows:
<TABLE>
<S> <C>
First quarter, Year 1: Per Para. 10.02;
Second quarter, Year 1: 3 mos. after initial payment;
Third quarter, Year 1: After acceptance of first quarter invoice;
Fourth quarter, Year 1: After acceptance of second quarter invoice;
First quarter, Year 2: After acceptance of third quarter invoice; etc.
</TABLE>
Acceptance of each invoice by Grace shall represent a final accounting for the
quarter represented by that invoice.
10.05 In the event that the invoicing procedure of Paragraph
10.04 demonstrates a budget underrun, an appropriate adjustment shall be made at
year-end, provided that the underrun amount remains unspent at year-end.
10.06 Within ninety (90) days after expiration or termination of
the research and technology development portion of this Agreement, Cedars-Sinai
shall furnish to Grace a final reporting of all costs and expenses incurred in
performing its obligations under this Agreement. Such reporting shall be
prepared according to Cedars-Sinai's customary accounting practices, and shall
be in itemized format. Following expiration or termination of the research and
technology development portion of the Agreement, Cedars-Sinai shall refund to
Grace all remaining unexpended amounts (i.e., remaining budget underrun
amounts).
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<PAGE> 20
10.07 Any piece of equipment purchased at a cost in excess of
twenty-five hundred dollars ($2,500) shall be specifically identified in the
budget and shall be identified by Cedars-Sinai in an attachment to its quarterly
report. Following expiration or termination of the research and technology
development portion of this Agreement, Cedars-Sinai shall own all right, title
and interest in and to such equipment.
10.08 Cedars-Sinai shall exercise its best effort to ensure that
all invoices, financial statements, billings and financial reports to Grace
accurately reflect all activities and transactions handled for the account of
Grace and that such data may be relied upon in any further recording and
reporting by Grace for whatever purpose. In the event that any error is found,
Cedars-Sinai agrees to promptly correct such error.
10.09 During the life of this Agreement and for two (2) years
thereafter, Cedars-Sinai shall keep or cause to be kept, in accordance with
generally accepted accounting practices, books, records and accounts covering
all information necessary for the accurate accounting of funds transferred by
Grace pursuant to Paragraph 5.02 and this Article X, and amounts considered to
be Cedars-Sinai contributions as described in Paragraph 4.02.
(a) Cedars-Sinai agrees to provide Grace with a quarterly report
generally outlining the Cedars-Sinai resources applied during the preceding
quarter to activities in the Research and Technology Development Programs.
(b) With respect solely to spending of Grace funding pursuant to
Paragraph 5.02, Cedars-Sinai agrees to permit Grace or independent auditors
(chosen by Grace and to whom Cedars-Sinai has no reasonable objection) to
inspect, copy and abstract such books, records and accounts and all or any part
of Cedars-Sinai's operations and activities hereunder as may be necessary to
determine the completeness or accuracy of reports made under Paragraphs 10.03
through 10.07 of this Agreement, upon reasonable notice and at a single location
and during normal business hours. Grace shall be solely responsible for the
costs of an independent audit conducted at Grace's request.
ARTICLE XI - CONFIDENTIALITY
----------------------------
11.01 All technical and/or commercial information provided to
Cedars-Sinai by or on behalf of Grace with respect to the Grace LAD Technology
is considered by Grace to be proprietary and confidential. Cedars-Sinai agrees
to treat it as such, according the Grace information the same protections as
Cedars-Sinai's own proprietary and confidential information. Subject to the
provisions of Paragraphs 11.05, 11.08 and 11.09, Cedars-Sinai agrees not to
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<PAGE> 21
publish or otherwise reveal or disclose the Grace information, or portions
thereof, to any third party without prior written authorization from Grace.
Cedars-Sinai understands that any information contained within the Grace LAD
Technology which has been obtained or licensed from RIH may also require prior
written authorization from RIH before it may be disclosed to any third party.
11.02 All Cedars-Sinai technical information provided to Grace
with respect to the Cedars-Sinai LAD Technology is considered by Cedars-Sinai to
be proprietary and confidential. Grace agrees to treat it as such, according the
Cedars-Sinai information the same protections as Grace's own proprietary and
confidential information. Subject to the provisions of Paragraphs 11.06, 11.08,
11.09 and 11.10, Grace agrees not to publish or otherwise reveal or disclose the
Cedars-Sinai information, or portions thereof, to any third party without prior
written authorization from Cedars-Sinai.
11.03 All physical samples (e.g., hepatocytes, beads, membranes,
devices, and the like) provided to Cedars-Sinai by Grace in relation to the
Grace LAD Technology, or provided to Grace by Cedars-Sinai in relation to the
Cedars-Sinai LAD Technology, shall be treated as confidential and proprietary
according to the provisions of this Article.
11.04 The confidentiality obligations of this Article XI shall
not extend to information which:
(a) was known to the receiving party prior to disclosure under
either this Agreement or the secrecy agreement previously
executed by the parties, as evidenced by written records
kept by the receiving party in the normal course of
business; or
(b) is or becomes known to the public through no fault or action
by the receiving party; or
(c) is disclosed to the receiving party by a third party not
under an obligation of secrecy to the disclosing party.
[*]
11.06 Publications by Grace disclosing the results of any
research, technology development and/or clinical trials conducted under the
Agreement shall be pre-reviewed by the Academic Affairs Department of
Cedars-Sinai. Grace agrees to limited delays (up to ninety (90) days) in
publication if necessary to file one or more patent applications, and agrees
that no
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<PAGE> 22
Cedars-Sinai confidential information shall be disclosed without advance written
consent from Cedars-Sinai.
11.07 Neither party hereto shall, without obtaining the prior
written consent of the other party, do any of the following acts:
(a) make any announcements or create any publicity regarding
this Agreement; or
(b) release any advertising, promotional, or sales literature
which mentions the name of the other party hereto, other
than by reference to a bibliographic citation.
However, nothing in this Paragraph shall be construed to prohibit either party
from disclosing factual information or data relating to this Agreement which is
required by law to be disclosed.
11.08 Written consent pursuant to Paragraph 11.07 is hereby
mutually given for the release of the following information, in the form of a
press release or the like or, for example, in the course of discussions of Grace
collaborations (by Grace employees) or of Cedars-Sinai collaborations (by
Cedars-Sinai employees):
(a) the existence of the Cedars-Sinai-Grace Agreement,
(b) the Field of research covered by the Agreement,
approximately as defined herein,
(c) the identity of the Principal Investigator, and
(d) the general subject matter of project inventions, after all
United States patent applications covering said inventions
have been filed. However, any press release or disclosure which goes beyond the
specific facts of items (a) through (d) shall need the prior written consent of
Paragraph 11.07.
11.09 Nothing in this Article XI is intended to prohibit either
party from disclosing information to a government regulatory agency as required
for securing applicable regulatory approvals for the LAD.
11.10 Nothing in this Article XI shall be construed to prevent
Grace from:
(a) disclosing information and/or supplying physical samples to
a sublicensee, a toll manufacturer, or an outside testing
laboratory for the production and preparation of LADs (or
components thereof) for any purpose contemplated by this
Agreement, provided that the sublicensee, toll manufacturer,
or outside testing laboratory shall have signed a
confidentiality agreement containing provisions
substantially similar to
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<PAGE> 23
those contained in this Article XI; or
(b) any commercial sale or use of any LAD based on the
Cedars-Sinai LAD Technology by Grace, a Grace sublicensee or
a customer of either in the Licensed Field.
11.11 The provisions of the secrecy agreement dated August 10,
1993 between Grace and Cedars-Sinai are superseded by the provisions of this
Article XI.
ARTICLE XII - PATENT PROTECTION
-------------------------------
12.01 The patents and patent applications included in the
Cedars-Sinai LAD Technology on the Effective Date of this Agreement are listed
in Appendix D. All Project Patent Rights are considered to be within the scope
of Cedars-Sinai LAD Technology under this Agreement. For those patents and
patent applications listed in Appendix D, together with all Project Patent
Rights, including any jointly owned patent applications within the Project
Patent Rights, Cedars-Sinai agrees:
(a) to use reasonable efforts in pursuing the pending patent
applications to grant, including appeal within the relevant
Patent Office(s) and/or re-filing the case (if appropriate
under local practice), as Cedars-Sinai sees fit; provided
that in the event Cedars-Sinai does not wish to prepare and
file a patent application within the Project Patent Rights
but Grace does, Cedars-Sinai will proceed nevertheless in
such preparation and filing according to the provisions of
this Paragraph 12.01, and will use the same reasonable
efforts as with other Project Patent Rights;
(b) to notify Grace promptly (that is, in sufficient time to
reasonably permit Grace to review and respond within the
time periods provided herein) and to consult with Grace on
all activities in subparagraph (a), obtaining Grace approval
on all significant patent drafting and prosecution
decisions, provided that Grace responds within thirty (30)
days, or sooner if a Patent Office deadline requires an
earlier response;
(c) to defend any patent within the Licensed Patent Rights in
any opposition proceeding which may be brought with respect
thereto, if such defense is recommended by patent counsel;
provided, however, that if the parties do not agree on
whether to proceed with such defense, the issue of whether
to proceed may be submitted to an independent patent
attorney
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<PAGE> 24
to whom neither party has any reasonable objection,
for review and a binding recommendation whether to proceed
with such defense; in the event the recommendation is to not
defend the patent and Grace chooses to proceed nevertheless,
out-of-pocket costs associated with such defense shall not
serve as a credit against future royalties; and
(d) that no pending patent application will be intentionally
abandoned and no patent allowed to lapse unless Grace is
first consulted and agrees with that course of action;
provided that in the case of any disagreement on the
appropriate course of action, Cedars-Sinai agrees to
continue the prosecution as suggested by Grace.
All out-of-pocket costs associated with the listed activities are to be
reimbursed by Grace. All such costs paid by Grace shall serve as a credit
against future royalties owed to Cedars-Sinai pursuant to Article IX, except as
provided in subparagraph (c) above.
12.02 In the event that Grace's license is terminated pursuant to
Paragraph 16.05, responsibility for costs associated with all Licensed Patent
Rights (other than jointly owned Project Rights) would revert back to
Cedars-Sinai and Cedars-Sinai would no longer be obligated to consult with Grace
for those cases. With respect to jointly owned Project Patent Rights,
Cedars-Sinai would continue prosecution in consultation with Grace, and
associated out-of-pocket expenses would be shared equally by Grace and
Cedars-Sinai; provided, however, that if either party no longer wishes to bear
the costs of such shared expenses for any Project Patent Rights, it may choose
to notify the other party in writing of its decision and assign its ownership
rights to the other party; the assigning party shall thereafter have no further
obligation to share the out-of-pocket expenses for the assigned Project Patent
Rights.
ARTICLE XIII - PATENT ENFORCEMENT AND THIRD PARTY PATENTS
---------------------------------------------------------
13.01 In the event Grace believes there is substantial
infringement of any patent in the Licensed Patent Rights, which alleged
infringement is to the material detriment of Grace or a Grace sublicensee, Grace
shall have the initial opportunity for preventing and/or causing the
discontinuance of any such infringement, in Grace's sole discretion. However,
Cedars-Sinai agrees that it will, at Grace's request and expense, furnish such
reasonable assistance as may be required to assist in preventing or
discontinuing any such infringement. In such event, Grace may withhold up to
one-half (1/2) of the earned royalty payments which would otherwise fall due
under Article IX for the country(ies) in which the alleged infringement is
taking
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<PAGE> 25
place, not to exceed Grace's actual out-of-pocket expenses for such suit.
Withheld earned royalty payments would be forgiven unless Grace received a
recovery, lump-sum settlement or royalty payment from the alleged infringer, in
which case they would be payable out of the amount(s) received from the alleged
infringer, as provided herein. From such time as the infringement ceases
(whether voluntarily, by settlement or by court order), Grace's full royalty
obligations would resume. Any recovery, lump-sum settlement or royalty payment
made to Grace by the alleged infringer shall be distributed according to the
following priority:
(a) Cedars-Sinai shall be reimbursed in the amount of any
royalties withheld by Grace pursuant to this Paragraph;
(b) Grace shall be reimbursed for any additional out-of-pocket
expenses not covered by the withheld royalties; and
(c) Any remaining amount shall be included in the Annual Net
Sales calculation of Paragraph 9.01, with Cedars-Sinai
receiving a royalty thereon and Grace retaining the balance.
13.02 If Grace elects not to bring or prosecute infringement
litigation pursuant to Paragraph 13.01, Cedars-Sinai may elect to bring suit
against the alleged infringer at its sole expense. However, Grace agrees that it
will, at Cedars-Sinai's request and expense, furnish such reasonable assistance
as may be required to assist in preventing or discontinuing any such
infringement. In such event, Cedars-Sinai would be under no obligation to
account to Grace in any way with respect to the conduct of any such suit or
recovery obtained thereby.
13.03 In the event that any activities licensed hereunder are
found to infringe the intellectual property rights of a third-party, and result
in the payment of royalties or other compensation by Grace (or a Grace
sublicensee) to such third-party, Grace may reduce its royalty payment to
Cedars-Sinai. Such reduction will be in the amount of the royalties or other
compensation paid to the third party, up to a maximum of one-half (1/2) the
royalties payable to Cedars-Sinai under Article IX with respect to the
country(ies) for which payments are being made to the third party.
ARTICLE XIV - REPRESENTATIONS, WARRANTIES, AND INDEMNIFICATION
--------------------------------------------------------------
14.01 Grace makes no representations or warranties with respect
to its ability to obtain regulatory approval(s) for any Cedars-Sinai LAD, or
with respect to the technical, economic or commercial feasibility of any
Cedars-Sinai LAD.
14.02 Cedars-Sinai warrants the accuracy and authenticity of any
and all
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<PAGE> 26
information, data, test results, and the like, with respect to prior
investigations conducted by or at the direction of the Principal Investigator at
Cedars-Sinai which Cedars-Sinai provides to Grace for purposes of obtaining
regulatory approval for the Cedars-Sinai First Generation LAD, or for any
subsequent LAD.
14.03 Cedars-Sinai makes no representations or warranties that
any Cedars-Sinai patents or patent applications licensed hereunder are valid, or
that the manufacture, use, sale or other disposal of any LAD utilizing
Cedars-Sinai LAD Technology does not infringe upon any patent or other rights
other than rights in the Cedars-Sinai LAD Technology. Cedars-Sinai, however,
knows of no patent or other rights of any third party which would be so
infringed.
14.04 As between Grace and Cedars-Sinai, Grace shall have sole
control and responsibility for the manufacture, sale, and/or commercial use of
LADs hereunder. As between Grace and Cedars-Sinai, Grace shall bear the full
responsibility for any liability to any customers and others for any LAD made
and sold or distributed by Grace or any Grace sublicensee, and shall indemnify
and hold Cedars-Sinai, its officers, directors, employees and agents harmless
from any judgment, claim, expense or liability (including attorneys' fees)
arising out of the sale or distribution of LADs by Grace and/or any Grace
sublicensee; provided, however, that such indemnification shall not apply to the
extent that the judgment, claim, expense, or liability is based on any actual
direct conduct by any agent or employee of Cedars-Sinai (for example, in
conducting clinical trials of the LAD) or is based on any inaccurate data which
may have been supplied by Cedars-Sinai, its officers, directors, employees or
agents, for the purpose of obtaining regulatory approval for the LAD.
14.05 Cedars-Sinai hereby warrants that it carries sufficient
Worker's Compensation insurance to comply with the laws of the State of
California with respect to Cedars-Sinai personnel. Each party shall indemnify
and hold the other party harmless from any and all claims, costs or liability
for any loss, damage, injuries or loss of life incurred in the indemnifying
party's own performance of the research work or development that is conducted on
the indemnifying party's own premises; provided, however, that such
indemnification shall not apply for any loss, damage, injuries, or loss of life
attributable in whole or in part to the other party's gross negligence.
14.06 With respect to any clinical or other trials of the LAD
conducted by any agent or employee of Cedars-Sinai, Cedars-Sinai shall indemnify
and hold Grace harmless from any and all claims, costs or liability for any
loss, damage, injuries or loss of life incurred in connection with the
negligence, wilful actions or misconduct of such agent or employee of
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<PAGE> 27
Cedars-Sinai, or in connection with any inaccurate data which may have been
supplied by Cedars-Sinai, or on its behalf, for the purpose of obtaining
regulatory approval for the LAD.
14.07 Cedars-Sinai and Grace each agree to comply with all
applicable government regulations and requirements for protecting health,
safety, and the environment. Cedars-Sinai and Grace each agree to cooperate with
any Government agency(ies) authorized to monitor compliance with such
regulations and requirements. With respect to any clinical or other trials of
the LAD conducted by any agent or employee of Cedars-Sinai, Cedars-Sinai agrees
that such agent or employee shall be obligated to notify Grace immediately upon
discovery of any data or other information suggesting any adverse effects in
connection with the LADs.
ARTICLE XV - NOTICES
--------------------
15.01 All notices required to be given under this Agreement, and
the payment of required royalties, shall be made by first class air mail or
express courier addressed to the respective party at the address below, or by
telefax to the numbers listed below (for notices), or to such changed address or
telefax number as a party may designate in writing to the other party. Such
notice, if received, shall be deemed to have been received, if by first class
mail, on the fifteen (15th) calendar day after posting; if by express courier,
on the date of delivery by the courier; and if by telefax, upon transmission
with confirmation of receipt.
If to Grace: W. R. Grace & Co.-Conn.
Commercial Development Division
One Town Center Road
Boca Raton, FL 33468-1010
Attn: President
Telefax No.: (407) 362-1865
If to Cedars-Sinai: Cedars-Sinai Medical Center
8700 Beverly Boulevard
Los Angeles, CA 90048-1865
Attn: Senior Vice President
for Academic Affairs
Telefax No.: (310) 967-0101
ARTICLE XVI - TERM AND TERMINATION
----------------------------------
A. Research and Technology Development Portion of Agreement
--------------------------------------------------------
16.01 The term of the research and technology development portion
of the Agreement shall be three (3) years from the Effective Date, unless
earlier terminated according
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<PAGE> 28
to the provisions of this Article XVI. The research and technology development
portion of the Agreement may be renewed or extended by mutual written agreement
of the parties.
16.02 (a) In the event the parties fail to agree on a mutually
acceptable amended Research & Technology Development Plan and corresponding
budget for any year, the research and technology development portion of the
Agreement shall automatically terminate at the end of the year for which such a
mutually acceptable Plan and budget do exist, without any formal notice period
being required.
(b) Either party has the right to terminate the research and
technology development portion of the Agreement in the event of material breach
by the other party of any of the obligations of Articles V and VI, by providing
thirty (30) days notice in writing to the breaching party unless such breach is
cured in the thirty day notice period.
(c) Termination of the research and technology development
portion of the Agreement pursuant to this paragraph shall not itself affect
Grace's license, which shall be terminable only if one or more criteria of Part
B to this Article XVI are met.
16.03 Either party has the right to terminate the research and
technology development portion of the Agreement for any or no reason (i.e.,
arbitrarily) by providing ninety (90) days notice in writing to the other party.
Grace termination of the research and technology development portion of this
Agreement pursuant to this Paragraph at any time prior to the original three
year term of the research and technology development portion of the Agreement
would simultaneously terminate the license portion of the Agreement pursuant to
Paragraph 16.07(a), unless Cedars-Sinai agreed to waive such simultaneous
termination of the license. Grace termination of the research and technology
development portion pursuant to this Paragraph at any time after the original
three year term shall not itself affect Grace's license rights to Cedars-Sinai
LAD Technology (including Project Information and Project Inventions) existing
as of the date of such termination.
16.04 (a) In the event Cedars-Sinai fails to meet one or more
Designated Milestones, Grace shall have the right to terminate the research and
technology development portion of the Agreement effective upon sixty (60) days
written notice to Cedars-Sinai; provided, however, that if the Designated
Milestone(s) is(are) met during that period or if Cedars-Sinai makes a showing
of good faith pursuant to Paragraph 6.02, termination will not take place.
Termination pursuant to this Paragraph shall not affect Grace's license rights.
(b) In the event Grace fails to meet one or more Designated
Milestones, Cedars-Sinai shall have the right to terminate the Agreement
(including both the research and technology
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development portion and the license portion) effective upon sixty (60) days
written notice to Grace; provided, however, that if the Designated Milestone(s)
is(are) met during that period or if Grace makes a showing of good faith
pursuant to Paragraph 5.05, termination will not take place.
16.05 (a) If the research and technology development portion of
the Agreement is terminated for any reason whatsoever, Cedars-Sinai shall use
its best efforts to provide for an orderly, gradual phase-out of research
conducted under Grace-sponsorship during the interval between the date of the
termination notice and the termination date specified in such notice.
Cedars-Sinai shall cancel its outstanding commitments covering the procurement
of materials, supplies, equipment and miscellaneous items for such research.
(b) Cedars-Sinai shall exercise reasonable diligence to
accomplish where possible the cancellation or diversion of its outstanding
commitments extending beyond the termination date which cover the services of
Investigators supported by Grace-funding in the budget. However, Grace shall
remain responsible for any irrevocable personnel commitments made within the
scope of the budget for the Project prior to notice of termination for a Senior
Tissue Culture Investigator; provided, however, that Grace shall not be
responsible for any irrevocable personnel commitment to the extent that it
extends beyond 2 months after the effective date of termination.
B. License Portion of Agreement
- -------------------------------
16.06 Unless earlier terminated, Grace's license shall remain in
full force and effect in each licensed country until:
(a) the last to expire of the Licensed Patent Rights in that
country, if any patents within the Licensed Patent Rights
are granted in that country; or
(b) ten (10) years from the first commercial sale of LAD in that
country, if no Cedars-Sinai LAD patents within the Licensed
Patent Rights have been granted in that country as of the
date ten (10) years after the first commercial sale of LAD
in that country.
16.07 (a) Grace termination of the research and technology
development portion of this Agreement pursuant to Paragraph 16.03 at any time
prior to the original three year term of the research and technology development
portion of the Agreement would simultaneously terminate the license portion of
the Agreement, unless Cedars-Sinai agreed to waive such simultaneous termination
of the license.
(b) Cedars-Sinai shall have the right to terminate Grace's
license, effective upon
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<PAGE> 30
sixty (60) days written notice to Grace, only in the event of material breach or
default by Grace; provided, however, that Grace shall be given the opportunity
to cure such breach or default during the sixty day notice period, in which case
the license would not be terminated.
16.08 Grace shall have the right to terminate its license for any
or no reason (i.e., arbitrarily), effective upon ninety (90) days notice in
writing to Cedars-Sinai.
C. General
-------
16.09 (a) In the event that either party becomes bankrupt or
insolvent, petitions any judicial body under any bankruptcy or insolvency laws,
or has any proceeding commenced against it for insolvency, bankruptcy or
liquidation, the other party hereto may terminate this Agreement or the license
granted hereunder upon providing ten (10) days written notice to the bankrupt or
insolvent party.
(b) In the event that Cedars-Sinai becomes bankrupt, etc.:
(i) Pursuant to the Bankruptcy Code, Grace may elect to retain
its rights under the license portion of this Agreement if the trustee,
receiver, or other entity so authorized by a federal bankruptcy court,
seeks to reject Grace's license.
(ii) If Grace elects to retain its rights under the license
portion of this Agreement, the trustee or receiver or other entity so
authorized by a federal bankruptcy court, shall covenant not to
initiate any claim against Grace (or its sublicensees) or otherwise
seek to prevent Grace (or its sublicensees) from practicing under the
license portion of this Agreement, and shall further covenant not to
license or otherwise enable any party to make, use or sell any LAD or
practice any Cedars-Sinai LAD Technology in conflict with the rights
granted in the license portion of this Agreement.
(iii) If Grace elects to retain its rights, the rights and
remedies of the parties hereto shall continue to be governed by the
terms of the Agreement.
16.10 Termination pursuant to Paragraphs 16.06, 16.07, or 16.08
shall not affect any rights or obligations accrued prior to the effective date
of such termination.
16.11 Termination of this Agreement or any license granted
hereunder shall not relieve Grace of its obligations under Articles IX, XI, or
XII, and shall not relieve Cedars-Sinai of its obligations under Articles XI and
XII. Upon termination of Grace's license, Grace sublicensees of the Cedars-Sinai
LAD Technology shall be permitted to request a direct license from Cedars-Sinai.
Grace agrees to cooperate in the transition of sublicenses from Grace to
Cedars-Sinai, to the extent reasonable.
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<PAGE> 31
16.12 For any LAD which Grace or a Grace sublicensee has
manufactured or is in the process of manufacturing at the time termination is
effective under Paragraph 16.06, 16.07, or 16.08, Grace may elect either to have
the LAD be subject to the terms of the license as if the license had not been
terminated, provided that sale of the LAD by Grace takes place within two (2)
years following termination, or Grace may elect to have the LAD destroyed or the
manufacture thereof cancelled. 16.13 In the event of termination of this
Agreement or any license granted hereunder, neither party shall be prohibited
from subsequently contracting with one or more third parties with respect to the
LAD, subject only to the specific obligations which are designated as surviving
termination.
ARTICLE XVII - ASSIGNABILITY
----------------------------
17.01 This Agreement, and any license granted hereunder, shall be
binding upon and inure to the benefit of the parties hereto and the successors
to the entire business of the respective parties hereto.
17.02 This Agreement, and any license granted hereunder, shall be
assignable by Grace to a Grace Affiliate and/or by Cedars-Sinai to a
Cedars-Sinai Affiliate. Otherwise, this Agreement shall not be assignable by
either party (or the Affiliates thereof) without the prior written consent of
the other party, except that either party may freely assign this Agreement to a
successor of the entire business to which this Agreement relates. For purposes
of this Agreement, such "business" shall be understood to refer to that
specifically concerned with the LAD.
ARTICLE XVIII - MISCELLANEOUS
-----------------------------
18.01 This document represents the full and entire understanding
of the parties with regard to the subject matter hereof and supersedes all prior
negotiations, understandings and representations.
18.02 The parties to this Agreement are independent contractors
and not joint venturers or partners, and no agency, partnership, or power to
obligate the other party is created by this Agreement.
18.03 This Agreement shall be interpreted in accordance with the
laws of the Commonwealth of Massachusetts, United States of America, with the
exclusion of its conflict laws.
29
<PAGE> 32
18.04 If any of the provisions of this Agreement are or become in
conflict with the laws or regulations of any jurisdiction or any governmental
entity having jurisdiction over the parties or the subject matter, those
provisions shall be deleted and the remaining terms and conditions of this
Agreement shall remain in full force and effect.
18.05 The parties agree to abide by any restrictions or
conditions respecting the export or re-export of Grace LAD Technology and/or
Cedars-Sinai LAD Technology disclosed hereunder, or any direct product embodying
the same, which is or may become subject to export control under the Export
Administration Regulations of the United States Department of Commerce (as
amended from time-to-time) or export control regulations of other United States
Government agencies including the Food & Drug Administration, Department of
State and Department of Treasury (as amended from time-to-time). The parties
agree not to export or re-export such information, or the direct product
thereof, directly or indirectly, to any countries to which such export is now or
hereafter becomes illegal under any such regulations. Cedars-Sinai understands
that such export control regulations (as amended from time to time) may prohibit
or restrict the performance by Grace of its obligations hereunder, and agrees
that Grace shall be excused from its performance hereunder to the extent that
such performance is prohibited or restricted by such regulations. Grace shall
require all Grace sublicensees to abide by the provisions of this Paragraph.
18.06 Any delay in or failure of performance by either party
under this Agreement shall not be considered a breach or default hereunder if
due to any cause beyond the reasonable control of the party affected including,
but not limited to, Acts of God, compliance with any foreign or domestic court
order, compliance with any governmental regulations, order, or request, fires,
riots, labor disputes, war, unusually severe weather, provided, however, that
the party affected promptly notifies the other of the existence thereof and its
expected duration. The foregoing shall not be considered a waiver of either
party's obligations under this Agreement and as soon as any such force majeure
circumstance shall cease the party affected thereby shall promptly fulfill its
obligations under this Agreement.
IN WITNESS WHEREOF, the parties confirm their agreement with the
foregoing terms by the signatures below of their duly authorized
representatives.
W. R. GRACE & CO.-CONN. CEDARS-SINAI MEDICAL CENTER
30
<PAGE> 33
By: F.P Boer By: Joseph Luevanos
-------- ---------------
Title: Executive V.P. Title: Senior Vice President & CFO
--------------- ----------------------------
Date: August 11, 1994 Date: August 1, 1994
---------------- ---------------
By: Thomas Priselac
----------------
Title: President & CEO
----------------
Date: August 2, 1994
---------------
Acknowledged and agreed to:
By: /s/ Achilles A. Demetriou
---------------------------
ACHILLES A. DEMETRIOU, MD, Ph.D.
Principal Investigator
Date: August 1, 1994
31
<PAGE> 34
Appendix A: Milestones/Research Plan
------------------------------------
(attached hereto)
(Seven pages)
[*]
32
<PAGE> 35
APPENDIX B
----------
RESEARCH & TECHNOLOGY DEVELOPMENT BUDGET
----------------------------------------
BUDGET FOR 1ST YEAR OF PROJECT Page 1 of 2
------------------------------ -----------
[*]
33
<PAGE> 36
BUDGET FOR 1ST YEAR OF PROJECT (cont'd) Page 2 of 2
- -------------------------------------- -----------
[*]
34
<PAGE> 37
Appendix C
----------
Investigator Agreement
----------------------
I, the undersigned employee of Cedars-Sinai Medical Center
("Cedars-Sinai"), hereby acknowledge that I have read and understand the
provisions of the Agreement to be made effective _______________, 1994 by and
between Cedars-Sinai and W. R. Grace & Co.-Conn. ("Grace"). I hereby agree as
follows:
1. To assign all my rights, title and interest in any invention,
whether or not patentable, forming part of the Project
Information (as defined in said Agreement) to Cedars-Sinai;
2. To cooperate fully with Cedars-Sinai and Grace in filing,
prosecuting and maintaining all U.S. and foreign patents and
patent applications;
3. To cooperate fully with Grace and Cedars-Sinai in any litigation
involving any Project Patent Rights (as defined in said
Agreement); and
4. To protect as confidential all technical information of
Cedars-Sinai (the Cedars-Sinai LAD Technology) and of Grace (the
Grace LAD Technology), and not to disclose either to any third
party except as permitted under the Agreement.
(Signature of employee)
______________________ ___________________________
(Date) (name of employee)
WITNESSED BY:
_________________ (Signature of witness)
___________________________
(Date) (name of witness)
35
<PAGE> 38
Appendix D: Cedars-Sinai Patents & Patent Applications
------------------------------------------------------
[*]
36
<PAGE> 1
EXHIBIT 10.9
CIRCE BIOMEDICAL, INC. HAS OMITTED FROM THIS EXHIBIT 10.9 PORTIONS OF THE
AGREEMENT FOR WHICH CIRCE BIOMEDICAL, INC. HAS REQUESTED CONFIDENTIAL TREATMENT
FROM THE SECURITIES AND EXCHANGE COMMISSION. THE PORTIONS OF THE AGREEMENT FOR
WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH AN ASTERISK AND
SUCH CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
SETTLEMENT AGREEMENT, MUTUAL RELEASE
------------------------------------
AND RESTATEMENT OF RIGHTS AND OBLIGATIONS
-----------------------------------------
This Settlement Agreement, Mutual Release and Restatement of Rights and
Obligations ("the Agreement") is entered into this 12th day of June, 1997 by and
among BioHybrid Technologies Incorporated, a Massachusetts corporation having a
principal place of business at 910 Boston Turnpike, Shrewsbury, Massachusetts
05145, BioHybrid Technologies Limited Partnership, a Massachusetts limited
partnership having a principal place of business at 910 Boston Turnpike,
Shrewsbury, Massachusetts 05145, BioHybrid Technologies Development Company, a
joint venture organized as a Massachusetts general partnership having a
principal place of business at 910 Boston Turnpike, Shrewsbury, Massachusetts
05145, W.R. Grace & Co. - Conn., a Connecticut corporation having a principal
executive office at One Town Center Road, Boca Raton, Florida 33486 and Circe
Biomedical, Inc., a Delaware corporation having a principal place of business at
One Ledgemont Center, 128 Spring Street, Lexington, MA 02173.
WHEREAS, BioHybrid Technologies Limited Partnership, BioHybrid
Technologies, Inc. and W.R. Grace & Co. - Conn. were parties to an agreement
dated June 4, 1991 entitled "Stage Five Royalty and Development Agreement
between BioHybrid Technologies Limited Partnership,
<PAGE> 2
BioHybrid Technologies Inc. and W.R. Grace & Co. - Conn." ("the Stage Five
Agreement") and to a Settlement Agreement and Mutual Release dated April 14,
1993 ("the Earlier Settlement Agreement");
WHEREAS, Circe Biomedical, Inc. is a wholly-owned subsidiary of W.R.
Grace & Co. - Conn. and is the assignee of the rights, interests and
obligations of W.R. Grace & Co. - Conn. under the Stage Five Agreement and
the Earlier Settlement Agreement pursuant to Paragraph 12.06 of the Stage
Five Agreement;
WHEREAS, under the Earlier Settlement Agreement, BioHybrid Technologies
Incorporated and BioHybrid Technologies Limited Partnership have certain rights
and interests relating to BHT Background Technology and New Technology;
WHEREAS, BioHybrid Technologies Incorporated has assigned its rights,
interests and obligations relating to the BHT Background Technology and New
Technology to its Affiliate, BioHybrid Technologies Development Company;
WHEREAS, BioHybrid Technologies Incorporated is the Managing Venturer of
BioHybrid Technologies Development Company, duly authorized to bind such venture
and each of the other venturers (specifically, Synergy Research Corporation and
JDR Corp.) to the terms of this Agreement;
2
<PAGE> 3
WHEREAS, certain issues have arisen between the parties under the Earlier
Settlement Agreement and otherwise, as a result of which certain claims,
counterclaims, and amended claims have been filed in the case entitled W.R.
GRACE & CO. - CONN. V. BIOHYBRID TECHNOLOGIES INCORPORATED, et al., United
States District Court for the District of Massachusetts (Worcester Division),
civil action number 96-40048 ("the Litigation");
WHEREAS, W.R. Grace & Co. - Conn. and Circe Biomedical, Inc. currently
intend to proceed with an initial public offering ("the IPO") of certain stock
of Circe Biomedical, Inc.; and
WHEREAS, the parties desire to settle certain of their differences
unconditionally, to settle certain of their disputes conditioned on the timely
completion of the IPO or on the occurrence of certain other events, and
otherwise to alter and restate their respective rights and obligations in
accordance with the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual promises and other
obligations contained herein, the parties have agreed as follows:
SECTION 1. DEFINITIONS: As used in this Agreement the following terms shall
have the following meanings:
1.1 "Affiliate" shall mean any and all corporations or other business
entities in which a party hereto owns or controls, directly or indirectly, fifty
percent (50%) or more of either (i) the shares entitled to vote for the election
of the board of directors, or (ii) equivalent equity interest if
3
<PAGE> 4
such business entity is not incorporated. Affiliates shall also mean any parent
company to a party or companies of which fifty percent (50%) or more is owned by
such parent company.
1.2 "BHT Background Technology" shall mean all United States and foreign
patent rights, technical information, data, know-how, inventions and the like
owned or controlled (in the sense of being able to license others) by BioHybrid
Technologies Limited Partnership as of March 1, 1986 (the effective date of the
Assignment, Royalty and Development Agreement dated February 21, 1986 between
BHT and Grace) relating to Hybrid Artificial Organs.
1.3 "BHT" shall mean, collectively, BioHybrid Technologies Incorporated
and BioHybrid Technologies Limited Partnership, and BioHybrid Technologies
Development Company, and their respective Affiliates, successors and assigns.
1.4 "Circe" shall mean Circe Biomedical, Inc., and its Affiliates (other
than W.R. Grace & Co. Conn. or its Affiliates), successors and assigns.
1.5 "Grace" shall mean W.R. Grace & Co. - Conn., and its Affiliates,
successors and assigns, excluding Circe.
1.6 "Grace Proprietary Information" shall mean all information in whatever
form now or previously in the possession or control of Grace that BHT learned
of, directly or indirectly, as a result of BHT's participation with Grace in a
joint program up to and including February 28, 1993.
4
<PAGE> 5
1.7 "Hybrid Artificial Organ" shall mean a device which simulates or
substitutes for functions performed by a natural body organ and which is
comprised of a combination of living cells with a membrane.
1.8 "Hybrid Artificial Pancreas" shall mean a device which simulates or
substitutes for functions performed by an endocrine pancreas and which is
composed of a combination of living pancreatic islet cells with a membrane.
1.9 "Net Sales" shall mean the actual invoice price of a product sold,
leased or otherwise disposed of by a party (or any Affiliate, licensee or
sublicensee thereof) calculated at the time of sale, lease or other disposition
of such product, less the following deductions attributable to such transaction:
(a) customer discounts and rebates;
(b) actual credits to customers for returned goods;
(c) any of the following when separately charged to customers:
(i) transportation and insurance costs;
(ii) excise, sales, value-added, property and use taxes; and
(iii) import and export duties.
1.10 "New Technology" shall mean all United States and foreign patent
rights, technical information, data, know-how, inventions and the like developed
(i) either solely by BioHybrid Technologies, Inc., or jointly by BioHybrid
Technologies, Inc. and Grace, in the course of the
5
<PAGE> 6
development work which was the subject of the Stage Five Agreement or earlier
agreements between such parties, or (ii) jointly by BioHybrid Technologies, Inc.
and personnel of an institution at which Grace and BHT agreed to conduct
pre-clinical research in the course of a sponsored research program between
Grace and such institution relating to Hybrid Artificial Organs.
1.11 "Perfusion Device" shall mean a Hybrid Artificial Organ which
incorporates means by which blood or other biological fluids flow through one or
more tubular membranes of the Hybrid Artificial Organ, or a Hybrid Artificial
Organ which is connected to the circulatory system directly or through a
plasmapheresis device.
1.12 "Similar Transaction" shall mean (1) the sale or other
disposition by Circe (other than to an Affiliate) of substantially all of the
assets and properties associated with the Hybrid Artificial Pancreas program or
(2) a transaction by which Circe ceases to be an "Affiliate" of Grace.
SECTION 2. NO ADMISSION OF LIABILITY. Nothing in this Agreement
constitutes an admission or concession on the part of any party of any liability
or wrongdoing of any kind or an admission or concession on the part of any party
concerning the merit or lack of merit of any claim that was asserted or could
have been asserted in the Litigation.
SECTION 3. INITIAL PAYMENT TO BHT. Within seven days of the execution of
this Agreement, Grace shall pay to BHT, by check or wire transfer, the
non-refundable sum of $50,000.
6
<PAGE> 7
SECTION 4. Dismissal and stay of claims and counterclaims in the
-----------------------------------------------------
litigation.
- ----------
4.1 Promptly following the execution of this Agreement, Grace shall
notify the Court that it is withdrawing with prejudice the claims it sought to
add in the Litigation through Counts II, III and IV of its proposed Second
Amended Complaint, or, if Grace's motion to add such claims has at that point
been allowed, then Grace will file a Notice of Dismissal with prejudice and
without costs of the claims in Counts II, III and IV of its Second Amended
Complaint. By withdrawing or dismissing such claims with prejudice, Grace and
Circe irrevocably waive any claim for damages or equitable relief in any court
in connection with the matters that are addressed in said Counts II, III and IV
of the Second Amended Complaint, subject only to the reservation of the rights
specified in subsection 5.13 below. Such dismissal is not intended to and shall
not constitute or support a determination, one way or the other, as to whether
BHT is or will be using BHT Background Technology or New Technology to make, use
or sell any particular product, such as potentially to trigger royalty
obligations payable to Circe under the licenses contained in this Agreement.
4.2 Promptly following the execution of this Agreement, BHT and
Grace, by their counsel, shall execute, and BHT shall cause to be filed, a
stipulation of dismissal with prejudice of Counts III through VIII of its
counterclaims in the Litigation. By dismissing such claims with prejudice, BHT
irrevocably waives any claim in any court for damages or compensation (other
than such compensation as is specifically set forth in this Agreement) in
connection with any of the matters that are or were the subject of the
Litigation.
7
<PAGE> 8
4.3 The parties acknowledge that prior to the execution of this
Agreement the parties secured the approval of the Court to stay through November
30, 1997 the Counts of the Litigation that are not being dismissed or withdrawn
with prejudice, namely, Grace's claim for equitable and declaratory relief as
set forth in the First Amended Complaint (and as incorporated in Count I of the
proposed Second Amended Complaint), and BHT's Answer and Counterclaim for
declaratory relief and specific performance as set forth in Counts I and II
thereof (collectively "the Stayed Claims"). If the conditions of subsection 6.2
below are met, or if the conditions of subsection 6.4 below are met, then, upon
BHT's receipt of the proceeds described therein, the parties shall promptly file
a stipulation of dismissal with prejudice and without costs of the Stayed
Claims, thereby terminating the Litigation in its entirety. If the conditions of
subsection 6.2 are not met, and the conditions of subsection 6.4 are likewise
not met, then promptly following the expiration of the Deadline, as defined in
subsection 6.1 (or earlier if the provisions of subsection 6.5 become
applicable), the parties will jointly notify the Court that they wish to lift
the stay as to the Stayed Claims.
4.4 In the event the stay as to the Stayed Claims is lifted pursuant
to subsection 4.3 or pursuant to subsection 6.5, the parties will proceed with
the Litigation concerning their rights under the Earlier Settlement Agreement,
as limited by the provisions of subsections 4.1 and 4.2 of this Agreement, and
subject, however, to the agreements of the parties set forth in Section 5 of
this Agreement. The parties waive any right to trial by jury in connection with
the Litigation and agree that if the stay is lifted all issues will be tried to
the Court, sitting without jury. The parties further agree that they will not
add any new or additional claims to the Litigation, by amended or
8
<PAGE> 9
supplemental complaint, or otherwise, except that Circe may be added or
substituted for Grace as a party to the extent necessary or desirable to secure
the relief sought in connection with the Stayed Claims. This Agreement shall not
be admissible in evidence in connection with the Stayed Claims, except that the
parties may, to the extent necessary, and without disclosing the other terms of
the Agreement, bring to the Court's attention the limitations on claims, issues
and remedies agreed to by the parties in subsections 4.1, and 4.2 and Section 5
hereof. In addition, the parties covenant and agree that they will not seek,
obtain or enforce any judgment with respect to the Stayed Claims to the extent
that such judgment is or would be inconsistent with any of the provisions of
Section 5 of this Agreement.
SECTION 5. TERMS CONCERNING CERTAIN TECHNOLOGY RIGHTS. Notwithstanding
anything to the contrary in any prior agreement between the parties, the parties
agree as follows:
5.1 Circe is the owner of and has the right to use and license BHT
Background Technology in the field of Hybrid Artificial Organs. In addition to
any other royalties payable hereunder, Circe, as the assignee of Grace's
obligations under Paragraph 7.02 of the Stage Five Agreement, shall pay
BioHybrid Technologies Limited Partnership a running royalty of [*] of Net Sales
of any Hybrid Artificial Pancreas sold by Circe (or its licensees or
sublicensees), whether or not such Hybrid Artificial Pancreas incorporates the
BHT Background Technology, in whole or in part, through March 1, 2001 (subject
to the Prepaid Royalty Credit provided for in subsection 6.3, if applicable).
BHT is the owner of and has the right to use and license BHT Background
Technology in all fields other than Hybrid Artificial Organs.
9
<PAGE> 10
5.2 BHT has a non-exclusive license as of February 28, 1993 (with
the right to grant sublicenses) to use the BHT Background Technology in the
field of Hybrid Artificial Organs, which license the parties hereby agree
excludes Perfusion Devices. If the conditions set forth in subsection 6.2 are
met, or if the conditions set forth in subsection 6.4 are met, then in addition
to any other royalties payable to Circe by BHT, BHT will pay Circe a running
royalty at the rate of [*] of the Net Sales of any Hybrid Artificial Organ which
incorporates BHT Background Technology, sold by BHT (or its sublicensees)
through March 1, 2001. The procedural provisions of Article VIII of the Fifth
Stage Agreement, a copy of which is attached as Appendix A, shall be deemed
applicable to such payments. If the conditions of subsection 6.2 are not met and
the conditions of subsection 6.4 likewise are not met, then whether BHT's
license to the BHT Background Technology in the field of Hybrid Artificial
Organs bears such royalties will depend upon the outcome of the litigation of
the Stayed Claims.
5.3 Circe, as Grace's assignee, is the sole and complete owner of
any and all rights in and to New Technology, and has the right to use the New
Technology in all fields. If Circe (or its licensees) use New Technology to
make, use or sell a Hybrid Artificial Pancreas, then Circe shall pay BioHybrid
Technologies Limited Partnership a running royalty on the Net Sales of any such
Hybrid Artificial Pancreas in accordance with the provisions and limitations of
Article VIII of the Stage Five Agreement (subject to the Prepaid Royalty Credit
provided for in subsection 6.3, if applicable).
10
<PAGE> 11
5.4 BHT has a license as of February 28, 1993 (with the right to
sublicense) to use the New Technology on a royalty bearing basis in the field of
Hybrid Artificial Organs, which license the parties hereby agree excludes
Perfusion Devices. If BHT, or its sublicensees use New Technology to make, use
or sell a product in the field of Hybrid Artificial Organs, then BHT shall pay a
running royalty to Circe on Net Sales of any such product or products in
accordance with the provisions and limitations of Article VIII of the Stage Five
Agreement. Such royalties will be paid in accordance with the royalty schedule
contained in Paragraph 8.05 of the Stage Five Agreement, which will be deemed to
be the negotiated rates between the parties.
5.5 If the provisions of subsection 6.2 are met or if the provisions
set forth in subsection 6.4 are met, BHT's royalty-bearing license to the New
Technology in the field of Hybrid Artificial Organs, excluding Perfusion
Devices, shall be non-exclusive (with the right to grant sublicenses), BHT shall
not be subject to any minimum royalty requirement, Grace and Circe shall not be
required to use reasonable efforts to sell to BHT membrane devices for BHT
practice of the BHT Background Technology, and Circe shall have the right to
license and sublicense the New Technology in the field of Hybrid Artificial
Organs. If the provisions of subsection 6.2 are not met and the provisions of
subsection 6.4 are likewise not met, then whether BHT's license to the New
Technology in the field of Hybrid Artificial Organs, excluding Perfusion
Devices, is exclusive (other than as to Circe) or non-exclusive, whether Circe
has the right to license and sublicense the New Technology in the field of
Hybrid Artificial Organs, whether Grace or Circe shall be required to use
reasonable efforts to sell to BHT membrane devices for BHT practice of the BHT
Background Technology (other than for Perfusion Devices), and whether BHT is
obligated to pay minimum royalties pursuant to the Earlier Settlement
11
<PAGE> 12
Agreement and Paragraph 11.05(b)(iv) of the Stage Five Agreement, will be
determined based on the outcome of the Litigation of the Stayed Claims conducted
in accordance with the provisions of subsection 4.4.
5.6 Circe hereby grants BHT a non-exclusive license (with the right
to sublicense) to use the New Technology on a royalty bearing basis in fields
outside the field of Hybrid Artificial Organs. If BHT or its sublicensees uses
New Technology to make, use or sell a product outside the field of Hybrid
Artificial Organs, then BHT shall pay Circe royalties on Net Sales of any such
products in accordance with and subject to the provisions and limitations of
Article VIII of the Stage Five Agreement, in accordance with the royalty
schedule contained in Paragraph 8.05 thereof, which will be deemed to be the
negotiated rates between the parties. The non-exclusive license granted herein
shall apply as of February 28, 1993.
5.7 If Circe (or its licensees) uses New Technology developed solely
by BHT to make, use or sell a product other than a Hybrid Artificial Pancreas,
then Circe shall pay BioHybrid Technologies Limited Partnership a running
royalty on the cumulative Net Sales of all sales of such Product in accordance
with the provisions and limitations of Article VIII of the Stage Five Agreement.
Such royalties will be paid in accordance with the royalty schedule contained in
Paragraph 8.06 of the Stage Five Agreement, which will be deemed to be the
negotiated rates between the parties. BHT acknowledges, however, that BHT is not
entitled, nor will it be entitled in the future, to any royalties or other
payments with respect to the commercialization of an
12
<PAGE> 13
artificial liver device, system or product by Grace, Circe or their licensees or
sublicensees, and BHT waives any and all present and future claims to any such
royalty. BHT further acknowledges and agrees that the commercialization of an
artificial liver device, system or product by Grace, Circe or their licensees or
sublicensees will not violate any of the proprietary rights of BHT.
5.8 BHT acknowledges that Grace previously assigned its rights and
obligations under the Earlier Settlement Agreement and under the Stage Five
Agreement to Circe in accordance with Paragraph 12.06 of the Stage Five
Agreement. BHT, agrees that Grace and Circe may assign or transfer their rights
and obligations set forth or restated in this Agreement, including without
limitation Circe's rights with respect to BHT Background Technology in the field
of Hybrid Artificial Organs and its rights with respect to New Technology and
patents and patent applications relating thereto.
5.9 Grace and Circe acknowledge that BioHybrid Technologies
Incorporated previously assigned its rights and obligations relating to New
Technology and BHT Background Technology to its Affiliate, BioHybrid
Technologies Development Company. Grace and Circe agree that BHT may assign or
transfer its rights and obligations set forth or restated in this Agreement,
including without limitation, BHT's license rights with respect to BHT
Background Technology and New Technology.
13
<PAGE> 14
5.10 BHT represents and warrants that as of the date hereof it has
not assigned or licensed rights to the BHT Background Technology in the field of
Hybrid Artificial Organs or rights to the New Technology to anyone.
5.11 Notwithstanding anything to the contrary in this Agreement or
any prior Agreement between Grace and BHT (including but not limited to the
Earlier Settlement Agreement and the Stage Five Agreement), BHT understands and
agrees that it does not have a license to use, and that no license rights will
be granted to it to use, the BHT Background Technology or the New Technology in
connection with a Perfusion Device in the field of Hybrid Artificial Organs. BHT
further agrees that any license, sublicense or assignment they may grant with
respect to the BHT Background Technology or the New Technology shall expressly
exclude the right to use the BHT Background Technology or the New Technology in
connection with a Perfusion Device in the field of Hybrid Artificial Organs. It
is the intent of this provision to confirm (as between BHT and Circe) the
exclusive right of Circe (and, if applicable, its licensees and sublicensees) to
use the BHT Background Technology and the New Technology in connection with a
Perfusion Device in the field of Hybrid Artificial Organs.
5.12 BHT agrees and covenants that it will not seek to enforce
against Grace or Circe (or, if applicable, any licensees or sublicensees of
Grace or Circe), nor will it grant a license to anyone else that would include a
right to enforce, against Grace or Circe (or, if applicable, their licensees or
sublicensees), any rights under existing patents or under patents that have been
applied for, or other claimed technology rights, that would in any way restrict
Grace, Circe, or, if
14
<PAGE> 15
applicable, their licensees or sublicensees in connection with their development
and commercialization of Perfusion Devices in the field of Hybrid Artificial
Organs.
5.13 To the extent BHT or its licensees or sublicensees seek to
enforce any patent or technology rights against Grace, Circe or, if applicable,
their licensees or sublicensees, nothing in this Agreement shall be construed as
preventing Grace, Circe or their licensees or sublicensees from defending
themselves on the basis of any and all defenses that were open to them before
the execution of this Agreement, including, but not limited to, defenses based
upon the alleged facts underlying Counts II, III and IV of the proposed Second
Amended Complaint.
5.14. In the event that Circe grants a license to any third party to
utilize BHT Background Technology to sell or lease any product or application
(other than a Perfusion Device) in the field of Hybrid Artificial Organs upon
financial terms that are more favorable than the terms of the license granted to
BHT to utilize BHT Background Technology for such product or application, Circe
shall notify BHT of such third-party license and shall give BHT the opportunity
to obtain the benefit of the more favorable financial terms for such product or
application (excluding any Perfusion Device), upon the same terms and
conditions, in their entirety (including any minimum royalty provisions or the
like), as contained in such third-party license. If, as a result of either (i)
the satisfaction of the provisions of either subsection 6.2 or subsection 6.4 or
(ii) the outcome of the litigation of the Stayed Claims, Circe has the right to
license and sublicense the New Technology in the field of Hybrid Artificial
Organs, then in such case, in the event that Circe grants a license to any third
party to utilize New Technology to sell or lease any product or application
(other than a Perfusion Device) in the field of Hybrid Artificial
15
<PAGE> 16
Organs upon financial terms that are more favorable than the terms of the
license granted to BHT to utilize New Technology for such product or
application, Circe shall notify BHT of such third-party license and shall give
BHT the opportunity to obtain the benefit of the more favorable financial terms
for such product or application (excluding any Perfusion Device), upon the same
terms and conditions, in their entirety (including any minimum royalty
provisions or the like), as contained in such third-party license. Nothing in
this subsection shall be construed as granting to BHT any license to use BHT
Background Technology or New Technology in connection with a Perfusion Device in
the field of Hybrid Artificial Organs.
SECTION 6. Additional Terms Conditioned Upon Timely Completion of IPO or
------------------------------------------------------------
Certain Other Events.
- --------------------
6.1 The Deadline shall mean September 30, 1997 unless Grace by
written notice to BHT sent on or before September 30, 1997 extends the Deadline,
in which case the Deadline shall be November 30, 1997.
6.2 If the closing of the IPO, or the closing of a Similar
Transaction, occurs on or before the Deadline, time being of the essence, then
within ten (10) days of such closing Circe (or Grace, as the case may be) shall
pay to BHT by check or wire transfer the sum of $450,000. Upon the making of
this payment, Circe shall have, in addition to any other rights it has under
this Agreement, the right to license and sublicense the New Technology in the
field of Hybrid Artificial Organs (subject to the royalty provisions of
subsection 5.3) and the right to receive
16
<PAGE> 17
royalties for BHT's use of the BHT Background Technology in the field of Hybrid
Artificial Organs as set forth in subsection 5.2.
6.3 In consideration of the payment to BHT set forth in subsection
6.2 (or 6.4), BHT will be deemed to have received prepaid royalties from Circe
in the principal amount of $300,000, for which Circe shall receive a Prepaid
Royalty Credit against any future royalty obligations otherwise payable to BHT,
[*], as set forth below. On January 1, 1998, the Prepaid Royalty Credit will be
an amount equal to $300,000,[*]. As of January 1, 1999, and as of each
successive January 1 thereafter, the amount of the Prepaid Royalty Credit shall
be re-calculated by subtracting from the amount of the Prepaid Royalty Credit
the royalties, if any, that accrued to BHT during the calendar year just ended,
[*]. If, during the course of any calendar year, there are sufficient Net Sales
such that accrued royalties during that year equal or exceed the Prepaid
Royalty Credit as of the beginning of such year, then the Prepaid Royalty
Credit will be exhausted, and Circe will resume paying to BHT, in accordance
with and subject to the provisions and limitations of Appendix A, any royalties
that accrue to BHT in excess of the amount of the Prepaid Royalty Credit. Grace
shall not be liable for the payment by Circe of any royalty that accrues after
the receipt by BHT of the payment described in subsection 6.2 or 6.4.
6.4 Even if no IPO or Similar Transaction has occurred, Grace or
Circe, in their sole discretion, may elect to invoke the provisions of
subsections 6.2 and 6.3 by notice to BHT on or before the Deadline together with
a payment to BHT in the amount of $450,000.
17
<PAGE> 18
6.5 Nothing in this Agreement shall be construed as imposing upon
Grace or Circe any obligation to proceed with the IPO or a Similar Transaction
or to complete the IPO or a Similar Transaction either before the Deadline or
otherwise. In the event Grace or Circe abandons any attempt to complete an IPO
or Similar Transaction prior to the Deadline, the parties agree to jointly
notify the Court that they wish to lift the stay as to the Stayed Claims, in
which case the provisions of subsection 4.4 shall apply.
SECTION 7. INCORPORATION OF CERTAIN PROVISIONS OF STAGE FIVE AGREEMENT
The parties hereby incorporate by reference Paragraphs 1.12, 6.09, and 6.11 of
the Stage Five Agreement, and Article IX of the Stage Five Agreement in its
entirety, (to the extent the foregoing provisions are applicable by their terms
after February 28, 1993), as well as Paragraph 6.3 of the Earlier Settlement
Agreement, with the understanding that references therein to Grace shall refer,
where applicable, to Circe as Grace's assignee. Copies of these incorporated
provisions are set forth in Appendix B. If there is any inconsistency between
the provisions hereby incorporated, and the other terms of this Agreement, then
the terms of this Agreement shall control.
18
<PAGE> 19
SECTION 8. CONFIDENTIALITY
8.1 The parties incorporate by reference Article X of the Stage Five
Agreement, in its entirety, a copy of which is set forth in Appendix C, with the
understanding that the ten year period referred to therein shall expire on
February 28, 2003, and that references to Grace shall mean Grace and/or Circe,
as Grace's assignee, as the context requires, and with the further understanding
that the provisions of such Article X do not preclude the disclosure of
confidential information to any licensee or sublicensee of BHT Background
Technology or New Technology provided such licensee or sublicensee agrees to be
bound by the provisions of this subsection.
8.2 The parties shall hold the terms of this Agreement in strict
confidence and shall not disclose the terms contained herein except as required
by law; provided, however, that any party may disclose the existence and terms
of this Agreement to such extent as may be required for a proper business
purpose, including for the purpose of implementing the IPO or a Similar
Transaction, any proposed license or sublicense or obtaining financing. In
particular, the parties agree that Grace and Circe may refer to this Agreement
or any part of it in, and/or file this Agreement or any part of it as an exhibit
to, any registration statement filed with the Securities and Exchange Commission
or other governmental agencies. In no event shall the parties directly or
indirectly publicize through the media the fact of or terms of this Agreement. A
party may respond to any inquiry addressed to the parties for information
concerning the parties' dispute by stating, without further elaboration, that
the matter has been amicably resolved.
8.3 BHT agrees that it and each of its partners, officers,
directors, stockholders, employees and agents shall maintain in strict
confidence their knowledge concerning the potential
19
<PAGE> 20
IPO until such time as the IPO becomes public knowledge through the filing of a
registration statement with the Securities and Exchange Commission.
8.4 BHT, on the one hand, and Grace and Circe on the other, each
agree to refrain from any disparagement of, interference with or negative
comments (oral or written) with respect to the other party, or any licensee or
employee of the other party (other than as may be necessary in connection with
the conduct of the Litigation, if required, of the Stayed Claims).
SECTION 9. MUTUAL RELEASE OF CLAIMS. Except with respect to the
continuing obligations specifically set forth in this Agreement, and except for
the rights specifically set forth or reserved in this Agreement, BHT on behalf
of itself and its venturers (including, without limitation, JDR Corp. and
Synergy Research Corp.)and each of their respective employees, officers,
representatives and agents, on the one hand, and Grace and Circe, on behalf of
themselves and their respective employees, officers, representatives and agents,
on the other hand, hereby release and forever discharge one another from any and
all liens, claims, contracts, demands, causes of action, obligations, damages
(including both direct and consequential damages) and liabilities, costs and
expenses, of any nature whatsoever, known or unknown, in tort or contract, under
federal, state or local laws or regulations (including, without limitation,
attorneys' fees) as of the date hereof. The parties hereto acknowledge that they
may have sustained injuries, damages or claims which are presently unknown or
unsuspected or which may be different in magnitude, type, causative agent or
latency from injuries, damages or claims that are presently known or suspected,
and that such injuries, damages or claims may give rise to additional losses or
expenses in the future which are not now anticipated. Nevertheless, the
20
<PAGE> 21
parties intend herein to release and forever discharge each other from any and
all such unknown or unsuspected claims or different injuries, damages or claims,
except with respect to the rights and obligations expressly stated in this
Agreement.
Except for the continuing rights and obligations set forth in this
Agreement, this release includes any and all claims that were asserted or could
have been asserted in the Litigation, except for the Stayed Claims. In the event
the conditions of subsection 6.2 are met or in the event the conditions of
subsection 6.4 are met, then this Release shall apply to the Stayed Claims as
well. If the conditions of subsection 6.2 are not met and the conditions of
subsection 6.4 are likewise not met, then the litigation of the Stayed Claims
shall be entirely unaffected by this section 9, but shall proceed as limited by
and in accordance with subsection 4.4 above.
SECTION 10. INTEGRATION. This Agreement and the provisions of earlier
agreements specifically incorporated herein by reference and set forth in
Appendices A, B and C constitute the entire agreement and understanding of the
parties with respect to the transactions contemplated hereby and relating to the
specific subject matter hereof and supersede all prior agreements and
understandings between the parties.
SECTION 11. NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be deemed to have been duly
given when received if in writing and delivered by hand or courier or mailed
(first class, postage prepaid, registered or certified mail) or sent by
confirmed facsimile to the appropriate address as follows:
21
<PAGE> 22
If to BHT BioHybrid Technologies
Incorporated
910 Boston Turnpike Road
Shrewsbury, MA 01545
Attn.: President
Fax# (508)842-7535
with a copy to: Carl R. Croce, Esq.
One Newton Executive Park
Newton, MA 02162
Fax# (617)965-9498
If to Grace: W.R. Grace & Co.-Conn.
One Town Center Road
Boca Raton, Fla. 33486-1010
Attn: Secretary
Fax# (561)362-1970
with a copy to: Chief Patent Counsel
W.R. Grace & Co.-Conn.
One Town Center Road
Boca Raton, Fla. 33486-1010
Fax# (561)362-1635
22
<PAGE> 23
If to Circe: Circe Biomedical, Inc.
One Ledgemont Center
128 Spring Street
Lexington, MA 02173
Attn: President
Fax# (617)863-1520
SECTION 12. GOVERNING LAW. This Agreement and the performance of the
transactions contemplated herein shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, excluding its
conflict of laws provisions.
SECTION 13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
SECTION 14. AMENDMENT. This Agreement may be amended or any of the terms
hereof may be waived only be a writing specifically referring to this Agreement
and executed by duly authorized representatives of the parties affected by the
amendment, or, in the case of a waiver, by the party waiving compliance. The
failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any breach of any term contained in this
Agreement, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such breach or a waiver of any breach of any
other term.
23
<PAGE> 24
SECTION 15. INTERPRETATION. The parties hereto acknowledge and agree
that: (i) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; (ii) the rule
of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
SECTION 16. OTHER INSTRUMENTS. From time to time, as and when requested
by either party to this Agreement, the other party shall execute and deliver, or
cause to be executed and delivered, any other instrument which may be deemed
reasonably necessary or desirable to vest in and confirm to the parties the
rights, obligations and agreements referred to herein, including, but not
limited to:
(i) any estoppel certificate or other instrument necessary or
desirable to effect the IPO or a Similar Transaction;
(ii) the grant of the licenses referred to herein; or
(iii) the release of the claims made by the parties against each other
as described in subsections 4.1 and 4.2 hereof.
IN WITNESS WHEREOF, the parties by their duly authorized representations
have caused this Agreement to be executed as of the date first above written.
BIOHYBRID TECHNOLOGIES INCORPORATED
24
<PAGE> 25
By /s/ William L. Chick
-------------------------------------------
William L.Chick, President
BIOHYBRID TECHNOLOGIES LIMITED
PARTNERSHIP
By /s/ William L. Chick
-------------------------------------------
William L. Chick, General Partner
BIOHYBRID TECHNOLOGIES DEVELOPMENT
COMPANY
By: BioHybrid Technologies
Incorporated, Managing Venturer
By /s/ William L. Chick
-------------------------------------------
William L. Chick, President
W.R. GRACE & CO. - CONN.
By /s/ Bernd A. Schulte
-------------------------------------------
Bernd A. Schulte, Vice President
CIRCE BIOMEDICAL, INC.
By /s/ Laszlo Eger
-------------------------------------------
Laszlo Eger, President
<PAGE> 26
APPENDIX A
----------
ARTICLE VIII - RIGHTS AND ROYALTIES AS TO NEW TECHNOLOGY
--------------------------------------------------------
(8.01) GRACE shall be the sole and exclusive owner of any and all rights in and
to New Technology. In the case of inventions made jointly by BHT INC. and GRACE,
or jointly by BHT INC. and personnel of that institution referred to in
Paragraph 1.11 acting pursuant to the program described in Paragraph 1.04, BHT
INC. shall, pursuant to Paragraph 6.09 herein, promptly assign to GRACE all
rights in such invention which it holds or derives from its employees, and BHT
INC. shall not seek to exploit such invention except as permitted by the terms
of this Agreement.
(8.02) If GRACE uses New Technology to make, use, or sell a Hybrid Artificial
Pancreas and the use of such New Technology is covered by Patentable Claims or
results, in a Hybrid Artificial Pancreas which is covered by Patentably Claims,
then Grace shall pay BHT PARTNERSHIP a running royalty on the cumulative Net
Sales of all sales of such Hybrid Artificial Pancreas by GRACE and its
Affiliates according to the following schedule:
CUMULATIVE NET SALES ROYALTY RATE
-------------------- ------------
[*]
(8.03) Royalties payable by GRACE to BHT PARTNERSHIP under Paragraph 8.02 on the
sale of a Hybrid Artificial Pancreas shall be in addition to any royalties
payable by GRACE to BHT PARTNERSHIP pursuant to Paragraph 7.02 herein.
(8.04) In no event shall BHT have the right to use any of the New Technology for
any purpose related to a Hybrid Artificial Pancreas except in connection with
the joint program or pursuant to Article XI subsequent to termination of this
Agreement. However, Grace hereby grants BHT a non-exclusive right (including the
right to grant sub-licenses) to use the New Technology pursuant to the terms of
Paragraph 8.05 in the fields listed in Appendix E hereto. In the event that BHT
wishes to use the New Technology in fields in addition to those listed in
Appendix E, then BHT shall so indicate by written notice to GRACE. GRACE shall
thereafter advise BHT within sixty (60) days whether it is willing to enter into
negotiations with BHT for rights to such additional fields on terms which shall
be satisfactory to GRACE but which shall not exceed the royalty rates set forth
in Paragraph 8.05.
(8.05) If BHT, its affiliates or sub-licensees use New Technology to make, use
or sell a product pursuant to the rights granted to BHT in Paragraph 8.04
herein, the BHT shall pay a running royalty to GRACE on terms to be negotiated
but which shall not exceed the following:
(a) If the use of such New Technology is neither covered by
Patentable Claims nor results in a product which is covered by
Patentable Claims, then BHT shall pay GRACE a running royalty which
shall not exceed [*] of the cumulative Net Sales of such product.
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<PAGE> 27
(b) If the use of such New Technology is either covered by
Patentable Claims or results in a product which is covered by Patentable
Claims, then BHT shall pay GRACE a running royalty (in addition to the
royalty provided in Paragraph 8.05(a) above) on the cumulative Net Sales
of such product, the royalty rate not to exceed the following schedule:
CUMULATIVE NET SALES ROYALTY RATE
-------------------- ------------
[*]
(8.06) If GRACE or its Affiliates use New Technology developed solely by BHT to
make, use, or sell a product other than a Hybrid Artificial Pancreas, then GRACE
shall pay a running royalty to BHT PARTNERSHIP on terms to be negotiated but
which shall not exceed the following:
(a) If the use of such New Technology is neither covered by
Patentable Claims nor results in a product which is covered by
Patentable Claims, then GRACE shall pay BHT PARTNERSHIP a running
royalty which shall not exceed [*] of the cumulative Net Sales of such
product.
(b) If the use of such New Technology is either covered by
Patentable Claims or results in a product which is covered by Patentable
Claims, then GRACE shall pay BHT PARTNERSHIP a running royalty (in
addition to the royalty provided in Paragraph 8.06(a) above) on the
cumulative Net Sales of such product, the royalty rate not to exceed the
following schedule:
CUMULATIVE NET SALES ROYALTY RATE
-------------------- ------------
[*]
(8.07) The obligation of GRACE to pay royalties to BHT PARTNERSHIP pursuant to
Paragraph 8.02 or Paragraph 8.06 herein, and the obligation of BHT to pay
royalties to GRACE pursuant to Paragraph 8.05 herein shall exist for whichever
of the following periods is appropriate:
(a) If the relevant Patentable Claims appear in an issued U.S.
patent, then such obligation shall commence with the date of issuance of
the patent and shall continue for the life of such patent.
(b) If the relevant Patentable Claims do not appear in an issued
U.S. patent, but are deemed Patentable Claims pursuant to either
Paragraph 6.06 or Paragraph 6.07 herein, then such obligation shall have
commenced with the date on which either party first submitted to the
other pursuant to Paragraph 6.04 herein, a writing describing the
invention to which such Patentable Claims are directed, and such
obligation shall continue thereafter for a period of twenty (20) years.
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<PAGE> 28
(c) If the New Technology is neither covered by Patentable Claims
nor results in a product which is covered by Patentable Claims, then
such obligation shall have commenced with the date on which either party
first advised the other, pursuant to Paragraph 4.04 herein, of the
existence of such New Technology, and such obligation shall continue
thereafter for a period of ten (10) days.
(8.08) (a) The payment of royalties based on cumulative Net Sales by either
party to the other under Paragraphs 7.02, 8.02, 8.05, or 8.06 herein
shall refer only to sales of products at a price in excess of the direct
manufacturing cost (i.e., cost of goods sold) of such product, and shall
not include any sales at cost or transfers of products at cost for
experimental or development purposes in connection with obtaining Food
and Drug Administration approval of such product.
(b) In the event that GRACE has filed an application for a U.S.
patent directed to some portion of New Technology and no claims
resulting from such application have been allowed by the U.S. Patent and
Trademark Office within a period of three years from the date of filing,
then BHT and GRACE shall meet promptly thereafter to discuss terms and
conditions on which all or part of the royalties payable under this
Article VIII may be commenced.
(8.09) Each calendar year in which one party to this Agreement has a royalty
obligation to the other party shall be divided into two (2) royalty periods
ending upon the last day of June and December. The party having the royalty
obligation shall, within forty-five (45) days of the close of each such royalty
period, remit to the other party the running royalties accrued during such
royalty period as well as a written royalty report showing the basis on which
such royalties were computed.
(8.10) Each party shall keep, and require its Affiliates and licensees to keep,
accurate and complete records in accord with general accepted accounting
practices which provide all information (including without limitation, all sales
records and billings) necessary for the accurate determination of the amounts
payable to the other party pursuant to Article VII and VIII of this Agreement.
Each party shall further permit such records to be inspected and audited by
independent auditors retained by and at the expense of the party seeking such
audit at reasonable intervals and during regular business hours so as to
determine the completeness or accuracy of the royalty reports made pursuant to
Paragraph 8.09 herein. Records in support of each such royalty report made by a
party shall be kept intact for a period of two (2) years from the date on which
such royalty report was submitted to the other party to this Agreement.
(8.11) (a) Pancreatic islets isolated by BHT INC. using New Technology
shall be subject to GRACE rights as defined in the Article for New
Technology, whether or not the islets themselves can be considered as
New Technology. Pancreatic islets isolated by BHT INC. without using New
Technology shall belong to BHT INC. and GRACE shall have no rights
therein under this Agreement.
28
<PAGE> 29
(b) In the event that BHT INC. considers that sampling of the
pancreatic islets of Paragraph 8.11(a) to third parties is advisable, it
shall discuss such sampling with GRACE and GRACE shall determine whether
the proposed sampling is appropriate. GRACE shall advise BHT INC. in
writing of that determination. If GRACE agrees that BHT INC. shall
proceed with the proposed sampling and GRACE considers that a written
agreement is required to protect GRACE and BHT INC. proprietary
interests, then BHT INC. shall first secure a written agreement with the
third party, corresponding to one of the following subparagraphs, to be
selected by GRACE:
(i) written agreement to receive and maintain the islets in
confidence, without disclosure or transfer to any third party,
or
(ii) written agreement to receive and maintain the islets in
confidence, without disclosure or transfer to any third party,
and also to assign or license (non-exclusively or exclusively)
to BHT INC. inventions which are made or developed with the
pancreatic islets, with said agreement including such terms and
provisions as to allow BHT INC. to fulfill its obligations to
GRACE under this Article.
BHT INC. shall keep GRACE advised of all such agreement and shall keep
GRACE apprised, in at least a general manner, of the progress of the third party
research.
29
<PAGE> 30
APPENDIX B
----------
(1.12) "Patentable Claims" shall mean any one of the following:
(a) claims in an issued United States Patent which are directed to
some portion of New Technology; or
(b) patent claims directed to some portion of New Technology which
in the opinions of GRACE and BHT INC. would be allowed by the United
States Patent and Trademark Office; or
(c) patent claims directed to some portion of New Technology which
in the opinion of competent, independent patent counsel, acting pursuant
to the provisions of Article 6.07 herein, would be allowed by the United
States Patent and Trademark Office.
(6.09) Except as otherwise provided herein, all patent applications in any
country which are based on technical advances made, solely or jointly, by BHT
INC. pursuant to this Agreement shall be promptly assigned by BHT INC. to GRACE,
and GRACE shall have sole control of the selection of patent counsel and the
filing, prosecution, and maintenance of such patent applications. BHT shall
fully cooperate with GRACE in the filing and prosecution of all such
applications, including without limitation signing required documents and
providing documentation or testimony in support of the application.
(a) In the event that GRACE decides that it no longer wishes to
prosecute or maintain any patent application or patent arising from the
New Technology, then it shall give notice to BHT INC. If BHT INC.
desires that such patent property be further prosecuted or maintained,
then it shall so advise GRACE and GRACE shall instruct its patent
counsel accordingly, with the cost of all such further prosecution or
maintenance to be charged to BHT INC.
(6.11) GRACE shall have the exclusive right, but not the obligation, to initiate
and prosecute legal action for infringement or misappropriation by a third party
of any of the New Technology. BHT shall render all necessary cooperation and
shall promptly execute all documents as may be required during the course of
such legal action. All expenses of any such action shall be borne by GRACE. Any
damages or other compensation recovered by GRACE as a result of such action
shall belong solely to GRACE, subject to royalties payable to BHT in accord with
the provisions of Articles VII and VIII (that is, considering the amount of
damages or other compensation to be cumulative Net Sales), provided that all
expenses borne by GRACE in the course of such litigation (including, without
limitation, all attorneys' fees) shall first be deducted from the amount subject
to royalties.
(a) In the event that GRACE declines to initiate or prosecute any
legal action for infringement or misappropriation of New Technology in a
field in which BHT INC. is
30
<PAGE> 31
permitted to use such New Technology pursuant to Paragraph 8.04 or
Paragraph 11.05 herein, then BHT INC. shall be entitled to initiate and
prosecute such legal action and all expenses of such action shall be
borne by BHT. Any damages or other compensation recovered by BHT INC. as
a result of such action shall belong solely to BHT INC., subject to
royalties payable to GRACE in accord with the provisions of Paragraph
VIII (that is, considering the amount of damages or other compensation
to be cumulative Net Sales), provided that all expenses borne by BHT
INC. in the course of such litigation (including, without limitation,
all attorneys' fees) shall first be deducted from the amount subject to
royalties.
(b) Regardless of any actions or failures to act by GRACE with
regard to the New Technology, BHT INC. shall have no right to initiate
or prosecute any legal action for infringement or misappropriation of
New Technology in any field where BHT INC. has not been granted the
right to use such New Technology pursuant to Paragraph 8.04 or Paragraph
11.05 herein.
ARTICLE IX - THIRD PARTY PATENTS AND TECHNOLOGY
-----------------------------------------------
(9.01) In the event that GRACE (including any GRACE Affiliate or licensee) or
BHT (including any BHT Affiliate or licensee) receives a notice of a claim,
threat, or suit by a third party alleging that the manufacture, use, or sale of
Hybrid Artificial Organs for which royalties are payable under this Agreement
infringes or is dominated by intellectual property rights (including valid
patents) owned or controlled by such third party, then the party receiving the
notice shall promptly notify the other party to this Agreement of such claim,
threat, or suit.
(9.02) If notice of a claim, threat, or suit of the type described in Paragraph
9.01 herein is received by either party, GRACE shall have full control of the
resolution of such claim, threat, or suit. Such control shall include
negotiation with the third party, selection and supervision of counsel, filing
of lawsuits or other proceedings, and settlement of the claim, threat, or suit.
All costs and expenses, including attorneys' fees, incurred in the course of
resolving such claim, threat, or suit shall be charged to GRACE. BHT shall fully
cooperate with GRACE in the defense and resolution of any such claim, threat, or
suit.
(9.03) Except as otherwise provided in Paragraph 9.04 herein, in the event that
resolution of a claim, threat, or suit of the type described in Paragraph 9.01
herein results in the payment of any royalties or other compensation by GRACE to
a third party, then GRACE shall thereafter be permitted to deduct one-half the
amount of such payment from the running royalties paid or payable by GRACE to
BHT PARTNERSHIP under Article VIII (but not Article VII) of this Agreement. The
total amount to be deducted under this Paragraph 9.03 shall not exceed one-half
of the total royalties paid or payable to BHT PARTNERSHIP under Article VIII of
this Agreement.
(9.04) The royalty deduction permitted GRACE pursuant to Paragraph 9.03 herein
shall not be applicable in the event that GRACE pays royalties or other
compensation to a third party for rights under one or more of the items of
intellectual property listed in Appendix D hereto.
31
<PAGE> 32
6.3 If Grace successfully commercializes a Hybrid Artificial Pancreas utilizing
BHT Background Technology or New Technology, in whole or in part, then Grace
shall give appropriate credit or recognition to Dr. William L. Chick and to BHT
for their contributions to the project in any announcement or publication made
by Grace.
32
<PAGE> 33
APPENDIX C
----------
ARTICLE X - CONFIDENTIALITY
---------------------------
(10.01) Subject to the provisions of Paragraph XI herein, for the term of this
Agreement and for an additional period of ten (10) years from the date of
expiration or termination of this Agreement, BHT and GRACE shall hold in
confidence all information relating to BHT Background Technology, New Technology
and GRACE Proprietary Information and shall use such information only for
purposes permitted by this Agreement.
(10.02) The obligation of BHT and GRACE under Paragraph 10.01 herein upon
receipt of information from the other shall not extend to any information which:
(a) is known as of the date of this Agreement to the receiving party:
(b) is disclosed to the receiving party by a third party not under an
obligation of confidentiality to the disclosing party:
(c) is known to the public as of the Effective Date of this Agreement;
(d) becomes known to the public subsequent to the Effective Date of
this Agreement through no fault or omission of the receiving
party; or
(e) is required to be disclosed to a governmental authority or by
process of law.
Notwithstanding the provisions of this Paragraph, it is understood and agreed
that all obligations under the Prior Agreement and Stage Three Agreement with
respect to information disclosed under those agreements shall be continued under
this Agreement.
(10.03) For the period set forth in Paragraph 10.01, should BHT wish to disclose
to the public or to any third party any document or information (of whatever
type and by whatever means, including without limitation speeches, articles,
brochures and the like relating to: (i) the existence of the joint program or
the activities or plans of the parties with respect thereto, or (ii) the BHT
Background Technology or the New Technology, then BHT shall give ample notice of
such proposed disclosure to GRACE and BHT shall not make the proposed disclosure
without the prior written consent of GRACE. GRACE shall advise BHT within thirty
(30) days of receiving such notice of proposed disclosure as to whether GRACE
consents to a proposed disclosure.
33
<PAGE> 1
EXHIBIT 10.15
[W. R. GRACE & CO. LETTERHEAD]
November 6, 1996
PERSONAL AND CONFIDENTIAL
Mr. Laszlo J. Eger
39 Stockton Court
Morris Plains, NJ 07950
Dear Laszlo:
This letter outlines certain arrangements that we discussed earlier that involve
your future employment with W.R. Grace & Co.-Conn. (the "Company"). We believe
you can make a valuable contribution to the Company, and the purpose of this
letter is to describe in more detail your responsibilities, compensation and
benefits.
RESPONSIBILITIES
Your employment would be scheduled to begin on November 1, 1996. Your title will
be President of Circe Biomedical, and you will report to me initially. As you
know, it is the intent of the Company to proceed with an IPO of, or another
transaction involving, Circe Biomedical in the future (the "Transaction"). Your
principal office will be located in Lexington, Massachusetts.
PRE-TRANSACTION COMPENSATION
For the period before the Transaction:
1. Your base salary will be at the monthly rate of $16,000, $192,000 per
annum.
2. Your incentive compensation will be contingent on the performance of
Circe Biomedical. You would generally be eligible for a targeted award
in the range of 30% of your base salary. All annual incentive
compensation awards are subject to Board of Directors' approval (Grace
or Circe, as appropriate).
3. You will be recommended for a stock option award in Circe Biomedical at
such time that a stock option program (or an alternate equity program)
is established at Circe Biomedical, if, as I expect, such a program is
implemented. I would expect that options/equity vesting would be
subject to both time and performance criteria.
<PAGE> 2
RELOCATION ASSISTANCE
The Company will offer you relocation assistance as outlined in the North
American Relocation Handbook for New Employees, a copy of which is enclosed.
BENEFIT PROGRAMS
Prior to the Transaction, you will be eligible to participate in the benefit
plans applicable to the employees of the biomedical business of the Company,
subject to their respective provisions and as they may be amended from time to
time. Since the Transaction should occur fairly soon, you may not be employed as
a member of the Grace control group for one full year, which is the eligibility
requirement for the W.R. Grace & Co. Retirement Plan for Salaried Employees or
the W.R. Grace & Co. Salaried Employee Savings & Investment Plan. A copy of the
applicable employee handbook of the Company that will apply before the
Transaction will be provided to you under separate cover.
VACATION
You will be entitled to three (3) weeks' paid vacation per full calendar year.
Your employment with the Company will be "at will." In addition, after the
Transaction, your employment with Circe Biomedical will be "at will." Should
your employment terminate with the Company before the Transaction or with Circe
Biomedical within 12 months after the date the Transaction is complete (other
than by your death, disability, voluntary resignation or termination for cause),
the Company will pay you severance pay in an amount equal to 52 weeks of your
base salary, less the amount of severance pay you receive from the new owner, if
any.
Prior to joining the Company, you will be required to undergo a drug screening
test at a location pre-approved by the Company. Our offer of employment is
contingent upon your successfully completing the drug screening test.
As part of your employment processing procedure, you will be asked to sign a
confidentiality agreement which affords protection to you and the Company. A
sample copy of the agreement is enclosed for your review.
We're very excited about your joining us at the Company and our biomedical
business, and I encourage you to call me at (561) 362-1870 to discuss the above
or any other aspect of your employment with the Company.
Sincerely,
/s/ Martin B. Sherwin
Enclosure
cc: L. Ellberger
<PAGE> 3
AGREEMENT
IN CONSIDERATION of my employment or the continuance of my employment
in any capacity, whether full-time or part-time, or in the capacity of
consultant, temporary employee, returning employee, etc., by W.R. Grace &
Co.-Conn., a Connecticut Corporation, which is hereinafter called the "Company",
I agree that:
1. I will not at any time, directly or indirectly, reproduce, disclose,
or use except for Company purposes, any trade secrets or confidential
information such as know-how, processes, records, drawings, designs, plant
design, compositions of matter, and equipment of the Company or its subsidiary
companies, whether acquired or developed by me in the course of my employment or
otherwise obtained, without the written consent of the Company, and
will use my best efforts to prevent unauthorized reproduction, disclosure or use
of same by others.
2. All information, data, drawings, designs, papers, equipment and
other articles or substances of any kind relating to any business or field of
investigation of the Company or its subsidiary companies, whether developed by
me or not, shall be the sole property of the Company or its subsidiary companies
and shall be surrendered by me to the Company on termination of employment or on
demand, whichever occurs first, and I will retain no copies, samples or
reproductions of the same.
3. Any and all improvements and the inventions relating to the business
or activities of the Company that I may make or conceive while in the employ of
the Company and also those made or conceived within one year after the
termination of my employment, if resulting from or suggested by said employment,
shall be the sole and exclusive property of the Company. I will immediately
disclose to the Company any such improvements and inventions and will promptly
sign and execute all papers and do all acts necessary for the Company to apply
for and secure patents on said inventions in the United States and foreign
countries in its own name where possible and desirable; and I will sign and
execute all papers and do any and all acts necessary to assign and transfer to
the Company the whole right, title, and interest to said improvements,
inventions, applications for patents, and patents in the United States and
foreign countries; and during my employment and thereafter I will do all things
necessary to sustain such applications, patents, and assignments, everything
recited herein to be at the expense of the Company.
4. I agree to keep confidential and not disclose to others, except to
Company employees having a need to know, all information concerning the
technical and business affairs of the Company that is not in the public domain
at the time of disclosure, as shown by tangible evidence.
5. The obligations of this Agreement shall continue beyond the
termination of employment; shall be enforceable at law and in equity, including
injunction; and shall be binding on my heirs, assigns and legal representatives.
Any corporation, company or business of which the Company owns or controls 50%
or more of the outstanding voting stock is a subsidiary company as said term is
used in this Agreement. If the obligation of any covenant is held to be too
broad to be enforced, such convenant shall be construed to create only an
obligation to the full extent permitted by law. This Agreement is for the
benefit of the Company, its successor and assigns, and subsidiary companies and
is not conditioned on employment for any period of time or compensation.
IN WITNESS WHEREOF, I hereunto set my hand and seal this 8th day, of
November, 1996.
/s/ Laszlo J. Eger L.S.
-------------------------
Witness: /s/ Phyllis Ohanian
---------------------
<PAGE> 4
[GRACE BIOMEDICAL LETTERHEAD]
November 8, 1996
Dr. Martin B. Sherwin
W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486-1010
Dear Martin:
Enclosed you will find your offer letter which I am delighted to accept, with
the following comments:
1. As agreed with Larry, my starting date is November 1.
2. Since my move will take several months, I will submit the
expenses associated with my living costs prior to moving to
Massachusetts on my expense reports.
3. The letter only covers "Pre-Transaction Compensation" implying
that something will be done at "Transaction" time.
4. Finally, the stock option issue is a critical one (for me
personally, as well as for the management team). I would like
to come to a final understanding on this issue as quickly as
possible, certainly by the end of November.
Thank you again for your kind offer, and I look forward to a fruitful
relationship with Grace and Circe in the future.
Sincerely,
/s/ Laszlo J. Eger
Laszlo J. Eger
LJE: pso
Enclosure
cc: L. Ellberger
<PAGE> 1
EXHIBIT 10.16
[GRACE BIOMEDICAL LETTERHEAD]
December 20, 1996
Mr. David A. Butler
28 Ethan Allen Drive
Acton, Massachusetts 01720
Dear David:
As discussed, this is to offer you the position of VICE PRESIDENT, FINANCE at
Circe Biomedical. We believe that you can make a valuable contribution to our
company, which is entering an era of challenges and tremendous opportunities.
We propose the following compensation package:
- The annual salary will be $130,000.
- You would also be eligible for incentive compensation based upon
your performance and that of Circe. The targeted award would be 25%
of your base salary and subject to Board Approval.
- You will receive stock options, along the lines we discussed, as
soon as the program is approved by W.R. Grace.
- You will be eligible to participate in the benefit plans applicable
to all employees of Circe. We are still in the process of finalizing
these programs, but I would be happy to share with you our current
thinking.
- You will be entitled to three weeks of paid vacation per full
calendar year.
Prior to joining the Company, you will be required to undergo a drug screening
test at a location pre-approved by the Company. Our offer of employment is
contingent upon your successfully completing the drug screening test.
As part of your employment processing procedure, you will be asked to sign a
confidentiality agreement which affords protection to you and the Company. A
sample copy is enclosed for your review.
<PAGE> 2
David, we are all excited about you joining us, and I look forward to your
decision by January 6th. We can establish your starting date at that time, but
it will be no later than February 1st.
Please call me at (617) 863-8720, Ext. 5152 if you have any questions.
Sincerely,
/s/ Laszlo J. Eger
- ------------------
Laszlo J. Eger
President
LJE:pso
Enclosure
<PAGE> 3
[CIRCE BIOMEDICAL LETTERHEAD]
January 3, 1997
Mr. David A. Butler
28 Ethan Allen Drive
Acton, Massachusetts 01720
Dear Dave:
We are all delighted about you coming on board and contributing your experience
towards ensuring Circe's success in the coming years.
As agreed upon, should your employment with Circe Biomedical terminate (other
than by death, disability, voluntary resignation or termination for causes)
within 12 months of your starting date as a result of the sale of Circe to a
third party, Circe will pay you severance pay equal to six (6) months of your
base salary, less the amount of severance pay you receive from the new owner, if
any. In addition, mutually agreeable outplacement service will be provided by
Circe.
Again, Dave, welcome aboard and we look forward to seeing you the 20th of
January.
Sincerely yours,
/s/ Laszlo J. Eger
- ------------------
Laszlo J. Eger
President
LJE:pso
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
None.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 18, 1997, relating
to the financial statements of Circe Biomedical, Inc., which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected Financial
Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Linthicum, Maryland
June 18, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF FISH & RICHARDSON P.C.
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-1 and related Prospectus of Circe Biomedical,
Inc.
/s/ Charles C. Winchester
FISH & RICHARDSON P.C.
Boston, Massachusetts
June 19, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF TIMOTHY J. BARBERICH
I hereby consent to (i) become a director of Circe Biomedical, Inc.,
effective upon the consummation of the contemplated initial public offering of
its Class A Common Stock, and (ii) the references to me included in or made a
part of the Registration Statement on Form S-1 of Circe Biomedical, Inc. and any
amendments thereto, including but not limited to the references under the
captions "Management" and "Principal Stockholders."
/s/ Timothy J. Barberich
------------------------------------
Timothy J. Barberich
Lexington, Massachusetts
June 20, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF JAMES J. MAUZEY
I hereby consent (i) become a director of Circe Biomedical, Inc., effective
upon the consummation of the contemplated initial public offering of its Class A
Common Stock, and (ii) to the references to me included in or made a part of the
Registration Statement on Form S-1 of Circe Biomedical, Inc. and any amendments
thereto, including but not limited to the references under the captions
"Management" and "Principal Stockholders."
/s/ James J. Mauzey
--------------------------------------
James J. Mauzey
Lexington, Massachusetts
June 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER
31, 1996 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 82,000 77,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 491,000 658,000
<PP&E> 1,919,000 1,937,000
<DEPRECIATION> 965,000 1,006,000
<TOTAL-ASSETS> 1,445,000 1,589,000
<CURRENT-LIABILITIES> 1,248,000 1,614,000
<BONDS> 0 0
0 0
0 0
<COMMON> 5,000 5,000
<OTHER-SE> 192,000 (30,000)
<TOTAL-LIABILITY-AND-EQUITY> 197,000 (25,000)
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 9,788,000 2,411,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,182,000) (2,951,000)
<EPS-PRIMARY> (2.43) (.64)
<EPS-DILUTED> (2.43) (.64)
</TABLE>
